Court File and Parties

COURT FILE NOS.: CV-14-10771-00CL, CV-14-10773-00CL, and CV-14-10774-00CL DATE: 20190405 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

CV-14-10771-00CL 1511419 Ontario Inc. (formerly known as The Cash Store Financial Services Inc.) Plaintiff – and – KPMG Defendant – AND – CV-14-10773-00CL 1511419 Ontario Inc. (formerly known as The Cash Store Financial Services Inc.) Plaintiff – and – Canaccord Genuity Corp. Defendant – AND – CV-14-10774-00CL 1511419 Ontario Inc. (formerly known as The Cash Store Financial Services Inc.) Plaintiff – and – Cassels Brock & Blackwell LLP Defendant

COUNSEL: John Finnigan and Megan Keenberg, for the Plaintiff Gerry Ranking and Dylan Chochla, for the Defendant KPMG John Finnigan and Megan Keenberg, for the Plaintiff Patrick Flaherty and Bryan McLeese, for the Defendant Canaccord Genuity Corp. John Finnigan and Megan Keenberg, for the Plaintiff David Byers, Daniel S. Murdoch and Michael A. Currie, for the Defendant Cassels Brock & Blackwell LLP

HEARD: October 4, 5, 2018. Further written submissions received by December 14, 2018

Reasons for Decision

McEwen J.

[1] The defendants in all three actions, KPMG LLP (“KPMG”), Canaccord Genuity Corp. (“Canaccord”), and Cassels Brock & Blackwell LLP (“Cassels”), (collectively “the Defendants”) bring motions for summary judgment to dismiss the actions based on the expiry of the two year limitation period contained in the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, ss. 4 and 5.

[2] The plaintiff 1511419 Ontario Inc. (formerly known as the Cash Store Financial Services Inc.) (“Cash Store”) has sued KPMG, who was Cash Store’s long-standing auditor; Canaccord, who acted as Cash Store’s financial advisor; and Cassels, who provided legal services to Cash Store. The lawsuits all relate to professional services provided to Cash Store by the Defendants with respect to a loan purchase and note offering (the “January 2012 Transaction”).

[3] The Defendants submit that, since the January 2012 Transaction closed on January 31, 2012, and that the actions were not commenced until November 27, 2014, they are statute barred pursuant to the provisions of the Limitations Act. The actions were commenced almost ten months outside the mandated two year period.

Short Answer

[4] For the reasons below, I dismiss the motions for summary judgment. In my view, there are genuine issues requiring a trial concerning the issue as to whether the three actions are statute barred.

[5] The three actions involve a complex fact pattern, which includes:

• A scheme orchestrated and acknowledged by Cash Store wherein its management sought to maximize profits with its third party lenders (the “TPLs”) by circumventing payday lending laws. The scheme was concealed from payday borrowers and regulators.
• The complicated January 2012 Transaction, where Cash Store completed a note offering issuing $132.5 million in senior secured notes and used approximately $116 million of the proceeds to acquire the loan portfolio held by the TPLs.
• The professional assistance provided by the Defendants with respect to the January 2012 Transaction.
• Ongoing professional services provided by KPMG and Cassels subsequent to the closing of the January 2012 Transaction.
• Subsequent allegations of professional negligence against the Defendants.
• The subsequent CCAA proceeding in which Cash Store was granted CCAA protection pursuant to the Amended and Restated Initial Order of Morawetz R.S.J. dated April 15, 2014.
• A subsequent decision by Morawetz R.S.J. released on August 5, 2014 wherein he held that the practice that had been developed between Cash Store and its TPLs differed substantially from that which was documented and represented to the public: Cash Store Financial Services (Re), 2014 ONSC 4326, 31 B.L.R. (5th) 313.
• The subsequent appointment of the Chief Restructuring Officer and Litigation Trustee by Morawetz R.S.J. as well as Litigation Counsel to pursue claims on Cash Store’s behalf.

[6] Based on the limited, yet voluminous, record (as described below) presented at the motion and the complexity of the subject matter, I have come to the conclusion that the summary judgment process does not allow for the necessary fulsome analysis required to determine the limitation period issue. It would, therefore, be inappropriate to do so in circumstances that would not lead to a fair process and just adjudication.

Overview

[7] Between 2002 and 2014, Cash Store was a publicly incorporated company in Ontario. It was listed on the Toronto Stock Exchange and the New York Stock Exchange. Cash Store operated a payday lending business across Canada. Cash Store purported to arrange payday loans for its customers funded, ostensibly, by the TPLs.

[8] KPMG was Cash Store’s auditor from 2002 to December 2014. Cassels acted as Cash Store’s counsel from 2002 until May 2014. Canaccord was Cash Store’s financial advisor from 2009 to 2012.

[9] With the assistance of the Defendants, acting in their professional capacities, Cash Store entered into the January 2012 Transaction with its TPLs wherein it acquired their loan portfolio in exchange for $116 million. The fair market value of the loan portfolio, it was ultimately discovered, was far less than the amount paid.

[10] Internal Cash Store documentation demonstrates that Cash Store knew within a few months of the January 2012 Transaction that its valuation of the purchased loan portfolio had dropped significantly. Cash Store’s interim financial statements for Q1, Q2, and Q3 also reflect that the initial valuation of the loan portfolio was inflated and the value of the loan portfolio had to be adjusted downward.

