Court of Appeal for Ontario
Date: September 4, 2025
Docket: COA-24-CV-0500
Judges: Roberts, Miller and Pomerance JJ.A.
Parties
Between
Carmelo Lagana Applicant/Respondent (Appellant)
and
2324965 Ontario Inc. and David Power Respondents/Appellants (Respondents)
Counsel
For the Appellant: Andrew D. Ferguson and Margot L. Pomerleau
For the Respondents: J. F. Lalonde
Heard: January 6, 2025
Procedural History
On appeal from the order of the Divisional Court (Justices Janet Leiper, Elizabeth M. Stewart, and Frederick L. Myers), dated February 7, 2024, with reasons reported at 2024 ONSC 953, allowing an appeal from the order of Justice Kristin Muszynski of the Superior Court of Justice, dated December 23, 2022, with reasons reported at 2022 ONSC 7286.
Decision
B.W. Miller J.A.:
[1] The Central Issue
Is a shareholder demand that a corporation comply with its statutory obligation to provide audited annual financial statements to shareholders subject to the ordinary two-year limitation period for claims set out in s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B ("Limitations Act, 2002")? That is the sole issue raised in this appeal. As explained below, I agree that the Divisional Court did not err in finding that it is, and I would dismiss the appeal.
Factual Overview and Proceedings Below
[2] Background Facts
The respondent David Power was in the real estate development business with Carmelo Lagana Sr., the father of the appellant Carmelo Lagana. In 2012, Mr. Power and Mr. Lagana Sr. incorporated the respondent corporation, a non-offering corporation. Mr. Lagana Sr. died later that year and Mr. Power became the sole director of the corporation. Mr. Lagana Sr.'s shares were ultimately acquired by Mr. Lagana, and the corporation carried on business between 2013 and 2020, purchasing and reselling multiple development properties.
[3] Request for Financial Records
In 2021, Mr. Lagana sought to review the corporation's financial records. Mr. Power provided him with some unaudited financial statements and offered to meet with him. There were no shareholder resolutions exempting the corporation from yearly appointing auditors and producing audited financial statements. Auditors have never been appointed and audited financial statements have never been produced.
[4] Application for Relief
Mr. Lagana was dissatisfied and brought an application seeking relief that included the appointment of an auditor pursuant to s. 149(8) of the Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA"). Relying on s. 253(1), he also sought an order for the production of audited financial statements going back to 2013.
[5] Application Judge's Decision
The application judge granted the relief sought, rejecting the argument that the demand for audited financial statements prior to 2019 was barred by the operation of the Limitations Act, 2002. The application judge found that the demand did not constitute a "claim" within the meaning of the Limitations Act, 2002 to which the two-year limitation period applied.
[6] Divisional Court Appeal
Mr. Power and the corporation appealed the term of the order that required the production of audited financial statements to shareholders for the years 2013 to 2020. They acknowledged the statutory obligation under the OBCA to provide audited financial statements but renewed the argument on appeal that the Limitations Act, 2002 applies to a compliance order made under s. 253(1) and precludes an order that would require the preparation of audited statements beyond the two-year limitation period.
[7] Divisional Court's Holding
The Divisional Court allowed the appeal. Although the corporation and Mr. Power, in his capacity as a director, had a statutory obligation to shareholders pursuant to ss. 153 and 154 of the OBCA to provide audited financial statements annually, and did not do this, the Divisional Court held that the application judge erred in finding that the Limitations Act, 2002 did not apply to the demand. Accordingly, the order below was varied to vacate the direction to produce audited financial statements outside the limitation period.
Issues on Appeal
[8] The Sole Issue
The only issue on appeal is whether the Divisional Court was correct in its determination that the Limitations Act, 2002 applies to the compliance provision in s. 253(1) of the OBCA.
The Statutory Provisions in Issue
[9] OBCA Reporting and Auditing Requirements
The OBCA contains various reporting and auditing requirements.
[10] Appointment of Auditors
Section 149(1) imposes an obligation on the shareholders and directors of corporations to appoint auditors; if the shareholders fail to appoint an auditor, the directors are required to do so. If the directors fail to do so, the court is authorized to make the appointment on the application of the shareholders: s. 149(8). Section 148 of the OBCA allows the shareholders by unanimous resolution made on a yearly basis to exempt non-offering corporations from the audit requirements.
[11] Financial Statements and Auditor Requirements
Section 154 requires financial statements to be provided yearly to a corporation's shareholders. Unless exempted, the financial statements must be audited: s. 148. Section 153(1) requires an auditor of a corporation to make such examination of the financial statements required by this Act to be placed before shareholders as is necessary to enable the auditor to report thereon and the auditor shall report as prescribed and in accordance with generally accepted auditing standards.
[12] The Compliance Provision
In addition to its other remedial provisions, the OBCA includes a general compliance provision applicable to a broad range of persons on whom the OBCA imposes duties, for the benefit of "a complainant or a creditor of the corporation":
253(1) Where a corporation or any shareholder, director, officer, employee, agent, auditor, trustee, receiver and manager, receiver, or liquidator of a corporation does not comply with this Act, the regulations, articles, by-laws, or a unanimous shareholder agreement, a complainant or a creditor of the corporation may, despite the imposition of any penalty in respect of such non-compliance and in addition to any other right the complainant or creditor has, apply to the court for an order directing the corporation or any person to comply with, or restraining the corporation or any person from acting in breach of, any provisions thereof, and upon such application the court may so order and make any further order it thinks fit.
