|
Limitations Act - Meaning of 'Claim'. Lagana v. 2324965 Ontario Inc.
In Lagana v. 2324965 Ontario Inc. (Ont CA, 2025) the Ontario Court of Appeal dismissed a shareholder's appeal, here where the issue was whether "a shareholder demand that a corporation comply with its statutory obligation to provide audited annual financial statements to shareholders [SS: is] subject to the ordinary two-year limitation period".
In this interesting and useful case the court considered the fundamental functional nature of corporate audit obligations, here as either directed to statutory compliance, or alternatively to private shareholder interest (oppression) - this in a limitation application context:[3] In 2021, Mr. Lagana sought to review the corporation’s financial records. Mr. Power provided him with some unaudited financial statements and offered to meet with him. There were no shareholder resolutions exempting the corporation from yearly appointing auditors and producing audited financial statements. Auditors have never been appointed and audited financial statements have never been produced.
[4] Mr. Lagana was dissatisfied and brought an application seeking relief that included the appointment of an auditor pursuant to s. 149(8) of the Business Corporations Act, R.S.O. 1990, c. B.16 (“OBCA”). Relying on s. 253(1), he also sought an order for the production of audited financial statements going back to 2013.
[5] The application judge granted the relief sought, rejecting the argument that the demand for audited financial statements prior to 2019 was barred by the operation of the Limitations Act, 2002. The application judge found that the demand did not constitute a “claim” within the meaning of the Limitations Act, 2002 to which the two-year limitation period applied.
[6] Mr. Power and the corporation appealed the term of the order that required the production of audited financial statements to shareholders for the years 2013 to 2020. They acknowledged the statutory obligation under the OBCA to provide audited financial statements but renewed the argument on appeal that the Limitations Act, 2002 applies to a compliance order made under s. 253(1) and precludes an order that would require the preparation of audited statements beyond the two-year limitation period.
[7] The Divisional Court allowed the appeal. Although the corporation and Mr. Power, in his capacity as a director, had a statutory obligation to shareholders pursuant to ss. 153 and 154 of the OBCA to provide audited financial statements annually, and did not do this, Divisional Court held that the application judge erred in finding that the Limitations Act, 2002 did not apply to the demand. Accordingly, the order below was varied to vacate the direction to produce audited financial statements outside the limitation period.
[8] The only issue on appeal is whether the Divisional Court was correct in its determination that the Limitations Act, 2002 applies to the compliance provision in s. 253(1) of the OBCA.
The statutory provisions in issue
[9] The OBCA contains various reporting and auditing requirements.
[10] Section 149(1) imposes an obligation on the shareholders and directors of corporations to appoint auditors; if the shareholders fail to appoint an auditor, the directors are required to do so. If the directors fail to do so, the court is authorized to make the appointment on the application of the shareholders: s.149(8). Section 148 of the OBCA allows the shareholders by unanimous resolution made on a yearly basis to exempt non-offering corporations from the audit requirements.
[11] Section 154 requires financial statements to be provided yearly to a corporation’s shareholders. Unless exempted, the financial statements must be audited: s. 148. Section 153(1) requires an auditor of a corporation to make such examination of the financial statements required by this Act to be placed before shareholders as is necessary to enable the auditor to report thereon and the auditor shall report as prescribed and in accordance with generally accepted auditing standards.
