Zhao v. Li

Ontario Reports Court of Appeal for Ontario

K.N. Feldman, D.M. Brown and Zarnett JJ.A.

February 13, 2020

149 O.R. (3d) 353 | 2020 ONCA 121

The defendant and two other individuals incorporated a company under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 to operate a dry-cleaning business. In February 2010, the plaintiff purchased the shares of one of the original shareholders for $104,000, representing just over a one-third interest. In June 2010, the defendant was charged with assault and uttering a death threat against the plaintiff, with the result that the plaintiff did not attend the business premises again until March 2011, when the defendant signed a peace bond. In June and July 2011, the defendant told the plaintiff that the business could no longer afford to pay rent on the premises. The landlord also told the plaintiff that the rent was in arrears. Also in July, the plaintiff agreed to a sale of the business for $20,000. In September 2011, the plaintiff attended the premises to find a new dry-cleaning business operating there under a different name. In February 2012, she learned that the defendant had filed articles of dissolution in October 2011. On October 31, 2013, the plaintiff issued a statement of claim alleging that the defendant unilaterally dissolved the business without the plaintiff's approval, authority or knowledge; failed to pay proceeds of any sale or transfer of the business; and failed to account for or pay any profits of the business to the plaintiff since June 2010. The defendant moved successfully for summary judgment to dismiss the action on the basis that it was commenced after the expiry of the two-year limitation period. The plaintiff appealed.

Held, the appeal should be allowed in part.

The claims regarding failure to pay proceeds of sale and failing to account for profits were barred, but the claim regarding unauthorized dissolution of the business was not. There were three separate claims underpinned by three separate acts. A failure to distribute profits was said to have occurred beginning in June [page354] 2010. An unauthorized transfer or sale of the business was said to have occurred before September 2011. The alleged unauthorized dissolution of the corporation occurred in October 2011. They did not constitute ongoing oppression but were singular discrete oppressive acts because they were different acts occurring at different times and none was dependent on either of the others having happened for oppression to be said to have occurred. By September 2011, the plaintiff was aware that the business was no longer operating out of its leased premises and a new owner was operating a similar business from the premises. She was also aware by then that she had not received payments from any of the corporation's profits. Thus, the motion judge was entitled to find that the proceeds of sale claim and profits distribution claim were discoverable by then and that those claims were barred. However, discovery of those acts of oppression did not start the clock for future acts of oppression. The corporate dissolution claim was not discoverable in September 2011 because the dissolution had not yet occurred and it did not follow from the motion judge's findings that the corporate dissolution claim should have been discovered before October 30, 2011.

Maurice v. Alles (2016), 130 O.R. (3d) 452, 2016 ONCA 287, apld

Other cases referred to

Hryniak v. Mauldin, [2014] 1 S.C.R. 87, [2014] S.C.J. No. 7, 2014 SCC 7; Kassburg v. Sun Life Assurance Co. of Canada (2014), 124 O.R. (3d) 171, 2014 ONCA 922

Statutes referred to

Business Corporations Act, R.S.O. 1990, c. B.16, s. 248 [as am.] Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, ss. 4, 5(1)

APPEAL by the plaintiff from the summary dismissal of oppression action of H. McArthur J., 2019 ONSC 917 (S.C.J.).

Jean-Alexandre De Bousquet, for appellant. Shini Bhatt, for respondent.

The judgment of the court was delivered by

ZARNETT J.A. : —

I. Introduction

[1] The appellant appeals the summary judgment that dismissed her action against the respondent as having been commenced after the applicable limitation period expired. The resolution of the appeal turns on how the limitation period under s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, applies to oppression remedy claims under the Ontario Business Corporations Act, [page355] R.S.O. 1990, c. B.16 ["OBCA"], when the claims arise from a series of oppressive acts alleged to have occurred at different times.

