Holmes et al. v. Schonfeld Inc. et al., (2016) 345 O.A.C. 162 (CA)

• Judge: Weiler, LaForme and Huscroft, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: January 13, 2016
• Jurisdiction: Ontario
• Citations: (2016), 345 O.A.C. 162 (CA);2016 ONCA 148

Holmes v. Schonfeld Inc. (2016), 345 O.A.C. 162 (CA)

MLB headnote and full text

Temp. Cite: [2016] O.A.C. TBEd. FE.030

Scott Holmes and Jennifer Flynn (plaintiffs/appellants) v. Schonfeld Inc. and Bossy Nagy Geoffrey (BNG), previously known as the Michael Bossy Group (defendant/ respondent )

(C60734)

Scott Holmes and Jennifer Flynn (plaintiffs) v. Schonfeld Inc. and Bossy Nagy Geoffrey (BNG), previously known as the Michael Bossy Group (defendants/ respondent / appellant )

(C60744; 2016 ONCA 148)

Indexed As: Holmes et al. v. Schonfeld Inc. et al.

Ontario Court of Appeal

Weiler, LaForme and Huscroft, JJ.A.

February 24, 2016.

Summary:

Schonfeld Inc. was appointed Monitor and Receiver over the assets, undertaking and properties of Holmes and Flynn and their companies in 2008. After Schonfeld was discharged in 2011, the Canada Revenue Agency advised Holmes and Flynn that they owed over $1 million in unpaid taxes for the years 2006-2009. Holmes and Flynn brought an action against Schonfled, claiming that it did not exercise reasonable care in managing their assets, and that it was obliged to engage in reasonable tax planning. Holmes and Flynn also sued their accountants and tax advisers (BNG). BNG sought to bring a cross-claim or third party claim against Schonfeld. Schonfeld moved to dismiss all claims against it.

The Ontario Supreme Court, in a decision with neutral citation 2015 ONSC 3038, granted the motion. Holmes and Flynn appealed. BNG also appealed.

The Ontario Court of Appeal dismissed the appeals.

Practice - Topic 1463

Pleadings - Statement of claim - General - Requirement of disclosing cause of action - [See Receivers - Topic 4646 ].

Receivers - Topic 4643

Actions against receivers - Conditions precedent - Leave to commence action - Schonfeld Inc. was appointed Monitor and Receiver over the assets, undertaking and properties of Holmes and Flynn (the plaintiffs) and their companies in 2008 - After Schonfeld was discharged in 2011, the Canada Revenue Agency advised the plaintiffs that they owed over $1 million in unpaid taxes for the years 2006-2009 - The plaintiffs sued Schonfeld, claiming that it did not exercise reasonable care in managing their assets, and that it was obliged to engage in reasonable tax planning - Schonfeld moved to dismiss the action - The motion judge granted the motion, finding that, on a plain reading of the monitor, receiver and discharge orders together, the plaintiffs required leave of the court to commence their action - The plaintiffs appealed, arguing that they sought to bring the action against Schonfeld in its capacity as Receiver, and the receiver order did not require leave - The Ontario Court of Appeal dismissed the appeal - The receiver order was supplemental to the monitor order, which did require leave - Properly interpreted, Schonfeld as Receiver was entitled to the protections of the monitor order - The separate limitation of liability clauses did not detract from that interpretation - Further, the discharge order expressly provided that Schonfeld would continue to have the full protections provided for in the monitor and receiver orders - See paragraphs 15 and 16.

Receivers - Topic 4644

Actions against receivers - Conditions precedent - Leave to commence action nunc pro tunc - Schonfeld Inc. was appointed Monitor and Receiver over the assets, undertaking and properties of Holmes and Flynn (the plaintiffs) and their companies in 2008 - After Schonfeld was discharged in 2011, the Canada Revenue Agency advised the plaintiffs that they owed over $1 million in unpaid taxes for the years 2006-2009 - The plaintiffs sued Schonfled, claiming that it did not exercise reasonable care in managing their assets, and that it was obliged to engage in reasonable tax planning - Schonfled moved to dismiss the action - The motion judge granted the motion because the plaintiffs failed to seek leave - The motion judge refused to grant leave nunc pro tunc because the plaintiffs did not have a cause of action in either gross negligence or wilful misconduct - The plaintiffs appealed, arguing that the motion judge misapprehended the evidence and/or failed to consider relevant evidence - The Ontario Court of Appeal dismissed the appeal - First, there was ample evidence to support the motion judge's finding that the tax liabilities began prior to Schonfeld's involvement - Second, Schonfeld's powers and authorizations were detailed and precise - Had Schonfeld moved funds as the plaintiffs argued it should have, it would not have been in compliance with the orders - Third, the evidence supported the motion judge's finding that Schonfeld's mandate did not include providing the type of services to the plaintiffs that they complained they did not receive - Finally, the motion judge was entitled to consider that the plaintiffs had actual knowledge of their shareholder loans and that Schonfeld did not, and that the plaintiffs did not make a timely objection to Schonfeld's conduct concerning their assets at the discharge hearing - See paragraphs 18 to 28.