[11] After the January 2012 Transaction closed, Cash Store also received three letters that, generally speaking, alleged that Cash Store was conducting its business in violation of the applicable lending laws and that Cash Store was inappropriately conducting its financial reporting and public disclosures. The first two letters were sent by VWK Management Inc. (“VWK”) on January 17, 2012 (the “January 2012 VWK Letter) and August 27, 2012 (the “August 2012 VWK Letter”). [^1] The August 2012 VWK Letter challenged the sufficiency of Cash Store’s disclosure concerning the acquisition of the loan portfolio from its TPLs, the valuation of the loan portfolio, and the relationship between Cash Store and its TPLs. It further alleged that Cash Store had been masking the true extent of its loan losses. The third letter was sent by Clearwater Management Inc. (“Clearwater”) on November 6, 2012 (the “Clearwater Letter”). [^2]

[12] With respect to the January 2012 VWK Letter, Cash Store provided it to Cassels and Canaccord for review. Those Defendants advised Cash Store to dismiss VWK’s complaints. Cash Store did so by way of letter.

[13] Thereafter, it appears Canaccord had little or no involvement with Cash Store. However, KMPG and Cassels continued to act as Cash Store’s professional advisors until it filed for CCAA protection in April 2014. KPMG also received copies of the August 2012 VWK Letter and the Clearwater Letter. [^3] Cassels reviewed the August 2012 VWK Letter with the Board.

[14] During this time period Cash Store also released its interim financial statements for Q1, Q2, and Q3 of 2012 which, in each iteration, reduced the fair value of the loan portfolio.

[15] In July 2012, Craig Warnock joined Cash Store as its CFO and began to review the problems with the value of the loan portfolio. Cash Store met with KPMG to discuss the aforementioned three letters. In the November 15, 2012 meeting, Al Mondor, a director of Cash Store’s Audit Committee, advised KPMG that Cash Store would be conducting an internal investigation of the circumstances surrounding the January 2012 Transaction.

[16] In November 2012, Cash Store realized that it would likely have to restate its 2012 Q2 and Q3 financial statements.

[17] KPMG assisted with the Audit Committee’s investigation up until November 2012.

[18] In December 2012, a Special Committee was formed, which was made up of independent directors on the Audit Committee, to conduct a special investigation into the allegations that had been made surrounding the January 2012 Transaction. Torys LLP and Deloitte & Touche (“Deloitte”) were retained to assist in the investigation. As noted, Cassels and KPMG continued to act on behalf of Cash Store.

[19] In May 2013, Deloitte delivered a report to Cash Store’s Special Committee identifying problems with the January 2012 Transaction, particularly with respect to one of the TPLs.

[20] On April 15, 2014, Cash Store was granted CCAA protection by way of order granted by Morawetz R.S.J.

[21] On the same day BlueTree Advisors Inc. was appointed as Chief Restructuring Officer of Cash Store (the “CRO”). Later, by way of order dated November 19, 2015, BlueTree Advisors III Inc. was appointed as Cash Store’s Litigation Trustee. William Aziz is the President of both BlueTree entities (collectively “BlueTree”).

[22] Subsequent to the CCAA proceedings, certain TPLs brought a motion on the Commercial List for a declaration that any loans made by them were brokered by Cash Store and, in fact, owned by the TPLs, therefore making them free of any claims against Cash Store by its creditors.

[23] Morawetz R.S.J. released his decision on August 5, 2014. He held that the TPLs were not lending the money directly to the customers but were rather advancing funds to Cash Store, which was lending the money to the ultimate consumer. Morawetz R.S.J. then noted that the practice differed substantially from what was documented between the TPLs and Cash Store.

[24] On November 27, 2014, Cash Store commenced its four separate actions, each claiming damages of $300 million against its former directors and officers (the “Ds&Os”), KPMG, Canaccord, and Cassels.

[25] The Ds&Os’ action was settled in September 2015.

The Basis for Cash Store’s Claims Against the Defendants

Claim against KPMG

[26] Cash Store’s Fresh as Amended Statement of Claim is a lengthy document. Cash Store concedes (at para. 55) that its management’s goal was to maximize profits by circumventing the payday lending laws with the view to generating revenue in excess of the regulatory caps and to conceal the circumvention from its borrowers and the regulators.

[27] Cash Store, thereafter, does not blame KPMG for this admittedly improper business model. In brief, Cash Store claims that KPMG was negligent and breached its contract with Cash Store for failing to take reasonable steps to understand Cash Store’s business practices and its arrangements with the TPLs to ensure that Cash Store’s financial statements were accurate. It takes particular issue with the 2011 and 2012 audits.

Claim against Canaccord

[28] In a nutshell, Cash Store’s claim against Canaccord arises out of claims of breach of contract, gross negligence, and breach of duty. Generally speaking, Cash Store alleges that Canaccord, as Cash Store’s financial advisor concerning the January 2012 Transaction, failed to take all reasonable steps to properly understand Cash Store’s business arrangements with the lenders and erroneously concluded that the January 2012 Transaction was fair from a financial point of view for Cash Store’s shareholders. In this regard, Cash Store claims that it reasonably relied upon Canaccord’s fairness opinion.

Claim against Cassels

[29] In this action, in brief, Cash Store alleges that Cassels negligently permitted Cash Store to misdescribe its business affairs in its public disclosure and that it breached its fiduciary duty to Cash Store. Cash Store claims that Cassels provided negligent or improper advice about:

• Its compliance with applicable payday loan legislation and public disclosures.
• Its arrangements with TPLs and public disclosures relating to those arrangements.
• Its issuance of $132.5 million in senior secured notes with respect to the January 2012 Transaction.