[12] In addition to its other remedial provisions, the OBCA includes a general compliance provision applicable to a broad range of persons on whom the OBCA imposes duties, for the benefit of “a complainant or a creditor of the corporation”:253(1) Where a corporation or any shareholder, director, officer, employee, agent, auditor, trustee, receiver and manager, receiver, or liquidator of a corporation does not comply with this Act, the regulations, articles, by-laws, or a unanimous shareholder agreement, a complainant or a creditor of the corporation may, despite the imposition of any penalty in respect of such non-compliance and in addition to any other right the complainant or creditor has, apply to the court for an order directing the corporation or any person to comply with, or restraining the corporation or any person from acting in breach of, any provisions thereof, and upon such application the court may so order and make any further order it thinks fit. [13] A “complainant” is defined in s. 245 as:(a) a registered holder or beneficial owner, and a former registered holder or beneficial owner, of a security of a corporation or any of its affiliates,
(b) a director or an officer or a former director or officer of a corporation or of any of its affiliates,
(c) any other person who, in the discretion of the court, is a proper person to make an application under this Part. (“plaignant”). [14] Section 1 of the Limitations Act, 2002 defines “claim” as “a claim to remedy an injury, loss or damage that occurred as a result of an act or omission”. The basic limitation period applying to a “claim” is the second anniversary of the day on which the claim was discovered: s. 4.
Analysis
[15] The appellant argues that the failure of a corporation to fulfill obligations imposed on it by the OBCA cannot constitute a claim for the purposes of the Limitations Act, 2002, and the Divisional Court made a legal error in holding otherwise.
[16] At the centre of the appellant’s argument is the proposition that the obligations imposed on corporations and others by the OBCA are “statutory obligations” and do not correspond to rights held by anyone, such as shareholders. On this theory, the purpose of the compliance provision in s. 253(1) is simply to enforce the obligations imposed by the statute on the corporation. The appellant thus draws a sharp distinction between a compliance order and an oppression remedy, whose purpose he characterizes as genuinely providing remedies to individuals. As stated in the appellant’s factum, “the compliance provision corrects a breach of the legislation and brings the corporation into compliance with it, but it does nothing else. It does not punish the corporation for its failures, nor does it provide any form of individual redress or compensation.” Accordingly, the appellant argues, there is no legal right created by s. 253(1) that could qualify as a “claim” of a shareholder for the purposes of Limitations Act, 2002.
[17] The appellant claims support for this argument in Jeffery v. London Life Insurance Company, 2011 ONCA 683, 343 D.L.R. (4th) 6, leave to appeal refused, [2012] S.C.C.A No. 1, where this court distinguished among the three categories of remedies created by the OBCA – derivative action, oppression remedy, and compliance – and noted, at para. 150, that although “there may be some overlap between these statutory remedies”, the three remedies are different.
[18] The gravamen of the compliance order “is to ensure corporate compliance and not to provide an individual fix”: Jeffery, at para. 148. It should be noted, however, that Jeffery was argued on the basis of the availability of an oppression remedy, and the court did not provide a conceptual analysis of the compliance order, beyond noting that although there is some overlap among the three remedies, the oppression remedy is better suited to an “individual fix”. The “individual fix” which the court contrasted, at para. 148, with a compliance order, has to be understood in terms of the relief sought in that case, which involved the allocation of millions of dollars of assets to competing investors pursuant to the Insurance Companies Act, S.C. 1991, c.47.
[19] That remedy was a matter of using judicial discretion to craft a highly particular order to address corporate wrongs. What the court in Jeffery was contrasting was the degree of individuality in the nature of the relief sought (the “individual fix”) with a straightforward order to comply with a straightforward obligation. The difference is in the nature of the relief sought, not the party to whom the remedy is granted. Accordingly, the comment from Jeffery that the appellants rely on does not assist in the resolution of this appeal.
[20] The appellant’s argument overextends the observations of Jeffery – that the three remedies of the OBCA are distinct (yet overlap), and that a compliance provision does not punish a corporation for its failures and does not provide individual compensation – to the unsound categorical proposition that a compliance order does not constitute an individual remedy for a breach of the rights of a shareholder, but rather exists to provide judges with the discretion to enforce statutory obligations of corporations that do not correspond to the legal rights of any person.
