COURT FILE NO.: CV-19-00619508-0000

MOTION HEARD: 20220120

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2250898 ONTARIO INC. o/a FERRARI & ASSOCIATES INSURANCE AND FINANCIAL SERVICES, Plaintiff

AND:

TAMILA MUKELOVA, MARIANNA MICHAEL, RAMI MICHAEL and TAMARA SERGIE, Defendants

BEFORE: Associate Justice R. Frank

COUNSEL: J. VanWiechen for the Plaintiff/Moving Party

Cynthia Spry and Zachary Pringle for the Defendants/Responding Parties

HEARD: January 20, 2022

REASONS FOR DECISION

A. INTRODUCTION

[1] This is a motion by the Plaintiff, 2250898 Ontario Inc. o/a Ferrari & Associates Insurance and Financial Services, for leave to amend the statement of claim.

[2] The Defendants, Tamila Mukelova, Marianna Michael, Rami Michael and Tamara Sergie do not consent to the proposed amendments. They take the position that leave to amend should not be granted because the proposed amendments assert a new cause of action that the Plaintiff is seeking to add after the expiry of the applicable limitation period, which would be prejudicial to the Defendants. The Defendants also assert that the proposed amendments are barred pursuant to terms of the contract in issue in the action.

[3] For the reasons outlined below, the Plaintiff’s motion for leave to amend the statement of claim is granted.

B. BACKGROUND FACTS

[4] The Plaintiff is a full service insurance brokerage. The Defendants are the former shareholders of Canfinse Group Inc. (“Canfinse”), an insurance brokerage.

[5] In July 2018, the Plaintiff, as purchaser, and the Defendants, as vendors, entered into a Share Purchase agreement (the “SPA”), for the sale of all of the shares in Canfinse. The purchase price was $5,500,000. The closing of the sale took place on July 31, 2018, and the Plaintiff took over management of Canfinse on that date.

[6] In May 2019, the Plaintiff commenced this action against the Defendants alleging that the Defendants breached the SPA. Specifically, in the current statement of claim, the Plaintiff alleges that “The Defendants have breached the term [sic] of the SPA. Without limiting the generality of the forgoing, the Defendants have done so in the following ways.” The Plaintiff then pleads three types of breaches of the Defendants’ representations, covenants and warranties relating to: (1) ownership of the Canfinse “Book of Business”; (2) transfer of the Goodwill of the Book of Business; and (3) Canfinse’s tax liabilities.

[7] During the Plaintiff’s examination for discovery, the Defendants asked whether the Plaintiff alleges any breaches of the SPA other than those particularized in the current statement of claim. The Defendant’s response was that in addition to the alleged breaches particularized in the statement of claim, the Defendants also allege that the Defendants misrepresented Canfinse’s revenue. Following up on response, the Defendants: (a) sought an undertaking from the Plaintiff to amend the statement of claim to plead the alleged revenue misrepresentations (which the Plaintiff refused); and (b) obtained an undertaking from the Plaintiff to produce documents relevant to the alleged revenue misrepresentations, and a further undertaking from the Plaintiff to provide particulars of the alleged damages relating to such misrepresentations.

[8] By notice of motion dated October 22, 2021, the Plaintiff brought this motion seeking leave to amend the statement of claim. The proposed amendments allege that Canfinse’s annual revenues were substantially less than those represented in the SPA. Specifically, in the proposed amended statement of claim, the Plaintiff claims that the Defendants breached the covenants, representations, and warranties in the SPA with respect to the accuracy of Canfinse’s interim financial statements dated June 12, 2018, and the Closing Statement (as defined in the SPA), regarding Canfinse’s revenue from commissions (the “Revenue Misrepresentation Claim”).

[9] As noted above, the Defendants do not consent to the proposed amendments. They take the position that the proposed amendments are a new cause of action that is barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B and by the terms of the SPA.

C. LEGAL BACKGROUND, DISCUSSION AND ANALYSIS

[10] The issues to be determined on this motion are as follows:

(1) Do the proposed amendments assert a new cause of action?

