Court File and Parties

COURT FILE NO.: CV-17-583573-00CP DATE: 20200304 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LYNN WINTERCORN, PETER NEWMAN, EMILY FLAMMINI and ALEX KEPIC, Plaintiffs AND: GLOBAL LEARNING GROUP INC., GLOBAL LEARNING TRUST SERVICES INC. as TRUSTEE OF GLOBAL LEARNING TRUST (2004), ROBERT LEWIS, IDI STRATEGIES INC., JDS CORPORATION, ESCROWAGENT INC., JAMES PENTURN, RICHARD E. GLATT, DENIS JOBIN, ALLAN BEACH, MORRIS KEPES & WINTERS LLP, FASKEN MARTINEAU DUMOULIN LLP, CASSELS BROCK & BLACKWELL LLP, WISE, BLACKMAN LLP, and EVANS & EVANS INC., Defendants

BEFORE: Justice Glustein

COUNSEL: Tina Q. Yang and David Fogel, for the plaintiffs Sean Dewart, for Graham Turner Michael Tersigni, for the defendant Morris Kepes & Winters LLP Shara Roy, for the defendant Cassels Brock & Blackwell LLP Jacqueline Palef, for the defendant Wise, Blackman LLP

HEARD: February 14, 2020

Reasons for Decision

Nature of hearing and overview

[1] The plaintiffs bring a motion to add Graham Turner (“Turner”) as a defendant in this class action and for leave to file the “Third Amended Statement of Claim” which includes allegations as to Turner’s liability. The plaintiffs served their notice of motion on November 12, 2019.

[2] The class action arises from the participation of class members (the “Class”) in the Global Learning Gifting Initiative Tax Shelter Program (the “Gift Program”) offered through the defendant, Global Learning Group Inc. (“GLGI”), from 2004 to 2014.

[3] Turner was the president, secretary, and the sole officer and director of the defendant Escrowagent Inc. (“Escrowagent”) between April 1, 2011 and April 1, 2014. He was also retained as counsel to GLGI from 2009 until late 2014. [1]

[4] Turner opposes the motion. He submits that the court can make a specific finding of fact that the proposed claim is statute-barred under ss. 4 and 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B (the “Limitations Act”).

[5] Turner submits that as of September 25, 2017, the date the plaintiffs obtained a then-current corporation profile report (the “September 2017 CPR”) for Escrowagent, the plaintiffs could reasonably have discovered their claim against him. Turner relies on historical “point in time” corporation profile reports available at that date (the “historical CPRs”) that indicate that he was the sole officer and director of Escrowagent between April 1, 2011 and April 1, 2014.

[6] Turner submits that given the historical CPRs, combined with the plaintiffs’ knowledge as of at least September 28, 2017 (as pleaded in the Statement of Claim) that (i) the Gift Program was a “sham”, (ii) Escrowagent “did not perform any functions” it was supposed to perform, and (iii) Escrowagent “received [funds which] were never used for their intended purpose”, the two-year limitation period to bring the claim against Turner expired no later than September 25, 2019, [2] before the plaintiffs served him on November 12, 2019 with the notice of motion to amend their claim to add him as a defendant.

[7] The plaintiffs submit that the court cannot make a specific finding of fact that the limitation period against Turner expired before November 12, 2019.

[8] The plaintiffs bring the claim against Turner both for his alleged receipt of trust funds from the Class (the “Trust Claim”) and for his alleged negligence, negligent misrepresentation, and breach of trust to the members of the Class as counsel to GLGI (the “Counsel Claim”).

[9] With respect to the Trust Claim, the plaintiffs submit that acting as a director or officer of a corporation that is involved with a “sham” program which wrongfully receives funds does not necessarily engage personal liability unless the director had personal involvement in the impugned conduct. Consequently, the plaintiffs submit that even if they ought to have known about Turner’s status as an officer or director from the historical CPRs (a premise which they do not accept), they could not reasonably have determined that Turner could be personally liable until they discovered that Turner “controlled” Escrowagent. and, accordingly, that Turner had knowledge of Escrowagent’s alleged participation in a “sham” program, its failure to perform the functions it was supposed to perform, and its receipt of funds which were never used for their intended purpose.

[10] The plaintiffs submit that they did not learn about Turner’s control of Escrowagent until November 5, 2018, when plaintiffs’ counsel received an email (the “Fasken E-mail”) from counsel for the defendants Allen Beach (“Beach”) and Fasken Martineau Walker LLP (“Fasken”) (collectively, the “Fasken Defendants”), in which counsel for the Fasken Defendants attached documents including (i) a letter dated July 18, 2011 (the “Beach Letter”) from Beach to the Canada Revenue Agency (“CRA”) advising that “I am no longer associated with [Escrowagent]”, and (ii) a “Corporation Point in Time Report” indicating that Turner was President/Secretary and Director of Escrowagent as of April 1, 2011.

[11] With respect to the Counsel Claim, the plaintiffs submit that they did not discover, and could not reasonably have discovered, that Turner was counsel to GLGI until they received the statement of defence served by the Fasken Defendants on June 21, 2019 (the “Fasken Defence”), in which the Fasken Defendants pleaded that allegation. The plaintiffs submit that there was no reference to such a role in the material available to them, and that to the contrary, in his affidavit sworn on September 3, 2014 in relation to Tax Court proceedings (the “September 2014 Affidavit”), Turner stated that his role was to act as a “representative” or “liaison” between those Class members who were engaged in tax assessment appeals and their counsel for those tax assessment appeals.

[12] Consequently, the plaintiffs submit that the court cannot make a specific finding of fact that the limitation period had expired before they served their notice of motion with respect to either the Trust or Counsel Claims.

[13] The defendants take no position on the motion.

[14] For the reasons I set out below, I agree with the plaintiffs. I grant the plaintiffs leave to amend their claim to add Turner as a defendant, with Turner permitted to raise the limitation period in his defence.

