Roulston v. McKenny et al, 2016 ONSC 2377

CITATION: Roulston v. McKenny et al, 2016 ONSC 2377

COURT FILE NO.: CV 15-020

DATE: 20160407

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Rita Roulston Applicant

– and –

Pauline McKenny, Kristie Nicole Holden, Stephanie Victoria Holden, Jesse Joseph Holden, Saxxon Elisabeth Holden and Elisabeth Penner Respondents

Robert Brown, for the Applicant

Adrienne Lei and Ian McKellar, for the Respondent, Pauline McKenny;

Trent Morris for Rita Roulston in her personal capacity

HEARD: March 22, 2016

E.J. Koke

NATURE OF THE CLAIM

[1] This is an application for directions by Rita Roulston in her capacity as Estate Trustee with a Will in the Estate of her brother, the late Paul Penner.

[2] The court is asked to determine whether Mr. Penner’s former wife Pauline McKenny can proceed with her claim against the estate for monies allegedly owing pursuant to the terms of separation agreement entered into between she and Mr. Penner.

[3] Mr. Penner died on March 20, 2013. Ms. McKenny issued her claim against the estate in the Superior Court on September 18, 2015. Ms. Roulston, who was represented personally at the hearing, takes the position that the claim is statute-barred because Ms. McKenny did not commence her proceeding within two years of Mr. Penner’s death.

[4] Ms. McKenny takes the position that her claim is governed by the provisions of the Limitations Act, 2002, and her claim was not discoverable until September 25, 2013, which is less than two years from the date her action was commenced. In the alternative, she argues that if the claim is governed by the limitation period set out in s. 38(3) of the Trustee Act, then the doctrines of Special Circumstances and Fraudulent Concealment apply to toll the time for issuing the claim.

[5] Although the aforementioned limitation period issues would normally be adjudicated by way of a motion brought in the action commenced against the estate by Ms. McKenny, the parties agreed that these issues can be determined in a summary manner at this hearing.

[6] The two competing positions were argued by counsel who were retained on behalf of Ms. Roulston and Ms. McKenny personally.

SUMMARY OF THE FACTS

[7] The facts are not in dispute and are summarized below.

[8] Ms. McKenny and the deceased were married but separated in August 2001. They signed a separation agreement in May 2002. The separation agreement required Mr. Penner to maintain $150,000 in life insurance designating Ms. McKenny as beneficiary. The parties released claims against each other’s estates; however, the following exception was carved out: if Mr. Penner failed to maintain the life insurance, the amount of $150,000 would form a first charge on his estate in Ms. McKenny’s favour.

[9] The parties obtained a divorce order in May 2007. The court amended the separation agreement and ordered that Mr. Penner did not have to maintain life insurance beyond age 50.

[10] Mr. Penner died on March 20, 2013, before having turned 50 years of age. On May 2, 2013, Mr. Penner’s sister Rita Roulston was appointed as estate trustee. Ms. Roulston retained her present counsel Robert Brown in respect of the estate proceedings.

[11] The terms of the will provide that Ms. Roulston is a 50% beneficiary of the residue of the deceased’s estate, and Mr. Penner’s nieces and nephews are equal beneficiaries of the remaining 50%.

[12] On May 9, 2013, the deceased’s insurer wrote to Mr. Brown in response to his request for information about the status of the deceased’s life insurance policies. The insurer’s letter contained the following statements:

Unfortunately, there are no active insurance policies with our company.

Policy LI 6313,341-8 lapsed due to non-payment on July 12, 2002.

Policy LI-6017,925-9 lapsed due to non-payment on December 2, 2011.

[13] Ms. McKenny retained Hugh McLachlan with respect to her potential claim against the estate under the separation agreement. On June 3, 2013, Mr. McLachlan wrote to Mr. Brown enclosing a copy of the separation agreement. Mr. McLachlan requested information about the deceased’s life insurance policies, and advised that if the deceased had failed to maintain life insurance, then his client’s debt in the amount of $150,000 formed a first charge against the estate.

[14] On June 4, 2013, Mr. Brown responded as follows:

... [The] Estate Trustee, is currently making investigations with respect to the insurance policy as the deceased had expressed to [her] and the deceased’s mother that there was insurance in place. Upon receipt of such information, we will provide correspondence to you.

[15] In his letter, Mr. Brown did not share the information that the insurer had provided on May 9, 2013, namely that the deceased’s policies had lapsed and that Mr. Penner did not have any active policies.