[2] The appellant's principal submission is that even if some of the oppressive acts or omissions complained of in her statement of claim were discoverable more than two years before she commenced her action, one of them was not, namely the dissolution of the corporation in which the appellant held shares without any authorization from its shareholders or any notice to her. She submits that because of this her action, or at least the claim about the corporate dissolution, ought to have been allowed to continue to trial.

[3] I agree with the appellant that the corporate dissolution claim was not statute-barred. However, the motion judge's conclusion was correct with respect to the other claims in the action -- they are statute-barred. I would therefore allow the appeal in part.

II. The Facts

[4] 2102097 Ontario Inc. (the "Corporation") was incorporated in May 2006 pursuant to the OBCA. It carried on a dry-cleaning business under the name "Perfect Cleaner" from rented premises on Mount Pleasant Road in Toronto. The respondent and two other individuals were its original shareholders. The respondent owned 42.59 per cent of the shares, Mr. Bing Wang owned 17.59 per cent, and a third shareholder owned 39.81 per cent.

[5] The appellant purchased the third shareholder's shares, representing a 39.81 per cent interest in the Corporation, for $104,000 in February 2010.

[6] On February 12, 2010, the appellant, the respondent and Mr. Wang met and reached a number of agreements, including the following:

• the appellant had a 39.81 per cent ownership interest in Perfect Cleaner and would assume responsibilities for quality control and human resources;
• the respondent had a 42.59 per cent ownership interest in Perfect Cleaner and would serve as president and director. He would be responsible for running the day to day operations of the business, including the responsibility of handling all financial matters, in the interest of and for the benefit of all owners; [page356]
• the third owner, Mr. Wang, had a 17.59 per cent ownership interest in Perfect Cleaner;
• the appellant would have "voting rights, receipt of dividends and entitlement to the value of Perfect Cleaner upon event of its dissolution or winding up";
• the appellant would be paid wages for her work at the business;
• the consent of 50 per cent or more of the shareholders would be required to pass resolutions; and
• all three shareholders "expressed an intention to sell the business for $250,000 -- $300,000, if such an offer ever became available".

[7] The appellant did not receive back any part of her investment. She received no dividends or other payments.

[8] In June 2010, the respondent was charged with assault and uttering a death threat against the appellant. As a result, the appellant did not attend Perfect Cleaner's premises until the respondent signed a peace bond in March 2011. Between March and August 2011, the appellant regularly attended and checked on the business. Although she testified that the business seemed to be operating normally and she did not see any indication of issues or problems, the motion judge noted that there were contrary indications.

[9] In June and July 2011, the respondent told the appellant that he had stopped paying rent on the premises because the business could not afford it. In the summer of 2011, a representative of the landlord also told the appellant that rent was in arrears. The appellant testified that she did not believe the respondent or the landlord.

[10] In July 2011, the appellant was told by the respondent of a proposed sale of the business for $20,000 to which she agreed, subject to Mr. Wang being consulted. She heard nothing further about the proposed sale. The motion judge observed that it made little sense for the appellant to have agreed to such a sale unless there were financial difficulties in the business.

[11] On September 3, 2011, the appellant attended Perfect Cleaner's premises. She found a new dry cleaning business operating there under a different name. The person in charge of the new business, described by the appellant as the "new owner", told her he had purchased the business from the landlord.

[12] In her affidavit, the appellant testified that she was "confused and shocked" by this development. She deposed to a list of things that she thought might have occurred consistent with her [page357] still receiving value from the business including, for example, the business having moved locations or having entered into a sublease. However, none of these possibilities were based on anything the respondent, with whom she did not communicate, told her.

[13] Between September and December 2011, the appellant inquired of friends about what she could do to find out what happened to her business. In February 2012, she learned that she could obtain a corporate profile report. On February 25, 2012, she obtained one that revealed the respondent had filed Articles of Dissolution for the Corporation on October 12, 2011. The appellant had not given consent to a corporate dissolution.