[13] Definition of "Complainant"
A "complainant" is defined in s. 245 as:
(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,
(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,
(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part. ("plaignant").
[14] Definition of "Claim" Under Limitations Act, 2002
Section 1 of the Limitations Act, 2002 defines "claim" as "a claim to remedy an injury, loss or damage that occurred as a result of an act or omission". The basic limitation period applying to a "claim" is the second anniversary of the day on which the claim was discovered: s. 4.
Analysis
[15] The Appellant's Argument
The appellant argues that the failure of a corporation to fulfill obligations imposed on it by the OBCA cannot constitute a claim for the purposes of the Limitations Act, 2002, and the Divisional Court made a legal error in holding otherwise.
[16] The Appellant's Theory
At the centre of the appellant's argument is the proposition that the obligations imposed on corporations and others by the OBCA are "statutory obligations" and do not correspond to rights held by anyone, such as shareholders. On this theory, the purpose of the compliance provision in s. 253(1) is simply to enforce the obligations imposed by the statute on the corporation. The appellant thus draws a sharp distinction between a compliance order and an oppression remedy, whose purpose he characterizes as genuinely providing remedies to individuals. As stated in the appellant's factum, "the compliance provision corrects a breach of the legislation and brings the corporation into compliance with it, but it does nothing else. It does not punish the corporation for its failures, nor does it provide any form of individual redress or compensation." Accordingly, the appellant argues, there is no legal right created by s. 253(1) that could qualify as a "claim" of a shareholder for the purposes of Limitations Act, 2002.
[17] Reliance on Jeffery v. London Life Insurance Company
The appellant claims support for this argument in Jeffery v. London Life Insurance Company, 2011 ONCA 683, 343 D.L.R. (4th) 6, leave to appeal refused, [2012] S.C.C.A No. 1, where this court distinguished among the three categories of remedies created by the OBCA – derivative action, oppression remedy, and compliance – and noted, at para. 150, that although "there may be some overlap between these statutory remedies", the three remedies are different.
[18] The "Individual Fix" Distinction
The gravamen of the compliance order "is to ensure corporate compliance and not to provide an individual fix": Jeffery, at para. 148. It should be noted, however, that Jeffery was argued on the basis of the availability of an oppression remedy, and the court did not provide a conceptual analysis of the compliance order, beyond noting that although there is some overlap among the three remedies, the oppression remedy is better suited to an "individual fix". The "individual fix" which the court contrasted, at para. 148, with a compliance order, has to be understood in terms of the relief sought in that case, which involved the allocation of millions of dollars of assets to competing investors pursuant to the Insurance Companies Act, S.C. 1991, c. 47.
[19] Clarification of Jeffery's Holding
That remedy was a matter of using judicial discretion to craft a highly particular order to address corporate wrongs. What the court in Jeffery was contrasting was the degree of individuality in the nature of the relief sought (the "individual fix") with a straightforward order to comply with a straightforward obligation. The difference is in the nature of the relief sought, not the party to whom the remedy is granted. Accordingly, the comment from Jeffery that the appellants rely on does not assist in the resolution of this appeal.
[20] Overextension of Jeffery
The appellant's argument overextends the observations of Jeffery – that the three remedies of the OBCA are distinct (yet overlap), and that a compliance provision does not punish a corporation for its failures and does not provide individual compensation – to the unsound categorical proposition that a compliance order does not constitute an individual remedy for a breach of the rights of a shareholder, but rather exists to provide judges with the discretion to enforce statutory obligations of corporations that do not correspond to the legal rights of any person.
[21] The Nature of Legal Relations
The appellant's argument rests on a misstatement of the legal relations at issue in this appeal. Legal rights are most often expressed using three jural terms: (1) the rights-holder; (2) the person under a duty to the rights-holder; and (3) the thing to be done (or not done) by the duty bearer for the benefit of the rights-holder.[1] The appellant characterizes a compliance order as a two-term duty, involving a person under a duty and a thing to be done, but without any corresponding rights-holder whose claim could be subject to the Limitations Act, 2002. But what the appellant presents as a two-term statutory duty – an obligation of one party (the corporation) to do something (produce audited financial statements) – is actually a three-term statutory right: a right of one party (the shareholder) that the second party (the corporation) do something (provide the audited financial statements to the shareholder). The statute does not create a free-floating obligation, but an obligation that correlates to a right of the shareholders. In this case, it is entirely sensible to understand the obligation to appoint an auditor and to provide audited financial statements as an obligation to the shareholders. The obligation may serve other purposes, but it unquestionably generates a corresponding right on behalf of the shareholders that the corporation or its directors do something for their benefit. That the OBCA generates an obligation to provide shareholders with audited financial statements is well established in the jurisprudence of this court: see, for example, Packall Packaging Inc. v. Ciszewski, 2016 ONCA 6, 344 O.A.C. 180, at para. 28.
