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Muddy Waters: Applicable Limitation Period Where There is Ongoing Oppressive Conduct (Maurice v Alles and Zhao v Li)

10 minute read

Maurice v Alles and Zhao v Li

General Principles

The two-year limitation period in s. 4 of the Limitations Act, 2002, applies to oppression remedy claims brought pursuant to s. 248 of the Ontario Business Corporations Act. It is common for plaintiffs to allege multiple acts of oppression, including some that have occurred over time. In such cases, a court determination must be made as to whether that conduct is to be characterized as “ongoing” or a series of discrete acts that occurred at different times, each of which starts the limitation period running anew. This is not a straightforward analysis, as demonstrated by the two Ontario Court of Appeal leading decisions on this issue. Both cases arose in the context of a summary judgment motion to dismiss an oppression remedy claim on the basis that it was limitation barred.

Limitation Period For Oppression by A Series of Discrete Acts

Maurice v Alles, 2016 ONCA 287

In this case, the applicant complained of the conduct of his siblings, the respondents, with respect to two share transactions involving related corporations. The parties all held shares in three companies referred to as “Tasco”, “Marlba”, and “Kirby-Maurice”; the latter company held shares in Tasco and in Marlba.

Events leading up to the oppression application

The Kirby-Maurice unanimous shareholders agreement provided that any shareholder who sold shares in Tasco and Marlba must also sell his/her/its shares in Kirby-Maurice at fair value, as determined by a valuator. In 1996, the applicant exercised his right to sell his shares in Tasco and Marlba and offered to sell his shares in Kirby-Maurice per the terms of the unanimous shareholders agreement. That share sale did not close until March, 2007.

In July, 2008, the applicant learned that the respondents were selling their shares in Tasco and Marlba to a third party, to which he objected as a shareholder of Kirby-Maurice on the basis that he thought that Kirby-Maurice should get a premium for its control of Tasco. He requested information to determine the value of the Kirby-Maurice shares and that a valuator be appointed. The respondents approved the share sale and ignored his information requests.

The application

In 2013, the respondents brought an application for the appointment of a valuator with respect to the Kirby-Maurice shares. The applicant brought a cross-application claiming oppression and breach of the unanimous shareholders agreement. He complained about the failure of the respondents to answer his information requests for years and that the terms of the respondents’ sale of the Tasco and Marlba shares had adversely affected the current value of his Kirby-Maurice shares.

The respondents moved for summary judgment in 2015 on the ground that the claim was limitation barred since the applicant had all the information he needed to advance his claims in 2008. The applicant asserted that the claims were not limitation barred because the oppression was “ongoing” and continued since his concerns had never been addressed.

The result on appeal

The Ontario Court of Appeal disagreed with the applicant; the Tasco and Marlba share sale was a singular event that occurred years ago and claims with respect to it were limitation barred. However, a new discrete oppressive act occurred when the respondents brought an application to appoint a valuator to determine the value of the applicant’s shares in Kirby-Maurice. They were seeking a valuation process and payout that did not take into account their earlier oppressive conduct. The earlier value of the Tasco shares affected the current value of the applicant’s Kirby-Maurice shares. The Court characterized this conduct as “in furtherance of, or based upon, earlier oppressive conduct”, which “is a new cause of action because it is new oppressive conduct”:

A party that engages in a series of oppressive acts can always make the argument that it is part of the same corporate malfeasance and that the limitation period begins to run with the discovery of the first oppressive act. In analyzing that conduct, courts must have regard to the remedial nature of the oppression remedy and the fact that any threatened or actual conduct that is oppressive…can constitute a discrete claim of oppression.

Therefore, the applicant’s claim for this act of oppression was not limitation barred.

Zhao v Li, 2020 ONCA 121

In this case, the parties to this action were shareholders in a corporation that operated as a dry cleaning business. The plaintiff/appellant (Zhao) reached an agreement with the other two shareholders that provided (among other things) that she would be responsible for the corporation’s human resources and quality control, that the defendant/respondent (Li) would serve as President and would be responsible for the day-to-day running of the business, that the shareholders would sell the business if they ever got an offer for $250,000 to $300,000, and that Zhao would receive value in the event of a dissolution or winding up.  Zhao complained that she had effectively been “cut out” of the corporation by Li.

Events leading up to the oppression action

In June, 2010, Li was charged with assault and uttering a death threat against Zhao, as a result of which she did not attend the business premises until Li signed a performance bond in March, 2011.

Between March and August, 2011, she checked on the business and claimed that she did not see any indication of problems, although the motion judge found that there were contrary indications.