[21] The appellant’s argument rests on a misstatement of the legal relations at issue in this appeal. Legal rights are most often expressed using three jural terms: (1) the rights-holder; (2) the person under a duty to the rights-holder; and (3) the thing to be done (or not done) by the duty bearer for the benefit of the rights-holder.[1] The appellant characterizes a compliance order as a two-term duty, involving a person under a duty and a thing to be done, but without any corresponding rights-holder whose claim could be subject to the Limitations Act, 2002. But what the appellant presents as a two-term statutory duty – an obligation of one party (the corporation) to do something (produce audited financial statements) – is actually a three-term statutory right: a right of one party (the shareholder) that the second party (the corporation) do something (provide the audited financial statements to the shareholder). The statute does not create a free-floating obligation, but an obligation that correlates to a right of the shareholders. In this case, it is entirely sensible to understand the obligation to appoint an auditor and to provide audited financial statements as an obligation to the shareholders. The obligation may serve other purposes, but it unquestionably generates a corresponding right on behalf of the shareholders that the corporation or its directors do something for their benefit. That the OBCA generates an obligation to provide shareholders with audited financial statements is well established in the jurisprudence of this court: see, for example, Packall Packaging Inc. v. Ciszewski: 2016 ONCA 6, 344 O.A.C. 180, at para. 28.
[22] Significantly, the legal relations created by the OBCA exist independently of the remedies the OBCA creates to enforce them. Whether a corporation has breached a shareholder’s right is one question. Whether there is an available remedy, or set of remedies, is another. There are three remedies provided by the OBCA, and more than one remedy may be available to remedy the same wrong.
[23] It is this right that grounds the claim that the shareholders can bring against the corporation and directors to be given a remedy. It is a claim that the corporation and directors fulfil its obligation to the shareholders to appoint the auditor (s. 149) and produce the audited statements to the shareholders (s. 153). Regardless of whether the oppression remedy is available (and subject to the two-year limitation period), the compliance provision in s. 253(1) is available. The nature of the three-term claim – that the corporation and directors perform their obligation to the shareholders – is the same regardless of whether the remedy sought is an oppression remedy or a s. 253(1) compliance order. Accordingly, it is entirely sensible that the same limitation period would apply to both remedies.
[24] The nature of the legal relation created by the statute – generating a claim that is then subject to the Limitations Act, 2002 – does not change on the basis that a compliance order can potentially be sought by anyone who can plausibly claim to be “a proper person to make an application”, and that granting the remedy is a discretionary decision of the application judge. The statutory right in question on this appeal is specifically the right of the shareholder. That the compliance provision may also be available to other persons enforcing other rights is irrelevant to whether this shareholder has a right, and whether a particular means of enforcement of that right constitutes a claim.
[25] The Divisional Court was alive to all of this and made no error in characterizing the application as a matter of a claim to remedy a loss, and therefore subject to the two-year limitation period. As the court stated:Mr. Lagana applied to the court to grant a remedy because the respondent violated the law in a manner that caused him loss or harm. That is no different in kind than a lawsuit for damages or an injunction generally. It is a claim for relief consequential upon prejudice being suffered by a plaintiff due to the defendant’s breach of the law. That is the heart of his “claim”. [26] The principled conclusion is also practical; it would be highly prejudicial to the respondents – and perhaps impossible – to now prepare audited financial statements reaching back 13 years. As was the case in Krandel v. 1714176 Ontario Ltd., 2014 ONSC 4615, the appellant was in a position to assert his rights in a timely fashion and did not do so.
[27] The appellant advances a further argument that if statutory obligations are understood as subject to the two-year limitation period, it will be inconsistent with - and potentially undermine - the Superior Court’s interpretation of the Condominium Act, 1998, S.O. 1998, c. 19 - in cases such as Waterloo North Condominium Corp. v. Silaschi, 2012 ONSC 5403; Middlesex Standard Condominium Corp. No. 643 v. Prosperity Homes Ltd., 2014 ONSC 1406, 119 O.R. (3d) 177; Metropolitan Toronto Condominium Corporation No. 1328 v. 2145401 Ontario Inc., 2019 ONSC 733, aff’d on other grounds 2019 ONCA 944; and Waterloo Standard Condominium Corp. No. 399 v. Lee et al., 2023 ONSC 3807. The appellant argues that the order under appeal is not only inconsistent with the reasoning in those cases, but would substantially interfere with the ability of the Attorney General and governmental agencies to enforce statutory obligations through compliance orders.
