Edwards et al. v. Law Society of Upper Canada et al. [Indexed as: Edwards v. Law Society of Upper Canada (No. 1)]

48 O.R. (3d) 321

[2000] O.J. No. 2084

Docket Nos. C29476 and C29477

Court of Appeal for Ontario

Finlayson, Moldaver and Goudge JJ.A.

June 7, 2000

*Application for leave to appeal to the Supreme Court of Canada was dismissed with costs November 23, 2000 (McLachlin C.J., Iacobucci and Major JJ.). S.C.C. File No. 28151. S.C.C. Bulletin, 2000, p. 2122.

Limitations -- Trusts and trustees -- Plaintiffs bringing action against executors of estate of deceased solicitor for losses suffered as result of investments in scheme for purchase of gold delivery contracts -- Executors purporting to rely on limitation period defence -- Sections 43 and 44 of Limitations Act precluding operation of limitation period in s. 38(3) of Trustee Act in respect of specified types of claims against trustee -- Limitations Act, R.S.O. 1990, c. L.15, ss. 43, 44 -- Trustee Act, R.S.O. 1990, c. T.23, s. 38(3).

Wills and estates -- Estate administration -- Doctrine of plene administravit -- Plaintiffs bringing action against executors of estate of deceased solicitor for losses suffered as result of investments in scheme for purchase of gold delivery contracts -- Defence based on doctrine of plene administravit not established on motion to determine point of law.

In an intended class action, the plaintiffs sued to recover for losses suffered as a result of investments in a scheme for the purchase of gold delivery contracts. The defendants included H and M, who were the executors of the deceased solicitor Mills. In their statement of claim, the plaintiffs pleaded that they had a solicitor-client relationship with Mills and that he had fraudulently paid out their funds from his trust account. Pursuant to Rule 21, H and M moved for an order that the plaintiffs' action be dismissed on the grounds that it was statute-barred by the two-year limitation period in s. 38(3) of the Trustee Act. Alternatively, pursuant to Rules 20 and 21, H and M moved for an order that the action be dismissed on the ground of the doctrine of plene administravit, under which an executor with insufficient assets is liable only to the amount of the assets in his or her hands as executor. On the motion, Sharpe J. ruled that some of the plaintiff's claims were saved from the ope ration of the two-year limitation period in the Trustee Act as a result of the saving provisions of ss. 43 and 44 of the Limitations Act. However, having concluded that since the plaintiffs' saved claims against Mills sounded in fraud and, thus, were outside of his professional liability insurance coverage and having accepted that the only other asset available to Mills' estate was $7,138 in cash, Sharpe J. applied the doctrine of plene administravit for the benefit of H and M, except for the claim for $7,138. The plaintiffs appealed.

Held, the appeal should be allowed.

The first issue was whether a limitation period defence was available to the defendants who were Mills' executors. The plaintiffs' claim against Mills was founded in part on his conduct as a trustee and s. 44(2) of the Limitations Act provides that, subject to s. 43, no claim of the beneficiary of a trust against the trustee for any property held on an express trust or in respect of a breach of such trust shall be barred by any statute of limitations. The intent of ss. 43 and 44 of the Limitations Act is that there is no statutory limitation period at all for specified kinds of claims against a trustee. On a motion under Rule 21, the plaintiffs' claims as pleaded would be barred only if it was plain and obvious that the claims did not fit within the claims specified in s. 43(2) of the Limitations Act. Since it was not plain and obvious that the plaintiffs' claims of fraud, fraudulent breach of trust, recovery of property, including an accounting and a tracing of funds, were out side of the section, therefore they were not statute-barred.

