The Plaintiffs (Appellants) commenced a claim in 2006 against various defendants, including a company named e3m Investments Inc. (“e3m”). Judgment against e3m was granted on April 13, 2017 after a 10-day trial. In the reasons for judgment, the judge was critical of the sole director of e3m and his handling of the facts that led to the 2006 claim.

The judgment was ultimately not satisfied and e3m made an assignment in bankruptcy on January 20, 2015. On October 25, 2016, the plaintiffs obtained an order under the Bankruptcy and Insolvency Act authorizing the assignment to the plaintiffs of e3m’s rights to sue the sole director. On the same day, the plaintiffs commenced a claim against the director. This new claim alleged that the director was liable to compensate e3m for the amount of the 2013 Judgment.

The director defended the action. One defence raised was that the plaintiffs had commenced the action against the director beyond the 2-year general limitation period for bringing claims in Ontario. Motions for summary judgment were brought by both sides and the judge on the motions sided with the director and dismissed the plaintiffs’ claim on the basis that the claim was brought beyond the 2-year limitation period. Specifically, the motions judge found that the plaintiffs had discovered the claim before the bankruptcy of e3m and before they were able to sue in e3m’s name. In the alternative, the motions judge found that that e3m, as the plainiffs’ predecessor in relation to the claim, had discovered the claim against Goldberg more than two years before the plaintiffs had commenced the claim.

The plaintiffs appealed to the Ontario Court of Appeal. One argument raised on appeal was that the limitation period could not have run against the plaintiffs while they lacked standing to commence the action. They argued that the director would not have directed e3m to sue himself, so the limitation period commenced running as against the plaintiffs upon the assignment in bankruptcy notwithstanding the plaintiffs’ prior knowledge of the facts.

While the Court of Appeal agreed generally that a limitation period can only commence running when a plaintiff obtains standing to commence a claim, the Court noted that this was not the end of the analysis. Section 12 of the Limitation Act states:

For the purpose of [discovery of a claim], in the case of a proceeding commenced by a person claiming through a predecessor in right, title or interest, the person shall be deemed to have knowledge of the matters referred to in that clause on the earlier of the following:

1. The day the predecessor first knew or ought to have known of those matters.

2. The day the person claiming first knew or ought to have known of them.

Pursuant to section 12 of the Limitations Act, claims are discovered at the earlier of when a person with a claim or the predecessor with the claim knew or ought to have known the facts related to the claim.

The Court of Appeal found that the evidence on the motions for summary judgment was that there were ten shareholders of e3m, including the defendant director. The evidence indicated that the other shareholders of e3m, who were sophisticated investors, were kept apprised of the 2006 claim and the 2013 judgment. Therefore, the other nine shareholders knew at the time that “an injury had occurred; … it’s loss was caused by an act or omission of the director; and a proceeding was an appropriate means to remedy it.”[1] As a result, the shareholders could have taken action against the director and made a claim against him, or they could have commenced a derivative action. The shareholders did not take action against the director.

Given that the shareholders could have taken action and they were aware of the facts related to the director’s actions, e3m was aware of the facts and claim as the “predecessor in right, title or interest.” Accordingly, the Court of Appeal upheld the motions judge’s dismissal of the claim on the basis that “the limitation period had expired against e3m by the time the appellants commenced their action against Goldberg for breach of his duties to e3m.”[2]