(2) If the proposed amendments assert a new cause of action, has the limitation period expired?

(3) Are the proposed amendments barred by the terms of the SPA?

(1) Do the proposed amendments assert a new cause of action?

[11] Rule 26.01 of the Rules of Civil Procedure provides as follows:

On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[12] The applicable principles with respect to amendment of a pleading include the following:

1. Rule 26.01 is mandatory. The court must allow the amendment unless the responding party would suffer non-compensable prejudice, the proposed pleading is scandalous, frivolous or vexatious, or the proposed pleading fails to disclose a reasonable cause of action.[^1]

2. A proposed amendment cannot assert a “new cause of action” after the expiry of the applicable limitation period.[^2] In French v. H&R Property Management Ltd., the Court of Appeal outlined the test for determining whether a pleading is a new cause of action as follows:

… there is a distinction between pleading a new cause of action and pleading new or alternative relief based on the same facts as originally pleaded. An amendment is not the assertion of a new cause of action where the “original pleading… contains all the facts necessary to support the amendments… [such that] the amendments simply claim additional forms of relief, or clarify the relief sought, based on the same facts as originally pleaded”: Dee Ferraro Ltd v. Pellizzari, 2012 ONCA 55, 346 D.L.R. (4th) 624, at paras. 4, 13-14; see also 1100997 Ontario Ltd v. North Elgin Centre Inc., 2016 ONCA 848, 409 D.L.R. (4th) 382, at paras. 20-21; Davis v. East Side Mario’s Barrie, 2018 ONCA 410, at paras. 31-32; Quality Meat Packers, at para. 65.

The relevant principle is summarized in Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 3rd ed. (Toronto: LexisNexis, 2017), at p. 186:

A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon [which] the original right of action is based.[^3]

3. An amendment will be refused when it seeks to advance, after the expiry of a limitation period, a “fundamentally different claim” based on facts that were not originally pleaded.[^4]

4. When considering whether a proposed claim asserts a new cause of action, the original statement of claim must be read generously and with some allowance for drafting deficiencies.[^5]

5. The expiry of a limitation period is one form of non-compensable prejudice.[^6]

[13] The Plaintiff points to paragraph 9 of the current statement of claim that, as noted above, states: “The Defendants have breached the term [sic] of the SPA. Without limiting the generality of the forgoing, the Defendants have done so in the following ways.” As also noted above, the statement of claim then goes on to particularize three breaches of the SPA. The Plaintiff argues that the existing pleadings do not limit the breaches of the SPA to three particularized breaches that are alleged, and that the Revenue Misrepresentation Claim, if proven to be true, is clearly a breach of the SPA, which is therefore explicitly pled in paragraph 9 of the statement of claim.

[14] Relying on Klassen, Farmers, and Hobson v. Turner,[^7] the Plaintiff also makes the following arguments: the Revenue Misrepresentation Claim is not a new cause of action; the current statement of claim contains all the facts necessary to support the cause of action of breach of contract; the Proposed Amendments regarding the Revenue Misrepresentation Claim simply provide particulars of that allegation and additional facts upon which the breach of contract is based; the Revenue Misrepresentation Claim does not seek to advance a “fundamentally different claim” based on facts not originally pleaded; and the Revenue Misrepresentation Claim is the same breach of contract claim, and the amendments merely plead an alternative claim for relief out of the facts previously pleaded.

[15] The Plaintiff submits that reading the current statement of claim generously and given the requirement to allow amendments unless they cause non‑compensable prejudice, the Court should permit the proposed amendments as they can reasonably be seen as falling within the four corners of the existing claim of breach of contract.