The next issue was whether the doctrine of plene administravit should be applied to the claims that survived the limitation period defence. Sharpe J. decided this issue on the basis of Rule 21 as a question of law. It was, however, wrong for him to do so. To succeed in invoking the doctrine, the defendants had to show that it was plain and obvious that the only asset available to the estate was the $7,138 cash. However, they could not successfully do this. The plaintiffs' claim that the deceased solicitor disbursed trust moneys in breach of his duty could fall within his insurance policy if the solicitor was acting negligently but not fraudulently. Further, it could turn out at trial that the conduct of the insurer prevented it from relying on the exclusion of coverage for fraud. Finally, the tracing remedy would take the plaintiffs beyond the $7,138 in the hands of the estate. Therefore, it was not plain and obvious that only $7,138 was available and, accordingly, the appeal from the order applying the doctrine of plene administravit should be allowed.

APPEAL from a judgment of Sharpe J. (1998), 1998 ON SC 14677, 39 O.R. (3d) 10, 20 C.P.C. (4th) 283, 23 E.T.R. (2d) 46 (Gen. Div.) on motions pursuant to Rules 20 and 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

Cases referred to Commander Leasing Corp. v. Aiyede (1984), 1983 ON CA 1649, 44 O.R. (2d) 356, 4 D.L.R. (4th) 107, 1 O.A.C. 135, 16 E.T.R. 183 (C.A.); Murphy v. Welsh, 1993 SCC 59, [1993] 2 S.C.R. 1069, 14 O.R. (3d) 799n, 106 D.L.R. (4th) 404, 156 N.R. 263, 47 M.V.R. (2d) 1, 18 C.P.C. (3d) 137, 18 C.C.L.T. (2d) 101 (sub nom. Stoddard v. Watson); Smith Estate v. College of Physicians and Surgeons of Ontario (1998), 1998 ON CA 1523, 41 O.R. (3d) 481, 167 D.L.R. (4th) 78, 28 C.P.C. (4th) 389, 26 E.T.R. (2d) 103 (C.A.) [leave to appeal to S.C.C. refused (1999), 243 N.R. 396n]; Swain Estate v. Lake of the Woods District Hospital (1992), 1992 ON CA 7601, 9 O.R. (3d) 74, 93 D.L.R. (4th) 440, 9 C.P.C. (3d) 169 (C.A.) [leave to appeal to S.C.C. refused (1993), 19 C.P.C. (3d) 25n, 164 N.R. 158n]; Waschkowski v. Hopkinson Estate (2000), 2000 ON CA 5646, 47 O.R. (3d) 370, 184 D.L.R. (4th) 281, [2000] O.J. No. 470 (C.A.) Statutes referred to Limitations Act, R.S.O. 1990, c. L.15, ss. 43, 44 Trustee Act, R.S.O. 1990, T.23, ss. 38(2), (3) Rules and Regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rules 20, 21

David E. Wires and Lisa D. La Horey, for appellants, John and Nancy Edwards. Leonard Ricchetti, for appellant, The Law Foundation of Ontario. Michael Teitelbaum and M. Binks, for respondents, Beverly Hoover and James Thomas Mills.

The judgment of the court was delivered by

[1] GOUDGE J.A.: -- In this action, the appellants seek to recover for the losses they say they suffered investing in a scheme for the purchase of gold delivery contracts. They intend that this be a class action on behalf of all investors in the scheme. To date, although the pleadings are complete, there has as yet been no certification motion.

[2] The respondents Beverly Hoover and James Mills are the executors of the deceased solicitor John Mills. The appellants plead a solicitor-client relationship with John Mills. They allege, inter alia, that the funds they invested were placed originally in his trust account and then paid out by him fraudulently and in breach of trust for the benefit of himself and others.

[3] This action was commenced on February 18, 1994, more than two years after the death of John Mills on May 21, 1990.

[4] Pursuant to Rule 21, the executors moved before Sharpe J. for an order that as against them, the action is barred by the two-year limitation period in s. 38(3) of the Trustee Act, R.S.O. 1990, c. T.23.

[5] They also moved, pursuant to Rules 20 and 21, for a determination of a question of law, namely, that the action should be dismissed as against them on the ground of plene administravit.