In June or July, 2011, Li and the landlord told Zhao that the company had stopped paying rent on the premises, but she said she did not believe them.

In July, 2011, Li told Zhao of a proposed sale of the business for $20,000, to which Zhao agreed but later claimed she heard nothing further about it.

In September, 2011, Zhao attended the premises and found another business operating there under a different name.

Between September and December, 2011, Zhao consulted with friends about what she could do to find out what happened to her business. She did not contact Li. She did not seek legal advice.

In February, 2012, she obtained a Corporate Profile Report that revealed that the corporation had been dissolved in October, 2011.

The action

In October, 2013, Zhao brought this action.

The summary judgment motion judge concluded that Zhao discovered, or ought to have discovered, her claim by no later than September 2011, by which time she knew that someone else was operating the business and therefore her claim was statute barred. She granted summary judgment to Li.

The result on appeal

The Court of Appeal applied the principles in Maurice v Alles:

Claims arising from singular discrete acts of oppression (in a series of such acts) that are discoverable more than two years before an action are statute barred. As a result, a series of singular discrete acts of oppression that stretches over a period of time may result in some claims of oppression arising from earlier acts in the series being statute barred while claims arising from later acts in the series are not.

The Court found that what was alleged was a “series of discrete oppressive acts rather than ‘ongoing oppression’” and divided Zhao’s claim into three categories:

  • Li had unilaterally dissolved the corporation without the approval, authority, or knowledge of Zhao in October, 2011 (“the corporate dissolution claim”);
  • Li had failed to pay Zhao the proceeds of any sale of the business sometime before  September, 2011 (“the sale claim”); and
  • Li had failed to account for or pay for any profits to Zhao since June, 2010 (“the profits distribution claim”).

These were each discrete oppressive acts because, “they are different acts occurring at different times and because none of them is dependent upon either of the others having happened for oppression to be said to have occurred”. Only the “corporate dissolution claim” was not statute barred. Therefore, the Court of Appeal allowed the appeal in part – it allowed Zhao to proceed with this claim alone.

Limitation Period For "Ongoing" Oppression

This year, when the Ontario Court of Appeal in Zhao v Li considered Maurice v Alles, it expressed the view that, on those facts, that Court held that the series of oppressive acts did not constitute “ongoing” oppression and therefore, “it was not necessary to define the exact limitation period consequence of a finding of ‘ongoing oppression’”. But, in fact, the Court of Appeal panels in both cases gave indications of how they would deal with such claims.

In Maurice v Alles, the Court of Appeal used an analogy: In a collection action, the limitation period starts to run as soon as the cause of action arises, which is upon the debtor’s refusal to pay. There is an “ongoing” refusal to pay. A new limitation period would only begin to run with respect to a later “discrete” wrongful act.

The circumstances in which the respondents continued to ignore the applicant’s requests for information were no different than a collection action in which the debtor’s refusal to pay continues until judgment. This suggests that where there is “ongoing” oppression, the limitation period starts to run as soon as the plaintiff/applicant is aware of the wrongful act, even if it continues.

However, the Court introduced some uncertainty in this conclusion when it “warned that courts must be careful not to convert singular oppressive acts into ongoing oppression claims to extend limitation periods, since that would create a special limitation period rule for oppression remedy cases” [emphasis added].

In Zhao v Li, the Court of Appeal provided clarity. It referred to the “profits distribution claim”, which arose in June, 2010, and continued even to the time of the motion. The failure to pay Zhao was therefore “ongoing”. Presumably there were successive profit distributions made to Li, each of which gave rise to a new cause of action which continued.

However, Zhao only learned of the sale of the business and the fact that she would not receive any profit distributions in September, 2011, when she learned that the business was no longer operating. The Court found that that claim was limitation barred because Zhao did not bring the action until October, 2013.

This is the only sensible approach, as explained by (now Justice) Markus Koehnen in his book “Oppression and Related Remedies”, which was quoted in Fracassi v Cascioli, 2011 ONSC 178 at para. 273:

Ordinarily, limitation periods begin from the time the plaintiff knows or ought to know of his cause of action. The fact that certain types of oppression continue until they are rectified has given rise to unusual results with respect to limitation periods…The concept that the limitation period does not begin to run until the oppression is remedied is counter-intuitive. Limitation periods begin when the cause of action arises, not when it is remedied…The idea that limitation periods begin to run when the oppression stops makes even less sense given the requirement of some courts that the oppression continue until the action is commenced. The combination of these two rules would result in an absurd situation. In essence, the limitation period does not run until the oppression stops. But once the oppression stops, the plaintiff has no cause of action.

Lisa C. Munro, FCIArb, Q.Arb

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