r v. Baniuk et al., 2011 NBCA 110

COURT OF APPEAL OF NEW BRUNSWICK 122-10-CA GEORGE P.L. FILLITER and EUGENE J. MOCKLER (Defendants) APPELLANTS - and - IVALE BANIUK and RONALD J. BANIUK (Plaintiffs) RESPONDENTS GEORGE P.L. FILLITER et EUGENE J. MOCKLER (Défendeurs) APPELANTS - et - IVALE BANIUK et RONALD J. BANIUK (Demandeurs) INTIMÉS Filliter and Mockler v. Baniuk et al., 2011 NBCA 110 Filliter et Mockler c.

Baniuk et autre, 2011 NBCA 110 CORAM: The Honourable Justice Deschênes The Honourable Justice Richard The Honourable Justice Quigg CORAM : L’honorable juge Deschênes L’honorable juge Richard L’honorable juge Quigg Appeal from a decision of the Court of Queen’s Bench: August 27, 2010 Appel d’une décision de la Cour du Banc de la Reine : Le 27 août 2010 History of the Case: Historique de la cause : Decision under appeal: 2010 NBQB 272 Décision frappée d’appel : 2010 NBBR 272 Preliminary or incidental proceedings: 2003 NLSCTD 108 , [2003] N.B.J.

No. 181 Procédures préliminaires ou accessoires : 2003 NLSCTD 108 , [2003] A.N.-B. no 181 Appeal heard: June 13, 2011 Appel entendu : Le 13 juin 2011

Judgment rendered December 29, 2011 Jugement rendu : Le 29 décembre 2011 Reasons for judgment by: The Honourable Justice Quigg Motifs de jugement : L’honorable juge Quigg Concurred in by: The Honourable Justice Deschênes The Honourable Justice Richard Souscrivent aux motifs : L’honorable juge Deschênes L’honorable juge Richard Counsel at hearing: For the appellants: David T. Hashey, Q.C. and Christopher DeLong For the respondents: Edwin G. Ehrhardt, Q.C. Avocats à l’audience : Pour les appelants : David T. Hashey, c.r., et Christopher DeLong Pour les intimés : Edwin G. Ehrhardt, c.r.

THE COURT The appeal is dismissed with costs in the amount of $3,500. LA COUR Rejette l’appel avec dépens de 3 500 $. The judgment of the Court was delivered by QUIGG J.A. I. Int roduction [ 1 ] The issue in this appeal is whether the trial judge erred in determining that the appellant lawyers’ omission to provide income tax advice to their clients, the respondents, Ivale and Ronald Baniuk, constituted negligence which resulted in damages. I agree with the trial judge’s conclusion and substantially with her reasoning (see Baniuk v. Filliter and Mockler , 2010 NBQB 272 , [2010] N.B.J. No. 309 (QL) ) .

As a result, I would dismiss the appeal.

II. Background A. Introduction [2] In order to set out the background against which this appeal must be decided, I will borrow liberally from theCourt of Queen’s Bench decision, as well as the written submissions of the parties, indicating any factual disputes where appropriate. Itshould be noted that both parties adopted and agreed with the recitation of the pertinent facts contained in paragraphs 1-53 of the trialdecision. [3] Ivale and Ronald Baniuk commenced an action against the respondents, George P.L.

Filliter and Eugene J.Mockler, Q.C., as a result of legal services provided with respect to the sale of shares held in Heritage Court Holdings. [4] The Baniuks claimed Messrs. Filliter and Mockler were negligent in failing to communicate offers ofsettlement to them and in failing to properly advise them regarding income tax issues. B. History of previous proceedings [5] There has been a lengthy history of litigation involving Mr. Baniuk and his business partners, spanning from1986 to 1993, which have revolved around Heritage Court Holdings Limited (hereinafter referred to as HCH).

The claim involved in thisappeal arises from the settlement of that dispute, which was orchestrated by the appellant lawyers. [6] The business arrangement between Mr. Baniuk and HCH began in 1983, when an agreement was signedbetween the company’s shareholders: Ronald Baniuk, Richard Carpenter and Earl Carpenter. This agreement divided the shares of thecompany, with Mr. Baniuk and Richard Carpenter each receiving 40% of the shares and Earl Carpenter receiving 20%.