[16] Mr. McLachlan subsequently made his own inquiries of the insurer to determine if the deceased had effective life insurance policies. On July 11, 2013, the insurer wrote to Mr. McLachlan advising that it could only release information to the estate trustee. Shortly thereafter, on July 22, 2013, Mr. McLachlan sent a letter to Mr. Brown enclosing the July 11, 2013, letter from the insurer. Mr. McLachlan wrote that the insurer’s letter seemed “to suggest in my mind that a life insurance policy is in force and effect although I have some doubt about whether or not my client is the beneficiary.” Mr. McLachlan continued as follows:

I need the executor to tell me that the life insurance policy is still in force and effect and what progress is being made to collect on it. Alternatively, if the policy is not in force and effect, I need the estate to confirm that it is responsible for the payment to my client of the amount set out in the Separation Agreement.

[17] Mr. Brown did not respond to Mr. McLachlan’s letter dated July 22, 2013. Mr. McLachlan followed up with Mr. Brown by letter on August 27, 2013.

[18] On September 25, 2013, Mr. Brown responded in a letter marked “without prejudice”. Mr. Brown wrote that the deceased’s policy “may have lapsed,” and advised that his client had sold the deceased’s assets, and that the proceeds were in an estate bank account. Mr. Brown indicated that he intended to apply to the court for advice and directions because there were a number of claims upon the estate.

[19] The amount of $114,385.82 is being held in the estate’s bank account.

[20] On October 15, 2013, Mr. McLachlan responded to Mr. Brown’s letter. Mr. McLachlan noted that Mr. Brown’s letter was “without prejudice” and explicitly asked for an acknowledgment of the validity of his client’s claim “as there does not appear to be life insurance.”

[21] Mr. Brown did not respond to Mr. McLachlan’s letter dated October 15, 2013.

[22] In or around December 2013, Mr. Brown advised Mr. McLachlan that he planned to bring an application for advice and directions in June 2014, and that his application materials would follow in early 2014.

[23] Mr. Brown did not serve his client’s materials in early 2014. The proposed hearing of the application was adjourned a number of times. Eventually, Mr. Brown issued a notice of application returnable on June 12, 2015. On June 3, 2015, Mr. McLachlan served his client’s affidavit, which set out the terms of the separation agreement and her claim against the estate.

[24] The application was adjourned to September 28, 2015, to allow for cross-examination of Ms. McKenny on her affidavit. Prior to the hearing Mr. Brown advised Mr. McLachlan that there may be a limitations period issue because his client did not commence a proceeding regarding her claim against the estate within two years of the deceased’s death.

[25] On September 18, 2015, less than two years after Mr. Brown advised Mr. McLachlan that the deceased’s insurance “may have lapsed”, a notice of action was issued against the estate to recover the $150,000 debt due by the estate to Ms. McKenny. A statement of claim was filed on October 8, 2015.

ANALYSIS

Does s. 38 of the Trustee Act apply to Ms. McKenny’s claim?

[26] Ms. Roulston argues that the limitation provisions set out in s. 38 of the Trustee Act, R.S.O. 1990, CT-23, apply to Ms. McKenny’s claim.

[27] Section 38 reads as follows:

Actions by executors and administrators for torts

38. (1) Except in cases of libel and slander, the executor or administrator of any deceased person may maintain an action for all torts or injuries to the person or to the property of the deceased in the same manner and with the same rights and remedies as the deceased would, if living, have been entitled to do, and the damages when recovered shall form part of the personal estate of the deceased; but, if death results from such injuries, no damages shall be allowed for the death or for the loss of the expectation of life, but this proviso is not in derogation of any rights conferred by Part V of the Family Law Act.

Actions against executors and administrators for torts

(2) Except in cases of libel and slander, if a deceased person committed or is by law liable for a wrong to another in respect of his or her person or to another person's property, the person wronged may maintain an action against the executor or administrator of the person who committed or is by law liable for the wrong.

Limitation of actions

(3) An action under this section shall not be brought after the expiration of two years from the death of the deceased.

