Source: http://taxinterpretations.com/tax-topics/general-concepts/negligence-and-fiduciary-duty
Timestamp: 2019-04-21 06:26:50+00:00

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The appellants were the two trustees of a Quebec trust (“Fiducie”) and the respondents were a group of legal and accounting firms. Fiducie’s investment, valued at $55 million, in the holding company for a group of companies (“Groupe Melior”) engaged in a retirement residences business, became worthless on the insolvency of Groupe Melior, which occurred following assessments for GST and QST by the ARQ. The appellants alleged, inter alia, that this unexpected tax liability arose from a flawed tax structure set up for Groupe Melior by the respondents.
[T]he appellants … urged the Court against the wholesale adoption of the common law rule set out in Foss v. Harbottle [(1843), 67 E.R. 189], which categorically bars shareholder recovery for faults committed against a corporation. … In certain cases, the civil law produces a conclusion similar to that which would arise under the common law. This is one such case.
…It would be incoherent — and indeed, unjust — for shareholders to benefit from limited liability while at the same time gaining a right of action in relation to faults committed against the corporation in which they hold shares… . The corporate veil is impermeable on both sides; just as shareholders cannot be liable for faults committed by the corporation, so too are they barred from seeking damages for faults committed against it … .
[T]he loss of value from the trust patrimony that was suffered by Fiducie corresponds to the net value of the seniors’ residences once owned by Groupe Melior … . This confirms that the injury alleged by Fiducie is indistinguishable from the losses suffered by Groupe Melior.
However, the professional fees and other costs incurred before the litigation and not in preparation for the litigation are recoverable to the extent that there is a sufficient causal link with the defendant’s fault.
Mr Baxendale-Walker, the sole equity partner in a law firm specializing in advising on tax-avoidance schemes, charged the taxpayer (Mr Barker) a fee of £2.4 million in advising on a scheme which Mr Barker implemented with a view to avoiding capital gains tax and inheritance tax respecting his shares of a private company. More than a decade later, HMRC assessed Mr Barker on the basis of a construction (the “post-death exclusion construction") of s. 28 of the Inheritance Tax Act 1984 which considered “that the words ‘at any time’ meant exactly what they said” (para. 93). Mr Barker settled with HMRC for £11.3 million and issued a claim in negligence against the two respondents (Mr Baxendale-Walker and his since-defunct firm). Roth J below had found that Mr Barker would have proceeded with the scheme if he had merely been given a “general health warning” (i.e., that any tax avoidance scheme was subject to a risk of successful challenge), but not if he had been given a specific warning of the significant risk of the potential post-death exclusion construction.
…[I]t is perfectly possible to be correct about the construction of a provision or, at least, not negligent in that regard, but nevertheless to be under a duty to point out the risks involved and to have been negligent in not having done so … .
… [T]here was a significant risk that the … arrangement would not work as a result of the post-death exclusion construction which was centrally important to its structure and the likelihood that the promised tax advantages would be delivered. In all those circumstances, despite the fact that it is not alleged that the Respondents' view of the construction of section 28 was itself negligent, they should have given the specific warning. There was a significant risk that their advice was wrong and in all the circumstances, a reasonably competent solicitor would have gone beyond his own view and set out the risks.
In August 1997, Deloitte, who were the auditors of Livent, determined that they disagreed with Livent’s reporting of a sale of air rights. However, rather than resigning, Deloitte helped prepare, and approved, a press release issued in September 1997, which misrepresented the basis for the reporting of the profit and, in October 1997, Deloitte provided a comfort letter for a public offering. It also provided an unqualified audit opinion in connection with Livent’s 1997 financial statements following an audit thereof which it completed in April 1998. New equity investors subsequently discovered that Livent’s financial statements were fraudulent. Livent went into receivership in 1999.
[W]e agree that Deloitte … should not be liable for its corporate client Livent Inc.’s increase in liquidation deficit which followed Deloitte’s provision of negligent services in relation to the solicitation of investment.
