Ontario Court of Appeal

Ontario: the discovery of solicitor’s negligence claims

Lausen v. Silverman is a well-reasoned decision from the Court of Appeal considering the discovery of a solicitor’s negligence claim.

The plaintiff was injured in a car accident.  She consulted the defendant solicitor, who commenced an action on her behalf against the other driver for damages.  At mediation, the plaintiff followed her solicitor’s advice and settled the tort claim.

The plaintiff continued to suffer from her injuries and asked her solicitor to assist in obtaining statutory accident benefits.  The solicitor asked for a further monetary retainer and their relationship ended.  The plaintiff consulted another a lawyer, and he obtained an psychiatric opinion that the plaintiff’s injuries met the “catastrophic” threshold under the accident benefits regulation.

Almost six years after the settlement of her tort claim, the plaintiff commenced an action against her first solicitor for breach of contract, negligence, and breach of fiduciary duty for advising her to accept an improvidently low settlement of the tort claim.

The defendant solicitor moved for summary judgment on the basis that the claim was statute-barred.  The motion judge framed the issue as whether the plaintiff’s claim was discoverable within two years of issuing her statement of claim.  She found that the plaintiff ought to have had the necessary knowledge at the time of the settlement to bring her claim.

Justice Feldman granted the plaintiff’s appeal.  The motion judge erred in her interpretation and application of section 5(1) of the Limitations Act.  The plaintiff did not have knowledge that she had a claim against the defendant until she learned about it from her current counsel based on the medical opinion he obtained.  The opinion was the first indication that the plaintiff’s injuries warranted more compensation than she had received from the settlement.

Whatever facts the plaintiff knew at the time of the settlement, the defendant also knew them, and they did not cause the defendant to consider that the plaintiff might have had a claim against her.  If the defendant considered that she had settled the tort action improvidently, the Rules of Professional Conduct obliged her to advise the plaintiff of the potential error and to notify LawPro.  Advice from a lawyer of an error or omission will in the normal course cause the client to discover the resulting claim against the lawyer, but there was no such advice in this instance.

Meanwhile, it was the plaintiff’s uncontradicted evidence that although she felt that the settlement was unfair after concluding it, she did not know that it was improvident or that she had a claim against her former lawyer until so advised by her new lawyer based on the expert report.  Justice Feldman found that this evidence rebutted the section 5(2) presumption that the plaintiff discovered her claim on the date of the events giving rise to it.

Following the Court of Appeal decision in Ferrara v. Lorenzetti, Justice Feldman found that a reasonable a person with the abilities and in the circumstances of the plaintiff would not have realized that she had a claim against the defendants when no one, including the defendant, indicated to her that the settlement might have been improvident.

Ontario: The limitation of continuing oppression claims

In Maurice v. Alles, the Court of Appeal confirmed that a claimant must commence an oppression remedy claim within two years of the discovery of the claim.  Conduct that is in furtherance of, or based on, earlier oppressive conduct is new oppressive conduct that gives rise to a new cause of action, and therefore a new “claim” within the meaning of the Limitations Act, and is subject to its own limitation period.

These are the material paragraphs:

[52]      A party that engages in a series of oppressive acts can always make the argument that it is all part of the same corporate malfeasance and that the limitation period begins to run with the discovery of the first oppressive act. In analyzing that conduct, courts must have regard to the remedial nature of the oppression remedy and the fact that any threatened or actual conduct that is oppressive, or unfairly prejudicial to, or unfairly disregards the interests of any complainant can constitute a discrete claim of oppression. The oppression remedy section of the OBCA is drafted in the broadest possible terms to respond to the broadest range of corporate malfeasance.

[53]      Where the motion judge erred was in failing to carefully scrutinize the respondents’ conduct to determine whether there were any discrete acts of oppression within the two-year period prior to the commencement of the cross-application.

This is all very sensible.  Discrete causes of action give rise to discrete “claims” within the meaning of the Limitations Act, and accordingly are subject to discrete limitation periods.

