COURT FILE NO.: 18-66822
DATE: 2019-08-16
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Alcantro Fernandez
Manjit Singh, for Fernandez
Applicant
- and -
Mehboob Damji
Michael J. Valente, for Damji
Respondent
HEARD: July 17, 2019
REASONS FOR DECISION
THE HONOURABLE JUSTICE L. SHEARD
Overview
[1] This application was heard, in part, today. The central issue in this application is how the net sale proceeds (the "Proceeds") of the assets owned by the parties' two corporations (the "Corporations") should be divided. More particularly, for the purposes of this hearing, the parties ask for a determination of whether the respondent ("Damji") is entitled to ask the court to consider an agreement he reached with the applicant ("Fernandez") in 2016, when deciding how the Proceeds should be divided.
[2] Pursuant to earlier court orders, all but approximately $156,800 of the Proceeds was divided and paid out to the parties (hereinafter the "Holdback").
[3] This application was most recently before Madam Justice K. Carpenter-Gunn on June 11, 2019, on which date she was provided with a draft order, which she signed (the "Order"). The Order did not incorporate Justice Carpenter-Gunn's June 11, 2019 handwritten endorsement (the "Endorsement"). The parties agree that this hearing should be governed collectively by the Order and by the Endorsement.
[4] The Order directs the application judge on this hearing to answer the two questions set out below, with the balance of the application to be adjourned sine die:
Does Damji have to commence a claim/counterclaim or application/counterapplication (or any such similar proceeding) to obtain a judgment from this Court in his favour requiring Fernandez to pay him compensation?
Is Damji's request for a judgment in this Court in his favour requiring Fernandez to pay him compensation for services Damji allegedly rendered to the Corporations in 2015 statute-barred via operation of the applicable limitation period?
[5] The Endorsement reads:
The hearing will proceed under Rule 21.01.
The parties consent re: long motion for the week of July 15, 2019, to Justice presiding over the hearing to admit and rely upon the affidavits that have been filed.
[6] In his factum, Damji answers the two questions set out in the Order. Damji's answers can be summarized as follows:
Yes, Damji would be required to commence a proceeding against Fernandez to obtain a judgment in his favour. However, Damji has not sought a judgment against Fernandez.
Damji did not commence this application, and, on that basis, has not requested a judgment in his favour. Consequently, question #2 is hypothetical and beyond the scope of this litigation. Regardless, were Damji to now commence a proceeding against Fernandez to seek payment for services rendered in 2015, that proceeding would be statute-barred by the Limitations Act, 2002 (S.O. 2002, c. 24, Sch. B.).
Issue to be Decided
[7] Given Damji's answers above, it might appear that this hearing serves no purpose: Damji has conceded that he is statute-barred from bringing any "claim". However, Damji submitted, and Fernandez agreed, that for the purposes of this hearing, the court could and should answer the following question:
Is Damji entitled to ask the court to consider the agreement he says he made with Fernandez on April 14, 2016 that Damji would receive payment from the Holdback for services Damji rendered to the Corporations (hereinafter the "Compensation Amount")?[^1]
Background
[8] Fernandez and Damji each own 50 percent of all the issued and outstanding shares of 1008627 Ontario Inc. and 1008628 Ontario Inc. (defined above as the Corporations). The Corporations owned real property that was sold in 2016 (the "Property").
[9] Except for their dispute respecting payment to Damji of the Compensation Amount, Fernandez and Damji agree that they are each entitled to 50 percent of the Proceeds.
[10] At a meeting on April 14, 2016, Damji advised Fernandez that he intended to render an invoice to the Corporations for services rendered between 1993 and 2016. Damji says that Fernandez offered to pay him five percent of the Proceeds, (i.e. the Compensation Amount) as compensation for those services.
[11] According to Damji, after previously agreeing to pay the Compensation Amount, Fernandez later disagreed that Damji was entitled to payment for any services and alleged that Damji engaged in fraudulent activity and that Damji and his family had misappropriated or wrongly converted corporate funds.
