Author: Dan

Ontario: whose knowledge binds a corporation?

Whose knowledge binds a corporation for the purpose of a s. 5 discovery analysis?

The Superior Court decision in 1511419 Ontario Inc. v. KPMG considers this issue:

[91]           The Defendants dispute that the Minutes of the Board are in fact the “best evidence” of what the Board knew in or around the time of the January 2012 Transaction.

[92]           They submit that a full meeting of the Board is not required for a corporation to acquire knowledge that it would otherwise obtain through its directing minds such as officers or directors: DBDC Spadina Ltd. v. Walton, 2018 ONCA 60 (CanLII), 419 D.L.R. (4th) 409, at paras. 59-60, leave to appeal to S.C.C. allowed, 2018 CarswellOnt 19181; Canadian Dredge and Dock Company Limited v. R., 1985 CanLII 32 (SCC), [1985] 1 S.C.R. 662, at pp. 679-685, 707-709, 713-714, and 717-718.

[93]           They further go on to submit that it is also not clear what was recorded in the Board or Audit Committee Minutes, and overall the Minutes are not reliable.

[94]           Cash Store responds by submitting that, as a matter of law, the directing mind of a public corporation is its board of directors, acting as a collective: Stern v. Imasco Ltd. (1999), 1999 CanLII 14934 (ON SC), 1 B.L.R. (3d) 198 (Ont. S.C.), at paras. 98-113.

[95]           I do not propose to determine this dispute on this motion. I am prepared to accept that the Board Minutes are, at the very least, some evidence of what Cash Store knew at the relevant time periods.

Surprisingly, this significant limitations question remains to my knowledge unanswered.  It seems to me that the answer will be, as it usually is in the context of discovery arguments, “it depends on the facts”.

However, I am also mindful of the policy implications of the issue.  It’s problematic to deem the knowledge of directing minds to be the knowledge of a corporation for discovery purposes.  If an employee discovers a claim, and that discovery does not bind the corporation, the employee could determine when the limitation period commences by determining when to disclose her knowledge of the discovery matters to a directing mind.  This risks encouraging corporations to sit on their rights until they consider it most advantageous to exercise them. A directing mind of a corporation might advise an employee to refrain from disclosing any fraud allegations until confident in the success of a claim arising from them. This would be antithetical to the basic purpose of the limitations scheme to encourage the diligent and timely prosecution of claims.

Lastly, the decision is a warning against asking the court to decide a too-complicated limitations defence on summary judgment:

[113]      I cannot determine this matter in a fair and just manner by way of summary judgment. A review of the aforementioned affidavits and voluminous yet limited record do not provide the adequate context to determine the limitation period dispute. Particularly, I have no meaningful understanding as to the interaction between the parties in and around the time of the January 2012 Transaction that would assist me in determining the limitation issue. I also have no meaningful understanding of the assistance, or lack thereof, the Defendants rendered to Cash Store before, during, or after the January 2012 Transaction closed. The actions involve a complicated factual matrix involving professional negligence and a significant damages claim. In my view, the usual rule enunciated by Nordheimer J.A. in Mason should be followed. A full evidentiary record including viva voce evidence of the parties is required to achieve a fair and just result.

 

Ontario: the timing of amendments, and some words on laches

The Superior Court in Barker v. Barker is perhaps the most extreme example of an eleventh-hour motion to amend to plead discoverability.  The plaintiffs moved in the third week of trial to amend their Statement of Claim to plead reliance on ss. 5 and 16 of the Limitations Act in response to the defendants’ limitations defence (the decision is silent on why the plaintiffs chose to amend their Statement of Claim rather than file a Reply).  Justice Morgan didn’t find that the delay was fatal to the motion:

[8]               Whether or not the motion to amend would have been better brought before trial began rather than in its third week, what is clear is that the limitations issues, including as the Court of Appeal says, the application of section 16(1)(h.2) and the doctrine of discoverability, come as no surprise to the Defendants. They knew these issues were raised by the Plaintiffs in the 2017 motion before Perell J. Plaintiffs’ counsel has reproduced in their motion record copies of the factums from the 2017 motion, where these issues were argued for many paragraphs by both sides. As indicated above, the Defendants all knew that the 2018 judgment of the Court of Appeal had specifically reserved these issues for a later date, mentioning the trial itself as the likely time for canvassing section 16(1)(h.2) and discoverability.

[9]               Although mid-trial pleadings amendments are not encouraged as a matter of case management, Rule 26.02(c) provides that a pleading may be amended at any time, without limitation, with leave of the court. Moreover, the amendment rule is written in mandatory language. Rule 26.01 provides that, “On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.” Accordingly, a party seeking to prevent a pleading from being amended “must establish a link between the non-compensable prejudice and the amendment. It must show that the prejudice arises from the amendment”: Iroquois Falls Power Corp. v Jacobs Canada Inc., 2009 ONCA 517 (CanLII), at para 20.

The decision is also noteworthy for its consideration of the role of discoverability in a laches analysis.  It is impossible to assess the impact of delay in suing without knowing when the plaintiff first ought to have known of the claim:

[25]           Embedded in this argument is the idea that different questions would be asked in an equitable laches case than in a statutory limitation case. More specifically, it assumes that discoverability, which is an integral part of a limitation period analysis both at common law and under statute, is not at issue in a laches analysis. That sounds somewhat plausible at first blush – after all, the equitable doctrine of laches is, like all doctrines of equity, related to but different in nuance from limitation periods as its nearest relative at law. Limitation periods are hard numerical rules while laches is a principle that requires a weighing of the competing equities: Manitoba Metis Federation Inc. v Canada (Attorney General), 2013 SCC 14 (CanLII), [2013] 1 SCR 623, at paras 145-6. That difference, however, is not always as substantive as it may appear.

[26]           Almost a century ago, English legal scholar John Brunyate stated, “since delay by a plaintiff who has been ignorant of his right of action will not amount to laches, we should expect that…time will not run until the plaintiff is aware of his right of action.” Limitation of Actions in Equity (London: Stevens & Sons, 1932), c. 2, cited approvingly in M(K) v M(H), 1992 CanLII 31 (SCC), [1992] 3 SCR 6. We need not delve into legal history to see that that logic makes sense. It would be impossible to evaluate the equities of a delay in bringing an action without knowing when the Plaintiff first realized he or she had been wronged.