[6] Sharpe J. found that to the extent this action falls within the saving provisions of ss. 43 and 44 of the Limitations Act, R.S.O. 1990, c. L.15, it is not barred by the limitation period in s. 38(3) of the Trustee Act. However, he found that apart from some $7,138 in cash, the only remaining asset available to the estate of Mr. Mills, namely his entitlement to professional liability insurance, did not provide coverage for fraud and hence was unavailable to respond to the claims that were saved by the Limitations Act. He therefore applied the doctrine of plene administravit to dismiss the action as against the executors, except for the claim for $7,138, because to the extent that the action was not time-barred, the estate was without assets.

[7] For the reasons that follow, I agree with Sharpe J. that so far as this action is saved by ss. 43 and 44 of the Limitations Act, it is not statute-barred, although I do so for somewhat different reasons. However, I do not think the doctrine of plene administravit can be applied at this early stage of the proceedings. On this basis, I would therefore allow the appeal and permit the action against the respondents to proceed.

The Limitation Issue

[8] Two statutes are relevant to this question. The first is the Trustee Act. Section 38(2) of that Act entitles the appellants to maintain an action against the respondents as executors for the wrong done by the deceased solicitor. Section 38(3) provides a two-year limitation period for actions brought under s. 38(2). These provisions read as follows:

38(2) Except in cases of libel and slander, if a deceased person committed or is by law liable for a wrong to another in respect of his or her person or to another person's property, the person wronged may maintain an action against the executor or administrator of the person who committed or is by law liable for the wrong.

(3) An action under this section shall not be brought after the expiration of two years from the death of the deceased.

[9] The second is the Limitations Act, particularly ss. 43 and 44. These provisions are relevant to the claim founded on the conduct of the deceased solicitor as trustee. They read in part as follows:

43(2) In an action against a trustee or a person claiming through a trustee, except where the claim is founded upon a fraud or fraudulent breach of trust to which the trustee was party or privy, or is to recover trust property or the proceeds thereof, still retained by the trustee, or previously received by the trustee and converted to the trustee's use, the following paragraphs apply:

1. All rights and privileges conferred by any statute of limitations shall be enjoyed in the like manner and to the like extent as they would have been enjoyed in such action if the trustee or person claiming through the trustee had not been a trustee or person claiming through a trustee.

44(2) Subject to section 43, no claim of the beneficiary of a trust against the trustee for any property held on an express trust, or in respect of any breach of such trust, shall be held to be barred by any statute of limitations.

[10] Sharpe J. applied the guide to interpretation provided in Murphy v. Welsh, 1993 SCC 59, [1993] 2 S.C.R. 1069, 106 D.L.R. (4th) 404 and concluded as follows [1998 ON SC 14677, 39 O.R. (3d) 10 at p. 17]:

By expressly stating in s. 44 [of the Limitations Act] that certain claims are not to be barred by any statute of limitations, the legislature has given a clear and explicit direction that this specific saving provision is to prevail over all other statutory limitation provisions. Murphy v. Welsh holds that there is a presumption of coherence and that findings of inconsistency should be avoided unless the competing provisions cannot stand together. In my view, s. 38(3) of the Trustee Act can stand together with ss. 43 and 44 of the Limitations Act. The two-year limitation provision prescribed by s. 38(3) applies generally to actions against executors for wrongs committed by the deceased, while the explicit saving provision of ss. 43 and 44 of the Limitations Act applies to claims falling within the specific description of those sections.

(Emphasis in original)

[11] I fully agree.

[12] Like Sharpe J., I would distinguish the cases relied on by the respondents, namely Swain Estate v. Lake of the Woods District Hospital (1992), 1992 ON CA 7601, 9 O.R. (3d) 74, 93 D.L.R. (4th) 440 (C.A.) and Smith Estate v. College of Physicians and Surgeons of Ontario (1998), 1998 ON CA 1523, 41 O.R. (3d) 481, 167 D.L.R. (4th) 78 (C.A.). In those cases the two-year limitation period was found to apply to claims brought by executors. However, in neither case was this court faced with s. 44(2) of the Limitations Act and its clear legislative intent that in specified kinds of claims against trustees, there should be no statutory limitation period at all.

