Link: Case Summary Document
Citation: [2013] ONCA 165 (Ontario Court of Appeal, Goudge, Simmons, Gillese JJA.)
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.
Summary:
This appeal followed on from one of the many recent tax cases in Canada which dealt with fraudulent charitable donation schemes. Donors to these sorts of schemes sought to actually make a profit from their charitable donations.
The particular scheme underlying this case was one in which taxpayers, of whom the appellant was one, ‘donated’ cash and resort timeshare weeks to registered Canadian athletic associations during the four-year period between 2000 and 2003. The appellant and the other donors made their donations through a program referred to as the ‘Timeshare Tax Reduction Program’ (the Program) operated by the Canadian Athletic Trust (the Trust). The Trust was a Bahamian resident which purchased timeshare weeks in a Caribbean resort and transferred them to the Trust.
Under the terms of the Program, donors could apply to become beneficiaries of the Trust, and the Trustee could then distribute timeshare weeks to them. The donors in the scheme then ‘gave’ both cash and timeshare weeks to a registered Canadian athletic association, receiving two receipts, one for the cash (which in reality discharged the encumbrance on their timeshare weeks) and one for the fair market value of the timeshare weeks. Donors anticipated receiving tax credits worth more than their actual financial outlay, while the charities actually received very little.
In support of the viability of the Program, the promotional material included an opinion prepared by Cassels Brock & Blackwell LLP (Cassels Brock) indicating that it was unlikely that the Canada Customs and Revenue Agency (CCRA) could successfully deny the anticipated tax credits.
However, in 2004 the CCRA notified the appellant that it intended to disallow all his claims for tax credits under the Program. Other donors under the Program were advised similarly. Litigation with the CCRA followed. In 2008, the CCRA settled with the donors to the Program on the basis that the donors would receive tax credits for their actual cash donations, but not for their donations of timeshare weeks, which had been paid for by a third party.
The donors, represented by the appellant, then commenced a class action against the respondent firm for negligence and negligent misrepresentation in giving the tax opinion that they did in relation to the Program. The appellant claimed damages in the form of interest arrears, lost opportunities to make other donations, and special damages consisting of professional fees for challenging the CCRA’s position.
On 14 November 2011, on a motion for certification of the action as a class proceeding, Perell J found that the proposed class action satisfied the criteria for certification, but could not proceed because it was statute-barred by the two-year limitation period set out in the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.
In appealing this finding, the appellant raised two issues for consideration:
1. Did the motion judge err in dismissing his action as statute-barred?
2. Did the motion judge err in not certifying the action, including his proposed common issue relating to causation, as a class proceeding?
Cassels Brock provided six similar legal opinions between 2000-2003 on the tax issues related to the Program. Their Honours said that two elements of these opinions were key points in the case:
1. The opinions were directed to potential donors, with the words ‘…may be relied upon… by…potential donors’;
2. The opinions stated that ‘it is unlikely that the CCRA could successfully deny … the [anticipated] tax credit[s]’.
The appellant’s evidence was that he had been introduced to the Program by his accountant in the latter part of 2000. He had been reassured on hearing about the Cassels Brock opinion (which he denied reading), and would not have participated in the Program without such an opinion as to its ‘legality’.
The appellant alleged that Cassels Brock:
(i) fell below the standard of care of a reasonably competent tax solicitor in preparing its opinion, resulting in an opinion that contains material misrepresentations;
(ii) knew that a favourable tax opinion was a necessary precondition to the creation and successful promotion of the Timeshare Tax Reduction Program; and
(iii) knew that potential donors would rely on the existence of a favourable tax opinion in deciding whether to participate in the Program.
On the first question in the appeal, their Honours held that the motion judge (the judge at first instance) erred in holding that the action was statute-barred. Their Honours said that the motion judge erred in his interpretation of the relevant precedent, the Supreme Court of Canada’s decision in Central Trust Co. v Rafuse 1986 CanLII (SCC) (at [67]-[68]):
‘Based on our review of the motion judge’s reasons, his decision to dismiss the proposed class action as statute-barred turned on his interpretation of the Supreme Court of Canada’s decision in Central Trust Co. v. Rafuse and his application of that decision to the facts of this case. In our respectful view, the motion judge erred in interpreting and applying Central Trust Co. v. Rafuse. Moreover, when that decision is interpreted properly, it is apparent that the record before the motion judge did not disclose whether Mr. Lipson’s claim was statute-barred. Nor did it support the conclusion that the limitation period applicable to Mr. Lipson’s claim also applied to the entire class.’
Their Honours said, quoting from another case, that in an action for solicitor negligence arising from a solicitor’s opinion, ‘[t]he date upon which the plaintiff can be said to be in receipt of sufficient information to cause the limitation period to commence to run will depend on the circumstances of the particular case’ (at [76]). They said (at [82], [87]):
‘In our view, neither the fact that the CCRA was challenging the claimed tax credits nor the fact that the class members may have been incurring professional fees to challenge the CCRA’s denial of the tax credits is determinative of when the class members reasonably ought to have known they had suffered a loss as a result of a breach of the standard of care on the part of Cassels Brock…On their face, Mr. Lipson’s pleadings do not demonstrate that, prior to January 2008, he knew that the CCRA’s challenge to his claimed tax credits would likely be successful. Accordingly, his pleadings do not demonstrate that his claim was statute-barred when he commenced his action in April 2009.’
On the second issue in the appeal, their Honours again held that the motion judge had erred in saying that causation in simple negligence was not a common issue in the class action. It was a common issue. They said (at [100]):
‘…Mr. Lipson’s claim in simple negligence raises the issue of whether, but for the Cassels Brock opinion, the program would have been marketed and therefore available to cause harm to all members of the class. This issue is properly resolved in a common trial.’
Therefore, the appellant was successful in both issues on appeal, and a class action was ordered to be certified for trial again Cassels, Brock & Blackwell LLP.
The case may be viewed at: http://www.canlii.org/en/on/onca/doc/2013/2013onca165/2013onca165.html
Implications of this case
Favourable legal and tax opinions were always given in the donation fraud cases to date. Therefore, this case is important in leaving open the possibility of class actions against the opinion-givers in these cases.