The problem with this decision is that it rejects a comprehensive limitations analysis (eg, whether there is a new “claim” within the meaning of the Limitations Act) in favour of a cause of action analysis.  Justice Hourigan states, in paragraph 48, “As previously mentioned, limitation periods begin when the cause of action arises, not when it is remedied”.

This is plainly wrong.  Limitation periods commence on discovery of a claim, and discovery is completely unconnected to the accrual of a cause of action.  The words “cause of action” do not appear in the Limitations Act, and it often happens that the basic limitation period commences before the claimant’s cause of action accrues.  The basic limitation period commences presumptively on the date of the events giving rise to the claim.  A cause of action, at least in tort, requires actionable conduct and damage; whenever the actionable conduct (the events giving rise to the claim) and the resulting damage occur on different dates, the limitation period commences presumptively before the claimant’s cause of action accrues.

It’s troubling that this aspect of the limitations scheme is consistently misunderstood by the Courts.  The effect is to undermine the scheme’s conceptual integrity, and bad law.

The other interesting aspect of the decision is the following paragraph:

[46]      The appellant had an obligation to commence a claim based on the respondents’ failure to produce the information regarding the share transaction within two years of his discovery that they would not produce it to him.  It is not open to this court, as was suggested by the appellant, to look behind his non-action and excuse it based on the fact that this was a family business or that he had a reasonable expectation that the information would eventually be produced. Such an approach would effectively mark the return of the special circumstances doctrine, which has no application under the current limitations regime.

It seems to me that the fact that a dispute arises within the context of a family business or that the claimant has a reasonable expectation that certain information will be produced is relevant to a section 5(1)(a)(iv) analysis under the Limitations Act.  Consider Justice Juriansz’s description of the section 5(1)(a)(iv) requirement in Clarke v. Faust: “That provision requires, in my view, a person to have good reason to believe he or she has a legal claim for damages before knowing that commencing a proceeding would be an appropriate means to seek to remedy the injury, loss or damage.”  Surly there is a persuasive argument that it may take longer for a person to have a good reason to believe she has a legal claim against a family member than against someone else.

 

 

Ontario: the Court of Appeal on due diligence and discoverability

In Fennell v. Deol, the Court of Appeal clarified the role due diligence plays in the discovery analysis.  It’s a fact that informs the analysis, but not a separate and independent reason for dismissing a plaintiff’s claim as statute-barred.

Fennell was in a motor vehicle accident with the defendants.  He claimed against the defendant Shergill, and subsequently amended the statement of claim to add the defendant Deol.  Shergill served a statement of defence and crossclaim against Deol.  Deol moved for summary judgment to dismiss the claim on the basis of an expired limitation period.

Fennell argued that he discovered his claim when he received a medical report and learned that he met the Insurance Act threshold.  Justice Akhtar noted that Fennell’s discovery testimony indicated awareness of the seriousness of his injuries before receiving the report.  For Fennell to rely on discoverability to delay the commencement of the limitation period, Justice Akhtar held that he had to show due diligence in discovering his claim.  Fennell did not show sufficient due diligence, and had he acted diligently, he would have discovered his claim when he commenced his action against Shergill.  Justice Akhtar dismissed Fennell’s claim.

The Court of Appeal allowed Fennell’s appeal.  Justice Akhtar made a counting error (which is very easy for lawyers to do when it comes to limitations, and here I speak from ample experience).  If Fennell ought to have discovered his claim against Deol when he sued Shergill, the claim against Deol was in fact timely.

What makes Justice van Rensburg’s decision interesting is her discussion of Justice Akhtar’s error in focussing primarily on whether Fennell exercised due diligence, and in concluding that Fennel bore the onus to show due diligence to rebut the presumption that the limitation period ran from the date of the accident  (the statutory presumption in s. 5(2) of the Limitations Act).  To overcome the presumption, Fennell needed to prove only that he couldn’t reasonably have discovered that he met the statutory threshold on the date of the accident (s. 5(1)(b)), not that he exercised due diligence.

The fact that it wasn’t possible for Fennell to discover that he met the threshold on the date of the accident was enough to rebut the presumption.

