Suspension Denied: ONCA Confirms that Automatic Stay Pending Appeal does not Suspend the Limitation Period

The recent decision of the Ontario Court of Appeal in msi Spergel Inc. v. I.F. Propco Holdings (Ontario) 36 Ltd., 2013 ONCA 550 (“msi Spergel”) confirms that the Court will not suspend, extend or otherwise vary the general two-year limitation period under the Limitations Act, 2002 (the “Limitations Act”) unless there is express statutory authority to do so.

Background

In July 2006, Propco obtained a default judgment against the bankrupt, Dilollo, for over $22 million. In December 2006, Propco commenced a bankruptcy application against Dilollo. By the end of 2007, Dilollo had paid approximately $1.1365 million to Propco, which Propco accepted in satisfaction of the settlement in exchange for dismissal of its bankruptcy application. As matters transpired, the bankruptcy application was never formally dismissed and three additional creditors were later added as applicants. A bankruptcy order was made on January 11, 2010. Dilollo appealed on January 20, 2010 and the appeal was dismissed on September 27, 2010. On August 27, 2012, approximately 30 months after the bankruptcy order, msi Spergel (the “Trustee”) brought a motion to set aside the payment to Propco as a preferential payment contrary to s. 95 of the Bankruptcy and Insolvency Act (the “BIA”).

The issue before the Court in msi Spergel was whether s. 195 of the BIA, which provides that “all proceedings under an order or judgment appealed from shall be stayed until the appeal is disposed of”, was an “extension, suspension or other variation” of the two-year limitation period within the meaning of s. 20 of the Limitations Act. Section 20 provides that the two-year limitation period in that act does not affect the extension, suspension or other variation of a limitation period or other time limit by or under another Act.” If the limitation period was suspended while the proceeding was stayed on appeal, then the Trustee’s preference motion would have been commenced within the two-year limitation period.

No Implied Suspension From Automatic Stay

The Ontario Court of Appeal, per Strathy J.A., found that the automatic stay under s. 195 of the BIA was not a “suspension” of the general two-year limitation period. Unless a suspension, extension or other variation of the limitation period is expressly authorized by statute, the Court will not imply any suspension from an automatic stay pending appeal. As a result, the preference motion was statute-barred and the payment to Propco was upheld.

In reaching this decision, the Court disagreed with the motion judge’s analysis that, if the statute contains no limitation period itself, then s. 20 of the Limitations Act cannot apply. Strathy J.A. confirmed that a provision of the BIA or any other statute is capable of suspending the operation of the general limitation period even if the statute does not contain a limitation period itself, although it did not in this case.

The Court also distinguished from the line of case law under the sub-provisions of s. 69 of the BIA, which stipulate that on the happening of particular acts initiating the bankruptcy process “no creditor has any remedy against the debtor or the debtor’s property”. These provisions have been held to toll the running of the limitation period during the bankruptcy. The Court noted that s. 69 was not a provision that “extends, suspends or varies” a limitation period. Rather, s. 69 takes away creditors’ civil remedies altogether and requires them to submit their claims through the bankruptcy process. In the rare case where the bankrupt is not discharged or the claim survives bankruptcy, a creditor’s civil remedies are returned after the bankruptcy and the limitation period may resume running. Section 195, on the other hand, has no effect on the remedies available to the creditor. Its purpose is to ensure that no steps are taken in the bankruptcy that cannot be unwound if the appeal succeeds. The jurisprudence under s. 69 of the BIA does not apply.

Finally, the Court rejected the Trustee’s argument that creditors will be prejudiced if the limitation period is not suspended pending appeal. Even though an automatic stay may prevent the trustee from taking various steps necessary to investigate a possible preference claim (ex: hold a first shareholder's meeting), it is open to the trustee under s. 195 to apply to lift the stay if it interferes with the trustee's ability to initiate the preference motion.

Significance

msi Spergel serves as a cautionary tale to trustees and creditors who think they may have a preference claim: if a stay pending appeal prevents the trustee from investigating the potential claim, the onus is on the trustee to apply the lift the stay.

More generally, msi Spergel confirms that the Court will take a strict approach to interpretation of any statutory provisions that arguably implicitly suspend, extend or vary the limitation period. The purpose of the Limitations Act of is to promote certainty and clarity in the law of limitation periods. Absent express statutory authority, the Court will not imply a suspension, extension or variation of the general limitation period.

Case Information

msi Spergel Inc. v. I.F. Propco Holdings (Ontario) 36 Ltd., 2013 ONCA 550

Court File No. C56626

Decision Date: October 2, 2013

automatic stay pending appeal limitation period Ontario Court of Appeal

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