Facts

[15] While I review the evidence as to Turner’s role in the Gift Program, I make no factual finding in that regard. Turner’s actual conduct is not relevant to the material issue on this motion, i.e. when was Turner’s alleged conduct discovered, or reasonably discoverable, by the plaintiffs?

(a) The Gift Program

[16] The Gift Program was a leveraged charitable donation scheme offered to the public from 2004 to 2014. The plaintiffs allege that the Gift Program was a sham, and that its sole purpose was to enrich certain of the defendants at the expense of the Class.

(b) The allegations against Escrowagent and Beach

[17] Escrowagent was incorporated by Beach on November 4, 2004. Beach was the sole officer and director of Escrowagent. In the Statement of Claim, the plaintiffs alleged, inter alia, that Beach created Escrowagent “as part of the conspiracy that he entered into with the [administrators of the Gift Program] and Robert Lewis”. The plaintiffs further alleged that Beach was the “principal” of Escrowagent and, as such, knew that the Gift Program was a sham. The plaintiffs alleged that:

…as the principal of Escrowagent, [Beach] drew funds out of that company as salary, bonuses and dividends, knowing at all times that these funds originated as the cash donations made by the Plaintiffs and the Class members, which were supposed to be paid to Escrowagent to cover the bona fide administrative costs of Escrowagent in respect of their participation in the Gift Program, including it effecting the legitimate transfer of their cash and in kind donations to bona fide charities. Escrowagent, and Beach as the principal of Escrowagent, knew that the Gift Program was a sham, that Escrowagent did not perform any functions, and that Escrowagent and Beach were participating in a conspiracy, that the Gift Program was created for their own and others’ enrichment and that funds that Escrowagent received were never used for their intended purpose, that Escrowagent did not perform the escrow functions it was supposed to perform, and that the funds were therefore impressed with a constructive or resulting trust in favour of the Class.

(c) The allegations against Turner

[18] Turner was a taxation lawyer and retired as a partner at Fraser Milner Casgrain LLP (now Dentons LLP) in 2005. Turner practiced as sole practitioner after he retired from Fraser Milner Casgrain LLP and retired from the practice of law on January 1, 2018.

[19] The plaintiffs allege that Turner is personally liable for having engaged in the following impugned conduct in two roles at Escrowagent:

(i) The Trust Claim: The plaintiffs allege that as a person with control of Escrowagent between September 24, 2010 and May 5, 2014 (as pleaded with respect to Beach’s conduct in the same alleged capacity), Turner (like Beach) would have known that (a) the Gift Program was a sham, (b) Escrowagent “did not perform the functions it was supposed to perform”, and (c) Escrowagent “received [funds which] were never used for their intended purpose”. As with Beach, the plaintiffs plead that Turner was paid for his services from fees paid by the Gift Program participants. The plaintiffs allege that the fees are impressed with a trust and, as such, Turner knowingly received trust funds and was unjustly enriched; and

(ii) The Counsel Claim: The plaintiffs allege that as counsel to GLGI, its principal and promoter Robert Lewis (“Lewis”), and to the administrators of the Gift Program (as pleaded with respect to Beach’s conduct in the same alleged capacity), Turner was negligent towards the Class, made negligent misrepresentations to the Class, and failed in his duty to warn the Class of the “sham” Gift Program.

(d) The plaintiffs’ actual knowledge of Turner’s involvement with the Gift Program

[20] Turner is not identified in the plaintiffs’ Gift Program documents. For example, the signature lines for Escrowagent on the copies of the Directions executed by Lynn Wintercorn in 2011-2013 and by Peter Newman in 2011-2013 are blank.

[21] The plaintiffs and their counsel did not have any primary documentary sources identifying who was operating Escrowagent during those years.

[22] On September 25, 2017, prior to commencing this action, plaintiff’s counsel obtained a corporation profile report (previously defined as the September 2017 CPR) for Escrowagent, which (i) showed that the company was incorporated on November 4, 2004 and (ii) named Jerome Sylvan as its then-current sole director and officer. The September 2017 CPR showed further that Sylvan had become director and officer on April 1, 2014, approximately at the time that GLGI ceased promoting the Gift Program. Turner was not listed on the September 2017 CPR.

[23] The September 2017 CPR does not identify the shareholders of Escrowagent. The plaintiffs had no evidence of the identity of Escrowagent’s shareholders.

[24] The plaintiffs did not have actual knowledge of Turner’s control of Escrowagent until they received the Fasken E-mail in November 2018. The plaintiffs did not have actual knowledge of Turner’s role as counsel to GLGI until they received the Fasken Defence in June 2019.

[25] I summarize the facts relevant to the plaintiffs’ knowledge of Turner’s involvement in the Gift Program prior to the Fasken E-mail and Fasken Defence, as follows:

(i) The action was commenced by Statement of Claim issued on September 28, 2017. The claim was amended on January 9, 2018, and again on January 29, 2019;

(ii) Some of the defendants have been noted in default. Almost all of the other defendants delivered statements of defence in November and December 2018, in accordance with an agreed-upon timetable;

(iii) By agreement of counsel, the Fasken Defendants did not deliver their defence in the winter of 2018; and

(iv) None of the defences delivered in 2018 made any reference to GLGI or Lewis retaining the services of any lawyers other than Beach or Robert Kepes.

[26] The evidence of plaintiffs’ counsel on this motion was that it was upon the receipt of the Fasken E-mail on November 5, 2018 that the plaintiffs knew that Turner had “assumed control of Escrowagent”. Beach advised CRA in the letter that Beach was “no longer associated with [Escrowagent]”. The plaintiffs acknowledged that this statement in the Beach Letter, combined with the “Corporation Point in Time Report” dated July 18, 2011 (which was attached to the Fasken E-mail) showing Turner as President/Secretary and Director of Escrowagent, would have been sufficient to discover the Trust Claim against Turner in his personal capacity.

