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Limitations Act - Corporate Oppression Remedies. Zhao v. Li
In Zhao v. Li (Ont CA, 2020) the court discussed limitation periods in the context of a corporate oppression remedy:(2) Discussion
[24] Neither counsel cited any case law that dealt with the application of the limitation period when an alleged series of oppressive acts committed at different times are at issue. During oral argument, the panel asked counsel about this court’s decision in Maurice v. Alles, 2016 ONCA 287, 130 O.R. (3d) 452, which deals with this question.
[25] For ease of analysis, I begin with a discussion of the principles derived from Maurice, and why they apply here. I then turn to the question of whether the entire action can proceed because of the timing of the corporate dissolution. I then consider the question of whether the corporate dissolution claim alone should have been allowed to proceed.
(i) The Principles
[26] Maurice concerned an application under the oppression remedy in the OBCA that had been dismissed on a limitation period basis. The motion judge had found that there was oppressive conduct discoverable more than two years before the application was commenced. This court reversed the decision, holding that since there was oppressive conduct complained of that occurred within two years of the commencement of the application, the claim could continue with respect to that later conduct.
[27] In so concluding, the court held that s. 4 of the Limitations Act, 2002 applies to claims under the OBCA oppression remedy, and therefore, an action for oppression must be commenced within two years of the discovery of a potential claim for oppression: at paras. 3 and 43. In considering how that rule applied when oppressive conduct is alleged to have occurred over a period of time, the court noted a divergence of case law regarding the application of the limitation period to cases of “ongoing oppression”: at paras. 36-42. But on the facts, the court held that the series of oppressive acts complained of did not constitute “ongoing oppression”, and accordingly, it was not necessary to define the exact limitation period consequence of a finding of “ongoing oppression”. What the court did establish is the approach to be followed where singular discrete oppressive acts committed at various times are alleged.
[28] Maurice stands for the proposition that where what is complained of is a series of singular discrete acts of oppression over a period of time, claims arising from the acts committed or discoverable within two years of the action are not statute barred, even if the series of acts commenced, and claims for earlier oppressive acts in the series were discoverable, more than two years prior to the commencement of the action. A later oppressive act, even if based on or in furtherance of earlier oppressive acts, gives rise to a new cause of action because it is new oppressive conduct: at paras. 3 and 50-54.
[29] Although not expressly stated in Maurice, it follows that claims arising from singular discrete acts of oppression (in a series of such acts) that are discoverable more than two years before an action are statute barred. As a result, a series of singular discrete acts of oppression that stretches over a period of time may result in some claims for oppression arising from earlier acts in the series being statute barred while claims arising from later acts in the series are not.
(ii) Is this a case alleging singular discrete oppressive acts?
[30] In my view, the approach in Maurice applies because, as was the case there, what is alleged here are singular discrete oppressive acts, rather than “ongoing oppression”. I reach that conclusion for the following reasons.
[31] A failure to distribute profits is the alleged act that underpins the profits distribution claim. It is said to have occurred beginning in June 2010. A different act, an unauthorized transfer or sale of the business without at the time of sale accounting for the proceeds, is the alleged act that underpins the sale claim. That act is said to have occurred sometime before September 3, 2011. A still different act, the unauthorized dissolution of the Corporation, is the alleged act that underpins the corporate dissolution claim. It occurred in October 2011.
[32] These are each singular discrete oppressive acts, because they are different acts occurring at different times and because none of them is dependent upon either of the others having happened for oppression to be said to have occurred. If the respondent had failed to distribute profits but neither transferred the business nor dissolved the Corporation, the appellant would, upon discovery, have had an oppression claim for failure to distribute profits. Similarly, if the respondent had only sold the business and kept sale proceeds, or if he had only dissolved the Corporation, the appellant would still have an oppression claim for these singular discrete acts, even if none of the others occurred. As Maurice points out, conduct may consist of singular discrete acts of oppression even where the later oppressive conduct was based on or in furtherance of the earlier oppressive conduct: at paras. 3 and 48-54.
(iii) Does the date of the corporate dissolution or when it was discovered mean the entire action can proceed?
[33] Against this backdrop, I turn to the effect of the date of the corporate dissolution, and when it was discovered and discoverable, on the motion judge’s conclusions. I agree with the respondent that neither the date of the corporate dissolution, nor when it was or ought to have been discovered, entails the conclusion that the entire action should have been viewed as commenced within the limitation period and not statute barred.
[34] The motion judge noted the appellant’s evidence that it was only upon learning, in February 2012, that the respondent had filed Articles of Dissolution that she realized that he was no longer operating Perfect Cleaner for the interest of the three owners. The motion judge’s findings implicitly reject this evidence in so far as it was advanced to support the view that none of the three claims in the action were statute barred. Even though the motion judge did not deal with whether the dissolution was a singular discrete act of oppression occurring after September 3, 2011, the failure to do so does not undermine her conclusion to the extent it applies to the discoverability, more than two years before the action was commenced, of the sale claim and the profits distribution claim.
