SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: 04-CV-278 l 46CM2
DATE: 20140723

RE: FLOW RESTAURANT & LOUNGE MANAGEMENT INC. formerly 2049429 ONTARIO LTD. formerly Wojciech Smialek, Applicant

AND:

MIROSLAV LACHOWICZ, ZOFIA LACHOWICZ, PATRICK SADOWSKI and BEATA SADOWSKI, Respondents

BEFORE: Stinson J.

COUNSEL:
Zofia Lachowicz, the moving party, appearing in person

Bernard Gasee, for the responding party P&F Consolidated Inc.

Carmine Scalzi, for the responding party Sam Stern

HEARD at Toronto: July 10, 2014

ENDORSEMENT

[1] This endorsement concerns a motion brought by Zofia Lachowicz In her amended amended notice of motion, Ms. Lachowicz. sought three principal heads of relief, as follows:

(a) to oppose confirmation of the attachments (booklet) that were filed by 2049429 Ontario Ltd. (“2049”) in its further supplemental motion record dated April 30, 2014;

(b) to oppose confirmation of the Interim Report (April 5 to April 30, 2005) made by the court-appointed receiver and manager, P & F Consolidated Management Inc. (“P & F”) and to oppose confirmation of the Final Report of P & F (May 1 to September 26, 2005); and

(c) an order granting leave to Ms. Lachowicz to commence legal proceedings against P & F and Samuel Stern, the President of P & F.

[2] This proceeding has its origins in a partnership dispute. The original partners were Wojciech Smialek, Miroslav Lachowicz, Zofia Lachowicz, Patrick Sadowski and Beata Sadowski. The object of the partnership was the development, construction and resale of a large residential house, north of Toronto. Unfortunately, disputes developed among the partners while the project was under way. Those disputes led to the commencement of litigation in which the interests of Mr. Smialek were adverse to the other four partners.

[3] Mr. Smialek assigned his interest in the partnership to 2049. That corporation is now known as Flow Restaurant & Lounge Management Inc. For ease of reference, I will continue to describe it as “2049”.

[4] The litigation commenced by 2049 was an application under s. 35 of the Partnerships Act, R.S.O. 1990, c. P.5. It sought, among other things, the dissolution of the partnership and an order appointing a receiver and manager of the partnership. On March 4, 2005 (over nine years ago), I made an order appointing P & F as receiver and manager of the partnership. I further ordered that the partnership be dissolved. By the terms of that order, I gave Mr. and Mrs. Lachowicz a period of four weeks to attempt to sell the property. Pursuant to paragraph 12 of that order, in the event no agreement of purchase and sale acceptable to the parties was signed by April 4, 2005, then the appointment of P & F as receiver and manager of the partnership was to take effect. P & F was directed to act expeditiously to wind up the partnership.

[5] Paragraph 35 of my order of March 4, 2005 provided as follows:

This court orders that the receiver shall report to this court regarding the status and affairs relating to the performance of its duties under this order as directed by this court. The receiver shall not be required to verify its report(s) by affidavit.

[6] The real property owned by the partnership was subject to a first mortgage in favor of MCAP Investment Corporation. At the time P & F was appointed as receiver, that mortgage was in arrears. A notice of sale was issued on behalf of MCAP on May 19, 2005, with an expiry date of July 5, 2005.

[7] On June 7, 2005, 2049 acquired MCAP’s first mortgage. On June 8, 2005, 2049 appointed a company known as 1000 Service Corp. Inc. as receiver-manager pursuant to the first mortgage standard charge terms.

[8] Ultimately, 1000 Service Corp. Inc., as receiver-manager for the first mortgagee, sold the property for $1,199,000 in August 2005.

[9] The foregoing information was contained in the Interim Report and the Final Report prepared by P & F as court-appointed receiver-manager, covering the period from its appointment through to September 26, 2005. Ms. Lachowicz contends that those reports by P & F were not filed with the court until April 2014. On this basis, she moves to oppose confirmation of the reports and for leave to commence legal proceedings against P & F and its president, Mr. Stern.

[10] The motion is opposed by counsel for P & F and for Mr. Stern. Among other things, they argue that Ms. Lachowicz has had the reports for years and thus it is too late for her to complain about the conduct of P & F as receiver. They also submit that P & F never received any proceeds of sale and therefore there is nothing for which it can account, since all of the sale proceeds were applied to debt and expenses by the receiver appointed by the first mortgagee.

[11] Although this proceeding seeking the dissolution of the partnership was commenced in 2004, and the order appointing P & F as receiver was made in March 2005, the case lay dormant for over three years from 2005 until 2008. The likely reason for this is that, following the sale of the property by the first mortgagee, there was nothing left to fight over and thus the partnership dispute withered.

