Court File and Parties
COURT FILE NO.: CV-19-006333011 DATE: 2020-09-24
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Active Customs Brokers Limited, Plaintiff AND: Robert Shapero, 1634765 Ontario Limited, International Warehousing & Distribution Inc., IWD Delivery Inc. and IWD Transport Inc., Defendants
BEFORE: C. Gilmore, J.
COUNSEL: Melanie Yach and Don Jack, for the Moving Party Defendants Robert Shapero and 1634765 Ontario Limited. Catherine Francis, for the Responding Party Plaintiff
HEARD: September 9, 2020
ENDORSEMENT on motion
OVERVIEW
[1] The Defendants Robert Shapero (“Robert”) and 1634765 Ontario Limited (“the Shapero Defendants” or “the Defendants”) bring this Rule 21 motion to strike out the claims advanced by the Plaintiff, Active Customs Brokers Limited (“Active Customs” or “the company”) on the basis that they are statute-barred under the Limitations Act, 2002 (“the Limitations Act”).
[2] Active Customs disputes that the action is statute-barred and in the alternative argues that the matter is not proper for a Rule 21 motion.
[3] Active Customs seeks damages and other relief in the context of both an oppression claim under the Ontario Business Corporations Act (the “OBCA”) and a claim for damages for breach of fiduciary duty. Robert was a shareholder and director of Active Customs between 1988 and 2000. The Claim was issued on December 17, 2019. Given that this is a Rule 21 motion, the facts pleaded in the Statement of Claim are assumed to be true.
FACTUAL BACKGROUND
[4] Active Customs operates as a customs broker and has been in business since 1952. The business was founded by Robert’s father Fred Shapero (“Fred”) and his mother Roselind. As a result of an estate freeze initiated by Fred in 1987 Robert became a director and indirect shareholder of Active Customs until he left the business in 2000. Robert’s brother Richard Shapero (“Richard”) has operated the business since 2000. Roselind died in 2009 and Fred died in 2017.
[5] Robert is a lawyer and during the time he worked at Active Customs from 1988 to 2000 he was the company lawyer and a senior employee. Based on an agreement he entered into with Active Customs he was paid approximately $200,000 per annum for his services. There is no dispute that Robert owed a fiduciary duty to the company during the time he worked there.
[6] Between 1988 and 2000 Robert incorporated a number of companies that were complimentary to Active Customs (“the IWD entities”). Richard alleges that Robert told him the IWD entities were part of the Active Customs group and that those entities were supported peripherally by Active Customs through staffing and resources. In the Statement of Claim it is pleaded that Richard “believed all along” that Robert had breached his fiduciary duty towards Fred and the company by:
a. Incorporating companies for his own benefit and receiving income from them which should have gone to Fred or Active Customs;
b. Taking the IWD entities with him when he left the company without any share transfer or compensation to Fred or the company.
[7] Richard, Robert and their sister Janice are the trustees of their father’s estate. Robert has commenced litigation against his sister and brother claiming that certain GICs which were jointly owned by Fred and Richard belong to Fred’s estate, that Richard breached fiduciary duties owed to Fred, and has failed to properly account for his dealings with Fred’s assets. The claims in the estate litigation are heavily disputed and ongoing.
[8] In the context of the estate litigation, banking documents were obtained in 2017 including a net worth statement from Robert showing he had income in excess of $3.2M and liquid and fixed assets exceeding $50M. Richard did not know the extent of the wealth that Robert had accumulated as a result of what he claims was an appropriation of assets he obtained at the expense of Active Customs or his father until he received the net worth statement.
[9] Following the conversion of the estate litigation to a trial of issues, Richard counterclaimed against Robert for an accounting of companies he incorporated while employed by Active Customs, disclosure of documents required to determine Active Customs/Fred’s ownership interest in those companies and damages for breach of fiduciary duty.
[10] After Robert disclosed the Minute Book, financial statements and a Declaration of Trust for IWD, Richard commenced the within litigation on December 17, 2019.
THE ISSUES AND THE LAW
The Test on a Rule 21 Motion
[11] The court may strike a Statement of Claim if it is plain and obvious that no reasonable cause of action is disclosed or if the action is certain to fail[^1]. The facts pleaded must be taken as true and read generously
The Law of Limitations
[12] The Limitations Act, 2002 came into force on January 1, 2004. It contains a basic limitation period of two years subject to the discoverability principles in section 5. There are also transition provisions with respect to acts or omissions which took place prior to January 1, 2004. The transition provisions are set out below:
Transition
Definition
24 (1) In this section,
“former limitation period” means the limitation period that applied in respect of the claim before January 1, 2004. 2002, c. 24, Sched. B, s. 24 (1); 2008, c. 19, Sched. L, s. 5 (1, 2).
