Introduction

[1] Rong Jie Zhao, Yuan Li and Bing Wang were part owners of a dry cleaning company, Perfect Cleaner.[^1] The business fell behind in its rent. The landlord, Carrlee Investments Limited (“Carrlee”), exercised the right of distraint and seized all assets and records within the rental unit. On September 3, 2011, Ms. Zhao went to visit Perfect Cleaner. She was shocked to find another dry cleaning business operating out of the former premises of Perfect Cleaner. The owner of the new dry cleaning business told her he had purchased it from Carrlee. Over two years later, on October 31, 2013, Ms. Zhao brought an action against Mr. Li claiming damages for breach of contract, breach of trust and unjust enrichment. Mr. Wang is not part of this action.

[2] Mr. Li now brings a motion for summary judgment, arguing that there is no genuine issue requiring a trial. Mr. Li argues that the action was brought after the expiration of the limitation period and is thus statue-barred. In the alternative, he submits that the action is barred under the doctrines of laches and res judicata and/or abuse of process.

[3] In my view, the first argument advanced by Mr. Li is dispositive. For the reasons that follow, I have determined that there is no genuine issue requiring a trial as the action is statute-barred: Ms. Zhao discovered, or ought to have discovered, her claim as of September 3, 2011, but did not issue her claim until October 31, 2013, more than two years later. Mr. Li is thus entitled to summary judgment in his favour, dismissing the action. Given this finding, I will not consider the alternative arguments put forward by Mr. Li.

[4] I propose to start out with a brief overview of the facts. I will then address the framework for summary judgment motions before turning to my analysis.

Brief Overview of the Facts

a) Ms. Zhao Becomes a Partner of Perfect Cleaner

[5] Perfect Cleaner was incorporated on May 10, 2006. At that time, Mr. Li and Mr. Wang had a third partner, Mingying Zhou.

[6] Ms. Zhao worked for Perfect Cleaner for two months in 2009. After Ms. Zhao stopped working at Perfect Cleaner, she learned that Ms. Zhou wanted to sell her shares in the business. On February 8, 2010, Ms. Zhao purchased Ms. Zhou’s shares for $104,000.

[7] On February 12, 2010, the three owners of Perfect Cleaner, Mr. Li, Mr. Wang and Ms. Zhao, met and reached a number of agreements, including the following:

Ms. Zhao had a 39.81% ownership interest in Perfect Cleaner and would assume responsibilities for quality control and human resources;
Mr. Li had a 42.59% ownership interest in Perfect Cleaner, and would serve as President and Director. Mr. Li would be responsible for running the day to day operations of the business. This included the responsibility of handling all financial matters, in the interest of and for the benefit of all owners;
The other owner, Mr. Wang, had a 17.59% ownership interest in Perfect Cleaner;
Ms. Zhao would have “voting rights, receipt of dividends and entitlement to the value of Perfect Cleaner upon event of its dissolution or winding up”;
Ms. Zhao would be paid wages for her work at the business;
The consent of 50% or more of the shareholders would be required to pass resolutions; and
All three shareholders “expressed an intention to sell the business for $250,000 -$300,000, if such an offer ever became available.”

[8] Ms. Zhao testified that despite the above agreements, she did not get “a penny” from her investment.

b) Ms. Zhao Stops Going to Perfect Cleaner for Approximately Nine Months

[9] In June 2010, Mr. Li was charged with assault and utter death threat against Ms. Zhao. Ms. Zhao deposed that as a result of Mr. Li’s recognizance conditions, she was not able to go to Perfect Cleaner.

[10] Approximately nine months later, in March 2011, Mr. Li signed a peace bond. As a result, Ms. Zhao was able to go back to the premises of Perfect Cleaner. Ms. Zhao deposed that she began to check on the business regularly from March to the end of August 2011. According to Ms. Zhao, Perfect Cleaner seemed to be running normally and she did not see any indication of any issues or problems.

c) Ms. Zhao is Told that Perfect Cleaner is in Financial Difficulty

[11] Despite Ms. Zhao’s evidence that there was no indication of any issues or problems, she was told by Mr. Li in June 2011 that he could not afford to pay the rent. Ms. Zhao said she did not believe him.

[12] In July 2011, Ms. Zhao attended a meeting with Mr. Li and two real estate agents. Ms. Zhao deposed that she was told that there was an offer to purchase Perfect Cleaner for $20,000. According to Ms. Zhao, she agreed to the sale, as she felt there was little choice; otherwise she might not get any return back from the money she invested. But she said that she felt that the other owner, Mr. Wang, should be consulted before the deal went through. Ms. Zhao provided no explanation for why, if the business was not suffering from financial difficulties, she felt compelled to agree to a sale of the business for such a small amount. It seems to make little sense to agree to sell the business for $20,000 approximately a year and half after investing $104,000 in the business, unless there were financial difficulties. Ms. Zhao said that she never heard back from Mr. Li about the proposed sale.