[16] I do not agree. It is not necessarily the case that an amendment to add new allegations of contractual misrepresentation will be permitted under Rule 26 just because the original pleading contains other claims of contractual misrepresentation or because the original claim made broad allegations of breach of contract. As with any proposed amendment, the test is whether the new pleadings are part of the same factual matrix as the existing pleadings. This has been explained by the Court of Appeal as follows:

37 The necessary starting point is to consider the substance of the appellant’s claim before he sought the pleadings amendment. What acts or omissions that would give rise to the respondents’ liability were already at issue in the action? The court must determine whether the existing pleading already contains the factual matrix to support any claim to which the proposed amendment relates, or whether the amendment seeks to put forward additional facts that are necessary and material to a new and different claim.

38 In conducting this assessment, the court must read the pleadings generously in favour of the proposed amendment: Klassen, at para. 30; Rabb Construction Ltd. v. MacEwen Petroleum Inc., 2018 ONCA 170, 29 C.P.C. (8th) 146 (Ont. C.A.), at para. 8. The existing pleadings, together with the proposed amendment, must be considered in a functional way — that is, keeping in mind that the role of pleadings is to give notice of the lis between the parties. As such, the question in this case is whether the respondents would reasonably have understood, from the Amended Statement of Claim and the particulars provided on discovery, that the appellant was pursuing a claim in respect of the matter addressed by the proposed amendment.

39 The trial judge accepted that there was a connection between the facts pleaded in the Amended Statement of Claim and the proposed amendment, since the appellant was always pleading that there was a misrepresentation in the offering statement. As such the factual circumstances or “matrix” that were already pleaded provided the broad context in which the statutory misrepresentation referred to in the proposed amendment arose. The original pleading however alleged that the misrepresentation (by omission) was a failure to disclose frauds, while the proposed amendment was based on a different act of the respondents and a separate failure to disclose.

42 Having pursued an action in respect of a statutory misrepresentation in an offering statement, it was not open to the appellant to change course in the middle of the trial — to advance a claim in respect of a new and different misrepresentation regarding the failure to obtain appraisals — that had not been pursued up to that point in the action. The existing pleading did not contain the factual matrix that would support the claim asserted in the proposed amendment. The proposed amendment, although related to the same offering statement, alleged an entirely different misrepresentation from what had been pleaded in the Amended Statement of Claim and particularized during the discovery process. As such, the trial judge was correct in concluding that the misrepresentation relating to the basis on which the CCU made loans was based on a different act of the respondents, a separate alleged failure to disclose, and as such was not “part and parcel of” the claims the appellant was advancing in his Amended Statement of Claim.[^8]

[17] In Farmers,[^9] Nordheimer J. (as he then was), sitting in the Divisional Court, made the following observations:

26 In terms of the amendments at paragraphs 20 and 21, the Master found that the appellant could not amend the statement of claim to plead certain misrepresentations based on the decision in Fuda. With respect, I believe that the Master misunderstood that decision. The claims in Fuda that were disallowed were completely separate misrepresentations that were unconnected to the factual matrix that had been pleaded. Indeed, the misrepresentations in that case were contained in different reports issued at different times.

27 In this case, the misrepresentations that the appellant seeks to add to the statement of claim in paragraphs 20 and 21 are integral to the dealings that the appellant has already pleaded that it had with representatives of the Ministry. They are very much factually intertwined with the existing allegations. They are part of the same factual matrix and the Master ought to have allowed them.

[18] Where the proposed amendments plead different breaches and contractual provisions than those already in the original pleading, and the resulting damages are also different, the amendments constitute a new cause of action. In American Axle & Manufacturing Inc v Durable Release Coaters Ltd,[^10] Newbould J. held as follows:

50 In my view the amendments do not plead alternative claims for relief arising out of the same facts previously pleaded. The new facts pleaded are relied upon to support new causes of action and new heads of damages arising from those new causes of action. While it is the same contract as previously pleaded that is claimed in the amendments to have been breached, the contractual provisions and breaches relied on in the amendment are different from the previous pleading and the breaches and resulting damages are different from those previously pleaded. They constitute new causes of action.

