COURT OF APPEAL FOR ONTARIO DATE: 20241210 DOCKET: COA-23-CV-1224

Miller, Monahan and Dawe JJ.A.

BETWEEN

Essex Condominium Corporation No. 125 Plaintiff (Appellant)

and

Heritage Park Villas Inc., 2043571 Ontario Inc., 1287678 Ontario Inc. and Dante Capaldi Defendants (Respondents)

Counsel: Jeff Van Bakel and Jacob Vanderzwet, for the appellant Steven Pickard, for the respondent, Heritage Park Villas Inc. Erin M. Reynolds, for the respondents, 2043571 Ontario Inc., 1287678 Ontario Inc. and Dante Capaldi

Heard: November 21, 2024

On appeal from the order of Justice Brian Dubé of the Superior Court of Justice, dated October 11, 2023, with reasons reported at 2023 ONSC 5719.

Dawe J.A.:

[1] This appeal arises from partial summary judgment granted in favour of the respondents on the basis of a limitations defence. For the following reasons, I would find that the motion judge erred by reversing the burden of proof on the issue of discoverability. I would accordingly allow the appeal and direct that the appellant’s claim relating to unpaid common expense fees proceed to trial along with its claim regarding the shortfall in its reserve fund, on which the motion judge declined to grant summary judgment.

A. Factual Background

[2] The respondent Heritage Park Villas Inc. (“HPVI”) is a property developer. At the relevant times Dante Capaldi was the directing mind of HPVI and the other two corporate respondents, 2043571 Ontario Inc. (“204”) and 1287678 Ontario Inc. (“128”), acting as an Officer and Director of each corporation.

[3] HPVI built a residential condominium building in Lasalle, Ontario. In December 2008 it registered a declaration under s. 2 of the Condominium Act, 1998, S.O. 1998, c. 19, that created the appellant, Essex Condominium Corporation No. 125 (“ECC 125”), as a condominium corporation. At the time of registration, HPVI still owned a majority of the units in the building. Under s. 43 of the Condominium Act, the condominium board appointed by HPVI was required to hold a turn-over meeting to elect a new board “not more than 21 days after the declarant ceases to be the owner of the majority of the units”. The turn-over meeting was held on May 26, 2014 and a new condominium board was elected. At this point HPVI still owned 17 of the condominium building’s 46 units.

[4] In 2008, while HPVI still owned a majority of the condominium units and controlled ECC 125, it arranged for another of Mr. Capaldi’s companies, 128, to be hired to act as the property manager. 128 performed this role until 2013, when it was replaced by 204, also controlled by Mr. Capaldi.

[5] It was the responsibility of the property management company to collect the condominium common expense fees from the unit owners, including HPVI. However, from 2008 to 2014 the property management companies – first 128, and later 204 – did not collect common expense fees from HPVI.

[6] ECC 125’s treasurer, Alan Wells, first discovered these non-payments in September 2016. ECC 125 maintains that HPVI owes at least $250,333.54 for the shortfall in fees.

[7] ECC 125 was statutorily required to put a portion of the common expense fees it received into a reserve fund to pay for major repairs: Condominium Act, s. 93. Because of the shortfall in the common expense fees collected from 2008 to 2014, insufficient money was allocated to ECC 125’s reserve fund. ECC 125 maintains that the deficit in its reserve fund was $346,283.00 at the time the action was commenced.

[8] On December 30, 2016, ECC 125 commenced an action against the respondents. Its action had three prongs:

i) ECC 125 sued HPVI, 128, 204 and Mr. Capaldi for breach of contract in relation to the uncollected common expense fees payable by HPVI;

ii) ECC 125 sued 128, 204 and Mr. Capaldi for breach of contract and negligence in relation to the reserve fund deficit; and

iii) ECC 125 sued Mr. Capaldi for allegedly breaching an oral agreement to pay ECC 125’s legal expenses in relation to an unrelated lawsuit.

B. The summary judgment motion

[9] The respondents brought a motion seeking summary judgment in respect of all three of ECC 125’s claims. The motion judge granted partial summary judgment in favour of the respondents in respect of ECC 125’s first claim, and in favour of Mr. Capaldi in respect of its third claim, but concluded that its claim regarding the reserve fund deficit against 128, 204 and Mr. Capaldi should proceed to trial.

[10] Specifically, the motion judge granted summary judgment in respect of ECC 125’s claim relating to HPVI’s uncollected and unpaid common expense fees on the basis that this claim was barred by s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. This was the only claim against HPVI.