[28] Although the marginal note above the section states: "Actions against executors and administrators for torts", it is now settled that the two-year limitation period in s. 38(3) applies to "actions for all injuries of a personal nature" whether framed in contract or in tort. The phrase “actions for all injuries of a personal nature” is adopted from the decision of the majority of the Supreme Court of Canada in Smallman v. Moore, 1948 CanLII 4 (SCC), [1948] S.C.R. 295 (S.C.C.), in which it was held that an action for general damages for breach of promise to marry was barred after two years from the date of the death of the defendant. Locke J. said in that decision, at p. 666:

Assigning to the words "a wrong to another in respect of his person" their natural and ordinary meaning, I consider they include an action in respect of a personal injury of this nature irrespective of the form of the remedy. If this were not clear some assistance in assigning the proper meaning to the words is given by the fact that cases of libel and slander are excepted. If "a wrong to another in respect of his person" was intended to mean a bodily injury or trespass to the person, it would have been unnecessary to except libel and slander where the injury is personal in its nature: the fact that these actions are excepted indicates to me that the intention was that a wider meaning should be given to the expression and that actions for all injuries of a personal nature should be included. If the words of s-s. (2) are to be construed as if they read "committed a tort causing injury to another in respect of his person or property", it would seem that s-s. (1) of s. 37 reading "may maintain an action for all torts or injuries to the person or to the property" would read otherwise and not use both the words "torts" and "injuries" which would at least indicate that the words should not be construed as synonymous.

[29] Locke J. went on to state that the marginal notes formed no part of the statute and did not assist in the interpretation of the section.

[30] The decision of the Supreme Court of Canada in Smallman v. Moore was followed by the Court of Appeal in Roth v. Weston Estate (1997), 1997 CanLII 1125 (ON CA), 36 O.R. (3d) 513 (C.A.). Goudge J.A., delivering the judgment of the court, described the relevant facts as follows:

The defendants in this action are the executors of the deceased who was an experienced podiatrist. The plaintiff, a young podiatrist, alleges an agreement with the deceased by which the plaintiff would enter practice in partnership with the deceased, and would pay an agreed sum for the right to do so. The plaintiff further alleges that he and the deceased agreed to each arrange for life insurance on themselves with the other as beneficiary. The purpose of this was to fund the purchase by the surviving partner of the interest of the other in the event that either died. The deceased indeed put in place the requisite amount of life insurance. However, as is commonly the case, the policies provided that in the event of suicide, only the return of premiums would be paid.

On October 19, 1991 the deceased took his own life. The litigation was not commenced until July 5, 1994, more than two years after the death and, in fact, more than two years after the plaintiff became aware of the cause of death.

[31] In affirming the decision of the judge below that the action be dismissed, Goudge J.A. concluded at p. 515:

It is not necessary to determine whether the action would succeed but simply whether, as pleaded, it comes within the subsection as an action for an alleged wrong done by the deceased in respect of the person of another.

I conclude that as set up by the plaintiff this is such an action. The core of the plaintiff's case is that the deceased failed to disclose to the plaintiff the condition from which he was suffering that led to his untimely death and that, in taking his own life in these particular circumstances, the deceased breached his personal fiduciary duty to the plaintiff. As well, the plaintiff alleged that the deceased breached a contractual term that he was required not to conduct himself in such a way as to disentitle the plaintiff from receiving insurance benefits. As a result, the plaintiff asserted that he suffered significant personal loss.

[32] In this case, Ms. McKenny alleges that she is entitled to monies from the estate because the deceased breached a personal duty to her, namely that he would maintain a life insurance in place naming her as a beneficiary. The facts are very similar to the facts in Roth v. Weston Estate. I find that the two year limitation period set out in the Trustee Act applies to Ms. McKenny’s claim.

Does the Doctrine of Special Circumstances apply to the Circumstances of this Case?

[33] Case law reveals instances in which courts have permitted an application to add a party or a new claim to an action following the expiry of a limitation period in situations where the court has found that special circumstances exist and there is an absence of prejudice to the responding party.

[34] In the seminal case of Weldon v. Neal (1887), 19 Q.B.D. 394 (C.A.) Lord Esher, M.R. stated: "Under very peculiar circumstances the Court might perhaps have power to allow such an amendment, but certainly as a general rule it will not do so." In Basarsky v. Quinlan, 1971 CanLII 5 (SCC), [1972] S.C.R. 380, Hall, J. stated: "The adjective ‘peculiar’ in the context of Lord Esher, M.R.'s judgment and at the date thereof may be equated with ‘special’ in current usage."

[35] The case law about special circumstances reveals that in determining whether the doctrine applies, the court will consider the totality of the factual background to the proceedings. The conduct and circumstances of the parties are relevant considerations, and the doctrine applies where fairness and equity dictate it should.

[36] Ms. McKenny submits that the doctrine applies to permit her to bring her claim more than 24 months after the death of Mr. Penner.

