Ultimate Limitation Period Gives 'Inherently Unfair' Result

The recent decision of Addison & Leyen Ltd. v Fraser Milner Casgrain LLP, 2013 ABQB 473, highlights important considerations for plaintiffs up against the 10-year limitation period and those seeking contribution and indemnity from defendants. Although the result in this instance seems unfair, it is hard to find flaws in the well-reasoned judgment of the Honourable Mr. Justice J.T. McCarthy.

Background

York Beverages (1968) Ltd. ("York") was a Saskatchewan soft drink bottling company. The Individual Plaintiffs in this matter (John Dietrich, Jeanette Dietrich, Wilfred Roach and Helen Roach) each had an ownership interest in York either as a shareholder or indirectly through their ownership of Addison & Leyen Ltd. ("Addison"). They were also directors of York.

On October 1, 1988, York sold its assets for approximately $10 million cash and $3 million in assumed indebtedness. York intended to stop carrying on business and distribute the proceeds of the sale to its shareholders before the end of its taxation year (September 30, 1989). After the distributions and other payments were made York had $2.8 million in cash which it retained to pay its income tax liability for the 1989 tax year.

In September 1989 the Plaintiffs decided to sell their shares in York to a prospective purchaser (388777 Alberta Ltd. - the "Purchaser") for $1,115,000 (the "Share Purchase Transaction"). The Purchaser intended on using York's available cash to purchase seismic data which was valued at $6,295,000 according to three independent appraisals. It is worth noting that the Purchaser had representatives on the York Board of Directors who were the ones that entered into the transaction for the purchase of the seismic data.

One of the conditions of closing the Share Purchase Transaction was that the Purchaser was to provide a legal opinion regarding the York's potential tax liability. Mr. Wallace Shaw practiced as a tax lawyer in Calgary for Fenerty, Robertson, Fraser & Hatch ("Fenerty" - FMC is a successor to Fenerty) and provided the tax opinion. The opinion stated that York would be able to pay its income tax liabilities and that the Plaintiffs would not be liable for any income tax liabilities in respect of York.

On December 29,1992, the Minister for National Revenue (the "Minister") determined that the seismic data was worth $1,696,500 and, as a result, reassessed York for the 1989 tax year stating that it owed $3,247,074. York could not pay. In around February 2001...