This agreementalso required unanimous written consent of the shareholders for certain activities, notably for issuing shares of HCH, transferring orselling shares, sale of HCH’s assets or altering HCH’s capital. [7] After disagreement arose regarding the management and operations of HCH, Mr. Baniuk commenced anaction to have an inspector investigate the affairs of HCH (see Baniuk v. Carpenter et al. (No. 1) (1986), (NB KB), 85N.B.R. (2d) 372, [1986] N.B.J. No. 601 (Q.B.) (QL)). Upon obtaining favourable judgment, Mr. Baniuk commenced a derivative action(see Baniuk v.

Carpenter et al. (No. 2) (1987), (NB KB), 85 N.B.R. (2d) 394, [1987] N.B.J. No. 1195 (Q.B.) (QL)),whereby he requested that HCH be wound up, or alternatively, that an order issue requiring the purchase of his shares in HCH by theCarpenters. Although an offer to settle had been drafted in March of 1988, the parties failed to reach an agreement on whether HCHshould be wound up in the event that the purchase of Mr.

Baniuk’s shares did not proceed. [8] At trial in September of 1988, the Court of Queen’s Bench addressed the dispute over the operations of HCH,but did not order the winding up of the corporation or the purchase of Mr. Baniuk’s shares (see Baniuk & Heritage Court HoldingsLimited v. Carpenter et al. (1988), (NB KB), 90 N.B.R. (2d) 1, [1988] N.B.J. No. 826 (Q.B.) (QL)). The partiesremained as shareholders of the corporation, however Mr. Baniuk sought to end his association with the company.

The Queen’s Benchdecision was appealed and the parties exchanged a number of settlement offers. [9] A settlement offer was sent on behalf of the Carpenters on June 27th, 1989, offering to purchase Mr. Baniuk’sshares for $500,000. Mr. Baniuk disagreed on the valuation and responded with a Notice of Application to seek the appointment of anindependent evaluator.

On August 23, 1989, the Carpenters sent another offer to settle, where they agreed to the relief sought in theNotice of Application but refused to purchase the shares personally or to wind up the company in the event the purchase failed within sixmonths of the shares’ valuation. [10] The parties eventually agreed on the terms of the purchase of Mr. Baniuk’s shares and these terms wereincluded in a consent order signed on November 1, 1989. It was decided that HCH would purchase the shares at the value identified bythe independent evaluator.

It was further decided that HCH would be wound up, should the purchase fail within 90 days of thedetermination of the shares’ value.

[ 11 ] The consent order contained the following terms: (

a) That Heritage Court Holdings Limited be joined as a party respondent in the within matter; (

b) That Heritage Court Holdings Limited purchase the shares held by the Applicant Ronald J. Baniuk at a fair value pursuant to

Section 166 of the Business Corporations Act , R.S.N.B. 1973 [sic] , c. B-9.1, said fair value to be determined by an independent evaluator to be chosen by the parties within fifteen (15) days from the date of this Order, failing which, the Court will make such appointment upon application by either party; (

c) That the fair value of the shares shall be determined as of the date of the decision of the within matter, that is, August 31, 1989; (

d) That the evaluator be a member of the Canadian Business Evaluations Association and a Chartered Accountant, or else as may be determined by the Court; (

e) That the determination of the evaluator shall be binding and conclusive as between the parties as evidenced by this Order; (

f) That the evaluator shall have the power and is hereby authorized to seek or obtain all such information as he deems necessary to make this determination, including retaining of such other experts as he may think necessary, including appraisers in the field of real estate evaluation, and may seek the directions of the Court from time to time as he sees fit with respect to any question effecting the operation of Heritage Court Holdings Limited; (

g) That the evaluator shall file the determination of the value with the Court and each of the parties; (

h) That upon completion of the buyout hereunder the parties shall exchange mutual Releases and this Application shall be discontinued; (

i) That upon the failure to purchase within 90 days of the filing of the determination of the value of the shares of the Applicant, then the Court may, upon the application by any of the parties hereto, order the winding up of the company Heritage Court Holdings Limited, or grant such other relief as is appropriate in the circumstances; (

j) That if the costs of the evaluation are not agreed upon, they will be determined by the Court. [Summary at para. 49 of the trial judge’s decision] [ 12 ] The settlement reached its conclusion in May of 1991, when Mr. Baniuk sold his shares to the corporation for $666,224. C. Action against the lawyers [ 13 ] Mr. Baniuk and his wife Ivale, commenced an action against Messrs. Filliter and Mockler alleging:

