OTTAWA COURT FILE NO.: 10-50224 DATE: 2018/08/03 ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
Asim Rafi Syed and Bilquees Fatima in her capacity as estate trustee with a will for the Estate of Syed Ahsan Rafi Plaintiffs – and – Daljit Nirman and Nirman’s Law Professional Corporation Defendants
Counsel: François Kabemba, for the Plaintiffs Stephen Cavanagh and Natalie Gajewski, for the Defendants
HEARD at Ottawa: July 31, 2018
REASONS FOR DECISION
RYAN BELL J.
Overview
[1] This professional negligence action arises from the 2008 purchase of a gas station by a corporation of which the Syeds were the principals. Their lawyer, Mr. Nirman, obtained a clearance certificate from the Technical Standards and Safety Authority (“TSSA”), stating that there were no outstanding work orders on the property. After the closing date of the transaction was postponed, Mr. Nirman did not request an updated certificate. The transaction closed in January 2008. In April 2008, the Syeds learned that the TSSA required that some deficiencies be corrected.
[2] The Syeds’ business ultimately failed. Their corporation, 750 Service Centre Oasis Point Inc., made an assignment in bankruptcy in January 2010. The Syeds say that had they known about the deficiencies in relation to the property, they would not have closed the transaction.
[3] The plaintiffs commenced an action against the vendor in February 2010. This action was commenced in December 2010.
[4] The defendants move for summary judgment to dismiss the action. Their position is:
(i) the plaintiffs’ claim is barred by the Limitations Act, 2002; (ii) s. 38 of the Bankruptcy and Insolvency Act (“BIA”) does not assist the plaintiffs; (iii) the action is barred by the rule in Foss v. Harbottle; and (iv) the plaintiffs have not demonstrated that the defendants caused their loss.
[5] The plaintiffs have brought a cross-motion in which they seek summary judgment against the defendants.
[6] The parties agree that the defendants’ motion is appropriate for determination by way of summary judgment. Had the plaintiffs’ motion proceeded on a standalone basis, the defendants’ position would have been that the issues of liability and damages are genuine issues that require a trial.
[7] I am satisfied that I can fairly and justly adjudicate the dispute between the parties and that the summary judgment process is a timely, affordable and proportionate procedure. For the following reasons, I am satisfied that there is no genuine issue requiring a trial in the case. I grant summary judgment in favour of the defendants and dismiss the plaintiffs’ claim.
Nature of the Claims
[8] Counsel for the plaintiffs asserts that the action consists of claims on behalf of the bankrupt corporation, 750 Service Centre – maintained, he submits, pursuant to s. 38 of the BIA – and the Syeds’ personal claim for general damages. My review of the claim and the litigation history leads me to a different conclusion. I find that all of the claims asserted in the action are personal claims.
[9] This action was commenced in December 2010 in the names of 750 Service Centre, Asim Rafi Syed, Bilquees Fatima (the widow of Syed Ahsan Rafi), Syed Muj Taba Rafi (the son of Syed Ahsan Rafi) and the Estate of Syed Ahsan Rafi. 750 Service Centre’s trustee in bankruptcy was not named as a plaintiff, nor was leave sought to bring the action in the name of a bankrupt corporation.
[10] The defendants then moved for summary judgment. On cross-examination, Asim Syed stated that the corporation’s claims were being dropped because the corporation became bankrupt in 2010. In October 2011, on the consent of the parties, Master MacLeod (as he then was), ordered that the action be dismissed in relation to all claims of 750 Service Centre.
[11] 750 Service Centre does not appear as a plaintiff in the amended pleading delivered in July 2012. The claims asserted in the July 2012 pleading are personal claims. In light of the October 2011 consent order, they could not be anything other than personal claims.
[12] In April 2015, Master MacLeod (as he then was), as the Registrar in Bankruptcy, made the following order upon which the plaintiffs rely in this proceeding:
- THIS COURT ORDERS nunc pro tunc under section 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, granting leave to the Moving Parties [Asim Rafi Syed and Bilquees Fatima], a creditor of the Bankrupt corporation 750 Service Centre Oasis Point Inc. (“the Bankrupt”), to continue to prosecute proceedings in his own name and his own expense and risk against Daljit Nirman and Nirman Law Professional Corporation, for indemnity of the Bankrupt’s claim for damages for breach of contractual obligation and professional negligence.”
