1186708 Ontario Inc. v. Gerstein, 2016 ONSC 1331

CITATION: 1186708 Ontario Inc. v. Gerstein, 2016 ONSC 1331

COURT FILE NO.: CV-14-10668-00CL

DATE: 20160224

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1186708 Ontario Inc., 746190 Ontario Limited and 746191 Ontario Limited, Plaintiffs

AND:

Elliott J. Gerstein, Iris L. Gerstein, Sydney Gerstein, Attara Developments Limited, Bellcrest Builders Limited, Brenthall Apartments Limited, Chelsandy Developments Limited, Grover Realty Management (a partnership), Grover Realty Cable (a partnership), Lilliana Building Limited, Luray Investments Limited, Pauldor Developments Limited, 375685 Ontario Limited, Stan Vine Construction Ltd., Kilbarry Holding Corporation, 678678 Ontario Limited, Matanah Investments Corp., Dawn Trading Ltd., 497505 Ontario Inc., 781527 Ontario Inc., 781526 Ontario Inc., Richard Mintz and Andrea Mintz, Estate Trustees for Saul Mintz, Irwin Mintz, Howard Mintz, Faye Mintz, Mintz & Partners (a partnership), Rhonda Strasberg, Estate of Belle Mernick, Minkids Holdings (a partnership), Ettie Wosnick, Morris Wosnick, 2135637 Ontario Inc., Lerric Investments Corp., Mernick Construction Limited and Stanmore Developments Limited, Defendants

BEFORE: Penny J.

COUNSEL: P. James Zibarras and David Meirovici, for the Plaintiffs

Douglas B.B. Stewart and Deepshikha Dutt, for the Defendants, Irwin Mintz, Faye Mintz (deceased), 2135637 Ontario Ltd, Minkids Holdings, 781526 Ontario Ltd, and Mintz & Partners (and, for the motion, the Estate of Saul Mintz)

Elaine Peritz and Sarah Turgeon, for the Defendants, Morris Wosnick, Ettie Wosnick, Dawn Trading Ltd., Moward Mintz, 781527 Ontario Ltd., Rhonda Strasberg and 497505

Linda Galessiere and Mr. G. Camelino, for the Defendants,Sydney Gerstein, Matanah Investments Corp., and Lerrie Investments Corp.

Peter J. Osborne, for the Defendants, Kilbarry Holding Corporation and Stan Vine Construction Ltd.

HEARD: January 28, 2016

ENDORSEMENT

[1] There are two motions. One motion is by the defendants to strike portions of the fresh as amended statement of claim served by plaintiff’s counsel on November 17, 2015. There are essentially three bases upon which the defendants attack the amended pleading:

(1) the plaintiffs are shareholders in real estate companies which owned rental properties. Some of the claims they assert are claims only available to the corporations which owned the properties, not to shareholders of those corporations;

(2) several new causes of action are asserted in the amended pleading. The limitation period within which the plaintiffs were entitled to assert those claims has long since expired; and

(3) in any event, material facts necessary to support various causes of action have not been properly pleaded.

[2] In response to the objection raised in para. 1 above, the plaintiffs have brought the other motion for leave to commence a derivative action on behalf of the owner corporations, which are also defendants in the existing action. The defendants oppose the motion on the basis that it is statute-barred and does not, in any event, meet the test for the granting of leave.

Background

[3] The parties actively involved in this litigation and in these motions comprise five families that were co-investors in numerous residential properties and one industrial property since the 1950s. These properties were accumulated and managed over the course of decades until they were recently sold as a result of a breakdown of the relationship between the families. This breakdown followed the discovery of financial misappropriation by Elliott Gerstein, a member of one of the investor families, which spawned numerous proceedings over the last several years.

[4] The material filed contains detailed schedules setting out which owner owned which property, which plaintiff held shares in which owner and which action contains which allegations. This material was not in controversy and, unless necessary for the resolution of the specific issues in this motion, I do not intend to dwell on these details further.

[5] Essentially, the plaintiffs are corporate shareholders controlled by the Sharon Gerstein family. The plaintiffs have a percentage interest of the shares in various corporations which own the real property assets involved in these proceedings.

[6] The properties were managed by property management companies which were owned in partnership by members of the defendant family corporations. Elliott Gerstein, the son of Sydney Gerstein, was appointed as the office manager and controller of the main one, Grover Realty, in 1996.

[7] In November 2005, it was discovered that Elliott had committed fraud and misappropriated several millions of dollars from the business.

[8] As a result of this misappropriation, there have been and continue to be legal proceedings between the various investor families in which issues are raised concerning the management of the owner corporations.