Due diligence is the core of an analysis when determining whether to add a defendant to an action after the expiry of the presumptive limitation period (and then the threshold is low), but it is neither a standalone duty nor determinative of the section 5 discovery analysis:

[18]      While due diligence is a factor that informs the analysis of when a claim ought to have reasonably been discovered, lack of due diligence is not a separate and independent reason for dismissing a plaintiff’s claim as statute-barred.

[…]

[23]      Due diligence is not referred to in the Limitations Act, 2002. It is, however, a principle that underlies and informs limitation periods, through s. 5(1)(b). As Hourigan J.A. noted in Longo v. MacLaren Art Centre Inc., 2014 ONCA 526 (CanLII), 323 O.A.C. 246, at para. 42, a plaintiff is required to act with due diligence in determining if he has a claim, and a limitation period is not tolled while a plaintiff sits idle and takes no steps to investigate the matters referred to in s. 5(1)(a).

[24]      Due diligence is part of the evaluation of s. 5(1)(b). In deciding when a person in the plaintiff’s circumstances and with his abilities ought reasonably to have discovered the elements of the claim, it is relevant to consider what reasonable steps the plaintiff ought to have taken. Again, whether a party acts with due diligence is a relevant consideration, but it is not a separate basis for determining whether a limitation period has expired.

Ontario: don’t skip the argument

Hawthorne v. Markham Stouffville Hospital is a reminder from the Court of Appeal that a successful discovery argument requires both evidence and an explanation of the evidence’s connection to discovery of the claim.  It seems that filing documents and saying nothing about them won’t carry the day.

Hawthorne was a medical malpractice action.  The respondents moved to dismiss the appellant’s claim as barred by the expiry of the limitation period.  Their position was that the appellant ought to have discovered her claim when she obtained medical records from the respondent.

The motion judge granted summary judgment on the basis that the appellant did not rebut the Limitations Act‘s section 5(2) presumption that she discovered her claim on the date of the act or omission giving rise to it.  The appellant adduced no evidence relating to discoverability to rebut the statutory presumption.

On appeal, the appellant argued that the motion judge erred by failing to give effect to evidence that was available in the motion record, but not referred to in argument.

The Court of Appeal said no:

[8]         We do not give effect to this argument. The failure of the appellants to respond to the summary judgment motion with evidence to rebut the presumption in s. 5(2) of the Limitations Act, 2002 is fatal. Pleadings are not evidence. The appellants could not rest on the pleading of a timely discovery date in their third action, when confronted by a motion for summary dismissal based on the limitations argument.

[9]         The two receipts that were in the record (as part of the respondents’ materials), even if drawn to the attention of the motion judge, without any further evidence or explanation, could not have affected the result. Even if it might be reasonable to conclude that the appellants received medical records on the dates shown in the receipts for payment, this was not sufficient to overcome the statutory presumption. The receipts alone do not advance the appellants’ discoverability argument, in the absence of any explanation by Ms. Hawthorne linking what was in the records to the discovery of her claim.

Ontario: limitation periods and the continuous breach

When does the limitation period commence in the context of a continuing breach of contract?  Afresh each day a new cause of action accrues, so held the Court of Appeal in Pickering Square Inc. v. Trillium College Inc.

Trillium and Pickering were parties to a long-term lease of space in a shopping centre.  Trillium covenanted to operate its business continuously.  It didn’t.  Pickering claimed for damages arising from the covenant’s breach.

Trillium moved for summary judgment on the basis that Pickering’s claim was brought outside the limitation period.  Justice Mew held that Trillium’s breach of the covenant was of a continuing nature so that each day of the breach gave rise to a fresh cause of action.  This meant that only the portion of the breach which occurred more than two years before the commencement of the action was statute-barred.

Trillium appealed.  It argued that the breach of the covenant to operate its business continuously was complete on the first day it failed to resume occupation of the leased premises and operate its business, and that each subsequent day that it failed to operate its business was not a separate breach, but an instance of additional damages.  It submitted that a continuing breach requires a succession or repetition of separate acts, whereas its breach was a single act with continuing consequences.