[35] The motion judge appropriately focused on the facts of which the appellant was aware as of September 3, 2011. By then she was aware that Perfect Cleaner was no longer operating out of its leased premises and a new owner was operating a similar business from its premises. The appellant had been provided with no explanation by, or had given no authority to, the respondent, who had handled the Corporation’s day to day operations and all financial matters, for any of that to occur. By September 3, 2011, the appellant was also aware that she had not received payments of any of Corporation’s profits. The motion judge was entitled to find, from these facts, that the sale claim and the profits distribution claim were discoverable by September 3, 2011.
[36] That the sale claim and the profits distribution claim are founded on discrete acts of oppression serves to rebut the contention that they were only discoverable when the later alleged oppressive act, the dissolution of the Corporation, occurred. The appellant did not need to know that the Corporation was dissolved to discover that she had a potential claim for oppression for an improper transfer or sale of the business, or a potential claim for oppression for a failure to pay profits. Whether the Corporation continued to exist or not, the sale claim and the profits distribution claim were actionable. The limitation period is not extended for acts of oppression that are actionable in themselves simply because a later singular discrete act of oppression occurs. As Maurice provides: “Courts must be careful not to convert singular oppressive acts into ongoing oppression claims in an effort to extend limitation periods. To do so would create a special rule for oppression remedy claims”: at para. 49.
[37] Nor is the limitation period extended because a complainant hopes that the oppression will be remedied: Maurice, at paras. 46-49. The motion judge was correct to focus on the alleged failure of the respondent to distribute profits and the alleged acts or omissions that resulted in the business not operating from its premises, which were known to the appellant as of September 3, 2011. And the motion judge was entitled to not give effect to the appellant’s assertions that she hoped to find, notwithstanding that the business had been closed without notice or explanation, the business operating elsewhere or that the respondent’s failure to account for profits or any sale proceeds might be remedied. This is not a case where the possibilities the appellant adverted to were based upon anything represented to her by the respondent on or after September 3, 2011.
[38] Thus, the motion judge’s determination that the appellant’s claims were discoverable – that the appellant knew or ought to have known of the elements in s. 5(1) of the Limitations Act, 2002 in respect of them – and that they should be dismissed as statute barred, should stand in respect to the sale claim and profits distribution claim. It was grounded in the record and is not the product of any legal error. It is entitled to deference from this court: Hryniak v. Maudlin, 2014 SCC 7, [2014] 1 S.C.R. 87, at paras. 80-81; Kassburg v. Sun Life Assurance Company of Canada, 2014 ONCA 922, 124 O.R. (3d) 171, at paras. 44 and 52.
(iv) Is the corporate dissolution claim statute barred?
[39] The remaining question is whether the claim for the alleged oppressive act of unilaterally dissolving the Corporation in which the appellant was a shareholder, without notice to or authorization from her, ought to have been allowed to continue. The motion judge did not separately address this question. In my view, the corporate dissolution claim should have been allowed to proceed.
[40] I do not accept the respondent’s argument that once the appellant was able to discover that any oppressive acts had occurred, that started the limitation period clock for future acts of oppression, such that the corporate dissolution claim became statute barred when the sale claim and profits distribution claims did.
[41] The respondent’s argument is rebutted by the holding in Maurice that where a party engages in a series of oppressive acts, singular discrete oppressive acts occurring or only discoverable within two years of the commencement of the action are not statute barred: Maurice, at paras. 3 and 50-53. The court in Maurice explained why this is so at paras. 52 and 54:A party that engages in a series of oppressive acts can always make the argument that it is all part of the same corporate malfeasance and that the limitation period begins to run with the discovery of the first oppressive act. In analyzing that conduct, courts must have regard to the remedial nature of the oppression remedy and the fact that any threatened or actual conduct that is oppressive, or unfairly prejudicial to, or unfairly disregards the interests of any complainant can constitute a discrete claim of oppression. The oppression remedy section of the OBCA is drafted in the broadest possible terms to respond to the broadest range of corporate malfeasance.
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The practical effect of … [such an argument] is that where a party is alleged to have acted in an oppressive manner and no oppression remedy application is commenced as a consequence, he or she is free to take additional oppressive steps in furtherance of, or based upon, the initial oppressive conduct. That reasoning is contrary to the broad purposive interpretation that must be afforded this statutory cause of action: see BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 58; Rea v. Wildeboer, 2015 ONCA 373, 126 O.R. (3d) 178, at para. 33; and Unique Broadband Systems, Inc. (Re), 2014 ONCA 538, 121 O.R. (3d) 81, at para. 107. [42] Just as the other claims in the action do not depend, for their viability, on the later corporate dissolution, a claim concerning the dissolution of the Corporation without notice or shareholder authorization is a claim for a singular discrete act of oppression that is actionable even if the sale claim and profits distribution claim are statute barred.