[9] There were originally three proceedings relevant to these motions. The content of these proceedings takes essentially three forms. Certain claims involve who was responsible for and allegedly negligent in allowing the misappropriation to go undetected. Other claims result from information that was unearthed following the fraud. These claims relate to alleged unfair and oppressive dealings by the other families to the detriment of the Sharon Gerstein family and the alleged exclusion of the Sharon Gerstein family from management of the properties and the like.

[10] The third group of claims relates to the sale of the properties, the winding up of the owner and management corporations and the distribution of the net proceeds of sale.

[11] The first two actions, referred to as the 7254 action and the 7255 action, were issued on October 31, 2007, nearly two years after the fraud was discovered in 2005. The 7254 action is directed against a broad pool of defendants associated with the defendant investor families. The 7255 action is directed against the accountants, Mintz & Partners, and Al Mintz as a former partner at Mintz & Partners, in respect of accounting services provided. These actions assert claims based on the fraud, who was negligent in failing to detect and prevent it, and oppression.

[12] The third proceeding, (now called the 668 action) was initially commenced by way of an application on February 19, 2009. This included allegations (in some cases repeated from the 7254 and 7255 actions) of self-dealing, conflict of interest and other ‘oppressive’ conduct involving individual members of the defendant families, the properties and the owner corporations. The primary relief sought in the 668 action, however, was the appointment of a special receiver to sell the properties and distribute the proceeds, after adjustment for the various claims made in the multitude of ‘to be consolidated’ actions.

[13] The 668 action and certain other companion applications ultimately resulted in the appointment of a court supervised sales officer in 2011. The focus of this proceeding, under the case management of Morawetz J. (as he then was), was on the sale of the properties.

[14] The properties have now all been sold (subject to court approval of one transaction). By order of Morawetz J. in 2014, the application was converted into the 668 action and a statement of claim was issued on August 18, 2014. The 668 action sought the winding up of all the owner corporations and the distribution of the proceeds from the sale of the properties.

[15] Following a failed attempt at private mediation, Morawetz RSJ ordered a strict timetable on September 28, 2015. The plaintiffs were to amend, consolidate and regularize the three actions by November 15, 2015. The defendants, at least, understood that the amendment, consolidation and regularization of the pleadings were being done to streamline the pleadings and remove redundant claims and relief.

Derivative Action

[16] The main issue on the defendants’ motion relates to the plaintiffs’ claims for negligence in failing to prevent or detect the fraud. The defendants argue these are claims of the owner corporations, not claims of the plaintiff shareholders. In recognition of this problem, the plaintiffs have, in response to the defendants’ motion, moved for an order granting leave to commence a derivative action on behalf of the owner corporations.

[17] Whether or not the plaintiffs are able to bring or succeed on their leave motion is a threshold issue. I will therefore begin there. Further factual background is necessary to analyze this threshold issue.

[18] The fraud became known in November 2005. The 7254 and 7255 actions were issued October 31, 2007. In the 7254 statement of claim, the plaintiffs pleaded that, as shareholders in the owner corporations, they were entitled to sue the defendants for alleged negligence in failing to detect and prevent fraud.

[19] In the alternative, the plaintiffs pleaded that, “by reason of the facts previously pleaded”, the plaintiffs “seek leave pursuant to section 246 of the Ontario Business Corporations Act to commence a derivative action against Elliott Gerstein, Iris Gerstein, Grover Realty, its partners, Sydney Gerstein, Irwin Mintz, Saul Mintz and Morris Wosnick in the names of and on behalf of of Chelsandy, Lilliana, Luray, Bellcrest, Attara, Brenthall, and 678678, respectively.”

[20] The 7255 action makes no mention of a derivative action or s. 246 of the OBCA.

[21] The application which became the 668 action also makes no mention of a derivative action although s. 246 of the OBCA is pleaded as a ground for relief. Similarly, following the order of Justice Morawetz directing that the application be converted to an action, the 668 statement of claim makes no mention of a derivative action but includes s. 246 of the OBCA as a ground of relief.

[22] It is common ground that there was never any agreement among the parties suspending the application of any limitation period. Is also common ground that no motion for leave to commence a derivative action was ever brought until Mr. Zibarras, who is new to the file, served and filed a motion seeking such leave, in response to the defendants’ motion, on January 18, 2016.

Analysis

[23] It is well-established that a shareholder cannot sue for a wrong done to the corporation, Foss v. Harbottle (1843) 2 Hare 189; Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165.