Receivers - Topic 4644

Actions against receivers - Conditions precedent - Leave to commence action nunc pro tunc - Schonfeld Inc. was appointed Monitor and Receiver over the assets, undertaking and properties of Holmes and Flynn (the plaintiffs) and their companies in 2008 - After Schonfeld was discharged in 2011, the Canada Revenue Agency advised the plaintiffs that they owed over $1 million in unpaid taxes for the years 2006-2009 - The plaintiffs sued Schonfeld, claiming that it did not exercise reasonable care in managing their assets, and that it was obliged to engage in reasonable tax planning - Schonfeld moved to dismiss the action - The motion judge granted the motion because the plaintiffs failed to seek leave - The motion judge refused to grant leave nunc pro tunc because the plaintiffs did not have a cause of action in either gross negligence or wilful misconduct - The plaintiffs appealed, arguing that the motion judge applied the wrong legal test for granting leave - The Ontario Court of Appeal dismissed the appeal - The proper test was whether the Receiver "demonstrated a very marked departure from the standards by which responsible and competent people in such circumstances would have acted or conducted themselves, or in a manner such that it knew what it was doing was wrong or was recklessly indifferent in its conduct" - The motion judge applied this test - See paragraphs 29 to 31.

Receivers - Topic 4644

Actions against receivers - Conditions precedent - Leave to commence action nunc pro tunc - Schonfeld Inc. was appointed Monitor and Receiver over the assets, undertaking and properties of Holmes and Flynn (the plaintiffs) and their companies in 2008 - After Schonfeld was discharged in 2011, the Canada Revenue Agency advised the plaintiffs that they owed over $1 million in unpaid taxes for the years 2006-2009 - The plaintiffs sued Schonfeld, claiming that it did not exercise reasonable care in managing their assets, and that it was obliged to engage in reasonable tax planning - Schonfeld moved to dismiss the action - The motion judge granted the motion because the plaintiffs failed to seek leave - The motion judge refused to grant leave nunc pro tunc because the plaintiffs did not have a cause of action in either gross negligence or wilful misconduct - The plaintiffs appealed, arguing that the motion judge erred in concluding that they had not met the test for leave - They submitted that Schonfeld's admission that it was uninterested in the tax consequences of its conduct was evidence that met the test for gross negligence or wilful misconduct - The Ontario Court of Appeal dismissed the appeal - Based on the motion judge's findings of fact, which the court upheld, he did not err in concluding that there was no foundation for a claim in gross negligence or wilful misconduct - See paragraphs 32 and 33.

Receivers - Topic 4644

Actions against receivers - Conditions precedent - Leave to commence action nunc pro tunc - Schonfeld Inc. was appointed Monitor and Receiver over the assets, undertaking and properties of Holmes and Flynn (the plaintiffs) and their companies in 2008 - After Schonfeld was discharged in 2011, the Canada Revenue Agency advised the plaintiffs that they owed over $1 million in unpaid taxes for the years 2006-2009 - The plaintiffs sued Schonfeld, claiming that it did not exercise reasonable care in managing their assets, and that it was obliged to engage in reasonable tax planning - Schonfeld moved to dismiss the action - The motion judge granted the motion because the plaintiffs failed to seek leave - The motion judge refused to grant leave nunc pro tunc because the plaintiffs did not have a cause of action in either gross negligence or wilful misconduct - The plaintiffs appealed, arguing that the motion judge erred in concluding that they had not met the test for leave - They argued that the motion judge was wrong to rely only on the Receiver order to determine Schonfeld's mandate, and that Schonfeld had an overarching duty of care in the management of their assets - The Ontario Court of Appeal dismissed the appeal - The motion judge correctly noted that a more stringent standard for the granting of leave, a strong prima facie case, might be appropriate in cases where the issues raised in the action could have been raised in the discharge proceedings - The tax planning issues raised by the plaintiffs could have been raised in the discharge proceedings - In any event, regardless of whether the regular standard (leave granted unless there was no foundation for the claim or the action was frivolous or vexatious) or the stricter standard was applied, the plaintiffs failed to establish a prima facie case of gross negligence or wilful misconduct - See paragraphs 34 to 36.