The Court of Appeal rejected this argument.   Justice Huscroft found that Trillium’s argument that breach of its covenant to operate its business continuously established a complete cause of action the first day it failed to operate its business overlooked the consequence of its breach.

The breach entitled Pickering to cancel the lease or affirm it and require performance.  Pickering affirmed the lease, and so it remained in effect and Trillium was required to perform its obligations under it as they fell due.  Trillium could have resumed performance of its obligations at any time prior to the end of the term of the lease by carrying on its business in accordance with the covenant.  Had it done so, Pickering would have been required to accept Trillium’s performance and would have been unable to terminate the lease in the absence of a further serious breach or repudiation.  Trillium would have been liable for damages from the date of its breach until the date it resumed the performance of its obligations, but it would not have incurred liability beyond that date.

The proper approach to calculating the limitation period in the context of a continuing breach occurs on a “‘rolling’ basis”.  It commenced afresh each day a fresh cause of action accrued and ran two years from that date.

This isn’t a particularly revelatory decision from a limitations perspective.  The difficulties are in defining the breach, which is really a matter of contract.  If the breach is continuing, there are multiple causes of action, each attracting its own limitation period.  If anything, it’s misleading to describe the limitation period as rolling, because it’s the cause of action which rolls over each day, not the limitation period.

The more interesting aspect of the decision is how it highlights the tension between a “cause of action” and a “claim” in the Ontario limitations schem.  Justice Huscroft links the commencement of the limitation period to the accrual of a cause of action.  This is problematic, because the Limitations Act links the commencement of the limitation period to discovery of a “claim”.  The words “cause of action” do not appear once in the Act, and arguably, the Limitations Act rejects the concept of the cause of action entirely.

For example (one of several), under the common law, discovery is of a cause action and turns on knowledge of the material facts giving rise to it.  Under the Limitations Act, discovery is of “claims” and turns, in part, on whether a proceeding is an appropriate remedy, which is not an element of or a material fact giving rise to any cause of action.

Justice Huscroft’s statement in obiter about that when a cause of action is determinative of a limitation period is a perfect example:

[34]      But accrual of a cause of action is not determinative for limitation purposes in the context of a continuing breach of contract and an election by the innocent party to affirm the contract.

The accrual of a cause of action is not determinative of anything under the Limitations Act.  These are the questions that are determinative: whether a proceeding has been commenced in respect of a “claim”, on what day the act or omission giving rise to the claim occurred, and on what day the claimant first ought to have discovered her “claim”.

The conceptual difficulties arising from the Limitation Act’s rejection of the cause of action has become an interest of late.  Expect a terrifically illuminating paper in, oh, a year or so.

Ontario: Court of Appeal redefines the s. 5(1)(a)(iv) discovery criterion

In Clarke v. Faust, the Court of Appeal has held that the section 5(1)(a)(iv) discovery criterion requires the claimant to have “good reason to believe he or she has a legal claim for damages”.

Clarke is a solicitor’s negligence action.  The plaintiffs were injured in a motor vehicle accident.  They retained the defendant lawyer to represent them on their accident benefits and tort claim.  He issued a statement of claim on their behalf nine weeks after the second anniversary of the accident.

The plaintiffs then retained a new lawyer.  He told the plaintiffs that their claim was issued after the expiry of the presumptive limitation period, but this wasn’t necessarily fatal to their claim because of discoverability.

The new lawyer passed away and another lawyer took over.  This third lawyer also was also unconcerned by the potential limitations issue.  He took the position that until the plaintiffs obtained medical documentation they couldn’t know whether their injuries met the statutory threshold.  Defence counsel apparently agreed, and the defendants didn’t plead a limitations defence.

Subsequently, the defendants changed their mind and amended their defence to plead a missed limitation period.

