Ontario: No, s. 16(1)(a) is not a secret loophole

Since the early days of the Limitations Act, plaintiffs have ventured the not especially clever argument that by seeking only a declaration they can engage the exception in s. 16(1)(a) of the Limitations Act for a proceeding for a declaration if no consequential relief is sought.

As two recent decisions remind us, this strategy is transparent and ineffective.

In Skylark Holdings Limited v. Minhas, the defendants moved to dismiss the plaintiffs’ proceeding as statute-barred.  In response, the plaintiffs moved to amend the statement of claim to limit the relief claimed to a declaratory judgment of legal and beneficial ownership of shares. In this way, the plaintiffs intended to engage s. 16(1)(a).  The motion judge agreed with the plaintiffs and found that the court could make declare ownership without consequential relief.

The Divisional Court granted the defendants’ appeal.  It followed the Court of Appeal’s recent decision in Alguire, delivered after the motion judge’s decision, and assessed the essential nature of the plaintiffs’ relief.  It concluded that the plaintiffs were attempting an “end run” around the limitation period:


[8]                This case was only decided after the motions judge made his decision and it is therefore not surprising that the motions judge did not conduct his analysis in accordance with the directions set out in the Court of Appeal’s decision.  This was an error of law.  To decide whether s. 16 (1)(a) is being used to circumvent an application limitation period, the motions judge was required to assess the essential nature of what the respondent is seeking.  In this case, the respondent claims to be entitled to a five per cent interest in 2012111 Ontario Inc. as a result of the fulfillment of the 2002 agreement.  Any entitlement that it has today flows from a contract – the meaning and enforceability of which is in dispute – but any cause of action that the respondent may have in respect of the 2002 contract is statute barred.

[9]               To overcome this difficulty, the respondent seeks to use the device of a declaration to do an end run around the applicable limitation period.

[10]           Moreover, were the respondent to obtain the declaration, the circumstances are akin to those found by Madam Justice Harvison Young in para. 16 of Bailey v. Canada (Attorney General)2008 CanLII 53128 (ON SC).  It is readily apparent from the record that the declaration sought will be ineffective without further mandatory relief directed to the corporation or a shareholder to implement the shareholding interest if possible.  A determination that the respondent is entitled to a five per cent interest does not say from whom and by what means the shareholding interest is to be implemented.  Therefore, a declaration of entitlement alone is of no avail without further consequential relief which brings it outside s. 16 (1)(a) of the Limitations Act 2002.

Similarly, in Van Halteren v. De Boer Tool Inc., the Superior Court looked at the pith and substance of relief sought in regards of shares and determined that it was consequential:

[6]               Section 16.1 (1) of the Limitations Act, 2002 provides that there is no limitation period in respect of a proceeding for a declaration if no consequential relief is sought. The present claim, however, does not fall under that exception. The pith and substance of the claim is damages or a property interest in shares to compensate for $500,000 advanced to the defendant. No shares actually exist. It would be impossible for the court to make a declaration of rights with respect to shares that cannot be identified. The only meaningful remedy for the plaintiff would be in the nature of consequential relief. Accordingly the applicable prescription is the general limitation of two years after the cause of action is discovered or discoverable.

As an aside, the curious thing about s. 16(1)(a) is that it’s arguably unnecessary.  The Limitations Act applies to “claims” pursued in court proceedings, which are defined in s.1 as remedying loss resulting from wrongful conduct.  If a plaintiff doesn’t seek consequential relief, like damages, then the plaintiff isn’t pursuing a claim, and if there is no claim the Limitations Act doesn’t apply.