Court File and Parties
COURT OF APPEAL FOR ONTARIO
van Rensburg, Huscroft and George JJ.A.
BETWEEN
AssessNet Inc. Plaintiff (Appellant)
and
Taylor Leibow Inc., in its Capacity as Trustee of the Bankrupt Estate of Lucio Anthony Ferro and Julie Savage Defendant (Respondents)
Counsel: Peter Waldmann, for the appellant Douglas Smith and Emily Baron, for the respondents
Heard: March 24, 2023
On appeal from the judgment of Justice Jessica Kimmel of the Superior Court of Justice, dated August 19, 2022, with reasons reported at 2022 ONSC 4780.
van Rensburg J.A.:
Overview
1This is an appeal from an order dismissing the appellant’s action as statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. The action is in respect of a claim of a bankrupt that the appellant took by way of assignment from the trustee in bankruptcy pursuant to an order under s. 38 of the Bankruptcy and Insolvency Act, R.S.C., 1985 c. B-3 (the “BIA”). [1] The action asserts a claim against the respondents as the former bankruptcy trustee, for their acts and omissions in the administration of the bankruptcy.
2For the reasons that follow, I would allow the appeal. The motion judge erred in two respects. First, she reversed the onus of proof, and required the appellant to establish that its claim was not discoverable within the meaning of s. 5(1) of the Limitations Act. In the circumstances, once the appellant rebutted the presumption under s. 5(2) that it had knowledge of the matters set out in s. 5(1) when the events giving rise to the claim took place, the onus remained on the respondents to establish that there was no issue requiring a trial in respect of the expiry of a limitation period. Second, the motion judge determined the issues under s. 5(1) without regard to s. 12 of the Limitations Act, which applies when a proceeding has been commenced by a person claiming through a predecessor in right, title or interest. In giving effect to a limitation period defence in circumstances where s. 12 is engaged, the court must make necessary findings of fact to conclude that the predecessor or the person claiming through the predecessor first knew of the matters set out in ss. 5(1)(a)(i) to (iv) more than two years before the action was commenced.
3Had the motion judge considered the limitation period issue using the correct framework, and made the necessary findings under s. 12, I am not confident that she would have reached the same conclusion. It is not appropriate for this court, on the available record and in view of the limited scope of the arguments on appeal, to exercise its fact-finding powers to make the findings of fact required under s. 12. Accordingly, I would set aside the order dismissing the action, and direct the limitation period issue to proceed to trial, without prejudice to either party bringing a new summary judgment motion to determine the issue.
Facts
4The appellant AssessNet Inc. (“AssessNet”), a medical assessment services company, was a creditor of lawyer Lucio Anthony Ferro (the “bankrupt”). Ferro was the principal of a law firm that operated as Ferro & Co. AssessNet supplied medical reports for the firm’s clients in respect of their personal injury claims. On March 12, 2015, Ferro made an assignment in bankruptcy and the respondent Taylor Leibow Inc. (“Taylor Leibow”) was appointed bankruptcy trustee. The licensed trustee with responsibility for the bankruptcy was the respondent Julie Savage. Ferro died on June 12, 2015.
5There were two inspectors of the bankrupt estate: Adriano Persi, the principal of AssessNet, and Ian Wollach, an accountant with Collins Barrow Toronto Valuations Inc., which was also a creditor of the bankrupt.
6During the Ferro bankruptcy, Ferro’s associate, Jane Poproski, managed client files and operated the law firm’s bank account. The non-client functions for the law firm continued to be administered by Ferro’s widow, Ellen Helden, through her holding company 1312788 Ontario Ltd. (“131 Ontario”).
7A chronology of events, including the various post-bankruptcy dealings with the law firm files, is set out at para. 15 of the motion judge’s reasons. It is sufficient to note that, in November 2015 Taylor Leibow, as bankruptcy trustee, obtained an order approving the sale of the law firm’s client files; that the files were ultimately sold to another law firm for a percentage of the fees generated by the files; that the trustee identified concerns about dealings with the law firm property and accounts by Poproski and Helden; and that, on February 22, 2016, the purchaser law firm advised the trustee, and the trustee advised the inspectors, that many of the client files the law firm had purchased had already been settled. On March 4, 2016, at one of several inspectors’ meetings, the inspectors discussed with the trustee potential claims by the bankrupt against Poproski and Helden.