Layered into allegations against Cassels is the fact that one of its partners, Paul Stein, was the principal of one of the TPLs and had actual knowledge of the way Cash Store dealt with the lenders.

Position of the Defendants on this Motion

[30] The Defendants, as a group, take certain common positions. Each of the Defendants also has their own unique facts that they rely upon in support of the motion to dismiss.

The Common Defences

[31] The actions were commenced approximately two years and ten months after the completion of the January 2012 Transaction.

[32] The Defendants collectively submit that the claims are out of time for the following reasons:

• Cash Store admits that all of the Defendants’ impugned conduct occurred prior to November 27, 2012 (more than two years before the Notice of Actions were issued).
• Internal Cash Store documentation confirms that Cash Store knew, or ought to have known, within a few months of the January 2012 Transaction that its valuation of the loan portfolio was grossly inflated and had dropped significantly.
• Cash Store’s own interim financial statements for Q1, Q2, and Q3 reflect the fact that the initial valuation of the loan portfolio was grossly inflated and the fair value of the loan portfolio had to be adjusted downward. The Q2 and Q3 financial statements were revised within two years of the January 2012 Transaction.
• Cash Store’s Board received the aforementioned letters from VWK and Clearwater, which raised allegations similar to those being raised in the litigation against the Defendants, on January 17, 2012, August 27, 2012, and November 6, 2012, respectively. All of these were received within two years of the January 2012 Transaction.
• The Defendants also take significant issue with the fact that Cash Store has not adduced any evidence on behalf of the Ds&Os who were involved in the January 2012 Transaction and thereafter during the time the limitation period ran prior to the commencement of the actions. Instead, Cash Store relies upon the affidavit of Mr. Aziz which is largely comprised of a paper review and the affidavit of Susan Mendoza, an executive assistant to the CFO of Cash Store from September 2010 to May 2013. Ms. Mendoza also acted as the secretary for the meetings of the Board of Directors and the Audit Committee of Cash Store. Her evidence concerns her attendance at Board and Audit Committee meetings and her preparation of the Minutes, which were relied upon by Mr. Aziz in his document review.

[33] The Defendants, therefore, submit that Cash Store knew from the outset, in part due to its own business model, that the loan portfolio was overvalued. Further, they submit that by the time Cash Store released its Q1, Q2, and Q3 statements, respectively, on February 8, May 10, and August 13, 2012, it publicly recognized that it had paid far too much for the loan portfolio. Alternatively, at the very latest, it knew or should have known at the latest by the time the August 2012 VWK Letter was sent to the Board from VWK. They further submit that Cash Store, in failing to adduce evidence from former Ds&Os, has failed to put its best foot forward on this motion and rebut the presumption in s. 5(2) of the Limitations Act.

[34] As a result, the Defendants submit that Cash Store (or alternatively a reasonable person with the abilities of Cash Store and in the circumstances of Cash Store) ought to have known of its claim against them within the two limitation period.

Additional Individual Defences of Canaccord and Cassels

[35] Canaccord submits that subsequent to the January 2012 Transaction closing it had no further involvement of any kind with Cash Store. Cassels submits that its partner, Mr. Stein, who was also a principal of one of Cash Store’s TPLs, FSC Abel Financial Inc., had no dealings with Cash Store subsequent to the January 2012 Transaction closing and/or Cash Store’s directing minds knew at the time of the loan and thereafter that Mr. Stein was a principal of FSC Abel, which provided a loan to Cash Store, and that Mr. Stein also provided advice in respect of the January 2012 Transaction. Cassels, like Canaccord, therefore, submits there is no evidence to point to an act or omission after the January 2012 Transaction closed, which is outside the two year limitation period.

Position of Cash Store on this Motion

[36] Cash Store raises a number of defences to the motion, primarily as set out below.

[37] First, Cash Store submits that the Defendants have advanced their motions on a very narrow record essentially relying upon the aforementioned correspondence from VWK and Clearwater as well as Cash Store’s interim financial statements for Q1, Q2, and Q3, 2012. Cash Store points to the fact that neither Cassels nor Canaccord have produced any affidavit evidence with respect to the circumstances surrounding their involvement with Cash Store that led to the actions being commenced against them. In essence, Cash Store submits that none of the Defendants have met their onus to demonstrate that there is no genuine issue requiring a trial, since they rely upon the single affidavit filed by KPMG, which does not tender any firsthand evidence. Cash Store further submits that KPMG’s affiant, Natalie Feldman, actually supports the evidence of Mr. Aziz and Ms. Mendoza.

[38] Second, Cash Store also points to the fact that Canaccord and Cassels assisted Cash Store in responding to the January 2012 VWK Letter. Further, KPMG and Cassels, as noted, continued to provide assistance to Cash Store and acted as their professional advisors throughout the relevant limitation period timeframe.

[39] Third, Cash Store further relies upon Mr. Aziz’s review of the Minutes of the Board and Audit Committee meetings, prepared by Ms. Mendoza. Cash Store submits that Mr. Aziz’s review of the Minutes demonstrates that Cash Store was not aware of potential claims against the Defendants prior to the Board being replaced by the CRO. Cash Store also relies upon the fact that the Board, prior to it being replaced, acted in a fashion that was consistent with it not having knowledge of the claims against the Defendants, particularly in circumstances where it continued on with the retainers of KPMG and Cassels.

