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Limitations - Guarantees. Hazout v. The Attorney General of Ontario
In Hazout v. The Attorney General of Ontario (Ont Div Ct, 2023) the Ontario Divisional Court dismissed an appeal from a successful Small Claims subrogated action by Ontario, here where the appellant defaulted on a government-guaranteed loan.
Ontario is exempt from the Limitations Act for actions "the provision of direct or indirect support to members of the public in connection with social, health or economic policy" [LA s.16(1)(j) ['No limitation period'] and 16(2)(b)]. The court considered the appellant's limitations argument that, as an assignee, Ontario was "subject to all equities" [CLPA s.53} that the debtor had against the original creditor (the bank), including an expired limitation period:[2] Deputy Judge Bay of the Small Claims Court allowed Ontario’s action. Mr. Hazout now appeals the Deputy Judge’s order. Mr. Hazout’s primary argument is that the action is barred by the general two-year statutory limitation period. He maintains that, although Ontario would not otherwise be bound by a limitation period, Ontario is an assignee of the loan and bound by the limitation period that would apply to the bank. He also submits that Ontario should be prevented from pursuing the action by the doctrine of laches.
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Did a limitation period bar Ontario from starting the action?
[4] Mr. Hazout submits that Ontario was not a party to the loan agreement and only gained its standing to bring the action as an assignee. He emphasizes that an assignee to an agreement stands in the shoes of an assignor and is subject to the benefits and burdens of the underlying agreement. In his submission, this means that, on assigning the loan, Ontario remained subject to the burden of the two-year limitation period that would have applied to the bank.
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[6] If it is appropriate to reach a determination on this point by review of the documents, I would dismiss Mr. Hazout’s arguments. By way of background, Ontario is not subject to the general two-year limitation period set out in s.4 of the Limitations Act, 2002, S.O. 2002, c. 24, Schedule B (the “Act”). Paragraph 16(1)(j) of the Act, read together with s. 16(2), provide that “[t]here is no limitation period in respect of” a proceeding brought by the Crown in respect of claims relating to “the administration of social, health or economic programs.” There is no dispute that the New Ventures Program constitutes such a program.
[7] Contrary to Mr. Hazout’s submission, Ontario was not limited to starting the action as an assignee of the loan agreement. Instead, Ontario was also a guarantor of the loan. Section 4 of the loan agreement, signed by Mr. Hazout, provides that the loan is guaranteed by the Province of Ontario. In consideration of that guarantee, Mr. Hazout agreed “to indemnify the Province of Ontario upon demand for all payments made by the Province of Ontario pursuant to the Guarantee.”
[8] As a guarantor, Ontario had an independent right to be indemnified for the loan. As Hunt J.A. explained (in concurring reasons) in Canada (A.G.) v. Becker, 1998 ABCA 283, 223 AR 59, at paras. 32-39, the right to indemnity is different from a subrogated in that it permits the guarantor to sue in its own name. See also Ormston v. Manchester, 2019 ONSC 6529, at para. 14.
[9] Mr. Hazout relies on an endorsement by the bank’s account manager on the promissory note stating that “in return for full payment, we hereby assign our interest in this note to the Ministry of Economic Development and Trade.” According to Mr. Hazout, the endorsement demonstrates that Ontario was an assignee of the loan. However, I agree with Ontario’s submission that all this endorsement did was nullify the bank’s rights to enforce on the loan. It made Ontario an assignee but did not thereby require Ontario to enforce the loan as an assignee. Put otherwise, it did not remove Ontario’s rights as a guarantor.
[10] In response to Mr. Hazout’s submission that Ontario only gained its enforcement rights after it paid the bank, that is usually the nature of a guarantee. In Becker, Hunt J.A. stated at para. 39: “Normally, the right to indemnification exists when the guarantor has actually met the liability for which he has undertaken to answer.” Mr. Hazout did not justify why this removed Ontario’s right to sue for indemnification under s. 4 of the loan agreement.
[11] In conclusion, as Ontario was exempt from any limitation period under the Act, it was not statute-barred from bringing the action.
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