[13] In December 2015, the plaintiffs delivered a further “fresh as amended” pleading. Paragraph 1(iii) of the claim now reads “$1,900,000.00 in damages for the loss of investments and loss of income.” The addition of the words “of investments” is the only change made to the July 2012 pleading.
[14] The addition of the words “of investments” to the pleading does not transform claims that, on their face, are personal, into claims on behalf of the corporation. I agree with the defendants that if the plaintiffs wished to rely on s. 38 of the BIA and the April 2015 order made by Master MacLeod (as he then was), more was required by way of amendment. A defendant is entitled to know the case it has to meet, including which claims are being asserted by which claimant. In this case, there was no attempt by the plaintiffs to incorporate or rely upon the April 2015 order.
Section 38 of the BIA Does Not Assist the Plaintiffs
[15] Even if I am incorrect in my conclusion, and no amendment to the pleading was required, in my view, s. 38 of the BIA does not assist the plaintiffs. Section 38(1) of the BIA provides:
Where a creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct.
[16] The April 2015 order of Master MacLeod (as he then was), purports to have been made nunc pro tunc. In Canadian Imperial Bank of Commerce v. Green, a majority of the Supreme Court of Canada held that a court has no authority to make a nunc pro tunc order if the party did not seek such an order before the relevant limitation period expired (2015 SCC 60). The Supreme Court cited the Ontario Court of Appeal’s decision in Montego Forest Products Ltd., (Re) (1988), 37 O.R. (3d) 651, as an example where an order pursuant to s. 38 of the BIA was properly granted on a nunc pro tunc basis as the order was sought within the limitation period, but not obtained until after the limitation period had expired.
[17] The defendants have referred me to the Court of Appeal’s decision in Douglas v. Stan Fergusson Fuels Ltd., 2018 ONCA 192. On appeal, by way of alternate relief, the insurer requested an order under s. 38 of the BIA assigning the cause of action to the insurer on a nunc pro tunc basis. Although the majority’s conclusion that an order under s. 38 was not available to the insurer did not turn on Green, Hoy A.C.J.O. addressed Montego Forest Products and Green at para. 110:
Further, unlike the situation in Montego Forest Products, no request for an order pursuant to s. 38 was sought before the limitation period had expired. In fact, the first request for such an order was made almost seven years after the limitation period had expired. As a result, in the circumstances, Green also prevents this court from granting a nunc pro tunc order under s. 38 of the BIA.
[18] The decisions in Green, Montego Forest Products, and Douglas inform the correct interpretation of the April 2015 order in this case.
[19] Plaintiffs’ counsel argues that Douglas has no application to the case before me because the April 2015 order is already in existence. I disagree. The plaintiffs’ submission ignores the process by which the April 2015 order was obtained and the rights that can be acquired under s. 38 of the BIA.
[20] The defendants were not aware of the Syeds’ s. 38 motion at the time; they were not served with the motion materials, nor was there any requirement that they be served. A s. 38 motion is a proceeding between a trustee in bankruptcy and a creditor of the bankrupt (Shaw Estate v. Nicol Island Development Incorporated, 2009 ONCA 276, at paras. 43-44).
[21] The assignee under a s. 38 order acquires all the rights of the trustee; however, if the trustee has no cause of action, the creditor cannot bypass the trustee and claim something else (Bennett, Frank. Bennett on Bankruptcy, 20th ed. 2018, Toronto: LexisNexis, 2018, at pp.146-147, citing Indcondo Building Corp. v. Sloan, 2013 ONSC 4723). In this case, by the time the s. 38 order was obtained in April 2015, the claim of 750 Service Centre had been dismissed, on consent, for three and a half years. And, for reasons that I will come to, I have concluded that that claim was not commenced within the limitation period. In my view, there were no rights of the trustee to be acquired by the Syeds in April 2015.
[22] A further point: on the plaintiffs’ best argument, the limitation period began to run in November 2009 and therefore expired in November 2011. Yet the s. 38 order was not obtained until April 2015, three and a half years later. As in Douglas, no request for an order pursuant to s. 38 was sought before the limitation period had expired.
