Drum Head Estates Limited v. Chapin Estate, 2011 NSCA 93

NOVA SCOTIA COURT OF APPEAL Citation: Drum Head Estates Limited v. Chapin Estate, 2011 NSCA 93 Date: 20111018 Docket: CA 342923 Registry: Halifax Between: Drum Head Estates Limited, Celia McClure and Angela Chapin Appellants v. George E. Mills, Jr., Trustee of the Estate of Stephen Beal Chapin, a Bankrupt Respondent Judges: Hamilton, Fichaud, and Bryson, JJ.A.

Appeal Heard: September 20, 2011, in Halifax, Nova Scotia Held: Appeal is dismissed with costs payable by the appellants in the amount of $750 plus disbursements to the respondent forthwith, per reasons for judgment of Hamilton, J.A., Fichaud and Bryson, JJ.A. concurring. Counsel: G.F. Philip Romney, for the appellants Geoffrey A. Saunders and Dillon Trider, for the respondent Reasons for judgment : [ 1 ] The matter to be determined in this appeal is whether the Chambers judge, Justice C.

Richard Coughlan, erred when he disallowed the appellants ’ time limitation defence. [ 2 ] The relevant facts are set out in the judge ’ s decision, reported at 2010 NSSC 447 :

[1] George E. Mills, Jr., trustee of the estate of Stephen Beal Chapin, a bankrupt, moves for an order pursuant to s. 3(2) of the Limitation of Actions Act , R.S.N.S. 1989, c. 258, to disallow the defence of Drum Head Estates Limited, Celia McClure and Angela Chapin, based on time limitation. [2] Stephen Beal Chapin signed a voluntary petition in bankruptcy in the State of Florida, United States of America, on February 12, 2004. In

schedule “B” to the petition is listed as personal property of Mr. Chapin, “Promissory Note from Drum Head Estates ($463,000.00 Canadian)”. [ 3 ] Mr. Chapin and Ann Chapin were married January 29, 1969. They separated and entered into a separation agreement dated May 15, 1986. Mr. Chapin defaulted under the terms of the separation agreement and Ms. Chapin obtained judgment in the amount of $296,118.21, together with interest, in the Supreme Court of the State of New York on November 14, 1994. [ 4 ] On August 14, 1996, Mr.

Chapin, David Cameron, president of Drum Head Estates Limited, and Nancy Sherwood, secretary of Drum Head Estates Limited, signed a document purporting to be a promissory note, wherein Drum Head Estates Limited acknowledged an indebtedness to Mr. Chapin in the approximate amount of $463,000.00. [ 5 ] On August 27, 1997, Mr. and Ms. Chapin executed a stipulation of settlement, settling matters between them. On August 21, 1998, Ms. Chapin was informed Mr. Chapin had assets in Nova Scotia and she commenced action against Mr. Chapin in August, 1998.

The Nova Scotia action was stayed pending a determination of an action in New York State determining the validity and enforceability of the stipulation of settlement agreement. In an affidavit filed in the stay application, Mr. Chapin stated: 31. Over the years I have injected approximately $484,000.00 into Drum Head. Included in such monies have been the closing funds for the Ovens, the “Burns” and “Cook” lots, legal fees, operating costs, etc. Such sum does not include interest at 10 percent per annum. 32.

Attached hereto and marked as Exhibit “C” is a true copy of a Promissory Note dated the 14th of August, 1996, executed by Cameron, Sherwood and me. The said Promissory Note was prepared and witnesse[d] by Brock Junkin, C.A. (“Junkin”), the accountant for Drum Head. [ 6 ] In his decision regarding the stay, Hall, J. stated: In

summary, the application for a stay pending a determination of the validity and enforceability of the stipulation of settlement agreement and the New York judgment by the Supreme Court of the State of New York is granted, subject to the condition that the applicant shall not divest himself of or further encumber his Nova Scotia assets, in particular, any interest he has in Drum Head Estates Inc., and the Ovens Park, until further order of this Court. [ 7 ] Eventually on March 26, 2003, the New York proceeding concluded and the stipulation of settlement was set aside. [ 8 ] The trustee in Mr.

