Has the Doctrine of Fraudulent Concealment Been Expanded?

Roulston v. McKenny¹

On January 5, 2017 Ontario’s Court of Appeal came out with a decision which is of great interest to those dealing with limitation periods, the responsibility of trustees to creditors, and the defence of fraudulent concealment.²

Mr. Penner (the “Husband”) and Ms. McKenny (the “Wife”) signed a separation agreement in 2002. The Husband agreed to maintain a $150,000 life insurance policy designating the Wife as the beneficiary. They agreed that in the event that the Husband failed to keep up the premiums and the policy failed the Wife had a first charge on the Husband’s estate. The Husband failed to keep up the premiums and the life insurance policy failed.In his last will and testament, the Husband named Rita Roulston as the executor and estate trustee (“Estate Trustee”).

The Husband died in March 2013.

On April 29, 2013 the Estate Trustee’s counsel wrote to Sun Life inquiring whether the Husband’s life insurance policy was in good standing. On May 9, Sun Life advised the Estate Trustee’s counsel that the deceased had no active policies – his two policies had lapsed because of non-payment of the premiums. On June 4, 2013 the Estate Trustee advised the Wife that they were investigating whether any insurance policies existed and upon receipt of such information they would let the Wife know. On September 25, 2013 the Estate Trustee advised the Wife that “the policy may have lapsed”. Clearly, the Estate Trustee’s letters of June 4 and September 25 were untrue. By May 9 the Estate Trustee knew the policies had lapsed.

E.J. Koke J. of the Ontario Superior Court of Justice found:

i) that the two year limitation period set out in the Trustee Act applies to the Wife’s claim³.

ii) The doctrine of special circumstances does not apply to this case and the Wife may not, under this doctrine, commence a claim after the expiry of the limitation period.⁴

iii) By withholding material facts, the Estate Trustee concealed from the Wife that she had a legitimate debt against the estate as a creditor. Given that special relationship it was unconscionable for the Estate Trustee to initially suggest that insurance was in place, then delay matters by promising to bring an application for directions, and then later take the position (a position which provided a direct material benefit to her as a beneficiary of the estate), that the time for claiming against the estate had expired.⁵

iv) By not revealing that the insurance policies lapsed the Estate Trustee concealed that information from the wife and ought nought to be permitted to bar the Wife from making her claim.

v) The limitation period under the Trustee Act was tolled and the Wife’s claim was not statute barred.

The Appeal

The Estate Trustee appealed and argued that the application judge missed a key piece of evidence. The appellant argued that his evidence proved that the conduct of the Estate Trustee was not unconscionable conduct. There was a letter dated May 15, 2013 to the Wife’s lawyer from the Estate Trustee’s counsel which said,

“I wish to put the estate on notice that the insurance was not in place as required by the terms of the Separation Agreement.”

The Estate Trustee said this showed that the Wife knew by May 15, 2013 that she had a claim against the estate so the Wife knew in plenty of time to issue a claim within the limitation period.

Two years and six months after the Husband’s death the Wife sued. The Estate Trustee said the claim was statute barred. The Ontario Court of Appeal agreed with the application judge’s view that the Wife’s claim was not statute barred. Let’s discuss why.

First let’s review some basics.

General Rule – Claim is Statute Barred after Expiry of Limitation Period.

Generally,⁶ a limitation period sets a red line which a claimant can no longer advance a claim. More often than nought if one starts a claim after the expiry of the limitation period that claim is statute barred. With certain exceptions, that means regardless of the merits of the claim the claimant cannot succeed.

One reason limitation periods are considered desirable is that bringing disputes to trial sooner enables the parties to present the best evidence. Delays in adjudication may be difficult as memories fades, witnesses die and evidence is lost. Moreover, finality of outstanding issues brings certainty which is desirable both for business and those people collaterally involved with any dispute.

There is several important statutes to consider when dealing with limitation periods in the context of estate litigation.⁷
Of special relevance to this case is s. 38(3) of the Trustee Act, R.S.O. 1990, c. T.23 which states:

An action under this section shall not be brought after the expiration of two years from the death of the deceased.

So if the Wife started her law suit seven months after the limitation period was supposed to end why did both the application judge and Ontario’s Court of Appeal find that the claim was not statute barred?

The Tolling of Limitation Periods

The title of this section is borrowed from the title of an article referenced in the second footnote. Essentially, our courts have recognized that there are times when equity holds back the strict application of limitation periods. In their article entitled, “Fraudulent Concealment and the Tolling of Limitation Periods” Ian Makersy Hull, Jordan M. Atin and Alex C. Bishop quote the Supreme Court of Canada⁸ statement as follows:

“lt is well established that where there has been a fraudulent concealment of the existence of a cause of action, the limitation period will not start to run until the plaintiff discovers the fraud, or until the time when, with reasonable diligence, he ought to have discovered it. The fraudulent concealment necessary to toll or suspend the operation of the statute need not amount to deceit or common law fraud….”

