Court File and Parties

COURT FILE NO.: CV-09-375467

DATE: 2013-11-08

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ANDREW MARK DE CHABRIS, Plaintiff, Responding Party

AND:

RICHARD MUDDIMAN, ARCADIAN MERCANTILE HOLDINGS LIMITED, PEGASUS POWER SYSTEMS INC., NIAGARA REINFORCEMENT LLC, OAKADA HOLDINGS INC., ASGARD RESOURCES LIMITED, COLMAC NYRI, INC., NEW YORK REGIONAL INTERCONNECT, INC., CITYGREEN TRANSMISSION INC., Defendants, Moving Party

BEFORE: D.L. Corbett J.

COUNSEL:
David Sischy, for the Plaintiff, Responding Party

Richard Muddiman as agent for the Asgard Resources Limited, Defendant and Moving Party

No one appearing for the other parties

HEARD: November 6, 2013

ENDORSEMENT

[1] The defendant Asgard Resources Limited moves for summary judgment dismissing the claims against it on the basis that they are barred by the Limitations Act.

Summary and Disposition

[2] This motion is without merit. For the reasons that follow, the motion is dismissed, with costs on a substantial indemnity basis, fixed at $15,000 inclusive, payable within fourteen days jointly and severally by Asgard Resources Limited and Richard Muddiman.

Nature of the Claims

[3] The plaintiff (“Marks”) and the human defendant (“Muddiman”) were business partners trying to develop an electrical transmission project in upper New York State. They met when Muddiman was seeking financial support for this idea from HSBC Bank and Marks was a financial officer at that bank. HSBC Bank chose not to participate, but Marks was sufficiently intrigued that he left his employment with the Bank to pursue the project with Muddiman.

[4] From April 2001 to October 2003, Marks says that he contributed $70,000 to the project and spent time trying to raise other money for it. From the summer of 2003 to the spring of 2004, Marks had more day-to-day involvement in the business, and had the title of Chief Operating Officer of the defendant Pegasus.

[5] In late 2003, the relationship between Marks and Muddiman soured and Marks began to consider returning to work in the finance industry. In April 2004, he did this, and advised Muddiman that he would no longer be involved in the day-to-day business of the project, but would remain as a 25% shareholder.

[6] On Marks’ evidence, in a conversation in April 2004, Muddiman told Marks that the project was, effectively, dead. Marks asked for written confirmation that the project was being wound down, so that he could write-down a portion of his investment on his tax returns.

[7] The project was not dead. Muddiman incorporated new companies to carry on the project without Marks.

[8] Marks learned that the project might not be dead when he received a phone call from a reporter in April 2007. The reporter called to ask about leases on which Marks’ name appeared, since they were related to ongoing electricity transmission projects. Marks made inquiries and learned that Muddiman was continuing with the project under different corporations.

[9] This proceeding was commenced on March 30, 2009, less than two years after the phone call between Marks and the reporter.

The Limitations Act

[10] The applicable limitations period is two years.[^1] This period is subject to the discoverability principle.[^2] “[A] cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered, or ought to have been discovered, by the plaintiff by the exercise of reasonable diligence”.[^3]

[11] On the record before me, based on Marks’ evidence, there is no reason to wonder why he did nothing to pursue his claims prior to April 2007. He thought the project was dead. Until he heard from the reporter in 2007, he did not know that Muddiman was carrying on without regard for Marks’ 25% interest.

[12] Muddiman’s argument seems to be that the circumstances were such that Marks ought to have known much earlier that Muddiman was wrongfully excluding Marks from the project. But the materials to which Muddiman refers do not establish any such thing. They show Muddiman purporting to take a course that reflected his statements to Marks that the project was dead. They then show Muddiman being uncommunicative and failing to respond to Marks’ inquiries. In retrospect, of course, one could conclude that Marks ought to have been more suspicious by Muddiman’s failure to return his calls. But in fairness, this failure could also be consistent with the project having died, Muddiman having moved on, and Muddiman not wanting to be bothered dealing with an old business partner and a failed transaction.

