COURT OF APPEAL FOR ONTARIO

CITATION: Espartel Investments Limited v. Metropolitan Toronto Condominium Corporation No. 993, 2024 ONCA 18

DATE: 20240111

DOCKET: COA-22-CV-0172

Gillese, Trotter and Coroza JJ.A.

BETWEEN

Espartel Investments Limited

Plaintiff (Respondent)

and

Metropolitan Toronto Condominium Corporation No. 993

Defendant (Appellant)

Justin H. Nasseri and Gordan Vance, for the appellant

Jonathan Kulathungam and Nipuni Panamaldeniya, for the respondent

Heard: September 20, 2023

On appeal from the judgment of Justice Audrey P. Ramsay of the Superior Court of Justice, dated August 19, 2022, with reasons reported at 2022 ONSC 4315.

REASONS FOR DECISION

OVERVIEW

[1]          The parties co-occupy a mixed commercial and residential complex in Toronto. For decades, the parties operated under a utility-sharing arrangement. The appellant, a condominium, would pay the hydro bill for the entire complex and then send the respondent, a hotel, an annual invoice for its share of the utility costs. Unfortunately, the formula used by the appellant to calculate the invoices was seriously flawed, leading the respondent to overpay its share of hydro by approximately $730,000 from 2006-2015. Neither party was aware of the errors until 2017, when a consultant retained by the appellant to assess ways to reduce the cost of electricity discovered the errors.

[2]          The respondent sued for unjust enrichment. The appellant defended on the basis that the respondent should have known that the invoices were flawed years before it filed its statement of claim in 2018, and so the action was time-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B.

[3]          In comprehensive reasons for judgment, the trial judge rejected the appellant’s limitation defence.[1] The trial judge found that the errors giving rise to the overpayments were not apparent on the face of the invoices and that the respondent did not discover them prior to 2017 despite exercising reasonable due diligence. Accordingly, she concluded that the action was not time-barred, and the respondent was entitled to judgment.

[4]          On appeal, the appellant again asserts that the respondent’s claim was time-barred. It makes three submissions. First, it argues that the trial judge erred in her discoverability analysis, by erroneously finding that the errors were not evident on the face of the invoices. Second, the appellant contends that the trial judge erred in law in her analysis of the respondent’s due diligence. Third, the appellant claims that the trial judge impermissibly conflated actual and constructive knowledge.

[5]          We see no palpable and overriding errors in the trial judge’s findings of fact and conclude that she drew no legally impermissible conclusions based on them. Contrary to the appellant’s claims, it was open to the trial judge to find that the errors were not apparent on the face of the invoices. Nor do we see any legal error in the trial judge’s analysis of due diligence, actual knowledge, or constructive knowledge. Accordingly, the appeal is dismissed.[2]

FACTS

[6]          Since 1991, the parties have operated under a “Reciprocal Agreement,” under which they shared financial responsibility for utilities in the complex. The appellant paid for the utilities and then billed the respondent for its share via a pre-set formula reflected in a Microsoft Excel spreadsheet. After calculating the respondent’s share of the bill, the appellant would send it a two-page spreadsheet that functioned as an invoice.

[7]          Unfortunately, the formula was flawed with respect to its calculation of the respondent’s share of the electricity bill.[3] There were two major errors. First, the formula treated a kilowatt as a “.1” in the formula, when it should have been a “.01.” Second, the formula did not include a variable for kilowatts at all. These errors led to the respondent significantly overpaying for electricity. Between 2006 and 2015, the respondent overpaid by at least $730,000.

[8]          Each year, the respondent’s general manager and financial comptroller reviewed the invoices they had received from the appellant. The respondent’s outside auditors also reviewed them. None noticed the errors. Nor, for that matter, did the appellant.

