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.
Labrosse J noted (at para 30) that “the Third Party… can only be found liable for contribution and indemnity which will only flow from a finding of liability of the Defendants and an award of damages as against the Defendants.”
He then turned to the issue of causation, as to which he noted (at para. 31) that Clements v. Clements, 2012 SCC 32 had found that “the test for showing causation is the ‘but for’ test… in other words that the injury would not have occurred without the Defendant’s negligence.”
In finding that causation was established, he stated (at para. 33):
[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.