[27] The above knowledge was consistent with the Fasken Defence delivered on June 21, 2019, in which the Fasken Defendants plead at paragraph 46 that on April 1, 2011, Beach “transferred control” of Escrowagent to Turner and “delivered Escrowagent’s records” to him.

[28] With respect to the Counsel Claim, the plaintiffs had no actual knowledge of Turner’s alleged role as counsel to GLGI, Lewis, and the administrators of the Gift Program until the plaintiffs received the Fasken Defence on June 21, 2019. The Fasken Defendants plead at paragraph 78 that “[b]y 2010, Turner had become involved as solicitor for GLGI”.

[29] The only information the plaintiffs had about Turner’s involvement with the Gift Program (prior to the Fasken E-mail and Fasken Defence) was from an affidavit sworn by Turner on September 3, 2014 (previously defined as the September 2014 Affidavit), discovered in the plaintiffs’ review of the reasons and court file in the Tax Court matter of Mariano v. The Queen, 2015 TCC 244, [2016] 1 C.T.C. 2132 (“Mariano”).

[30] Mariano was an appeal heard by the Tax Court from assessments issued by the Minister of National Revenue denying the appellants charitable tax credits associated with their donations made through the Gift Program. The Mariano decision dealt only with appeals arising from tax years 2004 and 2005, and not any subsequent years in which the Gift Program operated.

[31] The plaintiffs and their counsel considered the Mariano decision, and Justice Pizzitelli’s reasons, prior to issuing the Claim on September 28, 2017. Subsequent to the issuance of the Claim, the plaintiffs and their counsel also obtained and reviewed portions of the Mariano court file, including the exhibits from the hearing and the hearing transcripts. Plaintiffs’ counsel received the first of the trial transcripts on October 27, 2017. The plaintiffs began their review of the court files as soon as they were received on November 27, 2017. [3]

[32] Neither Justice Pizzitelli’s reasons nor the Mariano hearing transcripts refer to Turner. The only document in the Tax Court file referencing Turner is the September 2014 Affidavit.

[33] In the September 2014 Affidavit, Turner described his involvement with the Tax Court appeal as follows:

Originally, [the Mariano appellants], using Mr. Borraccia as common counsel, filed Notices of Appeal in this Court related to the GLGI Case. It was decided that it would not be convenient to have each of the 16 appellants giving instructions independently to Mr. Borraccia. Accordingly, I was selected as the person (the “Representative”) who would act as a liaison between the various appellants on the one hand and Mr. Borraccia on the other. My role is to give instructions to counsel in relation to the conduct of the GLGI Case. I have been fulfilling that role since 2009 and continue to do so.

[34] Turner further stated in his affidavit that:

Due to the urgency of the need to retain new counsel, the GLGI and I decided to recommend that the Appellants retain Dentons, and then the process of finding new counsel could be undertaken.

[35] Consequently, Turner described himself as a “representative” or “liaison” between investors and counsel, providing instructions to the investors’ counsel “related to the GLGI Case”, but Turner did not refer to any role as counsel to GLGI.

[36] Finally, from their review of the decision in Mariano, the plaintiffs were aware that Beach (i) controlled Escrowagent, (ii) was one of the solicitors for Lewis, and (iii) received documents from the appellants. Pizzitelli T.C.J. held (Mariano, at para. 9):

Another relevant party involved in the Program was Escrowagent Inc. (the "Escrow Agent"), a corporation controlled by Allan Beach, one of the solicitors for the Promoter, and others, who purportedly received documents from each applicant […]

(e) Other available evidence relevant to when the plaintiff could have discovered the claim against Turner

[37] Under s. 5(1) of the Limitations Act, which I review in more detail below, a claim is discovered on the earlier of when the matters set out in s. 5(1)(a) are actually discovered or could be discovered by a “reasonable person with the abilities and in the circumstances of the person with the claim”.

[38] Consequently, in order to determine whether the court can make a specific finding of fact that the proposed claim against Turner is statute-barred, it is necessary to review the evidence that could have been available to the plaintiffs but was not obtained or considered by them.

[39] In the present case, the only such evidence relied upon by Turner is (i) an affidavit Turner asserts he swore on October 1, 2014 in the Mariano matter (the “October 2014 Affidavit”), and (ii) the historical CPRs that would have indicated that Turner was an officer and director of Escrowagent between April 1, 2011 and April 1, 2014. I address each of these below.

1. The October 2014 Affidavit

[40] In response to this motion, Turner produced the October 2014 Affidavit, which he asserts he swore in support of the Mariano tax appeal litigation.

[41] In his cross-examination, Turner acknowledged that he has no evidence that the October 2014 Affidavit was filed with the Tax Court in the Mariano matter. The plaintiffs reviewed that file and only located the September 2014 Affidavit.

[42] Consequently, I cannot make a specific finding of fact that the plaintiffs could have discovered the October 2014 Affidavit with due diligence. There is no evidence that the affidavit was in the Mariano court file, and the uncontested evidence is that the plaintiffs reviewed the Mariano court file and did not locate it. On that basis alone, the October 2014 Affidavit cannot be relied upon at this motion as evidence of what the plaintiffs could have known about Turner’s involvement in the Gift Program.

[43] In any event, even if the court were to consider the October 2014 Affidavit as being available to the plaintiffs (which Turner did not establish), in that affidavit Turner describes his role in the Tax Court appeal using almost identical wording to that in the September 2014 Affidavit. He describes himself as a “representative” of the appellants, to act as a “liaison” for providing instructions to their counsel. He states:

Originally, [the Mariano appellants] filed Notices of Appeal in this Court related to the GLGI Case. It was decided that it would not be convenient to have each of the 16 appellants giving instructions independently to counsel. Accordingly, I was selected as the person (the “Representative”) who would act as a liaison between the various appellants on the one hand and their counsel on the other. My role is to give instructions to counsel in relation to the conduct of the GLGI Case. I have been fulfilling that role since 2009 and continue to do so.

