Sterling Waterhouse Inc. v. LMC Endocrinology Centres (Toronto) Ltd., 2015 ONSC 3987

CITATION: Sterling Waterhouse Inc. v. LMC Endocrinology Centres (Toronto) Ltd., 2015 ONSC 3987

COURT FILE NO.: CV-12-00470074-0000

DATE: 20150623

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

STERLING WATERHOUSE INC. Plaintiff

– and –

LMC ENDOCRINOLOGY CENTRES (TORONTO) LTD. (FORMERLY KNOWN AS LMC DEVELOPMENTS LTD.) and DR. RONNIE ARONSON Defendants

COUNSEL: John Mullen, for the Plaintiff Leo Klug, for the Defendants

HEARD: January 22, 2015

REASONS FOR JUDGMENT

justice w. matheson

[1] The defendants move to set aside the noting in default of the corporate defendant LMC and for summary judgment dismissing this action as against both defendants based upon the expiry of the applicable limitation period. The motion in regard to the corporate defendant has already been dismissed by endorsement dated January 22, 2015. This endorsement addresses the motion for summary judgment brought by the personal defendant Dr. Aronson.

[2] The action arises from LMC’s failure to meet its obligations under a commercial lease with the plaintiff with respect to a property known as 118 Eglinton Avenue West, Toronto, Suite 600. More specifically, the defendants took steps to surreptitiously close LMC’s business, leave the premises and then default on the rent. It is alleged that LMC’s business was moved into another corporation at a different location.

[3] The action claims arrears of rent against LMC as a result of its breach of the lease. In regard to that cause of action, the plaintiff alleges that Dr. Aronson is personally liable as the alter ego of LMC. He is its sole directing mind.

[4] The other causes of action alleged against Dr. Aronson are inducing breach of contract and intentional interference with contractual relations. There is also a claim for oppression under s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”).

[5] Dr. Aronson submits that the claims against him should be dismissed because this action was commenced after the expiry of a two-year limitation period. On his submission, the action was commenced five days late. However, the length of the applicable limitation period is disputed, as is the time at which the various causes of action became discoverable.

[6] The parties agree that this motion can be decided on a motion for summary judgment under Rule 20 of the Rules of Civil Procedure. Based on the record before me, I am confident that I can fairly and justly resolve the limitations issue without a trial: Hryniak v. Mauldin, 2014 SCC 7, at para. 57.

[7] The record before me includes otherwise privileged communications between the plaintiff and its counsel. The issue of privilege was specifically raised on the cross-examination of the plaintiff’s affiant, after which these documents were produced. No issue regarding privilege was raised before me. I therefore conclude that the privilege over those documents has been waived.

Brief background

[8] The plaintiff entered into a lease with LMC with respect to the property known as 118 Eglinton Avenue West, Toronto, Suite 600. The lease was for a term commencing January 1, 2004 and ending December 31, 2011. The space was used for a medical clinic.

[9] The defendant Dr. Aronson was the President, director and the sole directing mind of LMC. He entered into an indemnity agreement dated April 4, 2003, under which he agreed to indemnify the plaintiff for all obligations under the lease for the period from January 1, 2004 to December 31, 2009. This action does not assert a claim under the indemnity, no doubt due to its short term.

[10] In his evidence on this motion, Dr. Aronson attests that he closed his medical clinic on November 19, 2010. He claims that he closed the clinic as a result of numerous disagreements with the landlord. However, the documentation he produced in support of this assertion is predominantly from 2008, and includes nothing at all from 2010.

[11] Dr. Aronson originally attested that he closed his clinic to the knowledge of the plaintiff. However, he agreed on cross-examination that LMC provided no notice to the plaintiff that it was closing the clinic in November or December 2010. His evidence on cross-examination is consistent with that of the plaintiff’s affiant on this motion, Mr. Ng, sole director and shareholder of the plaintiff. Mr. Ng attested that no one notified the plaintiff that LMC was vacating the premises, wished to surrender the premises or was not intending to honour its lease obligations.

[12] What did happen to the knowledge of the plaintiff is that LMC made a request to use the freight elevator on November 19, 2010. The plaintiff was told that this was part of LMC’s computerization process under which LMC was moving its paper records into storage.

[13] Despite no actual notice about the medical clinic closing, the evidence does suggest that the plaintiff had its suspicions. On November 19, 2010, Mr. Ng went to see a lawyer because LMC had removed its paper records. The lawyer told Mr. Ng that he should inspect the premises. He did so on November 24, 2010. At that time, the premises appeared fully furnished and functional. There were fresh flowers on the reception desk. There was children’s art on the walls. This is consistent with Dr. Aronson’s admissions on cross-examination and in a letter from the defendants’ counsel in 2013 stating that “everything had been left behind.”