8On March 9, 2016, AssessNet notified the trustee that it intended to assert a claim against the bankrupt estate in respect of its alleged copyright interest in medical reports it had prepared for the law firm and its former clients. On March 22, 2016, Savage asked the two inspectors to resign: Persi because of the threatened copyright infringement action, and Wollach because of alleged misconduct as an inspector.
9On April 26, 2016, the trustee’s report indicated that actions against Poproski, her professional corporation and an associate lawyer (the “Lawyer Defendants”) and Helden, should be brought by the bankrupt estate rather than by creditors through an assignment under s. 38 of the BIA. On April 29, 2016, at the second creditors’ meeting, Taylor Leibow was removed as bankruptcy trustee and replaced by A. Farber & Partners Inc. (“Farber”).
10On March 22, 2017, counsel for AssessNet (who had also been advising the trustee) wrote to Farber to request that Farber, as bankruptcy trustee, bring an action against the Lawyer Defendants, Helden, Taylor Leibow and Savage, or that the trustee consent under s. 38 of the BIA to an assignment of such claims to AssessNet. The letter stated that the causes of action to be asserted concerned the period from March 12 to December 23, 2015.
11Farber advised on April 18, 2017, that it would not take action against Taylor Leibow, and on May 15, 2017, that it would be open to creditors pursuing the s. 38 BIA claims against Taylor Liebow and Savage, as well as against the Lawyer Defendants and Helden.
12On November 6, 2017, AssessNet served a motion under s. 38 returnable the following week. Farber consented to the assignment of the bankrupt’s claim against the Lawyer Defendants and Helden and indicated that it would not oppose the assignment to AssessNet of the bankrupt’s claim against Taylor Leibow and Savage. In the material filed by AssessNet on its motion, Persi repeated that the claims against the various defendants concerned the post-bankruptcy period between March and December 2015.
13On November 14, 2017, AssessNet obtained a s. 38 order permitting it to pursue, in its own name and at its own expense, the bankrupt’s action against the Lawyer Defendants, Helden and 131 Ontario. On December 20, 2017, AssessNet commenced an action against the Lawyer Defendants, Helden and 131 Ontario (referred to in the motion judge’s reasons as the “s. 38 BIA Action”), and an action for breach of copyright, also against the Lawyer Defendants, Helden and 131 Ontario (referred to as the “Copyright Action”).
14At the November 14 hearing, the s. 38 motion with respect to the claim against Taylor Leibow and Savage had been withdrawn. Another motion was brought by AssessNet on February 7, 2018, returnable March 13, 2018, seeking an order under s. 38 for an assignment of the bankrupt’s claim, and seeking leave to commence an action against the former trustee under s. 215 of the BIA. As required in respect of s. 215, the motion was served on Taylor Leibow and Savage, who did not take a position on the motion.
15By order dated March 13, 2018, AssessNet was authorized to commence proceedings in its own name and at its own expense and risk in respect of rights of action of the bankrupt against Taylor Leibow and Savage “for allegations of negligence, breach of fiduciary duty and unjust enrichment relating to their actions and omissions with respect to acting as the trustee in bankruptcy for the bankrupt and also for return of the fees rendered by Taylor Leibow with respect to the administration of the bankrupt’s estate”, and was granted leave under s. 215. AssessNet’s action against the respondents (referred to as “the Bankruptcy Trustee Action”) was commenced the same day by notice of action.
16A fourth action (referred to as the “Client Assigned Claims Action”) was commenced on March 19, 2018 by AssessNet against the Lawyer Defendants, Helden and 131 Ontario, based on assignments of claims from former clients of the law firm with respect to alleged illegal billings in connection with client file settlements.