The Law

[40] Section 5 of the Limitations Act deals with the discovery of claims and provides, in part, as follows:

Discovery

5 (1) 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).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[41] The parties agree that the two year limitation period set out in the Limitations Act applies.

The Process on a Summary Judgment Motion Concerning a Limitation Period

[42] On a summary judgment motion under Rule 20 of the Rules of Civil Procedure, the court is only to grant summary judgment if it satisfied that there is no genuine issue requiring a trial: Rule 20.04(2)(a).

[43] In deciding this matter I am mindful of the fact that Rule 20 was amended to broaden the court’s jurisdiction to grant summary judgment.

[44] This change, which was endorsed by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, provides this court with enhanced fact-finding powers and the discretion and flexibility in deciding the appropriate course of action.

[45] The court, however, went on to state at para. 68:

While summary judgment must be granted if there is no genuine issue requiring a trial, the decision to use either the expanded fact-finding powers or to call oral evidence is discretionary. The discretionary nature of this power gives the judge some flexibility in deciding the appropriate course of action. This discretion can act as a safety valve in cases where the use of such powers would clearly be inappropriate. There is always the risk that clearly unmeritorious motions for summary judgment could be abused and used tactically to add time and expense. In such cases, the motion judge may choose to decline to exercise her discretion to use those powers and dismiss the motion for summary judgment, without engaging in the full inquiry delineated above.

[46] Following the decision in Hryniak, not surprisingly, there has been a great deal of comment and opinion as to how far the courts should go in utilizing the discretionary nature of the powers set out in Rule 20.04.

[47] The proper course for a motions judge where a limitations issue is raised was discussed by the Court of Appeal in Collins v. Cortez, 2014 ONCA 685, 39 C.C.L.I. (5th) 1:

11 The proper course for a summary judgment court in determining a motion based on a limitations defence is set out in Huang, following the approach mandated by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7. The court must consider the evidence in the motion record to determine whether there is a genuine issue requiring a trial, and, if so, determine whether it is in the interest of justice to use the enhanced powers under rules 20.04(2.1) and (2.2) to determine the issue without a trial.

13 The respondent asserts that, even if the evidence on the motion were considered, it is insufficient to meet the requirements of s. 5(1) of the Limitations Act, 2002. However, at this stage the question is whether there is a genuine issue respecting discoverability requiring a trial, and not whether the limitations defence is sure to fail. In my view, the evidence of the appellant, which was not contradicted, reveals such an issue. Indeed, the motion judge observed that the date when the appellant's claim was discovered was “less than clear”.

[48] “A full trial will still be required where a summary record cannot fairly be used to decide legal issues that are unsettled, complex, or intertwined with the facts”: Mew J., Debra Rolph & Daniel Zacks, The Law of Limitations, 3d ed. (Markham: LexisNexis Canada, 2016), at s. 5.36.

[49] As the Court of Appeal has recently noted, discoverability cases tend to be contentious and complex. This can affect their suitability for summary judgment, particularly so in claims brought by clients against their professional advisors: Mega International Commercial Bank (Canada) v. Yung, 2018 ONCA 429, 141 O.R. (3d) 81, at paras. 80, 88-89; Presidential MSH Corp. v. Marr, Foster & Co. LLP, 2017 ONCA 325, 135 O.R. (3d) 321, at para. 26.

[50] Recently, in the Court of Appeal’s decision in Mason v. Perras Mongenais, 2018 ONCA 978, Nordheimer J.A. noted that “nothing in Hryniak detracts from the overriding principle that summary judgment is only appropriate where it leads to a ‘fair process and just adjudication’”: Mason, at para. 44; Hryniak, at para. 33.

[51] Nordheimer J.A. concluded by stating that there is nothing in Hryniak that suggested trials be viewed as the resolution option of last resort.

[52] The process that a motion judge is required to follow on a summary judgment motion concerning a limitation period is described in Nasr Hospitality Services Inc. v. Intact Insurance, 2018 ONCA 725, 142 O.R. (3d) 561:

34 In order for a motion judge to grant summary judgment dismissing a plaintiff's action or, as occurred in the present case, to grant a declaration about when the limitation period began to run, the judge is required make certain necessary findings of fact. Those necessary findings of fact concern one presumption and two dates, as set out in ss. 5(1)(a), 5(1)(b) and 5(2) of the Act ….

35 Accordingly, a typical summary judgment motion involving the basic limitation period requires the judge to determine whether the record enables making a series of findings of fact, with the certainty required by Hryniak, on the following matters: (i) the date the plaintiff is presumed to know the matters listed in ss. 5(1)(a)(i)-(iv) — namely, the day on which the act or omission on which the claim is based occurred; (ii) the date of actual knowledge under s. 5(1)(a), in the event the evidence proves the contrary of the presumptive date; (iii) the s. 5(1)(b) objective knowledge date, based on the reasonable person with similar abilities and circumstances analysis; and (iv) finally, which of the actual knowledge and objective knowledge dates is earlier, for that will be [the] day on which the plaintiff discovered the claim for purposes of applying the basic limitation period of two years.

39 I would simply reiterate that granting summary judgment dismissing an action as statute-barred, or declaring when a claim was discovered, requires making specific findings of fact. Assumptions about the matters in ss. 5(1) and (2) of the Act are not analytical substitutes for findings of fact. If the record does not enable the summary judgment motion judge to make those findings with the certainty required by Hryniak, then a genuine issue requiring a trial may exist.