(1) Mr. Baniuk had never seen the offers of settlement from March 1988 onward; and

(2) Mr. Filliter and Mr. Mockler had failed to adhere to the appropriate professional standard of care with respect to advising Mr.Baniuk of tax consequences that might be reasonably expected as a result of the sale of his shares in HCH. [14] Mr. Baniuk maintained that, had he been aware of these offers, particularly the offer of March 24, 1988, madeby Mr. Murphy, and Mr. Mockler’s proposal of March 29, 1988, he would have accepted them and there would have been no need toproceed to trial. Mr. Filliter and Mr. Mockler’s position was that they had communicated all of the settlement offers to Mr.

Baniuk, butnone had been acceptable to him. [15] Mr. Baniuk also alleged that, as a result of his lawyers’ breach of their professional standard of care, he wasobliged to pay increased taxes, which had arisen as a result of selling his common shares to the corporation, HCH, rather than to theCarpenters as individuals. The alleged breach of duty consisted of failing to properly advise Mr. Baniuk of tax consequences that wouldarise from the sale of the shares, which included a failure to advise how the sale could be properly structured in order to avoid taxliability and/or failing to advise Mr.

Baniuk to seek tax advice from an independent source. [16] Mr. Filliter and Mr. Mockler maintained they were not specifically retained to provide tax advice, but that theyhad intended to address taxation issues at the time of the valuation of the shares. However, their retainer had been terminated before thevaluation stage was reached and, as such, they were not afforded the opportunity to discuss taxation issues and, therefore, were notnegligent. D.

Trial Judge`s Decision [17] After a six-day hearing, which included the testimony of numerous experts, the trial judge concluded Mr.Baniuk was aware of all the attempts made to settle the matter prior to the signing of the order, dated November 1, 1989. The trial judgealso found Mr. Filliter and Mr. Mockler had communicated the various offers to Mr. Baniuk, and that Mr. Baniuk had failed to establishhis lawyers had breached their duty of care toward him regarding that issue. The trial judge dismissed Mrs. Baniuk’s claim on thegrounds the lawyers did not owe her a duty of care. [18] With respect to Mr.

Baniuk’s allegations that Mr. Filliter and Mr. Mockler failed to adhere to the appropriateprofessional standard of care regarding advice on tax issues, the trial judge determined as follows: I prefer and accept Mr. Baniuk's testimony to Mr. Mockler's on the issue relating to the terms of the retainer. I find that the oral retainerconcluded between the plaintiff, Mr. Baniuk, and the defendant included Mr. Mockler's engagement that he and his firm would adviseMr. Baniuk with respect to the manner Mr.

Baniuk was to proceed in obtaining the sale of his common shares in HCH including how thetransaction was to be structured in order to take into account the attendant tax consequences of the sale. [para. 133] [19] She also stated: The defendants in this case should have been alert to the necessity of advising Mr. Baniuk with respect to the tax consequences of thesale of his common shares in HCH. In addition, they should have been aware of the methods in which the sale could be effected so as toavoid tax consequences to Mr. Baniuk.

Thus, even had I not made the finding I did, namely that the terms of the retainer were explicit, Iwould have inferred the proffering of income tax advice as a term of the retainer. I rely on the following cases in support of thisproposition: Silver v. Morris (1995), 1995 NSCA 18 , 139 N.S.R. (2d) 18 at p. 22 (N.S.C.A.); 285614 Alberta Ltd. v. Burnet,Duckworth & Palmer, (AB KB), [1993] 4 W.W.R. 374 (Alberta Queen's Bench); J.F. Newton Ltd. v. Thorne Riddell(1991), 91 D.T.C. 5276 (B.C.S.C.); Arkelian v. Daly, Black and Moreira, [1992] B.C.J.

