Court of Appeal for Ontario

Date: March 15, 2018 Docket: C63272

Judges: Laskin, Feldman and Miller JJ.A.

Between

Faigie Abrahamovitz and Frances Spiro Plaintiffs (Respondents)

and

Mark Berens, Megapro Property Management Ltd., 3030 Danforth Ltd., T.W.M. Consolidated Holdings Inc., and Lois Kalchman Defendants

Counsel

Samuel S. Marr and Zachary Silverberg, for the appellant, the Estate of Gabriel Zimmerman

David P. Jacobs, for the respondents

Heard: August 21, 2017

On appeal from: the order of Justice Robert F. Goldstein of the Superior Court of Justice, dated January 11, 2017, with reasons reported at 2017 ONSC 184.

Feldman J.A.:

A. Introduction

[1] The respondents, Faigie Abrahamovitz and Frances Spiro, are two of four shareholders of a holding company that owns a commercial property. They brought this action against the defendants, claiming their full share of the annual rental income from the property.

[2] One of the defendants, Megapro Property Management Ltd., has been the manager of the property since late 2009, following the illness and death of the prior property manager, Gabriel Zimmerman. It has collected the rents, but is holding back part of the entitlement of the respondents because of a claim to part of their share of the funds by the Estate of Mr. Zimmerman. That claim is based on two separate Acknowledgements purporting to be signed by each of the respondents in 2002. The Acknowledgements gave Mr. Zimmerman a 25% interest in the respondents' respective entitlements to the rental and sale proceeds of the property.

[3] In 2011, the respondents sued Megapro and the other defendants for the funds Megapro has been holding back. In 2016, the defendants brought the motion under appeal for an order adding the Estate as a necessary party to the action. The defendants also sought an interpleader order allowing Megapro to pay the funds it is holding into court to await the outcome of the issue of the validity and effect of the Acknowledgements. The Estate participated in the motion, supporting the defendants' argument that it should be added as a necessary party to the action.

[4] The motion judge dismissed the defendants' motion on the basis that the Estate's claim is statute barred, as Mrs. Zimmerman, the Estate trustee, discovered the Acknowledgements in 2010 following her husband's death. On this appeal, the appellant is the Estate. The defendants did not participate on the appeal.

B. Factual Background to the Motion

(1) Acquisition and Management of the Property on Danforth Avenue

[5] In September 1982, the defendant, 3030 Danforth Ltd., purchased the property at 3026-3032 Danforth Avenue in Toronto. 3030 Danforth was incorporated for the purchase in order to reflect the ownership interests of the share owners as follows: Faigie Abrahamovitz, 2 common shares; Frances Spiro, 1 common share; T.M.W. Consolidated Holdings Inc., 2 common shares; and Michael Berens, 1 common share.

[6] The relationships between the various parties are as follows. The defendant, Lois Kalchman, was Michael Berens' niece. Upon his death, she inherited his common share in the property. The defendant, Mark Berens, was Michael Berens' nephew. Mark Berens is a director and officer of the defendants, Megapro, 3030 Danforth, and T.M.W. He and Mr. Zimmerman were law partners before Mr. Zimmerman died in 2010. The respondent, Mrs. Spiro, was Mr. Zimmerman's sister; the respondent, Mrs. Abrahamovitz, is married to Mr. Zimmerman's cousin. Mrs. Blanca Zimmerman is the widow of Gabriel Zimmerman and the Estate trustee.

[7] Mr. Zimmerman managed the Danforth property from 1982 and collected a management fee for this service until he became ill in 2009. In 2002, he began to collect an extra fee from the respondents, pursuant to a signed Acknowledgement from each of them, which gave him a 25% interest in the respondents' respective shares of the rental income and the right to purchase 25% of their respective interests in the property for $1 if it were to be sold.

[8] Megapro began managing the Danforth property following Mr. Zimmerman's illness and continued managing the property following his death in August 2010. When Blanca Zimmerman learned about the Acknowledgements after her husband's death in the fall of 2010, she told the respondents she was seeking to enforce the Acknowledgements, and brought them to the attention of Mark Berens, claiming an ongoing right to 25% of the interests of the respondents.

[9] That claim is contested by the respondents, who deny signing the Acknowledgements. A lawyer retained by Mrs. Abrahamovitz sent a letter to Mark Berens on behalf of Megapro on December 22, 2010, demanding that no further funds be paid to the Estate and that the full amount of the respondents' share of the rents be paid out to them.

[10] In March 2011, a letter from Mark Berens advised that Megapro would not distribute any funds to the respondents or the Estate until their dispute was resolved, and that Megapro would await that resolution. It also indicated that Megapro would pay the monies into court if the matter proceeded to litigation.

