Court File and Parties

and DILANI GUNARAJAH and OTHERS, 3rd PARTIES, 2013 ONSC 6259

COURT FILE NO.: CV-09-3822317

DATE: 20131021

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: RAJADURAI RAJMOHAN, Plaintiff

and

NORMAN H. SOLMON FAMILY TRUST and NORMAN HARRY SOLMON,

Defendants

and

DILANI GUNARAJAH and THERESE SELVAMAHAL EDWARD CHANDRAN as trustee of the Estate of THAMBIRAJAH EDWARD CHANDRAN, Third Parties

BEFORE: CHIAPPETTA J.

COUNSEL:
Charles Sinclair, for the Plaintiff

Cameron Wetmore, for the Defendants

HEARD: October 4, 2013

ENDORSEMENT

Overview

[1] This motion considers whether there is sufficient evidence of fraudulent concealment on the part of either the late Edward Chandran or his widow such that the two year limitation period in the Trustee Act, R.S.O. 1990, c. T.23 ought to be tolled. For reasons set out below, I conclude that the evidence is not sufficient to establish fraudulent concealment. The Trustee Act bars the third party claim against Therese Selvamahal Edward Chandran as trustee of the estate of Thambirajah Edward Chandran.

The Parties

[2] Norman Solmon (“Solmon”) was a chartered accountant and operated an accountancy practice for about 50 to 60 years. He also operated a private lending business for approximately 10 to 12 years. He provided first, second, and third mortgage loans in amounts ranging from $10,000 to $500,000. It is estimated that he made approximately 100 loans during his career as a private lender. He is described as being a careful, sophisticated, and intelligent business person.

[3] Solmon provided the two mortgage loans that are subject to the third party claim (the “Mortgages”). Solmon was 89 or 90 years old at the time in question. He died on October 2, 2007. Upon his death, the Mortgages were assigned to the Norman H. Solmon Family Trust (the “Family Trust”).

[4] Thambirajah Edward Chandran (“Chandran”) was a barrister, solicitor, and notary public practicing law in the city of Toronto. He acted for Solmon on the Mortgages. At the time in question, he had over 20 years of experience as a lawyer. Chandran died on November 23, 2007.

[5] Therese Selvamahal Edward Chandran (“Mrs. Chandran”) is the widow of Chandran. She is the trustee and executor of her late husband’s estate. She lives and practices psychiatry in Victoria, British Columbia. She moved there after her husband’s death in 2007. Mrs. Chandran is a third party defendant in the third party action only in her capacity as trustee of Chandran’s estate. Mrs. Chandran has no personal knowledge of the Mortgages.

[6] Dilani Gunarajah (“Gunarajah”) is a barrister and solicitor practicing law in the city of Toronto. At the relevant time, she was a sole practitioner with less than one year of experience. Gunarajah assumed Chandran’s office lease and practice when he stopped practicing law a few months before his death.

[7] Rajadurai Rajmohan and Thavaneswary Rajmohan (collectively the “Mortgagors”) gave the Mortgages. They were husband and wife and resided at 412 Military Trail.

[8] Chand Kapoor (“Kapoor”) is the Family Trust’s affiant on this motion. He is an accountant and worked with Solmon’s accountancy practice. He became the Family Trust’s manager following Solmon’s death. By his own admission, Kapoor had little to no involvement in Solmon’s lending business and had no involvement in the Mortgages. Kapoor has no knowledge of any discussions that may have taken place between Solmon and Chandran and/or Gunarajah regarding the transactions at issue in this proceeding.

Background

[9] In or around June 2006, a mortgage broker approached Solmon regarding secured loans to the Mortgagors. Solmon retained Chandran to act for him. In exchange for advancing $125,000, Solmon received a second charge in the amount of $95,000 and a third charge in the amount of $30,000 against title to the Mortgagors’ house at 412 Military Trail. Chandran duly registered both mortgage loans on Solmon’s behalf. These two mortgages are the Mortgages subject to the third party claim.

[10] The Mortgagors subsequently defaulted on the two loans. The Family Trust commenced default proceedings. The Mortgagors defended those proceedings. They also commenced the main action on the basis that the Mortgages were obtained by fraud. They never received the benefit of the mortgage proceeds. The Mortgagors thereafter declared bankruptcy. Their trustee did not dispute the validity of the Mortgages against title to the Military Trail property.