[19] In Fuda v. Jim McIntosh Petroleum Engineering Ltd, in the context a motion to amend a statement of claim to add additional alleged misrepresentations, Wilton-Siegal J. held as follows:

76 Each of the Alleged Misrepresentations grounds a cause of action for negligent misrepresentation asserted by the plaintiff. Although there are common facts to one or more of such causes of action, each cause of action is separate from, and independent of, the others. None of these potential causes of actions requires the Court’s acceptance of any of the others to support the plaintiff’s claim for damages.

309 Each of the five causes of action identified above is based on a different Alleged Misrepresentation. Each is independent of the others, even if some of the facts relied upon by the plaintiff are common to more than one of these causes of action.

310 Given the principles set out above, I conclude that each of these causes of action were asserted for the first time in the 2013 Amendment dated February 8, 2013, other than the original cause of action based on the 2003 Reserve Report Representation, which was asserted in the Statement of Claim. The fact that both the cause of action asserted in the Statement of Claim and the four additional causes of action asserted in the 2013 Amendment lie in negligent misrepresentation is not sufficient to conclude that these remaining causes of action are contained in the Statement of Claim.[^11]

[20] Applying the above principles, I find that, based solely on the pleadings, the proposed amendments with respect to the Revenue Misrepresentation Claim assert a new cause of action. As was the case in Fuda, the Revenue Misrepresentation Claim is independent of the other alleged misrepresentations even if the various alleged misrepresentations arise from the same contract, and even if some of the facts relied upon by the Plaintiff are common to more than one of the causes of action. As explained by the Court of Appeal, in the context of a proposed amendment to a pleading:

…a “cause of action” is “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person” (as opposed to the other sense in which the term “cause of action” is used - as the form of action or legal label attached to a claim…[^12]

[21] In the circumstances of this case, I accept the Defendants’ arguments that the Plaintiff’s general reference to a breach of the SPA is not sufficient for the Defendants to have known the case they would have to meet with respect to the Revenue Misrepresentation Claim. I also accept the Defendants’ argument that the current statement of claim does not plead the necessary material facts with respect to alleged misrepresentations by the Defendants of Canfinse’s revenues. As such, it would not have been possible for the Defendants to have known, based on the facts pled in the current statement of claim, that the Plaintiff was claiming the Defendants had misrepresented the revenue of the Canfinse business prior to closing.

[22] However, the assessment of the propriety of the proposed amendments does not end there. Although the current statement of claim does not plead the Revenue Misrepresentation Claim, the Defendants asked for and were provided with further particulars of the alleged breaches of the SPA during the Plaintiff’s examination for discovery. Specifically, on discovery, the Defendants asked the following question “Are there any other allegations that you are making in respect of breaches of the share purchase agreement other than as are particularized in this pleading?” The answer was as follows:

Well... yes, to the extent that... yes, to the extent that the misstatement of the revenue and the commissions are for issues other than the ownership of the book of business, so, for example, the audit that you reviewed, we say that the... the amount set out in the share purchase agreement for the revenue up to the date of closing was inaccurate, and that is reflected in the audit. I forget though, so I don’t know if that particular claim is particularized in the statement of claim, but it comes under the breach of the SPA, and I think we have gone over it.

[23] In addition, at the Plaintiff’s examination for discovery, the Defendants expressly sought an undertaking from the Plaintiff to amend the statement of claim to plead the Revenue Misrepresentation Claim. Although the Plaintiff refused to give such an undertaking at the time, it ultimately brought this motion. In any event, the Defendants effectively commenced discovery with respect to the Revenue Misrepresentation Claim. Specifically, the Defendants obtained an undertaking from the Plaintiff to produce documents relevant to the Revenue Misrepresentation Claim, and a further undertaking from the Plaintiff to provide particulars of the alleged damages relating to the Revenue Misrepresentation Claim. In these circumstances, I find that the lis with respect to the Revenue Misrepresentation Claim became obvious to the Defendants based on their discovery of the Plaintiff. As such, the Defendants would reasonably have understood that the Plaintiff was pursuing the Revenue Misrepresentation Claim.[^13]

[24] Finally, I note that the proposed amendments include additional particulars of the Revenue Misrepresentation Claim that were not specifically referred to during the Plaintiff’s examination for discovery, namely the specific sections of the SPA that the Plaintiff alleges were breached with respect to the Revenue Misrepresentation Claim. However, I find that, even without express reference to the specific sections in the SPA that are alleged to have been breached, the discovery evidence provided the Defendants with sufficient specifics of the material facts alleged by the Plaintiff with respect to the Revenue Misrepresentation Claim.

