COURT OF APPEAL FOR ONTARIO

CITATION: 465519 Ontario Limited v. Sacks, 2015 ONCA 175

DATE: 20150316

DOCKET: C59330

Cronk, Gillese and Brown JJ.A.

BETWEEN

465519 Ontario Limited, Winston Village Partnership, Meyer Isenberg and Miriam Isenberg

Plaintiffs/ Appellants

and

David Sacks, Gary Pollock, Cecil Schwartz, Hutchinson Cowling LLP, Neil Cowling, Deighton Hutchinson, Robert Milne, Silpit Industries Co. Ltd., Lesmill Consulting Inc., Cliffwood Plaza Corp., Michael Klein, ABC Corporation and John Doe

Defendant/ Respondent

F. Scott Turton, for the appellants

Oscar Strawczynski, for the respondent

Heard: March 9, 2015

On appeal from the order of Justice Mary E. Vallee of the Superior Court of Justice, dated August 28, 2014.

By the Court:

[1] The appellants appeal from the motion judge’s order dated August 28, 2014 striking the claim of 465519 Ontario Limited (“465 Ltd.”) and “the entire action” as against the respondent, Cliffwood Plaza Corp. (“Cliffwood”).

Background in Brief

[2] Cliffwood moved under rule 21.01(b) of the Rules of Civil Procedure to strike the appellants’ entire pleading as against it on the basis that it disclosed no reasonable cause of action. Cliffwood argued that although the appellants’ action was commenced prior to the expiry of the applicable two-year limitation period, 465 Ltd.’s claim was a nullity because its corporate charter had been revoked and it was a dissolved corporation when the action was initiated. Since 465 Ltd.’s corporate status was not revived until after the running of the limitation period, Cliffwood argued that 465 Ltd.’s claim, as well as the proposed derivative claims of the remaining appellants (the “Individual Appellants”), could not succeed. Cliffwood also maintained, in any event, that the appellants’ pleading of the only claim against Cliffwood, that of civil conspiracy, was fatally deficient and incapable of success.

[3] The motion judge accepted Cliffwood’s limitation period argument and struck 465 Ltd.’s claim against Cliffwood on the ground that it was statute-barred. In light of that ruling, she found it unnecessary to address Cliffwood’s argument that the appellants’ conspiracy pleading was fundamentally flawed. As we will discuss, at the request of Cliffwood’s counsel, the motion judge subsequently amended her ruling to also strike the entire action including, therefore, the claims of the Individual Appellants, as against Cliffwood.

Issues

[4] There are two issues on appeal:

(1) Did the motion judge err by holding that 465 Ltd.’s claim against Cliffwood was statute-barred due to the expiry of the applicable limitation period and, hence, that it could not succeed?

(2) Did the motion judge err by striking the entire action against Cliffwood, including the claims of the Individual Appellants?

Discussion

(1) 465 Ltd.’s Claim Against Cliffwood

[5] We do not accept the appellant’s contention that the motion judge erred by holding that 465 Ltd.’s claim against Cliffwood was statute-barred by reason of the expiry of the relevant limitation period.

[6] The claims sought to be advanced by the appellants arise from the sale of a property registered in 465 Ltd.’s name to Cliffwood under a third party mortgagee’s power of sale. The sale closed on June 29, 2010. However, on June 28, 2010, one day earlier, 465 Ltd.’s corporate charter was revoked and the corporation was dissolved. The appellants’ action was commenced on February 8, 2012.[^1] 465 Ltd.’s corporate status was reinstated on June 6, 2014, more than two years later.

[7] 465 Ltd. had no legal status to commence an action while it was dissolved. Accordingly, we agree with the motion judge that the action commenced in its name on February 8, 2012 was a nullity: 602533 Ontario Inc. v. Shell Canada Ltd., 1998 CanLII 1775, 155 D.L.R. (4th) 562.

[8] Since 465 Ltd. must be taken to have known the material facts supporting its claim against Cliffwood by the date of issuance of its statement of claim, at the latest, the two-year limitation period in this case began to run on February 8, 2012 when the action was commenced and expired – again, at the latest – on February 9, 2014. Thus, the limitation period ran its course prior to the date of 465 Ltd.’s revival.

[9] That, however, does not end the matter. The Individual Appellants have moved before the Superior Court of Justice for leave under s. 246 of the Business Corporations Act, R.S.O. 1990, c. B.16 to pursue a derivative action on 465 Ltd.’s behalf as against Cliffwood. Their leave motion is pending in the Superior Court. Should leave to proceed with a derivative action be granted on a nunc pro tunc basis, thus regularizing the action commenced in 465 Ltd.’s name, the Individual Appellants submit that, as a matter of law, the action must be viewed as having been commenced on a timely basis, that is, prior to the expiry of the limitation period.