[23] In conclusion, although the April 2015 order purports to be nunc pro tunc, the court has no authority to make a nunc pro tunc order, including under s. 38 of the BIA, if the party did not seek such an order before the relevant limitation period expired. The limitation period intervened in this case long before the order was sought. In light of the authorities, I conclude that the April 2015 order can only “reach back” for a period of two years – the limitation period. It is of no assistance to the plaintiffs.
The Rule in Foss v. Harbottle Bars the Plaintiffs’ Claim for Loss of Investments and Income
[24] The plaintiffs are the two former shareholders of 750 Service Centre.
[25] The rule in Foss v. Harbottle provides that individual shareholders have no cause of action in law for any wrongs done to the corporation and that if an action is to be brought in respect of such losses, it must be brought either by the corporation itself or by way of a derivative action (Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, at pp. 211-12).
[26] While the rule in Foss v. Harbottle has been substantially diluted by the enactment of the derivative action and oppression action provisions of Ontario’s Business Corporations Act, there is no suggestion that these provisions have application to this case. Section 38 of the BIA also serves as an exception to the rule in Foss v. Harbottle; however, I have determined that s. 38 does not assist the plaintiffs.
[27] The plaintiffs’ claim for general damages is a personal claim. The claims for loss of investments and loss of income are asserted personally by the plaintiffs as shareholders of 750 Service Centre. These claims derive from alleged wrongs to the corporation and seek recovery of losses alleged to have been suffered by the corporation. The rule in Foss v. Harbottle applies. The claims for loss of investments and loss of income are dismissed.
The Limitations Act, 2002 Bars the Plaintiffs’ Action
[28] I also dismiss the plaintiffs’ action on the basis that it is barred by the Limitations Act, 2002.
[29] The transaction closed in January 2008. On April 8, 2008, the Syeds contacted the TSSA to obtain a new permit. It was at that time that they learned of the TSSA work order against the property. I find that in May 2008, Mr. Nirman spoke with Ahsan Syed and advised him that because he, Mr. Nirman, had not updated the TSSA report, the Syeds could have a claim against him. He recommended that they seek independent legal advice.
[30] Ahsan Syed met with lawyer John Smith (recommended by Mr. Nirman) on May 29, 2008. Mr. Smith was cross-examined in 2011. On cross-examination, Mr. Smith confirmed that he told Ahsan Syed that he, Mr. Smith, had previously advised Mr. Nirman to report a potential claim to his insurer and that if Ahsan Syed were to sue Mr. Nirman, Mr. Smith could not represent him. Mr. Smith also stated that Ahsan Syed told him that he would keep open the option of suing Mr. Nirman if he could not obtain any recourse against the vendor.
[31] On June 6, 2008, Mr. Smith sent the plaintiffs a letter summarizing the discussion and outlining his opinion. The letter referred to the fact that Mr. Nirman had previously sought Mr. Smith’s advice with respect to the question of a potential claim against him for his alleged failure to update the TSSA search and that Mr. Smith had so advised Ahsan Syed. The letter summarized that Ahsan Syed had advised Mr. Smith, as well as Mr. Nirman, that the Syeds had no intention of advancing a claim against Mr. Nirman, “but would not foreclose the possibility of doing so in the event that you did not obtain satisfactory recourse against the vendor.”
[32] Mr. Smith’s letter also stated:
There is a two-year limitation period in which to commence a contract or tort claim, which runs from the date the facts upon which your claim is based are discovered. You discovered the facts sometime after the transaction closed in early April this year. You would therefore have until say March 31, 2010 to safely commence an action.
[33] Asim Syed denies that Mr. Smith provided advice concerning the potential claim against Mr. Nirman. Asim Syed denies seeing Mr. Smith’s June 6, 2008 letter, and a follow up letter of October 6, 2008, before his cross-examination in 2011.
[34] Asim Syed was questioned twice about the meeting with Mr. Smith: first in 2011 and again, in 2016. When he was first examined, he claimed to have never spoken with Mr. Smith. In 2016, he stated that he had spoken and met with Mr. Smith several times, and claimed that both he and his brother had met with Mr. Smith in 2008.