Application
(2) Subject to subsection (2.1), this section applies to claims based on acts or omissions that took place before January 1, 2004 and in respect of which no proceeding has been commenced before that date. 2002, c. 24, Sched. B, s. 24 (2); 2008, c. 19, Sched. L. s. 5 (4); 2016, c. 2, Sched. 2, s. 5 (1).
Exception
(2.1) This section does not apply to a claim in respect of which clause 16 (1) (h), (h.1) or (h.2) applies. 2016, c. 2, Sched. 2, s. 5 (2).
Former limitation period expired
(3) If the former limitation period expired before January 1, 2004, no proceeding shall be commenced in respect of the claim. 2002, c. 24, Sched. B, s. 24 (3); 2008, c. 19, Sched. L, s. 5 (3).
Former limitation period unexpired
(4) If the former limitation period did not expire before January 1, 2004 and if no limitation period under this Act would apply were the claim based on an act or omission that took place on or after that date, there is no limitation period. 2002, c. 24, Sched. B, s. 24 (4); 2008, c. 19, Sched. L, s. 5 (5).
Same
(5) If the former limitation period did not expire before January 1, 2004 and if a limitation period under this Act would apply were the claim based on an act or omission that took place on or after that date, the following rules apply:
If the claim was not discovered before January 1, 2004, this Act applies as if the act or omission had taken place on that date.
If the claim was discovered before January 1, 2004, the former limitation period applies. 2002, c. 24, Sched. B, s. 24 (5); 2008, c. 19, Sched. L, s. 5 (3, 6, 7).
No former limitation period
(6) If there was no former limitation period and if a limitation period under this Act would apply were the claim based on an act or omission that took place on or after January 1, 2004, the following rules apply:
If the claim was not discovered before January 1, 2004, this Act applies as if the act or omission had taken place on that date.
If the claim was discovered before January 1, 2004, there is no limitation period. 2002, c. 24, Sched. B, s. 24 (6); 2008, c. 19, Sched. L, s. 5 (3, 8)
Is This an Appropriate Matter for a Rule 21 Motion?
[13] Robert submits that the Court may grant an Order striking a Statement of Claim before a Statement of Defence is filed on the basis of a limitation period where there are no material facts in dispute and no issue of discoverability.
[14] Richard’s position is that the expiry of a limitation period is a defence which must be pleaded. In Clark v. Ontario (Attorney General), 2019 ONCA 311 three police officers sued the Attorney General of Ontario on the grounds that the Crown Attorneys prosecuting the case against certain accused had failed to call important evidence in relation to allegations that the police officers had assaulted the accused. The Attorney General moved to strike the action by way of a Rule 21 motion on the grounds that it was barred by the expiration of the limitation period.
[15] The Ontario Court of Appeal upheld the motion judge’s decision refusing to strike the officers’ claim on the basis that it was time barred. In doing so, the court held that the use of Rule 21 motions on limitations matters continues to be discouraged. It relied on Salewski v. Lalonde, 2017 ONCA 515 as the “controlling authority and limitations issues are not properly determined under Rule 21 unless pleadings are closed and the facts are undisputed” (para 48).
[16] Robert submits that Clark and Salewski have been overturned by Davidoff v. Sobeys Ontario, 2019 ONCA 684. In that case, Mr. Davidoff appealed the striking of his Statement of Claim for wrongful termination in the context of a Rule 21 motion. The Court held that “this is one of the rare cases in which it is appropriate for the limitation issue to be decided on a Rule 21 motion” (para 10). The Court differentiated this case from Salewski and Clark because those cases involved discoverability issues. In Davidoff both parties agreed on the date the claim became discoverable and the limitation period began. In Davidoff, the question the Court had to determine was whether a letter sent to Sobey’s by Mr. Davidoff qualified as Notice of Action.
[17] Richard submits that the issue on this motion is completely different from the Davidoff case and that the Ontario Court of Appeal’s view in the Clark and Salewski line of cases remains good law; that is, allowing such relief on a Rule 21 motion before the close of pleadings continues to be discouraged and is reserved only for rare or exceptional cases.
[18] Robert does not agree. His position is that discoverability is not an issue in this case similar to Davidoff. Based on Richard’s pleading that he “believed all along” that his brother had breached his fiduciary duties, he should have commenced his claim by 2006 based on the transition provisions, (s.25(5)) in relation to a claim which was known but not commenced before January 1, 2004. Alternatively, Robert relies on section 15(b) of the Limitations Act which provides that no proceeding shall be brought in respect of a claim after the 15th anniversary of the day on which the claim is based occurred. Richard would have to have commenced his claim by 2015 based on this section.