[28] This appeal is not about the applicability of the Limitations Act, 2002 to compliance orders generally, and it would be reckless for this court to make sweeping generalizations about its applicability to the enforcement of statutory obligations beyond the instant appeal. The application of the Limitations Act, 2002 to any statutory compliance provision is foremost an exercise in statutory interpretation. Its focus is not only on the text of the specific compliance provision but, critically, on the text of the underlying statutory obligation that is being enforced. Not all statutory obligations are cut from the same cloth. Some statutory obligations, as in this appeal, correspond to legal rights held by individual claimants. Remedies for breaches of such legal obligations are readily understood to be the proper object of claims governed by the Limitations Act, 2002. Other statutory obligations, particularly those that are genuinely a matter of public benefit that do not generate a claim to a legal remedy, may not constitute claims for the purposes of the Limitations Act, 2002. An assessment of the particular obligations generated by the statute is required in each case. . SpaceBridge Inc. v. Baylin Technologies Inc.
In SpaceBridge Inc. v. Baylin Technologies Inc. (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal, this from a "finding that an amendment to the Notice of Application was not statute-barred".
The court considers the meaning of 'cause of action', here in an pleadings amendment-limitations context:[31] .... A cause of action, following Lord Diplock’s definition in Letang v. Cooper, [1965] 1 Q.B. 232 (C.A.), at pp. 242-43, is “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.” As explained in Morden & Perell, The Law of Civil Procedure in Ontario, 5th Ed. (Toronto: LexisNexis Canada, 2024), at para. 2.438: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. . Lagana v 2324965 Ontario Inc.
In Lagana v 2324965 Ontario Inc. (Div Court, 2023) the Divisional Court considered (and partially allowed) an appeal of an s.253 OBCA application to "enforce his right as a shareholder to receive audited financial statements" (an 'accounting').
In these quotes, the court considers whether such an application is a 'claim' governed by the Limitations Act (in the result it allows that it is):[10] The standard of review is the appellate standard of review described in Housen v. Nikolaisen, 2002 SCC 33: correctness for a question of law. Although for the purposes of this appeal, the parties are content to treat the issues as ones of law, I would characterize the question as one of mixed fact and law, with allegations of an extricable error in law. That extricable question is whether the application judge erred in determining that Mr. Lagana has not advanced a claim, and therefore the Limitations Act does not apply.
[11] At para. 27 of her decision, the application judge held:[27] This application is based on the applicant's statutory entitlement under the OBCA as a shareholder of the Corporation: there is no broader relief sought. I find that the applicant's request for compliance with the OBCA is not a "claim" as defined by the Limitations Act and consequently that the request for audited financial statements prior to 2019 is not statute barred. [12] The appellants submit that the order for audited financial statements must be limited to the previous two years by virtue of s. 4 of the Limitations Act and the jurisprudence which supports a broad understanding of what is meant by a “claim.”
[13] The respondent submits that an application to enforce a corporate responsibility is not a “claim” subject to a two-year limitation period. It is simply an obligation of the corporation, and the shareholder is availing himself of the procedures under the OBCA to enforce that responsibility. Since the financial information ought to have been provided for every year that the respondent was a shareholder, the court ought to be available to enforce that right.