The plaintiffs then sued their first lawyer for negligence.  He pleaded a limitations defence and moved for summary judgment.  He argued that the plaintiffs should be presumed to have known of their claim two years after the date of the motor vehicle accident, or in the alternative on the date when their second lawyer put him on notice of the limitations issue.   The plaintiffs argued that they suffered no damage until the defendants in the underlying action pleaded a limitations defence.

The motion judge accepted the defendant’s first argument in a muddled decision that Justice Juriansz criticised fairly, but harshly.  In fairness to the motion judge, all of the theories put forward by the parties were wrong.  I expect that she didn’t have much to work with.

Justice Juriansz found that the case turned on the application of section 5(1)(a)(iv) (“that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”.  When the defendants in the underlying action delivered their defence, the plaintiffs knew that three lawyers were of the opinion that discoverability applied to their claim and that the defendants had not pleaded a missed limitation period.  Only when the defendants in the underlying action pleaded a missed limitation period did the defendants have any reason to know that commencing a legal proceeding was appropriate.  The claim was accordingly timely.

Here’s what makes this decision noteworthy:

  1. The court defines the knowledge required by section 5(1)(a)(iv): “That provision requires, in my view, a person to have good reason to believe he or she has a legal claim for damages before knowing that commencing a proceeding would be an appropriate means to seek to remedy the injury, loss or damage.”   Justice Juriansz doesn’t cite any authority for this conclusion, and on first consideration it’s seems a significant departure from the Court’s previous statement in Markel that this criterion requires only knowledge that a proceeding is “legally appropriate”.  There’s a material difference between knowing that a claim is legally appropriate and having good reason to believe there is a legal claim.  How does the need for the claimant to believe she has a legal claim sit with the long-settled principle that a claimant’s failure to appreciate the legal significance of a fact will not postpone the commencement of the limitation period (see for example Holley v. The Northern Trust Company, Canada or more recently Gatti v. Avramidis at para. 123)? It will be interesting to see how courts apply this new definition.
  2. The court didn’t compromise its section 5(1)(a) analysis by applying common law discovery jurisprudence (see for example the decision in Lawless). This is rare.
  3. The court acknowledged that the plaintiffs’ action may have been premature because there can be no limitations issue until there is a “claim” as defined by the Limitations Act, and a “claim” requires damage, which almost certainly cannot arise merely be virtue of pleading. Justice Juriansz suggests, correctly I think, that discovery of the claim against the defendant lawyer may not occur until there is a judgment in the underlying action (e.g., dismissing the action on the basis of a limitations defence and causing the plaintiffs damage).The plaintiffs did plead that they suffered damage when the defendants first asserted the limitations defence in the underlying action on the theory that it changed their bargaining position.  Justice Juriansz acknowledged the doubtfulness of this position.  If the lawyer didn’t miss the limitation period in the underlying action, he would not be liable for any damages, and whether he missed the limitation period is unknown until a court determines the issue.

 

Ontario: Under s. 138 of the OSA, each misrepresentation is a separate claim

There is a statutory cause of action in the Securities Act for misrepresentation in secondary market disclosure documents, which is subject to a three year limitation period:

[2]         Under s. 138.3(1) of Part XXIII.1, a person or company who acquires or disposes of an issuer’s security between a document’s release and public correction of a misrepresentation in the document has a right of action for damages, without regard to whether the person or company relied on the misrepresentation. However, in order to limit meritless litigation or “strike suits”[1], s. 138.8(1) of the OSA requires leave of the court to commence an action under s. 138.3. Section 138.14(1) also imposes a three-year limitation period for the commencement of the action, measured from the date the document containing the misrepresentation was first released.

In Drywall Acoustic Lathing and Insulation, Local 675 v. SNC-Lavalin Group, (quoted above),  the appellants argued that because they commenced their action and pleaded misrepresentations in the impugned documents within the limitation period, any related misrepresentation claim arising out of the same documents was not statute-barred.  In other words, “if a plaintiff commences an action asserting misrepresentation in a disclosure document within the limitation period, the plaintiff can, at any time thereafter, assert any related misrepresentation claims arising out of the same documents” (para. 73).