[22] Independence of Legal Relations from Remedies
Significantly, the legal relations created by the OBCA exist independently of the remedies the OBCA creates to enforce them. Whether a corporation has breached a shareholder's right is one question. Whether there is an available remedy, or set of remedies, is another. There are three remedies provided by the OBCA, and more than one remedy may be available to remedy the same wrong.
[23] The Claim and Available Remedies
It is this right that grounds the claim that the shareholders can bring against the corporation and directors to be given a remedy. It is a claim that the corporation and directors fulfil its obligation to the shareholders to appoint the auditor (s. 149) and produce the audited statements to the shareholders (s. 153). Regardless of whether the oppression remedy is available (and subject to the two-year limitation period), the compliance provision in s. 253(1) is available. The nature of the three-term claim – that the corporation and directors perform their obligation to the shareholders – is the same regardless of whether the remedy sought is an oppression remedy or a s. 253(1) compliance order. Accordingly, it is entirely sensible that the same limitation period would apply to both remedies.
[24] Discretionary Nature of Compliance Orders
The nature of the legal relation created by the statute – generating a claim that is then subject to the Limitations Act, 2002 – does not change on the basis that a compliance order can potentially be sought by anyone who can plausibly claim to be "a proper person to make an application", and that granting the remedy is a discretionary decision of the application judge. The statutory right in question on this appeal is specifically the right of the shareholder. That the compliance provision may also be available to other persons enforcing other rights is irrelevant to whether this shareholder has a right, and whether a particular means of enforcement of that right constitutes a claim.
[25] The Divisional Court's Reasoning
The Divisional Court was alive to all of this and made no error in characterizing the application as a matter of a claim to remedy a loss, and therefore subject to the two-year limitation period. As the court stated:
Mr. Lagana applied to the court to grant a remedy because the respondent violated the law in a manner that caused him loss or harm. That is no different in kind than a lawsuit for damages or an injunction generally. It is a claim for relief consequential upon prejudice being suffered by a plaintiff due to the defendant's breach of the law. That is the heart of his "claim".
[26] Practical Considerations
The principled conclusion is also practical; it would be highly prejudicial to the respondents – and perhaps impossible – to now prepare audited financial statements reaching back 13 years. As was the case in Krandel v. 1714176 Ontario Ltd., 2014 ONSC 4615, the appellant was in a position to assert his rights in a timely fashion and did not do so.
[27] Condominium Act Cases and Broader Implications
The appellant advances a further argument that if statutory obligations are understood as subject to the two-year limitation period, it will be inconsistent with - and potentially undermine - the Superior Court's interpretation of the Condominium Act, 1998, S.O. 1998, c. 19 - in cases such as Waterloo North Condominium Corp. v. Silaschi, 2012 ONSC 5403; Middlesex Standard Condominium Corp. No. 643 v. Prosperity Homes Ltd., 2014 ONSC 1406, 119 O.R. (3d) 177; Metropolitan Toronto Condominium Corporation No. 1328 v. 2145401 Ontario Inc., 2019 ONSC 733, aff'd on other grounds 2019 ONCA 944; and Waterloo Standard Condominium Corp. No. 399 v. Lee et al., 2023 ONSC 3807. The appellant argues that the order under appeal is not only inconsistent with the reasoning in those cases, but would substantially interfere with the ability of the Attorney General and governmental agencies to enforce statutory obligations through compliance orders.
[28] Scope of the Decision
This appeal is not about the applicability of the Limitations Act, 2002 to compliance orders generally, and it would be reckless for this court to make sweeping generalizations about its applicability to the enforcement of statutory obligations beyond the instant appeal. The application of the Limitations Act, 2002 to any statutory compliance provision is foremost an exercise in statutory interpretation. Its focus is not only on the text of the specific compliance provision but, critically, on the text of the underlying statutory obligation that is being enforced. Not all statutory obligations are cut from the same cloth. Some statutory obligations, as in this appeal, correspond to legal rights held by individual claimants. Remedies for breaches of such legal obligations are readily understood to be the proper object of claims governed by the Limitations Act, 2002. Other statutory obligations, particularly those that are genuinely a matter of public benefit that do not generate a claim to a legal remedy, may not constitute claims for the purposes of the Limitations Act, 2002. An assessment of the particular obligations generated by the statute is required in each case.
Disposition
[29] Order
I would dismiss the appeal. I would award the respondents costs of the appeal in the amount of $5,000, all inclusive, and of the application for leave to appeal in the amount of $3,000, all inclusive, as agreed by the parties.
Released: September 4, 2025
"L.B.R."
"B.W. Miller J.A."
"I agree. L.B. Roberts J.A."
"I agree. R. Pomerance J.A."
Footnote
[1] On the standard grammar of rights as two and three-term jural relations, see for example, John Finnis, 'Rights: Their Logic Restated' in Philosophy of Law: Collected Essays Volume IV (Oxford: Oxford University Press, 2011); W.N. Hohfeld, "Fundamental Legal Conceptions as Applied in Judicial Reasoning" (1917) 26:8 Yale L.J. 710.