17In each of the four actions, some or all of the defendants moved for summary dismissal on the ground that the action was statute-barred. The motions were heard together. The motion judge granted summary judgment dismissing two actions: the Bankruptcy Trustee Action and the Client Assigned Claims Action (with the exception of one assigned claim), while permitting the s. 38 BIA Action and the Copyright Action to proceed.
18Only the dismissal of the Bankruptcy Trustee Action is at issue in this appeal.
The Motion Judge’s Decision
19The sole issue on the motion in respect of the Bankruptcy Trustee Action was whether the action was statute-barred under the Limitations Act. The motion judge described the action as a claim alleging negligence and breach of fiduciary duties by Taylor Leibow and Savage in: (i) failing to take possession of the books, records, documents and property of the bankrupt estate; (ii) allowing Helden and Poproski to carry on the law firm’s business after the date of the bankruptcy; (iii) allowing the law firm to settle files after the onset of the bankruptcy; and (iv) failing to properly market the client files of the law firm.
20Applying the framework under s. 5(1), she first found that “[t]he acts and omissions that are the subject of the assigned claims against the Trustee and Savage…all occurred between June and December 2015”: at para. 42. In making this finding she relied, at para. 40, on Persi’s sworn testimony on his motion for leave under s. 38 of the BIA, that the claims for which he was seeking assignment concerned the post-bankruptcy period between March 12 and December 22, 2015.
21The motion judge observed, at para. 42, that “[s.] 5(2) of the Limitations Act presumes that a plaintiff has knowledge of a claim on the day the act or omission took place”. Although she did not explicitly state that AssessNet had rebutted the presumption under s. 5(2), she appears to have accepted that the presumption was rebutted because she went on to consider the date of AssessNet’s actual knowledge under s. 5(1)(a) and the date on which a reasonable person with similar abilities and circumstances to AssessNet ought to have known of the claim under s. 5(1)(b). She did not treat these inquiries separately, instead observing, at paras. 45-46, that, even if Persi’s bald assertions of a lack of full knowledge, appreciation or understanding of the injuries, losses or damages were accepted, AssessNet would still need to “satisfy the court that a reasonable person with the same abilities and in the same circumstances (as Persi, AssessNet’s representative) would not have reasonably known of some ensuing injury, loss or damage prior to March 13, 2016 to avoid objective discoverability under s. 5(1)(b)”.
22Turning to the evidence, the motion judge found, at para. 53, that “AssessNet had sufficient knowledge from which to draw a plausible inference of liability of the Trustee and Savage by February 22, 2016.” This is the day that Taylor Leibow advised Persi and Wollach, after learning from the purchaser law firm, that many of the client files it had purchased had already been settled: at para. 15. Although the motion judge did not separately analyze each of the four elements in s. 5(1)(a), she explained, at para. 47:
By the end of February 2016, AssessNet was aware that there were far fewer Client Files available to be purchased by [the purchaser law firm] than had been expected. They were concerned about the possible diversion of some Client Files and other Estate assets by the Lawyer Defendants and Helden (through 131 Ontario), which the plaintiff blamed upon the mishandling of the Bankruptcy by the Trustee and Savage.
23The motion judge referred to email correspondence involving Persi, Wollach and the trustee, as sufficient evidence from which a “plausible inference of liability” could be drawn: at para. 49, citing Grant Thornton LLP v. New Brunswick, 2021 SCC 31, 461 D.L.R. (4th) 613, at para. 47.
24AssessNet argued that the claim was not discovered because it relied on the advice of David Jackson, its own lawyer, who had also been retained on behalf of the estate and the respondents, that Savage was doing a good job. The motion judge rejected this argument, stating that “concerns were being raised and accusations continued to be made by the inspectors…irrespective of any advice that Jackson may have been providing to AssessNet”, and that “[t]he inspectors consistently and contemporaneously recorded their views that the Trustee and Savage were not behaving appropriately”: at para. 64.
