COURT FILE NO.: CV-18-598955-CL DATE: 20190729 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: MEHRI HABIBI and BABAK BABAN, Plaintiffs AND: MEHRDAD BARGHIAN and AVICENNA RX INC., Defendants

BEFORE: Penny J.

COUNSEL: S. Sasso for the Plaintiffs M. Dunn and C. Fox for the Defendants

HEARD: May 6, 2019

Endorsement

Overview

[1] This is a motion for summary judgment on a limitation issue. The issue on the motion is discoverability: when the plaintiffs knew, or ought reasonably to have known, that they had suffered damage caused or contributed to by the defendants for which a legal proceeding would be an appropriate means of recovery.

Background

[2] This action seeks damages of $25 million under the oppression remedy (s. 241 of the Canada Business Corporations Act) and for breach of contract and fiduciary duty, misappropriation of corporate opportunity and unjust enrichment.

[3] In essence, the plaintiffs allege that in June 2014, they set up a business, Avicenna, with the defendant for the purpose of extracting, processing and testing active ingredients from marijuana plants and processing these ingredients into medicinal/medical products for the treatment of palliative or chronic conditions.

[4] The plaintiffs allege that the defendants breached their duties, and their agreement to pursue these objectives in Avicenna, by developing the extraction and testing of active marijuana ingredients through Mr. Barghian’s own companies, QCL and Avanti.

[5] This action was commenced June 1, 2018. In the statement of claim, the plaintiffs plead they did not know until the latter part of 2017 that part of QCL and Avanti’s business was the extraction, testing and processing of active marijuana ingredients.

[6] This motion for summary judgment is brought by the defendants solely on the basis of their limitations defence. The defendants assert that the extraction and testing of active marijuana ingredients was never part of Avicenna’s purpose or business plan. They claim that the sole purpose of Avicenna was the pursuit of new therapies using active marijuana ingredients.

[7] The defendants further assert that the plaintiffs have known, since the formation of Avicenna in June 2014, that Mr. Barghian’s own company, QCL (and, later, but before June 2016, another of his companies, Avanti) was in the business of extraction and testing of active marijuana ingredients.

[8] Thus, the defendants maintain that by June 1, 2016 (two years prior to issuing this statement of claim), the plaintiffs knew everything they needed to know, or that they ought to have known, to commence this action.

Analysis

The Legal Framework

[9] Section 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B requires a plaintiff who claims to have discovered his or her claim after the date when it arose to show both that the claim was not actually discovered and that it could not have been discovered sooner with reasonable diligence. Discovery occurs when the potential plaintiff knew, or ought to have known, that:

(i) damage has occurred; (ii) the damage was caused or contributed to by the act or omission of another; (iii) the identity of the alleged wrongdoer; and (iv) that a legal proceeding would be an appropriate means of recovery.

[10] The process that a motions judge is required to follow on a summary judgment motion concerning a limitation period is described in the reasons of D. Brown J.A. in Nasr Hospitality Services Inc. v. Intact Insurance, 2018 ONCA 725:

[32] Since the 2010 amendments to the summary judgment rule and the Supreme Court’s strong endorsement in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, of the use of summary judgment as a procedural device by which to secure the final adjudication of a civil case on its merits, defendants frequently resort to a summary judgment motion to determine whether the plaintiff’s action is barred by the operation of a limitation period.

[33] Hryniak teaches that “[t]here will be no genuine issue requiring a trial when a judge is able to reach a fair and just determination on the merits” of the motion because the summary judgment process “(1 ) allows the judge to make the necessary findings of fact , (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means” than other devices for reaching a final adjudication on the merits to achieve a just result: at para. 49 (emphasis added).

[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. Those provisions state:

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). (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.

[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 day on which the plaintiff discovered the claim for purposes of applying the basic limitation period of two years.

[36] In the present case, although the motion judge granted an order declaring that the basic limitation period did not begin to run until July 2013, he failed to make express findings of many of the facts necessary to make such an order. Instead, he proceeded on the basis of two “assumptions”: (i) Nasr’s cause of action for breach of the Policy arose on February 1, 2013; and (ii) that date also was the date on which Nasr knew the matters described in ss. 5(1)(a)(i)-(iii). In the case of each assumption, the motion judge stated he was assuming the fact, without deciding it.

[37] Taking the motion judge’s reasons literally, if he did not find, as facts, the days on which Nasr knew or ought to have known the matters described in ss. 5(1)(a)(i)-(iii), then there was no factual support for his ultimate order that the basic limitation period “did not begin to run until July of 2013.”

[38] However, the parties have argued the appeal as if the motion judge made actual findings of fact on those matters, and I will treat his reasons in a similar fashion.

[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.

[11] This approach was summarized and applied by McEwen J. in 1511419 Ontario Inc. v. KPMG, 2019 ONSC 228 as follows:

[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: [citations omitted].

[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.

[12] The decision of the Court of Appeal for Ontario in Mega International Commercial Bank (Canada) v. Yung, 2018 ONCA 429, is also important to the analysis of a motion for summary judgment based on a limitations argument where issues of discoverability are raised:

[88] The application of an absolute limitation period, the primary issue the motion judge thought he was adjudicating, is generally a relatively straightforward factual issue. In contrast, determining discoverability, the issue the motion judge should have been adjudicating, is not a relatively straightforward factual issue. Indeed, it was believed for a time that, as a general rule, discoverability cases should not be decided using summary judgment because of their complexity: Aguonie , at para. 36. There is no longer a general rule to this effect after Hryniak , given the more robust approach now being taken to summary judgment: Charette v. Trinity Capital Corporation, 2012 ONSC 2824, at paras. 69-70 , per Strathy J. (as he then was); and Kassburg v. Sun Life Assurance Co. of Canada, 2014 ONCA 922, 124 O.R. (3d) 171, at para. 52 . Still, the basic point remains true. Discoverability cases do tend to be contentious and complex, and this can, depending on the circumstances, affect their suitability for summary judgment.