2. Historical CPRs

[44] The historical CPRs dated June 23, 2011, July 18, 2011, and May 5, 2014 establish that:

(i) Beach was the sole officer and director of Escrowagent from November 4, 2004 to April 1, 2011 when he ceased to act;

(ii) On April 1, 2011, Turner was appointed the sole officer and director of Escrowagent. Turner was the sole officer and director from April 1, 2011 to April 1, 2014 when he ceased to act. Turner was president and secretary of Escrowagent; and

(iii) On April 1, 2014, Jerome Sylvan became the sole director and officer of Escrowagent.

[45] The September 2017 CPR obtained by the plaintiffs’ counsel on September 25, 2017 referred to the existence of historical corporate information (including officers and directors). It states [block letters in original text]:

THIS REPORT SETS OUT THE MOST RECENT INFORMATION FILED BY THE CORPORATION ON OR AFTER JUNE 27, 1992, AND RECORDED IN THE ONTARIO BUSINESS INFORMATION SYSTEM AS AT THE DATE AND TIME OF PRINTING. ALL PERSONS WHO ARE RECORDED AS CURRENT DIRECTORS OR OFFICERS ARE INCLUDED IN THE LIST OF ADMINISTRATORS.

ADDITIONAL HISTORICAL INFORMATION MAY EXIST ON MICROFICHE

[46] Plaintiffs’ counsel acknowledged on cross-examination that:

(i) she was aware on September 25, 2017 (based on the September 2017 CPR) that there had been a change in the directors and officers of Escrowagent since Beach;

(ii) she did not obtain any corporate records to identify any other officers or directors of Escrowagent appointed between November 4, 2004 and April 1, 2014;

(iii) there was no reason to believe that there had been no intervening officers or directors apart from Messrs. Beach and Sylvan;

(iv) she had no reason not to obtain any corporate records to determine if there were any other officers or directors of Escrowagent appointed between November 4, 2004 and April 1, 2014; and

(v) she understood that that “corporate records for any corporation will show who the officers and directors are”, and did not take any further steps to identify the intervening officers.

[47] Consequently, it is not disputed that the plaintiffs could have obtained the historical CPRs.

Analysis

[48] The issue before the court is whether the plaintiffs should be granted leave to amend their Claim to add Turner as a defendant.

(a) The positions of the parties

[49] Turner submits that if the plaintiffs had obtained the historical CPRs, then they would have known that Turner was the sole officer and director of Escrowagent (and President and Secretary).

[50] Turner submits that since the plaintiffs already knew (as pleaded in the Statement of Claim) that (i) the Gift Program was a “sham”, (ii) Escrowagent “did not perform any functions” and “received [funds which] were never used for their intended purpose”, and (iii) Escrowagent “did not perform the escrow functions it was supposed to perform”, then the court can make a specific finding of fact that a reasonable person with the abilities and in the circumstances of the plaintiffs would have known of the material facts to base both the Trust and Counsel Claims against Turner by no later than September 25, 2017, [4] the date the plaintiffs obtained the September 2017 CPR.

[51] Turner also submits that the plaintiffs knew that Turner was “the principal of Escrowagent”, an allegation made in the Third Amended Statement of Claim, but not in the Statement of Claim.

[52] With respect to the Trust Claim, the plaintiffs submit that they could not have reasonably discovered that Turner was in “control” of Escrowagent until receipt of the Fasken E-mail on November 5, 2018, and that without such knowledge, they could not have known of a claim against Turner for personal liability outside his role as officer and director for knowing receipt of trust funds or unjust enrichment for collecting fees from an alleged “sham” Escrowagent corporation.

[53] With respect to the Counsel Claim for negligence, negligent misrepresentation, and breach of duty to warn, the plaintiffs submit that they could not have reasonably discovered that Turner acted as counsel until that information was pleaded in the Fasken Defence received on June 21, 2019.

[54] In order to address the issue, it is necessary to consider the applicable law governing (i) motions to add a party under Rule 5.04(2) of the Rules of Civil Procedure, (ii) limitation periods and discoverability, and (iii) personal liability of an officer or director.

[55] I address the applicable law for each of these issues, and then apply that law to the facts of this case.

(b) The applicable law

1. The applicable law on a motion to add a party under Rule 5.04(2)

[56] I summarize the applicable principles as follows:

(i) Rule 5.04(2) of the Rules of Civil Procedure provides that the court may add, delete or substitute a party on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment. An order adding a party under Rule 5.04(2) is discretionary (Pepper v. Zellers Inc. (2006), 83 O.R. (3d) 648 (“Pepper”), at para. 8);

(ii) A motion judge is entitled to assess the record to determine, as a question of fact, whether there was “a reasonable explanation” on the evidence demonstrating why the proposed defendant's identity could not have been determined through the exercise of reasonable diligence (Pepper, at para. 19);

(iii) The evidentiary threshold that must be met by a plaintiff on the issue of discoverability in the context of a limitation period is low (Pepper, at para. 14; Mancinelli v. Royal Bank of Canada, 2018 ONCA 544, 131 O.R. (3d) 497 (“Mancinelli”), at para. 24; and Morrison v. Barzo, 2018 ONCA 979, 144 O.R. (3d) 600 (“Morrison”), at para. 32);

(iv) The low threshold is required since motions under Rule 5.04 are brought at the pleadings stage, where the evidentiary record is not well-developed and the plaintiffs have not had the opportunity “to put their best foot forward” (Fanshawe College of Applied Arts and Technology v. Sony Optiarc Inc., 2013 ONSC 1477 (“Fanshawe”), at para. 28);

(v) Consequently, the plaintiffs’ explanation as to why the claim could not have been discovered earlier must be given a “generous reading”, and the context of the claim must also be taken into consideration (Mancinelli, at para. 24; Morrison, at para. 32);

(vi) If there is any conflict on the evidence on discoverability, the plaintiffs ought to be granted leave to amend and the respondents ought to be permitted to raise their limitation period defence on the merits of the action (Wakelin v. Gourley (2006), 76 O.R. (3d) 272 (Mast.) (“Wakelin”), at para. 15); and

(vii) The court can find that a plaintiff’s claim is statute-barred on a discoverability basis on a motion to add a party as a defendant only if the court can make a specific finding of fact that more than two years have passed from the s. 5(1)(b) date on which the claim ought to have been discovered until the motion was first brought (Fennell v. Deol, 2016 ONCA 249 (“Fennell”), at paras. 30-31.