[24] Under modern business corporation legislation, this type of claim can only be brought by the corporation itself or by way of derivative action, for which leave is required, Hercules, supra, at paras. 59-60; OBCA, s. 246.

[25] The plaintiffs, as shareholders of the owner corporations, have claimed two general kinds of damages: (i) damages that have been suffered by them that are different from other shareholders (the oppression remedy); and (ii) damages that have been suffered by the owner corporations as a result of Elliott Gerstein’s misappropriation and the alleged negligence of the defendants in failing to prevent or detect the misappropriation.

[26] In an earlier related proceeding, the Mernick family, which held through Mernick Construction Ltd. a minority share interest in the owner corporations of the Chelsandy property (Chelsandy Developments Limited) and the Lilliana property (Lilliana Buildings Limited), commenced an action in the Superior Court of Justice against the other investor families and the Royal Bank of Canada. These claims arose out of the same factual matrix and sought damages along the same lines as the relief sought in this action.

[27] That action was dismissed on a motion for summary judgment on the basis that the defendants did not owe any duty at law to the Mernick plaintiffs as shareholders in the corporations. Citing Hercules, the court stated:

In this particular case, I see no reason to depart from the rule in Foss v. Harbottle [supra]. As stated in Hercules [supra];

individual shareholders have no cause of action in law for any wrongs done to the corporation and if an action is to be brought in respect of such losses it must be brought either by the corporation itself (through management) or by way of a derivative action.

[28] In dismissing the claim against the defendants named in that action, Justice Aston found that no duty of care existed between the defendants, as co-shareholders, officers, directors, accountants or banker to the owner corporations and the plaintiffs, who were shareholders of the owner corporations.

[29] Similarly here, the losses from the Elliott Gerstein misappropriations were suffered by the owner corporations. The plaintiffs, as shareholders of the owner corporations, have suffered no damages recognized at law as a result of the Elliott Gerstein misappropriation or any alleged negligence of the defendants in failing to prevent or detect that misappropriation.

[30] In the fresh as amended statement of claim the plaintiffs did not seek leave to commence a derivative action but, instead, attempted to claim the losses suffered by the owner corporations through the originally pleaded oppression remedy. However, the recent decision of the Court of Appeal for Ontario in Rea v. Wildeboer, 2015 ONCA 373, 2015 CarswellOnt 7602 confirms that there is a distinction between the statutory remedies of oppression and derivative action. The oppression remedy is a personal claim by shareholders whereas the derivative action is for a wrong suffered by the company, for which leave is required.

[31] The Court of Appeal acknowledged that the two remedies are not necessarily mutually exclusive but in all cases where harm done to the corporation was held to fall under the umbrella of the oppression remedy, there was a wrong that not only affected the corporation but also affected the plaintiff shareholders personally in a manner that was different from other shareholders.

[32] On the facts pleaded in Rea, there was no overlap between the derivative action and the oppression remedy. The plaintiffs were not asserting that their personal interests as shareholders had been adversely affected in any way other than the type of harm that had been suffered by all shareholders as a collectivity due to loss suffered by the corporations in which they all held shares.

[33] Of particular note, the Court of Appeal held, at para. 35:

That the harm must impact the interests of the complainant personally – giving rise to a personal action – is consistent with the reforms put in place to attenuate the rigors of the rule in Foss v. Harbottle. The legislative response was to create two remedies, with two different rationales and two separate statutory foundations, not just one: a corporate remedy, and a personal or individual remedy.

[34] In their cross-motion, the plaintiffs appear to have accepted the fact that claims for losses resulting from the fraud (including claims against parties owing contractual or other duties to the owner corporations to prevent or detect the fraud) belong to the owner corporations from which the funds were taken. It is, by virtue of the plaintiff’s motion now brought for leave to commence a derivative action, implicitly conceded that these plaintiffs do not have claims which are different from the harm suffered by all shareholders as a collectivity.

[35] The leave requirement before commencing a derivative action serves a number of functions, including the prevention of strike suits, the prevention of meritless suits and the avoidance of a multiplicity of actions. No action may be brought by way of derivative action unless the court is satisfied that:

(a) the directors of the corporation will not bring the action;

(b) the complainant is acting in good faith; and

(c) it appears to be in the interests of the corporation that the action be brought.

[36] Before attempting to resolve the question of the test for leave under s. 246 of the OBCA, however, it is necessary to address the threshold issue, raised by the defendants, of whether a motion for leave is now statute-barred. Section 4 Limitations Act, 2002 provides that:

a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

[37] Section 5 of the Limitation Act provides that 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

(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).

