BC: demand loans v. contingent loans

Kong v. Saunders provides a helpful overview of the limitation periods applicable to demand loans and contingent loans under the previous Limitations Act.  While the new Limitations Act recently turned two years old, it will be some time before it applies to all new actions, so there remains value in reviewing these concepts.  These are relevant paragraphs:

[17]        The previous Limitation Act applies to this case because it was still in effect at all materials times prior to the commencement of the underlying action.  Under s. 3(5) of that Act, the residual six-year limitation period, which applies in this case, began to run on the date on which the right to bring the action arose.

[18]        The jurisprudence has established a distinction between demand loans and contingent loans in respect of the commencement of the running of the limitation period.  Demand loans are, of course, loans payable on demand.  Contingent loans are loans that are payable on a future date or upon the occurrence of a specified event.

[19]        The limitation period in respect of contingent loans begins to run on the repayment date or the occurrence of the contingency.  This is because an action for repayment of the loan cannot be brought prior to the repayment date or the occurrence of the contingency, as the case may be.

[20]        It may seem intuitive that the limitation period in respect of demand loans begins to run on the date of the demand for repayment, but this is not so.  The reason is that the law has developed in a manner that it is not necessary for demand to be made before action can be brought for repayment of the loan.  This means that an action may be brought at any time after the demand loan is made.  As a result, the limitation period begins to run on the day the loan is made.

[21]        The above principles have been previously accepted by this Court in one of the cases relied upon by Mr. and Mrs. Kong, Berry v. Page, where Mr. Justice Wallace said the following at 247 (B.C.L.R.):

            The characterization of the loan as either a contingent loan or a demand loan determines whether or not the action is statute barred under theLimitation Act. It is well established that the cause of action accrues, and the statute of limitations runs, from the earliest time at which repayment can be required (Chitty on Contracts, 25th ed. (1983), vol. I, para. 1843, p. 1024). For a demand loan, the statute of limitations runs as of the date of the advancement of the funds, and not from the date of the demand. No demand is necessary in order for the cause of action to arise: Barclay Const. Corp. v. Bank of Montreal (1988), 1988 CanLII 2898 (BC SC), 28 B.C.L.R. (2d) 376 at 381, [1988] 6 W.W.R. 707, 40 B.L.R. 150 (S.C.); Heubach v. Sprague, 41 Man. R. 292, [1933] 2 W.W.R. 99, [1933] 3 D.L.R. 647 (C.A.).

            Case law supports the proposition that if money is lent to be repaid at a particular time in the future, or upon the happening of a specified contingency, then the cause of action arises at the time specified or upon the happening of the contingency: Ingrebretsen v. Christensen, 37 Man. R. 93,[1927] 3 W.W.R. 135 (C.A.); Re Gould; Ex parte Garvey, 1940 CanLII 89 (ON CA), [1940] O.R. 250, [1940] 3 D.L.R. 12 (C.A.). In these circumstances, the cause of action does not arise, and the statute of limitations does not run until the contingency is satisfied.

[22]         A more recent decision of this Court, Ewachniuk Estate v. Ewachniuk, 2011 BCCA 510 (CanLII), has also acknowledged these principles.  In that case, the Court held that a loan payable one year after demand fell within the category of a contingent loan, with the result that the limitation period did not begin running on the day the loan was made.  The reason is that an action could not have been brought for repayment of the loan on the day the loan was made because the demand and the lapse of time after the demand were conditions precedent to the bringing of an action.

[23]        The common law is the same in other provinces: see, for example, Johnson v. Johnson, 2012 SKCA 87 (CanLII).  Interestingly, with the new Limitation Act, British Columbia has joined Alberta and Ontario in specifically addressing the limitation period for a demand obligation.  Section 14 of the newAct effectively provides that the limitation period does not begin running until demand is made.

BC: When it comes to death, there is no temporal elasticity (at least for limitation periods)

Generally, the discovery rule won’t extend a limitation period tolled by a fixed event like death; for these limitation periods there is, in the words of the Ontario Court of Appeal, “no temporal elasticity” (See Waschkowski v. Hopkinson Estate at paras. 8 and 9). In Buhr v. Manulife Financial, the BC Court of Appeal affirmed this principle by finding that the discovery rule can’t extend the limitation period applicable to claims against an insurer for death benefits.

Burh claimed against her deceased husband’s insurer for death benefits. On appeal, the insurer argued that the expiry of the limitation period in section 65 of the former Insurance Act barred the claim.

Section 65 provided that “proceedings against an insurer for the recovery of insurance money must not be commenced […] more than 6 years after the happening of the event on which the insurance money becomes payable”.

The Court accepted the insurer’s argument:

[T]he limitation period in this case began to run from the date of Mr. Mattern’s death, regardless of when Ms. Buhr became aware of potential claims. The event on which the insurance money becomes payable, contemplated in s. 65 of the former Insurance Act, is death in cases involving death benefits. The statute designates a fixed event, unrelated to the plaintiff’s knowledge of a cause of action, to start the limitation period, requiring commencement of an action within six years. The discoverability rule does not operate to extend the prescribed period.