[43] The corporate dissolution claim was not discoverable on September 3, 2011 as the corporate dissolution had not yet occurred. Nor does it follow from the motion judge’s findings that the corporate dissolution claim should have been discovered before October 30, 2011.[44] In oral argument, the appellant offered some basis for why the appellant might have been prejudiced by the corporate dissolution independent of any prejudice or loss that is connected to the other statute barred claims. There may have been actual or potential value in the Corporation that was lost due to the dissolution or assets held on dissolution that were wrongfully withheld from shareholders. It would not be appropriate to speculate on the remedies that might be available to the appellant if an oppressive corporate dissolution is found to have occurred. The respondent obtained summary judgment on the basis of the limitation period, not on the basis that there was no genuine issue requiring a trial concerning the remedy that would be available if any act of oppression were found. . Maurice v. Alles
In Maurice v. Alles (Ont CA, 2016) the Court of Appeal engaged in an extended discussion of the application of the general two-year limitation period to a corporate oppression remedy claim, here where ongoing oppression was alleged:(ii) Limitation Period
(a) Positions of the Parties
[36] There is a division in the case law regarding the applicability of the general two-year limitation period prescribed by s. 4 of the Limitations Act, 2002, to cases of ongoing oppression. The positions of the parties on this appeal reflect this division.
[37] The appellant submits that in the Waxman and Metcalfe decisions referenced above, the courts recognized a judge’s remedial discretion to permit a claim commenced more than two years after its discovery if there is an “ongoing fact situation” of continuing oppressive conduct.
[38] In Waxman, this court affirmed the trial judge’s decision to allow an oppression claim to proceed even though the plaintiff was aware of the facts giving rise to at least some of the claims many years before he commenced his action. Notwithstanding that knowledge, the court found, at para. 536, that “[t]he trial judge exercised her discretion to apply her broad remedial authority to the pattern of oppressive conduct that started in 1979. In doing so she neither abused her discretion nor ran afoul of any legislative limitation period.”
[39] In Metcalfe, a case distinguished by the motion judge with facts very similar to the present appeal, the applicant commenced an oppression application on August 7, 2008, more than five years after he began seeking information about his shareholdings. Citing Waxman, the court held that no statutory limitation period was applicable and, in any event, the claim was not statute barred as the oppression continued until at least March 5, 2007 when the applicant finally obtained some of the information he sought.
[40] The respondents submit that Waxman is distinguishable on the basis that it was decided under the former Limitations Act, R.S.O. 1990, c. L.15. According to this court’s decision in Joseph v. Paramount Canada’s Wonderland, 2008 ONCA 469, 90 O.R. (3d) 401, the common law discretion to extend a limitation period by applying the doctrine of special circumstances no longer exists under the new legislation. Rather, s. 4 makes clear that a two-year limitation period applies unless the Limitations Act, 2002, provides otherwise.
[41] Pepall J. followed the Joseph decision in Fracassi. Having found that oppression claims are caught by the two-year limitation period under the Limitations Act, 2002, Pepall J. concluded that the limitation defence asserted by the defendants succeeded in part. She also found that limitation periods apply to ongoing oppressive conduct, reasoning that limitation periods begin when the cause of action arises, not when it is remedied, at para. 273.
[42] The respondents cite a number of Ontario Superior Court decisions where Fracassi has been followed: Reinhart v. VIXS Systems Inc., 2011 ONSC 5349, Paul v. 1433295 Ontario Limited, 2013 ONSC 7002, 120 O.R. 339, rev’d on other grounds 2015 ONSC 3588, Sterling Waterhouse Inc. v. LMC Endocrinology Centres (Toronto) Ltd., 2015 ONSC 3987, rev’d on other grounds 2015 ONCA 645, and Solar Harvest Co. v. Dominion Citrus Ltd., 2015 ONSC 1315, 39 B.L.R. (5th) 141. In all of those cases, the courts held that the two-year limitation period applies to oppression remedy claims under the OBCA.
(b) Applicable Limitation Period
[43] In my view, an oppression remedy claim under the OBCA is subject to the general two-year limitation period prescribed by s. 4 of the Limitations Act, 2002. Oppression is not listed under s. 16 as a claim to which no limitation period applies, nor is it exempted under s. 19 of the legislation. Special circumstances are also not available to extend the limitation period.