(2) The Pleadings in the Underlying Action

[11] The respondents issued their statement of claim against the defendants, but not against the Estate, in September 2011, claiming that there was no legal impediment to the payment of the rents collected by Megapro. The respondents requested the funds be paid in accordance with the shareholdings of the shareholders of 3030 Danforth.

[12] The statement of defence acknowledged the respondents' claims, claimed no interest over the money, and stated that the defendants were prepared to pay all disputed funds into court. The defendants pleaded that they had held back the rents because of the Acknowledgements, which purported to entitle the Estate to a portion of the respondents' rental income.

[13] The respondents delivered a reply, where they denied signing the Acknowledgements, pleading in the alternative that the Acknowledgements were void.

[14] There is no pleading that the claim of the Estate is statute barred.

(3) The Motion to Add the Estate as a Necessary Party

[15] The action remained outstanding as of 2016. In April 2016, the defendants' lawyer sent a letter to the Estate, inviting the Estate to assert an interest in the disputed funds. That letter was forwarded to the respondents, together with a separate letter from the defendants' lawyer indicating that the Estate had confirmed it intended to assert its interest, and requesting that the Estate be added as a party to the action on consent.

[16] When consent was not granted by the respondents, in June 2016 the defendants brought the motion for an order to add the Estate as a necessary party to the action under r. 5.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and also moved for an interpleader order to allow them to pay into court the outstanding undistributed funds in the amount of $67,000, and release them from liability for that amount. Under the grounds pleaded for the interpleader order, Megapro stated that it remained "willing to deposit the undistributed rental profits with the court or dispose of it as the court directs."

[17] The Estate was made a party to the motion and joined in the request to be added as a party to the action. The Estate's position (and that of the defendants) was in essence that the validity of the Acknowledgements had to be determined in order to determine which party is entitled to the funds.

C. The Decision of the Motion Judge

[18] The motion judge set out the positions of the parties to the motion: the defendants sought to add the Estate as a necessary party that was required to adjudicate the issues effectively, while the respondents raised a limitation issue, taking the position that the limitation period for the Estate to bring an action had expired. They also asserted that the test for adding a necessary party had not been met. The Estate's position was that its cause of action had not yet crystallized because the property had not been sold, nor the rental proceeds distributed.

[19] The motion judge determined that the Estate's claim had crystallized and was discovered in August 2010, shortly after the death of Gabriel Zimmerman, when Mrs. Zimmerman found the Acknowledgements and relied on them to claim from Megapro payment of 25% of the respondents' rents. The motion judge concluded that the limitation period under s. 4 of the Limitations Act, 2002, S.O. 2002 c. 24, Sch. B applied, that the Estate's claim was statute barred, and that s. 21(1) of the Act prevented adding the Estate to the proceeding.

[20] The motion judge added that had the claim not been statute barred, then "it is likely that the Estate would have been added as a party." In making this conclusion, the motion judge followed Molloy J.'s reasons in Ontario Federation of Anglers and Hunters v. Ontario (Minister of Natural Resources and Forestry), 2015 ONSC 7969, 128 O.R. (3d) 501, at paras. 10-11, regarding adding necessary parties under r. 5.03.

D. Issue

[21] Did the motion judge err in dismissing the motion on the basis that the Estate's claim is statute barred?

E. Analysis

[22] Section 4 is the basic limitation section of the Limitations Act, 2002 and provides:

Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

(1) The Statement of Defence Already Pleads the Estate's Claim

[23] The Estate argues on the appeal that even if its claim was known in 2010, because the statement of defence pleads all of the facts regarding the Acknowledgements that it relies on, its claim has essentially been pleaded and has therefore already been commenced in the action before the court. For that reason, the Estate's claim is not statute barred, and adding the Estate as a party would not amount to commencing a new claim within the meaning of s. 4 of the Limitations Act, 2002.

[24] I would not accept this argument for two reasons. First, the Estate has not commenced any proceeding or claimed any relief. The essence of this argument amounts to invocation of the old common law doctrine of special circumstances that no longer applies under the Limitations Act, 2002. See: Joseph v. Paramount Canada's Wonderland, 2008 ONCA 469, 90 O.R. (3d) 401. The Estate is essentially saying that because all of the facts have already been pleaded in the action, there is no surprise and no prejudice to the defendants (or other parties) to allow the Estate to be added as a party now, even though the limitation period has expired.

