ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-07-084135-00

DATE: 20130711

BETWEEN:

Claudio Ciavarella

Plaintiff

– and –

The Atlas Corporation

Defendant

Sarit E. Batner and Moya J. Graham, for the Plaintiff

John Lo Faso, for the Defendant

HEARD: June 24, 2013

REASONS FOR DECISION

EDWARDS j.:

Overview

[1] A simple wrongful dismissal action, which was commenced in May 2007, arising out of the severance of the employment relationship between the plaintiff and the defendant, The Atlas Corporation (“Atlas”) in 2005, has yet to be tried on its merits and on the eve of this matter being in trial scheduling court, Atlas moves to amend its statement of defence to add a counterclaim. The substance of the counterclaim relates to allegations that the plaintiff, during the course of his employment, was reimbursed for personal expenses which had not been authorized by Atlas and that the plaintiff had not reimbursed Atlas for personal expenses, which he had charged to Atlas’ credit card.

[2] Atlas maintains that it did not become aware of the facts that give rise to the allegations relating to the improper expenses claimed by the plaintiff and reimbursed to the plaintiff until Atlas reviewed its books and records to answer undertakings that had been given on the examination for discovery of Atlas’ representative, Andrew Famiglietti (“Famiglietti”). This review occurred in early 2012. Famiglietti is the president of Atlas. The fundamental argument made by the plaintiff in opposition to the motion is that the allegations that underpin the counterclaim are met with a limitation defence.

The Facts

[3] The plaintiff commenced his employment with Atlas in early 1996 as Atlas’ corporate controller. The plaintiff reported to Famiglietti. As part of the claim for wrongful dismissal, the plaintiff maintains that he had an agreement with Famiglietti, whereby he would receive a twenty per cent equity interest in Atlas. This claim is denied by Atlas.

[4] Sometime in February 2005, Famiglietti’s wife apparently became upset when she reviewed Atlas’ credit card statements in which she discovered that there had been personal purchases made by Atlas employees. Included in these employees making alleged, personal purchases charged to Atlas’ credit card was the plaintiff. As a result of her discovery, the plaintiff was accused by Mrs. Famiglietti of stealing from Atlas and apparently these allegations resulted in a souring of the relationship, ultimately leading to the plaintiff either having his position of employment terminated or as Atlas alleges, the plaintiff simply deciding to cease rendering his services to Atlas, effective in the Spring or Summer of 2005.

[5] The statement of claim in this matter was issued on June 15, 2007 with a defence delivered on February 25, 2008. The action then proceeded at what can only be described as a fairly leisurely pace. Examinations for discovery were to have been completed by February 28, 2012 as a result of an order made by Minden J. Famiglietti was examined for discovery on January 19, 2012 with the inevitable undertakings to be dealt with at a later date. Largely as a result of one of these undertakings, Famiglietti now takes the position that when he was reviewing his files to answer an undertaking, he then discovered that monies had been taken by the plaintiff from Atlas without authorization. It is now suggested that it was only in April 2012 that Atlas became aware of the facts that would support the basis for the counterclaim now being advanced in the draft counterclaim, which Atlas seeks leave of this court to commence. The plaintiff set this action down for trial in June 2012 and advised counsel for Atlas that it would not consent to Atlas’ request to amend the statement of defence to add a counterclaim as the counterclaim was statute-barred by the Limitations Act.

Position of Atlas

[6] It is acknowledged by counsel for Atlas that the documents that potentially give rise to the counterclaim have been within the possession of Atlas for anywhere between eight and eleven years. There was nothing however that would have given rise to any suspicions on the part of Atlas that the plaintiff had, in fact, submitted claims for personal expenses which had not been authorized or, alternatively, that he had improperly charged personal expenses to Atlas’ credit card. Fundamentally, it is argued that an employer should be entitled to assume that expense claims made by an employee are being made properly and that they are legitimate. Unless there are circumstances that might give rise to suspicions on the part of the employer until such time as falsified expense claims are actually discovered, the limitation period does not begin to run.