[57] Similarly, Master Dash held in Wakelin, at para. 15:

If the plaintiff puts in evidence of steps taken but the proposed defendant also provides evidence of further reasonable steps that the plaintiff could have taken to ascertain the information within the limitation period then the court will have to consider whether the plaintiff’s explanation clearly does not amount to due diligence. If there is any doubt whether the steps taken by the plaintiff could not amount to due diligence then this is an issue that must be resolved on a full evidentiary record at trial or on summary judgment. The strength of the plaintiff's case on due diligence and the opinion of the master or judge hearing the motion whether the plaintiff will succeed at trial on the limitations issue is of little or no concern on the motion to add the defendants.

[58] The necessity for a “low” threshold of evidence to satisfy the court that a party cannot be added due to the expiry of a limitation period is consistent with the above principles. Given that the Rule 5.04(2) motion is at a very early stage of the action, it ought not be transformed into a motion for summary judgment or a trial of the issue.

2. The applicable law on limitation periods and discoverability

[59] I first review the applicable legislation and then consider the principles established under the case law.

A. The applicable legislation

[60] The Limitations Act creates a basic limitation period (under s. 4) ending on the second anniversary of the day on which the claim was discovered. A claim is discovered on the earlier of the date on which the plaintiff knew of it or ought to have known of it:

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.

[61] Section 21 of the Limitations Act prohibits the addition of a party to an action where the limitation period has expired:

Adding party

21 (1) If a limitation period in respect of a claim against a person has expired, the claim shall not be pursued by adding the person as a party to any existing proceeding.

B. The principles governing limitation periods and discoverability under the case law

[62] I summarize the relevant principles governing limitation periods and discoverability under the case law as follows:

(i) The policy reasons for statutory limitations of suits from the perspective of a potential defendant include: (a) recognition of the fact that there comes a time when a proposed defendant may reasonably expect that it will not be held to account for past obligations, (b) the desirable objective of foreclosing claims based on stale evidence, i.e., once a limitation period has expired, the potential defendant should be relieved from the need to preserve evidence relevant to the claim, and (c) the important public benefit to be achieved by requiring plaintiffs to act diligently and not to “sleep on their rights”, thus fostering the timely commencement of suits and closure of claims (M (K) v. M (H), [1992] 3 S.C.R. 6, at pp. 28-30);

(ii) The principle of discoverability provides that a limitation period commences when the plaintiff discovers the underlying material facts or, alternatively, when the plaintiff ought to have discovered those facts by the exercise of reasonable diligence (Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147 at p. 224);

(iii) The obligation on a plaintiff to exercise reasonable diligence is a positive one (Pepper, at para. 16);

(iv) When a reasonable person with the abilities and in the circumstances of the person with the claim ought to have known of the matters giving rise to the claim is a question of fact (Arcari v. Dawson, 2016 ONCA 715, 134 O.R. (3d) 36, at para. 9);

(v) Due diligence is a factor which informs the inquiry into when a reasonable person with the abilities and in the circumstances of the moving party first ought to have known of their claim against the respondent, but lack of due diligence is not a separate and independent reason for dismissing a plaintiff’s claim as statute-barred if there is no specific finding of fact as to when the claim was reasonably discoverable (Fennell, at paras, 18, 24; Galota v. Festival Hall Developments Limited, 2016 ONCA 585, 133 O.R. (3d) 35 (“Galota”), at para. 23);

(vi) The “due diligence” standard can encompass no action at all, if there are no steps that the plaintiff reasonably ought to have taken to investigate the potential involvement of the defendant (Galota, at para. 24);

(vii) In fact-specific cases, the due diligence standard may be satisfied by a review of publicly available documents (Mancinelli, at para. 27);

(viii) A solicitor has an obligation to give evidence of “all steps taken to ascertain the identities of the proposed defendants” (Wakelin, at para. 24); and

(ix) In most cases, the court expects an affidavit from the moving party's solicitor with “a list of the attempts made by the solicitor to obtain information to substantiate the assertion that the party was reasonably diligent” and provide “an explanation for why she was unable to determine the facts,” including readily and publicly available information (Zapfe v. Barnes (2003), 66 O.R. (3d) 397 (C.A.), at para. 35; Auger v. Wood, 2014 ONSC 5306, at paras. 64, 68).

3. The applicable law as to the personal liability of officers and directors

[63] In ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (1995), 26 O.R. (3d) 481 (C.A.) (“ScotiaMcLeod”), the court (i) granted the appeal and allowed the third party claim against Charles F. Gill (“Gill”) and Irving R. Gerstein (“Gerstein”), two officers and directors (president and chief executive officer respectively) of Peoples Jewellers Ltd. (“Peoples”) and (ii) dismissed the appeal and struck the third party claim against other officers and directors (at para. 40).

[64] The third party claim against all of the directors and officers had been struck by the motion judge.

