nan THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2013 SKCA 001 Date: 2013-01-08 Between: Docket: CACV2249 McMillan LLP and Michael Friedman Proposed Appellants (Defendants) and Melvin Schneider Proposed Respondent (Plaintiff) and Royal Crown Gold Reserve Inc., Douglas Stewart Scott, Claude Taillefer, and John and Jane Doe (Defendants) Before: Klebuc C.J.S. (in Chambers) Counsel: James Ehmann, Q.C. and Keith Kilback for McMillan LLP and Michael Friedman Scott Spencer for the Respondent, Melvin Schneider Bradley Jamieson for the Respondent, Royal Crown Application: From: 2012 SKQB 111 (CanLII) Heard: June 13, 2012 Disposition: Applications Dismissed Written Reasons: January 8, 2013 By: The Honourable Chief Justice Klebuc Klebuc C.J.S. I. Introduction [1] The proposed appellants, McMillan LLP and Michael Friedman (collectively “McMillan”) are two of the defendants in the within action commenced by the proposed respondent, Melvin Schneider (“the representative plaintiff”). In his statement of claim the representative plaintiff pled that he and others suffered financial losses due to negligence on the part of McMillan. McMillan responded by seeking an order pursuant to Rule 173(c) of The Queen's Bench Rules striking the within action on the ground that it was devoid of merit. They also opposed the certification of the within action on the basis that the relationship between them and the representative plaintiff was insufficient to found a recognized duty of care between a lawyer and non-client. Consequently, no common issue existed upon which class action could reasonably be certified. [2] The learned Chambers judge dismissed the s. 173(c) application and certified the action as a class action against all defendants. See his fiat dated March 15, 2012: 2012 SKQB 111 (CanLII), 392 Sask. R. 199. [3] McMillan then applied pursuant to s. 8 of The Court of Appeal Act, 2000, S.S. 2000, c. C-42.1 and Rule 49 of The Court of Appeal Rules for an order granting them leave to appeal from the Chambers judge's certification order and his dismissal of their Rule 173(c) application. They raised the following grounds in their proposed notice of appeal: 4(a) the learned chambers judge erred in law in failing to find that the relationship between the Respondent (Plaintiff) and the class members (collectively the "Respondent") and McMillan did not fall within category within which existing precedent recognizes duty of care owed by lawyer to non-client; 4(b) the judge erred in law in failing to properly apply the Anns test, in particular: (i) The judge erred in law by conflating foreseeability with proximity in the first leg of the Anns [[1977] All E.R. 492 (U.K.H.L.)] test; and (ii) the judge erred in law by failing to consider and apply the policy considerations which may preclude or negate the finding of duty of care, under the second leg of the Anns test; 4(c) the judge erred in law by relying upon expert evidence as to the standard of care to find that duty of care may be owed by McMillan to non-clients such as the Respondent; 4(d) the judge erred in fact and in law in finding that “the full extent of the conversations between Mr. Friedman and Mr. Scott are not before me, but are proper subject for evidence at trial…” when there was no conflict between the affidavits of Messrs. Friedman and Scott as to what had transpired between them and there was no reason to entertain the supposition that the evidence at trial would be different; 4(e) having found (wrongly, in view of the errors recited above) that McMillan had failed to establish that it was plain and obvious that there was no duty of care owed by McMillan to the Respondent, the judge then erred in law in failing to consider and decide whether the Respondent had met the burden of establishing “some basis in fact” for the proposition that McMillan owed duty of care to the Respondent with respect to the subject matter of the claim. [4] The material facts and procedures undertaken prior to the date of the within application are fully canvassed in the learned Chambers judge's fiat. Thus, only brief review of the facts is necessary. [5] The within action arises out of the purchase by the representative plaintiff and other investors of interests called “cells” in gold exploration prospect owned and promoted by Royal Crown Gold Reserve Inc. (”Royal Crown”). Its sole shareholder and director is Mr. Douglas Scott. [6] Mr. Friedman, lawyer associated with McMillan LLP, provided Mr. Scott with three or more legal opinions which allegedly state that the purchase price paid to Royal Crown for cell could be deducted by the purchaser from his or her taxable income for income tax purposes. Copies of Mr. Friedman’s opinion letters were indirectly made available to potential investors by Royal Crown, including the representative plaintiff. These opinion letters were also posted on Royal Crown’s website where the representative plaintiff and others were able to view them. [7] The representative plaintiff alleged that he and other investors purchased cells based on (a) the representation by Royal Crown that the purchase price paid for cell was deductible from purchaser’s earned income for income tax purposes; and (b) the tax opinions provided by McMillan. Subsequent to purchasing cells from Royal Crown, the representative plaintiff and other purchasers filed tax returns wherein they deducted the purchase price paid for cells from their taxable income. [8] The Canada Revenue Agency disallowed the deduction of the purchase price the representative plaintiff and other purchasers paid for cells from their taxable income. This event resulted in the representative plaintiff and other purchasers suffering