[13] The legislative intent of s. 44(2) of the Limitations Act is to free actions against trustees from all statutory limitation periods where they fall within the kinds of action specified in s. 43(2) of that Act. That intent would be frustrated if the death of the trustee triggered the limitation period in s. 38(3) of the Trustee Act. Hence the types of claims against a trustee specified in s. 43(2) may be maintained against his or her executors under s. 38(2) of the Trustee Act, unaffected by the two-year limitation period in s. 38(3) of the Trustee Act.

[14] Thus, to the extent the appellants' action does not fit within the specified exceptions in s. 43(2), it is out of time because s. 43(2), para. 1 combined with s. 38(3) of the Trustee Act imposes a two-year limitation period. Because s. 44(2) is made subject to s. 43, the relief from all statutory limitation periods provided by that section is unavailable, and the two- year limitation period applies.

[15] Moreover, Sharpe J. found that there is no basis shown here for the application of the discoverability principle to alleviate this two-year proscription period, since at least by the summer of 1991, two and one-half years before the action was started, the appellants were aware of the alleged wrongdoing of the deceased solicitor. I agree. More importantly, this court has recently decided that the discoverability principle does not apply to the limitation period in s. 38(3) of the Trustee Act: see Waschkowski v. Hopkinson Estate (2000), 2000 ON CA 5646, 47 O.R. (3d) 370, [2000] O.J. No. 470 (C.A.).

[16] On the other hand, so far as the action does come within the kinds of cases specified in s. 43(2), it is freed by s. 44(2) from s. 38(3) of the Trustee Act, and is not out of time.

[17] On a motion under Rule 21, the "plain and obvious" test applies. Hence the claims as pleaded against the respondents are not time-barred unless it is plain and obvious that they cannot fit within the exceptions specified in s. 43(2) of the Limitations Act.

[18] As pleaded, the appellants' action against the respondents is founded in part on a claim of fraud and fraudulent breach of trust by the deceased solicitor. It appears that before Sharpe J., only this aspect of the action was argued to escape the two-year limitation period. He found that this claim fell within the exceptions listed in s. 43(2) and was not time-barred. I agree.

[19] In addition, the appellants argued in this court that the action against the respondents seeks to recover trust property held by the estate of the deceased solicitor when the action was commenced. This claim is also clearly of a type specified in s. 43(2) and can proceed. The fact that these funds have since been paid into court by the respondents does not prevent the appellants from proceeding to claim them by means of this action.

[20] Finally, the appellants claim that the moneys held in trust by the deceased solicitor were dispersed by him to the benefit of himself and others in violation of the terms of the trust. As a corollary, the appellants seek an accounting of these funds and an order tracing them. Whether these actions were done negligently or innocently or in breach of contract, this claim is arguably one to recover trust property previously received by the trustee and converted to his use. It is not plain and obvious to me that the claim cannot be so described. It is therefore not statute-barred.

[21] As this action proceeds, it will ultimately be up to the trial judge to apply s. 43(2) if it is said that discrete claims emerge which fall outside those specified in that section. However, it cannot now be said to be plain and obvious that the claims I have recited do not fit within the list contained in that subsection. Hence they are not statute- barred.

The Plene Administravit Issue

[22] The doctrine of plene administravit was described by this court in Commander Leasing Corp. v. Aiyede (1984), 1983 ON CA 1649, 44 O.R. (2d) 356 at p. 358, 4 D.L.R. (4th) 107 (C.A.):

It has long been established that if an executor or administrator has no assets to satisfy the debt upon which an action is brought, in the absence of a plea of no assets or plene administravit, he will be taken to have conclusively admitted that he has assets to satisfy the judgment and will be personally liable for the debt and costs if they cannot be levied on the assets of the deceased. If the executor has some, but insufficient, assets to satisfy the judgment and costs, a plea of plene administravit praeter will render him liable only to the amount of assets proved to be in his hands as executor: see Re Marvin, [1905] 2 Ch. 490; Marsden v. Regan, [1954] 1 All E.R. 475; Schneitzer v. Breckon (1921), 20 O.W.N. 22 . . .