[53] According to Nasr, the motion judge must initially consider whether the evidence proves the contrary of the presumptive date of the plaintiff’s knowledge. To rebut this presumption contained in s. 5(2) on a summary judgment motion, the plaintiff must lead evidence to displace the statutory presumption of the date on which he discovered his claim: Bergen v. Fast Estate, 2018 ONCA 484, 30 M.V.R. (7th) 49, at para. 10; Galota v. Festival Hall Developments Ltd., 2016 ONCA 585, 133 O.R. (3d) 35, at para. 15; Hawthorne v. Markham Stouffville Hospital, 2016 ONCA 10, at para. 8.

[54] To rebut this presumption, the plaintiff is not required to show due diligence. Rather, the plaintiff only needs to prove that he did that he did not know about one of the matters in s. 5(1)(a)(i) through (iv) on the date that the injury, loss, or damage occurred: Fennell v. Deol, 2016 ONCA 249, 97 M.V.R. (6th) 1, at para. 26.

[55] The next step in a summary judgment motion involves an inquiry into whether the record enables making a finding of fact on the date of the plaintiff’s actual knowledge under s. 5(1)(a): Nasr, at para. 35.

[56] A motion judge may not make an assumption as to when a plaintiff first knew of the matters in ss. 5(1)(a)(i) through (iv). If the record does not enable the motion judge to make findings of fact “with the certainty required by Hryniak, then a genuine issue requiring a trial may exist”: Nasr, at para. 39.

[57] If both parties agree on the subjective date that the plaintiff first knew about the matters in ss. 5(1)(a)(i) through (iv), that agreement can constitute an admission of fact that enables a motion judge to make a finding of fact: Nasr, at para. 40.

[58] The next step in Nasr requires the motion judge to consider whether the record enables a finding on the s. 5(1)(b) objective knowledge date. Due diligence forms part of the evaluation in s. 5(1)(b). In deciding when a person in the plaintiff’s circumstances and with his abilities ought reasonably to have discovered the elements of the claim, it is relevant to consider what reasonable steps the plaintiff ought to have taken: Fennell, at para. 24.

[59] Based on the above case law, due diligence forms a part of the analysis under s. 5(1)(b). It does not impact the s. 5(1)(a) analysis, which only considers actual knowledge. Cash Store is not required to demonstrate due diligence to rebut the s. 5(2) presumption.

[60] I have accordingly focused my analysis for s. 5(1)(a) on the evidence regarding Cash Store’s actual knowledge about the matters contained in ss. 5(1)(a)(i) through (iv). For the s. 5(1)(b) analysis, I have focused on the evidence regarding the day on which a reasonable person with the abilities and in the circumstances of Cash Store, exercising due diligence, first ought to have known of the matters in ss. 5(1)(a)(i) through (iv).

[61] I accept the Defendants’ argument that given the obvious presumption contained in s. 5(2) of the Limitations Act, Cash Store has an obligation to put its “best foot forward” in response to a motion for summary judgment based on the provisions of s. 5 of the Limitations Act.

Positions of the Parties on the Interpretation of the Limitations Act

[62] The parties have very different views as to how the provisions of s. 5 of the Limitations Act should be interpreted.

[63] The Defendants generally submit that Cash Store had a requirement to act with due diligence to investigate and acquire facts to determine if it had a claim against the Defendants.

[64] The Defendants further submit that the presumption contained in s. 5(2) of the Limitations Act is of fundamental importance in this case.

[65] The Defendants cited numerous cases where there was an ample evidentiary record that permitted the motion judge to grant summary judgment, and the Court of Appeal upheld those decisions: Chernet v. RBC General Insurance Co., 2017 ONCA 337, 11 M.V.R. (7th) 1; Tim Ludwig Professional Corp. v. BDO Canada LLP, 2017 ONCA 292, 137 O.R. (3d) 570; Mazza v. Ornge Corporate Services Inc., 2016 ONCA 753, 62 B.L.R. (5th) 211; Northern Industrial Services Group Inc. v. Duguay, 2016 ONCA 539.

[66] Cash Store, on the other hand, submits that it must only establish that its Board did not have actual knowledge of the claims against the Defendants and that the Defendants’ focus on Cash Store’s lack of due diligence is misplaced. Cash Store further argues that its Board would not have approved and publicly released its 2012 audited financial statements on December 28, 2012 if it had known that the statements were materially misstated, that the defendants had been negligent, and that commencing a claim against the defendants was appropriate. Cash Store stresses that it could not have reasonably known about these matters, in part at least, due to the assistance rendered by the Defendants after the January 2012 Transaction.

Analysis

[67] The motion for summary judgment was very capably argued by counsel. I appreciate the Defendants’ collective desire to deal with the limitation period issues summarily and end the prospect of protracted and expensive litigation. In my view, however, for the reasons that follow, the evidence in the record satisfies me that there is a genuine issue respecting discoverability that requires a trial in all three of the actions. The case is too complicated to be dealt with summarily based on the limited record that was put before me and likely on any written record.

[68] Before I deal with certain discrete issues it bears noting that the parties filed approximately 13 separate briefs with the court (not including facta, case briefs, and subsequent written argument). The record exceeded 1,500 pages containing dozens of exhibits. KPMG filed a 13 page chronology that included 67 significant events that it wished to bring to my attention. There are also obvious underlining contentious issues that have to be considered. These include the nature of Cash Store’s business model, the appropriateness of the January 2012 Transaction, the knowledge of the various Board members and officers of Cash Store during the relevant timeframe, and the professional roles played by the Defendants before, during, and after the January 2012 Transaction.