[27]           In fact, the weighing of equities in a laches analysis specifically involves asking whether the claimant has acquiesced in the delay, which in turn involves evidence of the claimant’s state of mind and level of knowledge of the facts on which the cause of action is premised: Manitoba Metis Federation, at para 147. One can’t acquiesce in something one hasn’t discovered. It is little surprise, therefore, that the Supreme Court of Canada has indicated that the equitable doctrine of laches essentially mirrors the common law doctrine of discoverability: “It is not enough that the plaintiff knows of the facts that support a claim in equity; she must also know that the facts give rise to that claim”: M(K), supra, citing Re Howlett, [1949] Ch. 767.

[28]           The Supreme Court in M(K) has specifically confirmed with respect to discoverability and laches that “both doctrines share the common requirement of knowledge on the part of the plaintiff.” The indicia of that knowledge – what did the Plaintiff know with respect to the alleged wrongs and his legal rights and when did he know it – will be the subject of discovery under both rules. It defies logic and the nature of the two very similar legal principles to say that a Defendant knew full well he had to discover on the issue of laches, but that he is greatly disadvantaged to now learn that he also had to discover on the issue of discoverability. The information sought and the questions asked will be virtually the same.

This analysis came in the context of a rather astonishing (and unsuccessful) argument by the Crown.  It denied having notice that discoverability was in issue despite having asked questions about discoverability on examination for discovery.  The Crown explained this contradiction by throwing a junior under the bus: apparently, the junior went rogue and asked the discoverability questions without instructions:

[19]           Turning to the discoverability doctrine, Defendants’ counsel contend that they have not had an opportunity to examine the Plaintiffs for discovery on the discoverability issue. They submit that at this late date, with the trial already underway, the motion to amend must either be dismissed outright or granted together with an adjournment of the trial so that further discovery can be conducted. Otherwise, they say, they are made to essentially defend a trial by ambush.

[20]           Counsel for the Plaintiffs responds with some incredulity. Plaintiffs’ motion record contains over a thousand pages of discovery transcripts in which the discoverability issue was explored with various Plaintiffs by Defendants’ counsel. Plaintiffs’ counsel point out that Defendants’ counsel canvassed everything from the dates that the Plaintiffs first contacted their present counsel, to previous complaints and law suits brought by any number of Plaintiffs, to the Plaintiffs’ awareness of and access to duty counsel while at Oak Ridge in the 1970s, to the letter writing campaigns engaged in by several of the Plaintiffs over the decades seeking to put a stop to the kind of acts in issue in this litigation. In addition, in the affidavits sworn by each of the Plaintiffs for the 2017 motion, and which by agreement of the parties now form part of the trial record, the Plaintiffs each provide information on the dawn of this case and how and when they personally became involved or realized that they could engage in a legal action.

[21]           Counsel for the government of Ontario at discoveries asked a number of the Plaintiffs for undertakings with respect to these issues, and followed up on those requests by sending Plaintiffs’ counsel an undertakings chart listing and describing each of the outstanding answers. The chart divided the outstanding undertakings into three categories, listing each of the undertakings as going to either “Liability”, “Damages”, or “Discoverability”. The label of this third category was not a Freudian slip; a perusal of the undertakings falling under this heading reveals precisely the kind of questions one would ask in order to unearth the opposing side’s discoverability position. Various Plaintiffs responded by indicating when in the past they learned about, and with whom and when in the past they had spoken about, the prospect of a law suit relating to their Oak Ridge experiences.

[22]           It is not surprising that Defendants’ counsel asked these questions. Discoverability, as Perell J. and the Court of Appeal pointed out, has long been an issue to be addressed in the case.

[23]           Defendants’ counsel responds by conceding that all of those questions were indeed asked, but says that they were for the most part meant to address the issue of laches as it pertains to the equitable claim of breach of fiduciary duties. It is the Defendants’ position that discoverability under the Act or at common law is a response to a defense which places an onus on the Plaintiff, and so it did not have to be canvassed at discoveries (or addressed at trial) if the Plaintiff did not specifically plead it.

[24]           At the same time, it is the Defendants’ position that with respect to the claim of breach of fiduciary duties the doctrine of discoverability does not apply either at common law or under the pre-Act limitations statutes in force in Ontario, but that the equitable doctrine of laches applies. Defendants’ counsel concedes that the onus is on the Defendant to establish the unfair delay on which the laches principle is premised. Accordingly, counsel for the Defendants explains that in their view, discoverability does not have to be explored in pre-trial examinations if the Plaintiff has not bothered to plead it, but laches has to be explored because it is clearly relevant and the Plaintiff need not plead it.

[29]           Interestingly, counsel for the Defendants conceded in argument that examinations on the issue of discoverability were in fact conducted with respect to 7 of the 28 Plaintiffs. Defendants’ counsel’s explanation for this is that, apparently, a very diligent young lawyer for the government of Ontario conducted the discoveries on those individual Plaintiffs, and was foresightful enough to pose questions exploring the discoverability issue. As for the rest of the individual Plaintiffs, other lawyers on the Defendants’ counsel team conducted those discoveries and the discoverability questions were not asked. Accordingly, the Defendants are not seeking to eliminate the doctrine of discoverability from the analysis of the limitation period with respect to 7 of the 28 Plaintiffs, but are seeking to eliminate it with respect to the remaining 21 Plaintiffs.

[30]            With respect, this position is not tenable. In the first place, counsel for Ontario asked for undertakings regarding discoverability from 13 of the Plaintiffs. If only 7 Plaintiffs were questioned about discoverability, how is it that undertakings were extracted from 6 more of them? Perhaps others on the Defendants’ counsel team were more foresightful and diligent than they have been given credit for.

[31]           But that is only part of the point. If the Defendants’ position is to be taken seriously, the young lawyer who supposedly on his or her own asked about facts going to the discoverability issue would have been fishing for information that, in the Defendants’ view, he or she had no right to ask about. Not surprisingly, Plaintiffs’ counsel did not object to this line of questioning and provided answers that now satisfy the Defendants such that they are not discounting the discoverability doctrine with respect to those 7 deponents. What was wrongful from the Defendants’ point of view when it was done has suddenly become rightful now that it helps explain some of the discoverability questions which the Defendants did in fact explore with the Plaintiffs.