[13] According to Ms. Zhao, around the time of the meeting, Mr. Li also told her that he had stopped paying rent in July 2011. Ms. Zhao deposed that she did not believe him.

[14] Ms. Zhao also testified that a representative of Carrlee told her in the summer of 2011 that the rent was in arrears. She said she did not believe the landlord.

d) Carrlee Exercises the Right of Distraint

[15] According to Mr. Li, on July 20, 2011, Carrlee exercised the right of distraint and seized all assets and records of Perfect Cleaner. Exhibit G to Mr. Li’s affidavit contains a letter from the landlord confirming that a distress notice was sent to Perfect Cleaner on that date, along with the Notice of Distress, served pursuant to the Commercial Tenancies Act, R.S.O. 1990, c. L.7.

[16] Ms. Zhao disputes, however, that Carrlee exercised the right of distraint in July. According to Ms. Zhao, she was visiting the premises of Perfect Cleaner “almost daily” from July until the end of August and she did not see anything to suggest that there was a problem.

[17] In support of her position that Carrlee did not seize the assets of Perfect Cleaner in July 2011, Ms. Zhao filed a letter from a representative of Deluxe Cleaners, who wrote that he attended Perfect Cleaner every day, and that it was running as usual until the new owners took over in September 2011 (Exhibit T). Mr. Li, argues that the signature on the letter was illegible, and that no affidavit was provided by this representative and thus this evidence is not admissible. I agree.

[18] That said, in my view the letter does not assist Ms. Zhao in this matter in any event. The dispute over whether or not Carrlee exercised the right of distraint in July is irrelevant to the inquiry, as there is no dispute that by September 2011, Perfect Cleaner was no longer operating. Assuming that the information in the letter was admissible, it confirms that as of September 2011, new owners had taken over the former equipment and premises of Perfect Cleaner.

e) September 3, 2011: Ms. Zhao Learns that Perfect Cleaner is Gone and is Told that the Business was Sold by the Landlord

[19] Ms. Zhao deposed that at the end of August she could not check in on the business for about a week. Ms. Zhao went to check on the Perfect Cleaner premises next on September 3, 2011. At that time Ms. Zhao was “shocked” to see a new dry cleaning business there operating under a different name than Perfect Cleaner.

[20] According to Ms. Zhao, she “spoke to the person who appeared to be in charge of the operation, and she told [Ms. Zhao] that she bought the business from the landlord.” Ms. Zhao confirmed in her testimony at examination-for-discovery that she went to the business premises on September 3, 2011, and spoke with the “new owner”, who told her that he had bought the business from the landlord.

f) Steps Taken by Ms. Zhao After Finding a New Dry Cleaning Business Operating Where Perfect Cleaner Used to Be

[21] Ms. Zhao said that she was shocked and confused over what had happened to Perfect Cleaner; she “simply had no idea what had occurred.” She also said that she did not know why Mr. Li would not have contacted her to “discuss [the] significant decision he made about the business.”

[22] Despite her confusion, Ms. Zhao did not make any effort to contact Mr. Li to ask him what had happened. She did not attempt to contact the landlord to ask what had happened. She did not seek legal advice.

[23] According to Ms. Zhao, from September 3, 2011 until early December 2011, she asked her friends what she could do to investigate “what really happened” with her business. She said it was not until February 2012 that she learned from a friend that members of the public could obtain corporate profile reports. On February 25, 2012, she obtained a corporate profile report on Perfect Cleaner and learned that Mr. Li had filed Articles of Dissolution on October 12, 2011.

[24] According to Ms. Zhao, it was only at this time that she realized that Mr. Li was no longer operating Perfect Cleaner for the interest of the three owners and that the agreement had been breached, as she was entitled to any proceeds from the shut down and sale of the business and its assets.

g) Ms. Zhao Brings an Action in Small Claims Court

[25] In December 2011, Ms. Zhao received a Notice of Reassessment from the Canada Revenue Agency directing her to pay taxes on $2,883 in dividends that she was to have received from Perfect Cleaner. Ms. Zhao, however, had not received any money for dividends.

[26] In January 2012, Ms. Zhao brought a Small Claims Court action against Mr. Li, seeking $2,883 for the dividends, as well as for repayment of a personal loan she had made to Perfect Cleaner, and her portion of a gas credit card. In total she was seeking damages in the amount of $9,842.50.

[27] On September 9, 2013, Ms. Zhao received judgment for $2,883 for the dividends.

