ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-108876-00
DATE: 20140313
CORRIGENDA: 20140403
BETWEEN:
BRUCE MITCHELL
Plaintiff/Respondent
– and –
COLE ENGINEERING GROUP LTD.
Defendant/Moving Party
G. Bent, for the Plaintiff/Respondent
E. Bowker, for the Defendant/Moving Party
HEARD: February 18, 2014
The text of the original decision has been corrected with text of corrigendum (released April 3, 2014) appended.
HEALEY J.
Nature of the Motion
[1] The defendant moves for summary judgment dismissing or staying the action on the grounds that the action is statute-barred.
The Facts
[2] The plaintiff commenced this action on April 4, 2012, claiming that he is the legal and beneficial owner of the shares of the defendant company, Cole Engineering Group Ltd. (“CEG”). The shares in question are 25 Common Shares and 1500 Class “B” Shares of CEG. His pleading request declarations that he is the owner of the shares, a declaration that he is an oppressed and an aggrieved person under the Business Corporations Act (Ontario),R.S.O. 1990, c.B.16 as amended, and an order requiring CEG to deliver up share certificates.
[3] The plaintiff was one of the two principals of Mitchell, Hatt & Associates Inc. The other principal of Mitchell, Hatt & Associates was Gary Hatt (“Hatt”). Both Hatt and the plaintiff are professional engineers, who were approached by Scott Cole (“Cole”) with respect to purchasing their business.
[4] On November 25, 2006, CEG purchased all of the assets of Mitchell, Hatt & Associates Inc. pursuant to an Asset Purchase Agreement. The Asset Purchase Agreement was preceded by a letter of understanding from Cole dated October 27, 2006, which provided that the plaintiff and Hatt would each receive 25 Common Shares on closing for consideration of $1.00, and further provided for their entitlement to purchase 2,500 Class “B” shares, 1,000 of which would be vested January 1, 2007, and 1,500 vested on January 1, 2008.
[5] The plaintiff and Hatt did not seek any legal advice with respect to the Asset Purchase Agreement and the plaintiff signed the agreement without reading it, with the understanding and trust that it reflected the parties’ agreement. This was the case notwithstanding that the letter of understanding of October 27, 2006 is four pages in length, while the Asset Purchase Agreement is twenty-six pages long, plus schedules.
[6] Article 3.1(a) of the Asset Purchase Agreement establishes the process by which the plaintiff and Hatt could subscribe for Common Shares in CEG after the completion of the sale. Article 3.1(a) states:
3.1 Subscription for Common Shares by Principals
(a) By not later than May 25, 2007, each of the Principals will subscribe for, and the Purchaser shall issue and allot to such Principal, twenty-five (25) Common Shares for a subscription price of $1.00 per share or $25.00 in the aggregate.
[7] The plaintiff would therefore have had to deliver written notice of his request, along with the appropriate funds to purchase Common Shares, by no later than May 25, 2007. The plaintiff acknowledges that he did not at any time provide funds to purchase Common Shares in CEG. He did not receive documentation of any kind after the closing to suggest that he had purchased Common Shares. The evidence is that CEG did not issue shares. There is no evidence with respect to whether CEG held shareholder meetings.
[8] Pursuant to Article 3.2(b) of the Asset Purchase Agreement, the plaintiff was granted an option to subscribe for up to 1500 Class B shares for $2.00 per share, if exercised in writing between January 1, 2008 and January 31, 2008. Article 3.2(b) provides:
3.2 Options in Favour of the Principals to Purchase Class B Shares
(b) Each of the Principals may, at his option, enter into an option agreement with the Purchaser by which he has an option to subscribe for, and which the Purchaser then shall issue and allot to such Principal, a number of Class “B” Shares not exceeding 1,500 for a subscription price of $2.00 per share; the Principal shall do so by delivery of written notice to the Purchaser not sooner than January 1, 2008 and not later than January 31, 2008. If the Principal does not exercise the right as set out above during the said period of time, then the said right will be terminated and there will be no further right or option to subscribe for Class “B” Shares pursuant hereto except as set out in sub-paragraphs 3.2 (c) and (d) below.
[9] Subsequently, a Share Option Agreement document dated March 23, 2007 was signed by the parties which entitled the plaintiff to purchase 1,500 Class “B” Shares for $2.00 per share option. Additionally, the Option Agreement required the plaintiff to provide a written “Option Notice” to exercise the option. The Option Agreement terminated once the plaintiff was no longer employed by CEG.