[65] Finlayson J.A. held that the alleged conduct of Gill and Gerstein could support a claim of personal liability. The allegations were that (at paras. 2-15):

(i) The plaintiff investors (Montreal Trust Company of Canada and Credit Lyonnais Canada) had purchased debentures of Peoples;

(ii) Gill and Gerstein represented to ScotiaMcLeod at due diligence meetings that the preliminary prospectus and the documents incorporated by reference did not omit any additional information that could be material to Peoples;

(iii) Gill and Gerstein also represented to ScotiaMcLeod that liabilities of Peoples with respect to obligations of Zale Holding Corporation and Gordon Jewellery Corporation (the “Zale Liabilities”) were extremely remote and not material to the financial affairs of Peoples;

(iv) Gill and Gerstein were integrally involved in the attempt to market the debentures, including providing information to potential debenture holders that they certified as accurate to the effect that there were no contingent liabilities related to Peoples’ investment in Zale and its affiliates other than that disclosed in the prospectus;

(v) Gill and Gerstein signed the prospectus on behalf of Peoples, stating that the prospectus contained no misrepresentation that is likely to affect the market price of the securities to be distributed;

(vi) Gill and Gerstein signed a “certificate of no material change”, addressed to ScotiaMcLeod (the underwriter) which stated that the representations and warranties of Peoples were true and correct at the time of closing and that there were no material liabilities of Peoples other than those disclosed in the financial statements;

(vii) Gill continued to represent that the Zale Liabilities were remote and not material to the financial affairs of Peoples following the sale of debentures; and

(viii) Gill and Gerstein knew that the Zale Liabilities existed and were material but were not disclosed in the prospectus and other documents provided to investors, and that the investors would rely on those documents.

[66] The court held that the failure to “make personal allegations of tortious conduct” against the remaining directors was fatal to the claim against them. Finlayson J.A. held (at paras. 25 and 26):

[O]fficers or employees of limited companies are protected from personal liability unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own.

[…]

Considering that a corporation is an inanimate piece of legal machinery incapable of thought or action, the court can only determine its legal liability by assessing the conduct of those who caused the company to act in the way that it did. This does not mean, however, that if the actions of the directing minds are found wanting, that personal liability will flow through the corporation to those who caused it to act as it did. To hold the directors of Peoples personally liable, there must be some activity on their part that takes them out of the role of directing minds of the corporation.

[67] The court allowed the appeal with respect to the claim against Gill and Gerstein. Finlayson J.A. held (at paras. 38 and 39):

Accordingly, I am not disposed to allow the appeal with respect to the directors other than Gill and Irving Gerstein. Gill and Irving Gerstein are placed in a different position by reason of being the two most senior executive officers of Peoples. It is alleged against them that they were directly and personally involved in the marketing of the debentures and that they were involved in making certain representations personally which were relied upon by the appellants. The appellants have also made an allegation of negligent misrepresentation against both of them personally.

While the authorities make clear that officers of corporations who are the directing minds of the corporation have the same identity of interest as the directors and thus the same immunity to suit, I am not prepared to dismiss the action against Gill and Irving Gerstein at this stage. The threshold of sustainability of pleadings is very low. Although I am of the view that the appellants are attempting to stretch the envelope of available jurisprudence to encompass the acts of Gill and Irving Gerstein, an action should not be dismissed at this stage simply because it is novel in law […]

(c) Application of the law to the facts of this case

[68] For the reasons that follow, I cannot make a specific finding of fact that the plaintiff could have discovered Turner’s alleged liability prior to November 12, 2017, i.e. two years before the plaintiffs delivered their notice of motion.

[69] I review the Trust and Counsel Claims separately, as the evidence relevant to each of them is different.

1. The Trust Claim

[70] At the hearing, counsel for Turner summarized his position as follows:

(i) The plaintiffs could have known that Turner was the sole director and officer of Escrowagent, and its president and secretary, no later than September 25, 2017 when it obtained the September 2017 CPR but did not obtain the historical CPRs;

(ii) At least as of September 28, 2017, when the plaintiffs issued the Claim, they knew that (a) the Gift Program was a “sham”, (b) Escrowagent “did not perform any functions” and “received [funds which] were never used for their intended purpose”, and (iii) Escrowagent “did not perform the escrow functions it was supposed to perform”; and

(iii) Consequently, knowing that Turner was the sole officer and director of a corporation whose alleged purpose was to “fleece” [5] the public, the court can make a specific finding of fact that the plaintiffs would have known that Turner could be personally liable for knowing receipt of trust funds or unjust enrichment.

[71] I do not agree.

[72] The only information Turner submits the plaintiffs ought to have obtained was the historical CPRs. However, even if the plaintiffs had obtained such information and discovered that Turner was the president/secretary and sole officer and director of Escrowagent, I cannot make a specific finding of fact on the evidence before me that the plaintiffs would have known that Turner could be liable personally for conduct outside his role as a director and officer. [6]

[73] While the defendants rely on the plaintiffs’ allegation in the Third Amended Statement of Claim that Turner was a “principal” of Escrowagent, that pleading only arose after the plaintiffs learned that Turner was in “control” of Escrowagent, and not only an officer or director. There is no evidence in the record that the plaintiffs knew or reasonably should have known that Turner was a “principal” of Escrowagent, until the Fasken E-mail.

[74] Given the test in ScotiaMcLeod, an officer or director will not be personally liable “unless it can be shown that their actions are themselves tortious or exhibit a separate identity or interest from that of the company so as to make the act or conduct complained of their own” (at para. 25). If actions taken by directing minds are “found wanting”, personal liability will not “flow through the corporation to those who caused it to act as it did” unless there is “some activity on their part that takes them out of the role of directing minds of the corporation” (at para. 26).

[75] In ScotiaMcLeod, only the directors Gill and Gerstein were permitted to be named personally as defendant directors and officers, since it was pleaded that their individual conduct in making negligent misrepresentations could engage personal liability. The court struck the claims against the remaining officers and directors since there was no such “personal” conduct pleaded.

[76] Consequently, if ScotiaMcLeod were to be considered from a discoverability perspective, the limitation period against Gill and Gerstein would run not just from knowing that they were officers and directors, but also from knowing that they had engaged in some conduct that was tortious on its own which took them out of the role of directing minds.