[25] That was what occurred in the case of Thoman v. Fleury (1996), 28 O.R. (3d) 398 (C.A.), decided under the former Limitations Act, R.S.O. 1990, c. L.15, where the doctrine of special circumstances was applied.

[26] In Thoman, the plaintiffs brought a motion to add Thoman as a defendant in an action relating to a motor vehicle accident. Thoman was already a plaintiff in the larger action, claiming damages under the Family Law Act, R.S.O. 1990, c. F.3. She was also the owner of the car in which the accident occurred. The court noted that the claim against Thoman was technically statute barred, but could be saved by applying the doctrine of special circumstances. The court observed that her addition made no difference to the defendant insurer, as it had pleaded all the defences it would have pleaded had Thoman been named as a defendant from the outset. The court relied on a relevant special circumstance identified by the Supreme Court in Basarsky v. Quinlan, [1972] S.C.R. 380: that "all of the facts [underpinning the new claim] were pleaded in the original statement of claim".

[27] While this approach may well have assisted the Estate under the former Act and the common law, as this court explained in Canada's Wonderland, the current Limitations Act, 2002 is intended to be comprehensive and does not allow a party to be added after the limitation period has expired on the basis of "special circumstances." The doctrine of special circumstances is a common law principle which is no longer applicable under the new Act.

[28] Second, to give effect to the Estate's submission would allow one party to assert another party's claim, and effectively toll the limitation period for that party indefinitely beyond the two-year limit, regardless of that party's discovery of its claim. Such a result would be contrary to the scheme of the Act.

(2) The Statement of Defence Does Not Plead a Limitations Defence

[29] Although I would not give effect to the submission by the Estate that it is entitled to relief because the statement of defence already pleads its claim, the fact that the defendants have pleaded those facts in order to put the issue of the validity of the Acknowledgements before the court and did not raise any limitation argument, made it an error for the motion judge to find that the Estate's claim was statute barred.

[30] This court explained in Beardsley v. Ontario (2001), 57 O.R. (3d) 1 (C.A.), at para. 21 that "the expiry of a limitation period does not render a cause of action a nullity; rather, it is a defence and must be pleaded". See also: Strong v. Paquet Estate (2000), 50 O.R. (3d) 70 (C.A.), at paras. 35-37; Tran v. University of Western Ontario, 2016 ONCA 978, 410 D.L.R. (4th) 527, at para. 18; and Salewski v. Lalonde, 2017 ONCA 515, 137 O.R. (3d) 750, at para. 43.

[31] There are two aspects to the statement from Beardsley. One is that from a procedural fairness point of view, a plaintiff is entitled to plead in response to a limitations defence, so that if a motion is brought to dismiss the claim, the court will have all the facts relied on to assess discoverability, or whatever other factors a plaintiff may wish to raise in response: Beardsley, at para. 22; Strong Estate, at para. 38; Metropolitan Toronto Condominium Corp. No. 1352 v. Newport Beach Development Inc., 2012 ONCA 850, 113 O.R. (3d) 673, at paras. 115-116; and Greatrek Trust S.A./Inc. v. Aurelian Resources Inc., [2009] O.J. No. 611 (Ont. S.C.J.), at para. 18.

[32] The requirement that an affirmative defence, including a limitations defense, be pleaded to avoid surprise to the opposite party is reflected in r. 25.07(4) of the Rules of Civil Procedure, which provides:

In a defence, a party shall plead any matter on which the party intends to rely to defeat the claim of the opposite party and which, if not specifically pleaded, might take the opposite party by surprise or raise an issue that has not been raised in the opposite party's pleading.

[33] The second aspect of the statement from Beardsley, however, is more germane to this case. A limitations defence is "just that, a defence": Lacroix (Litigation Guardian of) v. Dominique, 2001 MBCA 122, 202 D.L.R. (4th) 121, at para. 18. A defendant chooses whether or not to rely on a limitations defence, but is not obliged to do so: Graeme Mew, Debra Rolph, & Daniel Zacks, The Law of Limitations, 3rd ed. (Toronto: LexisNexis Canada Inc., 2016) p.166. See e.g.: Strong Estate, at paras. 35-40; and Girsberger v. Kresz (2000), 50 O.R. (3d) 157 (C.A.), at para. 13.

[34] The fact that the choice belongs to the defendant is codified in s. 22 of the Limitations Act, 2002, which allows a limitation period to be suspended or extended by agreement.

[35] This is a very important and useful provision that allows parties to a potential claim to suspend the running of a limitation (toll the limitation period) to allow them to conduct investigations or settlement discussions, without pressure on the claimant to commence the action unnecessarily. It promotes judicial economy and is cost-effective for the parties.