[14] LMC did not make its rental payment owing as of December 1, 2010. It was often late with its rental payments. However, on December 9, Mr. Ng went back to see the lawyer. At that point, he told the lawyer that LMC had not been operating for a “number of days.” The lawyer prepared a Notice of Default, which was served on December 10, 2010, giving an opportunity to cure the default by December 22, 2010. The Notice was also addressed to Dr. Aronson.

[15] The Notice of Default said that the premises had been vacated on November 19, 2010 and had remained unoccupied since that date. That statement was in error, at least in regard to the furnishings and equipment at the premises.

[16] Mr. Ng attested that up until December 22, 2010, he expected that LMC was going to put the lease back into good standing and either use the premises for something else or find a subtenant. However, on December 22, 2010, a package arrived including the keys and pass-cards to the premises, without any letter or note. No further rental payments were made. At this point, Mr. Ng concluded that LMC was not planning to meet its obligations under the lease. On December 22, 2010, a Notice of Re-entry and Forfeiture was therefore served. Although the property was then listed for rent, it remained vacant until the end of its term thirteen months later.

[17] LMC had been using the premises for a medical clinic. And, as put by Dr. Aronson, the doctors who worked at the clinic were “critical” to its operation. LMC’s main source of income was a percentage of each doctor’s OHIP income, paid under contracts between LMC and each doctor. At the relevant time, about eight doctors were working at the clinic, all under contract. On cross-examination, Dr. Aronson refused to answer questions about when their contracts with LMC were terminated, whether they moved to another corporate entity, whether Dr. Aronson was also the directing mind of that corporation and related questions.

[18] This action was commenced on December 14, 2012. The oppression claim was added by an amendment in 2014, however, no argument was made that the date of amendment should be considered in the determination of this motion.

[19] At the early stages and intermittently before commencement of this action, the plaintiff exchanged correspondence with counsel regarding a potential lawsuit. The correspondence referred to the limitation period for commencing an action. The correspondence certainly establishes that the plaintiff knew about the existence of a two-year time period. It does not, however, definitively establish the applicability of that time period, which is a matter of law.

[20] The correspondence also does not determine the issue of when the various causes of action were or ought to have been discovered. For example, one of the letters stated that the limitation period commenced on November 19, 2010. At the time, no damage had been suffered. Even Dr. Aronson does not assert that the limitation period began to run that early.

[21] The legal correspondence therefore has some relevance, but is not dispositive of the issues on this motion.

Discussion

[22] The main issues on this motion are these:

(i) What is the applicable limitation period?

(ii) To the extent that a two-year limitation period does apply, when was the cause of action discoverable?

Applicable limitation period

[23] The plaintiff submits that the limitation period applicable to the breach of the lease – that is, LMC’s failure to pay the rent due under the lease – is six years under the Real Property Limitations Act, R.S.O. 1990, c. L.15 (“RPLA”).

[24] Section 17 of the RPLA provides as follows:

17. (1) No arrears of rent … shall be recovered by any … action but within six years next after the same respectively has become due, or next after any acknowledgment in writing of the same has been given to the person entitled thereto or the person’s agent, signed by the person by whom the same was payable or that person’s agent. [Emphasis added.]

[25] This limitation period has been preserved by virtue of s. 2(1)(a) of the Limitations Act, 2002, S.O. 2002, c. 24 (“Limitations Act”).

[26] The Limitations Act was enacted to deal with limitation periods other than those affecting real property: The Equitable Trust Company v. Marsig, 2012 ONCA 235, at para. 27. When the legislature revised the law of limitations in Ontario, it decided to leave the law as applied to real property largely untouched; hence the archaic and difficult language that appears in the RPLA: McConnell v. Huxtable, 2014 ONCA 86, at para. 14.

[27] Section 17 of the RPLA applies to the breach of contract claim to the extent that it is a claim for rent due under a lease of real property: Pickering Square Inc. v. Trillium College Inc., 2014 ONSC 2629, at paras. 36-37. This action was commenced well within the six-year limitation period.

[28] Dr. Aronson therefore remains exposed to the breach of lease claim from a limitation period standpoint, as the alleged alter ego of LMC. His counsel provided the relevant law showing the high threshold for piercing the corporate veil: 642947 Ontario Ltd. v. Fleischer (2001), 2001 CanLII 8623 (ON CA), 56 O.R. (3d) 417 (C.A.) at paras. 68-69. But the merits of the claim are not before me; only the limitations defence.