No. 733 (B.C.S.C.). [para. 140] [20] The trial judge went on to address the question of whether the standard of care should be lowered due to thefact that Mr. Baniuk had an accounting background and some knowledge of taxation matters. She stated:

Mr. Baniuk was an experienced businessman who was a registered industrial accountant. He testified that his training in 1984 for this designation did not include courses on income tax. He personally prepared and filed both he and his wife's personal income tax returns. Following the sale of his shares, he claimed a capital gains deduction, the disallowance of which gave rise in part, to this claim. I find that Mr.

Baniuk's knowledge of income tax was not so comprehensive as to have enabled him to understand what has been described in the evidence as the "relatively sophisticated sections of the Income Tax Act dealing with capital gains deductions, nor would it have been such as to have enabled him to comprehend the difference in tax treatment between a preferred dividend which results from the redemption of shares by a corporation, which is treated as income and the capital gain he would have realized had the shareholders purchased his shares which would have been eligible for exemption. Mr.

Baniuk's knowledge of income tax was not in my opinion sufficient to result in the lowering of the appropriate standard of care owed by the defendants to him. [paras. 143-144] [ 21 ] The trial judge reviewed jurisprudence respecting negligence as it pertains to professionals. She then turned to the question of whether Mr. Baniuk had established that Messrs. Filliter and Mockler had breached their duty of care toward him. The trial judge determined that Mr. Filliter and Mr. Mockler had omitted to provide the necessary tax advice. She stated: The defendants omitted to provide Mr.

Baniuk with clear advice on income tax and in particular with respect to the fact that since the purchaser would be HCH and not the Carpenters, the proceeds from the sale of his shares would be less; unless, an alternate structure was put into place which could alleviate if not nullify the consequent shortfall. They did not address the issue as to whether the court order should specifically address the income tax consequences to him. Had the various options been provided to him, Mr.

Baniuk would have had the opportunity to reflect upon the defendants' advice and on the basis of this advice make an informed decision as to whether he wished to consent to the November 1st, 1989 order. Their omission to provide the income tax advice constitutes negligence on the part of both defendants. The defendants have failed to establish any contributory negligence on Mr. Baniuk's part. [para. 195] [ 22 ] On the question of whether his lawyers’ omission had caused him damages, Mr.

Baniuk alleged that, had it not been for their negligence in failing to give him tax advice, he would have made a different decision. He said that, had he been aware of the future tax consequences, he would not have signed the order dated November 1, 1989, unless a leveraged buy-out had been provided for. To this, Mr. Filliter and Mr. Mockler replied that, even if they had advised Mr. Baniuk of the income tax consequences, he would nevertheless have agreed to the consent order of November 1, 1989, because it provided for the sale of his shares following a valuation.

They further argued the Carpenters would not have agreed or participated in a leveraged buy-out. Therefore, they contended Mr. Baniuk had failed to prove causation. Once again the trial judge canvassed jurisprudence pertaining to this topic, reviewed the evidence, made a finding with respect to the acrimonious history between Mr. Baniuk and the Carpenters and concluded that, by the fall of 1989, the Carpenters were firm in their resolve to settle the matter and would probably have been cooperative. She stated: I find that the Carpenters would probably have been cooperative in arranging the leveraged buyout.

I am equally satisfied on a balance of probabilities that had the defendants fulfilled their duty to Mr. Baniuk and advised him of the income tax ramifications he was facing and the various options open to him including a leveraged buyout that he would have acted differently than he did. [para. 211] Therefore the trial judge was satisfied that Mr. Baniuk proved causation. [ 23 ] The trial judge awarded damages against Mr. Filliter and Mr. Mockler, jointly and severally, in the amount of $273,567.93.