[38] The principle of discoverability provides that the cause of action arises for the purposes of the limitation period when the material facts on which the claim is based have been discovered, or ought to have been discovered, by the plaintiff by the exercise of reasonable diligence. This principle conforms with the generally accepted definition of the term ‘cause of action’ – the fact or facts which give a person a right to judicial redress or relief against another. Determining whether a person has discovered a claim is a fact-based analysis, Lawless v. Anderson, 2011 ONCA 102 at paras. 22-23.

[39] The fraud was discovered in November 2005. This is why the plaintiffs issued the 7254 and 7255 actions on October 31, 2007. Any claims that the owner corporations had as a result of the fraud expired in November 2007. The person seeking leave to bring a derivative action has no greater rights than the corporation would have had if it had brought a similar action by itself, Giroux v. Pollesel, 2012 ONSC 2203.

[40] In this case, the 7254 action pleaded, as alternative relief, leave to commence a derivative action. As noted, however, no motion for this relief was ever brought until January 2016.

[41] Until recently, there was ambiguity in the law about when an order granting leave may be made and what was required to stop the running of a limitation where leave is required. Is it: the pleading for the relief; the bringing of the motion for leave; the argument of the motion; the decision of the court granting leave; or, following leave, the actual commencement the derivative action? These ambiguities were resolved in the Supreme Court of Canada’s decision regarding three Ontario cases under the Class Proceedings Act; Canadian Imperial Bank of Commerce v. Green; IMAX Corporation v. Silver; and Celestica Inc. v. Trustees of the Millwright Regional Council, 2015 SCC 60. In these cases three different judges of the Ontario Superior Court of Justice dealt with the interaction of s. 28 of the CPA (which “suspends” the limitation period for “a cause of action asserted in a class proceeding” in favour of the members of a class “on the commencement of the class proceeding”) and the limitation period of three years involved in making a claim (which requires leave of the court under s. 138.8 of Part XXIII.1 of the Ontario Securities Act) for negligent misrepresentation in the secondary market for securities under s. 138.14.

[42] In each case, the plaintiffs claimed damages under the common law tort of negligent misrepresentation and pleaded an intention to claim damages under the statutory cause of action in s. 138.3 of the OSA for alleged misrepresentations in respective of shares trading in the secondary market. None of the plaintiffs obtained leave to commence the statutory action required under s. 138.8, before commencing their class proceeding based on the common law cause of action. In all of the cases, the limitation period for the statutory action, if not suspended, would have run out prior to leave being obtained. In CIBC, the motion for leave was filed before the expiry of the limitation period. In IMAX, the motion for leave was filed and argued before the expiry of the limitation period. In Celestica, the motion for leave was filed after the expiry of the limitation period.

[43] The motion judges considered the issue of leave to commence the statutory action. Each of these judges considered they were bound by the decision of the Court of Appeal for Ontario in Sharma v. Timminco Ltd., 2012 ONCA 107, which held that s. 28 of the CPA did not operate to suspend the limitation period in s. 138.14 of the OSA. The motion judges in IMAX and Celestica applied the common law doctrines of nunc pro tunc and special circumstances to save the statutory claims in those proceedings from being statute barred. The motion judge in CIBC found that these doctrines were inapplicable and that the statutory claim could not be saved.

[44] On appeal, the three cases were heard together by a five-member panel of the Court of Appeal for Ontario. The panel unanimously overruled the interpretation in Timminco, holding that s. 28 of the CPA operates to suspend the limitation period for all class members once the statutory cause of action is asserted in a class proceeding, even if leave has not yet been granted under s. 138.8 of the OSA as long as the facts that found the action and the intention to seek leave to commence the action have been pleaded. As a result, the Court of Appeal concluded that in all three cases the plaintiffs’ statutory claims for secondary market misrepresentation were not statute barred.

[45] In the Supreme Court of Canada, the two issues common to each appeal were:

1. does s. 28 of the CPA operate to suspend the limitation period applicable to a statutory claim under s. 138.3 of the OSA at the time when an intention to seek leave under s. 138.8 is pleaded in a proposed class proceeding alleging a common-law misrepresentation claim? and

2. if not, can the plaintiffs obtain relief in the form of an order granting leave nunc pro tunc or pursuant to the doctrine of special circumstances?

[46] On the first question, a majority of the Supreme Court of Canada found in all three appeals that the statutory action was statute barred. The majority held that s. 28 of the CPA operates to suspend the three year limitation period in s. 138.14 of the OSA only at the time when that action is commenced, that is, by definition, after leave is granted under s. 138.8 of the OSA. The leave requirement is a “hurdle” which must be cleared before the suspension of the relevant limitation period can occur. Pleading an intention to seek leave does not have the effect of suspending the limitation period.