[37] I am not persuaded that this doctrine applies to the circumstances of this case. A review of the case law reveals that the doctrine has only been applied in circumstances where a party is added or a pleading is amended in an existing proceeding. This is not such a case. Ms. McKenny seeks to commence a new proceeding, as opposed to amending an existing proceeding.

[38] The issue of whether the doctrine permits an action to be commenced after the expiration of a limitation period was addressed by Feldman J.A. in Joseph v Paramount Canada’s Wonderland, 2008 ONCA 469, [2008] O.J. No. 2339. Feldman J.A. states at para. 28;

In that regard, I add for the sake of completeness that the decision of the motion judge, which followed a line of cases in the Superior Court where extensions were granted that did not involve any amendment of or addition to an existing action, was an error of law even had the doctrine of special circumstances applied. Both the common law doctrine from Basarsky v. Quinlan and the Rules of Civil Procedure contemplate only the power to amend or add a claim or party to an existing action. They did not give the court the authority to allow an action to be commenced after the expiry of a limitation period.

[39] I find that in the circumstances of this case this doctrine does not have any application.

Does the Doctrine of Fraudulent Concealment apply to the Circumstances of this Case?

[40] Ms. McKenny submits that if the court finds that her claim is governed by s. 38 of the Trustee Act and the doctrine of special circumstances does not apply, then in the alternativethe two year limitation period should be tolled by application of the doctrine of fraudulent concealment.

[41] The principles which underlie the doctrine of fraudulent concealment were discussed in the 2005 decision of the Ontario Court of Appeal in Giroux Estate v. Trillium Health Centre, 2005 CanLII 1488 (ON CA), 74 O.R. (3d) 341. The court in Giroux Estate confirmed that the purpose underlying the doctrine is to prevent defendants who stand in a special relationship with a party from using a limitation provision as an instrument of fraud.

[42] In K.M. v. H.M., 1992 CanLII 31 (SCC), [1992] 3 S.C.R. 6, the Supreme Court noted that the term “fraud” when used in the context of this doctrine does not imply “moral turpitude or active deceit”. Simply put, there must be "conduct which having regard to some special relationship between the two parties concerned, is an unconscionable thing for one to do towards the other" (K.M. at para. 65).

[43] Where applicable, the doctrine has the effect of suspending the running of the limitation clock until such time as the injured party can reasonably discover the cause of action.

[44] The Court of Appeal in Giroux Estate articulated the three elements that must be established to make out the doctrine:

a) the defendant and the plaintiff are engaged in a special relationship with one another;

b) given the special or confidential nature of the relationship, the defendant’s conduct amounts to an unconscionable thing for the one to do to the other; and

c) the defendant conceals the plaintiff’s right of action (either actively, or as a result of the manner in which the act that gave rise to the right of action is performed).

a) Were the defendant and the plaintiff engaged in a special relationship with one another?

[45] Through her lawyer, Ms. McKenny attempted to obtain information from the insurer about the status of Mr. Penner’s life insurance policy. The insurer advised her that this information could only be released to the executor of the estate.

[46] Ms. McKenny therefore found herself in a situation where she was forced to rely on the estate in order to obtain the information which would direct her future actions, in particular whether there was a valid insurance policy in effect, failing which it would be necessary for her to make a claim against the estate as contemplated by the separation agreement.

[47] The debt owing to Ms. McKenny only crystallized with the knowledge and information that the deceased’s insurance policy had lapsed. By virtue of the estate trustee’s exclusive possession of knowledge and information regarding the status of the deceased’s insurance policy, the estate trustee was elevated to a unique position as debtor: the estate trustee had exclusive possession of knowledge and information of whether Ms. McKenny’s debt actually existed. In other words, Ms. McKenny was entirely reliant on the estate trustee’s representations regarding the status of the deceased’s insurance policy and, it follows, the existence of the debt.

[48] In determining whether a special relationship exists between two parties, the Supreme Court has considered whether a relationship of proximity exists in negligent misrepresentation cases. In Hercules Managements Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165, La Forest J. stated at para. 24:

In cases of negligent misrepresentation, the relationship between the plaintiff and the defendant arises through reliance by the plaintiff on the defendant’s words. ... To my mind, proximity can be seen to inhere between a defendant-representor and a plaintiff-representee when two criteria relating to reliance may be said to exist on the facts: (a) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (b) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable. To use the term employed by my colleague, Iacobucci J., in Cognos, supra, at p. 110, the plaintiff and the defendant can be said to be in a “special relationship” whenever these two factors inhere.