She further awarded pre-judgment simple interest at the rate of 3% per annum, for the period from June 1995 (the date when the first payment of income tax relative to this matter was made to Revenue Canada) to June 2005, and for the period from May 2007 to the date of the judgment, August 27, 2010. Post-judgment interest was allowed at the prescribed statutory rate of 7%. Mr. Baniuk was also allowed party and party costs, which were to be calculated per Scale 3 of Tariff “A” of Rule 59, together with all reasonable disbursements. III. Issues on appeal

[ 24 ] Messrs. Filliter and Mockler submit that:

a) The learned trial judge erred in law and in fact, and committed a palpable and overriding error by misapplying the standard of care applicable to the appellants;

b) The learned trial judge erred in law and in fact, and committed a palpable and overriding error by reaching conclusions based on evidentiary findings which were erroneous, inter alia : (

i) By finding that the other shareholders, including Richard and Earl Carpenter and the preferred shareholders in Heritage Court Holdings, would have agreed with and cooperated in a leveraged buy-out; (ii) By failing to recognize the responsibility of the Plaintiff’s counsel and of the valuator to deal with tax-related issues during the valuation process; (iii) By finding that

section 43 of the Business Corporations Act R.S.N.B. 1973 [sic], c. B-9.1 would not have been offended by a leveraged buy-out, or would not have applied.

c) The learned trial judge erred in law and in fact and committed a palpable and overriding error in calculating the damages as against the Appellants by: (

i) Awarding damages relating to the claim by Ivale Baniuk despite a dismissal of Ivale Baniuk’s claim against the Appellants; (ii) Awarding damages based on the time value of money and also awarding pre-judgement interest, or, in the alternative, if pre- judgment interest was appropriately awarded, failing to adequately reduce the award of interest to reflect delays caused solely by the Plaintiffs. IV. Standard of Review [ 25 ] In Housen v.

Nikolaisen , 2002 SCC 33 , [2002] 2 S.C.R. 235 , the Supreme Court delineated the standard of review in negligence cases and reaffirmed that courts of appeal are not to retry cases. The standard of review on questions of law is correctness. The standard of review for findings of fact is that they are not to be overturned, unless the trial judge has made a palpable and overriding error. Questions of mixed fact and law involve the application of a legal standard to a set of facts.

Where the question of mixed fact and law at issue is a finding of negligence, deference should be exercised in the absence of palpable and overriding error. Where the issue on appeal involves a trial judge’s

interpretation of the evidence as a whole, it too should not be overturned unless palpable and overriding error exists. As submitted by the respondents, a determination of whether or not the standard of care was met by the appellants involves the application of a legal standard to a set of facts, which is a question of mixed fact and law, and therefore is subject to the “palpable and overriding error” standard. V. Analysis A. Misapplication of the Standard of Care [ 26 ] Messrs. Filliter and Mockler argue the trial judge committed a palpable and overriding error by misapplying the standard of care.

They say the key issue is whether, in the fall of 1989, they should have risked the settlement by raising tax issues and a possible alternative method of restructuring the transaction. The trial judge held: Irrespective of how the valuation process was perceived, there would be no reason in my opinion to delay raising the income tax issue

until such time as an evaluator began to conduct the valuation. The most opportune time in my opinion for these matters to be discussed with Mr. Baniuk and for them to have been raised with Chief Justice Richard would have been prior to or at the time the November 1st, 1989 order was signed. [para. 191] [ 27 ] Mr. Baniuk submits there is ample evidence to support this finding. He states the testimony of Mr. Murphy, the Carpenters’ solicitor, was that his clients “still wanted to do business” and the attitude was “if we can make a deal with this guy, let’s…let’s do it”. Mr.

Gerald (Gary) Lawson (a lawyer who had been qualified as an expert to give opinion evidence regarding the purchase and sale of shares and corporate reorganization), testified, both through viva voce evidence and in his written report, that the proper time to raise the tax issues and appropriate structuring of the purchase of the shares was at the time of the settlement offers and before the consent order was issued. The evidence of Mr.

Pierre Cormier (who was qualified as an expert in the field of accounting, with a taxation speciality), was that there was no “down side” for the Carpenters and there may have been a benefit regarding financing. [ 28 ] More particularly, according to Mr. Baniuk, the evidence of Mr.

