SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: CV-09-383104
DATE: 2012/07/20

RE: Sun Life Assurance Company of Canada v. Dynasty Ontario Inc., Ryan Williams et al.

BEFORE: MASTER GRAHAM

HEARD: April 26, 2012

COUNSEL: Ivan Lavrence for the plaintiff (moving party)

Alastair McNish for the defendants Dynasty Ontario Inc. and Williams

David Shiller for the proposed added defendant 2213574 Ontario Inc. o/a Save On Spas

REASONS FOR DECISION

(Re: plaintiff’s motion for leave to add a defendant to the action)

[ 1 ] The plaintiff owns a shopping centre called Village at Vaughan Mills, located in Vaughan, Ontario. Pursuant to a commercial lease dated November 23, 2006, it leased premises at the shopping centre to the defendant Dynasty Ontario Inc. (“Dynasty”), of which the defendant Williams was the sole operator and director. Dynasty operated a retail business called Dynasty Spas and Games Room and sold items such as hot tubs, pool tables, games room furniture and patio furniture from the leased premises.

[ 2 ] The lease was for a period of ten years, from October 24, 2006 to September 30, 2016. Commencing in July, 2007, the defendant began to default on the terms of the lease and the defaults continued from time to time until January, 2009 when the defendant informed the plaintiff by letter that it would be abandoning the premises as of April 30, 2009. The plaintiff was not prepared to release the defendant from its obligations under the lease. The defendant then abandoned the premises on or about February 16, 2009.

[ 3 ] The plaintiff issued the statement of claim on July 15, 2009, seeking damages against Dynasty and Williams for rent payable under the lease and damages arising from the removal of chattels, assets and inventory from the leased premises. The plaintiff also alleges that before abandoning the lease, Dynasty transferred funds and assets to various corporations and individuals and claims a declaration that Dynasty’s alleged transfer of monies, assets, business and opportunities from itself to the co-defendants Polar Spas Ontario Inc. and 732311 Alberta Ltd., and its transfer of monies or assets to the defendant Williams and to the co-defendants Marsall Brent and Ken Nikel are void as against Dynasty’s creditors as fraudulent conveyances.

[ 4 ] The plaintiff conducted its examination for discovery of Ryan Williams on behalf of Dynasty on August 16, 2011, at which time it learned the following:

1. Dynasty had carried on business at a second location at the Heartland Centre in Mississauga until November, 2009, after the service of the statement of claim.

2. Mr. Williams incorporated a new entity, 2213574 Ontario Inc. o/a Save On Spas (“Save On Spas”) on or about July 30, 2009. (As indicated below, counsel for the plaintiff was already aware of the existence of Save On Spas at the time of the examination for discovery.)

3. Save on Spas was carrying on a business very similar to that formerly carried on by Dynasty, including the sale of spas, hot-tubs, pool tables and related equipment, also at the Heartland Centre.

[ 5 ] The plaintiff now moves under rule 5.04 to add Save On Spas as a defendant in the action. Save On Spas opposes the motion on the basis that the claim against it is barred by the expiry of the applicable limitation period.

[ 6 ] The claims against all of the defendants including the proposed claims against Save On Spas, are based on the abandonment of the leased premises by Dynasty on February 16, 2009. The claim against Save On Spas in the draft amended statement of claim is for a declaration that the transfer of monies, assets, business and opportunities from Dynasty to Save On Spas is void against creditors as a fraudulent conveyance and is unfairly prejudicial and oppressive to the plaintiff. The plaintiff also seeks a declaration that Save On Spas has been unjustly enriched by the transfer of business, assets and opportunities to it along with damages representing the value of such enrichment.

[ 7 ] The corporation profile report for 2213574 Ontario Inc. indicates that it was incorporated on July 30, 2009 and that Ryan Williams was the sole officer and director. The business names report for Save On Spas indicates that this name was registered by Ryan Williams on August 4, 2009. It is noteworthy for the purpose of this motion that these reports were obtained at approximately 1:00 p.m. on August 16, 2011, the same day as the examination for discovery of Mr. Williams.

[ 8 ] Mr. Williams was asked at his examination for discovery whether the name Save On Spas meant anything to him and he acknowledged that he was involved in that business. It is clear from the transcript that counsel for the plaintiff already knew of the existence of Save On Spas before asking the question. Williams was advised by his counsel not to answer any further questions relating to Save On Spas and it was agreed by counsel that the propriety of those questions would be resolved following the disposition of this motion.

[ 9 ] Counsel for Williams also stated on the record at his examination that Williams was not a director, officer or shareholder in any spa business.

Law

[ 10 ] The rule of civil procedure applicable to this motion to add a party to the action is as follows:

5.04(2) At any stage of a proceeding the court may by order add, delete or substitute a party or correct the name of a party incorrectly named, on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[ 11 ] As indicated above, the proposed defendant Save On Spas opposes the motion to add it as a party on the basis that the plaintiffs’ claims against it are now barred by the Limitations Act, 2002 , S.O. 2002, c. 24 . The sections of that statute applicable to this motion are as follows:

Basic limitation period

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. 2002, c. 24 , Sched. B, s. 4.