[14] I agree with the appellants that the order should be varied because an application to enforce corporate duties by force of s. 253 of the OBCA in my view fall within the definition of “claim.” Section 253 of the OBCA provides broad powers to remedy non-compliance with its provisions in these terms:253 (1) Where a corporation or any shareholder, director, officer, employee, agent, auditor, trustee, receiver and manager, receiver, or liquidator of a corporation does not comply with this Act, the regulations, articles, by-laws, or a unanimous shareholder agreement, a complainant or a creditor of the corporation may, despite the imposition of any penalty in respect of such non-compliance and in addition to any other right the complainant or creditor has, apply to the court for an order directing the corporation or any person to comply with, or restraining the corporation or any person from acting in breach of, any provisions thereof, and upon such application the court may so order and make any further order it thinks fit. R.S.O. 1990, c. B.16 [15] The Limitations Act, s. 1, defines a claim as a proceeding brought “to remedy an injury, loss or damage that occurred as a result of an act or omission".
[16] As the Court of Appeal for Ontario noted in Packall Packaging Inc. v. Ciszewski, 2016 ONCA 6 (CanLII) at para. 28, “It is a core obligation of a corporation to its shareholders to provide them with an annual report card of the corporation's financial position in the form of audited financial statements.” I conclude that a failure to do so involves a “loss” to the shareholder who is entitled to have this information, irrespective of whether the report card ultimately reveals other losses or damages that are actionable.
[17] The Limitations Act has been described as a "comprehensive approach to the limitation of actions": York Condominium Corp. No. 382 v. Jay-M Holdings Ltd., 2007 ONCA 49 (CanLII), 84 O.R. (3d) 414, [2007] O.J. No. 240 (C.A.), para. 2. I find that the relief provided for within s. 253 of the OBCA fits logically into the framework and understanding of what is meant by a “claim” under the Limitations Act. Section 253 is a statutory proceeding which exists to enforce omissions under the OBCA, including the corporation’s core obligations to its shareholders. There is no statutory exemption under either the Limitations Act or the OBCA from the operation of the basic limitation period.
[18] The presumptive operation of the limitation period to a request for financials was noted in passing by Farley, J. in Labatt Brewing Company Ltd. v Trilon Holdings, 1998 CanLII 14697 (ON SC), 41 O.R. (3d) 384, 72 O.T.C. 223, 81 A.C.W.S. (3d) 443, para. 8, in these terms:How far back must Trilon go in providing Labatt with audited financial statements? If Labatt had been a "continuous" shareholder, then the only restriction would have been the ordinary six-year limitation period which given the timing required here relating to annual meetings would have resulted in audited financials being required to be given Labatt for the fiscal years ending December 31, 1991, onwards. However, Labatt did not become a shareholder until June 1993 and therefore it would not be entitled pursuant to s. 154(3) to audited financials before December 31, 1992. (Emphasis added) [19] The appointment of the auditor under s. 149 (8) of the OBCA only goes to the current year. Mr. Lagana’s request for a retrospective mandatory injunction was different. He asked the court to compel the auditor to opine on the corporation’s old financial statements and then to compel the board of directors to put those statements before the shareholders as ought to have been done at the time.
[20] This part of Mr. Lagana’s application asked the court to enforce compliance with the auditor’s and board’s duties under ss ss. 153 and 154 (1)(c)of the OBCA.
[21] Mr. Lagana applied to the court to grant a remedy because the respondent violated the law in a manner that caused him loss or harm. That is no different in kind than a lawsuit for damages or an injunction generally. It is a claim for relief consequential upon prejudice being suffered by a plaintiff due to the defendant’s breach of the law. That is the heart of his “claim”.
[22] The motion judge focused on the corporation’s duty to appoint an auditor pursuant to s.149 of the OBCA, which she found not to be a claim per se. But the part of the order from which the appeal is taken required audits to be conducted dating back to 2013 and that these results be placed before the shareholders as required by ss. 153 and 154 of the OBCA.
[23] I note that in fairness to the application judge, it is not clear whether she had the benefit of argument explicitly on these points or the observations of Farley J. in Labatt Brewing.