[9]          In 2015, the respondent became concerned over the amount of money it was paying for electricity. A new general manager of the hotel at that time testified that he felt the electricity expenses were “outrageously high.” The respondent decided to install new, energy-efficient lighting and fans to reduce their costs. That plan failed to materially reduce costs. The appellant retained an engineering consultant to review the invoices and provide advice on electricity costs. On February 14, 2017, the consultant issued a report.[4] This report identified the errors in the formulas used in the invoice. This report gave the parties actual knowledge of the errors for the first time.

[10]       On November 21, 2018, the respondent sued the appellant for unjust enrichment to recover its overpayments. The appellant defended primarily on the basis that the limitation period had passed, arguing that the respondent should have discovered the errors in the invoices more than two years prior to the commencement of the action. The appellant argued that, at the very latest, the errors became reasonably discoverable in 2015, when the then-new general manager felt that the invoices were charging for “outrageously high” electricity bills.

[11]       The trial judge found that the respondent did not have actual knowledge of the errors until 2017 and held that it would not have discovered the errors earlier through the exercise of reasonable due diligence. The trial judge found that the errors were not apparent on the face of the invoice. Citing this court’s decision in Van Allen v. Vos, 2014 ONCA 552, 121 O.R. (3d) 72, she concluded that this meant the errors were not reasonably discoverable.

[12]       The trial judge listed twenty-one reasons why the errors were neither discovered nor reasonably discoverable prior to 2017 before concluding that the claim was not time-barred.

[13]       After rejecting the limitation defence, the trial judge found that the elements of unjust enrichment were met and granted the respondent $730,058.99 in damages. The appellant sought to reduce the damages based on a claim for equitable set-off, but the trial judge found that the appellant had failed to prove any factual basis for a set-off and refused to lower the damages award.

ANALYSIS

(1)         Discoverability

[14]       There is no dispute that, under ss. 4 and 5 of the Limitations Act, a party must normally sue within two years of the discovery of their claim. This basic limitation “clock” starts running 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 the exercise of reasonable due diligence: Grant Thornton LLP v. New Brunswick, 2021 SCC 31, 461 D.L.R. (4th) 613, at para. 29. The level of actual or constructive knowledge needed is more than mere suspicion or speculation, but less than perfect knowledge of liability: Grant Thornton, at para. 46; Zeppa v. Woodbridge Heating & Air-Conditioning Ltd., 2019 ONCA 47, 144 O.R. (3d) 385, at para. 41, leave to appeal refused, [2019] S.C.C.A. No. 91.

[15]       The appellant accepts that the respondent did not have actual knowledge of its claim prior to 2017. However, it alleges that the trial judge erred both in fact and law in finding that the respondent did not have constructive knowledge.

(a)         No Error in Finding that the Invoice Errors were not Apparent

[16]       The appellant argues that the errors in the formula were visible on the invoices, which the respondent reviewed every year. It challenges the trial judge’s finding that the errors in the formula were not apparent on the face of the invoices, and so were not reasonably discoverable. The appellant concedes that this finding is reviewable on the highly deferential standard of palpable and overriding error.[5]

[17]       The crux of the appellant’s argument is that the respondent is a hotel that employed a general manager, a comptroller, and an accounting firm to review the invoices every year. It argues that any competent commercial entity properly reviewing the invoices would have discovered the errors, which were in plain view.

[18]       To this end, during oral argument, appellant’s counsel took the panel to additional errors in the invoices, which were not noticed even at trial. Counsel argued that since they were able to find these errors, it follows that the respondent – a sophisticated commercial entity with outside auditors – should have found them too. The fact that nobody caught the errors before shows that nobody actually did the work to sit down and read the invoices properly.