[32]           Furthermore, if one lawyer on the Defendants’ team knew about the discoverability doctrine, they all knew about the discoverability doctrine. In order to put an opponent on notice in litigation, one conveys the notice to opposing counsel – any number of them or any one of them will do. If one member of a law firm of record has notice, or one member of the Ministry of the Attorney General is aware of an issue in the action, they all are presumed to have notice and be aware of the issue. The young lawyer who asked discoverability questions is not being presented as a rogue acting beyond his retainer; quite the opposite. He is being presented as a perhaps more thorough or diligent version of all the other Defendants’ lawyers.

Ontario: the limitation of indefinitely available internet defamation

At issue in Torgerson et al. v. Nijem was the limitation of a claim arising from internet defamation where the impugned words remain available indefinitely.  The plaintiff argued that each day the words remain available gives rise to a new cause of action, a new claim, and a new limitation period.  Justice Schabas rejected this argument: “When a plaintiff becomes aware of a specific posting on a website, time begins to run for the purpose of applying limitation periods. To hold otherwise, and allow plaintiffs to wait indefinitely to sue simply because the libel remains available, would render limitations defences meaningless and have serious implications for freedom of expression.”.  The decision is well-reasoned and persuasive; I have no quibbles. This is the analysis:

[12]           Section 4 of the Limitations Act, 2002 creates a general limitation period of two years from “the day on which the claim was discovered.” Section 5(2) of the Act creates a presumption that the claim is discovered when the act or omission took place, “unless the contrary is proved.”  Here, the defendant’s action in publishing the defamatory statements took place on January 18 and 19, 2016, and the plaintiff became aware of them within days, and no later than the end of January, 2016. The defendant therefore submits that it is plain and obvious that the action cannot succeed as the plaintiff did not commence this action until April 23, 2018, more than two years after the actions of the defendant were known, or “discovered”, by the plaintiff.

[13]           The plaintiff, however, relies on the “multiple publication” rule, that each publication of a defamatory communication is a separate and distinct libel, subject to its own limitation period. In the context of an electronic communication or publication on the internet, the argument goes, every time a person accesses or downloads the information there is a new claim and a new limitation period applies. In my view, the plaintiff’s position misunderstands the “multiple publication” rule and how it has been applied to the internet.

[14]           The “multiple publication” rule dates back to the somewhat infamous case of Duke of Brunswick v. Harmer (1849), 14 Q.B. 185, in which a cause of action arose after the Duke dispatched his manservant to purchase a back issue of a newspaper from the publisher in order to sue for a libel first published 17 years earlier. This, it was held, constituted a republication by the newspaper, allowing the plaintiff to avoid the limitation period.  The “multiple publication” rule established in that case has been subject to criticism, especially in light of the development of the internet.  American courts have rejected it, adopting a “single publication rule” in which limitation periods begin to run from the date of first publication: see, e.g., Firth v. State of New York, 775 N.E.2d 463 (NY Ct App 2002); Canatella v. Van de Kamp, 486 F. 3d 1128 (9th Cir. 2007).  And the British have now adopted a somewhat similar approach in s. 8 of the Defamation Act 2013, (U.K.) 2013, c. 26.

[15]           The multiple publication rule continues to find acceptance in Canada: see, e.g.,Carter v. B.C. Federation of Foster Parents Assn., 2005 BCCA 398 (CanLII); Shtaif v. Toronto Life Publishing Co. Ltd., 2014 ONCA 405 (CanLII).  In this case it is not necessary to address the validity of the rule, other than to note that it may be seen as another way of expressing the “repetition rule”, where someone has chosen to repeat or re-publish a defamatory statement, as the law provides that every person who repeats a libel is liable as if he or she is the original speaker: see Downard, Libel (Lexis Nexis, 3rd Ed., 2014) at paras. 5.32–5.44.

[16]           Another form of republication is found in Breeden v. Black, 2012 SCC 19 (CanLII), on which the plaintiff relies. Statements posted on the internet in the United States were read, downloaded and republished by newspapers in Ontario, creating a cause of action against the American defendants in Ontario, as the tort of defamation occurs when and where the words are read by a third party, and the republication in Ontario was foreseeable as a natural and probable consequence of the posting of the statements on the internet. This does not mean, however, that every time a person reads the defamatory words in those newspapers a new cause of action arises and limitation periods can be avoided.  Applying the discoverability principle, a plaintiff must sue within two years of when he or she becomes aware of the defendant’s action in publishing the defamatory words, whether in print or on the internet.

[17]           The Ontario Court of Appeal considered republication and the multiple publication rule in Shtaif.  There, the plaintiffs had not provided notice of their intention to sue over the print article within six weeks of becoming aware of it, as required by s. 5 of the Libel and Slander Act.  However, they became aware of the internet publication later and did provide notice of it within the required time.  The plaintiffs then sought to include their complaint about the print version in their action against the magazine, relying on s. 6 of the Act which permits adding other claims for libel against the defendant that occurred within the previous year.

[18]           The Court considered and rejected applying the single publication rule, as it would be inconsistent with s. 6 of the Act. The analysis in Shtaif must be seen in the context of that case, which dealt with separate publication in two different mediums – print and online.  As the Court of Appeal observed more recently in John v Ballingall, at para. 35, Shtaif  “does not mean that each day of online publication grounds a new cause of action.”

[19]           In John v. Ballingall the plaintiff had missed the notice and limitation periods for publications by the media under the Libel and Slander Act, and argued that “for every day the defamatory words are published online, a new and distinct cause of action accrues and a new limitation period begins to run.” The Court of Appeal rejected that position, stating, at para. 35:

The appellant seeks to rely on an incorrect interpretation of the “multiple publication rule”. That concept provides that when an alleged libel is republished across different mediums, including the Internet, those republications are treated as distinct libels. In Shtaif, the court rejected the notion that the limitation period for a suit about an online magazine article starts to run when the plaintiff becomes aware of the printed version. This was the basis for the conflicting evidence on discoverability in Shtaif. This decision does not mean that each day of online publication grounds a new cause of action. The court in Vachon v. Canada Revenue Agency, 2015 ONSC 6096 (CanLII), expressly rejected this interpretation of Shtaif. I concur with Hackland J., who said, at para. 22:

The plaintiff argues that the alleged defamation should be taken as having been republished every day [while it] remained accessible on the internet … Shtaif does not support that proposition … any limitation period based on discoverability will run from the point where the internet defamation is discovered. [emphasis added]

[20]           The plaintiff seeks to distinguish John v. Ballingall on the basis that it only deals with notice periods under the Libel and Slander Act.  While that was the context, the case also engaged the 3 month limitation period under the Libel and Slander Act, and the same reasoning must apply.   The Libel and Slander Act simply creates a shorter limitation period, together with a notice requirement, in recognition of the special position of the media, allowing it the opportunity to publish timely corrections to minimize damage and to prepare defences when facts remain fresh.