[25] In summary, although I find that the current statement of claim does not plead the factual matrix necessary to support the Revenue Misrepresentation Claim to which the proposed amendments relate, that alleged misrepresentation was particularized during the discovery process. In other words, although the pleading did not allege sufficient material facts with respect to the Revenue Misrepresentation Claim, the Defendants asked questions through discovery that elicited the necessary material facts with respect to that cause of action. As a result, I find that the Revenue Misrepresentation Claim is not a new cause of action, and the Proposed Amendments should be permitted pursuant to Rule 26.01. To avoid any prejudice that could result from the proposed amendments, the parties will be permitted to conduct further examinations for discovery on matters arising out of the amendments. The costs of any such further examinations shall be determined by the ultimate trier, in the ordinary course.[^14]

(2) If the proposed amendments are a new cause of action, has the limitation period expired?

[26] As noted above, a proposed amendment is not permitted to assert a new cause of action after the expiry of the applicable limitation period.[^15] Therefore, in the event that I am incorrect and it is determined that the Revenue Misrepresentation Claim is a new cause of action, it is necessary to consider whether that cause of action would be statute barred.

[27] In the cases cited by the parties, there were no factual disputes about discoverability of the cause of action in issue, and the court’s analysis focused on whether the proposed claim was a new cause of action. However, on this motion, there is a factual dispute with respect to the discoverability of the Revenue Misrepresentation Claim.

[28] The Defendants argue that the Plaintiff was aware of and raised the Revenue Misrepresentation Claim with the Defendants in October 2018, and demanded compensation in January 2019. The Defendants submit that, as a result, the limitation period for the Revenue Misrepresentation Claim expired by at least August 1, 2021,[^16] approximately three months before notice of this motion was served (on October 27, 2021).

[29] In terms of discoverability, the Defendants point to the recent Supreme Court ruling that:

[A] claim is discovered when a plaintiff has knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on the defendant’s part can be drawn.[^17]

[30] The Defendants argue that, in the circumstances, the Plaintiff had actual or constructive knowledge of the Revenue Misrepresentation Claim more than two years before it brought the Motion. With respect to discoverability, the Defendants point to certain documentary productions and evidence from the cross-examination of the Plaintiff’s representative that they argue demonstrates that:

• The Plaintiff had confronted the Defendants about discrepancies in commission income by at least October 26, 2018 (when the Plaintiff identified a nearly $300,000 drop in production).

• The Plaintiff specifically accused the Defendants of misrepresenting the commission income of the business by at least November 2, 2018 (when it accused the Defendants of including a non-renewable consultant invoice in revenue), again on December 19, 2018 (when it claimed that hundreds of thousands of dollars in commission revenue was missing), and again on January 31, 2019 (when it demanded compensation for these financial discrepancies.

• Although the Defendants conducted an extensive audit and provided explanations to allay the Plaintiff’s concerns, the Plaintiff was never satisfied by these explanations.

[31] The Plaintiff argues that it did not determine whether the Defendants misrepresented Canfinse’s revenue – and breached their covenants and warranties in the SPA in that regard – until July 31, 2019, after it had operated Canfinse for a year. The Plaintiff submits that it was only at that point that it was able to determine that the annual revenues were substantially less than as set out in the interim financial statements and the Closing Statement. In support of its position on discoverability, the Plaintiff submits that:

• Monthly revenue in insurance brokerages fluctuates depending on the amount of new business and renewals processed in that month. As such, it takes some time, usually a full one year cycle, to determine the annual revenue for a brokerage.