We conclude, however, that Deloitte should be liable for the increase in Livent’s liquidation deficit which followed the statutory audit. In Hercules Managements Ltd. v. Ernst & Young,  2 S.C.R. 165, this Court recognized that a statutory audit is prepared to allow shareholders to collectively “supervise management and to take decisions with respect to matters concerning the proper overall administration of the corporatio[n]” which permits “the shareholders, acting as a group, to safeguard the interests of the corporatio[n]” (para. 56 (emphasis deleted)). This describes precisely the function which Livent’s shareholders were unable to discharge by reason of Deloitte’s negligence. As a consequence, Livent’s corporate life was artificially prolonged, resulting in the interim deterioration of its finances. There was a sufficient evidentiary basis for liability based on impaired shareholder supervision.
… Simply put, Deloitte never undertook, in preparing the Comfort Letter, to assist Livent’s shareholders in overseeing management; it cannot therefore be held liable for failing to take reasonable care to assist such oversight. And, given that Livent had no right to rely on Deloitte’s representations for a purpose other than that for which Deloitte undertook to act, Livent’s reliance was neither reasonable nor reasonably foreseeable. Consequently, the increase in Livent’s liquidation deficit which arose from its reliance on the Press Release and Comfort Letter was not a reasonably foreseeable injury.
n 2007, the defendant tax lawyer (“Siegel”) accommodated clients’ requests to extend the distribution date for a children’s trust (“OFT1”) by helping to set up a replacement trust (“OFT2”), in which the distribution date was deferred until the youngest child attained 30 years. It was acknowledged that Siegel fell below the standard of care of a reasonably prudent tax lawyer in failing to advise the clients that, due to the application of s. 104(5.8), there would be a deemed disposition at fair market value of its assets in February 2011, which is what occurred (se Grimes). Siegel and his law firm claimed that the damages of the plaintiffs were caused by their accounting firm (the “Third Party”) (who had not been joined in the main action), stating that it was the Third Party who should have been tracking the 21-year deemed disposition date.
[T]he evidence,,, allows me to confirm that “but for” the negligence of the Defendant…in failing to advise the Plaintiffs of the impending deemed disposition of OFT1 and/or OFT2 and in failing to advise the Plaintiffs of the 21-year deemed disposition rule in 2007, the tax consequences that the Plaintiffs are now facing would not have occurred; and…the sole issue raised by the Defendants on the issue of causation is the negligence of the Third Party which I conclude is only relevant in the context of the Third Party action.
The taxpayer used proceeds of a loan from “Barter World Canada Inc.” to acquire “TradeBux” from another Barter World entity (as well as to make a cash prepayment of the loan interest), donated the TradeBux to a registered charity (“LWIF”) and received a receipt equal to their alleged value. He could earn TradeBux through referrals and completing surveys online so as to repay the loan. In addition to appealing CRA’s disallowance of his charitable credits to the Tax Court of Canada, he brought this claim in Superior Court alleging principally that CRA’s negligence in failing to revoke LWIF’s charitable registration until a subsequent year caused him to make the charitable donations in question, thereby resulting in damages.
Before striking the statement of claim in its entirety, Dunphy J found (at para. 38) that there was no basis to allege negligent misrepresentation on the pleaded facts as there was no allegation that the registration was invalid for the relevant tax years, but instead that the claimed value of the donations was rejected by CRA.
The ITA cannot be construed to impose a duty on the Minister or his or her officials to administer the registration and supervision of registered charities in order to protect taxpayers from the risk of dealing with them… .
I would disallow the claimed duty of care as a matter of public policy.
The appellant’s B.C. law firm retained Ernst & Young to provide her with U.S. tax advice in connection with negotiating a separation agreement with her husband. Although the engagement agreement had been entered into by the client’s BC family law firm with E&Y rather than by her directly, the Court applied the principle “that as a general rule, solicitors will be taken to be contracting on behalf of their clients in the course of their practice.” E&Y conceded that its advice was negligent but relied on a clause in its engagement agreement with the B.C. firm that limited its liability to its fee.
