Ontario Act s. 5

Ontario: some pedantry in response to the Court of Appeal decision in Rumsam

The Court of Appeal’s decision in Rumsam v. Pakes overturned the motion judge’s order granting the plaintiff leave to add a doctor as a defendant to the proceeding.  The doctor had opposed the motion on the basis of an expired limitation period.  The motion judge found the proceeding timely.

The Court’s conclusion seems right to me, but it contains some statements of law that are problematic and require comment.

First, there is this description of s. 5(1)(b):

[30]      As of August 29, 2013, Ms. Rumsam was obliged to exercise reasonable diligence to secure the name of the second doctor to satisfy the requirement in s. 5(b) [sic] of the Limitations Act that a “cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered, or ought to have been discovered, by the plaintiff by the exercise of reasonable diligence” (emphasis added): Lawless, at para. 22.

This is not an accurate description of s. 5(1)(b).  That section provides that discovery occurs “the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a)”.

What paragraph 30 describes is common law discovery.  Discovery as codified in s. 5(1)(b) differs from common law discovery in two material ways.  First, the knowledge required by s. 5(1)(b) isn’t the material facts of a cause of action, but the four discovery matters in s. 5(1)(a); while these may accord generally with some causes of action, they don’t accord with many others (like breach of contract, which doesn’t have “injury, loss or damage” as a material fact.  Second, the knowledge is modified-objective, not purely objective; it’s the knowledge of a reasonable person with the abilities and in the circumstances of the plaintiff.

It’s unfortunate that the Court of Appeal continues to treat common law discovery as the same as statutory discovery.  Relatively recent Court of Appeal jurisprudence distinguishing the “claim” form the “cause of action” has been promising (see Apotex and Gillham Bay), but apparently without the impact one might have hoped for.

Then there is this summary of conclusions:

[33] In conclusion:

1. A claim must be brought within two years of a claim being “discovered”.

2. A claim is discovered when the claimant first knew the injury occurred, that it was caused by an act or omission, that the act or omission was caused by the person against whom the claim is made, and that there was loss.

3. The injury was sustained on July 11, 2007, so normally the limitation period would have expired on July 11, 2009.

4. Given that Ms. Rumsam did not turn 18 until June 4, 2010, the presumptive limitation period did not begin to run until that date.

5. The limitation period would have expired on June 4, 2012, but for the discoverability principle.

6. By August 29, 2013 at the latest, Ms. Rumsam knew all of the material facts except the name of the “second clinic physician” in question.

7. By August 29, 2013 at the latest, she was required to exercise reasonable diligence to get the name within the two-year period as she knew she likely had a claim against this person for her injuries, and August 29, 2013 was “the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to” as set out in s. 5(1)(b) of the Limitations Act.

8. The onus to prove reasonable diligence is on Ms. Rumsam.

9. She failed to exercise reasonable diligence as no steps were taken for at least a year.

10. As such, as the court held in Safai, there is no basis to extend the limitation period for more than two years as, from August 29, 2013, Ms. Rumsam knew of the likely claims and was in a position to ascertain the name by reasonable diligence.

Let’s go through the issues.

  1. A claim must be brought before the expiry of the limitation period, not within two years of discovery. Discovery causes the limitation period to commence, but it’s not determinative of its expiry.  There are multiple circumstances in which the limitation period will stop running—for a example a tolling agreement—so that it will expire more than two years from its commencement.
  2. Discovery does not require knowledge that an injury has occurred and that there was a loss, because for limitations purposes in injury and loss are effectively the same thing. There Limitations Act always refers to “injury, loss or damage”; “injury” never has a separate function from “loss” (which prompts the question why the act uses this language–I suspect it was intended by the drafters to signal that the act applies to all causes of action regardless of whether they require damage to be actionable).  In any event, all that discovery requires with respect to damage is knowledge that “injury, loss or damage” has occurred, so knowledge of injury or loss alone will suffice.
  3. There is no presumptive limitation period. There is basic limitation period in s. 4 that commences presumptively on the date of the act or omission that gives rise to the claim pursuant to s. 5(2). This is because of the “discoverability principle”, not despite it.  Section 5(2) creates a presumption that discovery occurs on the date of the act or omission, which the plaintiff can rebut.  The s. 5 discovery provisions always determine the commencement of the basic limitation period.

 

Ontario: the Court of Appeal leaves determining who discovers a corporation’s claim to another day

In Service Mold + Aerospace Inc. v. Khalaf, the Court of Appeal confronted the question of whose knowledge informs the s. 5 analysis when the plaintiff is a corporation, but without answering it.  This was the second time in 2019 that a court acknowledged that this remains unresolved without resolving it.