[11] The Family Trust commenced the third party action on March 17, 2010, alleging negligence by Chandran in handling the Mortgages. They amended their claim twice to add a defence of fraudulent concealment and a defence of special circumstances.

[12] The moving party, Mrs. Chandran on behalf of Chandran’s estate, brings this motion for summary judgment under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. She argues that the limitation period under s. 38(3) of the Trustee Act bars the third party claim. Section 38(3) provides that any action in tort by or against an estate must be commenced within two years of the deceased’s death. Evidence of fraudulent concealment on the part of either Chandran or Mrs. Chandran would be sufficient to toll the two year limitation period. However, no such evidence is before the court. Further, as directed by the Ontario Court of Appeal, she argues that it is not within this court’s jurisdiction to allow special circumstances to save the action. Therefore, there is no genuine issue requiring a trial. The third party action against Mrs. Chandran as trustee of Chandran’s estate should be dismissed.

[13] The responding party, the Family Trust, argues that there is sufficient evidence of fraudulent concealment to toll the s. 38(3) limitation period. Chandran breached his obligations to Solmon by failing to provide material information before and after closing the Mortgages. Chandran concealed the wrongdoing from Solmon at the time of the breaches. Chandran’s breaches of duty amount to an unconscionable violation of the special lawyer-client relationship. His conduct was not in accordance with what is right or reasonable.

[14] In the alternative, the responding party submits that the doctrine of special circumstances applies. This court should permit the third party action to proceed against the moving party, despite the expiry of the s. 38(3) limitation period.

[15] The moving party further seeks an order removing Norman Harry Solmon as a party to the third party action. The responding party agreed to this relief prior to the motion.

Analysis

1. Fraudulent Concealment

[16] Both parties agree that a trial is not necessary for the court to determine whether the doctrine of fraudulent concealment applies to the circumstances described in the paper record before me. Both Solmon and Chandran have passed away. The parties agree that the evidence will not change if this matter were to proceed to trial. I accept this joint submission and will make the determination herein.

[17] At common law, no action in negligence can be brought on behalf of or against a deceased person. In Ontario, s. 38 of the Trustee Act provides legislative entitlement to maintain an action in tort by or against a deceased person. Section 38 provides as follows:

Actions for torts

Actions by executors and administrators for torts

38. (1) Except in cases of libel and slander, the executor or administrator of any deceased person may maintain an action for all torts or injuries to the person or to the property of the deceased in the same manner and with the same rights and remedies as the deceased would, if living, have been entitled to do, and the damages when recovered shall form part of the personal estate of the deceased; but, if death results from such injuries, no damages shall be allowed for the death or for the loss of the expectation of life, but this proviso is not in derogation of any rights conferred by Part V of the Family Law Act.

Actions against executors and administrators for torts

(2) Except in cases of libel and slander, if a deceased person committed or is by law liable for a wrong to another in respect of his or her person or to another person’s property, the person wronged may maintain an action against the executor or administrator of the person who committed or is by law liable for the wrong.

Limitation of actions

(3) An action under this section shall not be brought after the expiration of two years from the death of the deceased.

[18] The parties agree that, but for applying the doctrine of fraudulent concealment (or special circumstances), the Trustee Act bars the claim against Chandran and his estate on his behalf.

[19] The doctrine of fraudulent concealment is a powerful tool of equity used to toll the limitation period. The doctrine’s underlying rationale is that equity will not permit a statute to be used as an instrument of fraud. In Giroux Estate v. Trillium Health Centre (2005), 2005 1488 (ON CA), 74 O.R. (3d) 341, the Court of Appeal directs the following at para. 29:

Stated succinctly, [the doctrine of fraudulent concealment] is aimed at preventing unscrupulous defendants who stand in a special relationship with the injured party from using a limitation provision as an instrument of fraud.

[20] In the original motion decision in Giroux Estate v. Trillium Health Care (2004), 2004 18056 (ON SC), 69 O.R. (3d) 689 (S.C.), at para. 20, Lederman J. summarizes the requirements to apply the doctrine of fraudulent concealment:

(a) the defendant and plaintiff are engaged in a special relationship with another;

(b) given the special or confidential nature of their relationship, the defendant’s conduct amounts to an unconscionable thing for the one to do towards the other;

(c) the defendant conceals the plaintiff’s right of action (either actively, or as a result of the manner in which the act that gave rise to the right of action is performed).