David Barry Q.C., the appellants’ own expert, confirmed that a properly structured transaction would have resulted in a “win/win” situation for both parties, and, as a result, supported the trial judge’s finding that there would be no reason to delay bringing the income tax issue to the fore until such time as a valuator commenced the evaluation. The Carpenters would have benefited from a properly structured purchase if it had been provided at the time the consent order was executed.

The Carpenters may have been interested in this structure as it would have removed the risk of further adverse tax consequences during the valuation process. Further, the Carpenters may have been able to benefit from the crystallization of exempt capital gains. With the appropriate structure in place, Mr. Baniuk could have received certain deductions and the Carpenters would have obtained other potential advantages. It was Mr. Barry’s evidence that, had he been Mr. Baniuk’s lawyer at the time of the signing of the consent order, he would have told Mr.

Baniuk about the potential problem of the company redeeming the shares, as well as the extent of the problem. [ 29 ] As stated above, the standard of review is that the judge must have made a palpable and overriding error: an error that is plainly seen and that impacted on the result. In my view, it is apparent the appellants failed to provide Mr. Baniuk important advice on income tax when deciding whether to agree to a settlement and allowed him to execute a consent order providing for the purchase of the shares by the company rather than the Carpenters as individuals.

This resulted in severe adverse tax consequences for Mr. Baniuk. As canvassed above, there was ample evidence at trial upon which the trial judge could determine there was no reason to delay advising Mr. Baniuk of the income tax issue prior to the commencement of the valuation. The trial judge did not commit any error with respect to her application of the standard of care in arriving at her finding of negligence on the part of the appellants. B.

Palpable and overriding error in finding the other shareholders (including the Carpenters as well as the preferred shareholders) would have cooperated in a leveraged buy-out [ 30 ] In their written submissions, Messrs. Filliter and Mockler submit Mr. Baniuk failed to discharge the onus of showing the Carpenters and the preferred shareholders would have participated in a leveraged buy-out.

They say the findings of fact made by the trial judge with respect to this issue were not supported by the evidence and there is no evidence of any willingness on the part of the Carpenters or the preferred shareholders to cooperate in setting up the suggested transaction. [ 31 ] The evidence at trial revealed the Carpenters were anxious to conclude the transaction and rid themselves of Mr. Baniuk, who, in their eyes, was a troublesome shareholder.

According to expert testimony, there were significant benefits to the Carpenters in structuring the purchase in the method that has been described as a “leveraged buy-out”, i.e. avoiding the potential further payment of $230,000. Furthermore, the parties did agree to a settlement which resulted in a consent order. There was ample evidence before the trial judge to support her finding that the Carpenters would probably have agreed to a leveraged buy-out.

With respect to the preferred shareholders, the trial judge found there was no evidence to indicate they would have been against a buy-out and the redemption of shares. I find no error in her determination that the Carpenters would have agreed to participate in a leveraged buy-out. It is a sound inference that was available from the evidence. C. Failing to recognize the responsibility of counsel and the valuator to deal with tax related issues during the valuation process

[32] Following the execution of the November 1, 1989 consent order, Messrs. Filliter and Mockler did not have anyfurther involvement in the file and in the subsequent valuation because Mr. Baniuk retained another solicitor to represent his interestsduring the valuation process. [33] As to the role of the valuator, both parties called expert witnesses. Mr. Paul Bradley testified for Mr. Baniuk asan expert in the field of business valuations. The appellants had Ms. Barbara Morton testify as their expert. They both addressed the roleof a valuator.

The appellants argue the valuator had a role in raising tax issues and that the key factor was whether the valuator shouldhave brought this issue to Mr. Baniuk for consideration. Messrs. Filliter and Mockler submit that, during the valuation process, theparties and their lawyers should have advised the court of issues that affected the valuation and that the judge would have adjudicatedupon the issue, as he did when other issues arose during the valuation process. Mr.

Baniuk states in his submission to this Court that “wehave the benefit of knowing exactly what Richard C.J. did when issues regarding the valuation arose regarding whether or not oppressionremedies were available (which, for example, might have included an increased valuation by reason of the adverse tax consequences toMr. Baniuk), and what “fair value” means (which decision may have impacted on whether or not certain adjustments could have beenmade to the valuation).” [34] In Baniuk v. Carpenter et al. (1991), (NB KB), 112 N.B.R. (2d) 332, [1990] N.B.J.