[28] On October 8, 2013, Ms. Zhao retained counsel to bring the current action at this court. The Statement of Claim was issued on October 31, 2013.

Framework for Summary Judgment

[29] Rule 20.04(2)(a) of the Rules of Civil Procedure, R.R.O. 1990. Reg. 194 provides that the court shall grant summary judgment if satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. In Hryniak v. Mauldin, 2014 SCC 7, at para. 49, Karakatsanis J. explained that there will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the 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 to achieve a just result.

[30] In considering a motion for summary judgment, the court should first determine if there is a genuine issue requiring a trial based only on the evidence in the motion record, without using the fact-finding powers set out in rr. 20.04(2.1) and (2.2). The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and summary judgment would be a timely, affordable and proportionate procedure.

[31] Ms. Zhao argues that this is not an appropriate case for summary judgment, as “nearly all of the material facts are in dispute”. I cannot agree. There are clearly many issues in dispute between the parties. For example, while Mr. Li says that Carrlee exercised the right of distraint in July 2011, this is contested by Ms. Zhao. However, as will be explained below, I am satisfied that, as it relates to the limitations issue, the record before me allows me to make the necessary findings of fact and to apply the law to those findings. I turn now to my analysis.

Analysis

[32] Section 4 of the Limitations Act, 2002, S.O. 2002 c. 24, Sched. B, prohibits any claim from being commenced after two years from the date on which the claim was “discovered”.

[33] A claim is discovered either when the person first knew (s. 5(1)(a)), or when a person with the abilities and in the circumstance of the person with the claim ought to have known (s. 5(1)(b)), the following:

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.

[34] Pursuant to s. 5(2), a claimant is presumed to have discovered his or her claim on the “day the act or omission on which the claim is based took place, unless the contrary is proved.”

[35] I will consider each element in turn.

i. When did Ms. Zhao know she had suffered an injury, loss or damage?

[36] In Hamilton (City) v. Metcalfe & Mansfield Capital Corp., 2012 ONCA 156, at para. 54, the court noted that damage is the condition of being worse off than before the act occurred.

[37] In my view, by September 3, 2011, Ms. Zhao knew, or ought to have known, that she had suffered an injury, loss or damage. By that date, Ms. Zhao knew the following:

On February 8, 2010, she had invested $104,000 to buy shares in Perfect Cleaner;
She was entitled to dividends, but had yet to receive “a penny”;
Perfect Cleaner was gone, and a new dry cleaning business was being run from the premises;
The new owner told her that he had purchased the business from Carrlee;
Ms. Zhao did not receive any money from the sale of the business.

[38] Thus, as of September 3, 2011, Ms. Zhao knew that she had suffered injury, loss or damage because she knew that she was worse off than before. She knew she was worse off than before, as Perfect Cleaner, in which she had invested $104,000, was gone, and there was a new dry cleaning business, with new owners, at the former premises of Perfect Cleaner.

[39] Further, Ms. Zhao knew that she had suffered injury, loss or damage, as she had received no money from the sale of the business. She also knew she had suffered injury, loss or damage, as, by that point, she had not received “a penny” back from the $104,000 investment she had made, despite being entitled to dividends.

[40] Ms. Zhao argues that she brought the Small Claims Action first, as “these were damages that [she] knew were owed even before she could ascertain the full extent of what Mr. Li did with the business.” However, as explained in Metcalfe & Mansfield Capital Corp. at para. 54:

Damage is the loss needed to make out the cause of action. Insofar as it relates to a transaction induced by wrongful conduct, as I have explained, damage is the condition of being worse of than before entering into the transaction. Damages, on the other hand, is the monetary measure of the extent of that loss. All that the [plaintiffs] had to discover to start the limitation period was damage.

[41] While Ms. Zhao may not have known the “full extent” of what happened with the business, such knowledge was not required. Ms. Zhao knew, or ought to have known, that she had suffered “some damage”, which is sufficient to meet this element: Brozmanova v. Tarshis, 2018 ONCA 523, at para. 35.

ii. When did Ms. Zhao know that the injury, loss or damage was caused by or contributed to by an act or omission?

[42] In my view, it is also clear that as of September 3, 2011, Ms. Zhao knew, or ought to have known, that the injury, loss or damage was caused by or contributed to by an act or omission. Ms. Zhao knew that the business she had invested over $100,000 in was gone. She knew that something (an act) had happened to her business without her input or approval. She knew that something had happened that led to the loss of her business without her being compensated in any way. Ms. Zhao also knew that she had not received a “penny” from her investment. These acts and omissions caused her damage.

iii. When did Ms. Zhao know that it was Mr. Li’s act or omission that led to the injury loss or damage?