25AssessNet also argued that it was only after Taylor Leibow was replaced by Farber as bankruptcy trustee on April 29, 2016 that, pursuant to s. 5(1)(a)(iv), it knew that a proceeding against the former trustee would have been appropriate. The motion judge rejected this argument, observing that this was not a situation where the trustee was undertaking a repair of an identified problem, such that it might be resolved without the necessity of a proceeding, or where an alternative resolution process had been invoked. She also noted that AssessNet had not satisfied her “that the first time that it actually knew, having regard to the nature of the injury, loss or damage, that a legal proceeding would be an appropriate means to seek to remedy against the Trustee was not until after the Trustee had been replaced”: at para. 68. She found that AssessNet had “point[ed] to no authority for the proposition that it would not have been appropriate to ask the Trustee to commence a proceeding against itself”, so as to bring the claim within s. 5(1)(a)(iv): at para. 69.
26The motion judge concluded that there was no genuine issue requiring a trial as to whether the two-year limitation period had been postponed because of the issues raised by AssessNet or pending the removal of the trustee: at para. 73.
Issues
27AssessNet asserts that the motion judge erred in dismissing the Bankruptcy Trustee Action based on the expiry of the relevant limitation period. It submits that the motion judge failed to take into consideration s. 12 of the Limitations Act, which was engaged because AssessNet was pursuing a claim that had been assigned to it for a wrong done to the bankrupt estate, and not a claim in its own right. AssessNet says this was an error of law reviewable on a correctness standard. AssessNet also contends that the motion judge made palpable and overriding errors in her factual determinations and application of s. 5(1)(a) of the Limitations Act and in concluding, in particular, that, pursuant to s. 5(1)(a)(iv), AssessNet knew or ought to have known that a legal proceeding against the respondents in respect of loss or damage to the bankrupt estate was appropriate more than two years before the Bankruptcy Trustee Action was commenced.
28The respondents contend that the motion judge did not err in determining that there was no genuine issue requiring a trial about their limitation period defence. They say that her findings of fact reveal no palpable and overriding error, and that on the evidence, the motion judge properly rejected AssessNet’s arguments that the claim had not been discovered, including its arguments about s. 5(1)(a)(iv). In respect of s. 12, the respondents argue AssessNet could have avoided the expiry of the limitation period by commencing a proceeding to assert the bankrupt’s claims before the trustee was replaced, and then later seeking an order under s. 38 and s. 215 of the BIA nunc pro tunc.
29In my view, the motion judge applied an incorrect framework in determining the limitation period defence. As a result, she did not make the findings that were required under s. 12 to determine the limitation period issue. To be fair to the motion judge, it appears that no one argued the limitation period issue with reference to s. 12. Indeed, the parties only addressed s. 12 on the appeal after they were invited to do so in advance of the hearing. After carefully considering the motion judge’s reasons, I am not confident that her findings, in particular in relation to s. 5(1)(a)(iv) of the Limitations Act, would have been the same had she considered the issues within the correct legal framework.
Discussion
(1) Standard of Review
30Whether a limitation period has expired prior to the commencement of an action is typically a question of mixed fact and law and therefore subject to review on a “palpable and overriding error” standard, whether the determination is made at trial or on a summary judgment motion: Longo v. MacLaren Art Centre, 2014 ONCA 526, 323 O.A.C. 246, at para. 38; Crombie Property Holdings Ltd. v. McColl-Frontenac Inc., 2017 ONCA 16, 406 D.L.R. (4th) 252, at para. 31, leave to appeal refused, [2017] S.C.C.A. No. 85. Findings of fact by the court below are subject to review on a palpable and overriding error standard. However, where there is an extricable error of principle, the standard of review is correctness: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 8, 36.
(2) Legal Framework
31Section 4 of the Limitations Act provides for a basic limitation period of two years from the date of discovery of a claim. Section 5 addresses when a claim is discovered, and provides as follows:
5(1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.
32Section 12 of the Limitations Act applies to proceedings where the claimant has taken an assignment of a claim from another person or is otherwise claiming through a predecessor in right, title or interest. Subsections 12(1) and (3) provide:
12(1) For the purpose of clause 5(1)(a), in the case of a proceeding commenced by a person claiming through a predecessor in right, title or interest, the person shall be deemed to have knowledge of the matters referred to in that clause on the earlier of the following:
- The day the predecessor first knew or ought to have known of those matters.