damages due to the alleged negligence of McMillan. [9] In support of their Rule 173(c) application, McMillan filed affidavits sworn by Michael Friedman and Douglas Scott wherein they deposed, inter alia, that the tax opinions were not to be given to prospective investors. The representative plaintiff filed an affidavit sworn by David Davies wherein he deposed: [23] Other members of my firm and are often asked to issue an opinion to clients regarding the tax consequences to investors of transaction structured by our clients, including circumstances such as those described in paragraph hereof. My practice, and my firm's practice, is to not issue such an opinion letter without first reviewing all relevant documents and agreements and stating in the scope of the opinion that it is based upon review of those documents and agreements. Our experience has shown complete review of the underlying documents and agreements is necessary in those circumstances because clients often use our opinion as marketing tool to potential investors and we need to ensure the accuracy of the opinion in order to maintain our reputation. [10] The requirement to obtain leave to appeal from an interlocutory order is prescribed by s. of The Court of Appeal Act, 2000, supra, except as otherwise provided by specific statute or regulation. Subsection 39(3) of The Class Actions Act, S.S. 2001, c. C-12.01 provides that leave of justice of this Court is prerequisite for all appeals from an order certifying or refusing to certify an action as class action. [11] The criteria to be considered in leave applications were articulated by Cameron J.A. in Rothmans, Benson Hedges Inc. v. Saskatchewan, 2002 SKCA 119 (CanLII), 227 Sask. R. 121, and are well known to counsel. nan Cameron J.A. said: [6] Generally, leave is granted or withheld in consideration of merit and importance as follows: nan First: Is the proposed appeal of sufficient merit to warrant the attention of the Court of Appeal? nan Second: Is the proposed appeal of sufficient importance to the proceedings before the court, or to the field of practice or the state of the law, or to the administration of justice generally, to warrant determination by the Court of Appeal? [Emphasis in original.] [12] Whether the within proposed appeal is of sufficient merit requires me to consider whether proposed ground of appeal raises an argument or proposition worthy of consideration and not one that is destined to fail. In this sense, am not to definitively decide the merits of proposed ground of appeal advanced by prospective appellant but merely determine whether it warrants consideration by full panel of the Court. Thus, any view may express herein is only relevant to the extent it relates to the criteria set out in Rothmans, Benson Hedges. [13] The following issues, expressed as questions, arise out the submissions by the parties, the facts pled by the representative plaintiff, the affidavits filed by the parties, the decision of the Chambers judge, and the law applicable thereto: A. Did the Chambers judge err by not striking the claim against McMillan on the basis that McMillan owed no duty of care to the representative plaintiff? B. Did the Chambers judge err by certifying the claim of negligence as common issue that predominates over other issues affecting individual members of class? [14] With respect to the first question, I am satisfied the Chambers judge correctly held the action against McMillan was not devoid of merit or vexatious. He reviewed the conflicting decisions relied upon by the parties, the affidavits of Michael Friedman, Douglas Scott and David Davies, and the pleadings. Based thereon, he concluded that a lawyer may owe a duty of care to a non-client in specific circumstances, including circumstances akin to those before him. In his opinion, evidence of clients involved in the mining industry using legal opinions provided by their legal counsel as a marketing tool is so commonly known among tax lawyers that McMillan should have been alive to the practice and should have taken appropriate steps to guard against their opinion letters being inappropriately used for the purpose of inducing potential investors to invest with the client or clients. Based thereon, he determined it was not plain and obvious that the representative plaintiff had no cause of action against McMillan. [15] The Chambers judge also concluded the proximity argument raised by McMillan is one for the trial judge to address for he or she would have the full benefit of expert evidence regarding the duty of care, if any, applicable to the proven facts before the court. In my view, he had no other reasonable choice given the evidence before him was incomplete and conflicted in some respects, and that comprehensive review of expert opinions was required in the context of all evidence that may come before the court during trial. [16] Moreover, the argument by McMillan that the Chambers judge failed to properly apply the Anns [[1977] All E.R. 492 (U.K.H.L.)] test, or to consider policy reasons that may prevent the imposition of duty of care on them, are essentially aspects of their defence and not reasons to strike the negligence claim at this juncture. Thus, the Chambers judge cannot be said to have erred by not taking these factors into account when dealing with the Rule 173(c) application. [17] With respect to the submission that the Chambers judge erred in relying upon Mr. Davies’ affidavit, am satisfied it is an issue of insufficient merit to warrant consideration at this time. To the extent the Davies affidavit speaks to lawyer’s duty of care, it normally would be appropriate for Chambers judge to consider that aspect of an