[11] ECC 125 appeals to this court from that decision. It is no longer pursuing its appeal from the dismissal of its claim against Mr. Capaldi regarding his alleged promise to pay certain legal expenses.

[12] The motion judge declined to grant summary judgment in respect of ECC 125’s claim against 128, 204 and Mr. Capaldi regarding the reserve fund deficit, concluding that this claim required a trial. The Divisional Court has dismissed the respondents’ application for leave to appeal this aspect of the motion judge’s decision: see Essex Condominium Corporation No. 125 v. Heritage Park Villas Inc., 2024 ONSC 849 (Div. Ct.).

C. Analysis

(1) It was the respondents’ burden to establish that ECC 125’s claim was limitations-barred

[13] Section 4 of the Limitations Act requires claims to be commenced within two years “of the day on which the claim was discovered”. Section 5(1) of the Limitations Act provides further that:

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).

[14] In addition, s. 5(2) of the Limitations Act creates a presumption that:

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.

[15] Defendants who move for summary judgment on the basis of a limitations defence bear the burden of demonstrating that their defence can be made out without the need for a trial. In AssessNet Inc. v. Taylor Leibow Inc., 2023 ONCA 577, 168 O.R. (3d) 276, at paras. 34-36, van Rensburg J.A. explained:

The 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.

A 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. 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.

Determining 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. [Citations omitted; emphasis added.]

(2) The motion judge’s reasons

[16] Since ECC 125 commenced its action on December 30, 2016, and since prior to turn-over it was controlled by HPVI and Mr. Capaldi, the limitations issue in this case turned on whether ECC 125 had acquired actual or constructive knowledge of its claim at any point between the turn-over date, May 26, 2014, and December 30, 2014, which was the date two years before it commenced its action.

[17] During this period ECC 125’s Treasurer was Gabriella Petruzzi. She was appointed at the turn-over meeting on May 26, 2014, and remained the Treasurer until August 2015, when she became President and was replaced as Treasurer by Mr. Wells. At turn-over Mr. Capaldi was appointed as the condominium board secretary, and he remained on the board until September 2016.

[18] It was undisputed that Ms. Petruzzi and ECC 125’s other officers and board members, with the exception of Mr. Capaldi, did not learn about HPVI’s non-payment of its common expense fees until September 2016. The motion judge stated:

In this case, the real question is not whether Petruzzi had actual knowledge of the claim, but whether she, in the circumstances, ought to have discovered the material facts underlying the cause of action by the exercise of reasonable diligence during the presumptive period.

[19] The motion judge concluded that Ms. Petruzzi did not act with due diligence because she did not try to obtain copies of ECC 125’s banking records, even after Mr. Capaldi had repeatedly deflected her requests that he provide better information about ECC 125’s financial situation. The motion judge stated:

By late October 2014, Petruzzi had good reason to believe, and did believe, that because of Capaldi’s suspicious behaviour, there “was something wrong” and “there is really something going on” with him.

The motion judge also rejected ECC 125’s argument that Mr. Capaldi’s failure to give Ms. Petruzzi the information she asked for “delayed the running of the limitation period”, stating:

There is no evidence that Capaldi’s behaviour in any way undermined Petruzzi’s ability to discover the claim during the presumptive period. In fact, I find the opposite to be true - that the claim was discoverable despite Capaldi’s misconduct.

[20] The motion judge focused on Ms. Petruzzi’s failure to take steps to obtain ECC 125’s banking records, explaining:

I find that when Petruzzi observed Capaldi’s obvious, repeated and highly suspicious behaviour and thereafter believed that something wrong was happening at EEC 125, she had an obligation to investigate the matter further. Instead, she failed to act and “double check” what Capaldi was doing by at the very least attempting again to obtain the TD Bank statements. If Petruzzi had exercised due diligence by taking steps that she ought to have taken, she would have inevitably discovered, as Wells later did, the financial irregularities underlying the cause of action, namely, the uncollected Common Fees from HPVI owned units. Even though Wells had much less experience and knowledge about bookkeeping than Petruzzi, he was nonetheless able to discover significant financial irregularities by merely comparing the audited financial statements against ECC 125’s TD Bank statements.