The written warning tax shelter promoters are mandated by paragraph 237.1(5)(c)… to display… is consistent with Parliament’s intent that taxpayers should participate in a tax shelter at their own peril, not at the peril of Canadian taxpayers generally. …The issuers of [the] opinions, who benefited financially from the provision of their professional advice, are better placed to indemnify the plaintiffs in the event of negligence in the exercise of their professional responsibilities.
The above conclusions… reflect that the performance of statutory duties does not generally give rise to private law duties of care. However, liability may attach if public officials act in a manner inconsistent with the proper and valid exercise of their statutory duties, in bad faith or in some other improper fashion.
The defendant ("D&T"), which was the auditor of the plaintiff (Taiga), recommended that Taiga adopt a plan to minimize provincial taxes, relying on a "loop hole" in the Corporations Tax Act (Ontario), which permitted interest paid to an affiliate incorporaated outside Canada but which was resident in Canada to be received by it free of Ontario corporate tax. Although no written opinion was requested by Taiga, D&T discussed the plan's risks including of a GAAR challenge, which it indicated likely could be withstood. Taiga agreed to implement the plan and pay D&T a fee of $50,000 plus an annual 20% contingent fee based on the amount of taxes saved in excess of $250,000, but with an obligation to refund proportionally the contingency fees in the event that a tax authority "successfully challenged" the tax savings.
Following GAAR reassessments by CRA, Taiga with advice from tax lawyers agreed to settle the reassessments for $8.5 million, and commenced an action against D&T.
Affleck J found that there was no conflict of interest in that D&T was only serving the interests of Taiga, noting (at para. 65) that Taiga's ''real complaint" was that D&T as external auditor should not enter into a contingency fee arrangement as it gave D&T a financial interest in Taiga, thereby compromising its independence. In rejecting this claim, he indicated that the contingent fee arrangement was beneficial to both parties and that a reasonably informed person would not conclude that D&T's independence as auditor was compromised.
I do not accept the internal reference to the "high" risk of the Finco Plan to mean the defendant knew the Plan posed a high risk that the tax authorities could inflict significant financial losses on the plaintiffs through audits and reassessments. The reference to high risk was intended to alert people within the defendant that the Plan had to be implemented with scrupulous care to avoid criticism by the CRA on the ground it had technical faults, and was also a reference to the high risk the Plan would be rendered ineffective by legislation.
The reassessments did not itself represent a "successful challenge" which triggered an obligation on D&T to repay the contingency fees. There would be a successful challenge only if they were "either unsuccessfully resisted in the courts or, at the least, the plaintiffs were professionally advised there was no reasonable prospect of successful resistance in the courts" (para. 104). As the dispute instead was settled (through what was described at para. 157 as "a prudent settlement agreement preserving at least some of the benefits of the Finco Plan"), Deloitte was not obligated to refund its fees.
The taxpayer was assessed for approximately $600,000 so as to treat sales of logs as on income account and to deny expenses. The tax debt was ultimately settled for $57,000 pursuant to a consent judgment, so that his original capital-account treatment of sales was accepted. Meanwhile, the taxpayer lost his business, as well as his home situated on the business's land. He sued CRA for negligence.
Humphries J found that the taxpayer was unable to show a causal link between CRA's conduct and his damages, as the business was under financial stress for a host of other reasons. However, she did find that the auditors owed him a duty of care, and that they had breached the standard of care.
Humphries J applied Anns,  AC 728, and Hill, 2007 SCC 41, to find that, analogously to police officers, auditors will owe the taxpayer a duty of care where, for example, the auditor's discretion will have "foreseeably huge and devastating effects" on a taxpayer (para. 301). She noted that, although prior cases had declined to find or create a duty in similar circumstances, none of them dealt with penalties of this magnitude (para. 300). The public policy reasons for vitiating such a duty of care were not compelling (paras. 306-307).
Since CRA now takes the position that [the audit issues were] complex [and therefore CRA's characterization of the income was not negligent], it cannot be said that the assumption of contrary positions by Mr. Leroux, positions that were eventually accepted as correct, was grossly negligent. To call them so, and to assess huge penalties as a result, ... is unacceptable and well outside the standard of care expected of honourable public servants or of reasonably competent tax auditors.