In 2012, section 76 of the current Insurance Act replaced section 65. It provides as follows:

76 (1) Subject to subsections (2) and (5), an action or proceeding against an insurer for the recovery of insurance money payable in the event of a person’s death must be commenced not later than the earlier of

(a) 2 years after the date evidence is furnished under section 73, and

(b) 6 years after the date of the death.

The explicit reference to the date of death in section 76(1)(b) means that the discovery rule cannot extend this limitation period. Although the claimant in Buhr evidently required more than six years to bring her claim, six years is three times as generous as the two year limitation period in Ontario’s Trustee Act, which also begins to run from the date of death. I acknowledge that she is unlikely to find this aspect of Canadian limitations jurisprudence consoling.

Ontario: Will challenges subject to the two-year limitation period

The Superior Court has ruled on the application of the Limitations Act, 2002 to will challenges. The general two-year limitation period in section 4 of the act applies, subject to the section 5 discovery provisions.

Leibel v. Leibel involved two wills. The wills left a specific asset to the testatrix’s son Blake, and divided the remaining assets equally between Blake and her other son Cody. Blake applied for a declaration that the wills were invalid, and Cody and other respondents moved for an order dismissing the application on the basis that it was statute-barred by the expiry of the limitation period.

Justice Greer held that limitation period began running in June 2011, the date of the testatrix’s death , because a will speaks from death (see paras. 36 and 50). However, Just Greer found that Blake discovered his claim within the meaning of section 5 about a month later in July 2011:

In applying the “discoverability principle,” Blake had the knowledge to commence a will challenge on or before July 31, 2011. By that date he knew the following facts:

(a)   Prior to Eleanor’s death Blake knew that Eleanor [the testatrix] had recovered from lung cancer but now had brain cancer.

(b)   He knew Eleanor had changed her previous Wills.

(c)   He knew the date of Eleanor’s death, as Lorne had called him and Cody on that date.

(d)   He received copies of the Wills prior to July 31, 2011, and he knew who the Estate Trustees were under the Wills.

(e)   He knew what Eleanor’s assets were. He had at least a sense of her income, as she had been sending him monthly cheques before the date of her death and had a sense of the value of her assets.

(f)   He signed corporate documents for a company now owned by her Estate prior to July 31, 2011.

(g)   He had communicated with Ms. Rintoul [a lawyer] about his concerns and she gave him the names of three estates counsel to consider, as independent legal advisors.

Blake, therefore, had all of the information needed to begin a will challenge. He chose, instead, to take many of his benefits under the Wills before he commenced his Application (see para. 39).

By the time Blake brought his application in September 2013, the limitation period had expired.

Justice Greer rejected Blake’s argument that no limitation period applied to his will challenge pursuant to section 16(1)(a) of the act because his challenge did not seek consequential relief. This is noteworthy. Prior to this decision, it was widely considered that this section would apply to a will challenge. Consider a passage from Anne Werker’s influential 2008 article on limitation periods in estate actions:

It has been suggested that the 15-year absolute limitation period applies to will challenges. I do not agree. Section 16(1)(a) of the new Act expressly states that there is no limitation period in respect of “a proceeding for a declaration if no consequential relief is sought”.

In particular, it was thought that where a distribution had not been undertaken before the will challenge, no consequential relief would be necessary and so no limitation period would apply. (See Anne Werker, “Limitation Periods in Ontario and Claims by Beneficiaries”, (2008) 34:1 Advocates’ Q at 24-28).

Justice Greer held that the legislature did not intend for section 16(1)(a) to exclude will challenges from the two-year limitation period:

To say that every next-of-kin has an innate right to bring on a will challenge at any time as long as there are assets still undistributed or those that can be traced, would put all Estate Trustees in peril of being sued at any time. There is a reason why the Legislature replaced the six-year limitation in favour of a two-year limitation. (See para. 52).

In any event, Justice Greer found that the order Blake sought did ask for consequential relief:

Although subsection 16 (1) (a) of the Act says there is no limitation period in respect of a proceeding for a declaration if no consequential relief is sought, Blake’s will challenge claims consequential relief in that it asks for an Order revoking the grant of the Certificate of Appointment of Estate Trustees with a Will issued to Roslyn and Lorne, asks for an Order removing them as Estate Trustees, asks for an Order that they pass their accounts as Estate Trustees, and for an Order appointing an Estate Trustee During Litigation.  In addition, Blake asks for declarations relating to the revocation of Eleanor’s December 12, 2008 Wills and for an Order in damages in negligence against Ms. Rintoul and her law firm, and for Orders disclosing Eleanor’s medical records and her legal records.  Consequential relief is clearly sought by Blake (see para. 28).

This decision should have a significant impact on how the estates bar approaches will challenges, and it will be interesting to see whether there is an appeal. Meanwhile, it’s likely that it will influence estates jurisprudence in other jurisdictions with limitations provisions equivalent to section 16(1)(a), for example section 2(1)(d) of the BC Limitation Act.