The Defendants’ Argument in Support of Granting Summary Judgment

[13] The defendants argue that QCL was in the business of extracting and testing active marijuana ingredients when Avicenna was incorporated in June 2014. As a result, the plaintiffs’ cause of action arose in June 2014, because, on the plaintiffs’ theory of the case, immediately upon the incorporation of Avicenna, the defendant Mr.Barghian was instantly in breach of his alleged obligation to pursue all extraction and testing of active ingredients of marijuana only through Avicenna.

[14] The defendants further argue that both plaintiffs admit they knew QCL was engaged in analytical testing of active marijuana ingredients before Avicenna was incorporated. In any event, the defendants argue that the plaintiffs otherwise knew Mr. Barghian was engaged (through QCL and later Avanti) in the extraction and testing of active marijuana ingredients well before June 2016. In particular, the defendants rely on the following:

(a) Mr. Barghian e-mailed Dr. Habibi a copy of the CBC article describing QCL’s cannabis business in May 2014. She responded to congratulate him; (b) Mr. Barghian copied both plaintiffs on his letter to Health Canada in July 2014 which referred to QCL’s many clients with an interest in cannabis regulations; (c) Dr. Baban sought to obtain cannabis extract from QCL, and received a copy of QCL’s Health Canada licence that authorized QCL to extract and test cannabinoids; (d) Dr. Baban attended a medical marijuana conference sponsored by QCL, where QCL’s cannabis services were actively advertised; (e) Dr. Habibi knew that Mr. Barghian was building a lab for the extraction and testing of cannabis at a property he had acquired in Brampton; and (f) Dr. Baban must have seen Dr. Barghian’s LinkedIn profile in May 2016, which specifically described Avanti’s cannabis business.

[15] Finally, the defendants argue that even if the plaintiffs did not have actual knowledge of Mr. Barghian’s extraction and testing of active marijuana ingredients, they could very easily have learned of those activities through reasonable diligence. Both QCL and Avanti advertised their marijuana business. Neither plaintiff took any steps to investigate whether Mr. Barghian’s pursuit of marijuana-related extraction and testing activities in his own companies was in breach of his alleged obligations in relation to Avicenna.

[16] Thus, the defendants argue, there is no genuine issue requiring a trial in relation to the limitations defence.

Application

[17] If the evidentiary record were as clear as the defendants argue, I would tend to agree that a trial would not be required to dispose of the plaintiffs’ claims on the basis of the limitations defence. However, these issues are complicated by very different and conflicting accounts on a number of extremely material questions. These include:

(a) what Avicenna’s scope and purpose were supposed to be; (b) what the plaintiffs’ reasonable expectations were about what the defendant could and could not pursue on his own and what he could only pursue through Avicenna; (c) what the relationship was between extraction and testing of the active ingredients in marijuana and the application of those functions or techniques to the development of therapeutic uses; (d) who came up with the idea of developing the active marijuana ingredients for therapeutic use in relation to chronic and palliative care following sufficient extraction and testing; (e) what the defendant disclosed and did not disclose to the plaintiffs about the activities of QCL and Avanti, and when; (f) what the plaintiffs ought reasonably to have known, or been put on enquiry given facts that were known, about the defendant’s activities in his own companies; and (g) what the plaintiffs reasonably understood the defendant was doing for QCL and Avanti from June 2014 to June 2016 and what he was doing for Avicenna, and in what context.

[18] Most if not all of these issues are critically important not only to the limitations defence but to the merits is well. Thus, this is a case where a number of disputed factual issues on the merits overlap with or are the same as disputed factual issues on the limitations defence.

[19] The defendants take the position that the claim on the merits is without merit. Implicit in the defendants having brought this motion for summary judgment restricted only to the limitation defence, however, is the concession that a motion on the merits would not likely meet the test for summary judgment.

[20] This is a discoverability case on the limitations issue. The discoverability issues are contentious and complex. The factual findings necessary to conclude when the claim was discoverable are inextricably tied up with the factual disputes on the merits of the claim itself.

[21] The defendant may well be proved right that the action is without merit. The defendant may also be proved right that the plaintiffs knew or ought reasonably to have known all they needed to know in order to commence this action before June 2016. But, on this record, I cannot make the necessary findings of fact with the certainty required by Hryniak on each of the constituent limitation issues to conclude that there is no genuine issue requiring a trial.

[22] The factual issues necessary to resolve the discoverability issues that have been raised require live testimony from the witnesses themselves in the context of a full record, not limited affidavits drafted by the lawyers and a paper copy of the cross examination transcripts.

[23] The motion for summary judgment on the limitations defence is therefore dismissed.

Costs

[24] In light of my conclusion, and the reasons for that conclusion, it is appropriate to fix costs payable in the cause. Partial indemnity costs of the motion, inclusive of fees, disbursements and taxes, are fixed at $25,000 if the plaintiffs prevail and $50,000 if the defendants prevail.

Penny J. Date: July 29, 2019