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Summary Judgment Denied on Limitations Issue with Limited Record - Cash Stores Professional

The plaintiff 1511419 Ontario Inc., formerly known as the Cash Store Financial Services Inc. ("Cash Store"), has sued its former auditor, KPMG LLP; financial advisor, Canaccord Genuity Corp.; and legal advisors, Cassels Brock & Blackwell LLP (collectively, the "Defendants") in three separate actions. The lawsuits all relate to professional services provided by the Defendants to Cash Store with respect to a loan purchase and note offering in January 2012 (the "January 2012 Transaction").

Cash Store was in the business of arranging payday loans for its customers, ostensibly funded by third party lenders ("TPLs"). Cash Store has acknowledged that its management sought to maximize profits with its TPLs by circumventing payday lending laws. This scheme was concealed from the company's payday borrowers and regulators.

In the January 2012 Transaction, Cash Store completed a note offering issuing $132.5 million in senior secured notes and used approximately $116 million of the proceeds to acquire the existing loan portfolio held by its TPLs. The Defendants all provided Cash Store with professional assistance with respect to the January 2012 Transaction. Within a few months of the transaction, Cash Store knew that the valuation of the purchased loan portfolio had dropped significantly. It was ultimately determined that the fair market value of the loan portfolio was far less than the $116 million Cash Store paid for it. An internal investigation was commenced with the assistance of outside advisors that identified problems with the January 2012 Transaction.

On April 15, 2014, Cash Store was granted CCAA protection by order of Morawetz R.S.J. and a Litigation Trustee was appointed. Seven months later, on November 27, 2014, Cash Store commenced its three separate actions against the Defendants. A fourth action against the company's officers and directors was commenced the same day and settled in September 2015.

The Defendants all moved for summary judgment to dismiss their respective actions as statute-barred. They argued that Cash Store knew or ought to have known of its claim shortly after the January 2012 Transaction, and in any event more than two years before November 27, 2014. They also argued that by failing to adduce any evidence from its former officers and directors, Cash Store had failed to put its best foot forward to rebut the presumption in s. 5(2) of the Limitations Act that it discovered its claim upon the closing of the January 2012 Transaction on January 31, 2012.

Justice McEwen dismissed all three motions for summary judgment. Although he said he appreciated the Defendants' desire to deal with the limitation period issues summarily and end what would no doubt be protracted and expensive litigation, he concluded that there was a genuine issue of discoverability requiring trial in all three actions. The case was too complicated to be dealt with summarily based on the "voluminous" yet limited record before him.

Justice McEwen followed the process set out in Nasr Hospitality Services Inc. v. Intact Insurance ("Nasr") for a summary judgment motion involving a limitation period. He held that he had to determine whether the record enabled him to make a series of findings of fact, with the certainty required by Hryniak v. Mauldin, as follows:

  1. the date the plaintiff is presumed under s. 5(2) to know the matters listed in ss. 5(1)(a)(i)-(iv) of the Limitations Acti.e., the day on which the act or omission on which the claim is based occurred;
  2. the date of actual knowledge under s. 5(1)(a), in the event the evidence proves the contrary of the presumptive date;
  3. the s. 5(1)(b) objective knowledge date, based on the reasonable person with similar abilities and circumstances analysis; and
  4. which of the actual knowledge and objective knowledge dates is earlier, for that will be the day on which the plaintiff "discovered" the claim for purposes of applying the basic limitation period of two years.

The Defendants focused on what they argued was Cash Store's lack of due diligence in investigating its claims. Justice McEwen, however, noted that the plaintiff's due diligence in investigating its claim forms part of the objective knowledge analysis under s. 5(1)(b), but is not relevant to the s. 5(1)(a) actual knowledge analysis. And the plaintiff is not required to demonstrate due diligence to rebut the presumptive date in s. 5(2).

Justice McEwen found that the limited record put forward by the parties enabled him to determine that January 31, 2012 was the presumptive knowledge date, but did not allow him to complete the rest of the Nasr analysis. Although the parties had filed 13 separate briefs with the court (not including facta, case briefs, and subsequent written argument), and the total record exceeded 1,500 pages including dozens of exhibits, Justice McEwen noted repeatedly that the affidavit evidence was very limited. No party had filed affidavit evidence from anyone directly involved in the January 2012 Transaction. This omission precluded Justice McEwen from sorting out the relationships between the parties and when Cash Store knew or ought to have known about its claims. He was not prepared to find on the basis of the limited record put forward by both parties that Cash Store had failed to put its best foot forward or that it had failed to rebut the presumption in s. 5(2).

Citing recent Court of Appeal decisions in Mega International Commercial Bank (Canada) v. Yung and Mason v. Perras Mongenais, Justice McEwen noted that "discoverability cases tend to be contentious and complex and not necessarily suitable for summary judgment – particularly in cases involving professional negligence". In this case, Justice McEwen held that the "complicated fact pattern involving allegations of professional negligence … precludes me from concluding that it would be fair and just, on a limited record, to determine the issue of the limitation period in a case brought against professional advisors."

Once thought of as a prime example of the type of discrete issue ripe for summary determination, even limitation period defences are having a tough time in motions court these days. Going forward, lawyers and other professional advisors sued for professional negligence in particular may find it challenging to get themselves out of an action on a summary basis based on a limitations defence. Where there are any issues of discoverability, the extensiveness of the motion record, including the availability of affidavit evidence from those directly involved, will be key to whether or not the court will be willing to engage with the issue on a summary basis, or will punt the issue to trial.