Citation and Court Information

CITATION: Lagana v 2324965 Ontario Inc., 2024 ONSC 953

DIVISIONAL COURT FILE NO.: DC-23-2797

DATE: 20240216

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

E. Stewart, Myers and Leiper, JJ.

BETWEEN:

CARMELO LAGANA Applicant (Respondent in Appeal)

– and –

2324965 ONTARIO INC. and DAVID POWER Respondents (Appellants in Appeal)

Counsel:

Andrew D. Ferguson, for the Respondent

J.F. Lalonde, for the Appellants

HEARD: at Ottawa by videoconference on February 7, 2024

Reasons for Decision

Leiper J.

[1] The appellants, 2324965 Ontario Inc. and David Power appeal part of an order made by the application judge, Justice Muszynski, dated December 23, 2022, reported at 2022 ONSC 7286. At the end of the appeal hearing, the panel advised the parties that the appeal was allowed with reasons to follow. These are those reasons.

[2] Carmelo Lagana brought the application under the Business Corporations Act, RSO 1980, c. B.16 (the “OBCA”) to enforce his right as a shareholder to receive audited financial statements from the numbered company respondent. The court appointed an auditor for the corporation under s. 149 of the OBCA. In the part of the order under appeal, the court ordered 2324965 Ontario Inc. to conduct an audit for fiscal years of 2013 to 2022 and to produce its findings and audited financial statements to the Mr. Lagana.

[3] The focus of this appeal is on the part of the order requiring 2324965 Ontario Inc. to perform its outstanding audits going back for ten years as required by the OBCA.

[4] The appellants submit that the audit order should be varied to limit its operation to the past two years, because part of the term ordered falls outside the limitation period for a “claim” in the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.

[5] The parties are 50% shareholders in 2324965 Ontario Inc. David Power and Mr. Lagana’s late father formed the company to develop properties for resale. After his father passed away in 2012, Mr. Lagana bought his father’s 50% interest in the company from his mother.

[6] David Power is the sole director of the corporation.

[7] In 2020, the corporation ceased active operations. In 2021, the respondent sought audited financial statements for the years he was a shareholder, that is from 2013-2020. Mr. Power refused to provide the requested information.

[8] On February 28, 2022, Mr. Lagana brought an application under s. 253 and s. 149(8) of the OBCA.

[9] The parties disagreed on the scope of the order. Following the application judge’s final order, the appellants brought this appeal, which although styled in the Court of Appeal, was argued in the Divisional Court. Section 255 of the OBCA provides: “An appeal lies to the Divisional Court from any order made by the court under this Act. R.S.O. 1990, c. B.16, s. 255.”

[10] The standard of review is the appellate standard of review described in Housen v. Nikolaisen, 2002 SCC 33: correctness for a question of law. Although for the purposes of this appeal, the parties are content to treat the issues as ones of law, I would characterize the question as one of mixed fact and law, with allegations of an extricable error in law. That extricable question is whether the application judge erred in determining that Mr. Lagana has not advanced a claim, and therefore the Limitations Act does not apply.

[11] At para. 27 of her decision, the application judge held:

[27] This application is based on the applicant's statutory entitlement under the OBCA as a shareholder of the Corporation: there is no broader relief sought. I find that the applicant's request for compliance with the OBCA is not a "claim" as defined by the Limitations Act and consequently that the request for audited financial statements prior to 2019 is not statute barred.

[12] The appellants submit that the order for audited financial statements must be limited to the previous two years by virtue of s. 4 of the Limitations Act and the jurisprudence which supports a broad understanding of what is meant by a “claim.”

[13] The respondent submits that an application to enforce a corporate responsibility is not a “claim” subject to a two-year limitation period. It is simply an obligation of the corporation, and the shareholder is availing himself of the procedures under the OBCA to enforce that responsibility. Since the financial information ought to have been provided for every year that the respondent was a shareholder, the court ought to be available to enforce that right.

[14] I agree with the appellants that the order should be varied because an application to enforce corporate duties by force of s. 253 of the OBCA in my view fall within the definition of “claim.” Section 253 of the OBCA provides broad powers to remedy non-compliance with its provisions in these terms:

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. R.S.O. 1990, c. B.16

[15] The Limitations Act, s. 1, defines a claim as a proceeding brought “to remedy an injury, loss or damage that occurred as a result of an act or omission".