[12] Following the April 14, 2016 meeting, Fernandez complained about Damji to the Royal Bank. As a result, the corporate account was frozen. Fernandez also retained counsel.
[13] On May 6, 2016, Fernandez's lawyer wrote to Damji asserting, in part, that Damji had misappropriated funds and was oppressing Fernandez's shareholder's rights. Negotiations between counsel for the parties ensued.
[14] On May 4, 2017, in correspondence between their lawyers, Fernandez proposed to Damji that the Proceeds be split equally between Fernandez and Damji. Damji refused. On July 14, 2017, Fernandez proposed that the Proceeds be distributed equally between him and Damji, subject to a holdback of $100,000, to cover Damji's "maximum (never-to-be-heard) proposed claim" which amount was to retained "until a Court of competent jurisdiction rules upon the dispute between our respective clients (if and when your client ever commences an action to recover the amounts he alleges my client owes him)".[^2]
[15] On July 20, 2017, Damji replied to Fernandez's proposal by seeking to impose conditions prior to any distribution of the Proceeds.[^3]
[16] Through his lawyer, on September 1, 2017, Damji agreed to Fernandez's initial proposal of an immediate distribution subject to a holdback of $100,000 "subject only to the requirement that Fernandez withdraw his allegations of misappropriation of corporate funds."[^4]
[17] Ultimately, the parties were unable to agree on the distribution of the Proceeds.
[18] Between September 1, 2017 and September 18, 2018, when Fernandez commenced this application, no step was taken by either party to resolve the impasse.
[19] Pursuant to the Consent Order of Sweeny J. of January 31, 2019, a partial payout of the Proceeds was to be made. Damji subsequently refused to comply with that Order unless his wife, Sophie Damji, was paid $20,000 for services she allegedly rendered to the Corporations. On February 26, 2019, without determining the merits of Ms. Damji's claim, I made an order increasing the amount to be held back from distribution by $20,000. As a result of my Order, a total of $550,000 was released to each of Fernandez and Damji, with the Holdback of $156,800.
[20] Ms. Damji has not brought a claim. At this hearing, Damji advised that Ms. Damji will not be bringing a claim and that the Holdback may be divided without consideration to her claim.
Agreed Facts
[21] For the purposes of this hearing, the parties agreed that I may assume the following as facts:
That the parties entered into an agreement on April 14, 2016 pursuant to which Damji would be entitled to a payment for services rendered to the Corporations equal to five percent of the net sale proceeds of the Corporations' assets (i.e. the Compensation Amount);
That by June 2016, Damji knew that Fernandez would not honour the alleged agreement;
That Damji has not commenced proceedings to enforce payment of the Compensation Amount and that the time for bringing such a claim is now statute-barred; and
That by September 14, 2018, any claims Damji (or Ms. Damji) could have brought were statute-barred.
Parties' Positions
[22] Damji acknowledges that he may not now bring a "claim" to enforce payment of the Compensation Amount because such a claim would be barred by the Limitations Act, 2000,[^5] which requires that claims be brought within two years of the day on which the claim was discovered. The Limitations Act defines a claim to mean "a claim to remedy an injury, loss or damage that occurred as a result of an act or omission". However, Damji submits that the Limitations Act does not bar him from opposing the distribution of the Holdback as sought by Fernandez or from asking the court to consider all evidence relevant to that distribution, which includes his entitlement to payment from the Holdback of the Compensation Amount.
[23] I understand Damji's argument to be that, without asserting a claim per se in response to Fernandez's application, he merely asks that when determining how the Holdback should be divided, the court consider Fernandez's agreement that Damji receive payment of the Compensation Amount.