[21] The motion judge concluded:

I am entitled to assume that I have all the evidence that would otherwise be before the trial judge. With that in mind, I am satisfied that the plaintiff has failed to discharge its burden of demonstrating that its claim could not reasonably have been discovered when the cause of action arose. Based on the circumstances known to the plaintiff, specifically Petruzzi, I conclude that she failed to exercise due diligence and take reasonable steps that were available to her during the presumptive period to obtain knowledge of material facts in respect to the claim for unpaid Common Fees. Since the claim ought to have been discovered by the plaintiff before December 30, 2014, it is therefore statute-barred pursuant to s. 5(1)(b) of the Limitations Act. [Emphasis added.]

(3) The motion judge incorrectly reversed the onus

[22] I agree with ECC 125 that the motion judge erred by incorrectly placing the burden on ECC 125 to show that its claim was not reasonably discoverable before December 30, 2014, rather than requiring the respondents to affirmatively establish that the claim was reasonably discoverable before this date.

[23] The motion judge fell into this error by following a line of lower court cases, pre-dating this court’s judgment in AssessNet, that incorrectly treated the presumption in s. 5(2) as applying to the issue of constructive knowledge under s. 5(1)(b), rather than only to the issue of actual knowledge under s. 5(1)(a). The motion judge quoted at length from one such case, Shukster v. Young et al., 2012 ONSC 4807, where Leach J. stated at para. 19:

Pursuant to Rule 20, a party moving for summary judgment retains the overall burden of showing that there is no genuine issue requiring trial. However, where a Defendant moves for summary judgment in relation to a statutory limitation period, the evidentiary burden as to the discoverability issue and under Rule 20 effectively shifts to the responding party under section 5(2). [Emphasis added.]

Citing Roni Excavating v. Paccar, 2013 ONSC 5192, at para. 23, the motion judge then asserted further that:

[Section] 5(2) puts the onus on the plaintiff to satisfy the Court that it would be highly unlikely, if not impossible, to have obtained the necessary information with due diligence.

[24] As AssessNet makes clear, these statements of the law are incorrect. The presumption in s. 5(2) of the Limitations Act applies only to the issue of actual knowledge under s. 5(1)(a), but not to the issue of constructive knowledge under s. 5(1)(b). Accordingly, in this case s. 5(2) did not shift the burden of disproving constructive knowledge to ECC 125. Rather, it remained the respondents’ burden to prove that a reasonable person in ECC 125’s position would have discovered the claim relating to HPVI’s unpaid common expense fees before December 30, 2014.

[25] ECC 125 rebutted the statutory presumption that it had actual knowledge of its claim on the date of the relevant events, that is, on the various dates between 2008 and 2014 when HPVI had failed to pay its common expense fees, and 128 and 204 had failed to collect these fees. It adduced unchallenged evidence that it first discovered the unpaid fees in September 2016, when Mr. Wells, who by this time had succeeded Ms. Petruzzi as Treasurer, obtained the condominium corporation’s bank records from a new management company that ECC 125 had hired to replace Mr. Capaldi’s company, 204. When Mr. Wells compared the bank records against the audited financial statements that Mr. Capaldi had previously provided to the condominium board, he realized that there was a significant shortfall in the fees that had been collected from HPVI.

[26] Since the respondents did not dispute that ECC 125 had no actual knowledge of its claim until Mr. Wells made his discovery in September 2016, their limitations defence could only succeed if they established on a balance of probabilities that a reasonable person in ECC 125’s position ought to have acquired this knowledge before December 30, 2014, the date two years before ECC 125 commenced it action.

[27] However, the motion judge erroneously reversed the burden and granted summary judgment in favour of the respondents on the basis that ECC 125 had “failed to discharge its burden of demonstrating that its claim could not reasonably have been discovered when the cause of action arose.”

(4) The respondents’ arguments on appeal

[28] In oral argument, the respondents acknowledged that the motion judge incorrectly stated which party bore the burden of proof on their motion for summary judgment. However, they make two arguments in support of their position that this did not affect the motion judge’s decision that ECC 125’s claim was limitations-barred.

[29] First, even though the respondents now accept that it was their burden to prove that ECC 125’s claim was reasonably discoverable before December 30, 2014, they argue that it was nevertheless not an error for the motion judge to state the opposite. According to the respondents, the motion judge’s statements on the burden of proof can be understood as merely applying the rule that once a party seeking summary judgment has shown that there is no genuine issue requiring a trial, the responding party bears “an evidentiary burden to respond with evidence of specific facts showing that there [is] a genuine issue requiring a trial”: Ramdial v. Davis, 2015 ONCA 726, 341 O.A.C. 78, at para. 30. The respondents argue that the motion judge correctly analyzed and applied the burden of proof when dealing with the discoverability of the claim.