Chapin's bankruptcy commenced an action in this Court on February 14, 2006, claiming payment of the promissory note from Drum Head. The originating notice (action) and statement of claim were amended October 24, 2006. A defence was filed and an amended defence filed in September, 2010. In the amended defence, the Limitation of Actions Act , supra , is pleaded as a defence and, in particular, s. 2(1) (e). [ 9 ] The trustee brings this motion to disallow the limitation defence. [3] After setting out the facts, the judge set out the relevant provisions of the Limitation of Actions Act , R.S.N.S. 1989, c. 258

( “ Act ” ). They indicate that an action grounded upon any lending or contract without speciality shall not be brought six years after the cause of any such action arose (s. 2(1)(e)). If an action is brought without regard to this six-year limitation period, upon application, a court may disallow a defence based on the six-year limitation period and allow the action to proceed if it appears to the court to be equitable to do so, having regard to the degree to which (

a) the time limitation prejudices the plaintiff or any person whom he represents, and (

b) any decision of the court under this

section would prejudice the defendant or any person whom he represents, or any other person (s. 3(2)). [4] Section 3(4) sets out that the court is to have regard to all of the circumstances, and in particular the factors set out in s. 3(4), in making its determination under s. 3(2): 3(4) In making a determination pursuant to subsection (2), the court shall have regard to all the circumstances of the case and in particular to (

a) the length of and the reasons for the delay on the part of the plaintiff; (

b) any information or notice given by the defendant to the plaintiff respecting the time limitation; (

c) the extent to which, having regard to the delay, the evidence adduced or likely to be adduced by the plaintiff or the defendant is or is likely to be less cogent than if the action had been brought or notice had been given within the time limitation; (

d) the conduct of the defendant after the cause of action arose, including the extent if any to which he responded to requests reasonably made by the plaintiff for information or inspection for the purpose of ascertaining facts which were or might be relevant to the plaintiff's cause of action against the defendant; (

e) the duration of any disability of the plaintiff arising after the date of the accrual of the cause of action; (

f) the extent to which the plaintiff acted promptly and reasonably once he knew whether or not the act or omission of the defendant, to which the injury was attributable, might be capable at that time of giving rise to an action for damages; (

g) the steps, if any, taken by the plaintiff to obtain medical, legal or other expert advice and the nature of any such advice he may have received. [5] Sections 3(6) and (7) then provide:

(6) A court shall not exercise the jurisdiction conferred by this

Section where the action is commenced or notice given more than four years after the time limitation therefor expired.

(7) This

Section does not apply to an action where (

a) the time limitation is ten years or more; ... [6] Based on the trustee ’ s action having been commenced more than six years, but less than ten years, after August 14, 1996 (the date the parties agree the indebtedness of Drum Head to Mr. Chapin was acknowledged), the judge indicated that he would consider all of the circumstances, including the factors set out in s. 3(4), in balancing the prejudice in accordance with s. 3(2) , to determine if the

trustee’s action should be allowed to proceed. [7] In considering the factors set out in s. 3(4), the judge found that there was no inordinate delay by the trustee starting theaction approximately two years after he first became aware of the claim (a), that any deleterious impact of the passage of time on theevidence was lessened, because it had been preserved in the course of the prior litigation in Nova Scotia and New York (c), that theaction was commenced in a timely manner once the trustee became aware of the claim (

f) and that the trustee took appropriate steps toget the legal advice necessary to commence the action (g). He did not elaborate in his reasons on the trustee’s explanation of why it tooktwo years to commence the action. [8] The judge concluded that the appellants would not suffer prejudice if their time limitation defence was disallowed and hedisallowed this defence, permitting the action to proceed. [9] The appellants agree the evidence has been largely preserved.

However, they argue that the judge erred by (1) finding therewas no inordinate delay, and that the action was started in a timely manner on February 14, 2006, when the trustee became aware of theclaim on February 12, 2004, (2) failing to deal with, in his reasons, the trustee’s explanation of why the action was not started earlier and(3) incorrectly interpreting and applying the factors in s. 3(4) of the Act. [10] As the judge’s order has a terminating effect with respect to the limitation defence, this Court will not interfere with the judge’sdecision unless the judge made an error of law resulting in an injustice; Hiscock v.

Pasher, 2008 NSCA 101, ¶ 11. [11] In the circumstances of this case, where there was no reason for Mr.

Chapin to demand payment from Drum Head prior to hisbankruptcy, especially given the situation between him and his estranged wife, and where the Florida trustee explained in his affidavitsworn November 22, 2010, that once he became aware of the claim it took time for him to find a Nova Scotia lawyer who would take thecase on a contingency fee basis, I am satisfied the judge did not err in finding there was no inordinate delay and that the action wascommenced on a timely basis, within two years of the trustee becoming aware of the claim.