[29] I therefore conclude that the breach of contract claim against Dr. Aronson, as the alter ego of LMC, is not foreclosed by a limitations defence.

[30] There is a dispute about whether the six-year limitation period has any relevance to the other claims made against Dr. Aronson personally. The plaintiff submits that it does, relying upon The Equitable Trust Company v. Marsig, in which the Court of Appeal held that the longer limitation period found in s. 43 of the RPLA applied to a guarantee of a mortgage. However, s. 17 was not at issue. And s. 43 applies to actions on mortgage covenants and also to “any other instrument” that provides for the repayment of any money secured by a mortgage. In The Equitable Trust Company v. Marsig, the guarantee, which formed part of the registered mortgage document, fell within this statutory language.

[31] Even the plaintiff acknowledges that there is case authority that conflicts with its position that s. 17 applies to the other claims against Dr. Aronson: Pickering Square Inc., at para. 40, Bill Co. Incorporated v. Yellowstone Property Consultants Corp, 2012 ONSC 5116, at para. 18.

[32] The main focus of economic torts is some misconduct on the part of the defendant that indirectly causes the plaintiff damage. The tort of intentional interference with contractual relations has recently been considered by the Supreme Court of Canada in A.I. Enterprises Ltd. v. Bram, 2014 SCC 12. The Court addressed the different names used for this tort, describing it more generally as the “unlawful act” tort. Its core “captures the intentional infliction of economic injury on [the plaintiff] by [the defendant]’s use of unlawful means against [the third party, here LMC]”: A.I. Enterprises, at para. 23. The claim against Dr. Aronson therefore requires an unlawful act beyond the breach of the lease by LMC.

[33] The tort of inducing breach of contract requires that the defendant intended to cause the contracting party to breach: Corria v. Canac Kitchens, a division of Kahler Ltd., 2008 ONCA 506, at para. 99. In the context of a claim against a director of the corporation that is the contracting party, as is the case here, a plaintiff must show that the director acted outside his or her duties to the corporation: Normart Management Ltd. v. West Hill Redevelopment Co., 1998 CanLII 2447 (ON CA), [1998] O.J. No. 391 (C.A.), at para. 18; Colonia Life Holdings Ltd. v. Fargreen Enterprises Ltd. (1990), 1990 CanLII 6976 (ON SC), 1 O.R. (3d) 703 (S.C.); Ontario Store Fixtures v. Mmmuffins Inc., 1989 CanLII 4229 (ON SC), [1989] O.J. No. 1357 (H.C.J.), at para. 15. Again, misconduct must be shown beyond the breach of the lease itself.

[34] This focus on misconduct also arises in the oppression claim under s. 248 of the OBCA, where the complainant must show that the powers of the directors of an OBCA corporation have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of the creditor. Not every act that has the effect of harming a complainant gives rise to a finding of oppression: Pitney Bowes v. Belmonte, 2011 ONSC 3755, at para. 20, citing Stabile v. Milani, 2004 CanLII 867 (ON CA), [2004] O.J. No. 2804 (C.A.), at para. 47. However, there is oppression where, as alleged here, a director abandons a debtor corporation and removes or transfers the entire operating business to another company controlled by the director for the purpose of escaping the obligations to the creditor: Pitney Bowes, at para. 22.

[35] These aspects of the tort and oppression claims against Dr. Aronson distance the claims from the type of real property claim that would fall under s. 17 of the RPLA, even though the damages do relate to rent.

[36] In interpreting s. 17, I bear in mind the objectives of the Limitations Act, as described by Justice Mew in Pickering Square Inc., at para. 27:

With the enactment of the Limitations Act, the legislature created a single, comprehensive general limitations law that is to apply to all claims for injury, loss or damages except, in relevant part, when the RPLA specifically applies. [Citation omitted] Thus, the application of the Limitations Act should be construed broadly and the RPLA narrowly. [Emphasis added.]

[37] I conclude that s. 17 does not apply to the tort or oppression claims. To find that any claim where the damages are connected in some way to unpaid rent under s. 17 would extend s. 17 beyond claims that affect real property and undercut the general applicability of the Limitations Act: Pickering Square Inc., at para. 40; Bill Co. Incorporated, at para. 18; The Equitable Trust Company v. Marsig, at para. 30.