[14] Further, in December 2011, the appellant was directed by the Canada Revenue Agency to pay tax on a dividend she allegedly received from Perfect Cleaner, although she had received no such dividend. In January 2012, she sued the respondent in Small Claims Court and obtained judgment against him for the amount of the alleged dividend ($2,883).

III. This Action

[15] On October 31, 2013, the appellant commenced this action claiming damages, punitive damages, and an accounting and tracing of revenues and sale proceeds generated by the Corporation. The statement of claim references various legal theories including breach of contract, breach of trust, unjust enrichment and the oppression remedy in the OBCA. The argument before us proceeded on the oppression remedy basis and there was no suggestion the limitation period analysis would be more favourable to the appellant if another legal theory were considered. Accordingly, I approach the matter on the basis that the oppression remedy is the theory on which the appellant is proceeding.

[16] The statement of claim essentially pleads three acts or omissions of the respondent that underpin the claims alleged:

(a) the respondent unilaterally dissolved the business without the approval, authority, or knowledge of the appellant (the "corporate dissolution claim");

(b) the respondent failed to pay proceeds of any sale or transfer of the business, including the value of any assets owned by the business at the time of the sale or transfer, to the appellant (the "sale claim"); and

(c) the respondent failed to account for or pay any profits of the business to the appellant since June 2010 (the "profits distribution claim"). [page358]

IV. The Motion Judge's Decision

[17] The respondent moved successfully for summary judgment on the sole basis that the action was brought after the expiration of the applicable limitation period and was thus statute-barred.

[18] The evidence before the motion judge disclosed factual disputes about the merits of the appellant's claims. For example, the respondent disputed that an unauthorized sale was the reason Perfect Cleaner was not operating from its premises as of September 3, 2011. He asserted the business had been forced to close for financial reasons. In reaching her conclusion that summary judgment should be granted, the motion judge found the record to be sufficient to make the necessary findings of fact and apply the law to them to decide the limitation period issue. She considered the factual issues that were in dispute to be irrelevant to the limitation period issue. Essentially, she considered the limitations issue on the assumption that the appellant would be able to prove the facts she alleges to support her claims.

[19] The motion judge applied the test in s. 5(1) of the Limitations Act, 2002 to the question of when the appellant's claims were discovered or ought to have been discovered. She found that by September 3, 2011, the appellant knew or ought to have known that she had suffered injury, loss, or damage because she knew at that point that Perfect Cleaner was gone, a new dry- cleaning business with new owners was operating at the premises, and she had received no money from any sale or transfer of the business or any dividends from Perfect Cleaner's operations. She also knew or ought to have known by that date that the injury, loss, or damage was caused by or contributed to by [page359] the respondent's acts or omissions because he was responsible for Perfect Cleaner's day to day operations and financial matters. The appellant also knew or ought to have known by that date that a legal proceeding was the appropriate means to seek a remedy for her injury, loss, or damage.

[20] Accordingly, the motion judge held that the limitation period in s. 4 of the Limitations Act, 2002 had expired before the action was commenced, and she granted summary judgment dismissing the action.

V. Analysis

(1) The issues

[21] The appellant submits that the motion judge's analysis ignores her corporate dissolution claim. She argues that the unilateral dissolution of the Corporation was an oppressive act that was not discoverable as of September 3, 2011. Articles of Dissolution were filed by the respondent only on October 12, 2011. The appellant discovered the dissolution in February 2012. The motion judge made no finding that a reasonable person would have discovered the dissolution earlier; she made no finding that the appellant knew or ought to have known about the dissolution by October 30, 2011, that is, more than two years before the action was commenced.

[22] In her factum, the appellant's position was essentially that the entire action, for all three pleaded acts or omissions, ought to have been allowed to proceed. In oral argument, the appellant focused on the position that even if other claims in the action were statute-barred, the corporate dissolution claim ought to be allowed to proceed.