[10] In or about December 2007, Hatt told the plaintiff that the deadline to acquire Class “B” Shares was approaching. The plaintiff’s evidence is that he used a letter submitted by Hatt as a template for his own Option Notice. Hatt’s letter is dated March 15, 2007 and states in part:
“Pursuant to the Agreement referred I hereby subscribe to the following shares:
- In reference to Article 3.1(a), twenty-five (25) Common Shares for a subscription price of $1.00 per share.
[11] In his own letter, which he dated March 25, 2007, the plaintiff repeats the same statement. However, on his own evidence, he did not deliver the letter on that date, but rather, on or about January 4, 2008. It is the plaintiff’s evidence that he left the letter on Cole’s desk in January, 2008. CEG has no record of the letter in its files, despite having searched for it, and the letter is not recorded in the minute book. At the same time, the plaintiff submitted a cheque payable to CEG for $3,000. A memorandum on the plaintiff’s cheque indicates that it was for the purchase of 1,500 Class “B” shares.
[12] The letter provided by the plaintiff states that the plaintiff was subscribing to twenty-five Common Shares under Article 3.1(a); ten Common Shares under Article 3.1(b); one thousand Class “B” Shares under Article 3.2(a); and five hundred shares under Article 3.2(c). The plaintiff admits that none of the enumerated items in the letter related to what he thought he was subscribing for i.e. the 1,500 Class “B” shares at $2.00 per option. The plaintiff admitted on cross-examination that the only option available to him at the end of 2007 were 1,500 Class “B” Shares for $2.00 per share option, pursuant to Article 3.2(b) of the Asset Purchase Agreement and the Option Agreement.
[13] It is the plaintiff’s position that the letter constituted written notice under Article 3.2(b) of the Asset Purchase Agreement or, alternatively, the notation on the cheque constituted such written notice. There is no prescribed form for the exercise of the Option Notice. The cheque was cashed on January 8, 2008 by CEG and was entered on its share register as “non-refunded deposit” for Class “B” shares.
[14] It is the position of CEG that the plaintiff never provided funds to exercise his option to purchase the Class “B” Shares. Under the Option Agreement, “Option Price” is defined to mean “one cent ($0.01) per Optioned Share purchased by the Optionee under this Agreement’. Under Article 2.02 of the Option Agreement, the option must be exercised by the Optionee giving CEG an Option Notice accompanied by a certified cheque or bank draft representing the Option Price in respect of the Optioned shares. Accordingly, it is the position of CEG that the plaintiff did not pay the Option Price, being $15.00, by certified cheque or bank draft as required by the Option Agreement, and therefore the share option was never exercised and the $3,000 was a deposit only.
[15] The plaintiff terminated his employment with CEG effective November 28, 2008.
[16] It is the plaintiff’s evidence that as of his departure date, he believed he was the owner of twenty-five Common Shares, as originally agreed with Scott. The defendant’s evidence is that those Common Shares are currently valued at $187,500. The plaintiff further understood that he owned 1500 Class “B” shares after submitting his cheque dated January 4, 2008.
[17] There was no defined delivery date for shares in either of the agreements.
[18] It was not until the plaintiff received a letter from Scott on April 20, 2010 that he learned for the first time that CEG did not consider him to be a shareholder. The letter provides, in part:
While employed by Cole Engineering Group Ltd., you received an option to purchase 1500 Class “B” Shares under an Option Agreement dated March 23, 2007 for which you paid a deposit of $3000. The option was not exercised and the Agreement terminated upon the termination of your employment on November 28, 2008.
We are therefore returning the deposit funds and confirm that no further rights exist under that agreement.
[19] In response to Scott’s letter returning the plaintiff’s deposit, the plaintiff sent a letter dated August 27, 2010, disputing CEG’s contention that he was not a shareholder, and returning the cheque. Scott’s response to that was by email dated September 15, 2010, advising that he agreed the issue needed to be dealt with in a timely manner, and that he would respond in a meaningful way after reviewing the matter with the accountant. There was no further reply received from Scott. The plaintiff then issued his claim.
Summary Judgment
[20] On January 23, 2014, the Supreme Court of Canada released Hryniak v. Mauldin, 2014 SCC 7, [“Hryniak”] which dictates a new test for summary judgments under Rule 20 of the Ontario Rules of Civil Procedure.
[21] With respect to when summary judgment can be granted, the Supreme Court of Canada stated at para. 49:
There will be no genuine issue requiring trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process 1) allows the judge to make the necessary findings of fact, 2) allows the judge to apply the law to the facts, and 3) is a proportionate, more expe3ditious and less expensive means to achieve a just result.
[22] At para. 50 of Hryniak, the court defined the overarching issue to be “whether summary judgement will provide a fair and just adjudication.” Karakatsanis, J., writing for the Court went on to say that “the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.”