[47] On the second question, in CIBC and IMAX, a majority of the court nevertheless granted leave relying on the court’s inherent jurisdiction to issue orders nunc pro tunc, in both cases where the motion for leave had been brought prior to the expiry of the limitation period. In Celestica, a majority of the court declined to apply the nunc pro tunc principle on the basis that, as no motion for leave was commenced prior to the expiry of the three year limitation period under the OSA, the inherent jurisdiction of the court to make such orders could not be exercised to defeat the limitation period.

[48] The courts have inherent jurisdiction to issue orders nunc pro tunc. This power is acknowledged by rule 59.01 of the Rules of Civil Procedure, “an order is effective from the date on which it is made, unless it provides otherwise.”

[49] The doctrine arose principally in connection with the maxim “an act of the court shall prejudice no one” and was most frequently used to enable judgment to issue when a party died after the court had heard a case but before judgment.

[50] Beyond cases involving the death of a party or an obvious slip or oversight, the courts have identified a series of non-exhaustive factors in determining whether to exercise the inherent jurisdiction to grant such an order. These include:

(1) the opposing party will not be prejudiced by the order;

(2) the order would have been granted had it been sought at the appropriate time, such that the timing of the order is merely an irregularity;

(3) the irregularity is not intentional;

(4) the order will effectively achieve the relief sought or cure the irregularity;

(5) the delay has been caused by an act of the court; and

(6) the order would facilitate access to justice.

To these factors, it should be noted, the court imported one additional important caveat: the court should not exercise its inherent jurisdiction where this would undermine the purpose of the limitation period or the legislation at issue.

[51] “This is because”, the majority of the court held (at para. 94) :

as with all common-law doctrines and rules, the inherent jurisdiction to grant nunc pro tunc orders is circumscribed by legislative intent. Given the long pedigree of the doctrine and of rule 59.01, to which I have referred, it has been held that the legislature is presumed to have contemplated the possibility of a nunc pro tunc order…However, nunc pro tunc orders will not be available if they are precluded by either the language or the purpose of the statute. None of the other equitable factors listed above, including the delay being caused by an act of the court, can be relied on to effectively circumvent or defeat the express will of the legislature.

[52] It is generally recognized that limitation periods have three purposes known as the certainty, evidentiary and diligence rationales. Limitation periods serve to promote accuracy and certainty in the adjudication of claims; provide fairness to persons who might be required to defend against claims based on stale evidence; and to prompt persons who might wish to commence claims to be diligent in pursuing them in a timely fashion. In connection with the third consideration, “it is appropriate to expect plaintiffs to assert their claim diligently and to be cognizant of the circumstances and of the extent of their control over them.” Modern limitations legislation is based on the recognition that limitation periods, in order to be effective, need to be final (CIBC, supra, para. 58).

[53] There were two schools of thought on whether a failure to obtain leave within a specified limitation period results in the nullity of the action or is merely a procedural irregularity. According to one view, a failure to obtain leave results in the nullity of the action, which cannot be remedied by a nunc pro tunc order and is, therefore, an “insurmountable obstacle.” According to the other view, such failure is merely a procedural irregularity that can be corrected by a nunc pro tunc order.

[54] A majority of the court held that nunc pro tunc orders granting leave to commence a claim may be granted where leave is sought within the limitation period but not obtained until after the period expires but not where the limitation period has expired before the motion for leave is brought. This was based on the reasoning, in part, that if a nunc pro tunc order could be made where a limitation period has expired, even though the plaintiff did absolutely nothing to prevent its expiry, the effect would be that it is “very easy to override the legislature’s intent”, (CIBC, supra, para.104).

[55] The majority held, in the case of Celestica (at para. 111), that “because no motion for leave was filed before the expiry of the limitation period, a nunc pro tunc order, assuming one were available, could not remedy that expiry.” This, the court said, was sufficient to deny a nunc pro tunc order. The court also explained (at para. 117) that the doctrine of special circumstances could not be applied to salvage the plaintiffs’ claim:

In the case of Celestica, in which the limitation period expired before a motion for leave was even brought, applying the special circumstances doctrine to grant relief to the plaintiffs would necessarily provide judges with general authority to extend limitation periods, which would frustrate the purpose of s. 138.14 OSA [the limitation period].

[56] I can find no basis upon which to distinguish the analysis and result in the majority decision of the CIBC case, nor was any argued before me. Everything that was said about the relationship of a statutory leave requirement to a statutory limitation period in CIBC (ss. 138.8 and 138.14 of the OSA) could equally be said about this case (Limitations Act, s. 4 and OBCA, s. 246).