[23] The respondent argues that the motion judge reached the right conclusion and the result below should be unaffected by the date of the corporate dissolution or its discoverability.

(2) Discussion

[24] Neither counsel cited any case law that dealt with the application of the limitation period when an alleged series of oppressive acts committed at different times are at issue. During oral argument, the panel asked counsel about this court's decision in Maurice v. Alles (2016), 130 O.R. (3d) 452, 2016 ONCA 287, which deals with this question.

[25] For ease of analysis, I begin with a discussion of the principles derived from Maurice, and why they apply here. I then turn to the question of whether the entire action can proceed because of the timing of the corporate dissolution. I then consider the [page360] question of whether the corporate dissolution claim alone should have been allowed to proceed.

(i) The principles

[26] Maurice concerned an application under the oppression remedy in the OBCA that had been dismissed on a limitation period basis. The motion judge had found that there was oppressive conduct discoverable more than two years before the application was commenced. This court reversed the decision, holding that since there was oppressive conduct complained of that occurred within two years of the commencement of the application, the claim could continue with respect to that later conduct.

[27] In so concluding, the court held that s. 4 of the Limitations Act, 2002 applies to claims under the OBCA oppression remedy, and therefore, an action for oppression must be commenced within two years of the discovery of a potential claim for oppression: at paras. 3 and 43 [of Maurice]. In considering how that rule applied when oppressive conduct is alleged to have occurred over a period of time, the court noted a divergence of case law regarding the application of the limitation period to cases of "ongoing oppression": at paras. 36-42 [of Maurice]. But on the facts, the court held that the series of oppressive acts complained of did not constitute "ongoing oppression", and accordingly, it was not necessary to define the exact limitation period consequence of a finding of "ongoing oppression". What the court did establish is the approach to be followed where singular discrete oppressive acts committed at various times are alleged.

[28] Maurice stands for the proposition that where what is complained of is a series of singular discrete acts of oppression over a period of time, claims arising from the acts committed or discoverable within two years of the action are not statute-barred, even if the series of acts commenced, and claims for earlier oppressive acts in the series were discoverable, more than two years prior to the commencement of the action. A later oppressive act, even if based on or in furtherance of earlier oppressive acts, gives rise to a new cause of action because it is new oppressive conduct: at paras. 3 and 50-54 [of Maurice].

[29] Although not expressly stated in Maurice, it follows that claims arising from singular discrete acts of oppression (in a series of such acts) that are discoverable more than two years before an action are statute-barred. As a result, a series of singular discrete acts of oppression that stretches over a period of time may result in some claims for oppression arising from earlier acts in the series being statute-barred while claims arising from later acts in the series are not. [page361]

(ii) Is this a case alleging singular discrete oppressive acts?

[30] In my view, the approach in Maurice applies because, as was the case there, what is alleged here are singular discrete oppressive acts, rather than "ongoing oppression". I reach that conclusion for the following reasons.

[31] A failure to distribute profits is the alleged act that underpins the profits distribution claim. It is said to have occurred beginning in June 2010. A different act, an unauthorized transfer or sale of the business without at the time of sale accounting for the proceeds, is the alleged act that underpins the sale claim. That act is said to have occurred sometime before September 3, 2011. A still different act, the unauthorized dissolution of the Corporation, is the alleged act that underpins the corporate dis-solution claim. It occurred in October 2011.

[32] These are each singular discrete oppressive acts, because they are different acts occurring at different times and because none of them is dependent upon either of the others having happened for oppression to be said to have occurred. If the respondent had failed to distribute profits but neither transferred the business nor dissolved the Corporation, the appellant would, upon discovery, have had an oppression claim for failure to distribute profits. Similarly, if the respondent had only sold the business and kept sale proceeds, or if he had only dissolved the Corporation, the appellant would still have an oppression claim for these singular discrete acts, even if none of the others occurred. As Maurice points out, conduct may consist of singular discrete acts of oppression even where the later oppressive conduct was based on or in furtherance of the earlier oppressive conduct: at paras. 3 and 48-54.

