Lawyers say a recent Ontario Court of Appeal decision shows that courts are not going to take a rigid view of when litigation is an appropriate means to remedy an injury or loss in professional negligence cases.
In Presidential MSH Corporation v. Marr Foster & Co. LLP, the court allowed a client’s lawsuit against an accounting firm to continue, despite the fact that the two-year limitation period had expired before the action was filed.
“Cases should not be dismissed as they may otherwise have been because of the allegation that they’re statute-barred,” says Allan Sternberg, one of the lawyers representing the plaintiff in the case.
“It gives plaintiffs more in their arsenal to resist a motion to dismiss because the case is statute-barred.”
Presidential MSH Corporation launched the action against its accountant Larry Himmelfarb and his firm, Marr Foster & Co. LLP, after he filed its corporate tax returns late.
Learn more: What is the deadline for filing corporate tax returns in Canada?
As the returns were not filed by the due date, Presidential was not able to take advantage of certain tax credits, resulting in $550,000 in unpaid taxes, fines and interest owed to the Canada Revenue Agency.
Presidential filed its claim against the accountant more than two years after the CRA originally denied the tax credits but within two years of when the agency ultimately refused to change its assessments in response to a notice of objection sent by a lawyer retained by the company.
While a motion judge had dismissed Presidential’s lawsuit on summary judgment as the limitation period had expired, the Court of Appeal reversed that decision, finding the accountant’s attempts to mitigate the client’s damages in the year after receiving the fines tolled the limitation period.
“This is not a case where the claimant sought to toll the operation of the limitation period by relying on the continuation of an alternative process whose end date was uncertain or not reasonably ascertainable,” Justice Gladys Pardu wrote in the decision.
The decision turned on the application of a section of the Limitations Act, 2002, that defines discoverability.
The act came into effect in 2004 and decreased the limitations period to two years, restricting the time plaintiffs have to bring a claim.
Tom Curry, a partner with Lenczner Slaght Royce Smith Griffin LLP, who was not involved in the case, says that when the Limitations Act was first passed, some struggled to understand what the section meant and that decisions like this clarify how it works.
“For people concerned with professional liability issues, this adds another important element as to when it is legally appropriate to launch a claim,” he says of the Presidential decision.
“Here the court allowed the client to have the benefit of having every effort made to avoid needless litigation by working through the possible remedy through the CRA process.”
Presidential had argued to the motion judge that a lawsuit would not have been appropriate before August 2010, as no one had advised them of the possibility of a claim, the accountant was actively helping them in efforts to rectify the problem and the CRA assessments were not confirmed until July 2011.
The motion judge found that these did not hide the fact from Presidential that legal action would be an appropriate way to seek remedy for such a loss.
The judge also found that a lawsuit could have been launched during the CRA proceedings.
The Court of Appeal determined that the motion judge erred in finding Presidential knew or should have known that a lawsuit was an appropriate remedy when it first received the CRA’s notice in 2010.
Daniella Murynka, one of the lawyers representing Presidential, says the decision has taken a number of cases that dealt with the same section of the Limitations Act that have been very fact-specific and has distilled them into a useful set of general principles.
“Whether or not a plaintiff is statute-barred is a very fact-specific analysis and judges often write that other [case law is of] limited assistance because the analysis is so fact-specific, but in our case we had a recognition of the fact that it’s a fact-specific analysis but also that prior case law can be distilled into certain general principles, which is going to be really helpful in developing this area of law further,” she says.
The decision was released shortly after the Supreme Court of Canada refused to hear another case that dealt with similar issues in 407 ETR Concession Company Limited v. Day.
Curry, who represented the plaintiff in that case, says this means that even if leave is sought in the Presidential MSH case, it is unlikely the Supreme Court will hear it.
Michael Girard, the lawyer representing Himmelfarb and the accounting firm, declined to comment.