[49] In this case, the estate trustee must have foreseen that Ms. McKenny would rely on the representations made by her counsel. Similarly, since the estate trustee was in a unique and privileged position to obtain information, it was reasonable for Ms. McKenny to rely on what she was being told. Therefore, the two criteria are met.

[50] In my view, the required special relationship exists between the estate trustee and Ms. McKenny on which to base the doctrine.

b) Was the conduct of the estate trustee unconscionable?

[51] Notwithstanding that the estate trustee had received confirmation in May 2013 from the deceased’s insurer that the policies had lapsed, the estate trustee initially suggested that insurance was in place and withheld the information that the policies had lapsed; neither did the trustee respond in a timely fashion to Ms. McKenny’s numerous follow-up inquiries.

[52] By withholding material facts, the estate trustee concealed from Ms. McKenny that she had a legitimate debt against the estate as a creditor. In my view, given the special relationship between the estate trustee and Ms. McKenny, it was unconscionable for the estate trustee to initially suggest that insurance was in place, then delay matters by promising to bring an application for directions, and then later take the position (a position which provided a direct material benefit to her as a beneficiary of the estate), that the time for claiming against the estate had expired.

c) Did the actions of the estate trustee conceal the Ms. McKenny’s debt against the estate?

[53] As a result of the estate trustee’s failure to inform Ms. McKenny that the insurer was taking the position that the insurance had lapsed, I find that Ms. McKenny had a reasonable and bona fide belief that the deceased’s insurance policy was in good standing until at least September 25, 2013. It was on this date that Mr. Brown admitted that the policy “may have lapsed”. As such, she did not have a reasonable belief that she had a cause of action against the estate until this date.

[54] On April 13, 2015, just after the two year anniversary of Mr. Penner’s death, and after numerous delays, the estate trustee finally served application materials for advice and direction from the court regarding the administration of the estate. The application materials included the letter from the insurer dated May 9, 2013, disclosing for the first time that the deceased’s policies had lapsed. This letter from the insurer was not previously disclosed to Ms. McKenny, notwithstanding numerous requests for information about the insurance policies by her lawyer.

[55] The failure by the estate trustee to reveal that the insurance policies had lapsed had the effect of concealing from Ms. McKenny that she had a claim against the estate.

[56] I am confident that if the estate trustee had advised that the insurer had voided the policies in response to Ms. McKenny’s initial inquiry, Ms. McKenny would have taken steps at a much earlier date to secure her interest in the estate.

[57] Accordingly, the estate trustee ought not to be permitted to rely on the limitation provision set out in the Trustee Act to bar Ms. McKenny’s claim against the estate. The estate trustee’s conduct satisfies the criteria of the doctrine of fraudulent concealment, and the doctrine should apply to toll the limitation period until the time Ms. McKenny could reasonably discover her claim.

[58] It does not matter whether the date is tolled to September 25, 2013, which is the day Ms. McKenny was informed that the policies “may have lapsed”, or to April 13, 2015, which is when she received a copy of the May 19, 2013 letter from the insurer confirming that the policies had lapsed. Ms. McKenny commenced her action against the estate on September 15, 2015, which is less than two years from either date.

[59] In conclusion, the limitation period under the Trustee Act is tolled, and accordingly, Ms. McKenny’s claim against the estate is not statute-barred.

Comments on application of the Limitations Act, 2002

[60] In the event I am mistaken in my conclusion that the limitation period in the Trustee Act applies, then the two year limitation period described in section 4 of the Limitations Act, 2002, applies.

[61] A limitation period under this Act commences on the second anniversary of the day on which the claim was discovered.

[62] Section 5(b) of the Limitations Act, 2002, provides that a claim is discovered on…

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 ….

[63] In my view, and based on the facts above, Ms. McKenny could not have known or discovered that she had a claim until September 25, 2013, the date when she was first informed that the insurance policies may have lapsed. Accordingly, her claim is valid based on the application of either Act.

COSTS

[64] If the parties cannot agree on costs, they are to file written submissions (no longer than five pages excluding attachments), within 14 days of the release of this decision. Thereafter, they each have five days to respond to each other’s submissions.

E. J. Koke

Released: April 7, 2016

CITATION: Roulston v. McKenny et al, 2016 ONSC 2377

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Rita Roulston Applicant

– and –

Pauline McKenny, Kristie Nicole Holden, Stephanie Victoria Holden, Jesse Joseph Holden, Saxxon Elisabeth Holden and Elisabeth Penner Respondents

REASONS FOR JUDGMENT

E.J. Koke

Released: April 7, 2016