- The day the person claiming first knew or ought to have known of them.
(3) The day on which a predecessor … first ought to have known of the matters referred to in clause 5(1)(a) is the day on which a reasonable person in the predecessor’s … circumstances and with the predecessor’s … abilities first ought to have known of them.
33Claims that have been assigned under s. 38 of the BIA engage s. 12 of the Limitations Act because the assignor of a claim is a predecessor in right, title or interest: Ridel v. Goldberg, 2019 ONCA 636, 147 O.R. (3d) 23, at para. 31. In such cases, the two-year limitation period runs from the earlier of when the predecessor or the person claiming through the predecessor knew or ought reasonably to have known of the elements of s. 5(1)(a) in relation to the claim: Ridel, at para. 14; Indcondo Building Corporation. v. Sloan, 2010 ONCA 890, 103 O.R. (3d) 445, at paras. 17-18.
34The expiry of a limitation period is raised by a defendant as an affirmative defence, and the defendant has the burden of proving that defence. When the issue is raised by a defendant in a summary judgment motion, the defendant has the onus of establishing that there is no issue requiring a trial with respect to the limitation period: Crombie Property Holdings Limited, at para. 33.
35A defendant may rely on the presumption in s. 5(2) that the claim was discovered on the day the act or omission on which the claim is based took place. In order to rebut the presumption in s. 5(2) the plaintiff need only prove that its actual discovery of the claim within the meaning of s. 5(1)(a) was not on the date of the events giving rise to the claim: Fennell v. Deol, 2016 ONCA 249, at para. 26; Morrison v. Barzo, 2018 ONCA 979, 144 O.R. (3d) 600, at para. 31; Ridel, at para. 28. Once the presumption is rebutted, the burden remains on the defendant, who is asserting the defence, to prove that the plaintiff knew or ought reasonably to have known the elements of s. 5(1)(a) more than two years preceding the commencement of the proceeding.
36Determining whether an action is statute-barred or declaring when a claim was discovered requires the court to make specific findings of fact about each element set out in s. 5 of the Limitations Act. If the record does not permit the summary judgment motion judge to make those findings with the certainty required by Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, then a genuine issue requiring a trial may exist: Nasr Hospitality Services Inc. v. Intact Insurance, 2018 ONCA 725, 142 O.R. (3d) 561, at paras. 34-39.
37In Nasr Hospitality Services Inc., at para. 35, Brown J.A. outlined the necessary findings of fact for a “typical summary judgment motion” considering a limitation period defence. However, when a creditor asserts a bankrupt’s claim taken by assignment under s. 38 of the BIA, the court must make necessary findings about when both the predecessor (i.e., the bankrupt) and the person claiming through the predecessor (i.e., the creditor) knew or ought to have known of the matters set out in ss. 5(1)(a)(i) to (iv).
(3) Analysis
(a) The Respondents, as Defendants Raising a Limitation Period Defence, Had the Burden of Proof
38The motion judge erred in her articulation and application of the burden of proof.
39The notice of action was issued on March 13, 2018. The respondents, relying on the communications between the inspectors and the respondents, argued that the claim was or ought to have been discovered before March 13, 2016. The motion judge accepted the evidence (which was not contested) that the claims concerned the post-bankruptcy period between March 12 and December 22, 2015, and she correctly treated these dates as the presumptive dates under s. 5(2). However, the motion judge then stated, at para. 28 of her reasons, that the effect of s. 5(2) of the Limitations Act is that the plaintiff bears the onus of showing that it lacked the requisite knowledge and ought not to have known the requisite facts prior to the expiry of the limitation period. This is incorrect.