Was There Fraudulent Concealment?

The application judge applied the test for fraudulent concealment set out in Giroux Estate v. Trillium Health Centre (2005), 74 O.R. (3d) 341 (C.A.):⁹

i) the Estate Trustee, Ms. Roulston, was in a special relationship with Ms. McKenny because she had exclusive possession of knowledge and information whether an insurance policy existed and thus whether Ms. McKenny had a debt claim against the estate;

ii) the Estate Trustee acted in an unconscionable manner by withholding from Ms. McKenny material facts about the status of the insurance policy; and,

iii) as a result of withholding that information, Ms. McKenny had a reasonable belief, at least until September 25, 2013, that Mr. Penner’s insurance policy had been in good standing at the time of his death.¹⁰

The appellant argued that there was no “special relationship between the Estate Trustee and the Wife (part 1 of the test) and that the fact that the estate trustee did not tell the wife about the lapse of the insurance policy was not unconscionable. The Ontario Court of Appeal disagreed with the appellant and upheld the decision of the application judge. Let’s see why.

The OCA dismisses the appeal

The Court of Appeal found no error in the application judge’s finding that a special relationship existed between the Estate Trustee and the Wife. This duty arose from a combination of legal duties owed by an estate trustee to estate creditors and the fact that the Estate Trustee had control over information about insurance policies owned by the deceased.

i) Duty of Estate Trustees to Creditors

Importantly, the Court of Appeal stated at paragraph 14 of its decision that the law imposes on estate trustees duties to the deceased’s creditors, as the deceased’s property that vests in the estate trustee is statutorily subject to the payment of debts.¹¹ It is therefore a fundamental duty incumbent on an estate trustee to ascertain debts and liabilities of the estate and pay them.¹²

ii) Exclusive Control over Information

With respect to the special relationship between the Estate Trustee and the Wife emanating from the information held by the Estate Trustee, the Court of Appeal agreed that the Wife was unable to obtain information about a policy from the insurer, and was reliant on the Estate Trustee for such information. No error was found in the factors applied by the application judge that the Estate Trustee had exclusive possession of knowledge and information of whether the Wife’s debt existed and because of this unique position it was reasonable for the Wife to rely on what she was told by the Estate Trustee.

iii) The OCA’s view on whether the defendant’s knowledge of the claim defeats the argument for the limitation period to be tolled?

As mentioned above, an important factual wrinkle in this case was that the Estate Trustee had delivered a letter prior to the expiration of the two-year anniversary of death on May 15, 2013. Let’s once again take a look at what the letter said,

“…I wish to put the estate on notice that the insurance was not in place as required by the terms of the Separation Agreement…”

At issue was whether the limitation period expired. Generally, the clock starts ticking on the day which the claim was discovered. “Discovered” means the day on which the person with the claim first knew that the injury, loss or damages had occurred or the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first out to have known about the claim.¹³ From our review of the case the defendant’s argument seemed to be that even if the defendant was guilty of fraudulent concealment the plaintiff in fact knew, or ought to have known, that the injury, loss or damages had occurred before the expiry period. Accordingly, the defendant argued that the Wife should not be permitted to toll the limitation period based on the doctrine of fraudulent concealment because despite the fraudulent concealment the Wife knew she had a claim.   The Estate Trustee pointed to this letter on appeal as evidence ignored by the application judge which proved that the Wife was aware of her claim as early as May 2013. The OCA rejected the appellant’s argument.

The OCA found that the mere absence of any reference to a piece of evidence in a judgment does not establish that a judge ignored or failed to consider such evidence.¹⁴ Further, it was found that subsequent correspondence after May 15, 2013 revealed uncertainty about whether the insurance policy was in place. According to the OCA, this portrayal of uncertainty was “less than forthright”, and contributed to the finding of unconscionability on behalf of the Estate Trustee.

Conclusion

There is a great deal of food for thought in the Court of Appeal’s decision with respect to the operation of limitation periods, the duties of estate trustees and fraudulent concealment. Arguably, this case stands for the proposition that unconscionable conduct by a trustee that would tend to conceal a cause of action may toll the limitation period even where the plaintiff ought reasonably to have known that there was a problem. Alternatively, one might argue that the law has not changed at all. Rather, in the case at bar, the actions of the Estate Trustee undermined the Wife’s ability to discern whether a cause of action existed and thereby constituted fraudulent concealment and the tolling of the limitation period.

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