[21] Considering the doctrine’s rationale and requirements, I conclude that the doctrine does not appropriately apply to the circumstances of this case. I am unable to find that Chandran’s conduct amounts to anything beyond mere negligence.

[22] In my view, this is a case of delayed discovery of an action in negligence. However, the “discoverability rule” that applies to the limitation period under the Limitations Act, 2002, S.O. 2002, c. 24 does not apply to the two-year limitation period in s. 38(3) of the Trustee Act: Waschkowski v. Hopkinson Estate (2000), 2000 5646 (ON CA), 47 O.R. (3d) 370 (C.A.), at para. 8.

[23] The Family Trust must provide more than a reasonable explanation for the delayed discovery of the alleged negligence. It must show that Chandran’s conduct amounts to an “unconscionable thing” against Solmon such that it would be equally unconscionable to permit a statutory limitation period to bar its claim. Based on the paper record before me, Chandran’s conduct does not trigger the application of the doctrine of fraudulent concealment.

(a) Special Relationship

[24] The moving parties submit that Chandran and Solmon were not in a special relationship. I disagree. Solmon was a sophisticated business person without vulnerability. However, Chandran assumed a dual role and acted for both Solmon and the Mortgagors on the Mortgages. In my view, this fact is sufficient to designate the solicitor-client relationship as “special” as defined in Giroux Estate.

(b) Unconscionable Conduct

[25] I accept that a special relationship existed between Chandran and Solmon. However, I do not accept that Chandran’s impugned actions can be characterized as unconscionable. Rather, Chandran’s conduct amounts to negligence.

[26] Chandran’s legal work in registering the Mortgages did not meet the standard of a reasonably competent lawyer. Chandran failed to do the following:

1. Delineate in writing the responsibilities between himself and Gunarajah in handling the Mortgages
2. Provide a timely comprehensive reporting letter
3. Seek consent in writing for revised conditions for the release of the funds, in particular the stipulation of the amount of the first mortgage had to be $214,000 (the first mortgage was a line of credit registered in the amount of $325,000)
4. Include in his file documentary verification of one of the two Mortgagors
5. Properly execute all mortgage documentation (including the acknowledge-ment and directions, guarantees, and solicitor’s confirmations)
6. Receive consent in writing to act for both the lender and the borrower.

[27] As both men have passed, the evidence required for certainty is not available. There is no way of knowing for certain whether Solmon gave verbal instructions to Chandran not reflected in the paper file. For example, Solmon could have verbally approved Chandran to act for both him and the Mortgagors, even though Chandran is prohibited from doing so on the second mortgage under Rules 2.04(11) and 2.04(12) of the Law Society of Upper Canada’s Rules of Professional Conduct. Similarly, Chandran could have verbally approved the amount of the first charge on 412 Military Trail, despite the Instruction Letter requiring written consent.

[28] It seems probable that such approvals were given verbally. Chandran acted on a number of transactions for Solmon over the year, sometimes acting for both Solmon and borrowers. Solmon had considerable experience in the lending business. He was a business man of sophistication and attention to detail. Solmon received the two registered mortgages. The Trustee did not dispute the legitimacy of the two charges following the Mortgagors’ bankruptcy.

[29] Based on the paper record, Chandran’s conduct was negligent, not unconscionable. It is not the sort of conduct described as blatant negligence in Vienneau v. Arsenault (1982), 1982 4197 (NB CA), 41 N.B.R. (2d) 82 (C.A.). In my view, Chandran’s conduct must amount to something more than mere negligence to trigger the doctrine of fraudulent concealment. To conclude otherwise would be tantamount to applying the discoverability rule to s. 38 of the Trustee Act, contrary to the Court of Appeal’s directions in Waschkowski. Therefore, the doctrine of fraudulent concealment does not apply to this case.

