Executive Summary: Key Legal and Evidentiary Issues

• Determination of whether a shareholder’s demand for audited financial statements is subject to the two-year limitation period under the Limitations Act, 2002.

• Examination of the statutory obligations of corporations under the Ontario Business Corporations Act (OBCA) to appoint auditors and provide audited financial statements to shareholders.

• Consideration of whether a compliance order under s. 253(1) of the OBCA constitutes a “claim” for the purposes of the Limitations Act, 2002.

• Analysis of the distinction between compliance orders and other statutory remedies such as oppression remedies.

• Evaluation of the interplay between statutory rights and remedies, specifically whether the right to audited financial statements correlates to a claim subject to limitation periods.

• Assessment of the practical implications of enforcing compliance with statutory obligations beyond the limitation period.

Factual background and procedural history

Carmelo Lagana became a shareholder in 2324965 Ontario Inc., a real estate development company originally formed by his late father and David Power in 2012. After his father’s death, Mr. Power became the sole director, and Mr. Lagana acquired his father’s shares. Between 2013 and 2020, the corporation engaged in property transactions. In 2021, Mr. Lagana requested access to the corporation’s financial records. Mr. Power provided unaudited statements and offered to meet, but no audited financial statements were ever produced, nor were auditors appointed, as required by the OBCA. There were also no shareholder resolutions exempting the corporation from the audit requirement.

Dissatisfied, Mr. Lagana applied to the court for the appointment of an auditor under s. 149(8) of the OBCA and for an order compelling the production of audited financial statements dating back to 2013, pursuant to s. 253(1). The application judge granted the relief, rejecting the argument that the Limitations Act, 2002 barred claims for statements prior to 2019, finding that the demand was not a “claim” under the Act.

Appeals and legal analysis

Mr. Power and the corporation appealed, arguing that the Limitations Act, 2002 applied and precluded orders for audited statements beyond the two-year period. The Divisional Court agreed, holding that the application judge erred and that the two-year limitation period did apply. The order was varied to remove the requirement to produce audited statements outside the limitation period.

On further appeal to the Court of Appeal for Ontario, the sole issue was whether the Divisional Court was correct in determining that the Limitations Act, 2002 applies to compliance orders under s. 253(1) of the OBCA. The Court of Appeal reviewed the relevant statutory provisions, noting that the OBCA imposes annual audit and reporting obligations unless exempted by unanimous shareholder resolution. Section 253(1) allows shareholders and other “complainants” to seek compliance orders when these obligations are not met.

The appellant argued that compliance orders enforce statutory obligations rather than individual rights, and thus should not be subject to limitation periods. The Court rejected this, reasoning that the statutory obligations to appoint auditors and provide audited financial statements are rights held by shareholders, and a failure to fulfill them gives rise to a claim for relief. The Court found that a shareholder’s application for compliance is indeed a “claim” to remedy a loss or harm resulting from non-compliance, and thus falls within the two-year limitation period of the Limitations Act, 2002.

The Court also addressed concerns about the broader implications for other statutory regimes, clarifying that the applicability of limitation periods to compliance orders depends on the specific statutory context and the nature of the rights and obligations involved.

Outcome

The Court of Appeal dismissed the appeal, affirming that the two-year limitation period applies to shareholder claims for compliance with the OBCA’s audit and reporting requirements. The respondents, 2324965 Ontario Inc. and David Power, were awarded costs totaling $8,000 as agreed by the parties. No exact amount was ordered in favor of Mr. Lagana, as the relief sought was not monetary but compliance-based, and the limitation period precluded the broader relief initially granted.