40A plaintiff’s onus under s. 5(2) is to rebut the presumption that it had knowledge of the claim “on the day the act or omission on which the claim is based took place”. Accordingly, once it was established that AssessNet and its predecessor in right did not know about the claim between March 12 and December 22, 2015, then its burden under s. 5(2) was discharged. The onus then fell on the respondents to prove, under s. 12, that AssessNet or its predecessor knew or ought reasonably to have known of the matters set out in s. 5(1)(a) at least two years before the action was commenced.
41The motion judge also misstated the onus at para. 43 of her reasons when, after referring to the dates when the events that were the subject matter of the action took place, she said that the onus shifted to AssessNet to establish that there was a genuine issue requiring a trial about whether it knew or ought reasonably to have known prior to March 13, 2016 (two years before its action was commenced) that the bankrupt estate had suffered injury, loss or damage caused by the negligence or breaches of fiduciary duties of the respondents, and at para. 68 when she said that the appellant had not satisfied her that it first knew a legal proceeding would be appropriate after the trustee was replaced.
42The onus was on the respondents as defendants to establish the affirmative defence that the limitation period had expired. They also had the onus, as the moving parties on a summary judgment motion seeking to dismiss the claim, to show that there was no issue requiring a trial with respect to the expiry of the applicable limitation period. The obligation of the motion judge was then to make the necessary findings of fact with respect to the limitation period defence, and to the extent that she could not do so, she ought to have concluded that discoverability was a genuine issue requiring a trial and dismissed the summary judgment motion: Nasr, at paras. 34-39.
(b) The Bankruptcy Context Required Findings of Fact under Section 12 of the Limitations Act
43The motion judge’s second error was in failing to consider the limitation period defence within the bankruptcy context. While the reasons make it clear that the motion judge recognized that AssessNet’s claim was in respect of loss or damage to the bankrupt estate, and was a claim it had acquired by assignment from the replacement trustee, her analysis of the limitation period defence did not address the issues under s. 12, as required, or take into consideration the fact that AssessNet was only entitled to pursue the bankrupt’s claim after it obtained orders under s. 38 of the BIA (assigning a claim) and under s. 215 of the BIA (granting leave to sue a trustee). [2] The motion judge approached the matters referred to in ss. 5(1)(a)(i) to (iv) without regard to the dual roles of Persi as principal of AssessNet, a creditor, and as an inspector of the bankrupt estate.
44Section 12 of the Limitations Act applies to the determination of when a limitation period has expired where a claim has been assigned under s. 38 of the BIA: Indcondo Building Corporation, at paras. 17-18; Ridel, at paras. 14, 31. Section 12 recognizes that, in relation to an assigned claim, the limitation period begins to run from the earlier of when the predecessor or the assignee first had actual or presumed knowledge of the s. 5(1)(a) elements in relation to the claim: (i) that injury, loss or damage had occurred; (ii) that it was caused by an act or omission; (iii) that the act or omission was that of the respondents; and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek a remedy.
45The first step is to identify the “predecessor” for the purpose of s. 12, and then to determine when that party had or ought reasonably to have had knowledge of the matters listed in ss. 5(1)(a)(i) to (iv).
46The claim asserted in the Bankruptcy Trustee Action is a claim by the bankrupt against the former trustee in respect of various causes of action that are alleged to have arisen during the administration of the bankruptcy. In particular, the claim is for the respondents’ negligence in failing to prevent losses to the bankrupt estate by not supervising or controlling the conduct of Helden, 131 Ontario and the Lawyer Defendants.
47At the time the alleged acts and omissions took place (between March 12 and December 22, 2015) the respondents had charge of the bankrupt estate. Indeed, any cause of action the bankrupt had vested in Taylor Leibow under s. 71 of the BIA because, on bankruptcy, the property of the bankrupt vests in the trustee, and includes the bankrupt’s rights to sue: Douglas v. Stan Fergusson Fuels Ltd., 2018 ONCA 192, 139 O.R. (3d) 721, at para. 60, leave to appeal refused, [2018] S.C.C.A. 141; Ridel, at para. 29. Accordingly, the party with control over the claim before it was assigned − the “predecessor” for the purpose of s. 12, was, until April 29, 2016 − when the trustee was replaced, the respondent Taylor Leibow.