[24] Fernandez submits that Damji's arguments are semantics and that by opposing the equal distribution of the Holdback on the basis that it should firstly be used to pay the Compensation Amount, Damji, in fact, is advancing a claim to enforce payment of the Compensation Amount; a claim that Damji acknowledges is statute-barred. Among other things, Fernandez points out that in his factum, Damji, himself, describes what he seeks to do as "enforcing his claim".[^6]
The Law
[25] Rule 38.10 (1) of the Rules of Civil Procedure provides that on the hearing of an application, the presiding judge may (a) grant the relief sought or dismiss or adjourn the application, in whole or in part, and with or without terms; or (b) order that the whole application or any issue proceed to trial and give such directions as are just.[^7]
[26] In cases in which the respondent on an application seeks relief, the proper procedure is for the respondent to bring his own application. Although r. 14 does not contemplate a "counter-application", courts routinely use that term when referring to the application brought by a respondent on an application who seeks its own relief. That did not happen here; Damji did not issue his own "counter" application for payment of the Compensation Amount. Nor, as he acknowledges, did Damji commence an action for recovery of the Compensation Amount.
[27] In his factum, Damji advances an alternative argument that his claim to the Compensation Amount is not statute-barred by the Limitations Act because it is "grounded in the Corporation's oppression of Damji's interests and that each day that Damji's interests are oppressed, begins the running of a new limitation period". In his factum, Damji refers to paragraphs 53 and 54 of Maurice v. Alles, 2016 ONCA 287, 2016, 130 OR (3d) 452 (C.A.) ("Maurice") in support of this argument.
[28] In oral submissions, Damji conceded that his alternative argument was a "red herring". I would go further. I conclude that the principles set out in Maurice operate to defeat Damji's alternative argument that a new limitation period begins each day by reason of Fernandez's oppressive acts.[^8]
Analysis
[29] As per the Order and Endorsement, the parties' affidavits are to be treated as pleadings for the purposes of this hearing. In his affidavit, Damji makes it clear that he knew that the limitation period to bring a claim to enforce payment of the Compensation Amount was running on and after May 2016. He did not advance a claim. Damji accepts that by September 18, 2018, he was statute-barred from advancing that claim.
[30] Likewise, in his affidavit Fernandez makes it clear that he was also aware that a limitation period was running for Damji to enforce payment of the Compensation Amount. Fernandez took no steps to enforce the distribution of the Proceeds until September 18, 2018, by which date Fernandez believed that Damji was statute-barred from advancing a claim to enforce payment of the Compensation Amount.
[31] I am persuaded by the submissions made by Fernandez. I find that, by asking a court on this application to consider his claim to enforce payment of the Compensation Amount, Damji seeks to enforce a claim that he knows is now statute-barred under the guise of a response to the application brought by Fernandez.
[32] The Rules of Civil Procedure and the Limitations Act require that a party who seeks to enforce a claim, do so, within the statutory limitation period, by way of a statement of claim or counterclaim, or, in the context here, by way of an application (counter-application). Damji has not done either.
[33] I conclude that Damji may not use his responding affidavit on this application to advance a claim, statute-barred or otherwise.
Disposition
[34] For the reasons set out above, I find that the division and distribution of the Holdback ought to be made without regard to the Compensation Amount.
Costs
[35] If the parties cannot agree on the costs of this hearing, then they may arrange a further brief hearing before me through the trial coordinator. If the parties have not contacted the trial coordinator within 20 days of today's date, I will assume that the issue of costs have been settled.
SHEARD J.
Released: August 16, 2019
COURT FILE NO.: 18-66822
DATE: 2019-08-16
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Alcantro Fernandez
Applicant
- and -
Mehboob Damji
Respondent
REASONS FOR DECISION
LCS:co
Released: August 16, 2019
[^1]: See Affidavit of Mehboob Damji, para. 11 and Exhibit C in which he defines the Compensation Amount as the Settlement Funds. [^2]: Damji Affidavit, at paras.14 and 21, Exhibits "E" and "P". [^3]: Ibid., at para. 20. [^4]: Ibid., at para. 24. [^5]: S.O. 2002, c.24, Sched. B. [^6]: Damji factum, at para. 21. [^7]: R.R.O. 1990, Reg. 194. [^8]: See Maurice, at para. 49.