[57] In the present case, an intention to seek leave was pleaded in the October 2007 statement of claim in the 7254 action. The plaintiffs were, therefore, clearly aware of the requirement for leave in order to commence a derivative action. The plaintiffs, however, did absolutely nothing to preserve that potential claim against the running of the two year limitation period in the Limitation Act for over eight years.

[58] They have provided no valid explanation for this delay and cannot be said to have acted diligently. Granting relief to the plaintiffs in this context would undermine the clear legislative intention giving rise to the limitation period in the Limitation Act, see CIBC, supra, para. 106.

[59] On the basis of the analysis and conclusions of the majority reasons in CIBC alone, therefore, I find that the motion for leave to commence a derivative action (and, a priori, any grant of leave or any actual commencement of a derivative action) is statute-barred.

[60] I also conclude, on the facts of this case, that the application of the nunc pro tunc jurisdiction to backdate an order granting leave would be inappropriate in any event.

[61] It might be said there is no prejudice to the defendants because they always knew the plaintiffs intended to seek leave under s. 246 of the OBCA. However, it is one thing to threaten to do something and quite another to actually do it. All of the policy reasons for the existence of limitation rules are engaged here. The threat, not acted upon for over eight years, is hardly conducive to certainty. The defendants were, in my view, entitled to conclude (in the absence of any motion for leave to commence another proceeding on behalf of the owner corporations) that this particular relief had been abandoned. The effluxion of all this time raises concerns about stale evidence (or even the availability of evidence). And, as noted above (and by the SCC in CIBC), diligence was not exercised in prosecuting the necessary steps required to assert the remedy of a derivative action.

[62] I do not think the plaintiffs’ failure to bring a motion seeking leave to commence a derivative action could possibly be regarded as nothing more than an ‘irregularity’. In any event, it is not at all clear that the order would have been granted had it been sought at the appropriate time. More importantly, failure to prosecute the motion for leave was not unintentional. It was a choice made by the plaintiffs for reasons known only to them at the time. Clearly, the delay was not a function of the rules or procedures of the court. It does not seem to me that access to justice has anything to do with this case. The plaintiffs had access to justice when they commenced their claim in 2007 and pleaded an intention to seek leave to commence a derivative action. The plaintiffs chose not avail themselves of the access they had. Finally, the exercise of the court’s inherent jurisdiction in this case would undermine the purpose of the limitation period at issue.

[63] For all these reasons, therefore, I find that the plaintiffs’ motion for leave to commence a derivative action is statute- barred by virtue of s. 4 of the Limitation Act.

[64] Given my disposition of this issue, I do not propose to address the test for the granting of leave under s. 246 of the OBCA.

[65] The plaintiffs have raised a subsidiary point. They argue that a derivative action is not required to pursue the claims of 11867009 Ontario Inc. and 746190 Ontario Limited against Pauldor Developments and 375685 Ontario who were involved in the management of the Sherwin Twins, Diplomat, Rhona, Humber Park, Hyland Park, Ivory Towers and Misty Lane Properties. This is because, they argue, these properties were held by two bare trustee corporations. As bare trustees, these trustee corporations would not have, in law, suffered any loss such that the rule in Foss v. Harbottle does not apply. In such circumstances, a bare trustee is not owed any duties by third parties in respect of these properties. The duties are to the beneficiaries, which include 11867009 Ontario Inc. and 746190 Ontario Limited.

[66] It seems to me the defendants’ arguments on this issue depend on facts likely to be in dispute. For this reason, it is not appropriate to resolve this issue on a pleadings motion. The claims of these two alleged beneficiaries are not struck as requiring a derivative action (and leave to commence same). Whether or not a derivative action was required to assert these plaintiffs’ claims is an issue that should await the statements of defence, discovery and resolution at the trial.

The ‘New’ Causes of Action and the Sufficiency of Pleading

[67] The fresh as amended statement of claim, dated November 16, 2015 was the result of RSJ Morawetz’s order of September 28, 2015. That order required the plaintiff to, “amend, consolidate and regularize the statements of claim in all the Sharon Gerstein Proceedings, including obtaining any required leave of the court to commence a derivative action.”

[68] I tend to agree with the defendants that the purpose of RSJ Morawetz’s order was to simplify, integrate and streamline the various outstanding claims (being the two actions started in 2007, the application from 2009 and the conversion of that application into the 668 action in 2014) in order to reflect the remaining claims in one pleading and so that claims now moot, or resolved etc., could be removed. The purpose was not, it seems to me, to advance new claims not previous pleaded.