[23] The respondent executors pleaded this defence and then, as I have said, moved for a determination of a question of law, namely, that on the basis of this doctrine, the action as against them should be dismissed because of the lack of assets in the estate of the deceased solicitor.

[24] While the respondents sought this order under both Rule 20 and Rule 21, they explicitly sought a determination of this question of law and Sharpe J. dealt with it on that basis. Rule 21 was therefore the relevant rule.

[25] Sharpe J. determined that since the estate had funds of only $7,138, the executors were entitled to have the action dismissed against them except for a claim limited to $7,138. He concluded that while the deceased solicitor's professional liability insurance policy provided coverage after his death, it was unavailable to respond to the appellants' claims. He found that while the claims against the deceased solicitor for fraudulent breach of trust were not barred by any statutory limitation period, they were not covered by the policy because of its exclusion of coverage for dishonest or fraudulent acts. Apart from this policy, the estate's only assets were the funds amounting to $7,138.

[26] With respect, I have come to a different conclusion.

[27] The respondent executors pleaded in their statement of defence that there were no assets or alternatively insufficient assets in the estate to pay the claims alleged by the appellants. They explicitly pleaded the doctrine of plene administravit. In the motion before Sharpe J. seeking an order that as a matter of law the action should be dismissed on this basis, the respondents established that the only funds held by the estate amounted to $7,138.

[28] To obtain the order sought, the respondents must show that it is plain and obvious that there are no other assets that the appellants could look to to respond to their claims. I do not think the respondents can successfully do this.

[29] The appellants responded to the assertion of the plene administravit doctrine by pleading in their reply that there was an unrealized liability insurance policy in favour of the estate of the deceased solicitor covering the allegations in the statement of claim. The respondents, however, took the position that because this policy contained an exclusion for "any dishonest, fraudulent, criminal or other malicious act" of the deceased solicitor, it simply could not cover the appellants' claims.

[30] I do not agree. The appellants' claim that the deceased solicitor disbursed trust moneys to the benefit of himself and others in breach of his duty to the beneficiaries could fall within the terms of the policy if the solicitor was acting negligently but not fraudulently. Even the claim for fraudulent breach of trust could reach the policy, despite the wording of the exclusion, if, for example, it should turn out at trial that the conduct of the insurer prevented it from relying on the exclusion. Finally, the tracing remedy sought by the appellants would take them to assets beyond the $7,138 in the hands of the estate.

[31] Therefore, I do not think it is plain and obvious that only $7,138 is available to pay the claims alleged by the appellants. The action should therefore not be dismissed at this stage -- either in whole or except for a claim for the $7,138 -- as against the respondents on the basis of the doctrine of plene administravit.

[32] I would allow the appeal from the order of Sharpe J. and order that the respondent's motion seeking to dismiss the action either as being out of time or based on plene administravit be dismissed with costs.

[33] At the same time as he dealt with the main motion brought by the respondents, Sharpe J. disposed of two related motions. These orders were also part of this appeal.

[34] The first of these was the respondents' motion seeking to strike four paragraphs from the appellants' reply in which they pleaded that if a limitation period applied, they should be excused from it because their delay in launching the action was due to the way in which the Law Society of Upper Canada dealt with their claim for compensation. The motions judge ordered these paragraphs struck because the alleged conduct of the Law Society is irrelevant to the limitation issue. It could not serve as an excuse for the appellants, if as this litigation proceeds it should appear that a statutory limitation period does apply. I agree, and would dismiss the appeal from this order.

[35] In the other motion, the appellants sought to strike out the affidavit filed by the respondents in support of the main motion because the deponent refused to answer certain questions when cross-examined on the affidavit. Sharpe J. dismissed this motion because of the marginal relevance of the questions and because the appellants had taken no steps to compel answers prior to the return of the main motions. I see no basis to interfere with this exercise of his discretion and would dismiss the appeal from this order as well.

[36] Since the appellants John Edwards and Nancy Edwards have succeeded in reversing the order that their action be dismissed as against the respondents, they should have their costs here and below.

Order accordingly.