[16] As the Court of Appeal for Ontario noted in Packall Packaging Inc. v. Ciszewski, 2016 ONCA 6 at para. 28, “It is a core obligation of a corporation to its shareholders to provide them with an annual report card of the corporation's financial position in the form of audited financial statements.” I conclude that a failure to do so involves a “loss” to the shareholder who is entitled to have this information, irrespective of whether the report card ultimately reveals other losses or damages that are actionable.

[17] The Limitations Act has been described as a "comprehensive approach to the limitation of actions": York Condominium Corp. No. 382 v. Jay-M Holdings Ltd., 2007 ONCA 49, 84 O.R. (3d) 414, [2007] O.J. No. 240 (C.A.), para. 2. I find that the relief provided for within s. 253 of the OBCA fits logically into the framework and understanding of what is meant by a “claim” under the Limitations Act. Section 253 is a statutory proceeding which exists to enforce omissions under the OBCA, including the corporation’s core obligations to its shareholders. There is no statutory exemption under either the Limitations Act or the OBCA from the operation of the basic limitation period.

[18] The presumptive operation of the limitation period to a request for financials was noted in passing by Farley, J. in Labatt Brewing Company Ltd. v Trilon Holdings, 1998 14697 (ON SC), 41 O.R. (3d) 384, 72 O.T.C. 223, 81 A.C.W.S. (3d) 443, para. 8, in these terms:

How far back must Trilon go in providing Labatt with audited financial statements? If Labatt had been a "continuous" shareholder, then the only restriction would have been the ordinary six-year limitation period which given the timing required here relating to annual meetings would have resulted in audited financials being required to be given Labatt for the fiscal years ending December 31, 1991, onwards. However, Labatt did not become a shareholder until June 1993 and therefore it would not be entitled pursuant to s. 154(3) to audited financials before December 31, 1992. (Emphasis added)

[19] The appointment of the auditor under s. 149 (8) of the OBCA only goes to the current year. Mr. Lagana’s request for a retrospective mandatory injunction was different. He asked the court to compel the auditor to opine on the corporation’s old financial statements and then to compel the board of directors to put those statements before the shareholders as ought to have been done at the time.

[20] This part of Mr. Lagana’s application asked the court to enforce compliance with the auditor’s and board’s duties under ss ss. 153 and 154 (1)(c)of the OBCA.

[21] 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”.

[22] The motion judge focused on the corporation’s duty to appoint an auditor pursuant to s.149 of the OBCA, which she found not to be a claim per se. But the part of the order from which the appeal is taken required audits to be conducted dating back to 2013 and that these results be placed before the shareholders as required by ss. 153 and 154 of the OBCA.

[23] I note that in fairness to the application judge, it is not clear whether she had the benefit of argument explicitly on these points or the observations of Farley J. in Labatt Brewing.

[24] I agree with the findings of the application judge that the applicant/respondent on appeal was not estopped from seeking this information, and that he should have the audited financial statements for the two years prior to the date he brought the application.

[25] However, the application judge erred in determining that a limitation period of two years pursuant to the Limitations Act did not apply to this demand for audited financial statements for several years prior to those two years. Accordingly, the claim for an order to require the appellants to produce audited statements for those years prior to 2020 is statute-barred.

[26] For these reasons, the appeal is allowed to the extent necessary to bring the period for which audited financial statements must be produced in line with the time limit for such a claim as prescribed by the Limitations Act.

[27] The order at paragraph 31(4) of the order under appeal is hereby amended as follows:

THIS COURT ORDERS that the Auditor conduct an audit of 2324965 Ontario Inc. for its fiscal years of 2020, 2021 and 2022 and produce its findings and audited financial statements of 2324965 Ontario Inc.;

[28] By agreement of the parties, costs are awarded to the appellant in the amount of $5,000.

Leiper, J.

I agree: _______________________

E. Stewart, J.

I agree: _______________________

Myers, J.

Released: February 16th, 2024

Amended Reasons for Judgment

CITATION: Lagana v 2324965 Ontario Inc., 2024 ONSC 953

DIVISIONAL COURT FILE NO.: DC-23-2797

DATE: 20240216

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

E. Stewart, Myers and Leiper, JJ.

BETWEEN:

CARMELO LAGANA Applicant (Respondent in Appeal)

– and –

2324965 ONTARIO INC. and DAVID POWER Respondents (Appellants in Appeal)

AMENDED REASONS FOR JUDGMENT

Released: February 16th, 2024