48The motion judge did not make a finding about whether the predecessor knew or ought to have known about the matters set out in ss. 5(1)(a)(i) to (iv). Her failure to do so however is not material, as there is nothing to suggest that the limitation period began to run in respect of the claim when it was in Taylor Leibow’s control, that is prior to April 29, 2016. The evidence before the motion judge was that Taylor Leibow did not believe it had done anything wrong. In fact, the respondents relied on an expert report on the summary judgment motion expressing the opinion there was no breach of a duty of care in the administration of the bankruptcy. And, while the alleged acts and omissions cover a period both before and after the bankrupt’s death, no one argued that the claim was discoverable within the meaning of s. 5(1)(a) by anyone, including the bankrupt, before the bankrupt’s death. [3]
49The second question under s. 12 is when AssessNet, as the assignee of the claim or the “person with the claim”, knew or ought to have known of the matters referred to in s. 5(1)(a).
50In Ridel, this court stated that it was an error for the motion judge to have considered the Ridels’ knowledge of the matters referred to in s. 5(1)(a) in relation to a claim against the bankrupt’s principal as creditors, and not as persons taking an assignment of a claim from the bankruptcy trustee. Their knowledge of the matters covered by s. 5(1)(a) did not become relevant “until they had or ought reasonably to have had the authority to pursue the claim”: at para. 52.
51Similarly, in considering AssessNet’s knowledge of the s. 5(1)(a) elements, the motion judge did not take into consideration Persi’s role as an inspector, the fact that the proposed defendants were the trustee that the creditors had appointed and that the inspectors were charged with instructing, and the fact that AssessNet could not simply commence an action against the trustee without first obtaining an assignment of the claim under s. 38, and an order under s. 215 authorizing the commencement of an action. In other words, the motion judge did not consider when AssessNet, in the particular circumstances, became, or ought to have become “the person with the claim” to whom s. 5(1) applied: Ridel, at paras. 48, 53. Instead, the motion judge considered the issue of knowledge of the various matters under s. 5(1)(a) as though AssessNet was a claimant in its own right, and not as a party who had obtained the assignment of a claim in a bankruptcy.
52The motion judge relied on the exchange of communications between the inspectors and the respondents as evidence that AssessNet knew as early as February 22, 2016, that there was negligence by the respondents in the conduct of the bankruptcy that had caused harm to the bankrupt estate. With respect to s. 5(1)(a)(iv), placing the onus on the appellant, she stated that AssessNet had not satisfied her that the first time it actually knew a legal proceeding would be an appropriate means to seek a remedy against the trustee was not until after the trustee had been replaced: at para. 68; and that “further AssessNet [pointed] to no authority for the proposition that it would not have been appropriate to ask the Trustee to commence proceedings against itself”: at para. 69.
53I am not persuaded that the motion judge’s findings concerning s. 5(1)(a), in particular in relation to s. 5(1)(a)(iv), would have been the same if she had considered the issues in the context of s. 12 of the Limitations Act and Persi’s dual role as inspector of the bankrupt and principal of a creditor that ultimately took an assignment of the claim asserted in the Bankruptcy Trustee Action, and if she had applied the correct burden of proof.
54The question under s. 5(1)(a)(iv) is when the “person with the claim” knew that the proceeding would have been an appropriate means to seek to remedy the injury, loss or damage caused by the defendant. The “appropriate means” analysis “depends upon the specific factual or statutory setting of each individual case”: Nasr Hospitality Services Inc., at para. 46; see also Dass v. Kay, 2021 ONCA 565, at para. 26, leave to appeal refused, [2021] S.C.C.A. No. 379. Whether a proceeding is an appropriate means to remedy a claimant’s damage, injury or loss “turn[s] on the facts of each case and the abilities and circumstances of the particular claimant”: Fercan Developments Inc. v. Canada (Attorney General), 2021 ONCA 251, 157 O.R. (3d) 81, at para. 16.