[10] We reject the suggestion that this would dictate a different result regarding 465 Ltd.’s claim against Cliffwood. The outcome of the leave motion, of course, is not yet known. However, even assuming that leave is granted on a nunc pro tunc basis, the leave order would not operate to deprive Cliffwood of its entitlement to rely on a post-dissolution legal right accruing to it while 465 Ltd. was a dissolved corporation and prior to the granting of the leave order. As this court held in Shell Canada, the expiry of an applicable statutory prescription period is such a right.

[11] Contrary to the appellants’ argument, Shell Canada has direct application here. It is dispositive of 465 Ltd.’s claim against Cliffwood. The motion judge correctly held that Cliffwood was entitled to rely on the expiry of the limitation period, as a right that accrued to it while 465 Ltd. was dissolved, to defeat 465 Ltd.’s claim against it.

[12] This ground of appeal therefore fails.

(2) The Individual Appellants’ Claims Against Cliffwood

[13] The appellants next submit that the motion judge erred, in any event, by striking the Individual Appellants’ claims against Cliffwood. In the particular circumstances of this case, we agree.

[14] In her original reasons, the motion judge struck only 465 Ltd.’s claim against Cliffwood. As we have said, as framed in the appellants’ amended pleading, that claim is a claim for damages arising from an alleged conspiracy among Cliffwood, as the purchaser of the property in question, and others (including the mortgagee/vendor) to effect the transfer of the property at less than fair market value.

[15] Following the release of the motion judge’s reasons, Cliffwood’s counsel proposed to write to the motion judge, seeking confirmation that the entire action as against Cliffwood, in addition to 465 Ltd.’s claim, had been struck under the motion judge’s ruling. The appellants’ counsel declined to consent to this out-of-court communication. Indeed, he actively opposed the delivery of the proposed letter to the motion judge.

[16] Nevertheless, the letter was sent to the motion judge. Shortly thereafter, she revised her reasons to provide that both 465 Ltd.’s claim and “the entire action” against Cliffwood were struck. The effect of this revision was to strike the claims of the Individual Appellants against Cliffwood, as well as that of 465 Ltd.

[17] The appellants submit that the post-hearing communication with the motion judge was improper, contrary to rule 1.09, and prejudicial to the Individual Appellants.

[18] In our view, the delivery of the letter in question, without the consent of the appellants’ counsel and in the face of his opposition to its delivery to the motion judge, was inadvisable and contrary to rule 1.09. That rule authorizes out-of-court communications with judges in respect of proceedings before the court only where all parties consent, in advance, to the communication or the court otherwise authorizes the communication. Neither circumstance applied here. In our view, on the facts here, the appropriate procedure was for Cliffwood’s counsel to seek an appointment with the motion judge, on notice to the appellants, to settle the terms of her order.

[19] Cliffwood submits that the change to the motion judge’s ruling prompted by the letter was inconsequential since it reflected merely a clarification of the motion judge’s original ruling.

[20] We are unable to accede to this submission.

[21] If the Individual Appellants’ pleaded claims against Cliffwood were unequivocally and exclusively derivative of 465 Ltd.’s claim against Cliffwood, it may well be that the change to the motion judge’s ruling would be of no moment. In those circumstances, if 465 Ltd.’s claim was statute-barred, the derivative claims of the Individual Appellants would fall on the same basis.

[22] But the motion judge made no finding that the Individual Appellants’ claims were solely derivative of 465 Ltd.’s claim against Cliffwood. Further, the reasons – both in their original and amended form – contain no analysis of the material facts pleaded with respect to the Individual Appellants including, especially, in relation to their alleged status as trust beneficiaries of the property conveyed to Cliffwood. Consequently, this court cannot be satisfied as to the basis on which the motion judge struck the entire action as against Cliffwood.

[23] In the result, in our opinion, the letter in question precipitated a significant amendment to the motion judge’s ruling, whereby the Individual Appellants’ claims as against Cliffwood were struck without explanation and without the motion judge having had the benefit of submissions from counsel for the Individual Appellants on the change to her ruling sought by Cliffwood’s counsel. In the circumstances confronting the motion judge, the change to her ruling sought by Cliffwood should not have been made without providing the appellants’ counsel with an opportunity to challenge the requested change and to make further submissions if so advised.

[24] The motion judge’s ruling striking the entire action as against Cliffwood, therefore, cannot stand. Fundamental fairness requires that this part of the motion judge’s decision be set aside.

Disposition

[25] For the reasons given, the appeal is allowed in part, by striking the words “and the entire action” from paragraph one of the motion judge’s order without prejudice to Cliffwood renewing its motion to strike the Individual Appellants’ claims against Cliffwood. In all other respects, the appeal is dismissed. As success on the appeal has been divided, we make no order as to the costs of the appeal.

Released:

“MAR 16 2015” “E.A. Cronk J.A.”

“EAC” “E.E. Gillese J.A.”

“David Brown J.A.”

[^1]: Throughout her reasons, the motion judge refers to February 28, 2012 as the date when the appellants’ claim was issued. There is no dispute that this is an error and the correct date is February 8, 2012.