[21]           In my view, the Court of Appeal in John v. Ballingall clearly rejected the proposition that just because defamatory words remain online and are available to be downloaded and read indefinitely, there is continuous publication allowing limitation periods to be ignored. As the Court noted, the multiple publication rule applies when something is “republished across different mediums”.  Such republications require specific acts by the publisher, or republisher, to further disseminate, or repeat, the libel, as was the case in Shtaif.

[22]           Furthermore, to give effect to the amendment in the Statement of Claim would create the potential for endless retriggering of limitation periods simply because the words remain on the internet. This would allow plaintiffs to sit on their rights until it suited them to take action, rather than sue when they become aware of the wrong. This would be unfair to defendants who would be subject to lawsuits indefinitely, and raises concerns about freedom of expression.

 

Ontario: the Court of Appeal on adding a new claim

In Klassen v. Beausoleil, the Court of Appeal provides a helpful summary of the analysis for determining whether proposed amendments assert a fundamentally new claim:

(1)         The test to be applied

[24]      I begin with the text of r. 26.01 of the Rules. It provides:

On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment. [Emphasis added.]

[25]      The rule is framed in mandatory terms: the court must allow the amendment, unless the responding party would suffer non-compensable prejudice, the proposed pleading is scandalous, frivolous or vexatious, or the proposed pleading fails to disclose a reasonable cause of action: 158844 Ontario Ltd v. State Farm Fire and Casualty Co., 2017 ONCA 42 (CanLII), 135 O.R. (3d) 681, at para. 25; Iroquois Falls Power Corp. v. Jacobs Canada Inc., 2009 ONCA 517 (CanLII), 264 O.A.C. 220, at paras. 15-16.

[26]      The expiry of a limitation period is one form of non-compensable prejudice. A party cannot circumvent the operation of a limitation period by amending their pleadings to add additional claims after the expiry of the relevant limitation period: Frohlick v. Pinkerton Canada Ltd, 2008 ONCA 3 (CanLII), 88 O.R. (3d) 401, at para. 24; 1100997 Ontario Ltd. v. North Elgin Centre Inc., 2016 ONCA 848 (CanLII), 409 D.L.R. (4th) 382, at paras. 21-23; United Food and Commercial Workers Canada, Local 175 Region 6 v. Quality Meat Packers Holdings Limited, 2018 ONCA 671 (CanLII), at paras. 64; Davis v. East Side Mario’s Barrie, 2018 ONCA 410 (CanLII), at paras. 31-32. In this regard, the “addition of new statute-barred claims by way of an amendment is conceptually no different than issuing a new and separate Statement of Claim that advances a statute-barred claim” (emphasis added): Quality Meat Packers, at para. 64; citing Frohlick, at para. 24.

[27]      An amendment will be statute-barred if it seeks to assert a “new cause of action” after the expiry of the applicable limitation period: North Elgin, at paras. 19-23, 33; Quality Meat Packers, at para. 65. In this regard, the case law discloses a “factually oriented” approach to the concept of a “cause of action” – namely, “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person”: North Elgin, at para. 19; Quality Meat Packers, at para. 65.

[28]      An amendment does not assert a new cause of action – and therefore is not impermissibly statute-barred – if the “original pleading … contains all the facts necessary to support the amendments … [such that] the amendments simply claim additional forms of relief, or clarify the relief sought, based on the same facts as originally pleaded”: Dee Ferraro, at paras. 4, 13-14; North Elgin Centre Inc., at paras. 20-21; East Side Mario’s Barrie, at paras. 31-32; Quality Meat Packers, at para. 65. Put somewhat differently, an amendment will be refused when it seeks to advance, after the expiry of a limitation period, a “fundamentally different claim” based on facts not originally pleaded: North Elgin, at para. 23.

[29]      The relevant principle is summarized in Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 3rd ed. (Toronto: LexisNexis, 2017), at p. 186:

A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon [which] the original right of action is based.[2]

[30]      In the course of this exercise, it is important to bear in mind the general principle that, on this type of pleadings motion, it is necessary to read the original Statement of Claim generously and with some allowance for drafting deficiencies: Farmers Oil and Gas Inc. v. Ontario (Ministry of Natural Resources), 2016 ONSC 6359 (CanLII), 134 O.R. (3d) 390 (Div. Ct.), at para. 23.

[31]      Finally, the court may refuse an amendment where it would cause non-compensable prejudice. The prejudice must flow from the amendment and not some other source: Iroquois Falls, at para. 20. At some point the delay in seeking an amendment will be so lengthy, and the justification so inadequate, that prejudice to the responding party is presumed. In this event, the onus to rebut the presumed prejudice lies with the moving party: State Farm, at para. 25.

[32]      Alternatively, the responding party may resist the amendment by proving actual prejudice – i.e. by leading evidence that the responding party has lost an opportunity in the litigation that cannot be compensated by an adjournment or an award of costs as a consequence of the amendment. It is incumbent on the responding party to provide specific details of the alleged prejudice: State Farm, at para. 25.

[33]      Irrespective of the form of prejudice alleged, there must be a causal connection between the non-compensable prejudice and the amendment. The prejudice must flow from the amendment and not from some other source: State Farm, at para. 25.

[34]      Bearing in mind these principles, the framework to determine the issues raised by this appeal is as follows:

  •     Are the proposed amendments to assert a claim to a 33% ownership interest the assertion of a “new cause of action”? If the proposed amendments are the assertion of a new cause of action, are the amendments statute-barred?

  •     Irrespective of the above, is this a case where non-compensable prejudice will arise as a consequence of the amendments?