Note so, held the Court of Appeal:

[74]      The appellants were granted leave to commence a particular action, namely one asserting that representations in the impugned documents were false because of evidence that amounts had been paid to agents and that SNC was engaged in criminal activity with respect to the Padma Bridge Project in Bangladesh. As I concluded above, the appellants did not obtain leave to pursue claims founded on other misrepresentations, and therefore those other claims are not part of the action. As the impugned documents are now more than three years old, those claims are statute-barred.

[75]      If leave is required to advance further misrepresentation claims arising out of previously impugned documents, then those further misrepresentation claims are a different “action”, and are subject to the limitation period in s. 138.14(1).

Ontario: Laches can’t trump the Limitations Act

In Intact Insurance Company v. Lombard General Insurance, the Court of Appeal held that laches can’t defeat an otherwise timely claim.

The court reviewed the legislative history of the Limitations Act and concluded that the removal of the laches-saving provision was intentional, and the absence of this provision overrules any suggestion that laches might bar the commencement of a proceeding to pursue an unexpired legal claim.  The court’s review of the legislative history is the most thorough since its decision in York Condominium Corporation No. 382 v. Jay-M Holdings Limited, and will be helpful whenever a consideration of the act’s legislative history is appropriate.

The comprehensiveness of the limitations scheme also informed the court’s decision:

[54]      As I note above, the old Limitations Act applied only to a closed list of enumerated causes of action and not to civil actions in general. Equitable causes of action, with few exceptions, were outside of its scope. The Limitations Act, 2002 “represents a revised, comprehensive approach to the limitation of actions”: Joseph v. Paramount Canada’s Wonderland, 2008 ONCA 469 (CanLII), 90 O.R. (3d) 401, at para. 8. In Joseph, this court concluded that the common law doctrine of special circumstances had no application under the new, comprehensive Limitations Act, 2002. That doctrine had allowed a court to add or substitute a party or to add a cause of action after the expiry of a limitation period where special circumstances existed, unless the change would cause prejudice that could not be compensated for with either costs or an adjournment. Permitting a defendant to invoke the equitable doctrine of laches because a legal claim has an “equitable flavour” would be inconsistent with the comprehensive approach to the limitation of actions represented by the Limitations Act, 2002.

[55]      Permitting a defendant to rely on the defence of laches where the claim is a legal claim and subject to and within the basic limitation period prescribed under the Limitations Act, 2002 would also be counter to the purpose of that Act of promoting certainty and clarity in the law of limitation periods: msi Spergel Inc. v. I.F. Propco Holdings (Ontario) 36 Ltd., 2013 ONCA 550, 117 O.R. (3d) 81, at para. 61.

The court was explicit in limiting the scope of its decision:

[57]      I wish to make clear that this decision does not address the availability of equitable defences (such as waiver, estoppel and acquiescence) to the extent not founded solely on a plaintiff’s delay in initiating its claim. Nor do I suggest that delay in seeking equitable relief such as an injunction could not be a relevant factor in deciding whether such equitable relief should be granted. This decision considers whether a defendant seeking legal relief within the basic limitation period prescribed under the Limitations Act, 2002 can rely on the delay-based defence of laches.

This isn’t an especially surprising decision given the trend toward emphasising the comprehensive nature of the limitations regime.  The alternative would have been a reversion to a classification of actions approach to limitation periods, where ascertaining the applicable limitation period would require first classifying the claim as equitable or legal, and then determining whether the limitation period in equity is shorter than in law.

I also note the decision’s helpful summary of laches jurisprudence at paragraphs eight through twelve.

Ontario: Discovery doesn’t require knowledge of liability

It’s a settled principle of discoverability that knowledge of liability isn’t necessary to commence the limitation period.  We now have a succinct statement of this principle from the Court of Appeal in Lochner v. Toronto:

[7]         The fact that Mr. Lochner does not know whether the defendants are culpable or liable for the disclosure does not prevent the limitation period from running. Knowledge of liability on the part of the injured person is not part of discoverability for the purposes of the running of the limitation period.  It is the lawsuit itself which is the process by which liability for an act is determined.