Discovery

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 , [emphasis added] 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). 2002, c. 24 , Sched. B, s. 5 (1).

Presumption

(2) 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. 2002, c. 24 , Sched. B, s. 5 (2).

[ 12 ] The law on adding parties after the expiry of a limitation period based on the application of the discoverability principle is set out in Master Dash’s decision in Wong v. Adler , 2004 8228 (ON SC) , [2004] O.J. No. 1575 (S.C.J.), affirmed 2004 73251 (ON SCDC) , [2005] O.J. No. 1400 (Div. Ct.), as follows:

45 . . . [T]he motions court must examine the evidentiary record before it to determine if there is an issue of fact or of credibility on the discoverability allegation, which is a constituent element of the claim. If the court determines that there is such issue, the defendant should be added with leave to plead a limitations defence. If there is no such issue, as for example where the evidence before the motions court clearly indicates that the name of the tortfeasor and the essential facts that make up the cause of action against such tortfeasor, were actually known to the plaintiff or her solicitor more than two years before the motion to amend, the motion should be refused. If the issue is due diligence rather than actual knowledge, this is much more likely to involve issues of credibility requiring a trial or summary judgment motion, provided of course that the plaintiff gives a reasonable explanation on proper evidence as to why such information was not obtainable with due diligence. That is not to say that such motion could never be denied if the evidence is clear and uncontradicted that the plaintiff could have obtained the requisite information with due diligence such that there is no issue of fact or credibility. [emphasis added]

[ 13 ] Master Dash elaborated on the nature of the evidence required to satisfy a court as to whether the plaintiff had exercised due diligence to identify the proposed defendant within the limitation period in Wakelin v. Gourley , 2005 23123 (ON SC) , [2005] O.J. No. 2746. Referring specifically to the highlighted passage from Wong v. Adler, supra , Master Dash stated as follows:

9 . . . I left open a window however to challenge the addition of a defendant based on due diligence "if the evidence is clear and uncontradicted that the plaintiff could have obtained the requisite information with due diligence such that there is no issue of fact or credibility". It will be rare that the applicability of the discoverability principle based on due diligence will be determined on a motion to add a party . [emphasis added]

[ 14 ] In Wakelin , Master Dash further states:

15 Therefore, as long as the plaintiff puts in evidence as to steps taken to ascertain the identity of the tortfeasors and gives a reasonable explanation on proper evidence as to why such information was not obtainable with due diligence then that will be the end of the enquiry and the defendants will normally be added with leave to plead a limitations defence. This is not a high threshold. If the plaintiff fails to provide any reasonable explanation that could on a generous reading amount to due diligence the motion will be denied. If the plaintiff puts in evidence of steps taken but the proposed defendant also provides evidence of further reasonable steps that the plaintiff could have taken to ascertain the information within the limitation period then the court will have to consider whether the plaintiff's explanation clearly does not amount to due diligence. If there is any doubt whether the steps taken by the plaintiff could not amount to due diligence then this is an issue that must be resolved on a full evidentiary record at trial or on summary judgment . The strength of the plaintiff's case on due diligence and the opinion of the master or judge hearing the motion whether the plaintiff will succeed at trial on the limitations issue is of little or no concern on the motion to add the defendants. The only concern is whether a reasonable explanation as to due diligence has been provided such as to raise a triable issue. [emphasis added]

Issues

[ 15 ] The main question on this motion is whether the plaintiff’s proposed claim against Save On Spas is barred by the expiry of the two year limitation period in the Insurance Act. The resolution of this issue requires the court to consider the following:

1. Has the plaintiff met the onus under s. 5(2) of the Limitations Act, 2002 to rebut the presumption that it knew about the matters listed in section 5(1)(a) of the statute on the day on which the act or omission giving rise to the claim took place? (“the onus issue”)

2. If the plaintiff has met the onus under s. 5(2) of the Act, has it demonstrated that there is at least a triable issue as to whether it exercised reasonable diligence in attempting to discover the cause of action sought to be advanced within the limitation period? (“the discoverability issue”)

The onus issue

[ 16 ] Section 5(2) of the Limitations Act, 2002 (“the Act”) states that “a person with a claim shall be presumed to have known of the matters referred to in section 5(1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved ” (emphasis added).

[ 17 ] The proposed defendant Save On Spas submits that the act or omission on which the claim is based is the abandonment of the leased premises by Dynasty on February 16, 2009, and that the plaintiff bears the onus of demonstrating that it did not know of the particulars of the claim against it on that date. In paragraph 42 of the draft amended statement of claim, the plaintiff purports to plead that Dynasty transferred “monies, assets, business and opportunities” to Save On Spas and the other existing defendants, “prior to the date on which the Tenant [Dynasty] abandoned its Lease”. However, the fact is that Dynasty could not have transferred anything to Save On Spas before it abandoned the lease on February 16, 2009 because the corporation operating as Save On Spas did not exist until July 30, 2009 and the name Save On Spas was not registered until August 4, 2009.