[69] Despite the above, as noted, limited affidavit evidence was filed:

• Cash Store filed an affidavit on behalf of Mr. Aziz, who is directing the litigation, as well as an affidavit of Ms. Mendoza. As noted, Ms. Mendoza served as the executive assistant to the Chief Financial Officer of Cash Store during the relevant time period. Ms. Mendoza has deposed that she attended all of the relevant corporate meetings for the purposes of taking notes and preparing the Minutes. As set out in Mr. Aziz’s affidavit, the Minutes do not contain any information to suggest that the Cash Store Board knew about the matters referred to in s. 5(1)(a) of the Limitations Act prior to November 27, 2012. None of the Defendants examined any of the Board members.
• KPMG filed an affidavit prepared by Ms. Feldman, a Senior Manager, Audit at KPMG. Ms. Feldman also attended the Cash Store meetings. Her affidavit largely consists of a review of documentation with little firsthand information. Neither Canaccord nor Cassels filed any affidavit evidence touching upon the issues in dispute other than filing certain limited documentation without comment.

[70] No party filed affidavit evidence from anyone directly involved in the January 2012 Transaction. As I will describe below this has led to my having difficulty understanding the context of the relationships between Cash Store and the Defendants.

[71] According to Nasr, at para. 35, I must determine whether the record enables making a series of findings of fact, with the certainty required by Hryniak, on the following matters:

(i) the date the plaintiff is presumed to know the matters listed in ss. 5(1)(a)(i)-(iv) — namely, the day on which the act or omission on which the claim is based occurred;

(ii) the date of actual knowledge under s. 5(1)(a), in the event the evidence proves the contrary of the presumptive date;

(iii) the s. 5(1)(b) objective knowledge date, based on the reasonable person with similar abilities and circumstances analysis; and

(iv) which of the actual knowledge and objective knowledge dates is earlier, for that will be day on which the plaintiff discovered the claim for purposes of applying the basic limitation period of two years.

[72] The record enables me to find that the day on which the act or omission on which the claim is based is January 31, 2012, the day of the closing of the January 2012 Transaction. If I am mistaken, and the record does not permit this finding, I can nevertheless make such a finding through the agreement of all parties that the claim is based on the January 2012 Transaction. This agreement constitutes an admission of fact that enables me to make a finding of fact: Nasr, at para. 40.

[73] Thus, the presumption holds that Cash Store knew about the matters in ss. 5(1)(a)(i) through (iv) regarding its claim against the Defendants on January 31, 2012, which is the date of closing of the January 2012 Transaction. It is presumed that Cash Store knew that the damage had occurred, that the Defendants caused or contributed to the damage, and that a proceeding would be the appropriate means to remedy the damage on January 31, 2012.

[74] Nasr requires me to next consider whether the evidence in the record proves the contrary of the presumptive date of January 31, 2012. As previously noted, this requires Cash Store to prove that it did not know about one of the matters in ss. 5(1)(a)(i) through (iv) on January 31, 2012: Fennell, at para. 26. It does not need to demonstrate due diligence. Cash Store must lead evidence to displace this statutory presumption: Bergen, at para. 10; Hawthorne, at para. 8.

[75] After conducting the analysis under s. 5(1)(a), Nasr requires me to do a similar analysis under s. 5(1)(b).

[76] As noted, the Defendants proceeded with this motion on a limited record. Cash Store responded with a similarly limited record. Cash Store’s record discloses, however, based on the Board Minutes, that there is no indication that Cash Store had knowledge of a claim against the Defendants. The limited record further discloses, as mentioned above, that the Defendants continued to provide professional services to Cash Store. In these circumstances, I am not prepared to find that Cash Store has failed to put its best foot forward or that it has failed to discharge the presumption under s. 5(2) or any presumption with respect to s. 5(1)(b).

[77] As was the case in Mega, this is a complex case involving allegations of professional negligence.

[78] In attempting to complete the required analysis set out in Nasr, it is the limited nature of the record that precludes me from doing so. To paraphrase from the Court of Appeal decisions in Mason and Mega, discoverability cases tend to be contentious and complex and not necessarily suitable for summary judgment – particularly in cases involving professional negligence. Summary judgment should only be granted if the process was fair and just.

[79] The complicated fact pattern involving allegations of professional negligence in this case precludes me from concluding that it would be fair and just, on a limited record, to determine the issue of the limitation period in a case brought against professional advisors.

[80] In coming to this conclusion, there are specific issues raised at the motion that bear further discussion. I will now deal with each of those in turn.

Evidence Adduced by Cash Store

[81] The Defendants take significant issue with what they describe as the dearth of evidence put forth by Cash Store on the motion. They argue that Cash Store has failed to put its best foot forward.

[82] In particular, the Defendants take issue with the evidence adduced by Mr. Aziz, who has authorized this litigation.

[83] Primarily, the Defendants are critical of the fact that Mr. Aziz and BlueTree have no firsthand knowledge of the underlying facts, including Cash Store’s long-standing relationships with the Defendants, and that Mr. Aziz now seeks to maximize recoveries in the CCAA process.

[84] Mr. Aziz completed a review of the corporate records and concluded that no responsible fiduciary of Cash Store had discovered Cash Store’s claim against the Defendants.

[85] The Defendants are critical of this hindsight review by Mr. Aziz, particularly in the context in which he is the directing mind in these actions. They are also critical of the fact that he has chosen not to tender any firsthand evidence of the 13 former Cash Store managers, directors, and officers, all of whom he has interviewed.