affidavit when determining whether claim advanced by plaintiff is devoid of merit. [18] In sum, am satisfied that the proposed appeal by McMillan regarding Rule 173(c) is prima facie destined to fail and not of sufficient merit to warrant the attention of this Court. [19] That said, turn to Question B. B. Did the Chambers judge err in certifying the claim of negligence as common issue that predominates over other issues affecting individual members of class? [20] While McMillan conceded the cause of action in negligence pled by the representative plaintiff met the requirements of s. 6(1)(a) of The Class Actions Act, they maintain the factual base pled by the representative plaintiff does not establish a common issue which meets the commonality requirements of s. 6(1)(c) of The Class Actions Act. In support of this argument they relied on the decision in Re: Collections Inc. v. Toronto Dominion Bank, 2010 ONSC 6560 (CanLII). In Collections Inc., the Court held that the common issues would do nothing to advance the claims of the class because they were all predicated on theory that had no foundation in fact. The losses the plaintiffs alleged in that case were based on flawed premise. In the instance action, class members suffered real losses allegedly as a result of McMillan’s negligence. These facts, coupled with case law stating a lawyer may owe a duty of care to a non-client and the evidence of Mr. Davies, establish a common issue which appears to meet the requirements of The Class Actions Act. [21] Furthermore, nothing in the Chambers judge’s reasons suggests he applied Rule 173(c) analysis when determining whether “some basis in fact” supported the existence of common issue within the meaning of s. 6(1)(c). Nor is an analysis by this Court of the interplay between Rule 173(c) and s. 6(1)(c) otherwise warranted [22] That said, turn to the submission that the claim against McMillan by each member of the class might be unique and require an individual trial and, therefore, their distinct claims do not comprise common issue for the purposes of s. 6(1)(c). In my view, the Chambers judge made no error in his interpretation of the applicable law or the evidence before him, or in his application of the law to the relevant facts before him, which would warrant leave being granted based on arguments advanced by McMillan. [23] In conclusion, I dismiss both applications for leave with costs to be costs in the cause. Dated at the City of Regina, in the Province of Saskatchewan, this 8th day of January, A.D. 2013. “Klebuc C.J.S.” Klebuc C.J.S.
The proposed appellants are some of the defendants in an action commenced by Schneider against them on the grounds that he, as representative plaintiff, and others suffered financial losses due to negligence on the part of McMillan. The representative plaintiff and other investors purchased 'cells' in gold exploration prospect owned and promoted by Royal Crown Gold Reserve Inc. based on that defendant's representation that the purchase price was deductible from the purchaser's earned income for income tax purposes and the tax opinions provided by McMillan. McMillan's opinion letters were posted on Royal Crown's website. The representative plaintiff purchased the cells and then filed tax returns claiming deduction, which was disallowed by the Canada Revenue Agency. The representative plaintiff commenced this action claiming that he and others suffered financial losses due to McMillan's negligence. McMillan applied to strike the statement of claim on the grounds that it was devoid of merit pursuant to Queen's Bench Rule 173(c) and opposed the certification of the action on the basis that the relationship between them and the representative plaintiff was insufficient to found a recognized duty of care between a lawyer and a non-client. Their application was supported by affidavits indicating that their tax opinions were not to be given to prospective investors. The plaintiff filed an affidavit from another lawyer, who deposed that when he prepared such opinion letters regarding tax consequences he reviewed all the underlying documents and agreements beforehand to protect the reputation of his law firm, knowing that the opinions were often relied upon as marketing tool to potential investors. The Chambers judge dismissed McMillan's application and it brought this application for leave to appeal under s. 8 of The Court of Appeal Act except as provided by s. 39(3) of The Class Actions Act. HELD: The Court dismissed the applications. It held that the Chambers judge was correct in holding that the action was not devoid of merit or vexatious. The judge had reviewed the affidavits and concluded that a lawyer may owe a duty of care to a non-client in specific circumstances, including those of this case. McMillan should have been aware of the use made by the mining industry of opinion letters and taken steps to prevent their opinion being used inappropriately for the purpose of inducing potential investors to invest with their client. The Court also found that the Chambers judge did not err in certifying the claim of negligence as a common issue that predominated over other issues affecting individual members of a class. McMillan's argument that the factual base pled by the representative plaintiff did not establish a common issue to meet the requirements of s. 6(1)(c) of The Class Actions Act failed because, in this case, the class members suffered real losses allegedly as a result of McMillan's negligence. These facts coupled with the case law stating that a lawyer may owe a duty of care to a non-client and the plaintiff's affiant's evidence, established a common issue that met the requirements of the Act.