[ 18 ] Accordingly, the presumption in s. 5(2) of the Act is rebutted by the fact that as of February 16, 2009, it would have been impossible for the plaintiff to know of a claim against a party that did not yet exist.

[ 19 ] During argument, counsel for the plaintiff recognized the inconsistency in pleading that assets were transferred to Save On Spas “prior to the date” on which Dynasty abandoned its Lease and suggested that if an order were made adding Save On Spas as a defendant, the passage should be amended to read “prior or subsequent to the date on which the Tenant abandoned its Lease”. Counsel for Save On Spas submitted that such an amendment amounted to “coopering up” a deficiency on the motion. However, given the impossibility of the proposed pleading in its current form as against Save On Spas, I would allow the change in the event that I grant the order adding Save On Spas as a party.

The discoverability issue

[ 20 ] It is now necessary to consider whether there is a triable issue as to whether the plaintiffs exercised reasonable diligence in attempting to discover the cause of action sought to be advanced against Save On Spas within the limitation period.

[ 21 ] An underlying issue that must be addressed is from what point the limitation period would begin to run. The earliest possible date would be July 30, 2009, the date on which 2213574 Ontario Inc., which operates Save On Spas, was incorporated. However, the basis of the claim against Save On Spas is that it received the benefit of fraudulent conveyances from Dynasty and further that it must account for the transfers of assets, business and opportunities to it both as a consequence of Dynasty’s oppressive conduct and its own unjust enrichment. There is no evidence before the court as to when any such transfers of assets took place, but it must have been at some point after July 30, 2009.

[ 22 ] It is somewhat unclear from the evidence as to when Save On Spas began to carry on business at the Heartland Centre in Mississauga, but it appears to have been in November, 2009, at the time that Dynasty stopped operating the business at that location. Although one could speculate that the alleged transfers of assets to Save On Spas occurred before or at that time, there is no evidence to that effect. In any event, this evidence would be exclusively within the knowledge of the defendants, and in particular Ryan Williams. It is difficult to imagine how the plaintiff could possibly get access to this information outside the context of the lawsuit.

[ 23 ] The plaintiff did become aware of the existence of Save On Spas at some point before the examination of Ryan Williams on August 16, 2011, but the deponent of the plaintiff’s affidavit does not say precisely when or how. Under s. 5(1) of the Limitations Act, one of the elements of discoverability is that the person with the claim knew or ought to have known “ that the act or omission was that of the person against whom the claim is made”.

[ 24 ] It is fair to say that in November, 2009, the plaintiff knew that there were claims against the existing defendants because the statement of claim was issued on July 15, 2009. The plaintiff’s failure to provide evidence of when, precisely, it did learn of the existence and possible involvement of Save On Spas in the business currently operated by Mr. Williams is not helpful to the court in resolving the issue before it. However, there is no reason that the plaintiff could or should have known about the existence or involvement of Save On Spas in November, 2009.

[ 25 ] The plaintiff first initiated this motion to add Save On Spas as a defendant by serving a motion record on November 4, 2011. The motion was not heard on the original return date because a special appointment was required.

[ 26 ] Based on the available evidence, the earliest point at which the cause of action could plausibly have arisen was November, 2009 when it appears that Save On Spas began to operate a business similar to that operated by Dynasty. The issue on this motion is whether there is a triable issue of discoverability that must be resolved on a full evidentiary record at trial or on a summary judgment motion. Given that the plaintiff’s motion was initiated on November 4, 2011, which would be within two years of all but the first three days of November, 2009, and that it is unclear as to when the cause of action against Save On Spas actually arose, or when the plaintiff ought to have known about it, I am satisfied that there is a triable issue of discoverability and the plaintiff should be permitted to add Save On Spas as a defendant.

[ 27 ] The plaintiff is hereby granted leave to add 2213574 Ontario Inc. o/a Save On Spas as a defendant and to file an amended statement of claim in the form found at tab 1A of the motion record. The first line of paragraph 42 of the draft amended pleading shall commence “Prior or subsequent to the date on which the Tenant abandoned its Lease”.

[ 28 ] Although I have allowed the amendment based on a triable issue of discoverability, I should address the submission made by the plaintiff that the amendment should also be allowed on the basis that, in representing through his counsel at his examination for discovery that he was not an officer or director of Save On Spas, Mr. Williams fraudulently concealed the cause of action against the corporation operating as Save On Spas. Any argument based on “concealed fraud” that might negate the effect of the limitation period fails on the basis that the plaintiff’s counsel had the corporate search showing Mr. Williams’ connection to 2213574 Ontario Inc. and Save On Spas on the day of the examination.

Costs

[ 29 ] If the parties cannot agree to the disposition of the costs of the motion, they may make submissions in writing, the plaintiff within 30 days and the defendant Save On Spas within the following 15 days. The submissions shall not exceed two pages in length in addition to the the costs outlines filed following the hearing of the motion.

Master Graham

DATE: July 20, 2012