[30] I would not give effect to this argument. As I have discussed, the motion judge expressly misdirected himself that ECC 125 bore the burden of proving that it was “highly unlikely, if not impossible” that it could have acquired knowledge of its claim before December 30, 2014. He then concluded that ECC 125 had “failed to discharge” this burden. In my view the only plausible construction of the motion judge’s reasons, read as a whole, is that he followed his erroneous self-instruction and incorrectly placed the burden on ECC 125 to prove that its claim was not limitations-barred.

[31] The respondents’ second argument is that the motion judge’s misallocation of the burden of proof ultimately did not matter, because he made an affirmative finding that Ms. Petruzzi had not been duly diligent. The respondents contend that in light of this factual finding, the motion judge would still have ruled in their favour even if he had properly recognized that they bore the burden of proof on the limitations issue.

[32] I would also not give effect to this argument, for two related reasons. First, I am not persuaded that the motion judge’s findings of fact can be disentangled from his legal error in reversing the burden of proof. Second, if the motion judge had properly allocated the burden of proof, I am not satisfied that the findings of fact he made would have been sufficient to support the conclusion that the respondents had met their burden of establishing their limitations defence.

[33] As I have already discussed, the question the motion judge should have asked himself was whether the respondents had proven that a reasonable person in Ms. Petruzzi’s situation would have acquired knowledge of the essential elements of ECC 125’s claim at some point before December 30, 2014. In order to find that the respondents had met this burden, the motion judge would have had to “make specific findings of fact about each element” in s. 5(1)(a) that supported the respondents’ position: AssessNet, at para. 36.

[34] Importantly, the motion judge’s finding that Ms. Petruzzi had not been duly diligent because she did not try to obtain the banking records was not sufficient on its own to establish the respondents’ limitations defence. As van Rensburg J.A. explained in Fennell v. Deol, 2016 ONCA 249, 97 M.V.R. (6th) 1, at para. 24:

Due diligence is part of the evaluation of s. 5(1)(b). In deciding when a person in the plaintiff’s circumstances and with his abilities ought reasonably to have discovered the elements of the claim, it is relevant to consider what reasonable steps the plaintiff ought to have taken. Again, whether a party acts with due diligence is a relevant consideration, but it is not a separate basis for determining whether a limitation period has expired.

[35] In the circumstances here, in order for the motion judge to bridge the gap between his finding that Ms. Petruzzi had not been duly diligent and the further conclusion that ECC 125’s claim was limitations-barred, he would have had to be satisfied not only that a reasonable person in Ms. Petruzzi’s position would have tried to obtain ECC 125’s banking records, but also:

i) That such a person would necessarily have sought these records before December 30, 2014;

ii) That such an attempt would probably have succeeded, and that the records would have been produced before this date;

iii) That the banking records would have enabled the recipient to conclude that HPVI had not paid its common expense fees; and

iv) That ECC 125’s board, once it learned of the shortfall, would have realized before December 30, 2014, that “a proceeding would be an appropriate means to remedy” the problem.

[36] The motion judge’s reasons only expressly address the third of these points. He found that if Ms. Petruzzi had obtained the banking records, she “would have inevitably discovered” the shortfall, as Mr. Wells did when he later obtained the records in September 2016. However, the motion judge did not make any explicit findings about any of the other three key points.

[37] This omission can be explained by the motion judge’s misallocation of the burden of proof. Having incorrectly determined that ECC 125 had to prove that it was “highly unlikely, if not impossible” that it could have discovered its claim before December 30, 2014, the motion judge treated his finding that Ms. Petruzzi had not tried to obtain the bank records before that data as conclusive, apparently because he was not satisfied that ECC 125 had shown that such an attempt, if it had been made, would necessarily have failed. The motion judge discounted the significance of Mr. Wells’s evidence that the bank had refused to give him the records in 2016, and that he had only obtained them from the new property management company, on the grounds that Ms. Petruzzi had a different contact at the bank who might have been more cooperative.

[38] If the motion judge had properly placed the burden of proof on the respondents, I am not satisfied that he would necessarily have found that they had met their onus in respect of the other three critical factual issues that the motion judge did not address in his reasons.

[39] First, on the question of when a reasonable person in Ms. Petruzzi’s position would have tried to obtain the bank records before December 30, 2014, the audited annual financial statements Mr. Capaldi had provided to Ms. Petruzzi purported to show that ECC 125’s finances were sound. Even if a reasonable person in her position would have still thought it advisable try to obtain ECC 125’s bank records to check the accuracy of the audited annual statements, it is not apparent that such a person would have treated this as a task that needed to be carried out before December 30, 2014, in the absence of any specific reason to believe that ECC 125 was in financial difficulty.

