ONTARIO – Limitations – The clock begins to tick when the plaintiff has actual knowledge of the material facts that give rise to a claim or when it ought to have known of those facts through reasonable due diligence. The level of actual or constructive knowledge needed is more than mere suspicion or speculation but less than perfect knowledge of liability.
Espartel Investments Limited v. Metropolitan Toronto Condominium Corporation No. 993
2024 ONCA 18 January 11, 2024)
Ontario Court of Appeal (Gillese, Trotter and Coroza JJ.A)
The parties co-occupied a mixed commercial and residential complex. The parties operated under a utility sharing agreement. Pursuant to the arrangement, the appellant condominium corporation paid the hydro for the entire complex and then sent the respondent, Espartel, a hotel an annual invoice for its share. The formula was flawed and resulted in the respondent overpaying $730,000.00 between 2006-2015.
The respondent sued the condominium corporation for unjust enrichment. The appellant defended on the basis that the claim was time barred under the Limitations Act, 2002. The appellant argued that the respondent should have known the formula was flawed years before issuing its claim in 2018.
The judge rejected the limitation defence and found that the errors in the formula were not apparent on the face of the invoices and that the respondent did not discover the errors prior to 2017. (para. 3) The judge held that the errors were not reasonably discoverable based upon the principles set out in Van Allen v. Vos. 2014 ONCA 552. (para. 11)
The judge held that the elements of unjust enrichment were met, granted the respondent damages in the amount of $730,058.99 and held that the appellant had failed to establish any basis for equitable set off. (para. 13)
The issues on appeal were:
- Did the judge err in her discoverability analysis by finding that the error was not apparent on the face of the invoices?
- Did the judge err in law in her analysis of the respondent’s due diligence?
- Did the judge err by conflating actual and constructive knowledge? (para. 4)
Analysis
The ONCA dismissed the appeal.
The appellant’s formula to allocate utility costs to the respondent was set out in an Excel spreadsheet. The formula erroneously treated a kilowatt as “.1” in the formula rather than “.01”. The formula also did not include a variable for kilowatts. After the calculation was made, the appellant would send the respondent a two-page spreadsheet as an invoice. The errors led to the respondent overpaying for electricity from 2006-2015 (para. 7)
Each year, the respondent’s general manager, financial comptroller and outside auditors reviewed the utility invoices. No one on either side noticed the formula error. (para. 8)
In 2015, the respondent’s new general manager was concerned about high hydro bills and installed energy efficient lighting and fans to reduce hydro costs. The costs were not reduced. Later, the appellant retained an engineering consultant to review the invoices and provide advice on electricity costs. The consultant’s report dated February 1, 2017, identified the formula error. (para. 9) This report was the first time the parties became aware of the formula error.
On November 21, 2018, the respondent issued its claim against the appellant for unjust enrichment. (para. 11)
Discoverability
The ONCA noted that the judge listed twenty-one reasons why the errors were not discovered or reasonably discoverable prior to 2017.
Pursuant to ss. 4 and 5 of the Limitations Act 2002 a party normally must sue within two years of discovery of their claim. The clock begins to tick when the plaintiff has actual knowledge of the material facts that give rise to a claim or when it ought to have known of those facts through reasonable due diligence. The level of actual or constructive knowledge needed is more than mere suspicion or speculation but less than perfect knowledge of liability. The ONCA referred to Grant Thornton LLP v New Brunswick 2021 SCC 31 at para.29, 46 and Zeppa v Woodbridge Heating & Air- Conditioning Ltd. 2019 ONCA 47. (para. 14)
The ONCA rejected the appellant’s argument that the errors were capable of being discovered earlier. The ONCA held that it is reasonable discoverability rather than a mere possibility of discoverability that starts the clock running as set out in the Van Allen case. Given that the judge relied upon the Consultant’s Report as to the description of the errors which became the basis of an agreed statement of facts, the ONCA held that the judge made no error in finding that the formula error was not obvious on the face of the invoices. (paras. 19-21)
Due Diligence
The ONCA held that the standard of proof to determine if reasonable due diligence had been exercised is on a balance of probabilities as set out in F.H. McDougall 2008 SCC 53. (para. 28) The ONCA held that even though the judge misstated the law on the burden of proof for reasonable discoverability, the error was harmless because it did not impact her conclusion that there was “overwhelming evidence of a reasonable explanation and due diligence by the plaintiff.” (para 29.)
The ONCA rejected the appellant’s argument that because the respondent’s new general manager was concerned about the utility bills in 2015, that did not diminish the appellants responsibility for its flawed calculations or detract from the finding that the respondent acted with due diligence in reviewing the invoices. (para. 30)
The ONCA did not find that the judge conflated actual with constructive knowledge when she concluded the claim was not discovered or reasonably discoverable. The judge’s list of 21 reasons why the claim was not discovered or reasonably discoverable prior to 2017 explicitly related to actual knowledge and reasonable discoverability. Several of the 21 reasons relate only to the objective standard of reasonable discoverability and not actual knowledge. Therefore, the ONCA held the judge did not conflate the two concepts in her reasons, (para. 33)
Unjust Enrichment
Unjust enrichment occurs when one party is enriched, the other party suffers a corresponding deprivation, and there is an absence of a juristic reason for the enrichment: Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at para. 37.
The ONCA held that there was no dispute that respondent’s overpayments for the utilities enriched the appellant and there was no basis for the enrichment. (para. 37)
The doctrine of equitable set-off allows a defendant to “set-off” damages, in some cases, on the basis of a closely connected crossclaim against the plaintiff: Holt v. Telford, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193, at p. 212. The ONCA found no reason to intervene in the judge’s conclusion that there was no reason to accept the appellant’s hearsay evidence that the respondent may have paid more for hydro but less for other utilities. (para. 38)