[19]       We do not accept the appellant’s submission. The fact that errors are capable of being discovered does not necessarily start the running of the limitations clock. The trial judge was required to determine when a reasonable person with the respondent’s abilities and in its circumstances ought to have discovered the flaws in the invoices: Crombie Property Holdings Limited v. McColl-Frontenac Inc. (Texaco Canada Limited), 2017 ONCA 16, 406 D.L.R. (4th) 252, at para. 43, leave to appeal refused, [2017] S.C.C.A. No. 85. Put another way, it is reasonable discoverability − rather than the mere possibility of discovery − that triggers the limitation period under s. 5(1)(b) of the Limitations Act: Van Allen, at para 34. And, just because appellate counsel who are looking for errors in a document can find them, it does not follow that the errors would have been apparent at the time to the people who actually used those documents. Certainly, it does not mean that the trial judge made a palpable and overriding error in finding that the errors were not obvious on the face of the invoices.

[20]       The trial judge found that the parties had employed the same invoicing process for well over a decade. She found that over the previous 15 years, no one had raised the possibility of overpayment, including the appellant, who was responsible for inputting the data to calculate the respondent’s share. Whenever the respondent compared its bill to previous years, the numbers appeared comparable. The trial judge concluded that “[t]he errors though became imbedded, in a sense, and as the parties suggested may have existed for 20 years” and that the errors therefore justifiably came as a surprise to the respondent.

[21]       Further, the trial judge emphasized that none of the respondent’s accountants, auditors, or managers noticed the errors when they reviewed the invoices. Contrary to the appellant’s position, this was not a conflation of actual and constructive knowledge. Given the backdrop of the longstanding invoicing arrangement between the parties, it was open to the trial judge to use the respondent’s annual reviews as evidence that it did not discover the errors because they were not apparent on the face of the invoices.

[22]       Next, the appellant argues that since the consultant who was retained to review the invoices was able to identify the errors with “relative ease,” those errors must have been apparent on the face of the document and could easily have been discovered by the respondent. This argument misapprehends the record. The consultant’s report that explained the nature of the errors was admitted at trial on consent for the truth of its contents, but the consultant himself did not testify. The report does not state whether it was easy or difficult to identify the errors. The consultant’s report thus does not undermine the trial judge’s conclusions on discoverability.

[23]       Finally, the appellant argues that the trial judge appears to have misstated the nature of the errors on the spreadsheets in parts of her judgment. This submission appears to rest on the premise that if the trial judge erred in one statement of fact, then her conclusion that the errors were not apparent on the face of the invoice was inherently suspect. We know of no authority for such a proposition, and the appellant provided none. In any event, it is clear from her reasons that the trial judge was relying on the description of the errors from the consultant’s report, which was the basis of an agreed statement of fact. The fact that the trial judge may have slightly misstated the errors in her judgment is of no moment.

[24]       In sum, it was open to the trial judge to conclude that the errors in the invoices in this case were of such a technical and subtle nature that the respondent could not have been expected to find them through the exercise of reasonable due diligence. We see no palpable and overriding error in the trial judge’s finding that the errors were not apparent on the face of the invoices.

(b)         No Reversible Error in Assessing Due Diligence

[25]       Second, the appellant contends that the trial judge made legal errors in her analysis of the respondent’s due diligence. The appellant submits that the trial judge held the respondent to an erroneously low burden of proof for demonstrating that it took reasonable due diligence.

[26]       At one point in her reasons, the trial judge stated:

The evidentiary threshold for a “reasonable explanation on proper evidence” as to why the claim could not have been discovered through the exercise of reasonable diligence is low, and the plaintiff’s explanation should be given a generous reading and considered in the context of the claim: Morrison v. Barzo, 2018 ONCA 979, 144 O.R. (3d) 600, at para. 32. Beyond that though, there is overwhelming evidence of a reasonable explanation and due diligence by the plaintiff.

[27]       The appellant argues that the trial judge misinterpreted this court’s decision in Morrison v. Barzow, 2018 ONCA 979, 144 O.R. (3d) 600, as setting a low evidentiary burden on plaintiffs to demonstrate why a claim would not have been discovered earlier through the exercise of reasonable due diligence.