[43] Ms. Zhao knew Mr. Li was to be responsible for running the day to day operations of Perfect Cleaner. Ms. Zhao, however, knew as of September 3, 2011 that the business Mr. Li was tasked with running was no longer there. She also knew that Mr. Li had the responsibility of handling all financial matters, in the interest of and for the benefit of all owners, and yet Mr. Li had not paid her “a penny” from the day she made her investment. In my view, Ms. Zhao knew, or ought to have known, as of September 3, 2011 that she had suffered injury, loss or damage as a result of Mr. Li’s act or omission.

iv. When did Ms. Zhao know that a proceeding was the appropriate means to seek to remedy the injury, loss or damage?

[44] Subsection 5(1)(a)(iv) of the Limitations Act serves to deter needless litigation: 407 ETR Concession Co. v. Day, 2016 ONCA 709, at para. 48, leave to appeal to S.C.C. refused, [2016] S.C.C.A. No. 509. If a legal proceeding is inappropriate, the start date for the commencement of the limitation period is postponed beyond the date on which the elements of the claim are discovered: Presidential MSH Corp. v. Marr, Foster & Co. LLP, 2017 ONCA 325, at paras. 17-18.

[45] In Presidential MSH, Pardu J.A. reviewed the jurisprudence, and set out two circumstances in which the appropriate means test under s. 5(1)(a)(iv) may delay the date on which a claim is found to be discovered. First, a legal proceeding against an expert professional may not be appropriate if the claim arose out of the professional’s alleged wrongdoing but may be resolved by the professional himself or herself without recourse to the courts, thereby rendering the proceeding unnecessary: para. 20. There is no suggestion that this circumstance applies in this case; Ms. Zhao did not rely on Mr. Li to try to resolve the issues, indeed, Ms. Zhao chose not to even ask Mr. Li what had happened. Further, she chose not to ask Mr. Li what had happened with Perfect Cleaner, even as she litigated issues in relation to the business with Mr. Li in Small Claims Court.

[46] Second, a legal action may not be appropriate if an alternative dispute resolution process offers an adequate alternative remedy and that process has not fully run its course: para. 28. Again, this circumstance does not apply in this case. While Ms. Zhao brought a Small Claims Court action, it is her position that in this court she is “seeking different remedies for a separate cause of action.” There were no other processes being explored by Ms. Zhao that had the potential to resolve the dispute between the parties and to eliminate her loss.

[47] In my view, as of September 3, 2011, Ms. Zhao knew, or ought to have known, that a proceeding was the appropriate means to remedy her injury, loss or damage. As of that date, she knew that Perfect Cleaner, in which she had invested a significant amount of money, was gone. She knew that Mr. Li was responsible for the day to day operations of Perfect Cleaner, and it was gone. She was told that the business had been sold. Ms. Zhao knew that she had not received any money from the sale of Perfect Cleaner, nor had she received any dividends from the business. There was no reason to delay bringing a proceeding against Mr. Li; a proceeding was the appropriate means by which to remedy her injury, loss or damage.

Conclusion

[48] The evidence on this motion allows me to make the necessary findings of fact and to apply the law to the facts. On September 3, 2011, Ms. Zhao discovered that Perfect Cleaner, in which she had invested $104,000, and which Mr. Li was tasked with running, was no longer there. She also knew that she had not received a penny from Perfect Cleaner and that Mr. Li was responsible for the financial aspects of the business, “in the interest of and for the benefit of all owners.” Thus, as of September 3, 2011, Ms. Zhao either knew, or ought to have known, that she had suffered injury, loss or damage because of an act or omission of Mr. Li. She also knew, or ought of have known, that having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it.

[49] As of September 3, 2011, Ms. Zhao knew enough material facts on which to base a claim against Mr. Li. The limitation period began to run on that date. As a result, the present action is statute-barred because it was not commenced until October 31, 2013, after the limitation period had expired. Summary judgment is a proportionate, more expeditious and less expensive means to achieve a just result. Mr. Li is entitled to summary judgment in his favour dismissing the action.

Costs

[50] I encourage the parties to see if they can agree on costs. If the parties are unable to agree on costs, Mr. Li shall serve and file with my office written costs submissions within 15 days. Ms. Zhao shall serve and file with my office any responding costs submissions within 15 days thereafter. The written submissions shall not exceed three pages in length, excluding the Costs Outline.

Justice Heather McArthur

Date: February 20, 2019

[^1]: 2102097 Ontario Inc.

Zhao v. Li, 2019 ONSC 917

Case Summary

Introduction

Brief Overview of the Facts

Framework for Summary Judgment

Analysis

Conclusion

Costs

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Issues

Statutory Provisions 3

Legal Tests 2

Legislation 3