Position of the Plaintiff

[7] Counsel for the plaintiff argues that the alleged falsified expenses have been discoverable since essentially the time when they would have been submitted by the plaintiff. All of the documents that give rise to the alleged counterclaim have been within the possession of Atlas, since essentially the time they were submitted by the plaintiff for a period of eight to eleven years. It is also noted that all of the expense forms that would give rise to the claim for the so-called falsified expense claims were expense forms that were approved by Famiglietti.

[8] Fundamentally, the plaintiff argues that the request to amend the statement of defence to add a counterclaim should be denied because the proposed counterclaim is statute-barred. It is acknowledged that pursuant to Rule 27.07(1) and Rule 26 of the Rules of Civil Procedure, a motion to amend a pleading is generally allowed. However, where there are proposed amendments to a pleading which seek to commence time-barred claims which are not tenable at law and prohibited by statute, it is argued the court has the jurisdiction to deny the amendment.

[9] As to the timing of the commencement of the limitation period, the plaintiff relies on section 5 of the Limitations Act (2002) (the “Act”), which deals with the question of discoverability. Heavy reliance is placed on section 5(2) which provides:

A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day of the act or omission in which the claim is based or took place, unless the contrary is proved. (emphasis added)

[10] Counsel for the plaintiff therefore argues that given the presumption set forth in section 5(2), Atlas has the onus of establishing that a reasonable person would not have discovered the underlying facts that give rise to the counterclaim, as of the date when the alleged falsified expenses and alleged falsified credit card claims were submitted by the plaintiff to Atlas. Alternatively it is submitted that Atlas is presumed to have had knowledge of the counterclaim in 2005, at the very latest, by the time that the plaintiff’s employment was terminated in July 2005.

[11] It is submitted that the principle of discoverability set forth in section 5 of the Act comes with it a positive duty to exercise reasonable diligence to discover claims, (see Pepper v. Zellers Inc. 2006 42355 (ON CA), [2006] O.J. No. 5042 (C.A.) at para. 19). In relation to the issue of due diligence, it is argued that Atlas has an obligation to put before this court evidence of due diligence which would explain why the claim could not have reasonably been discovered during the preceding two years, (see Atlas Corporation v. Ingriselli [2010] O.J. No. 1402 at para. 23).

[12] As to what evidence Atlas has placed before this court to establish due diligence, it is submitted on behalf of the plaintiff that the evidence, put before this court, establishes that in fact, Atlas made no investigations, inquiries, or attempts to discovery its claims, despite the fact that all of the documents that would have given rise to the counterclaim have been available to Atlas since, at least, 2005, if not earlier. It is also noted, with respect to the question of due diligence, that Famigliett’s own evidence is to the effect that he did turn his mind to the plaintiff’s outstanding personal expenses in 2005 when he cancelled the plaintiff’s last pay cheque, allegedly at the plaintiff’s request to offset personal expenses. As such, it is argued that Famiglietti’s own evidence confirms that the issue of personal expenses owed to Atlas by the plaintiff came up around the time of his termination in 2005. From this flows the argument that it was then incumbent on Atlas to act with reasonable diligence to discover any claims that it might have against the plaintiff.

The Law

[13] For Atlas to be successful it has to convince this court that through the exercise of due diligence, a reasonable person could not have discovered the underlying facts that give rise to the counterclaim at an earlier date than 2012 when Famiglietti was directing his mind to answering the undertakings from his examination for discovery.

[14] Atlas must demonstrate that, not only did it not have knowledge of the counterclaim until April 2012, but also that a reasonable person would not have had knowledge of the counterclaim. In Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors 2012 ONSC 151, [2012] O.J. No. 135 at paras. 33-35, the court described the onus as follows:

The trigger point for the limitation period is when the plaintiff knew or ought to have known they had a cause of action against the defendant.

Ferrara does not succeed in satisfying the knowledge requirements of section 5(1) of the Act by asserting only facts of his subjective knowledge, that he had no actual knowledge that he had a claim against Schwartz until July 2, 2009. To meet the objective element of the test, he has to show that he took the steps a reasonable person in his place would take to obtain knowledge of a potential claim.