It was also a breach for one of the auditors, in communicating with the taxpayer, to conflate the "negligence" standard in s. 152 to open a statute-barred year with the "gross negligence" standard in s. 163 to assess penalties (para. 350), and it was especially inappropriate to use such spurious gross negligence penalties as a threat to make the taxpayer sign a waiver to open a statute-barred year (para. 349). Nevertheless, with no proof of causation, the taxpayer's action was dismissed.
A Revenu Québec auditor (who was under a quota for producing $1,000 per hour of recoveries) generated false and fictitious entires in the taxpayer`s records in order to make it appear that the taxpayer had claimed false expenses, with the result that the taxpayer was reasessed for additional tax, interest and penalties of over $450,000. Revenu Québec's collection department then made a seizure under the taxpayer's line of credit even though it was known that the excesssive reassessments would be reversed. The taxpayer ceased activities.
The court awarded $1.1 million in damages to the taxpayer's shareholder (including $1 million in punitive damages) and $2.75 million to the taxpayer (including $1 million in punitive damages and $350,000 in legal costs). The punitve damages awards were grounded on there being "unlawful and intentional interference" under the Quebec Charter of Human Rights and Freedoms.
The plaintiff, along with about 900 other taxpayers, indirectly acquired rights to timeshare weeks at a Carribean resort, and donated the rights to a Canadian athletic association along with enough cash to discharge encumbrances on the timeshare weeks. The athletic association issued tax receipts for the cash contributions and for the fair market value of the timeshare weeks minus the encumbrances, thereby resulting in tax credits claimed by the taxpayers in excess of their cash outlays. The defendant law firm had provided tax opinions to the taxpayers stating that "it is unlikely that the CCRA could successfully deny ... the [anticipated] tax credit[s]."
CRA proposed to disallow the tax credits in 2004. Two of the other donors launched test cases in 2006 challenging the denial, but settled with CRA in 2008 on the basis that credits would be granted for the taxpayers' cash contributions but not their timeshare contributions.
In 2009, the plaintiff moved to certify a class action against the defendant for claims of negligence and negligent misrepresentation. This was denied by the motions judge on the basis that the applicable two-year limitations period had commenced in 2004 when CRA notified the taxpayer that there was a "potential problem with the tax credits."
[T]he fact of a CCRA challenge to the tax credits did not, in itself, mean the challenge would likely be successful or make the Cassels Brock opinion invalid. Further, even accepting that receipt of the notices of disallowance prompted class members to obtain professional advice and to launch test case litigation to challenge the denial of the tax credits, that conduct does not demonstrate when class members knew, or ought reasonably to have known, that the test case litigation would not likely be entirely successful.
[The defendant's] opinion did not promise that the CCRA would not challenge the anticipated tax credits under the Timeshare Tax Reduction Program. Rather, it stated that it was unlikely that the CCRA could successfully challenge tax credits claimed under the Program. Mr. Lipson is not entitled to, and did not, sue Cassels Brock for an opinion they did not give.
The motion judge referenced Robinson v. Rochester Financial Ltd., 2010 ONSC 1899, suggesting that the preparation of a tax opinion that it ought to be known is likely to be used to market a tax avoidance scheme may entail a duty of care to the scheme's potential participants.
The plaintiff participated in a tax avoidance scheme, in which he and other Canadian taxpayers would make leveraged charitable donations, for the purpose of obtaining tax credits greater than their cash outlays. CRA ultimately disallowed these tax credits (on 19 June 2006) and the adverse decision in Maréchaux, respecting another leveraged donation scheme, was released on 12 November 2009 . The plaintiff commenced a putative (i.e. not yet certified) class action on 11 March 2011 against the firm that coordinated the avoidance scheme ("Trinity"), and against the law firm that Trinity had retained to prepare an opinion on the scheme's tax consequences ("FMC"). The defendants moved for summary judgment on the basis that the Ontario two-year limitations period had expired, running from the time that CRA first indicated to the plaintiff that it was considering reassessment.