[86] The Defendants submit that this was done since Mr. Aziz knew that they would not support his ex post facto re-characterization of events that were completely contrary to Cash Store’s long-standing business practices, which are admitted by Cash Store. On this basis alone the Defendants submit that Cash Store has failed to rebut the presumption.

[87] Such evidence in and of itself could ultimately prove to be insufficient at trial. In the context of this summary judgment motion, however, where the only opposing evidence I have is from Ms. Feldman, I simply do not have a suitable contextualized basis to analyze this issue.

[88] Further, I do not accept the Defendants’ submission that the “inescapable conclusion” is that Cash Store deliberately chose not to secure firsthand information knowing that the former Ds&Os would not support Cash Store’s position in the litigation. I accept Cash Store’s submission that the former Ds&Os who were involved in litigation may well be less than willing to participate in this litigation given active or potential securities commission investigations and that, in any event, the information provided may be tainted by self-interest. In this regard, it cannot be ignored that the Ds&Os have settled their litigation with Cash Store. Further, what if Cash Store tendered evidence from only two or three Board members? It would likely be criticized for not calling more. Last, the Defendants’ argument is also somewhat undermined by the limited record they filed.

[89] Myers J. granted KPMG the ability to interview Cash Store’s former directors without the court’s permission: 1511419 Ontario Inc. v. KPMG LLP, 2017 ONSC 2472, 47 C.B.R. (6th) 325. Even though Cash Store does bear the onus, none of the Defendants sought to examine or introduce evidence from any of the Ds&Os. As noted, the only affidavit evidence that the Defendants have put forth is that of Ms. Feldman, which is very limited in scope insofar as firsthand information is concerned.

[90] Without an understanding of the events surrounding and following the January 2012 Transaction from any of the involved persons, I am not prepared to determine the limitations issue.

The Board Minutes and Knowledge of the Board

[91] The Defendants dispute that the Minutes of the Board are in fact the “best evidence” of what the Board knew in or around the time of the January 2012 Transaction.

[92] They submit that a full meeting of the Board is not required for a corporation to acquire knowledge that it would otherwise obtain through its directing minds such as officers or directors: DBDC Spadina Ltd. v. Walton, 2018 ONCA 60, 419 D.L.R. (4th) 409, at paras. 59-60, leave to appeal to S.C.C. allowed, 2018 CarswellOnt 19181; Canadian Dredge and Dock Company Limited v. R., [1985] 1 S.C.R. 662, at pp. 679-685, 707-709, 713-714, and 717-718.

[93] They further go on to submit that it is also not clear what was recorded in the Board or Audit Committee Minutes, and overall the Minutes are not reliable.

[94] Cash Store responds by submitting that, as a matter of law, the directing mind of a public corporation is its board of directors, acting as a collective: Stern v. Imasco Ltd. (1999), 1 B.L.R. (3d) 198 (Ont. S.C.), at paras. 98-113.

[95] I do not propose to determine this dispute on this motion. I am prepared to accept that the Board Minutes are, at the very least, some evidence of what Cash Store knew at the relevant time periods.

[96] The problem faced by this court is exemplified by the Defendants’ submissions that the fact that the Litigation Trustee found no records analyzing claims against them does not mean that Cash Store did not have the material facts at its disposal to assess potential claims. The Defendants submit that the absence of documents could also be evidence of the fact that Cash Store did not assert claims because it knew that it had been responsible for its own difficulties and never thought that the Defendants were negligent. While this may be true, it demonstrates the conundrum that I have been placed in in trying to determine these alternative arguments on the record placed in front of me. This is an issue that is best determined at trial on a full record.

Cash Store’s Financial Statements

[97] One of Cash Store’s defences to this motion is that it could not have discovered its losses until its Board formally approved the restatement of its interim financial statements in December 2012.

[98] The Defendants take great exception to this submission, arguing that the public disclosure of Cash Store’s financial statements in Q1, Q2, and Q3 all showed significant losses.

[99] This dispute further evidences the difficulty faced by this court. Without context, by way of further information with respect to Cash Store’s knowledge and the role the Defendants played, particularly KPMG and Cassels, in advising Cash Store after the January 2012 Transaction, it is not possible to meaningfully analyze and resolve this dispute on this motion.

[100] The same goes with respect to the dispute between Cash Store and the Defendants concerning Cash Store’s allegations that it could not have discovered its claim until Deloitte and the Special Committee released their reports or until Morawetz R.S.J. released his decision in August 2014. The decision, amongst other things, re-characterized the legal relationship between Cash Store and the TPLs from one of broker-agent to debtor-creditor.

The Correspondence and the Assistance Rendered by the Defendants

[101] I am also not satisfied that the aforementioned letters that Cash Store received from VWK and Clearwater provide the necessary clarity that would permit me to make a finding of summary judgment.

[102] With respect to the aforementioned correspondence, upon which the Defendants put great emphasis, it cannot be ignored that these letters were received over a period of time, beginning in January 2012 up until November 6, 2012. All of these letters were obtained by Cash Store within the two year limitation period but it is very much a moving target on this motion as to which letter, if any, may have or should have engaged the limitation period. For example, if I focused on the Clearwater Letter of November 6, 2012, this letter was received mere weeks before the expiration of the two year limitation period. I would then have to engage a hypothetical exercise as to when the Board had the opportunity to meet and consider the letter. I am not prepared to engage in such a speculative exercise with respect to any of the correspondence based on the filed record. The documentations relied upon by the Defendants raise nuanced arguments as to what Cash Store should have taken from the aforementioned financial statements, public disclosures, and the correspondence. It is not possible to do this in a fair and just fashion based on the record placed before me.