[24] I agree with the findings of the application judge that the applicant/respondent on appeal was not estopped from seeking this information, and that he should have the audited financial statements for the two years prior to the date he brought the application.
[25] However, the application judge erred in determining that a limitation period of two years pursuant to the Limitations Act did not apply to this demand for audited financial statements for several years prior to those two years. Accordingly, the claim for an order to require the appellants to produce audited statements for those years prior to 2020 is statute-barred.
[26] For these reasons, the appeal is allowed to the extent necessary to bring the period for which audited financial statements must be produced in line with the time limit for such a claim as prescribed by the Limitations Act. . Di Filippo v. Bank of Nova Scotia
In Di Filippo v. Bank of Nova Scotia (Ont CA, 2023) the Court of Appeal considers the meaning of a 'claim' for Limitations Act purposes, here where the existence of a new claim within sought pleading amendments would result in them being time-barred:[34] Section 4 of the Limitations Act provides the basic limitation period which is based on the date of discovery of a claim. The section reads:4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. [35] Claim is defined in s. 1 as:“claim” means a claim to remedy an injury, loss or damage that occurred as a result of an act or omission. [36] Section 5(1)(a) then sets out the criteria for determining when a claim is discovered: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 ... . [37] With respect to criterion (iv)[6], a proceeding would only be appropriate if the circumstances give rise to one or more legally recognized causes of action on which to base the proceeding. The wrong must have a legally recognized remedy. It is only in this sense – that legal recourse must be appropriate to address a loss caused by the proposed defendant’s act or omission – that the term “claim” has any legal specificity.
[38] In Grant Thornton LLP v. New Brunswick, 2021 SCC 31, 461 D.L.R. (4th) 613, the Supreme Court clarified when a plaintiff discovers that they have a claim. It is when they have knowledge, either actual or constructive, “of the material facts upon which a plausible inference of liability on the defendant’s part can be drawn”: at para. 42. The plausible inference standard means that the plaintiff does not have to be certain that the known facts will give rise to legal liability, but the plaintiff must have knowledge of the material facts that form the basis for the plausible inference of legal liability. . Gordon Dunk Farms Limited v. HFH Inc.
In Gordon Dunk Farms Limited v. HFH Inc. (Ont CA, 2021) the Court of Appeal considered the meaning of 'claim' (here the issue was wrt s.4-5 of the Ontario Limitations Act):[26] The meaning of “claim” in the Act was explained by this court in Kaynes v. BP p.l.c., 2021 ONCA 36, 456 D.L.R. (4th) 247, and confirmed most recently by the Supreme Court of Canada in Grant Thornton LLP v. New Brunswick, 2021 SCC 31, in respect of the New Brunswick Limitation of Actions Act, S.N.B. 2009, c. L-8.5 (the “N.B. Act”). In Kaynes, the court explained that while the Act no longer refers specifically to a cause of action, instead it sets out universal criteria for the commencement of the limitation period in respect of a claim: at paras. 50-58. A claim is pursued in a court proceeding to obtain a remedy for a loss that the defendant caused the plaintiff to suffer by its act or omission. To obtain a remedy in a court proceeding, a person must assert a cause of action.
[27] In Grant Thornton, Moldaver J. rejected the argument that there was a meaningful distinction between “claim” and “cause of action” in the context of the N.B. Act (which is similar but not identical to the Ontario Act), stating at para. 37:I recognize that the distinction between “claim” and “cause of action” could be meaningful in some circumstances; but in my view, it is not so here. In fact, the LAA’s own wording shows that the use of “claim” does not rule out a shared meaning with “cause of action”. Section 1(1) defines a claim as a “claim to remedy the injury, loss or damage that occurred as a result of an act or omission”. In short, s. 1(1) indicates that the legislature’s use of the term “claim” focuses on a set of facts giving rise to a remedy, which is the same meaning that Grant Thornton attributes to the term “cause of action”.
|