Strathy J. denied the motion. The starting time of the limitations period was a genuine issue requiring a trial. A limitations period in Ontario only commences when the plaintiff knows or ought to know that he has a claim against the defendants. Shortly after the plaintiff received CRA's first correspondence on the matter, FMC sent him a retainer letter, which he signed, offering to advise him in connection with the proposed reassessment. This created a conflict of interest, as the plaintiff had a potential claim against Trinity, whom FMC also represented (and potentially against FMC as well - see Lipson). FMC neither disclosed the conflict of interest, nor brought the potential claims to the plaintiff's attention.
In the circumstances, [the plaintiff] was entitled to expect candour and undivided loyalty from his law firm. If they were conflicted, they should have declined to act and should have ensured that he obtained independent legal advice.
Instead, the evidence suggests that FMC continued to act for Charette and re-assured him ... that FMC's opinion was right, CRA's position was wrong and that he had no legal obligation to pay the taxes CRA claimed were owing.
Strathy J. also suggested that, given the "confusing and intimidating nature of the CRA assessment and appeal process," it was not clear that the plaintiff ought to have known about his potential claims even though he was relatively sophisticated (para. 112).
Tax advisors owe a fiduciary obligation to their clients, because the clients should be entitled to trust that they are being advised as to their own best tax interests. The defendant breached this duty by failing to disclose that he received a commission on the sale of limited edition prints, which he advised his clients buy in an ineffective tax avoidance scheme.
Gray J. acknowledged that contributory negligence could reduce damages, where the plaintiff fails to take reasonable steps to reduce or eliminate loss. In this case plaintiff's only failing was to rely on the defendant's questionable advice, so there was no contributory negligence.
Finally, the plaintiffs were not entitled to the interest owed to the CRA and the interest on loans taken to pay the CRA: "The [plaintiffs] had the use of the money until they were required to repay it... . Furthermore, I have no evidence that the [plaintiffs] could not have paid the amounts required out of their own resources, rather than borrowing the money."
The defendant, who was a chartered accountant, advised the plaintiff to invest in certain MURBs but, contrary to the rules of professional conduct, failed to disclose to the plaintiff that the defendant would receive fees from the MURB developers when his clients invested in these projects.
The majority of the Court found that their relationship required trust, confidence, and independence, that the plaintiff relied on the defendant's advice, and that accordingly, there was a fiduciary relationship between the parties. The damages payable by the defendant for breach of his fiduciary duties were to be calculated on the basis of putting the plaintiff in the same position he would have occupied if the breach had not occurred. Because the disclosure of the fee relationship would have caused the plaintiff not to invest, the defendant was liable for the plaintiff's full loss on his investment.
A partner in a law firm ("Spackman") suggested to two individual clients (Mr. & Mrs. Maplesden) that Mr. Maplesden finance a home purchase through a loan from one of the operating corporations owned by them, that the home be registered in Mrs. Maplesden's name and the that loan be secured by a non-interest bearing demand promissory note signed by Mrs. Maplesden. The Tax Court of Canada later upheld an assessment of Mrs. Maplesden under s. 15(2) of the Act.
Spackman was found to be negligent because he failed to adequately consider or research the requirements of s. 15(2) and because he breached his duty to advise Mrs. Maplesden, who was clearly inexperienced in business matters, that his view that s. 15(2) was not applicable, might be incorrect. Also, there was no evidence that he ever discussed the option of repayment of the loan by the end of the following taxation year in order to avoid potential liability under s. 15(2).
Immediately prior to the completion of the sale by plaintiff of shares of a private company, the company redeemed a portion of its shares held by the plaintiff thereby giving rise to deemed dividend equal to the estimated safe income of the company (determined after adding back the amount of lease cancellation payments which had been capitalized for accounting purposes but deducted for tax purposes). No Revenue Canada ruling was obtained, as s. 55(2) had been enacted only shortly before the time of the closing. In filing its tax return, the plaintiff reported only a capital gain arising on the disposition of the remaining shares of the company, and did not make an s. 55(5)(f) designation.