[77] Similarly, in the present case, there is a credible argument that merely acting as an officer or director for Escrowagent (as in ScotiaMcLeod) would not have been sufficient to incur personal liability. Regardless of whether a corporation has one or many directors or officers, the principles in ScotiaMcLeod still apply: there must be evidence of some independent tortious act for the director or officer to be personally liable while acting as a director and officer.

[78] In the present case, there is a credible argument, which should be tested at trial (or possibly at summary judgment if there is no genuine issue requiring trial), as to whether the lack of knowledge that Turner was in “control” of Escrowagent was a necessary requirement to establish personal liability. The plaintiffs submit that they could not have known that any funds which Turner may have received from Escrowagent could be impressed with a constructive trust or result in unjust enrichment unless Turner had control of Escrowagent. The plaintiffs submit that such control would be necessary so that Turner knew or ought to have known that the corporation “did not perform the escrow functions it was supposed to perform” (as pleaded by the plaintiffs) and was effectively a participant with GLGI, Lewis, and others in a scheme to “fleece” investors.

[79] In particular:

(i) Turner is not identified in the plaintiffs’ Gift Program documents. For example, the signature lines for Escrowagent on the copies of the Directions executed by Lynn Wintercorn in 2011-2013 and by Peter Newman in 2011-2013 are blank;

(ii) The plaintiffs and their counsel did not have any primary documentary sources identifying who was operating Escrowagent during those years;

(iii) Prior to the delivery of the Fasken E-mail, neither the plaintiffs nor their counsel knew that Turner had assumed control of Escrowagent from Beach; and

(iv) The plaintiffs only learned on Turner’s cross-examination for this motion that he took on an operating role at Escrowagent after a falling out between Lewis and the IDI Defendants [7] which led Beach to “[feel] that his position at Escrowagent was untenable, and he wanted out”.

[80] Consequently, even if the plaintiffs knew as of September 28, 2017 that Escrowagent was a “sham”, I cannot make a specific finding of fact on the evidence before me that the plaintiffs knew or reasonably should have discovered the claim against Turner from the historical CPRs and other information known at the time. That issue ought to be resolved at trial or by summary judgment (if applicable).

2. The Counsel Claim

[81] Similarly, I cannot make a specific finding of fact that the claim against Turner in his capacity as counsel to GLGI is statute-barred.

[82] In order for the Counsel Claim to be statute-barred against Turner, the plaintiffs would have needed to know, or been able to have reasonably discovered, that Turner provided legal services to GLGI, Lewis and the administrators of the Gift Program in a manner that engaged Turner’s liability to the Class in negligence, negligent misrepresentation, and breach of a duty to warn.

[83] However, not only was Turner’s role as counsel not available through a corporation profile report, there is no mention from any source (until delivery of the Fasken Defence) that Turner acted as counsel for GLGI, Lewis, or any other defendants. In particular:

(i) None of the defences delivered in 2018 made any reference to GLGI or Lewis retaining the services of any lawyers other than Beach or Robert Keyes; and

(ii) It was only in his affidavit sworn for this motion that Turner stated that he was retained by GLGI in 2009 “to provide general counsel advice”, and he acknowledged in his cross-examination that that his retainer continued until late 2014.

[84] While there may be some dispute as to the scope of his retainer at trial, [8] the issue on this motion is only whether the court can make a specific finding of fact that the information about his role as counsel was known to the plaintiffs or reasonably discoverable by them more than two years before the notice of motion to add Turner as a defendant. Given the lack of any evidence indicating a counsel role, the “low” threshold to maintain the pleading is met.

[85] Further, based on the September 2014 Affidavit, there was additional evidence to support a reasonable position that Turner’s role as counsel to GLGI, Lewis, or the administrators of the Gift Program was not discoverable.

[86] In his September 2014 Affidavit, Turner referred only to his role as “the person (the ‘Representative’) who would act as a liaison between [the investors] on the one hand and Mr. Borraccia [counsel for the investors in the tax appeals] on the other.” Turner described his role as “to give instructions to counsel in relation to the conduct of the GLGI Case”.

[87] Consequently, it is not clear from that evidence that the basis for the Counsel Claim could reasonably have been known to the plaintiffs until the Fasken Defendants pleaded that allegation at paragraph 78 of the Fasken Defence on June 21, 2019.

[88] With respect to the October 2014 Affidavit, there remains a disputed question of fact as to whether the affidavit was even filed. It is not contested that the plaintiffs reviewed only the September 2014 Affidavit, and Turner could offer no evidence to establish that the latter affidavit was placed in the court file.

[89] In any event, the October 2014 Affidavit effectively restates Turner’s evidence from the September 2014 Affidavit, repeating that he acted as a “representative” or “liaison” to give instructions to counsel for the investors in the tax appeals.

3. Conclusion

[90] For the above reasons, I cannot make a specific finding of fact that the plaintiffs knew or ought reasonably to have discovered the claim against Turner prior to November 12, 2017, such that the claim would be statute-barred.

Order and costs

[91] I grant the plaintiffs’ motion to add Turner as a defendant, in the form attached as the Third Amended Statement of Claim at Schedule “A” to the motion record, with leave to Turner to plead a limitations defence.

[92] Both parties submitted bills of cost for the motion. The plaintiffs sought $26,547.42 in partial indemnity costs (inclusive of taxes and disbursements). Turner sought $10,711.35 in partial indemnity costs (inclusive of taxes and disbursements).

[93] Turner’s counsel worked 46.9 hours in preparation of the hearing, with the time spent principally by a single lawyer called in 2010 at a partial indemnity billing rate of $171 per hour (60 per cent of the actual $285 per hour rate). Senior counsel, called to the bar in 1986, who argued the motion, only worked 6.8 hours on the file, at a partial indemnity billing rate of $210 per hour (60% of the actual $350 per hour rate).

[94] The plaintiffs incurred $31,852.44 (including HST) in partial indemnity fees, almost three times the partial indemnity fees of Turner. In their bill of costs, the plaintiffs reduced the quantum of partial indemnity fees sought to $25,000 (including HST), which they submitted in their bill of costs was done to be “rounded to fair and reasonable”.