(iii) Does the date of the corporate dissolution or when it was discovered mean the entire action can proceed?

[33] Against this backdrop, I turn to the effect of the date of the corporate dissolution, and when it was discovered and discoverable, on the motion judge's conclusions. I agree with the respondent that neither the date of the corporate dissolution, nor when it was or ought to have been discovered, entails the conclusion that the entire action should have been viewed as commenced within the limitation period and not statute-barred.

[34] The motion judge noted the appellant's evidence that it was only upon learning, in February 2012, that the respondent had filed Articles of Dissolution that she realized that he was no longer operating Perfect Cleaner for the interest of the three owners. The motion judge's findings implicitly reject this evidence [page362] in so far as it was advanced to support the view that none of the three claims in the action were statute-barred. Even though the motion judge did not deal with whether the dissolution was a singular discrete act of oppression occurring after September 3, 2011, the failure to do so does not undermine her conclusion to the extent it applies to the discoverability, more than two years before the action was commenced, of the sale claim and the profits distribution claim.

[35] The motion judge appropriately focused on the facts of which the appellant was aware as of September 3, 2011. By then she was aware that Perfect Cleaner was no longer operating out of its leased premises and a new owner was operating a similar business from its premises. The appellant had been provided with no explanation by, or had given no authority to, the respondent, who had handled the Corporation's day to day operations and all financial matters, for any of that to occur. By September 3, 2011, the appellant was also aware that she had not received payments of any of Corporation's profits. The motion judge was entitled to find, from these facts, that the sale claim and the profits distribution claim were discoverable by September 3, 2011.

[36] That the sale claim and the profits distribution claim are founded on discrete acts of oppression serves to rebut the contention that they were only discoverable when the later alleged oppressive act, the dissolution of the Corporation, occurred. The appellant did not need to know that the Corporation was dissolved to discover that she had a potential claim for oppression for an improper transfer or sale of the business, or a potential claim for oppression for a failure to pay profits. Whether the Corporation continued to exist or not, the sale claim and the profits distribution claim were actionable. The limitation period is not extended for acts of oppression that are actionable in themselves simply because a later singular discrete act of oppression occurs. As Maurice provides: "Courts must be careful not to convert singular oppressive acts into ongoing oppression claims in an effort to extend limitation periods. To do so would create a special rule for oppression remedy claims": at para. 49.

[37] Nor is the limitation period extended because a complainant hopes that the oppression will be remedied: Maurice, at paras. 46-49. The motion judge was correct to focus on the alleged failure of the respondent to distribute profits and the alleged acts or omissions that resulted in the business not operating from its premises, which were known to the appellant as of September 3, 2011. And the motion judge was entitled to not give effect to the appellant's assertions that she hoped to find, notwithstanding that the business had been closed without notice or explanation, [page363] the business operating elsewhere or that the respondent's failure to account for profits or any sale proceeds might be remedied. This is not a case where the possibilities the appellant adverted to were based upon anything represented to her by the respondent on or after September 3, 2011.

[38] Thus, the motion judge's determination that the appellant's claims were discoverable -- that the appellant knew or ought to have known of the elements in s. 5(1) of the Limitations Act, 2002 in respect of them -- and that they should be dismissed as statute-barred, should stand in respect to the sale claim and profits distribution claim. It was grounded in the record and is not the product of any legal error. It is entitled to deference from this court: Hryniak v. Maudlin, [2014] 1 S.C.R. 87, [2014] S.C.J. No. 7, 2014 SCC 7, at paras. 80-81; Kassburg v. Sun Life Assurance Co. of Canada (2014), 124 O.R. (3d) 171, 2014 ONCA 922, at paras. 44 and 52.

(iv) Is the corporate dissolution claim statute-barred?