• Although it expressed some concerns regarding the monthly revenues from commissions prior to the completion of the full year, the Defendants provided ongoing explanations as to why the monthly revenues were low, including that the Plaintiff was not accurately reconciling its accounting records.

• The Defendants blamed the Plaintiff for the discrepancies, alleging that the Plaintiff was not remarketing business, had a lack of service, and was not downloading all the commissions properly from the insurance companies.

• Throughout 2018 and 2019, the Defendants continually took the position that the monthly revenues as set out in the Closing Statement were accurate.

[32] I have considered the evidence filed on this motion with respect to discoverability of the Revenue Misrepresentation Claim. Given that there is conflicting evidence on this point, I find that the facts regarding discoverability are not sufficiently clear for me to determine on this pleadings motion whether the proposed amendments relate to a claim that was discoverable more than two years prior to service of the notice of motion.

[33] It is well-settled law that where discoverability is in dispute, the determination of whether a cause of action is barred by a limitation period should not be made at the pleadings stage. This principle is explained as follows by the Court of Appeal:

Where a factual dispute exists as to the discoverability of sufficient information to enable a cause of action to be asserted, and thus as to when a limitation period begins to run, it is a question of fact that should be left for determination to the trial judge on a full evidentiary record, and in those circumstances the amendment sought to a statement of claim will normally be allowed and the responding party will be given leave to plead the limitation period as a defence. See Frohlick v. Pinkerton Canada Ltd. 2008 ONCA 3, [2008 CarswellOnt 66 (Ont. C.A.)] at para. 32, per Rouleau J.A. and Zapfe v. Barnes (2003), 2003 CanLII 52159 (ON CA), 66 O.R. (3d) 397 (Ont. C.A.) 26 and 29 per Feldman and Cronk JJ.A. In my view such a result is appropriate in this case.[^18]

[34] For the above reasons, if the proposed amendments with respect to the Revenue Misrepresentation Claim had asserted a new cause of action, I would have nevertheless allowed the proposed amendments and granted leave to the Defendants to plead the limitation period as a defence. However, because I have concluded that the proposed amendments do not allege a new cause of action, it is not necessary in the circumstances of this case to grant leave to the Defendants to plead the limitation period as a defence.

(3) Do the terms of the SPA bar the proposed amendments?

[35] The Defendants argue that, even if the proposed amendments do not assert a new cause of action or that the limitation period to plead them has not expired, the Revenue Misrepresentation Claim raised in the proposed amendments is time-barred by Article 6.3 of the SPA (the “Survival Clause”).

[36] Article 6.3 of the SPA reads as follows:

6.3 Representations and Warranties Surviving Closing – The representations, warranties and covenants of the Purchaser and the Vendors in Articles 6.1 and 6.2 hereof shall survive Closing and, notwithstanding the closing of the transaction herein provided for, shall continue in full force and effect for a period of two (2) years following Closing, except that those covenants, representations and warranties of the Vendors relating to the tax or source deduction liability of the Corporation… In addition, notwithstanding the limitations set out above, any claim which is based on title to the Purchased Shares, ownership of the Business at the Closing Date pursuant to section 6.15 above or fraud may be brought at any time.

[37] Relying on CIT Financial Ltd. v. Canadian Imperial Bank of Commerce,[^19] the Defendants argue that the Survival Clause limits the duration of the representations, warranties, and covenants given in the SPA. The Defendants submit that, based on the Survival Clause, the SPA clearly provides that the Plaintiff had only two years from the closing date, not the date of discoverability, to bring its claims in respect of breaches or misrepresentations of Articles 6.1.12 and 6.1.44 of the SPA. Therefore, the Defendants argue, pursuant to the Survival Clause, the Plaintiff had a contractual deadline of July 31, 2020 to issue its claim against the Defendants for the alleged breaches of the representations, warranties and covenants contained in Articles 6.1 of the SPA, which the Plaintiff did not do. The Defendants also submit that Canadian courts have consistently given effect to survival of representation and warranty provisions such as those in Article 6.3 of the SPA, particularly where the parties are sophisticated persons.[^20]

[38] The Plaintiff argues that the Survival Clause does not apply based on the wording in the final sentence of the clause, including the reference to “ownership of the Business”, which the Plaintiff submits covers the Revenue Misrepresentation Claim and provides an exception to the two year survival period.[^21] The Plaintiff also argues that the Revenue Misrepresentation Claim falls within the broader breach of contract claim that was pleaded within the two year time period provided for in the opening part of the Survival Clause. As such, the Plaintiff argues that the Survival Clause is not a bar to the Revenue Misrepresentation Claim.

