Law Times

May 16, 2016

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Page 2 May 16, 2016 • Law TiMes www.lawtimesnews.com in 2007 to act as counsel to Ogier, an offshore law firm specializing in tax-haven jurisdictions such as the Channel Islands and Lux- embourg. Based in the Cayman Islands, he advised clients on es- tablishing offshore structured fi- nance vehicles and hedge funds, before returning to Canada with Heenan Blaikie LLP in 2010. Af- ter that firm's collapse, he landed at Dentons in 2014 along with 21 other Heenan lawyers who de- camped at the same time. Davies' original CRA reas- sessment arrived in 2009, when the agency took issue with his claims for capital cost allowanc- es in the tax years of 2005, 2006, and 2007. He turned to his for- mer colleagues at Oslers to fight the CRA as part of a larger group that had claimed similar allow- ances for software licences, and launched his appeal in tax court in late 2010. The group, which included a number of other partners at Os- lers, bought the licences to use a program called the Trafalgar Global Index Futures from iP Group Ltd. Davies' total costs claimed for those tax years were $415,000 in 2005, $275,000 in 2006, and $260,000 in 2007. According to Bocock, Davies and the related appellants then took part in a conference call with their lawyers at Oslers on Nov. 23, 2010, where "authority appears to have been given to resolve the appeals within the range of 20-40% of deductibility of the capital cost." However, in his motion re- cord, Davies said, "at no time during the November 23, 2010 meeting did I give Oslers tax counsel instructions to settle my appeal. Tax counsel has been instructed to pursue settlement discussions only and to follow- up after feedback had been ob- tained from the Department of Justice." Davies then heard nothing more from Oslers until Sep- tember 2013, almost three years later. In the meantime, the law firm had entered negotiations with Justice Canada lawyers, and ultimately settled on behalf of the entire group for just 10 per cent capital cost deductibility. The minutes of settlement were executed in July 2013, along with the notice of discontinuance, which was only to be filed once the reassessments were issued, conforming to the settlement. The law firm's first contact with Davies came in on Sept. 23, 2013, 10 days after his new no- tice reassessment was issued by the CRA. According to Bocock's decision, Davies made his op- position known to Oslers, who in turn asked Justice Canada on Sept. 25, 2013 to reverse Da- vies' reassessment and not file the notice of discontinuance in his case. Nevertheless, a govern- ment lawyer filed the discon- tinuance on Oct. 2, 2013, telling Oslers that the settlement was reached on the basis that all the appellants were prepared to set- tle and that it would not be pos- sible to reverse the assessments. Woodyard says Davies' case for fraud was "seriously under- mined" by the fact that Justice Canada had asked for, and re- ceived, confirmation from Os- lers of its continued retainer for all individual appellants before signing the settlement. "That was a particularly pru- dent step in this case, but prob- ably advisable in any event. Lots of things can change over a long period, especially when you are dealing with such a large group of clients," Woodyard says. Despite his findings on the lack of fraud, Bocock went on to reject Davies' call for the judge to examine the minutes of settle- ment and find them invalid due to Oslers' alleged lack of author- ity to settle the appeal. "To conduct such an inquiry and rescind the Minutes in these factual circumstances ignores the obvious and consequential responsibility and omissions of [Oslers]: no communica- tion with a client for 3 years, no fresh contact within 54 days of execution of the Minutes, the day delay in contacting Respon- dent's counsel and then only by voicemail and no advice by Ap- pellant's counsel directly to the Court. These omissions clearly impact the solicitor-client rela- tionship, but their time of dis- covery was simply too late to al- low this Court to exercise its dis- cretion to invalidate the Minutes and the resolution of this settled litigation," Bocock wrote. According to Woodyard: "The court is saying that really this is a matter for the appel- lant and their former counsel to resolve between themselves, and not for the court to resolve at this point," she says. "I think the case underscores the impor- tance to lawyers of maintaining clear lines of communication, particularly when dealing with large groups of similarly situated individuals." Peter Aprile, the principal at Toronto firm Counter Tax Law- yers, says the decision reveals an "unfortunate situation" in which "everyone suffered," but he believes it could have been prevented. At