[39] The remaining question is whether the claim for the alleged oppressive act of unilaterally dissolving the Corporation in which the appellant was a shareholder, without notice to or authorization from her, ought to have been allowed to continue. The motion judge did not separately address this question. In my view, the corporate dissolution claim should have been allowed to proceed.

[40] I do not accept the respondent's argument that once the appellant was able to discover that any oppressive acts had occurred, that started the limitation period clock for future acts of oppression, such that the corporate dissolution claim became statute-barred when the sale claim and profits distribution claims did.

[41] The respondent's argument is rebutted by the holding in Maurice that where a party engages in a series of oppressive acts, singular discrete oppressive acts occurring or only discoverable within two years of the commencement of the action are not statute-barred: Maurice, at paras. 3 and 50-53. The court in Maurice explained why this is so, at paras. 52 and 54:

A party that engages in a series of oppressive acts can always make the argument that it is all part of the same corporate malfeasance and that the limitation period begins to run with the discovery of the first oppressive act. In analyzing that conduct, courts must have regard to the remedial nature of the oppression remedy and the fact that any threatened or actual conduct that is oppressive, or unfairly prejudicial to, or unfairly disregards the interests of any complainant can constitute a discrete claim of oppression. The oppression remedy section of the OBCA is drafted in the broadest possible terms to respond to the broadest range of corporate malfeasance.

. . . . . [page364]

The practical effect of . . . [such an argument] is that where a party is alleged to have acted in an oppressive manner and no oppression remedy application is commenced as a consequence, he or she is free to take additional oppressive steps in furtherance of, or based upon, the initial oppressive conduct. That reasoning is contrary to the broad purposive interpretation that must be afforded this statutory cause of action: see BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 58; Rea v. Wildeboer, 2015 ONCA 373, 126 O.R. (3d) 178, at para. 33; and Unique Broadband Systems, Inc. (Re), 2014 ONCA 538, 121 O.R. (3d) 81, at para. 107.

[42] Just as the other claims in the action do not depend, for their viability, on the later corporate dissolution, a claim concerning the dissolution of the Corporation without notice or shareholder authorization is a claim for a singular discrete act of oppression that is actionable even if the sale claim and profits distribution claim are statute-barred.

[43] The corporate dissolution claim was not discoverable on September 3, 2011 as the corporate dissolution had not yet occurred. Nor does it follow from the motion judge's findings that the corporate dissolution claim should have been discovered before October 30, 2011.

[44] In oral argument, the appellant offered some basis for why the appellant might have been prejudiced by the corporate dis-solution independent of any prejudice or loss that is connected to the other statute-barred claims. There may have been actual or potential value in the Corporation that was lost due to the dis-solution or assets held on dissolution that were wrongfully withheld from shareholders. It would not be appropriate to speculate on the remedies that might be available to the appellant if an oppressive corporate dissolution is found to have occurred. The respondent obtained summary judgment on the basis of the limitation period, not on the basis that there was no genuine issue requiring a trial concerning the remedy that would be available if any act of oppression were found.

VI. Conclusion

[45] Accordingly, I would allow the appeal in part, and set aside the summary judgment dismissing the appellant's action to the extent that the action claims that the dissolution of the Corporation was oppressive and seeks remedies available under the oppression remedy in the OBCA for that conduct. I would otherwise dismiss the appeal.

[46] Success on the appeal was divided. I would not order any costs.

Appeal allowed in part.

Notes

1 Section 4 of the Limitations Act, 2002 states that no action in respect of a claim may be commenced more than two years after the claim was discovered.

2 Section 248 of the OBCA provides in part that a shareholder or former shareholder may apply to the court for a remedy when the powers of the directors of a corporation have been exercised in a manner that is oppressive, unfairly prejudicial, or that unfairly disregards the interests of the shareholder. A broad range of relief is available.

3 Section 5(1) of the Limitations Act, 2002 provides:

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).

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