Unless a motion is brought at an early stage or it is obvious that the professional's conduct fell short of the standard of care, a court will require expert evidence to rule in the plaintiff's favour, the Ontario Court of Appeal has held.
In McPeake v. Cadesky & Associates, the appellant decided to sell his company. To minimize taxable capital gains, he created family trusts to which the company shares were conveyed. The company was sold, and the trust received approximately $4.8 million. The proceeds were paid to the beneficiaries who reported the capital gains on their respective tax returns.
To minimize taxable capital gains, he created family trusts
The CRA audited the appellant Barry McPeake and took the position that he was a beneficiary of the family trust and could unilaterally control distributions from the trust as trustee (since the CRA believed s. 75(2) of the Income Tax Act, an anti-avoidance provision, applied). The CRA attributed all the gains in the family trust to the appellant personally and reassessed him for $2.4 million in taxes, interest and penalties.
But the Federal Court of Appeal later ruled in a separate case that the CRA's interpretation of s. 75(2) was incorrect. The appellant's tax liability was ultimately reduced to $57,000. He subsequently claimed damages from the respondents: a) a lawyer who had acted for the company; and b) an accounting firm that had provided accounting services to the appellant's company, trust, and him personally.
Who is professionnally liable for a fiscal failure?
The motion judge dismissed the appellant's claim against the lawyer, finding that there was no support for the allegation that the lawyer was retained to advise or prepare for the family trust.
The judge found a genuine issue for trial as to whether the accounting firm was retained to help form the family trust. Using her fact-finding powers, she concluded it had not, nor had it given advice on the matter. The firm was retained only after the family trust was established.
The appellant also argued that the firm was retained on an ongoing basis to provide accounting and tax advice to both him and the family trust in the years after its formation. The judge noted that neither the appellant nor the accounting firm filed expert evidence regarding an accountant's standard of care in the circumstances. There was consequently no genuine issue for trial as she concluded that it was well-established that a plaintiff is required to lead expert evidence establishing a breach of the standard of care to support a claim for professional negligence.
The appeal was dismissed on a number of grounds. The appellant led no argument on how the motion judge erred in her finding that the lawyer did not advise or prepare for the family trust. The court agreed with the judge's assessment.
The appellant submitted that a plaintiff does not need to file expert evidence to support a professional negligence claim when defending a summary judgment motion, particularly when the moving party hasn't filed any. The appellant relied on the 2012 decision Connerty v. Coles, where the Superior Court found that the need for expert opinions in summary judgment motions should be understood as a product of the particular factual circumstances in each case. As the Connerty case had been brought at an early stage, the lack of expert evidence was not held against the parties. The appeal court distinguished Connerty, finding that this case was not brought at an early stage of the proceedings, and that the motion judge had considered extensive evidence and was able to develop a full appreciation of the facts. Once again, the judge had not erred in her decision.
The appellant also submitted that his case fell under the exception to the expert evidence requirement because it was apparent that the professional's conduct fell short of the standard of care. The court found that the circumstances required evidence of the parameters of the standard of care. There was no basis to interfere with the motion judge's discretion to decline to resort to the exception to the general rule.
Finally, the appellant argued that he had filed adequate expert evidence; he had referred to a case demonstrating the widespread reliance by tax advisers on the CRA's erroneous interpretation of s. 75(2) of the ITA at the relevant time. The appeal court decided that the reference to this decision was not adequate and found that there was no expert evidence on the standard of care before the motion judge.
The takeaway from the ruling by the Court of Appeal is that parties seeking to establish professional negligence in summary judgment motions would be wise to retain expert evidence to support their argument.