[19] Finally, Robert submits that the claim should have been commenced within two years of Richard receiving Robert’s net worth statement. The net worth statement information was received sometime between August and November 2017. However, Richard’s claim was not commenced until December 2019. Those timelines are not disputed.
Limitation Periods for Breach of Fiduciary Duty and Oppression Claims
[20] The Statement of Claim pleads breaches of Robert’s fiduciary duties to Active Customs. Prior to January 1, 2004 such claims were not subject to any limitation period. Under the transition provisions, claims for breach of fiduciary duty which arose or were discovered prior to January 1, 2004 are not subject to any limitation period.
[21] Richard submits this also applies to oppression claims arising in respect of actions constituting a breach of fiduciary duties.
[22] Robert’s position is that oppression is a statutory claim and therefore subject to the Limitations Act. Section 4 of the Limitations Act requires that a proceeding must be brought within two years of the date on which the claim was discovered. If the claim arose and was discovered prior to January 1, 2004 it is subject to the six-year limitation period under the predecessor statute. If the claim was not discovered until after 2004, the two-year limitation period described above applies.
[23] Richard relies on Paragon Development Corp. v. Sonka Properties Inc. In that case the court held that claims for a breach of fiduciary duty are not subject to a limitation period (para 163). The Ontario Court of Appeal upheld the decision on the basis that it was an oppression action based on a breach of fiduciary duty.[^2]
[24] Robert relies on Fracassi v. Cascioli [^3] for the proposition that a breach of fiduciary duty or a claim for oppression cannot escape the two-year limitation period. The Court went on to state that Paragon could not be relied upon as it was decided under the old limitation statute (para 272).
[25] With respect to oppression claims, Justice Pepall in Fracassi agreed with the comments in Justice M. Koehnen’s book, Oppression and Related Remedies in which he stated that “the concept that the limitation period does not begin to run until the oppression is remedied is counter-intuitive.”[^4]
[26] Cases subsequent to Fracassi came to the same conclusion. In Maurice v. Alles[^5] the Ontario Court of Appeal considered limitation period issues in the context of a motion’s judge dismissing an oppression remedy claim on a motion for summary judgment. In that case, the court considered the two lines of cases, one of which endorsed the Court’s discretion to permit a claim commenced more than two years after its discovery if there was an ongoing fact situation of oppressive conduct[^6] and the other following Fracassi in which the Court determined that the two-year limitation period begins when the cause of action begins, not when it is remedied.
[27] The Court in Maurice followed Fracassi in determining that the two-year limitation period applied to oppression cases. The Court noted that oppression is not a claim to which no limitation period applies under section 16 of the Limitations Act, nor is it exempted under section 17 (para 20).
[28] Robert also relies on Solar Harvest Co. v. Dominion Citrus Ltd.[^7] That case involved oppressive conduct which allegedly occurred in 2005 and later in 2009. The applicants commenced their oppression claim in 2014. The claim was dismissed as being statute-barred. Newbould, J. determined that the material facts in relation to the oppression were well known long before the two years prior to the commencement of the claim (para 28). The individual applicant, Mr. Robert Fortune, conceded that he knew that “something was not quite right” as far back as 2008 (para 32). Robert submits that this is a far lower threshold than Richard’s description of having known all along about the alleged oppression.
[29] Finally, with respect to the oppression claim, Robert argues that if no other limitation period applies, the claim must be struck as the oppression claim was commenced outside the 15-year ultimate limitation period in section 15(b) of the Limitations Act. As such, the limitation period would expire in 2015.
[30] Richard argues that this does not apply to claims that were discovered prior to January 1, 2004 and in any event, if section 15(b) applies, Active Customs would plead that Robert wilfully concealed information which would mean that the limitation period would not run.
[31] With respect to the breach of fiduciary duty, it is conceded that Robert owed a fiduciary duty to Active Customs during the time he worked there. In Reichmann v. Koplowitz[^8] the Court held that Ms. Reichmann’s claim for breach of fiduciary duty was discovered prior to January 1, 2004 and therefore no limitation period applied. If it had been discovered after January 1, 2004, the two-year limitation period in the Limitations Act, 2002 would apply.
[32] Richard argues that Robert’s position on the limitation period in this aspect is contradictory in that he claims that Richard did not discover the claim until the fall of 2017 but then relies on Richard’s pleading that he believed all along that Robert had breached his fiduciary duty to Active Customs.
Does the Doctrine of Laches apply?