[69] That said, the order does not prohibit the pleading of new claims and it appears to me unnecessarily technical, at this stage of the proceeding, to require the plaintiffs to bring a separate motion for leave to amend. I am supported in this conclusion by the fact that the defendants have, for all practical purposes, treated this motion as if it were a motion for leave to amend and have advanced all of the arguments they otherwise would have had such a motion been brought.

[70] While quite a few “new” claims were pleaded in the fresh as amended statement of claim, by the time the motion was argued, the plaintiffs had winnowed down that list and proposed only to proceed with four:

(i) breach of contract;

(ii) breach of fiduciary duty;

(iii) unjust enrichment; and

(iv) negligence.

[71] The defendants argue that these new causes of action are statute-barred.

[72] The defendants also argue, however, that even the original causes of action pleaded were not always pleaded properly or with sufficient particularity; for example, certain claims are made against the defendants as a whole without particularizing the basis for each claim against each corporate and individual defendant.

[73] The starting point of the defendants’ complaint is that no new causes of action may be advanced because the limitation period before which all claims had to be made expired in November 2007 or, at the latest, February 2009.

[74] The plaintiffs rely upon the well accepted principle that where a new claim advanced against an existing defendant is made by amendment after the expiry of a limitation period is based on facts which have been substantially pleaded in the original statement of claim issued within the limitation period, no new cause of action is deemed to be added, Thompson v. Zeldin, [2008] O.J. 3591 at paras. 62-67.

[75] The key is whether substantially all of the material facts giving rise to the “new claim” have previously been pleaded. A cause of action is a set of facts giving rise to a remedy recognized at law. Accordingly, a new cause of action is not asserted if the amendments simply plead an alternative claim for relief arising out of the same facts previously pleaded or any new facts simply provide particulars or additional facts in support of a cause of action previously pled, Ascent Inc. v. Fox 40 International Inc., [2009] O.J. 2964, para. 3 (Master Dash).

(a) Breach of Contract

[76] Where an action is brought for breach of an agreement, the claim must show whether the agreement is in writing, made by word-of-mouth or is to be implied or inferred, and the basis for the implication or inference. The parties, the general substance and effect of the agreement and its material terms must be set out. The plaintiff must also set out the acts of the defendants which constitute the breach.

[77] The combined effect of the fresh as amended statement of claim, read as a whole, sufficiently pleads the basis for a claim for breach of contract. The problem is that the material facts pleaded in the fresh as amended statement of claim in support of such a claim are nowhere found in the original pleadings. The only paragraph of the original pleading identified as giving rise to a possible breach of contract claim is in para. 39 of the 7524 action, under the heading “Oppression Remedy”. There, the plaintiffs alleged that the defendants’ conduct “defeated or impaired the plaintiffs’ legitimate expectations as shareholders of” the owner corporations.

[78] The plaintiffs have sought to recast their claim in a completely new way in 2016, raising a new claim for the first time more than eight years after the expiry of the applicable limitation period. The breach of contract claim must be struck out as statute-barred.

(b) Breach of Fiduciary Duty

[79] In order to establish a cause of action for breach of fiduciary duty, a plaintiff must plead material facts setting out the existence of a fiduciary relationship with the defendant, the existence of a specific duty arising out of that relationship and establishing a breach of that duty. The essence of a fiduciary relationship is that the defendant has undertaken to act on the plaintiff’s behalf in circumstances which give rise to a relationship of trust and confidence. The distinguishing feature of a fiduciary is the obligation of loyalty, Fischer v. IG Investment Management Ltd.2015 ONSC 3525, at paras. 95-99.

[80] I am not satisfied that the plaintiffs have pleaded material facts meeting the requirements listed above. This is particularly so in the circumstances of this case where, merely by virtue of the roles occupied or fulfilled by the various defendants, a fiduciary relationship of the nature that seems to be alleged in the fresh as amended statement of claim would not ordinarily arise.

[81] More importantly, I am unable to find the basis, in terms of material facts, for this cause of action in the prior pleadings that were commenced within the limitation period.

[82] In the original pleadings the plaintiffs certainly pleaded a prima face basis for the oppression remedy – that the corporations had been managed in such a way as to be oppressive to the plaintiffs’ interests. Nowhere, however, is it pleaded for example, that the individual defendants owed a fiduciary duty to the plaintiffs. The only fiduciary duties pleaded in the original claims were duties owed to the owner corporations.

[83] For these reasons the new claims for breach of fiduciary duty in the fresh as amended statement of claim must be struck out as statute-barred.