[35] With respect to Asim Syed’s dealings, or lack thereof, with Mr. Smith, and when Asim Syed first saw the June 6, 2008 letter, I do not find Asim Syed to be a credible witness. His accounts are contradictory. His evidence that he did not see the June 6, 2008 letter until 2011 is simply not credible: both letters were sent to the correct address where the Syeds lived together. Neither letter was returned to sender. The letters were included in the plaintiffs’ productions.
[36] I accept Mr. Smith’s evidence as to his meeting with Ahsan Syed and the advice he provided on that occasion.
[37] The plaintiffs take the position that it was not until they met with another lawyer – Colleen Hoey – in November 2009 that they learned of Mr. Nirman’s “professional negligence.” The plaintiffs rely on s. 5(1) of the Limitations Act, 2002 which provides:
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 plaintiffs rely in particular on clause (a)(iv).
[39] As the defendants point out, the plaintiffs have failed to disclose what facts relevant to their claim they discovered only in November 2009. Hryniak v. Mauldin does not displace the “best foot forward” principle; to the contrary, the court is entitled to assume that the parties have placed before it all of the evidence that will be available at trial (2014 SCC 7). The evidence I have accepted in this case compels the conclusion that the plaintiffs’ claim was discovered no later than May, 2008, when Ahsan Syed met with Mr. Smith.
[40] The plaintiffs seize on the statement in the June 6, 2008 letter – that they would not foreclose the possibility of commencing an action against Mr. Nirman in the event that they did not obtain satisfactory recourse against the vendor – as postponing the date on which the claim was discovered. Indeed, in oral argument, counsel for the plaintiffs went so far as to suggest that the limitation period has not yet started to run as the plaintiffs’ claim against the vendor has not been resolved.
[41] I reject the plaintiffs’ argument. The plaintiffs’ position would leave the determination of when a proceeding would be an appropriate means to seek a remedy entirely with the plaintiff. This is not the law. As Sharpe J.A. explained in Markel Insurance Company of Canada v. ING Insurance Company of Canada, 2012 ONCA 218, at para. 34, the word “appropriate” in s. 5(1)(a)(iv) means legally appropriate:
To give “appropriate” an evaluative gloss, allowing a party to delay the commencement of proceedings for some tactical or other reason beyond two years from the date the claim is fully ripened and requiring the court to assess to tone [sic] and tenor of communications in search of a clear denial would, in my opinion, inject an unacceptable element of uncertainty into the law of limitation of actions.
[42] When an action is “appropriate” within the meaning of s. 5(1)(a)(iv) of the Limitations Act, 2002 depends on the specific factual or statutory setting of each individual case (407 ETR Concession Company Limited v. Day, 2016 ONCA 709, at paras. 33-34). I recognize that this element can have the effect of postponing the start date of the two-year limitation period beyond the date when a plaintiff knows it has incurred a loss because of the defendant’s actions. Taking into account Mr. Nirman’s advice to Ahsan Syed in May 2008, the meeting with Mr. Smith in May 2008, the advice provided by Mr. Smith at that meeting, and Mr. Smith’s letter of June 6, 2008, I find that the plaintiffs’ claim was discovered in May 2008. The action was commenced in December 2010, beyond the two-year limitation period. The action is statute-barred.
Have the Plaintiffs Demonstrated that the Plaintiffs Caused Their Loss
[43] It is not necessary for me to deal with this issue as I have concluded that there is no genuine issue requiring a trial and that the plaintiffs’ action must be dismissed. I make the following brief comments as to the adequacy of the expert evidence tendered by the plaintiffs on the issues of standard of care and damages.
[44] The standard of care report is based solely on a review of the fresh as amended statement of claim and the July 17, 2007 TSSA report. The facts in the claim are assumed to be true for purposes of the report. Without more, the report would not have been of assistance to the court.
[45] The report on damages raises more serious concerns. Had a ruling been required, I would have excluded this document on the basis that it does not provide a valuation or an opinion; it is merely a recitation of information provided by Asim Syed.
Conclusion
[46] For these reasons, the defendants’ motion for summary judgment is granted. The plaintiffs’ claim is dismissed. The plaintiffs’ cross-motion is dismissed.
[47] The parties are encouraged to try to reach an agreement on costs of the motions, failing which they may make written submissions limited to a maximum of three pages, double-spaced, exclusive of a costs outline, within 30 days.
Madam Justice Robyn M. Ryan Bell
Released: August 3, 2018