Ontario: contract repudiation and the commencement of time

 

The Court of Appeal decision in Hurst v. Hancock is a reminder that in a claim arising from anticipatory breach or repudiation of a contract, the limitation period may not commence until performance is due.  There can no be no claim until there is a cause of action, and there will be no cause of action until claimant accepts the breach, or affirms the contract and performance is due.

Ontario: Court of Appeal on rolling limitation periods and contractual limitation periods

The Court of Appeal decision in Marvelous Mario’s Inc. v. St. Paul Fire and Marine Insurance Co. is a noteworthy addition to “rolling limitation period” jurisprudence.

The appellants sought coverage under the business interruption cover of a commercial insurance policy issued by the respondent.  The policy contained a contractual limitation period:

ACTION: Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.

The trial judge held that the claim for business interruption losses was an ongoing claim and subject to a rolling limitation period.  The appellants discovered it on a date more than a year before commencing the coverage action.  However, it was subject to a rolling limitation period, a new claim accrued each day the appellant sustained a business interruption loss.  Those days within a year of the action give rise to timely claims.

The Court of Appeal rejected this reasoning.  First, it considered the nature of a rolling limitation period:

[35]      The jurisprudence suggests that a rolling limitation period may apply in a breach-of-contract case in circumstances where the defendant has a recurring contractual obligation. The question is not whether the plaintiff is continuing to suffer a loss or damage, but whether the defendant has engaged in another breach of contract beyond the original breach by failing to comply with an ongoing obligation. In cases where there have been multiple breaches of ongoing obligations, it is equitable to impose a rolling limitation period.

Second, it found that the trial judge erred by considering whether the appellants were continuing to suffer damages rather than whether the respondent was breaching a recurring contractual obligation:

[37]      In my view, where the trial judge erred was in focussing her analysis on the question of whether the appellants were continuing to suffer damages rather than on the issue of whether the respondent had a recurring contractual obligation. Unlike Pickering Square, where the tenant had a recurring obligation to occupy the premises every month during the term of the lease, the respondent was not obliged to make recurring payments. Rather, the policy covered business interruption losses and the respondent was obliged to pay those losses in their totality, subject to any limits in the policy. The fact that there was a 24-month cap on the business interruption losses does not convert the respondent’s obligation to indemnify into a recurring contractual obligation. Therefore, this was not a proper case for the application of a rolling limitation period.

[38]      The appellants knew as of the closing date for the sale of the businesses that they no longer had the assets under their control and that consequently they would thereafter suffer business interruption losses. While the precise amount of the damages was unknown, the appellants knew at that point that they had suffered loss or damage and under the policy they were obliged to commence a claim within one year. The fact that the extent of damages may not be known with precision does not stop the commencement of the limitation period: Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549, at para. 18. The Second Action was consequently time-barred in its entirety.

This reasoning raises some interesting issues (which, I note sheepishly, I missed entirely when writing about the trial decision).

First, a word on the “rolling limitation period”.  The court’s language suggests that it’s an equitable principle: “In cases where there have been multiple breaches of ongoing obligations, it is equitable to impose a rolling limitation period”.  This isn’t quite right.

Statutory limitation periods apply to causes of action.  Subject to certain exceptions, one limitation period applies to one cause of action (in the case of the Limitations Act, one basic and one ultimate limitation period apply to one “claim”, which derives from a cause of action).

When there are circumstances that cause multiple causes of action to accrue periodically, one limitation period applies to each cause of action.  In the case of a contractual obligation that recurs daily (the court’s example), each day the defendant fails to perform the obligation a discrete breach of contract occurs that gives rise to a discrete cause of action.  Each discrete cause of action has its own limitation period.

Because these limitation periods have the same length, it will appear as if one limitation period commences anew each day,  The limitation period appears to roll.  This is the “rolling limitation period”.

A rolling limitation period is accordingly just convenient way to describe multiple limitation periods of the same length commencing regularly and consecutively.  It’s not a special kind of limitation period that exists independently of the statutory limitation scheme to be invoked as equity requires.

On my reading, the Court’s analysis is correct.  The Court found there was one cause of action that accrued on a particular date. There were no multiple causes of action, and there were accordingly no multiple limitation periods that could appear to roll.

All of this is to say that I question the value of the “rolling limitation period” in limitations analyses.  What purpose does it actually serve?  Instead of asking whether there is a rolling limitation period, you might just as easily, and certainly more accurately, ask whether there are recurring causes of action.

Now for the second issue: I’m doubtful cause of action accrual, or causes of action generally, had any place in the parties’ limitations analysis.

The limitation period is contractual.  It reflects the parties’ agreement on when the insured can sue the insurer.

The limitation period commences on the occurrence of the “loss or damage” and bars “absolutely” an action “against the insurer for the recovery of any claim” under the policy (that is, a claim for indemnification).

The triggering event is not the accrual of a cause of action, but the occurrence of the “loss or damage” for which the insured claims indemnification.  I suspect the policy provided coverage for some business interruptions that don’t arise from actionable misconduct.  This means the insured could seek recovery for a claim for indemnification of a loss that has nothing to do with a cause of action.

This makes it bewildering that the parties appear to have agreed that common law discovery applied to this limitation period

As I read the provision, its language excludes discoverability of any kind. The limitation period commences on the date of an event—the occurrence of loss or damage—and expires absolutely one year later.  The word “absolutely” would seem an explicit bar to discoverability or the suspension of time.  If the parties intended for discoverability to apply, they could have used language like “…unless commenced within one year next after the insured could first reasonably have learned of the loss or damage”.

It’s also impossible to apply common law discovery to a limitation period that commences on the date of an event rather than on the accrual of a cause of action.  Discovery is of a cause of action: the rule provides that a cause of action accrues when a plaintiff can first reasonably discover its material facts.  This is why the rule doesn’t apply to statutory limitation periods that commence on the date of an event (like s. 38 of the Trustee Act) .

Further, discovery is always in relation to the cause of action that gives rise to the proceeding.  In this case, the cause of action giving rise to the proceeding was the breach of the insurance agreement, and this is the cause of action to which the contractual limitation period applies.  The discovery of some of other cause of action that may have resulted in the event that is the trigger of the limitation period wouldn’t in the normal course be material to the commencement of time.  It’s so unusual for the limitation of one cause of action to be determined by the accrual of another cause of action that if the parties intended this to be so I’d expect explicit language to that effect in their agreement (I’ve never seen such language).