55In the present case there are a number of factors that are relevant to the “appropriate means” analysis that would need to be considered. At the time Persi was not only the principal of AssessNet, but an inspector who had statutory duties to oversee the administration of the estate, to instruct the trustee and to authorize the trustee to commence legal proceedings relating to the property of the bankrupt: see BIA, s. 30(1). At the time that he and the other inspector became aware of a possible claim against the respondents, as the creditors’ representatives they owed fiduciary duties to the general body of creditors: Impact Tool & Mould Inc. (Estate Trustee of) v. Impact Tool & Mould Inc. (Interim Receiver of) (2006), 79 O.R. (3d) 241 (C.A.), at para. 28. Among other things, Persi’s reliance on the lawyer Jackson’s advice that Savage was doing a good job, and the steps taken by the respondents against Helden, 131 Ontario and the Lawyer Defendants, including obtaining several orders at the insistence of the inspectors, ought to have been considered in the context of such duties. And, before commencing the action asserting the bankrupt’s claim against the respondents in its own name, AssessNet would have had to obtain an order under s. 38 of the BIA and leave of the court under s. 215. In these circumstances, when would it have been legally appropriate to have commenced the proceeding – that is to assert a claim by AssessNet in the name of the bankrupt?
56The respondents contend that, under s. 5(1)(a)(iv), AssessNet could have avoided the expiry of the limitation period by commencing the Bankruptcy Trustee Action without complying with s. 38 or s. 215 of the BIA, and later seeking an order nunc pro tunc to validate the action. This argument is misplaced. The issue is not what AssessNet could have done to avoid the running of the limitation period, but whether, on the facts of the case and considering its abilities and circumstances AssessNet ought reasonably to have known that the proceeding was appropriate.
57In my view, in any event, encouraging creditors to commence lawsuits and then seek nunc pro tunc orders to cure procedural irregularities is inconsistent with the BIA’s purpose of providing for the orderly administration of the bankrupt’s affairs. There is good reason for not wanting to encourage creditors, acting as inspectors, to be required to prematurely institute a proceeding because of knowledge gained in their roles as inspectors. In 407 ETR Concession Company Limited v. Day, 2016 ONCA 709, 133 O.R. (3d) 762, at para. 48, leave to appeal refused, [2016] S.C.C.A. No. 509, Laskin J.A. observed that it seemed to him that “one reason why the legislature added ‘appropriate means’ as an element of discoverability was to enable courts to function more efficiently by deterring needless litigation”: see also Tracy v. Iran (Information and Security), 2017 ONCA 549, 415 D.L.R. (4th) 314, at para. 79, leave to appeal refused, [2017] S.C.C.A. No. 359.
Disposition
58For these reasons, I would allow the appeal, set aside the dismissal of the Bankruptcy Trustee Action, and direct the limitation period issue to proceed to trial, without prejudice to either party bringing a new summary judgment motion to determine the issue. I would award costs of the appeal to AssessNet in the agreed amount of $20,000, inclusive of disbursements and HST. If the parties cannot agree on costs of the motion in the court below, they may provide written submissions of no more than three pages each, within ten days of the release of this decision.
Released: September 6, 2023 “K.M.v.R.” “K. van Rensburg J.A.” “I agree. Grant Huscroft J.A.” “I agree. J. George J.A.”
1Subsection 38(1) provides that “where a creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct”. Subsection 38(2) provides: “On an order under subsection (1) being made, the trustee shall assign and transfer to the creditor all his right, title and interest in the chose in action or subject-matter of the proceeding, including any document in support thereof.
2Section 215 of the BIA requires that permission of the court be obtained to bring an action against a licensed insolvency trustee with respect to any action taken under the BIA.
3In Re Flight, 2022 ONCA 526, 162 O.R. (3d) 641, at para. 66, leave to appeal refused, [2022] S.C.C.A. No. 480, this court left open the question of whether a bankrupt retains the right to sue its trustee in bankruptcy, notwithstanding that any cause of action vests in the trustee. In this case, it is also unnecessary to resolve the issue. As noted, there was no argument the claim was discoverable by the bankrupt before his death.