[33] Robert argues in the alternative that if the claim for breach of fiduciary duty has no limitation period, the claim should be struck based on the doctrine of laches. Richard submits that Robert cannot rely on an equitable defence such as laches for two main reasons:
a. Robert had not filed a Statement of Defence and as laches is an equitable defence, it has not been pleaded, and;
b. Richard alleges that Robert engaged in wrongful conduct. He made these allegations after documents were disclosed in the estate litigation in which Richard discovered that Active Customs was the original shareholder of IWD. This led Richard to commence the within action. Reliance on laches can only be determined at trial and not in the context of a Rule 21 motion.
[34] Robert’s position is that reasonable diligence must be exercised to pursue equitable claims and that equity does not reward acquiescence or delays that make prosecution of the action unreasonable.
Analysis
[35] It is this Court’s view that the statement in Richard’s pleading that he “knew all along” cannot be examined out of context. While Richard had suspicions about Robert’s income, lifestyle and the IWD entities, he had no idea of the extent of Robert’s alleged misconduct nor the wealth he had been able to accumulate as a result of it. That is, he had no information as to any facts that would substantiate a claim.
[36] Had Robert never initiated the estate litigation, it is likely none of these matters would have come to light. Richard would have continued on with a vague knowledge of something but without any proof or solid understanding of it.
[37] It was only in the fall of 2017 that Richard was able to determine what may have happened and the extent of it. As such, it is my view that discoverability did not occur until the fall of 2017. While Richard may have had suspicions before, he had nothing to act on as Robert took all of the relevant corporate documents with him and no formal agreements were signed on Robert’s departure. The fallout from that was as much Richard’s fault as Robert’s. Given the above finding, the transition provisions of the Limitations Act do not apply as discoverability occurred well after 2000.
[38] I find that the limitation period in this case began to run upon receipt of the disclosure in the estate litigation. It is at that point that what Richard “knew all along” became the factual foundation for a claim. I therefore find that discoverability is not an issue in this case. Richard knew as early as August 2017 that he had a potential claim in relation to both oppression and a breach of fiduciary duty, yet he did not act on it until December 2019.
[39] While the Ontario Court of Appeal approaches the use of Rule 21 for limitation period cases with caution, this is one of those rare cases in which a limitation period may be the subject of a Rule 21 motion without the necessity of a defence pleading. Similar to the Davidoff case, discoverability cannot be in issue here because Richard conceded the date on which he received the disclosure that led to the crystallization of the facts related to his claim.
[40] With respect to the Plaintiff’s arguments regarding limitation periods for specific claims, I find that this is a case which falls within the parameters of the Fracassi decision. That is, limitation periods do apply to oppression cases (even in the context of oppression caused by breach of fiduciary duty) as the cause of action arises when the oppression is known (the fall of 2017) and not when it is remedied (at trial). As such, I agree with the moving party that the claim of oppression is a statutory one and subject in any event to a two-year limitation period.
[41] As for the breach of fiduciary duty, as the breach was not fully discoverable until 2017, that claim is subject to the two-year limitation period under the Limitations Act and is far removed from the pre 2004 regime in which there was no limitation period for a breach of fiduciary duty which was discovered prior to 2004.
[42] Given my findings, it is not necessary to address the issue of the 15-year ultimate limitation period or laches. However, if I am wrong, I would have found that the doctrine of laches did not apply as it is clearly an equitable defence which must be pleaded. The 15-year ultimate limitation period issue is only relevant if I am wrong on the issue of discoverability and would be subject of an appeal.
ORDERS AND COSTS
[43] Given all of the above, I make the following Orders:
a. The Defendants’ motion is granted and the Statement of Claim is struck;
b. The Plaintiff shall pay costs to the Defendants in the amount of $10,000 all inclusive.
C. Gilmore, J.
Date: September 24, 2020
[^1]: Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42, 2011 S.C.C. 42 at para 17. [^2]: Paragon Development Corporation v. Sonka Properties Inc., 2011 ONCA 30 at para 10. [^3]: 2011 ONSC 178, [2011] O.J. No. 2425 (ONSC) [^4]: (Toronto: Carswell, 2004) at 57. [^5]: 2016 ONCA 287. [^6]: See Waxman v. Waxman (2004), 2004 CanLII 39040 (ON CA), 186 O.A.C. 201 (Ont. C.A.), leave to appeal refused, (2005), [2004] S.C.C.A., No. 291 S.C.C. and Metcalfe v. Anobile, 2010 ONSC 5087 (Ont.S.C.), [^7]: 2015 ONSC 1315. [^8]: 2017 ONSC 4842