More generally, because this is a contractual limitation period, the parties ought to have grounded their positions in the language of the policy.  The material question strikes me as being whether the “loss or damage” occurred within the meaning of the policy each day the business interruption lasted, or on the date of the event that caused the business interruption.  This is a question of policy interpretation.

Without having read the policy, I see arguments on both sides.  I think the strongest argument is the one the court accepted.  The day of the peril that caused the business interruption—the transaction—caused the appellants to suffer the “loss or damage” for which they sought indemnification.  That the interruption lasted days goes to quantifying the loss, not when it occurred.  I would think the appellants’ notification would have been helpful; it’s easy to imagine that the appellants filed one notification in regards of the business interruption, which might have indicated they considered there to be one loss. I’m not sure why this didn’t appear to be part of the record.

The counterargument is that each day of business interruption was a new occurrence of loss.  This is effectively the rolling limitation period argument, except not one based on cause of action accrual.

I welcome your thoughts on this!

Ontario: special circumstances applies to Construction Act limitation periods

Pryers Construction LTD. v. MVMB is a reminder that parties in a lien action may be added after the 90 day limitation period in the Construction Act at any stage of the proceeding if there are special circumstances.

Update: this was overturned by the Divisional Court.

Ontario: you’re not a litigation guardian until you file an affidavit

The appointment of a litigation guardian will cause the limitation period to commence when the plaintiff is a minor or without capacity (see ss. 6, 7).  Does the limitation period commence when the litigation guardian holds herself out as a litigation guardian, or when the litigation guardian files the affidavit required by r. 7 of the Rules of Civil Procedure? The court in Siddiqui v. Saint Francis Xavier High School found it’s the latter:

[40]           In short, the courts have sought to protect the interest of minors and have found that it takes “clear and unequivocal” wording to strip protections away from minors and persons under disability who are incapable of protecting their own legal interests.

[42]           I conclude that the court in Socha recognized the term “litigation guardian” as a term of art when it identified the lack of any mechanism of self-appointment under the Act and then referred to the process for appointment of a litigation guardian under the Rules of Civil Procedure.

[48]           I agree with the Plaintiffs that the words of s. 6(b) of the Act must be given meaning otherwise the mere delivery of a notice letter would be sufficient.  The consequence of such a proposition would allow the running of a limitation period against a minor without affording them any measure of protection while their rights begin to fade away and would permit such a letter to be sent by anyone simply holding themselves out to be a litigation guardian.

[49]           I agree that that the determination of a minor’s rights should not turn on a question of the choice of words used in a letter. Such a proposition would not introduce certainty and would provide no protection to minors and persons under disability.

[50]           This conclusion is reinforced by the other provisions of the Act; namely ss. 9 and 14, where a prospective defendant can trigger the running of a limitation period. In those circumstances, a mere notice letter will not suffice. In short, those provisions demonstrate the balancing of rights that is required under the Act.

[51]           Section 9 (2) provides:

Appointment of litigation guardian on application or motion by potential defendant

(2) If the running of a limitation period in relation to a claim is postponed or suspended under section 6 or 7, a potential defendant may make an application or a motion to have a litigation guardian appointed for a potential plaintiff.

      Effect of appointment

(3) Subject to subsection (4), the appointment of a litigation guardian ends the postponement or suspension of the running of the limitation period if the following conditions are met:

  1.   The appointment is made by a judge on the application or motion of a potential defendant.
  1.   The judge is satisfied that the litigation guardian,
  1. has been served with the motion,
  2. has consented to the appointment in writing, or in person before the judge,

iii. in connection with the claim, knows of the matters referred to in clause 5 (1) (a),

  1. does not have an interest adverse to that of the potential plaintiff, and
  2. agrees to attend to the potential plaintiff’s interests diligently and to take all necessary steps for their protection, including the commencement of a claim if appropriate.

      Non-expiry

(4) The limitation period shall be deemed not to expire against the potential plaintiff until the later of,

(a)   the date that is six months after the potential defendant files, with proof of service on the litigation guardian,

  1.                                                                  a notice that complies with subsection (5), and
  1.                                                               a declaration that, on the filing date, the potential defendant is not aware of any proceeding by the litigation guardian against the potential defendant in respect of the claim; and

(b) the date on which the limitation period would otherwise expire after it resumes running under subsection (3).

Notice

(5) The notice,

(a) shall not be served before the first anniversary of the appointment;

(b) shall identify the potential plaintiff, the potential defendant and the claim; and

(c) shall indicate that the claim could be extinguished if a proceeding is not promptly commenced.  2002, c. 24, Sched. B, s. 9 (5).

[52]           Given all of the requirements of s. 9, it is clear that the few words found in s. 6(b) cannot be to be interpreted in such an informal manner as to negate the protections for minors available under law. Such an interpretation would be contrary to the scheme and purpose of the legislation. The balancing of rights is achieved through the provisions of s. 9 of the Act which ends the postponement of the running of the limitation period and provides a prospective defendant with a degree of certainty and finality.

Ontario: limitations issues that shouldn’t need deciding

There is a category of limitations jurisprudence that decides issues which shouldn’t need deciding. Three decisions recently expanded it.

Having commenced a proceeding by notice of action within the limitation period, can a plaintiff add defendants to the proceeding outside the limitation period by naming them as defendant in the statement of claim? No, obviously, the court held in Bercovici v. Attorney General of Canada:

[13]           The plaintiff’s action was commenced by notice of action.  Under rules 14.03(1)(a) and (2), where a plaintiff commences an action by notice of action, the notice of action, and not the statement of claim, is the originating process.  Under rule 14.06(1), the originating process shall contain “a title of the proceeding setting out the names of all the parties”.  Therefore, where the originating process is a notice of action, it is the title of proceeding in the notice of action that identifies the parties to the action.

[14]           The plaintiff relies on rule 14.03(2), which provides that a notice of action contain “a short statement of the nature of the claim” [emphasis added] and rule 14.03(5), which provides that “in an action commenced by the issuing of a notice of action, the statement of claim may alter or extend the claim stated in the notice of action”.  The plaintiff argues that these two rules read together allow the plaintiff to add to the statement of claim both claims and parties not included in the notice of action.  Specifically, the plaintiff submits that where the notice of action referred to the conduct of “responsible officials”, it was open to her to name those officials as defendants in the statement of claim as an extension of the claim in the notice of action.