[23] At para. 66 of Hryniak, the Court outlined the approach to be taken by a motions judge hearing a motion for summary judgment:
On a motion for summary judgment under Rule 20.04 the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact finding powers. There will be no genuine issue requiring a trial if the summary judgement process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[24] The court must take a hard look at the evidence on a motion for summary judgment to determine whether there is, or is not, a genuine issue for trial, and may freely canvass the facts and law in doing so. The moving party bears the onus of establishing that there is no triable issue; however, the responding party on a motion for summary judgment must “lead trump or risk losing”: 1061590 Ontario Ltd. v. Ontario Jockey Club, supra, at p. 557. Although the onus is on the moving party to establish the absence of a genuine issue requiring a trial, there is an evidentiary burden on the responding party, who may not rest on the allegations or denials in the party’s pleadings, but must present by way of affidavit, or other evidence, specific facts showing that there is a genuine issue for trial. It is only after the moving party has discharged its evidentiary burden of proving that there is no genuine issue which requires a trial for its resolution, that the burden shifts to the responding party to prove that its claim or defence has a real chance of success: Cuthbert v. TD Canada Trust, supra, at para. 12, citing Aguonie v. Galion Solid Waste Material Inc. (1998), 1998 954 (ON CA), 38 O.R. (3d) 161 (C.A.).
[25] As stated in Dawson v. Rexcraft Storage and Warehouse Inc. (1998), 1998 4831 (ON CA), 164 D.L.R. (4th) 257 (Ont. C.A.), at para. 17, “[t]he motions judge is entitled to assume that the record contains all the evidence which the parties will present if there is a trial.” It is not sufficient for the responding party to say that more and better evidence will or possibly may be available at trial. The respondent must set out specific facts and coherent evidence organized to show that there is a genuine issue requiring a trial: Pizza Pizza Ltd. v. Gillespie (1990), 1990 4023 (ON SC), 75 O.R. (2d) 225 (Gen. Div.), at p. 238; Canadian Imperial Bank of Commerce v. Mitchell, supra, at para. 18.
Is the Action Statute Barred?
Legal Principles
[26] Section 4 of the Limitations Act, 2002 establishes a basic limitation period of two years after the day on which the claim is discovered. According to the principle of discoverability, “a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered by the plaintiff by the exercise of reasonable diligence”: Central & Eastern Trust Co. v. Rafuse, 1986 29 (SCC), [1986] 2 SCR 147 (S.C.C.) at 224.
[27] In Nicholas v. Tetrault, 2008 54974 (ON SC), [2008] CarswellOnt 6320 (S.C.J.). at para. 26, Perell J. describes the discoverability principle as follows:
The discoverability principle governs the commencement of a limitation period and stipulates that a limitation period begins to run only after the plaintiff has the knowledge, or the means of acquiring the knowledge, of the existence of the facts that would support a claim for relief: Kamloops v. Nielson (1984), 1984 21 (SCC), 10 DLR (4th) 641 (S.C.C.); Central Trust Co. v. Rafuse (1986), 1986 29 (SCC), 31 DLR (4th) 481 S.C.C.; Peixeiro v. Haberman, 1997 325 (SCC), [1997] 3 S.C.R. 549. Thus, a limitation period commences when the plaintiff discovers the underlying material facts or, alternatively, when the plaintiff ought to have discovered those facts by the exercise of reasonable diligence.
[28] Both counsel also rely on the concise summary of the discoverability principle set out by Perell J. in Tender Choice Foods v. Versacold Logistics Canada Inc., 2013 CarswellOnt 1541 (S.C.J.), at paras 52-61.
[29] The discoverability principle is codified in s. 5 of the Limitations Act, 2002, as follows:
Discovery
- (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, 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
(c) 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).
[30] It is clear from the above authorities that a limitation period starts to run when a plaintiff discovers the underlying material facts, or alternatively when the plaintiff ought to have discovered those facts by the exercise of reasonable diligence. The authorities are also clear that error or ignorance of the law or legal consequences of the facts does not postpone the running of the limitation period: Nicholas v. Tetrault, supra at para. 27, citing Coutanche v. Napoleon Delicatessen (2004), 2004 10091 (ON CA), 72 O.R. (3d) 122 (C.A.); Calgar v. Moore, [2005] O.J. No. 4606 (S.C.J.); Milbury v. Nova Scotia (Attorney General) (2007), 2007 NSCA 52, 283 D.L.R. (4th) 449 (N.S.C.A.); Hill v. South Alberta Land Registration District (1993), 1993 ABCA 75, 100 D.L.R. (4th) 331 (Alta. C.A.). Also see Lawless v. Anderson, 2010 ONSC 2723, [2010] O.J. No. 2017 ONSC at para. 24.
