Court of Appeal Decision of the Week

Summary Judgments: When is Expert Evidence Required?

Case: McPeake v. Cadesky & Associates, 2018 ONCA 554 (CanLII)

Keywords: Professional Negligence; Expert Evidence; Canada Revenue Agency

Synopsis:

The Appellant, together with two associates owns a computer software research and development company. In 1999, the company is sold to Microsoft. Prior to the sale, the Appellant creates a family trust, structuring his affairs to minimize significant taxable capital gains. Approximately $4,800,000 is received by the Appellant’s family trust.

C.R.A. takes the position that s. 75(2) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) applies. Since the Appellant is

  • a beneficiary of the family trust; and
  • had the ability to unilaterally control distributions from the trust

the C.R.A. reassesses him for some $2,400,000 in taxes, interest and penalties.

The Appellant retains tax counsel who obtains orders rectifying the trust. Later, the Federal Court of Appeal determines that C.R.A.’s position with respect to s. 75(2) is incorrect – that it does not apply to a bona fides sale transaction. The Appellant’s liability is ultimately reduced to just $57,000.

The Appellant claims damages from the Respondents for professional negligence (as against the Respondent lawyer and the Respondent accounting firm who acted for his company, the trust, and to the Appellant, personally). The action claims for, inter alia, legal fees and expenses related to the rectification order and the amount of taxes paid.

The Motion Judge dismisses the Appellant’s claim as against the Respondent lawyer on the basis there is no evidence he had been retained to advise upon or prepare the Appellant’s family trust. With respect to the Respondent accounting firm, the Motion Judge determines expert evidence of professional negligence was required – even if the Appellant is defending a summary judgment motion. The Court of Appeal agrees. The appeal is dismissed with costs payable to each Respondent.

Importance:

This case is significant because it strongly suggests litigants pursuing a claim in professional negligence must bring expert evidence to a summary judgment motion. Should leave to appeal to the Supreme Court of Canada be sought, there is a clear issue of public importance raised by this decision. The Court of Appeal declined to fully resolve a fundamental question for those engaged in professional negligence litigation: when is expert evidence required?

Here, the Motion Judge determined there was a genuine issue for trial, with respect to the Respondent accounting firm but was satisfied she could decide the issue pursuant to “fact-finding powers” set out in Rules 20.04(2.1) and (2.2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. (See para. 7). Despite the Motion Judge’s finding with respect to the need for a trial (presumably one in which the Appellant would be permitted to lead expert evidence, as needed), the Appellant’s claim was dismissed for want of that evidence.

The Motions Judge referred to the “well-established” rule that, in the context of professional negligence, plaintiffs are required to lead expert evidence establishing a breach of the standard of care. There is an exception to this general rule – namely, where it is obvious that the professional conduct falls short of the standard of care – but neither the Motion Judge nor the Court of Appeal was prepared to find the Respondent accounting firm’s conduct was obviously negligent. (See para. 11).

Leaving aside the availability of the exception (the Court of Appeal declined to apply it), Appellant argued, pursuant to the decision in Connerty v. Coles, 2012 ONSC 5218 (CanLII), that a plaintiff need not file expert evidence to support a professional negligence claim when defending a summary judgment motion. In response to this precedent, the Court of Appeal noted Hackland R.S.J.’s discussion with respect to “conflicting decisions” on the subject as well as his opinion that the need for expert opinions in summary judgment motions is dependent on the particular factual circumstances of each case. (See para. 13).

In this particular case, the Court of Appeal emphasized the fact the motion was “not brought at an early stage of the proceedings”, and that the Motion Judge had enough material to fully appreciate the facts. For the Court of Appeal, there was simply no basis to interfere with her discretion to decline to apply the exception to the general rule. (See para. 15).

The Court of Appeal declined to set out a comprehensive test for determining when expert evidence will be required. It also declined to definitively resolve the “conflicting decisions” noted by Hackland R.S.J. (See para. 13). What, for instance, should future litigants make of Connerty v. Coles? One thing the Court of Appeal does appear to confirm is that the timing of the motion is significant. One is left to wonder if, had this particular motion taken place “at an early stage of the proceedings”, the result would be different. (See para. 14).

Counsel for the Appellant: Yan David Payne and Karen Sanchez (Payne Law Professional Corporation, Toronto)

Counsel for the Respondent, Cadesky & Associates: Sandra Dawe (Shibley Righton LLP, Toronto)

Counsel for the Respondent, Barry Seltzer: Alfred Esterbauer and Sydney Hodge (Koskie Minsky) Toronto

Counsel for the Third Party: Geoffrey Adair (Adair Barristers LLP, Toronto)

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Posted: Wednesday, June 20, 2018