Receivers - Topic 4646

Actions against receivers - Conditions precedent - Authority - Schonfeld Inc. was appointed Monitor and Receiver over the assets, undertaking and properties of Holmes and Flynn (the plaintiffs) and their companies in 2008 - After Schonfeld was discharged in 2011, the Canada Revenue Agency advised the plaintiffs that they owed over $1 million in unpaid taxes for the years 2006-2009 - The plaintiffs sued Schonfeld, claiming that it did not exercise reasonable care in managing their assets, and that it was obliged to engage in reasonable tax planning - The plaintiffs also sued their accountants and tax advisers (BNG) - BNG sought to bring a cross-claim or third party claim against Schonfeld - Schonfeld successfully moved to dismiss all claims against it - The motion judge dismissed the plaintiffs' claim because they failed to seek leave - The motion judge refused to grant leave nunc pro tunc because the plaintiffs did not have a cause of action in either gross negligence or wilful misconduct - The motion judge dismissed BNG's claim because "BNG cannot be in a better position than Holmes and Flynn to pursue its action" - BNG appealed - The Ontario Court of Appeal dismissed the appeal - BNG was barred from instituting proceedings in negligence by the release clause of the discharge order - A former receiver was not insulated against claims for gross negligence and wilful misconduct, but BNG did not actually plead a free-standing negligence or gross negligence claim - It did not plead that Schonfeld owed it a duty of care in tort - BNG's pleadings only sought contribution and indemnity in the event that it was found to be liable to the plaintiffs - See paragraphs 37 to 50.

Receivers - Topic 5861

Duties of receiver - Negligence - General - [See first, third and fourth Receivers - Topic 4644 ].

Receivers - Topic 5865

Duties of receiver - Negligence - Standard of care - [See second Receivers - Topic 4644 ].

Cases Noticed:

Penner v. Niagara Regional Police Services Board et al., [2013] 2 S.C.R. 125; 442 N.R. 140; 304 O.A.C. 106; 2013 SCC 19, refd to. [para. 14].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 28].

Canadian Broadcasting Corp. Pension Plan v. BF Realty Holdings Ltd. - see MacDonald et al. v. BF Realty Holdings Ltd. et al.

MacDonald et al. v. BF Realty Holdings Ltd. et al. (2002), 160 O.A.C. 72 (C.A.), refd to. [para. 28].

GMAC Commercial Credit Corp. - Canada v. T.C.T. Logistics Inc. et al., [2006] 2 S.C.R. 123; 351 N.R. 326; 215 O.A.C. 313; 2006 SCC 35, refd to. [para. 29].

Alberta (Treasury Branches) v. Elaborate Homes Ltd. et al. (2014), 590 A.R. 156; 2014 ABQB 350, refd to. [para. 31].

Bank of America v. Willann Investments Ltd. (1993), 23 C.B.R.(3d) 98 (Ont. Gen. Div.), refd to. [para. 35].

Gallo v. Beber et al. (1998), 116 O.A.C. 340 (C.A.), refd to. [para. 35].

Mirvish (Ed) Enterprises Ltd. et al. v. Stinson Hospitality Inc. et al., [2009] O.T.C. Uned. P14; 2009 CanLII 55113 (Sup. Ct.), refd to. [para. 46].

Ogopogo Beach Resort Ltd. et al. v. Happy Valley Resort Ltd. et al., [2010] B.C.T.C. Uned. 996; 2010 BCSC 996, refd to. [para. 47].

Counsel:

Marc Munro, for the appellants, Scott Holmes and Jennifer Flynn;

Frank Bowman and Deepshikha Dutt, for the appellant, Bossy Nagy Geoffrey (BNG), previously known as the Michael Bossy Group;

Aubrey Kauffman and Dylan Chochla for the respondent, Schonfeld Inc.

These appeals were heard on January 13, 2016, before Weiler, LaForme and Huscroft, JJ.A., of the Ontario Court of Appeal. Weiler, J.A., delivered the following judgment for the court on February 24, 2016.