[36] Obviously, this provision would be ineffective if another party could assert the limitation period in spite of the defendant's agreement to toll the limitation period, or if the action became a nullity on the expiry of the limitation period. See for example, Schreiber v. Lavoie (2002), 59 O.R. (3d) 130 (S.C.J.), where a third party was not entitled to rely on r. 29.05(1) (a rule which allows a third party to plead a defence not raised by the defendant) to assert a limitations defense that the defendant had expressly agreed it would not rely on.

[37] In this case, it was neither the pleading nor the position of the defendants, at any time in this litigation, that the Estate's claim is statute barred. To the contrary, the defendants were the ones who invited the Estate to assert its claim in 2016, and who initiated the motion to add the Estate as a party to the action when the respondents would not consent to add the Estate.

[38] The defendants have also continued to collect and retain the portion of the rents belonging to the respondents on the basis that the Acknowledgements, if valid, make part of those rents payable to the Estate. They have assured the Estate trustee, Mrs. Zimmerman, that they were holding the funds to await the outcome of the litigation. Therefore, not only has there been no pleading of a limitations defence, but the defendants have made it clear by their actions that they do not rely on such a defence.

(3) The Estate's Claim is Against the Defendants, not the Respondents

[39] While the defendants never raised any limitations defence, it was the respondents (the plaintiffs) who took the position on the motion that the Estate's claim was statute barred. The respondents had no standing to do so. By giving effect to their submission, the motion judge erred in law by treating the respondents as if they were defendants in an action by the Estate.

[40] The respondents sued the defendants for payment of the full amount of their share of the rents that Megapro collected from the Danforth property. They did not sue the Estate because they seek no relief against the Estate, which does not have the money. Similarly, the Estate wants Megapro to pay it the same funds. The Estate did not sue the respondents for the same reason that the respondents did not sue the Estate: it claims no relief against the respondents because they do not have the money. Although the common issue of the validity of the Acknowledgements will determine which party is entitled to the funds from the defendants, there is no lis between the respondents and the Estate because neither claims any relief against the other. Either party can only obtain relief by claiming against the party that currently holds the funds: the defendants.

[41] The Estate could have sued the defendants, just as the respondents did, but there was no need to do so, as Mark Berens assured Mrs. Zimmerman he would pay her if the court determined that the Acknowledgements were valid.

[42] By approaching the issue on the motion as if it concerned a claim brought by the Estate against the respondents, the motion judge erred in allowing the respondents to assert a limitations defence against the Estate. As the claim of the Estate is against the defendants, the right to raise a limitations defence lies with them, not the respondents.

(4) Adding the Estate as a Necessary Party

[43] Rule 5.03(1) of the Rules of Civil Procedure provides for the addition of a necessary party as follows:

Every person whose presence is necessary to enable the court to adjudicate effectively and completely on the issues in a proceeding shall be joined as a party to the proceeding.

[44] I agree with the motion judge that if there is no limitation issue, then the reasons of Molloy J. in Ontario Federation, at paras. 10-11, are apt regarding the addition of necessary parties under r. 5.03(1):

In determining whether a person is a "necessary party" the court must consider whether they are likely to be affected or prejudiced by the order being sought. If the order sought will determine the rights of a person who is not a party, that person is entitled to be added so that his voice will be heard before his rights are determined.

One of the main purposes underlying these Rules is to ensure that all parties are before the court when an order is made affecting their rights. This will avoid a multiplicity of proceedings and the risk of inconsistent results.

[45] The Estate is a necessary party to the action to ensure that it will be bound by the court's determination of the issue of the validity of the Acknowledgements. Otherwise, that issue could be re-litigated with the risk of inconsistent verdicts, if the Estate were to sue the defendants for payment in a separate action. Subsection 21(1) of the Act does not bar the addition of the Estate because, as explained, where the defendants have not pleaded a limitations defence, the Estate's claim against the defendants has not expired.

F. Result

[46] I would therefore allow the appeal, set aside the decision of the motion judge, and order that the Estate be added as a party to the action. As the defendants did not appeal the decision of the motion judge, the issue of whether they may interplead and pay the funds into court is not before the court on the appeal.

[47] Costs of the appeal in the agreed amount of $5,000, inclusive of disbursements and HST, are payable by the respondents to the Estate.

Released: March 15, 2018

"K. Feldman J.A."

"I agree. John Laskin J.A."

"I agree. B.W. Miller J.A."

Footnote

[1] Subsection 21(1) of the Act provides: "If a limitation period in respect of a claim against a person has expired, the claim shall not be pursued by adding the person as a party to any existing proceeding."