[13] Muddiman also argues that the business relationship between him and Marks was “wound up” at Marks’ request in April 2004. This, he argues, is a complete answer to the statement of claim.

[14] It is not.

[15] The tax write-down was not, by itself, a surrender of Marks’ interest to Muddiman. Second, whatever was done in respect to the request for a wind-down, it did not dispose of the company assets. Marks’ request for documentation to permit him to write-down his capital contributions to the business was not an assignment of his interest to Muddiman. Third, none of this answers Marks’ allegations that he was misled by Muddiman about the status and value of the company’s undertaking at the time that he ceased his active participation.

[16] I would not set the “date of discoverability” at the date of the reporter’s telephone call. I would place it at some point after that, after Marks had conducted due diligence on the information he learned in the call with the reporter. It would not have been reasonable for Marks to commence proceedings solely on the basis of the telephone call.

Other Issues

[17] I do not need to address the issue of fraudulent concealment, given my findings on the limitations issue.

[18] I have decided the limitations issue here on the basis of the record before me, and the test for summary judgment in Combined Air Mechanical.[^4] On the materials before me, there is evidence which, if believed, would place the date of discoverability sometime after April 2007. I do not go further and strike the limitations defence, which remains available to the defendants on a full record at trial.

[19] Muddiman raised several other issues during oral argument:

(a) Marks abandoned his interest in the project when he requested that it be “wound down” in April 2004. As a consequence, Muddiman was free to pursue projects without regard to Marks’ investment.

(b) Muddiman’s subsequent work was, in any event, in respect to new, different projects, in which Marks has no interest;

(c) The business was, in fact, worthless in April 2004;

(d) All of the projects in which Muddiman was involved in any way related to Marks’ investment proved to be worthless;

(e) Muddiman is “the victim here”, having been put to ruinous legal expense to fend off unmeritorious claims.

[20] Issue (a) is a legal issue that may turn on the parties’ evidence of what was said between them in April 2004. It is not properly raised before me on this motion, which concerns limitations, and not whether Marks assigned his interest in his investment to Muddiman or otherwise abandoned any interest he had in it. Issues (b) to (d) were not raised in the notice of motion, and the parties’ records do not address them. These are irrelevant to the limitations issue. Issue (e) is a matter to be taken into account when deciding costs at the end of the entire proceeding.

Costs

[21] Asgard acted unreasonably in bringing this motion, which was doomed to failure. Under Rule 20.06(a), this is a circumstance that justifies imposing substantial indemnity costs.

[22] Asgard is an alter-ego of Muddiman’s, the basis on which the court permitted Muddiman to act as Asgard’s agent rather than requiring Asgard to be represented by counsel. Muddiman has an identical position to that of Asgard on this motion – that is, if the action is out of time as against Asgard, it is equally out of time as against Muddiman. In all these circumstances, Muddiman shall be jointly and severally liable with Asgard for the costs of this motion, which I fix at $15,000, inclusive, payable within fourteen days.

[23] Muddiman raised his means to pay as a reason that costs should not be awarded against him. This is commercial litigation. The ordinary principle is that the loser pays the winner. This costs principle encourages the parties to be reasonable in their positions, and it discourages meritless motions. The usual costs award, on a partial indemnity basis, would be $12,000 for this motion. That award is an indemnity, not a penalty. Muddiman has put Marks to expense to defend this motion, and must indemnify him as a result. I have awarded substantial indemnity costs as a sanction: this was a waste of everyone’s time and money and was doomed to failure. But it is still an indemnity for Marks, to defray his legal costs to defend an unmeritorious motion. Order accordingly.

D.L. Corbett J.

Date: November 8, 2013

[^1]: Limitations Act, S.O. 2002, c.24, Sch. B, s.4.

[^2]: Limitations Act, S.O. 2002, c.24, Sch. B, s.5.

[^3]: Lawless v. Anderson (2011), 2011 ONCA 102 at para. 22.

[^4]: Combined Air Mechanical Inc. v. Flesch (2011), 2011 ONCA 764.