[12] In late 2008, however, Ms. Lachowicz brought a motion seeking compensation and an order for an accounting. In response to that motion, 2049 filed a motion record containing copies of the P & F’s Interim Report and Final Report as court-appointed receiver. Copies of that material were provided to Ms. Lachowicz or her then lawyer. The net result of this motion was an order made by A. O’Marra J. dated March 6, 2009, described in more detail below.

[13] Although it is plain that P & F as receiver prepared an Interim Report and a Final Report, covering the period from its appointment through to September 26, 2005, Ms. Lachowicz contends that they were never filed with the court at the time. She asserts that they were not filed until April 2014. On this basis, she asserts a right to challenge their confirmation now.

[14] In his endorsement made March 6, 2009, Justice A. O’Marra directed P & F to use its best efforts to locate and provide to Ms. Lachowicz copies of the attachments to its interim and final reports within 90 days and to file a report with the court at the expiration of the 90 days. The formal order incorporating the endorsement of A. O’Marra J. omitted the reference to the requirement to file a report. Ultimately, in September 2011, Pollak J. granted an order amending the formal order of A. O’Marra J. to provide that a copy of the attachments and the report be filed with the court at the expiration of 90 days.

[15] Ms. Lachowicz subsequently asserted that P & F failed to comply with the amended order of A. O’Marra J. She therefore brought a contempt motion against P & F, which was heard by Mew J. over the course of several attendances in February, March and May 2014. By order dated May 6, 2014, Mew J. dismissed the contempt motion, concluding that he was satisfied that P & F had substantially complied with the order of A. O’Marra J. and the order of Pollak J. It was during the course of the proceedings before Mew J. that 2049 provided the court with a copy of the receiver manager’s report for 1000 Service Corp. Inc. (the receiver appointed by the first mortgagee). Ms. Lachowicz contends that, only once that document was produced, was she in a position to bring her motion opposing confirmation of the P & F receiver’s reports.

[16] Given the passage of time and the volume of materials that have been exchanged by the parties, it is not possible to determine whether the Interim Report and Final Report of P & F from 2005 were provided to Ms. Lachowicz at that time. It is beyond argument, however, that she or her lawyer had copies of those reports as early as January 2009. As well, it is beyond argument that the reports formed part of the court record as of January 2009. As such, at least five years have elapsed between the time Ms. Lachowicz received copies of the reports and her motion to oppose their confirmation.

[17] Ms. Lachowicz contends that her motion is timely because the two reports of the receiver were not verified by affidavit. This overlooks the provision in paragraph 35 of the order dated March 4, 2005, which expressly provided that the reports did not have to be verified by affidavit.

[18] Before me, the responding parties argue that Ms. Lachowicz is out of time to obtain the relief she now seeks. She has had knowledge of the receiver’s reports for over five years. Any claim against the receiver or Mr. Stern is now statute-barred by reason of the expiry of the two year limitation period specified by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. I agree with that submission.

[19] The responding parties also rely upon the doctrine of laches. In the almost nine years since the sale of the property, the respondents have carried on their other affairs and conducted themselves on the basis that the receivership was, effectively, at an end in 2005 after the property was sold by the first mortgagee. Only in late 2008, did Ms. Lachowicz attempt to revive the litigation and seek an accounting. That request was dismissed by A. O’Marra J. in March 2009. Now, more than five years later, Ms. Lachowicz is attempting another attack, by way of this motion seeking to oppose confirmation of reports she has had in hand for at least five years.

[20] In my view, given the passage of time, and the fact that she has had the reports in question for more than five years, it would be inequitable to allow Ms. Lachowicz to pursue any additional remedy. I hold that the doctrine of laches applies and, on this additional basis, I would decline to grant her the relief she seeks. Simply stated, it is far too late and it would be unfair to the respondents to now require them to attempt to explain their conduct and produce documents relating to events that took place some nine years ago. Ms. Lachowicz has long known that the partnership property was sold in 2005. Ever since that time she has believed that she had grounds to be dissatisfied with the conduct of the receivership. Unfortunately, her failure to pursue an appropriate remedy on a timely basis means that it is now too late for the court to entertain such a claim.

[21] For these reasons, the motion of Ms. Lachowicz is dismissed. Based on the costs outline filed by the responding parties, I fix costs of the motion in favor of P & F at the all inclusive sum of $7,500 and in favor of Mr. Stern at the all inclusive sum of $3,500. In fixing those numbers, I have had regard to the amount of time spent by each lawyer, the significance of the issues and the fact that the respondents were entirely successful. In my view, those amounts are a fair and reasonable sum for the unsuccessful party to be called upon to pay, given that they reflect only partial indemnity of the actual costs incurred by P & F and Mr. Stern.

Stinson J.

Date: July 23, 2014