[15]           Rules 14.03(1) and (2) and 14.03(5) must be interpreted in the context of the rules as a whole, which include rule 5.04(2).

[16]           Rules 14.03(1) and 14.06(1) read together provide that the parties to an action, which include the defendants, be named in the originating process, which in this case was the notice of action.  Rule 5.04(2) provides the means by which parties may be added to an action: “[T]he court may by order add, delete or substitute a party . . .” [emphasis added].  However, there is no provision in rule 14.03 that allows parties to be added to a proceeding commenced by notice of action simply by including them in the statement of claim.  In the face of the specific provision in rule 5.04(2) requiring a court order to add parties, the fact that rule 14.03(5) allows a plaintiff who has issued a notice of action to “alter or extend the claim” when filing her statement of claim does not enable that plaintiff to add new defendants simply by including them in the statement of claim.

[17]           Rule 14.03(2) enables a plaintiff to comply with a limitation period by commencing an action by notice of action “where there is insufficient time to prepare a statement of claim”.  The notice of action is therefore intended to be a document that can be prepared and issued quickly before the limitation period expires.  However, in order to defeat the operation of the limitation period, the plaintiff must still name all defendants within the limitation period, subject to the considerations discussed below.

[18]           If a plaintiff wishes to add defendants to an action commenced by notice of action, she must, as concluded above, do so by way of a motion under rule 5.04(2).  The registrar was therefore correct in refusing to accept for filing the statement of claim naming five new defendants.

Can you object to a request for documents on the basis that they are dated prior to the limitation period? No. A thousand times no! The court in Nanton v. Julien had no trouble dismissing this bizarre argument:

The defendants object to a number of requests for documents on the basis of the Limitations Act.  Limitations apply to bar claims, not requests for documentary production.  So long as the claim is properly pleaded and has not been dismissed by reason of a limitations defence, the parties are obliged to produce relevant documents, even if those documents date back to a time beyond the limitations period.

Does the limitation period for a claim arising from an auto accident commence on the date of the accident if the plaintiff can’t reasonably know the identity of the auto’s owner at that time? Also no, as the court in Miano v. Campos  held (while sighing, I imagine):

[30]         The Defendant’s position that the limitation period for a claim for damages arising from an automobile accident commences to run on the date of the accident even if the plaintiff does not know and cannot reasonably discover the identity of the owner and operator of the automobile on the date of the accident is misguided. It ignores the plain language of s. 5(1)(a)(iii) and 5(1)(b) and renders those provisions meaningless.   Given these provisions, it is unnecessary to commence a claim against “Jane Doe” in order to “preserve” a limitation period, as the limitation period does not commence to run until the identity of the owner or operator, as the case may be, is known or ought to have been known.  Such an approach adds nothing of value, clutters the record and, if Jane Doe was later identified, would then necessitate an unnecessary step in this proceeding to remove Jane Doe as a defendant and add the identified defendant.

Ontario: a solid addition to s. 7 jurisprudence

Carmichael v. GlaxoSmithKline is an important addition to s. 7 capacity jurisprudence.

The facts are tragic.  The plaintiff killed his son during a psychotic episode and was found not criminally responsible by reason of a mental disorder.  The plaintiff sued the defendant manufacturer of the drug he alleged caused the episode.  The defendant moved for judgment on a limitations defence.

These paragraphs summarise the parties’ positions:

[21]           Counsel for GlaxoSmithKline summarizes these submissions by noting that “the contemporaneous medical records reflect the finding of mental health professionals on more than 23 occasions, commencing on October 19, 2005 and extending through December 2009, that David Carmichael had capacity, and was assessed as being capable to consent to treatment, to view his record of personal information, to provide informed consent to disclose information and to manage his financial affairs.[36]

[22]           Counsel for David Carmichael does not agree that he had the capacity to decide to commence and conduct this litigation at any time prior to his absolute discharge, by the Ontario Review Board, on December 2, 2009. It goes without saying, this was less than two years from the date on which this proceeding was started, being October 5, 2011.

Justice Lederer undertook a nuanced and sensible approach in concluding that s. 7 operated to render the proceeding timely.

First, he acknowledged that a person may be capable of functioning in the world, including by dealing with professional contracts, difficult life events, and significant financial transactions, without necessarily having the capacity to commence a proceeding within the meaning of s. 7.

[29]           In the context of the case I am asked do decide, it may well be that David Carmichael was capable of dealing with the death, the contracts, the sale as well as the other changes to his family’s circumstances and, yet, remained unable to contemplate, that is remained incapable, of beginning this action. Counsel for GlaxoSmithKline points out that the expert retained on behalf of David Carmichael, Dr. Stephen Fleming, “did not dispute” that David Carmichael had the capacity “to consent to treatment, to view his record of personal information, to provide informed consent to disclose information and to manage his financial affairs”.[41] This may be so but is his capacity to cope with these events demonstrative of the capacity to commence an action or could it be that each would be a step on the way to the rehabilitation and reconciliation required to allow him to accept what he did, confront it and live with the constant reminder that would inherently come with the commencement and continuation of a legal case? As of November 15, 2007, at the time of his conditional discharge, a Clinical Risk Assessment of David Carmichael done by Dr. A. G. Ahmed at the Brockville Mental Health Centre was, as follows:

It is the opinion of the treatment team that Mr. Carmichael continues to constitute a significant risk that will require treatment under a detention order that will allow him to live in the community in an approved accommodation. The clinically significant risk factors… include his mental disorder which though in remission on medication in a hospital setting at this stage, has presented with reoccurrence in the past. His insight into the role of stress and likely impact on his mental health remains suboptimal and will require close monitoring in a less structured environment. Reintegration into the community and the relocation of his family to a home that is yet to be settled continues to constitute significant psychosocial stresses that will require close monitoring by the treatment team… His business is not earning money at this stage and he relies solely on his savings…. This transitional situation and uncertainty about the future is significant bearing in mind the role of natural stress at the time of the index offence.[42]

[30]           Dr. Stephen Fleming states that David Carmichael was psychologically incapacitated from taking on the stress and risk of confronting GlaxoSmithKline in a legal proceeding.[43]. Dr. Stephen Fleming was clear in his view that the ability to confront some of life’s challenges does not inherently indicate capacity to start an action:

  1. But you do agree with me, Doctor Fleming, that if you can go out and function and sell a house, get a job, draft a website, you can also file a lawsuit?
  2. No I don’t agree with you.[44]

[31]           It was the opinion of Dr. Stephen Fleming that David Carmichael was incapable of commencing a proceeding before his absolute discharge because of his psychological condition:

In my opinion David was incapable of commencing a proceeding in respect of his claim because of his psychological condition. A number of factors contributed to David’s inability to initiate the process of launching a civil suit against GSK until his absolute discharge in December 2009[45].