The defendants met the standard of the advice that a reasonably competent tax specialists might have given at the time, in advising that safe income should be increased by the amount of the lease cancellation payment, advising that the election procedure under s. 55(5)(f) should not be utilized, and in not advising of the risk that Revenue Canada might require that the safe income of the company be pro-rated amongst all its shares rather than being fully allocated to the shares which were redeemed. In addition, the settlement which the plaintiff reached with Revenue Canada (which permitted the total gain on the sale of the shares to be reduced by a pro-rata portion of the safe income of the company) did not result in the plaintiff paying any additional tax given that it was a business necessity that the shares be redeemed, rather than a cash dividend being paid to the plaintiff.
The claimants, who were non-tax solicitors, claimed that they had been negligently induced by the defendant accounting firm (“Champion LLP”) and an associated corporation (“Champion Consulting”) to invest in two tax schemes referred to as the "charity shell" and "Scion" film schemes. The charity shell schemes involved subscribing for shares in a shell company which then acquired a target company. The claimants then gifted their shares to a charity and claimed tax relief on the basis that those shares had appreciated (as anticipated at the time of subscription) to four times what they had paid a short time previously on subscribing for the shell company shares. The scheme depended on this appreciation in fact occurring, and this 4X valuation was based on trades that had contemporaneously occurred in those shares on the AIM market. However, trading was extremely thin, and the claimants’ expert speculated (para. 144) that related parties had executed small trades at inflated prices.
The Scion film scheme involved a film studio selling the distribution film rights to a film to a Scion film rights company. That company would then sell or license the film rights to the investors. The investors as sole traders would be trading in the purchase and sale of film rights. The claimants' case was that the defendants advised the claimants that the film scheme was robust with the prospects of success being 75/80%, that the Scion tax schemes had a history of successful implementation and if the film scheme failed the maximum loss would be the amount of cash invested.
HMRC successfully challenged the schemes, so that the claimants did not receive tax relief.
... Champion Consulting Limited by Mr Dallimore advised Messrs Halsall, Stanton and Higgins to participate in the Charity Shells. In so doing, he gave them a 100% assurance that their tax liability would be reduced as a result of this investment. … Mr Dallimore did not advise the claimants that the accuracy and soundness of the valuation upon flotation was pivotal to the success of the Charity shell schemes or that there was a significant risk that the purported increase in the value of the shell company post flotation would be challenged and successfully challenged by the Revenue.
…[I]t seems to me that it is clear that no reasonably competent tax adviser could have acted as Mr Dallimore did in giving such an unconditional assurance and in so doing, the tax advice that Mr Dallimore gave to Messrs Halsall, Stanton and Higgins was negligent. The fact that some of the companies succeeded and that some of the schemes went unchallenged by the Revenue is in my view irrelevant to the question of whether the reasonably competent tax adviser would have given an unconditional assurance that the charity shell scheme would work effectively.
… [T]he failure … lay in not explaining that the valuation was pivotal to the success of the scheme and how this wide range of companies could all be valued at four times the initial subscription and this failure amounted to a breach of duty.
… [I]n my view there is sufficient evidence to infer that Messrs Halsall, Stanton and Higgins would not have participated in the charity shells… had they not received the assurances which they received from Mr Dallimore.
The evidence is clear that the defendants did not point out the risk of the additional liability arising out of the outstanding loan and exposure to a tax charge in the event of the loan being written off.
… [I]n my view the advice of Ms Molloy [an accountant and chartered tax advisor] that the prospects of success of the film scheme were 75% was outside the range open to her and amounted to a breach of duty being advice such as no reasonably well-informed and competent member of that profession could have given.
when each of them first knew enough to justify setting about investigating the possibility that Mr Dallimore's advice was defective.
In the case, for instance, of the charity schemes, this time occurred when they became aware that the charity scheme was under investigation by HMRC - and they should have investigated rather than accepting Mr Dallimore’s assurances “that the Revenue was misguided and they would achieve substantial tax mitigation” (para. 239).