[39] In my view, as drafted, the Survival Clause is not a contractual bar to the Revenue Misrepresentation Claim in the circumstances of this case. In Jones v. Temple,[^22] one of the cases cited by the Defendants, the court interpreted a survival clause and assessed whether a claim was barred based on the terms of that clause. Moen J. of the Alberta Court of Queen’s Bench noted that there were two possible interpretations of the survival clause at issue in that case. One was that “a claim should be made and notice given before the expiry date [under the clause]; the other [was] that a claim should have arisen during the warranty period”.[^23] Moen J. held as follows:

142 The clause in NOV Enerflow had one difference with the Survival Clause here. In that case, the clause specifically provided that the seller would not have any liability in respect of any representation and warranty “unless a claim in respect thereof is made” within a certain time period: at para 46. In contrast, the Survival Clause in the APS does not specify that a claim must be made in a certain period. It merely states that the representations, etc. “shall survive Closing and shall continue in full force and effect . . . for a period of one (1) year following Closing”.

143 The Survival Clause specifies a time limit for the expiration of the representations and warranties but does not specify what must be done before the expiration. That is, it does not specify that written notice, or any notice, must be given before expiration, nor does it specify that the purchaser must bring a claim before expiration. Therefore, I find that the Survival Clause does not require notice. In this case, I find that Holloway had actual notice of the intentions of Mr. Jones to take action concerning wrongful dismissal, which is set out in detail earlier in these reasons.

144 The Survival Clause has the effect of bringing liability for the warranties in clause 5.2(h) to an end. However, it does not apply to what occurred here. Here, Holloway knew or ought to have known that there were consequences to its misrepresentation as early as the day of Closing, certainly in the first two weeks after Closing. Therefore, Holloway cannot rely on the Survival Clause to protect it from an action in contract concerning the misrepresentation it made in the APS.

145 I find that a reasonable interpretation of the Survival Clause is that the action for misrepresentation must have crystallized during the warranty period of one year, which it did here. There is no notice requirement in the Survival Clause so the notice provision in clause 7.4 does not apply. In any event, I find that Holloway did have notice of Mr. Jones’ intentions so was not caught by surprise by the Third Party Notice filed by Temple in June 2013.[^24]

[40] As in Jones v. Temple, there are two possible interpretations of the Survival Clause in Article 6.3 of the SPA. One is that a claim must have been made and notice must have been given within two years of closing. The other is that a claim should have arisen during the two year period. Under either interpretation, any claim that arose after the two year period would not be covered.

[41] In interpreting Article 6.3, I note that it does not contain any requirement for the Plaintiff to provide notice, in writing or otherwise, or commence an action against the Defendants with respect to the Revenue Misrepresentation Claim, within the surviving two year period for the Defendants’ representations, warranties and covenants. In my view, given the wording of Article 6.3, the Survival Clause in this case should be read as requiring only that the claim should have arisen within two years of closing. As a result, I do not accept the Defendants’ argument that the Survival Clause is a bar to the proposed amendments.

[42] Further, although I have concluded that the Survival Clause does not require notice of the Revenue Misrepresentation Claim to have been given to the Defendants within two years of closing, I find that, in any event, the Defendants did have notice of such a claim based on the correspondence between the parties.

D. CONCLUSION

[43] For the reasons outlined above, the motion is granted. I order as follows:

1. The Plaintiff is granted leave to deliver the proposed amended statement of claim in accordance with the draft attached and marked as Schedule “A” to its notice of motion dated October 22, 2021.