[103] With respect to the ongoing roles of the Defendants, the January 2012 VWK Letter was provided to Cassels and Canaccord for their input. Mr. Stein circulated a draft response letter to Cash Store’s management and Canaccord on January 19, 2012. On the same day Daniel Daviau of Canaccord replied, stating that “do you say we understand you [Mr. Woollcombe] have been distributing the letter (CIBC has a copy somehow) and threaten to sue him for damage caused.”

[104] There are further emails from Canaccord to Gordon Reykdal, the chairman and CEO of Cash Store, offering advice on how to proceed against Mr. Woollcombe. These emails contain disparaging comments about Mr. Woollcombe. Canaccord suggests that threatening to sue Mr. Woollcombe or issuing him stocks might induce him to give up his short position.

[105] Mr. Stein attended the meeting of Cash Store’s Board on January 22, 2012, which was called to discuss the January 2012 VWK Letter. The Minutes of this meeting indicate that Mr. Stein was invited (along with US Legal Counsel) to provide legal advice on a response to the allegations contained in the January 2012 VWK Letter. The Minutes also indicate that after discussion with legal counsel, the Board made changes to the draft news release and approved it.

[106] According to the Special Committee’s Report of May 13, 2013, after the Board received the August 2012 VWK Letter, it reviewed the letter with Cassels. The report also notes that on receipt of the August 2012 VWK Letter, the Audit Committee discussed the matters referenced in the letter with management and with KPMG.

[107] On November 6, 2012, Mr. Keiper sent the Clearwater Letter to Don Matthew of KPMG. Mr. Matthew replied to Mr. Keiper acknowledging receipt of the Clearwater Letter on November 12, 2012, and stated that KPMG would be making Cash Store management aware of the contents of the letter without disclosing Mr. Keiper’s name.

[108] Mr. Matthew, Ms. Feldman, and James McAuley (also of KPMG) attended a meeting on November 15, 2012 with Mr. Mondor and Werner Pietrzyk, the Vice President of Cash Store’s Internal Audit group, to review the allegations raised in the Clearwater Letter. Mr. McAuley requested that KPMG be allowed to shadow the internal investigation, and Mr. Mondor agreed.

[109] Ms. Feldman and Mr. Matthew, along with Cassels lawyers Mr. Stein and Michael Brown attended the special meeting of the Audit Committee on November 27, 2012. Mr. Matthew provided a verbal report indicating that KPMG had not yet completed its audit work, but believed that there was support for the recommendation of management. Mr. Brown summarized securities law considerations regarding potential restatement or current period change of estimates.

[110] Also on November 27, 2012, Mr. Matthew sent an email to Ms. Feldman and Brad Owen (also of KPMG), stating that he had spoken with Mr. Mondor and that “the directors are going to engage another [chartered accounting] firm to assist [management] in putting together the position paper analyzing the accounting for the loan purchase”.

[111] According to the Special Committee’s Report of May 13, 2013, the recommendation to form the Special Committee was based on discussions with Cash Store’s legal advisor and KPMG. KPMG had strongly recommended that the Board consider forming the Special Committee to carry out the investigation to determine whether there were other undisclosed parties who may have been participants in the January 2012 Transaction. This report also indicates that the Special Committee consulted with KPMG on the terms of Deloitte’s engagement to conduct factual inquiries and prepare a report of its findings.

[112] All this brings me back to the issue of context. The Defendants have, as noted, brought their motion on the basis of a very limited record. No evidence has been filed from employees of the Defendants who were directly involved in the January 2012 Transaction. The only evidence is from Ms. Feldman. Cash Store has responded with the limited affidavit evidence of Mr. Aziz and Ms. Mendoza. It is not possible to meaningfully analyze the interplay between the correspondence and the ongoing assistance provided by the Defendants to determine the issues of discoverability.

Conclusion

[113] I cannot determine this matter in a fair and just manner by way of summary judgment. A review of the aforementioned affidavits and voluminous yet limited record do not provide the adequate context to determine the limitation period dispute. Particularly, I have no meaningful understanding as to the interaction between the parties in and around the time of the January 2012 Transaction that would assist me in determining the limitation issue. I also have no meaningful understanding of the assistance, or lack thereof, the Defendants rendered to Cash Store before, during, or after the January 2012 Transaction closed. The actions involve a complicated factual matrix involving professional negligence and a significant damages claim. In my view, the usual rule enunciated by Nordheimer J.A. in Mason should be followed. A full evidentiary record including viva voce evidence of the parties is required to achieve a fair and just result.

[114] I find that there is a genuine issue requiring a trial with respect to the issue of discoverability in each action.

Disposition

[115] The motions for summary judgment are therefore dismissed. If the parties cannot resolve the issue of costs they can arrange a 9:30 am appointment before me to discuss further steps. I am also prepared to discuss case management with the parties at a further 9:30 am appointment.

McEwen J. Released: April 5, 2019

Footnotes

[^1]: Michael Woollcombe, President of VWK, wrote both of these letters. [^2]: Roland Keiper, President of Clearwater, wrote the Clearwater Letter. [^3]: For further analysis, see the section titled “The Correspondence and Assistance Rendered by the Defendants”.