Justice Lederer then set the out factors for determining capacity to commence a proceeding and applied them to the plaintiff:

[40]           The factors to be considered in determining whether a party is capable of commencing an action are set out in the case of Huang v. Braga[58] and repeated in Hengeveld v. Ontario (Transportation):[59]

(a)               A person’s ability to know or understand the minimum choices or decisions required to make them;

(b)               An appreciation of the consequences and effects of his or her choices or decisions;

(c)               An appreciation of the nature of the proceeding;

(d)               A person’s ability to choose and keep counsel;

(e)               A person’s ability to represent himself or herself;

(f)                 A person’s ability to distinguish between relevant and irrelevant issue; and

(g)               A person’s mistaken beliefs regarding the law or court procedures.

[41]           The factum filed on behalf of the GlaxoSmithKline asserts that in this case each of these factors was established no later than 2005. The presumption appears to be:

  •     that because David Carmichael was able to participate in the determination of the defence to be put forward at his criminal trial he had capacity to commence this action;
  •     that he accepted the risk of speaking publicly through newspapers and television and website postings and other writings in spite of his expressed fear that he was concerned that bringing an action might pose a risk to his being discharged from the Brockville Mental Health Centre; and
  •     that he thought about and talked about commencing litigation, in particular his discussions with Andy Vickery;

he satisfied the seven factors.

[42]           To my mind, the application of those factors, in this way, continues the same mistake. It fails to recognize the fundamental distinction between the cognitive ability to commence an action and the psychological strength required to actually undertake the initiation of a lawsuit. Understood from the perspective of the psychological burden being carried by David Carmichael, taking into account the evolution of his coming to terms with his role in the death of his son, particularly as interpreted by the treating professionals along the way, as assessed thereafter by Dr. Stephen Fleming, accounted for in the decisions of the Ontario Review Board and confirmed by his wife and daughter I am unable to take each of these factors as having been met prior to his absolute discharge. By way of example, I have no trouble in finding that David Carmichael would not have been able to understand the minimum choices or the decisions he would have been required to make, to appreciate the consequences of those choices, to fully understand the nature of the proceedings, to choose and keep counsel and to represent himself or to distinguish between relevant and irrelevant issues.

[43]           The death of a child would cause any parent to be devastated. It would be that much more terrible for a parent to accept being the instrument of that death:

Finally, and importantly, the launching of legal proceedings prior to December 2009 would have placed David at considerable psychological risk. The trauma of Ian’s death resulted in the forced surrendering of David’s comforting illusions and assumptions that his sense of self (i.e., organizing principles and values that maintain self-esteem and shape the data of experience). His assumptive world, that set of assumptions or beliefs that secure and ground individuals and provide a sense of reality, purpose, and meaning, was sorely challenged if not destroyed by David killing his son. The fracturing of David’s assumptive world resulted in substantial psychological upheaval and left him feeling fearful, insecure, and vulnerable. Launching legal proceedings prematurely would threaten the process of re-building shattered assumptions, finding meaning after Ian’s death and precipitate a relapse.[60]

[44]           I end where I began, with the comments of the judge who found David Carmichael not criminally responsible for the death of his son:

… one can only begin to imagine Mr. Carmichael’s anguish when, through medical intervention, his depression began to lift, his delusional beliefs began to abate and the terrible knowledge of his actions descended – the crash into reality described by Dr. Hucker.[61]

[45]           It is not difficult to understand and accept a professional judgement that a person struggling with such a realization would be psychologically impaired if not destroyed, at least for a period of time and that his capacity to function fully would take time to return.

Two quibbles.

First, the court asked the wrong question:

[18]           It is on this basis that it is submitted that any claim David Carmichael may have against GlaxoSmithKline would have been discovered by “a reasonable person with the abilities and in the circumstances of the person with the claim.”[29] But was David Carmichael the “reasonable person” to whom the legislation refers? This is the question that is at the core of this motion. 

The Limitations Act doesn’t refer to one reasonable person.  It refers to a reasonable person with the abilities and in the circumstances of the plaintiff.  The question isn’t “who is the ‘reasonable person’?”, but “what are the plaintiff’s abilities and circumstances that inform the ‘reasonable person’ test?”.

In any event, as the court noted, this is a matter of discovery, and discovery is unrelated to s. 7.  A person can have capacity to discover a claim while being without capacity to commence a proceeding in respect of that claim.  Or, perhaps more likely, a person can have the capacity to discover a claim but then, as a result of a psychological or physical condition, lose the capacity to commence a proceeding in respect of the claim.  This is why s. 7 suspends a limitation period instead of delaying its commencement.

Second, the court didn’t address the most vexing aspect of s. 7: what does it mean to be “incapable of commencing a proceeding in respect of the claim because of his or her physical, mental or psychological condition”?  Instead, the court applied the factors developed for determining whether a party is under disability and requires a litigation guardian.  Section 7 encompasses parties under disability, but is much broader.  For example, s. 7 arguably encompasses a circumstance where a person is physically unable to commence a proceeding, perhaps because of some incapacitating injury, but has not mental impairment.  None of the considerations applied by the court would be relevant in that circumstance: the plaintiff’s decision-making abilities would be fine; he would simply be physically unable to commence a proceeding.

As a practical matter, I suspect the court’s approach is fine.  I’m doubtful we’ll see a case where a plaintiff’s broken legs and arms are the bar to commencing a proceeding. Still, from a legal perspective, this approach, while practical, does little to assist in the interpretation of s. 7.