Analysis
[31] The question raised by these facts is whether there is a date, earlier than Cole’s letter of April 20, 2010, by which the plaintiff should have known that he had a cause of action on an objective analysis under s. 5(1)(b) of the Limitations Act, 2002.
[32] The difficulty with such an analysis is that the facts lead to the conclusion that the plaintiff not only had no cause of action against the defendant as of April 20, 2010, he had no cause of action at any earlier date. The plaintiff failed to read and/or understand the agreements. Article 1.3 of the Asset Purchase Agreement provides that that Agreement, together with its schedules and any documents to be delivered under it, constitutes the parties’ entire agreement and supersedes any prior negotiations, discussions or agreements, whether written or oral. The two agreements outlined the entire course of conduct to which the plaintiff was to adhere if he wanted to become a shareholder of CEG. The deadline for purchasing Common Shares is clear; the purchase price is clear. There is nothing ambiguous about clause 3.1(a) of the Asset Purchase Agreement. The fact that the plaintiff did not read it, or seek independent legal advice in respect of it, does not salvage the lapsing of his rights under the Asset Purchase Agreement. In Odell-Jalna v. D. Grant & Sons Ltd., [2012] O.J. No. 5874 (S.C.J.) at para. 21 (citing Fraser Jeweller (1982) Ltd. v. Dominion Electric Protection Co. (1997), 1997 4452 (ON CA), 34 O.R. 3d 1 (C.A.)), the Court stated:
As a general proposition, in the absence of fraud or misrepresentation, a person is bound by an agreement to which he has put his signature whether he has read its contents or has chosen to leave them unread: Cheshire, Foot & Furmston’s Law of Contract, 13 ed. (1996) at p. 168. Failure to read a contract before signing it is not a legally acceptable basis for refusing to abide by it. A businessman executing an agreement on behalf of a company must be presumed to be aware of its terms and to have intended that the company would be bound by them. The fact that Mr. Gordon chose not to read the contract can place him in no better position than a person who has.
[33] The plaintiff had until May 25, 2007 to provide the defendant with $25.00 to purchase the Common Shares. The fact that there is no detail regarding timing of delivery, nor share certificates issued by CEG, is of no importance. The plaintiff failed to take the steps that were a precursor to owning the Common Shares or having them delivered to him. Accordingly, any rights he had lapsed at May 25, 2007. It is plain and obvious that the plaintiff has no cause of action with respect to the Common Shares.
[34] With the respect the Class “B” Shares, again, both the non-delivery or absence of a deadline for delivery are irrelevant. The plaintiff took the initial steps required to acquire the Class “B” Shares; he entered into an Option Agreement, and I find that he gave sufficient written notice of his intention to subscribe, including payment of the subscription price. But he again either failed to read or understand the Option Agreement, by which he agreed to pay an Option Price as defined in that Agreement. If the plaintiff had any difficult understanding the provisions of the Option Agreement, it was within his power and control to seek the appropriate professional advice prior to the termination of the employment relationship. While on the face of it this result seems harsh given that the cost was only $15.00, this was the agreement struck by the plaintiff himself, but not adhered to by him. It is plain and obvious to the Court that the plaintiff’s claim has no chance of success in respect of the Class “B” Shares either.
[35] For the foregoing reasons, the discoverability principle has no application in this case. However, if I am incorrect in this conclusion in that CEG’s obligation to issue Common and/or Class “B” Shares to the plaintiff was somehow triggered under the terms of either Agreement, then I would find on the facts that the limitation period began to run on the date the plaintiff ceased his employment. On that date, a reasonable person in the same circumstances would, through reasonable diligence, confirm the status of his share holdings. This is due to the fact that any reasonable person, having read the documents, would know that Option Agreement terminated when he ceased to be employed by CEG. Having had no communication from CEG about his ownership with respect the Common or Class “B” Shares other than the cashing of his cheque, the plaintiff had at his disposal all means of confirming by that date that he was a shareholder, and of learning otherwise, had he used reasonable diligence to ascertain those facts.
[36] For the foregoing reasons the defendant’s motion for summary judgment is granted and the plaintiff’s claims are dismissed in their entirety.
[37] If the parties are unable to agree upon costs of the motion they may make brief submissions in writing not exceeding three double-spaced pages, together with any Cost Outline, Bill of Costs or settlement offers on which they rely. The Applicant’s submissions are due March 27, 2014 and the Respondent’s submissions are due April 3, 2014, and any reply, if necessary, by April 7, 2014, to be filed with my judicial assistant in Barrie.
HEALEY J.
Released: April 3, 2014
C O R R I G E N D A
- Page 1, para. 1 now reads: The defendant moves for summary judgment dismissing or staying the action on the grounds that the action is statute-barred.