No.1109 (Q.B.) (QL), Richard C.J.Q.B. set out the parameters for the valuation. The valuator was not to consider the oppression remedy incompleteing the valuation and “fair value” was defined as the “rateable portion of [its] en bloc fair market value” (para. 1). It is thereforesubmitted by Mr.

Baniuk that Richard C.J.Q.B. did not find there had been any compulsion on the parties to enter into the consent order,thus there was no oppression remedy available and the parties were to deal with fair market value, the probable end result being the taxissue would not have been entertained if it had been brought before the court. [35] The trial judge undertakes a lengthy analysis of this question in paragraphs 180-195 of her decision andconcludes that, regardless of how the valuation process was to proceed, there was absolutely no reason to delay raising the income taxissue until the valuation commenced.

The time to discuss the matter was prior to the execution of the consent order. The trial judgeconcluded the Carpenters would have been cooperative in the leveraged buy-out and, on a balance of probabilities, had the appellantsmet their duty of care to Mr. Baniuk and advised him of the income tax issues and the possibility of a leveraged buy-out, Mr. Baniukwould have acted differently. He probably would not have agreed to the settlement. There was evidence to support the conclusion thatthe valuation stage was not the proper time to raise the tax consequences.

This is what the judge concluded and there is evidentiarysupport for that conclusion. Thus, on the applicable standard of review, we are bound to uphold her conclusion. D. Finding that s. 43 of the Business Corporations Act, S.N.B. 1981, c. B-9.1 would not have been offended by a leveraged buy-out [36] Messrs. Filliter and Mockler submit the leveraged buyout as decscribed by the expert witnesses would offend s.43(2)(

b) of the Business Corporations Act, as it called for the establishment of a new company whose purpose would have been topurchase Mr. Baniuk’s shares. They say the case law is clear that any scheme which called for HCH to provide direct funding, pledge itsassets, or give a mortgage in order to obtain funds to assist a new company to purchase the shares would offend the Act. Mr. Baniuksubmits there is ample evidence that an appropriate structure would not offend s. 43(2)(

b) of the Act and could have been put in place.Three expert witnesses, Mr. Lawson, Mr. Cormier and Mr. Barry (the appellants’ own witness) all testified how the transaction couldhave been structured to protect all parties. Mr. Cormier specifically described the steps involved in structuring a leveraged buy-out (para.200 of the trial judge’s decision). Mr. Cormier further provided evidence that the “leveraged buyout” structure has been employedregularly since 1985, when capital gains deductions were introduced by the Canada Revenue Agency.

He testified that it is a commonpractice, that he has utilized this structure “very, very frequently”, and it is practiced by lawyers and accountants across the country as itdoes not impugn s. 43 of the Business Corporations Act or similar provisions in other provinces. [37] The trial judge discussed the evidence of Mr. Barry wherein he acknowledged that s. 43 provides an exceptionfor a subsidiary company, thus allowing a leveraged buy-out in this case. The trial judge stated Mr. Cormier had the same opinion,namely that s. 43 would not operate to prevent a leveraged buy-out.

She concluded that in this situation, s. 43 of the BusinessCorporations Act would not have constituted an impediment to a leveraged buy-out (para. 219 of the trial decision). [38] I find there was ample evidence before the trial judge to allow the finding that s. 43 would not operate toprevent a leveraged buy-out. According to the expert witnesses, including Messrs. Filliter and Mockler’s expert, the leveraged buy-outoption is in common usage in this province, as well as others. I would not interfere with the judge’s finding on point. E. Damages

[ 39 ] At trial, Mr. Baniuk claimed damages for the additional income tax paid, interest relating to the reassessment by the Canada Revenue Agency following the initial filing, as well as legal fees incurred as a result of negotiations with the Agency. Mr. Baniuk’s evidence was that after his lawyer received the proceeds from the sale of his shares, he directed that one-half go to his wife so they could each claim a capital gains deduction when they filed income tax returns. After the Baniuks filed their returns, a full re- assessment by the Canada Revenue Agency was issued in Mr.