[44] In the present case, the respondents’ act of selling their common shares in Tasco and Marlba would not qualify as oppressive conduct per se. The potential oppressive conduct that arises from this transaction is twofold. The first is the failure of the respondents to provide the appellant with the requested information regarding the transaction. Second, the transaction itself may qualify as actionable oppression if it adversely impacted the value of the appellant’s shareholding in Kirby-Maurice.
[45] The appellant had knowledge in July 2008 that the respondents were selling their common shares in Tasco and Marlba, that the Tasco preferred shares held by Kirby-Maurice would be sold for redemption at face value ($1.20 per share), and that the respondents were not disclosing the information regarding the valuation of their shares and any potential impact of the sale on the value of the appellant’s shares in Kirby-Maurice.
[46] The appellant had an obligation to commence a claim based on the respondents’ failure to produce the information regarding the share transaction within two years of his discovery that they would not produce it to him. It is not open to this court, as was suggested by the appellant, to look behind his non-action and excuse it based on the fact that this was a family business or that he had a reasonable expectation that the information would eventually be produced. Such an approach would effectively mark the return of the special circumstances doctrine, which has no application under the current limitations regime.
[47] Had the appellant taken steps pursuant to the oppression remedy to protect his rights based on the non-disclosure, he would have also been in a position to determine whether he had a potential claim with respect to the respondents’ share sale. He then could have potentially commenced a claim seeking compensation or other related relief.
[48] I am also of the view that this is not a case where there is ongoing oppressive conduct. The sale was a singular event that occurred many years ago. The refusal to produce documents was made known to the appellant in 2008. It is true that no production was made until this proceeding was commenced, but the continuous refusal to produce documents does not operate to extend the limitation period any more than a refusal to pay an outstanding amount in a collection action extends the limitation period until payment is received. As previously mentioned, limitation periods begin when the cause of action arises, not when it is remedied: Fracassi, at para. 273.
[49] Courts must be careful not to convert singular oppressive acts into ongoing oppression claims in an effort to extend limitation periods. To do so would create a special rule for oppression remedy claims.
[50] Despite the foregoing, in my view, the motion judge erred in law in concluding that the appellant’s oppression claim was out of time. Another discrete potentially oppressive act occurred when the respondent siblings commenced their application on May 13, 2013 for an order appointing a valuator to determine the fair value of the appellant’s shares in Kirby-Maurice.
[51] In that application, there was no reference to the circumstances surrounding the disposal of the Tasco preferred shares and what impact it had on the value of the appellant’s Kirby-Maurice shares. Nor was there any production of the documents related to the share sale until they were produced as part of the respondents’ disclosure on the cross-application following the decision of Newbould J. The sibling respondents were in effect seeking a valuation process and payout to the appellant that did not take into account their earlier alleged oppressive conduct.
[52] A party that engages in a series of oppressive acts can always make the argument that it is all part of the same corporate malfeasance and that the limitation period begins to run with the discovery of the first oppressive act. In analyzing that conduct, courts must have regard to the remedial nature of the oppression remedy and the fact that any threatened or actual conduct that is oppressive, or unfairly prejudicial to, or unfairly disregards the interests of any complainant can constitute a discrete claim of oppression. The oppression remedy section of the OBCA is drafted in the broadest possible terms to respond to the broadest range of corporate malfeasance.
[53] Where the motion judge erred was in failing to carefully scrutinize the respondents’ conduct to determine whether there were any discrete acts of oppression within the two-year period prior to the commencement of the cross-application. In my view, the sibling respondents committed a new act of alleged oppressive conduct when they brought their application and attempted to rely upon their previous alleged oppressive conduct as part of the share valuation.
[54] The practical effect of the motion judge’s reasoning is that where a party is alleged to have acted in an oppressive manner and no oppression remedy application is commenced as a consequence, he or she is free to take additional oppressive steps in furtherance of, or based upon, the initial oppressive conduct. That reasoning is contrary to the broad purposive interpretation that must be afforded this statutory cause of action: see BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para. 58; Rea v. Wildeboer, 2015 ONCA 373, 126 O.R. (3d) 178, at para. 33; and Unique Broadband Systems, Inc. (Re), 2014 ONCA 538, 121 O.R. (3d) 81, at para. 107.
[55] The value of the Tasco preferred shares is central to the valuation of the appellant’s shares in Kirby-Maurice. The determination of the oppression allegations is an important part of the valuation process and that is why Newbould J. ordered a mini-trial on those allegations. In order to determine whether there is actionable oppression, the court is required to analyze whether there was oppression as a consequence of the respondents’ share sale and, if so, whether there is oppression now by reason of the respondents’ reliance on their previous misconduct. Therefore, the motion judge erred in dismissing the oppression remedy claim as statute barred.
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