[95] The plaintiffs worked 80.4 hours on the file, involving four counsel and a law clerk.

[96] Both plaintiffs’ senior counsel (called to the bar in 1989), and the primary junior counsel (called to the bar in 2011) worked significant hours on the matter, with senior counsel working 27.3 hours and junior counsel working 33.4 hours. Their hourly rates sought were significantly higher than those sought by the defendants’ counsel, with the plaintiffs’ senior counsel seeking $450 per hour (based on an actual rate of $850 per hour) and junior counsel seeking $330 per hour (based on an actual rate of $550 per hour).

[97] Further, both parties made offers to settle the motion. On January 22, 2020, the plaintiffs made an offer to settle at no costs if accepted until January 31, 2020, and at costs of $10,000 (inclusive of disbursements and HST) if accepted at any time “until one minute after the commencement of the argument of this motion”. There was no element of compromise in the offer (except for costs) as the plaintiffs sought the full relief claimed in the notice of motion, i.e. granting leave to amend the Claim in the same form as proposed in the notice of motion.

[98] Turner made an offer to settle, proposing that the Claim could be amended to add Turner, but with a large majority (but not all) of the pleadings against Turner not being added. Turner offered to settle on the basis of no costs if accepted until January 31, 2020, with costs to Turner on a partial indemnity basis to be assessed or agreed if the offer was accepted at any time after February 3, 2020.

[99] The plaintiffs were successful on the motion and are entitled to their costs. However, I find that the time spent and costs incurred on the matter by Turner’s counsel is more reflective of what an unreasonable party would expect on a motion of this nature. While the motion required brief affidavits and cross-examination, the evidentiary record was not complex. Further, the case law in this matter is largely settled, and research for the motion was focused on a few key cases.

[100] Further, the actual partial indemnity hourly rates sought by plaintiffs’ counsel are greater than a reasonable party would expect to pay. Even using the plaintiffs’ approach of adding an approximately 20 per cent increase (for inflation) to the maximum allowable rates under the July 1, 2005 costs grid (as adopted in First Capital (Canholdings) Corp. v. North American Property Group, 2012 ONSC 1359, 40 C.P.C. (7th) 46), the maximum partial indemnity rate for senior counsel would be approximately $420 per hour, and the maximum partial indemnity rate for counsel called to the bar for 9 years would be approximately $275 per hour.

[101] I do not suggest that the court is necessarily bound by the hourly rates as set under the costs grid of July 1, 2005 (even adjusted for inflation). However, in this particular case, the partial hourly rates adjusted for inflation of $420 per hour for senior counsel and $275 per hour for counsel of less than 10 years called to the bar are more consistent with what an unsuccessful party would expect to pay.

[102] Further, I make no adjustments to my assessment of costs based on the offers to settle. The plaintiffs offered no element of compromise, as the offer to settle would have resulted in leave to plead the same proposed claim. Turner’s offer to settle was similarly deficient in offering a compromise, and in any event, the plaintiffs were successful on the motion.

[103] I recognize that the motion was important for the parties and did require proper preparation. However, for the reasons I discuss above, I reduce the costs sought by the plaintiffs to reflect a reduction in hours and hourly rates, as well as the straightforward nature of the legal issues (and limited factual record) involved.

[104] Consequently, I fix costs at $15,000 (inclusive of taxes and disbursements), payable by Turner to the plaintiffs within 30 days of this order.

GLUSTEIN J. Date: 20200304

ONTARIO SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-17-583573-00CP DATE: 20200304

LYNN WINTERCORN, PETER NEWMAN, EMILY FLAMMINI and ALEX KEPIC Plaintiff AND: GLOBAL LEARNING GROUP INC., GLOBAL LEARNING TRUST SERVICES INC. as TRUSTEE OF GLOBAL LEARNING TRUST (2004), ROBERT LEWIS, IDI STRATEGIES INC., JDS CORPORATION, ESCROWAGENT INC., JAMES PENTURN, RICHARD E. GLATT, DENIS JOBIN, ALLAN BEACH, MORRIS KEPES & WINTERS LLP, FASKEN MARTINEAU DUMOULIN LLP, CASSELS BROCK & BLACKWELL LLP, WISE, BLACKMAN LLP, and EVANS & EVANS INC. Defendants

REASONS FOR DECISION Glustein J. Released: March 4, 2020

Footnotes

[1] As I discuss below, I make no finding as to the scope of Turner’s retainer, which may be a contested issue at trial.

[2] The September 28, 2017 date reflecting the plaintiffs’ knowledge of facts concerning the role of Escrowagent could be the latest date for the limitation period to run under Turner’s approach, but the minor difference of three days is irrelevant as the proposed claim would still be statute-barred under Turner’s approach by September 28, 2019.

[3] There is no evidence before the court that the material in the Mariano court file ought reasonably to have been reviewed at an earlier date. In any event, as the material from the court file does not establish a basis for a claim against Turner either on the “trust” or “counsel” basis, the timing issue is not relevant.

[4] I note that since there is no evidence as to the date that the plaintiffs learned of the facts as alleged in the Claim about Escrowagent, the latest date for such knowledge to have been acquired would be September 28, 2017, the date the Claim was issued.

[5] The choice of word is that of counsel for Turner.

[6] I make no finding that the claim against Turner is not statute-barred. The plaintiffs did not request such a finding at the hearing, and asked only that the court conclude that it could not make a specific finding of fact that the proposed claim against Turner is statute-barred, such that the issue could be raised at trial.

[7] (a defined term including the defendant, IDI Strategies, Inc.)

[8] Turner states in his affidavit sworn for this motion that he “was not involved and did not provide advice about the creation of the tax shelter scheme or of the trust structure of the gift program and the transactional documents”, nor did he “provide any opinions regarding the validity of the gift program”.