Baniuk’s name, as the proceeds from the sale of shares to HCH were ruled a deemed dividend. At the time the income tax returns were filed, Mr. and Mrs. Baniuk were shareholders of a corporation, Ban-An Ltd. Mr. Baniuk then sought advice from tax experts who advised him to undertake a “division” with Mrs. Baniuk by refiling and using Ban- Am Ltd., and her interest therein, to mitigate his tax consequences. The trial judge discussed these actions: I am cognizant of the fact that after Mr. Baniuk's solicitor received the proceeds of the sale on Mr. Baniuk's instructions, he issued Mr. and Mrs.

Baniuk each a cheque in an amount representing half of the proceeds. Mr. Baniuk then undertook to file income tax returns in which they each claimed a capital gains deduction. Revenue Canada denied the capital gains deduction on the basis that the proceeds were a deemed dividend and not a capital gain. I find that the action taken in this regard by Mr. Baniuk would not have occurred had the defendants not acted as they did. Absent the defendants' negligence, Mr. Baniuk would have been successful in obtaining the capital gains deduction. The measures that Mr.

Baniuk took therefore with respect to their income tax obligations were not independent of the defendants' negligence but rather resulted from it. Mr. Pierre Cormier, who gave his opinion as an expert in the field of accounting specializing in taxation, testified that the financial benefits which would have been achieved under the proposed alternate structure of a leveraged buyout would have been $175,481. The time value of the net financial benefits as of October 31st, 2008 was $268,144. Legal fees were also incurred for legal representation and negotiation with Revenue Canada.

I believe the plaintiff acted reasonably in incurring those costs and thus they are recoverable. The time value calculation of these legal fees as of October 31st, 2008 was $5,423.93. The plaintiff, Mr. Baniuk, will be awarded damages against the defendants jointly and severally in the amount of $273,567.93. [paras. 229-232] [ 40 ] Messrs. Filliter and Mockler submit it is implicit in the trial judge’s dismissal of Mrs. Baniuk’s claim that any portion of damages claimed by her cannot be recovered, and by awarding the portion of damages claimed by Mrs. Baniuk, the judge erred.

Although the trial judge dismissed Mrs. Baniuk’s claim on the basis that the appellants did not owe her a duty of care, the calculation of damages to be awarded had to include the amount claimed by Mrs. Baniuk, as this amount is a portion of the actual loss sustained by Mr. Baniuk. Mr. Baniuk had been under a duty to mitigate his losses and, in order to do so, utilized a division with his wife when dealing with the Canada Revenue Agency. Mr. Baniuk argued he did what he could to mitigate his losses by using Mrs. Baniuk’s tax status to reduce the loss caused by the appellant’s negligence.

The trial judge concluded these were appropriate mitigating efforts. I would not interfere with that conclusion. [ 41 ] The trial judge undertook a thorough analysis of pre-judgement interest (at paras. 233-240) and explained how she arrived at the decision to award pre-judgement simple interest (not compound interest as requested by Mr. Baniuk) at the rate of 3% per annum for the period of time extending from June 1995 (the date when the first payment of income tax relative to this matter was made to Revenue Canada) to June 2005, and for the period extending from May 2007 to August 27, 2010.

Post-judgement interest was awarded in the amount of 7%. [ 42 ] The trial judge did not err in awarding damages based on time value of money, nor did she err in awarding pre- judgement interest. The trial judge exercised her discretion and denied Mr. Baniuk interest for approximately 23 months, as an apparent mechanism to deal with the issue of delay. I find no error in the approach employed by the trial judge which would warrant appellate intervention. VI. Disposition [ 43 ] For the above reasons, I would dismiss the appeal and confirm the trial judge’s decision.

I would order the appellants to pay costs of $3,500.

______________________________ KATHLEEN A. QUIGG, J.A. WE CONCUR: __________________________________ ALEXANDRE DESCHÊNES, J.A. __________________________________ J.C. MARC RICHARD, J.A.