Leave to commence derivative action allowed where continuous breaches occurred under an agreement

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In Sax v Rick Aurora, 2019 ONSC 3573, the Divisional Court considered the application of the Limitations Act, 2002 in the context of a derivative claim brought under section 246 of the Business Corporations Act for continuing breaches under an agreement. The plaintiff worked as a real estate agent for the defendants. He incorporated a numbered company to create a space for builders to sell pre-construction real estate to purchasers. His employer and the numbered company entered into an agreement whereby a portion of every commission earned by his employer operating in the numbered company’s space would be paid to the numbered company.

The plaintiff was terminated on January 17, 2014, and shortly after commenced a claim against his former employer. The plaintiff subsequently learned that his former employer had not made any payments to the numbered company since the date of his dismissal, and did not intend to abide by the terms of the agreement. On April 11, 2017, the plaintiff brought a motion to amend the statement of claim and for leave to commence a derivative action on behalf of the numbered company. The motion was opposed on the grounds that the derivative claim was statute barred. The motion judge rejected this argument and granted the plaintiff leave to commence a derivative action against his former employer.

On appeal to the Divisional Court, the plaintiff conceded that derivative claims arising prior to April 11, 2015, being two years prior to the filing of the motion for leave, were statute barred. The Supreme Court in the CIBC Trilogy left no room for doubt that the doctrine of nunc pro tunc cannot be used to cure an expired limitation period and is not available where a motion seeking leave to bring a derivative action is filed after the expiry of the applicable limitation period.

However, the plaintiff argued that the derivative claim included damages for repeated breaches of the agreement continuing before, through, and after the filing of the motion for leave. The defendant argued that even in a case of continuing breaches, failure to bring a motion for leave within two years of discoverability is fatal to the claim. The Divisional Court agreed with the plaintiff, and held that where there is a failure to make periodic payments due under an agreement, each individual failure to make such payments constitutes a new breach of the agreement, for which a new limitation period begins. Therefore, the plaintiff could bring a derivative action, but only in respect of breaches arising within two-years from when the motion for leave was filed. Accordingly, claims for breaches prior to April 11, 2015 were statute-barred, but the plaintiff was granted leave to bring a derivative action for breaches of the agreement after that date.

Co-authored by Henry Machum