[40] In this regard, it also bears mentioning that this reasonable person is someone “with the abilities and in the circumstances” of the plaintiff: s. 5(1)(b). Ms. Petruzzi’s evidence was that in the winter of 2014 she was recuperating from knee and hip joint replacement surgery. This might well have affected the sense of urgency of a reasonable person in her circumstances.

[41] Second, on the issue of whether the bank would have given Ms. Petruzzi the banking records if she had asked for them, Mr. Wells’s evidence was that when he went to the bank in 2016 and tried to obtain the bank records himself, he was told that he would have to get them from Mr. Capaldi. He eventually did obtain copies of the bank records, but only from the new management company that ECC 125 eventually hired to replace 204.

[42] As noted above, and consistent with his misallocation of the burden of proof, the motion judge discounted the importance of Mr. Wells’s evidence on the grounds that Ms. Petruzzi had a different contact at the bank who might have been more cooperative than the person who Mr. Wells dealt with in 2016. If the motion judge had properly recognized that it was the respondents who bore the burden of proof, he might well have concluded that they had not established that an attempt by Ms. Petruzzi to obtain the banking records before December 30, 2024 would have been any more successful than Mr. Wells’s efforts were in 2016.

[43] Third, on the question of when the condominium board would reasonably have concluded that “a proceeding would be an appropriate means to remedy” the problem of HPVI’s unpaid common expense fees, it is not apparent that the board would have arrived at this decision before December 30, 2014, even if Ms. Petruzzi had obtained the banking records before that date. After Mr. Wells discovered the fee payment shortfall in September 2016, it still took more than three months for the board to retain counsel and start its action.

[44] If the motion judge had not erroneously put the onus of proof on ECC 125 rather than on the respondents, he would not necessarily have been satisfied that the board would have acted any more quickly in 2014, or that it would have been unreasonable for the board to take some time to consider its position, assess its options, and obtain legal advice.

[45] Accordingly, I do not agree with the respondents that the motion judge’s legal error in misallocating the burden of proof was inconsequential. If he had properly put the onus on the respondents, he might very well have concluded that they had failed to meet their burden of proving that ECC 125’s claim in relation to the unpaid fees was reasonably discoverable before December 30, 2014.

[46] Since the appeal must be allowed on this ground, I do not need to address ECC 125’s argument that the motion judge also erred by failing to properly apply the doctrine of fraudulent concealment. However, I note that this court has held that in cases governed by the Limitations Act, “the analysis required by s. 5(1) of the Act captures the effect of a defendant's concealment of facts material to the discovery of a claim”: Zeppa v. Woodbridge Heating & Air-Conditioning Ltd., 2019 ONCA 47, 144 O.R. (3d) 385, at para. 72.

D. Disposition

[47] In the result, I would allow the appeal, and would set aside paras. 1 and 2 of the judgment on appeal, which dismissed all of the appellant’s claims against HPVI and its claims in paragraphs 1(b) and 1(e) of its Amended Statement of Claim against the other respondents. I would further direct that these claims proceed to trial along with the claims referred to in para. 4 of the judgment on appeal.

[48] Pursuant to counsel’s agreement, I would grant ECC 125 its costs of the appeal, fixed at $15,000, all inclusive.

[49] The motion judge awarded costs of the motion to HPVI in the amount of $22,600 for legal fees plus HST, plus $5,718.10 for disbursements. He directed that these costs would be payable in any event of the cause, but that payment “shall be deferred until the reserve fund claim is ultimately determined by the trial judge or is otherwise resolved.” The motion judge explained that he was only awarding costs in relation to the unpaid common expense fees claim, on which HPVI “was the wholly successful party”, and that he was awarding no costs to any of the parties “in relation to the reserve fund and the legal fees claims.”

[50] Since I would reverse the only aspect of the motion judge’s decision on which he awarded costs, I would also set aside his costs award against ECC 125. In the circumstances, I would conclude further that it is appropriate to reverse the portion of the costs award relating to legal fees and HST, and grant the appellant $22,600 for its costs of the motion. As the respondents can now all be characterized as unsuccessful parties, I would further direct that costs of the motion and of the appeal be payable by them jointly and severally.

Released: December 10, 2024 “B.W.M.” “J. Dawe J.A.” “I agree. B.W. Miller J.A.” “I agree. P.J. Monahan J.A.”