[38] I therefore conclude that the tort claims have the standard two-year limitation period under s. 4 of the Limitations Act, giving rise to the discoverability issues that are discussed below. I also conclude that the limitation period for an oppression claim is two years: Fracassi v. Cascioli, 2011 ONSC 178, at para. 273.

Discoverability

[39] Section 5 of the Limitations Act determines when a claim is discovered, as follows:

(1) a claim is discovered on the earlier of,

(a) the day on which the person with a 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 claims 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

(b) 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).

(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.

[40] The general principles regarding discoverability have been summarized by the Court of Appeal in Lawless v. Anderson, 2011 ONCA 102 at paras. 22-23: “The principle of discoverability provides that ‘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.’” Determining whether a person has or should have discovered a claim is a “fact-based analysis.”

[41] Dr. Aronson takes the position that the two-year limitation period began to run on December 9, 2010, when the plaintiff sought legal advice knowing that the clinic was no longer operating. This action was commenced on December 14, 2012, which is five days late under Dr. Aronson’s approach.

[42] The plaintiff submits that it reasonably believed that LMC would meet its obligations up until December 22, 2010. LMC had often been late in paying its rent, and there was also the prospect that it would meet its obligations by subletting the premises. The plaintiff was obligated to deliver a Notice of Default and provide an opportunity to cure. It did not do so until December 10, 2010, giving an opportunity to remedy the default on or before December 22, 2010. The default was not remedied. Instead, on December 22, 2010, LMC’s keys and security passes arrived without any explanation. It was not until this date that the plaintiff submits it ought to have known the lease was not going to be honoured.

[43] The plaintiff further submits that all the requisite elements of the tort and oppression claims were not known or discoverable before December 14, 2010, and the action, commenced two years from that date, is therefore timely.

[44] The tort and oppression claims each have an element that was not discovered and could not reasonably have been discovered before December 14, 2010. As discussed above, each requires knowledge about the alleged movement of the business of LMC to another corporation. This is needed to meet the requirement that Dr. Aronson acted outside his director duties to LMC in inducing breach of contract, to meet the requirement that his conduct be oppressive and to meet the requirement that there was an unlawful act separate from the breach of the lease as required for the unlawful act tort.

[45] As of December 14, 2010, at best, the plaintiff knew that the medical clinic had been closed and the rent was in default. The plaintiff also had some corporate search information from its lawyer. It did not, however, have information that Dr. Aronson had moved LMC’s business, and especially its contracts with its physicians that were its main source of income, to another of his corporations. Nor could that have been discovered at that early stage by reasonable diligence: e.g., Fracassi v. Cascioli, at para. 274. Indeed, the plaintiff is having difficulty getting information about those matters even now.

[46] Since Torgan Enterprises Ltd. v. Contact Arts Management Inc., [1997] O.J. No. 2759 (Gen. Div.) is referred to in the correspondence between the plaintiff and its lawyer, and was relied upon in the argument of this motion, it is worth noting that it must be approached with care in the following respect. To some degree it conflates the tort of inducing breach of contract and the tort of intentional interference with contractual relations, and the test for both torts has been clarified since that time: A.I. Enterprises; Alleslev-Krofchak v. Valcom Ltd., 2010 ONCA 557, leave to appeal refused, [2010] S.C.C.A. No. 403, cited with approval in A.I. Enterprises.

[47] I therefore conclude that the other claims against Dr. Aronson were not discoverable before December 14, 2010. The claims are not statute-barred. I therefore need not deal with the further argument advanced by the plaintiff, based upon multiple breaches of the lease allegedly giving rise to multiple causes of action.

[48] Under Rule 20, it is open to me to grant summary judgment against Dr. Aronson, dismissing his limitation period defence: Whalen v. Hillier (2001), 2001 CanLII 24070 (ON CA), 53 O.R. (3d) 550 (C.A.) at paras. 13 and 29. I do so.

Costs

[49] If the parties are unable to agree on costs, any claims for costs shall be made by brief written submissions together with a costs outline to be delivered by July 15, 2015. Any response to a costs claim shall be made by brief written submissions to be delivered by July 30, 2015. This timetable may be modified on agreement between the parties provided that I am notified of the new timetable by July 15, 2015.

[50] Costs of the other motions heard together with this motion were also left open to be addressed at this time, specifically costs of LMC’s unsuccessful motion to set aside the noting of it in default and for summary judgment, and costs of the plaintiff’s successful motion for default judgment against LMC. If the parties are unable to agree on costs for those motions, the parties shall make their brief written costs submissions in accordance with the above schedule.

Justice W. Matheson

Released: June 23, 2015