As noted earlier, section 5(1)(a) of the Act focuses on the plaintiff’s actual knowledge. The second test under section 5(1)(b) is objective and requires the plaintiff’s knowledge to be assessed in relation to the standard of the steps a reasonable person would take to obtain the knowledge.

[15] The question then arises as to what steps did Famiglietti take, if any, and what steps ought Famiglietti to have taken to comply with the due diligence test mandated by section 5 of the Act. A review of the evidence leads this court to the conclusion that, in fact, nothing was done in between the time of the plaintiff’s termination in 2005 and when Famiglietti was going about answering his undertakings in 2012 to determine whether or not there was any basis for a counterclaim. Famiglietti’s own evidence confirms that there were no questions asked and no investigation taken. This despite the fact that at the time of the plaintiff’s termination, the plaintiff’s last pay cheque was cancelled, allegedly to offset the plaintiff’s personal expense.

[16] The evidentiary record is not complete with respect to the terms of the plaintiff’s employment with Atlas but, there are certainly facts that may eventually lead to a conclusion that part of the fiscal arrangement between the parties allowed for the plaintiff to be reimbursed for personal expenses. As such, when the plaintiff’s last pay cheque was cancelled to reimburse Atlas for the plaintiff’s personal expenses, it cannot be said, in my view, that at that time Atlas ought to have known that there may have been facts upon which it could conclude that the plaintiff had been submitting unauthorized claims for reimbursement for personal expenses and reimbursement for personal expenses charged to Atlas’ credit card. While the documents that would form the potential basis for these claims clearly were in the possession of Atlas and, in fact, many of them had been approved by Famiglietti, the question is whether or not a reasonably prudent employer would know, or ought to have known, that the expense claims submitted by the plaintiff were essentially fraudulent. Is an employer to assume that expense claims submitted by an employee are legitimate unless the opposite is proven, or is an employer to assume that every expense claim submitted by an employee are to be carefully scrutinized so as to ensure that each claim is legitimate? Ultimately, this will come down to a mixed question of fact and law. On the evidentiary record before me, I am not satisfied that this court has sufficient evidence before it to conclude that a reasonably prudent employer should have discovered the basis for a potential counterclaim against the plaintiff at an earlier date than April 2012. This will become a question of fact for the trial judge to decide as to whether or not Atlas can rely on section 5 of the Act, or whether as the plaintiff asserts, the limitation period commenced, at the latest, at the time of his termination in 2005. Atlas’ motion to amend the statement of defence to add the proposed counterclaim is therefore allowed.

[17] This action has languished for far too long. In order to ensure that this matter is ready for trial in a timely fashion, I am going to case manage this matter and the following timetable is to be adhered to:

(a) Atlas is to file its amended statement of defence and counterclaim forthwith;

(b) The plaintiff shall file a defence to the counterclaim by August 15, 2013;

(c) An amended affidavit of documents shall be served by Atlas, no later than September 10, 2013;

(d) An amended affidavit of documents shall be served by the plaintiff, no later than October 1, 2013;

(e) Any discovery of the plaintiff on the amended statement of defence and counterclaim and the amended defence to the counterclaim shall be completed by December 1, 2013, limited to seven hours;

(f) Any discovery of Atlas on the amended statement of defence and counterclaim and the amended defence to the counterclaim shall be completed by December 10, 2013, limited to seven hours;

(g) All undertakings and refusals shall be completed by both parties by no later than January 30, 2014;

(h) A pre-trial shall be organized through the trial co-ordinator before me to take place prior to May 1, 2014; and

(i) This matter shall be placed on the trial list for the civil sittings commencing in May 2014.

[18] As to the question of costs, I heard brief submissions from counsel at the completion of the motion and I am ordering that the plaintiff pay Atlas’ costs, fixed in the amount of $10,000, which costs shall only become payable if Atlas is ultimately successful on its counterclaim at trial.

Justice M.L. Edwards

Released: July 11, 2013