(c) Unjust Enrichment

[84] To support a claim for unjust enrichment, sufficient facts must be pleaded to show that the defendant was enriched, the plaintiff was deprived, and there was no juristic reason for the enrichment.

[85] In this case, I am satisfied that this amendment simply pleads an alternative claim for relief arising out of the facts previously pleaded in connection with the oppression claims advanced in the original pleadings. In those pleadings, the plaintiffs do plead facts to the effect that the defendants managed operations to obtain advantages not available to the plaintiffs, to the plaintiffs’ financial detriment. In may fairly be inferred from those original pleadings, in the context of the oppression remedy, that the defendants’ behaviour was unlawful and therefore without juristic reason. In this case, it seems to me that the plaintiffs’ claim falls within the Ascent Inc. principle that adding a new legal label to previously pleaded facts does not engage s. 4 of the Limitation Act.

[86] I would, for this reason, not strike out the unjust enrichment claim in the fresh as amended statement of claim.

(d) Negligence

[87] A claim for negligence must plead material facts to establish the existence of a duty of care, the breach of that duty and that the breach caused the plaintiff damage.

[88] The original claim pleaded a negligence claim against Grover Realty, Irwin Mintz, Saul Mintz, Morris Wosnick and Sidney Gerstein. The material facts pleaded in connection with a negligence claim against these defendants related to their alleged failure to detect or halt the Elliott Gerstein fraud. No claim for negligence, and no material facts sufficient to establish the four elements of negligence described above, was pleaded against any other defendant.

[89] The fresh as amended statement of claim generically pleads negligence against all the defendants, individual and corporate, in the prayer for relief. In the body of the amended claim itself, however, the plea of negligence relates to the failure to prevent the Elliott Gerstein fraud. Accordingly, the only negligence allegations specifically pleaded are claims of the owners, not the shareholders. In any event, negligence claims against Howard and Faye Mintz, 505 Ontario, Matanah Investments and Dawn Trading would be statute barred as no material facts were pleaded in this regard in the original claims. The generic negligence allegations in the prayer for relief are unsupported by any material facts and do not appear in the original proceedings. They are therefore struck out.

(e) Other Pleading Issues

[90] The defendants also object to the pleadings on the basis that some of the allegations are “group” allegations and fail to differentiate one defendant from another when it comes to who owed or did what to who.

[91] This is a complex action. There are multiple parties involved in multiple corporations and multiple properties. The case has dragged on for over 10 years, spawning over a dozen claims. It is time for the parties to get on with discovery, have the outstanding claims adjudicated or settled, distribute the funds and bring this long-standing dispute to an end.

[92] The pleading is sufficient for purposes of filing a defence. The specific application of each claim to each plaintiff and defendant can be explored and pinned down on discovery.

[93] This aspect of the defendant’s motions is therefore dismissed.

The Oppression Claim Against Minority Stakeholders

[94] Rhonda Strasberg, Ettie Wosnick and 527 Ontario are minority stakeholders in these proceedings. Rhonda had an interest in in seven properties from 10 to 12.5%, Ettie had a minority 11% interest in one property. 527 Ontario had an interest in three properties from 12.5 to 25%. It is argued on their behalf that because their interests were no greater than the plaintiffs’ interests in the properties, they could not be found to have engaged in “oppressive” conduct; they could not have exerted unequal power or authority.

[95] I do not think the application of the principles underlying the oppression remedy is that clear cut. Context is everything. Two or more minority shareholders acting in concert could exercise control or otherwise conduct the affairs of a corporation in a manner that might be oppressive to another minority shareholder. Whether they did so in this case might not be known definitively by the plaintiff in advance of production and discovery. My comments in paras. 91 and 92 above apply here as well. There are sufficient particulars to plead a defence. I am not prepared to strike out this claim on a pleadings motion in this case.

Outcome

[96] For the reasons outlined above, the motion for leave to commence a derivative action is denied. The portions of the fresh as amended statement of claim containing allegations appropriately made only by the owner corporations are struck out. The claims for breach of contract, breach of fiduciary duty and negligence are struck out. The motion to strike out the oppression claims against Rhonda Strasberg, Ettie Wosnick and 527 Ontario is dismissed.

[97] For obvious reasons, the consolidated pleading must be further amended to reflect the result of this endorsement. It is my expectation that all counsel will confer on this. To avoid further pleadings motions, if there remain disagreements following consultation on what is “in” and what is “out”, it shall be brought before me at a chambers appointment.

Costs

[98] Counsel have agree that the costs of this motion shall be in the cause.

Penny J.

Date: February 24, 2016