The appellant and defendant ("HB") was a firm of chartered accountants who had provided accountancy services and general tax advice to the claimant ("Mehjoo"). Although Mehjoo was resident in the UK, he might have been able to utilize a bearer warrant scheme ("BWS ") to avoid capital gains tax on his sale of shares of a UK private company on the basis that he was domiciled outside the UK. HB advised Mehjoo that special tax strategies might be available, but did not alert him to potential domicile-related planning. Mehjoo sued for professional negligence based inter alia on the capital gains tax he paid.
HB were not and had never held themselves out to be specialist tax planners; and had never given Mr Mehjoo advice of that sort. It is therefore surprising ... that from a course of conduct which did not involve tax planning, they should be taken to have assumed a positive duty to give advice of that kind.
The duty proposed by the claimant failed to recognize the distinction between tax-saving measures "which would or should have been obvious possibilities to any competent general accountant and measures such as the BWS which no-one suggests that HB should have been aware of" (para. 52). For similar reasons, there was no duty to refer Mr Mehjoo to a "non-dom specialist" as, even assuming such a specialty existed, there was no reason for HB to believe that such referral should be made (para. 62).
Jack Bernstein, "Accountants Limit Liability for Negligence", Canadian Tax Highlights, Vol. 24, No. 6, June 2016, p. 11.
In Felty v. Ernst & Young LLP (2015 BCCA 445), the BCCA decided that a limitation of liability clause in a retainer agreement for tax advice rendered by an accounting firm limited the accounting firm's liability and was enforceable against the plaintiff, Ms. Felty.
The trial judge found that Ms. Felty was bound by the engagement agreement and that its limitation of liability clause was enforceable; Ms. Felty was awarded damages of $15,314.95, the total fees paid to EY.
The BCCA dismissed the appeal: the public policy objective in favour of holding accountants or an accounting firm to a high degree of diligence was not sufficiently overriding to justify declining to enforce the limitation of liability clause.
[T]he Legal Profession Act [(B.C.)] prohibits a lawyer or law firm from limiting its liability for negligence… section 65(3). Similarly [for] the Ontario Solicitors Act…section 22(1)… .
Thomas E. McDonnell, "Tax Avoidance, Morality, and Professional Responsibility", Tax for the Owner-Manager, Volume 14, Number 1, January 2014, p. 5.
[O]ne NGO, the Tax Justice Network (TJN), published a legal opinion last September [of Farrer] to the effect that UK company directors do not have a fiduciary duty to their shareholders to avoid tax….
In these circumstances the position of management is in direct contrast to the position of a professional tax adviser who is potentially liable in negligence for such avoidable tax as may arise. Management will be involved precisely because the question is a matter of commercial judgment falling outside the scope of the duty of care of a person retained specifically to advise on tax.
This statement highlights the fact that a professional tax adviser's responsibility is not the same as a corporate director's responsibility….
…several recent decisions have wrestled with the question of whether a negligent act or negligent supervision by the CRA in the course of administering a taxing statute can give rise to a private law remedy. The courts have determined that the answer to that question depends on whether a duty of care should be imposed on the CRA towards a taxpayer.
In three recent cases, Leroux v. Canada Revenue Agency ("Leroux"), [fn 2: 2012 DTC 5050 (BCCA).] Gordon v. R. ("Gordon"), [fn 3: 2013 DTC 5112 (FC).], and McCreight v. Canada (Attorney General) ("McCreight"), ]fn 4: 2013 ONCA 483.] the courts have opened the door (slightly) to the possibility that such a duty of care may exist at law.
In all three cases, the courts dismissed the Crown's motions to strike certain of the taxpayers' claims – including negligence – and, in doing so, demonstrated that some civil actions against the CRA may have a reasonable chance of success at trial. Although the trial judgments are yet to be rendered, the courts explored several factors which, if factually substantiated, may be persuasive in establishing that CRA officials acted negligently.
acts maliciously or intends to cause loss.

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