his firm, regular updates are delivered to clients in an attempt to avoid commu- nication issues. "Our 60/60 progress reports ensure that our clients are in- formed of the progress that we made in the past 60 days and the progress we expect in the next 60 days," Aprile says. "It takes time and effort; and we do not charge for the report, but we believe 60/60 progress reports are an important custom. It helps cli- ents stay well informed, reduces questions, raises the quality and depth of client meetings, ensures that we are on top of every file, and it invites clients to schedule a meeting to address any issues or questions." LT an $800,000 payment from the firms leading the national class action, including Camp Fiorante and Branch MacMaster. The fee-sharing deal was reached through mediation with a Court of Queen's Bench judge in Alberta. Even still, Perell concluded that the deal must comply with class action legislation in Ontario to be approved in this province. "The Merchant Law Group did not make a contribution to the achievement of the settle- ment agreement and the firm should not share in the recov- ery," wrote Perell. The Vancouver-based firms, in their written submissions, take issue with Perell's sugges- tion that resolving competing class actions can take place in a single province with national "opt-in" rules. "This statement which amounts to second-guessing class counsel who "live and breathe" complex national liti- gation is not in accordance with the reality of the extremely chal- lenging situation presently fac- ing all class litigants in Canada," writes Ward Branch, a partner at Branch MacMaster. The appellants also point out that courts in four other prov- inces took no issue with the fee-sharing deal and the money comes from approved funds for class counsel and not the por- tion of the settlement for class members. Jasminka Kalajdzic, a law professor at the University of Windsor and a co-author of a text on class action law, says Bancroft-Snell is another ex- ample of the difficulties that can arise in national class actions with competing firms. "Merchant Law Group has been known to initiate compet- ing class actions and then not advance them. Plaintiffs and defence law- yers have themselves com- plained about this pattern of behaviour and have gone to court in the past arguing delay and abuse of process. It is therefore understandable why Justice Perell would be con- cerned about payments to make competing law firms go away," says Kalajdzic. "While agreeing to pay a firm to stay its class action may be cheaper than a contested car- riage fight, it creates no disin- centive for repeating that same conduct," she adds. The Merchant Law Group has been granted intervener sta- tus by the Court of Appeal. In its written submissions, it states there was "a denial of natural justice" because Perell issued his ruling without hearing from the firm. As well, it argues that the judge had "no factual or legal basis" to order class counsel not to comply with the terms of the fee-sharing agreement with Merchant. The defendants in Bancroft- Snell are not participating in the appeal, so the court appointed Brendan van Niejenhuis, a part- ner at Stockwoods LLP, as amic- us curiae to bring an adversarial context to the issues that need to be decided. There are strong policy rea- sons to uphold Perell's findings about the fee-sharing deal, states van Niejenhuis in his written submissions. "Permitting such agreements would encourage lawyers to commence class actions with the sole intention of using the proceeding as leverage to extract a share of the contingency fee," he writes. "In its essence, his decision is about the incentives that the court should seek to foster with- in the class proceedings regime," writes van Niejenhuis. Given the unique role of a court in determining whether counsel fees are "fair and rea- sonable" after a class action settlement, the analysis "cannot be limited to a set list of factors," and appellate courts should show deference to the ultimate decision of the motions judge," he adds. LT NEWS Continued from page 1 Continued from page 1 Natural justice denied? Case shows need for 'clear lines of communication' 7KHXOWLPDWHVRXUFHIRUWRGD\·VOHJDOSURIHVVLRQ Subscribe to Canadian LawyerWRGD\IRURQO\ Each issue of Canadian Lawyer is packed with unbiased in-depth case analyses, valuable strategies, expert insights, and a wealth of information that will allow readers to prepare for cases and effectively manage their practice. The integration of compelling features and columns convey unique perspectives to legal professionals that are both fun and entertaining, which is why Canadian Lawyer is the premier publication for covering the Canadian legal landscape. 2QH

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