(c) Concealment

[30] The Family Trust argues that, by their nature, Chandran’s omissions were concealed from Solmon. In terms of the documented errors, I agree. The errors and omissions in facilitating the transaction as demonstrated by the documents filed in response to this motion were apparent only upon a review of Chandran’s file. Chandran unintentionally concealed his conduct as he maintained his file in the ordinary course. Nonetheless, as the omissions amount to mere negligence, the doctrine of fraudulent concealment does not apply.

(d) Mrs. Chandran

[31] Mrs. Chandran’s evidence is that her husband was diagnosed with amyotrophic lateral sclerosis in late 2004 and continued to practice until the end of September 2007. At that time, Gunarajah assumed his office lease and practice. Chandran left all his files when he vacated his office. He only removed a few personal effects.

[32] Chandran died on November 23, 2007. Mrs. Chandran moved to Vancouver, British Columbia in 2009. She confirms that she has never been in possession of any of Chandran’s files, including the responding parties’ files, and had no involvement in the wind up of his practice.

[33] The affidavit of Margaret Cowton, filed in support of this motion, supports Mrs. Chandran’s evidence regarding the wind up of Chandran’s practice and the location of his files. Mrs. Cowton is the manager of trustee services at the Law Society of Upper Canada.

[34] In my view, there is no special relationship between Chandran’s estate and his former clients. Gunarajah has admitted possession and custody of all of Chandran’s files, including the responding parties’ files. While she deferred control of these files to the estate, there is no evidence that Mrs. Chandran on behalf of the estate impeded the production of the file on a timely basis. To the contrary, the evidence points to Gunarajah’s unilateral actions in this respect.

[35] Finally, considering Mrs. Chandran in her personal capacity, there is no evidence that she has engaged in any unconscionable conduct.

(e) Conclusion

[36] Given the absence of unconscionable conduct by Chandran (or his widow in her capacity as his executor and trustee), the doctrine of fraudulent concealment does not apply to toll the limitation period under s. 38(3) of the Trustee Act.

2. Special Circumstances

[37] The doctrine of special circumstances may apply to extend the limitation period under s. 38(3) of the Trustee Act.

[38] The Family Trust makes a persuasive argument. It submits that the doctrine of special circumstances is available to permit a court to add parties to an existing action, despite the expiration of the s. 38(3) limitation period. The doctrine should apply to the Family Trust’s claim against Chandran’s estate, regardless of whether the Family Trust chose to add its claim to the enforcement action or make a third party claim in the Mortgagors’ action. The Family Trust’s approach should be encouraged as it provides the third party the opportunity to defend the main action if desired. The Family Trust therefore submits that there is no justification to limiting the Family Trust’s substantive rights based on a mere procedural choice.

[39] The doctrine of special circumstances applies to motions brought under Rules 5 and 26 of the Rules of Civil Procedure to add or substitute a party or to add a cause of action to an existing law suit. Why then, the Family Trust asks, can it not apply to motions brought under Rule 29 to commence a third party claim against a person not a party to the main action?

[40] The answer lies with the Court of Appeal’s decision in Joseph v. Paramount Canada’s Wonderland, 2008 ONCA 469, 90 O.R. (3d) 401. At paras. 10-12, the court clearly establishes that the doctrine does not permit the commencement of a new action following the expiry of the limitation period. The court states the following at para. 28:

In that regard, I add for the sake of completeness and that the decision of the motions judge, which followed a line of cases in the Superior Court where extensions were granted that did not involve any amendment of or addition to an existing action, was an error of law even had the doctrine of special circumstances applied. Both the common law doctrine from Basarsky v. Quinlan and the Rules of Civil Procedure contemplate only the power to amend or add a claim or party to an existing action. They did not give the court the authority to allow an action to be commenced after the expiry of a limitation period.

[41] Therefore, the doctrine of special circumstances is not available to the Family Trust in its effort to toll the limitation period under s. 38(3) of the Trustee Act.

Disposition

[42] For reasons noted above, the motion is granted. The third party claim is dismissed as against Therese Selvamahal Edward Chandran as trustee of the estate of Thambirajah Edward Chandran.

Costs

[43] The parties are encouraged to agree on an appropriate award for costs of this motion. If unable to agree, I will receive written submissions of not more than two pages. The moving party shall submit within 30 days of this motion. The responding party shall submit within 20 days thereafter.

CHIAPPETTA J.

Date: October 21, 2013