2. The parties are permitted to conduct further examinations for discovery on matters arising out of the amendments. The costs of any such further examinations shall be determined by the ultimate trier, in the ordinary course.

3. When filed, the trial record for this action shall include the Plaintiff’s statement of claim issued May 7, 2019 as well as the amended statement of claim.

[44] With respect to costs, the parties agreed that costs of the motion should be fixed in favour of the successful party in the amount of $13,000, all inclusive. As a result, I order that the Defendants pay to the Plaintiff costs of this motion fixed in the amount of $13,000, inclusive of disbursements and taxes, within 30 days.

R. Frank Associate J.

Date: May 20, 2022

[^1]: Klassen v. Beausoleil, 2019 ONCA 407, 2019 ONCA 407, 2019 ONCA 407 (“Klassen”) at para 25

[^2]: Klassen at para. 27

[^3]: French v. H&R Property Management Ltd., 2019 ONCA 302 (“French”) at paras 26 and 27; see also Klassen at para 29

[^4]: 1100997 Ontario Ltd. v. North Elgin Centre Inc., 2016 ONCA 848 (“North Elgin”) at para 23

[^5]: Farmers Oil and Gas Inc. v. Ontario (Natural Resources), 2016 ONSC 6359 (Div. Ct.) (“Farmers”) at para 23

[^6]: Klassen at para 26

[^7]: Hobson v. Turner, 2021 ONSC 4407 at paras 25-27

[^8]: Polla v. Croatian (Toronto) Credit Union Limited, 2020 ONCA 818 (“Polla”) at paras 37-39 and 42 [emphasis added]

[^9]: Farmers at paras 26-27 [emphasis added]

[^10]: American Axle & Manufacturing Inc v. Durable Release Coaters Ltd, 2010 ONSC 3368 at para 50 [emphasis added]

[^11]: Fuda v. Jim McIntosh Petroleum Engineering Ltd, 2013 ONSC 2122 (“Fuda”) at paras 76 and 309-310; appeal dismissed, 2014 ONCA 378 [emphasis added]

[^12]: Polla at para 33

[^13]: See Polla at para 38

[^14]: See Klassen at para 59

[^15]: Klassen at para 27

[^16]: Taking into account the applicable tolling of the limitation period based on the Reopening Ontario (A Flexible Response to COVID-19) Act, 2020, S.O. 2020, c. 17)

[^17]: Grant Thornton LLP. v. New Brunswick, 2021 SCC 31 at para 42

[^18]: Austin v. Overs Estate, 2010 ONSC 7194, at para. 33; see also Skrobacky (Litigation guardian of) v. Frymer, 2014 ONSC 4544 at paras 17-26

[^19]: See CIT Financial Ltd. v. Canadian Imperial Bank of Commerce et al., 2017 ONSC 38 at para 10

[^20]: In this regard, the Defendants rely on NOV Enerflow ULC (NOV Pressure Pumping ULC) v. Enerflow Industries Inc, 2020 ABQB 347 at para 109; NOV Enerflow ULC v. Enerflow Industries Inc, 2015 ABQB 759 at paras 41, 44, 46-47, 54-55, and 64; Jones Temple Real Estate Investment Trust, 2018 ABQB 606 at para 207; and NFC Acquisition v. Centennial 2000 Inc., 2010 ONSC 733 at paras 11-20, aff’d at NFC Acquisitions LP v. Centennial 2000 Inc. 2011 ONCA 43

[^21]: The Plaintiff submits that the reference in the final sentence of Article 6.3 to “Section 6.15” is a typographical error. As there is no Section 6.15 in the agreement, the Plaintiff submits that this is actually a reference to Section 6.1.5

[^22]: Jones v. Temple Real Estate Investment Trust, 2018 ABQB 606 (“Jones v Temple”)

[^23]: Jones v. Temple at para 123

[^24]: Jones v. Temple at paras 142-145 [emphasis added]