The fact the judge did not consider, in hisreasons, the trustee’s explanation of why it took him two years to start the action, is of no consequence. He is not required to refer to allof the evidence in his reasons. I am satisfied the judge correctly considered all of the factors in s. 3(4), referring to each factorindividually in his reasons. [12] The judge’s function under s. 3(2) was to balance the prejudice to the parties after considering all of the circumstances,including the factors in s. 3(4).

The appellants agree that the only prejudice they have suffered from the judge’s order is that now theywill have to proceed to trial on the debt issue, whereas if the trustee’s motion had been denied, that issue would be off the table. Thistype of prejudice is not to be given much weight under s. 3(2), as set out in McCulloch v McInnes, Cooper & Robertson (1995), 1995NSCA 81 , 140 N.S.R. (2d) 220: [21] In this case, as in most, an extension of the time limit prejudices both parties. The legislators recognized that fact.

That is why thewords "... and allow the action to proceed if it appears to the court to be equitable having regard to the degree to which ..."there isprejudice to each party, are in s. 3(2). [Emphasis in original] In so doing a court must "have regard all of the circumstances of the caseand in particular" to the seven factors set out in s. 3(4). The weighing of the degrees of prejudice is an important and required prerequisiteto any conclusion which may be reached by a court. [22] In Anderson v.

Co-op Fire & Casualty (1983), (NS SC), 58 N.S.R. (2d) 163; 123 A.P.R. 163 (T.D.), Hallett,J., as he then was, was confronted with the same issue.

After setting out the provisions of the Limitation of Actions Act, previouslyquoted, at p. 167 he commented: “...The issue before the Court on this application is whether it is equitable to disallow the time limitation defence, having regard to thedegree to which (1) the time limitation prejudices the plaintiff or any person whom he represents and (2) any decision to disallow thetime limitation pursuant to this amendment would prejudice the defendant or any other person.

In determining the issue, the Court musthave regard to all the circumstances of the case and, in particular, the seven matters referred to in s. 2A(4) (

a) to (g). “In any case, there is great prejudice to a plaintiff if a time limitation defence succeeds as the plaintiff loses his cause of action. On theother hand, there is great prejudice to the defendant who loses a perfect defence if the order is granted. The Legislature in enacting thisamendment must have recognized that there was prejudice to each party when the word 'degree' was used in s. 2A (2). The Court has

been directed to consider not simply whether there is prejudice but to weigh the degree of prejudice to the parties.

The intention of the Legislature as expressed is to give the Court the authority to disallow a defence based on time limitation considering the criteria set forth in ss. 2A (2) and (4). [Now s. 3(2) and (4)]. “The degree of prejudice to a plaintiff caused by a valid time limitation defence could not be greater as the cause of action is lost. ... “What the Legislature must have meant when it authorized the Court to disallow the defence if it appeared equitable to do so, having regard to the degree to which any such decision would prejudice the defendant, was whether the defendant was prejudiced in the defence of the action on its merits because of the failure of the plaintiff to have proceeded in time.

The Legislature could not have intended that the Court consider the fact that the defendant loses a perfectly good defence in assessing the degree of prejudice to the defendant if the order were granted, as, otherwise, it would be somewhat pointless for the Legislature to have enacted the amendment. There would be virtually no basis upon which to weigh the degree of prejudice to the parties as if the relief is refused, the plaintiff is totally prejudiced in the case and to allow the relief, the defendant is totally prejudiced. In

summary on this point, in determining the degree of prejudice that would be suffered by the defendant if a decision were made to disallow the time limitation defence, the Court should not give much weight to the fact that the defendant loses its defence .” [23] I agree with those comments. They are of utmost significance to this appeal. It is a given: each party will suffer prejudice depending upon whether the decision is to allow or disallow the time limitation defence.

Thus, the necessity to weigh the degree of prejudice suffered by each . [Emphasis added] [ 13 ] Accordingly, the appellants have not satisfied me that the judge made an error of law resulting in an injustice. [ 14 ] Both parties refer to a promissory note dated August 14, 1996 representing the alleged debt owed by Drum Head to Mr. Chapin. Both agree the limitation period with respect to the debt began to run on August 14, 1996. The judge ’ s decision suggests he accepted the parties ’ position on these two points. It is not necessary for me to determine whether this is correct, to decide this appeal.

Accordingly, nothing in this decision should be taken as an indication that the debt is represented by a promissory note or that the limitation period began to run on August 14, 1996. [ 15 ] I would dismiss the appeal and order the appellants to pay costs in the amount of $750 plus disbursements to the respondent forthwith. Hamilton, J.A. Concurred in: Fichaud, J.A. Bryson, J.A.