[28]       We agree that in this impugned passage, the trial judge misstated the law on reasonable discoverability. The low evidentiary standard referenced by this court in Morrison related to a motion to add a defendant to an action. Morrison did not purport to set the overall standard to be met at trial. The standard of proof at trial remains the balance of probabilities: F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41, at para. 40. The trial judge thus erred to the extent she implied otherwise.

[29]       However, any such error was harmless, as it was not material. Immediately after this impugned statement of law, the trial judge found that there was “overwhelming evidence of a reasonable explanation and due diligence by the plaintiff.” Her initial reference to a low evidentiary burden thus had no material impact on her conclusions.

[30]       Nor do we accept the appellant’s submission that the trial judge ignored the evidence that in 2015, the hotel’s then-new manager became concerned by the high electricity bills. The appellant argues that this suspicion should have weighed heavily in the assessment of the respondent’s due diligence. With respect, this is a red herring. Suspicion can trigger a heightened due diligence requirement, but that suspicion must relate to a plausible inference of the specific defendant’s liability: Grant Thornton, at paras. 44-45. On the findings of the trial judge, nothing in the underlying arrangement between the parties changed in 2015 that would have made the errors apparent through the exercise of reasonable due diligence. The fact that the respondent became more concerned about its electricity bill in 2015 does not diminish the appellant’s responsibility for its flawed calculations nor does it detract from the trial judge’s determination that the respondent acted with due diligence in its review of the invoices.

(c)         No Conflation of Actual and Constructive Knowledge

[31]       Third, the appellant claims that in her reasons, the trial judge conflated actual and constructive knowledge. The appellant asserts that the trial judge impermissibly used the parties’ actual ignorance of the errors as evidence that the respondent did not have constructive knowledge.

[32]       A fair reading of the trial judge’s reasons does not reveal such an error. The trial judge clearly separated the concepts of actual knowledge, constructive knowledge, and reasonable discoverability throughout her judgment.

[33]       In summing-up her limitations analysis, the trial judge listed twenty-one reasons why she concluded that the claim was neither discovered nor reasonably discoverable prior to 2017. The appellant takes issue with some of these reasons on the basis that they related only to the parties’ actual knowledge. But this is no error – the list explicitly related to actual knowledge and reasonable discoverability. Several of the twenty-one reasons relate only to the objective standard of reasonable discoverability, and not actual knowledge.

[34]       We therefore reject the appellant’s argument that the trial judge conflated the two concepts in her analysis.

[35]       In sum, the appellant has not identified any palpable and overriding errors of fact or any legal errors in the trial judge’s reasons that warrant appellate interference.

(2)         Juristic Reason and Equitable Set-off

[36]       The appellant also challenges the trial judge’s finding on the “lack of juristic reason” element of the unjust enrichment test and her conclusion on equitable set-off. Counsel did not press these submissions in oral argument, and we find they have no merit.

[37]       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. There is no dispute that the respondent’s overpayments for utilities enriched the appellant. The trial judge found that the respondent had met its burden to prove that there was no basis in contract, common law, or statutory obligation to justify the appellant’s enrichment. The appellant implies in its factum that there may have been a juristic reason for this enrichment somewhere else in the invoices, but points to nothing in particular. We see no basis to interfere with the trial judge’s determination on unjust enrichment.

[38]       In general terms, 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] 2 S.C.R. 193, at p. 212. At trial, the appellant argued it was entitled to set-off, since the respondent had underpaid for other utility costs. The appellant tendered the evidence of an electrical engineer to support this claim. The trial judge found the engineer’s evidence to be primarily based on hearsay; she did not accept his conclusions. The appellant does not challenge this finding of fact on appeal and identifies no other source for a set-off. Again, there is no basis to intervene with the trial judge’s determination on equitable set-off.

CONCLUSION

[39]       For these reasons, the appeal is dismissed.

[40]       Costs of the appeal are ordered to the respondent in the agreed-on sum of $30,000, all-inclusive.

“E.E. Gillese J.A.”

“Gary Trotter J.A.”

“S. Coroza J.A.”