[28]      In appealing this finding, the appellant bank focused primarily on its claim that the motion judge erred in principle by using Mr. Schuurman’s abilities and circumstances, instead of those of the corporations. It argues that since the claim belongs to the corporate plaintiffs, the s. 5(1)(b) test should have focused on their abilities and circumstances, not Mr. Schuurman’s.

 [29]      I need not resolve this issue because […].
 The Court also overturned the motion judge’s s. 5 analysis on the basis that it ignored the objective component of the modified-objective test.  It’s a very good critique, and provides a helpful list of the considerations that might inform the test’s application:

[29]      […] in my view, the motion judge clearly erred in applying the modified objective test by conducting a purely subjective inquiry. Rather than imbuing the hypothetical reasonable person with the abilities and circumstances of Mr. Schuurman, she imparted on that person the attitudes and practices of Mr. Schuurman, thereby defeating the objective reasonableness inquiry.

 [30]      She said:
 The reasonable person standard is to be applied taking into account the “abilities” and the “circumstances of the person with the claim”. It seems to me that when the “reasonable person” standard in the context of s. 5(1)(b) is applied in this case, the circumstances of Mr. Schuurman include the organization of his business at the time of the fraud. The organization of the business, and particularly the bookkeeping part of that business, lacked a segregation of duties. Without a segregation of duties as described by Ms. Grogan, the plaintiffs were vulnerable to bookkeeper fraud. To put the analysis another way, the “abilities and circumstances’” of Mr. Schuurman included his overly trusting, perhaps gullible nature and his resultant vulnerability.

[31]      First, an issue in the case was whether the respondent corporations failed to know what they ought to have known, because the bookkeeping part of their business was not monitored as it reasonably should have been. The motion judge begged that question by assuming that a reasonable person would have the same bookkeeping practices as the respondent corporations had. Simply put, in identifying the “circumstances of the person” that the reasonable person will share with the plaintiff, it is an error in principle to infer that the reasonable person would conduct itself in the same way that the plaintiff did. To do so is to eviscerate the objective component of the test. That is what the motion judge did here.

 [32]      Second, s. 5(1)(b) is about knowing what one ought to know. In context, the reasonable person component of s. 5(1)(b) serves to ensure that the plaintiff acted with reasonable levels of prudence and attention in attending to the risk of injury, loss or damage. Because the objective component of the test is modified, the degree of prudence and attention that can reasonably be expected will vary among persons with claims, according to their abilities and circumstances – things such as level of intelligence, education, experience, resources, health, power imbalances, dependence, and situational pressures or distractions that might bear on the ability to appreciate what is happening. It is imperative to remember, however, notwithstanding that the term “abilities” may be wide when viewed in isolation, s. 5(1)(b) requires that once material characteristics are attributed to the reasonable person, that hypothetical person will remain reasonable. If the hypothetical person is imbued with unreasonable imprudence or inattention the objective component of the test is defeated, and only one result can obtain.

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: A defendant’s expertise can impact on discovery even when the defendant isn’t a professional

 

The Court of Appeal’s decision in Presley v. Van Dusen is a reminder that a s. 5 analysis requires making findings with respect to each s. 5(1) discovery matter, and reliance on a defendant’s expertise may delay the appropriateness of a proceeding even when the defendant is not a professional.

This was an appeal from an appeal from a Small Claims Court trial decision.  The trial judge found that he could determine the commencement of the limitation period without considering s. 5(1)(a)(iv):

[9]         The trial judge did not consider the s. 5(1)(a)(iv) criterion as to when the appellants did know or should have known that a proceeding would be an appropriate means to remedy their claim. He gave the following reason for not considering s. 5(1)(a)(iv): “It is not necessary for me to make any determination under that subsection and I do not do so as I only have to find the earliest date and I have no difficulty, as I have said, in finding that that date was the spring of 2013.”

This is plainly an error of law; you can’t determine discovery without considering all four discovery matters.

The Divisional Court nevertheless upheld the trial judge’s decision.  Having determined when a reasonable person ought to have known of the discovery matters pursuant to s. 5(1)(b), it found that there was no requirement for the trial judge to make an explicit finding as to when the plaintiff ought to have known the matter in s. 5(1)(a)(iv).

The Court of Appeal overturned the Divisional Court’s order.  It was an error for the trial judge not to consider s. 5(1)(a)(iv).  The law required the trial judge to consider all four discovery matters:

[14]      The analysis of both the trial judge and the Divisional Court judge of ss. 5(1)(a)(iv), 5(1)(b) and s. 5(2) of the Limitations Act is flawed. The trial judge explicitly stated that he was not considering s. 5(1)(a)(iv). A determination under s. 5(1)(b) as to the date a reasonable person would have discovered the claim requires consideration of all four “matters referred to in clause (a)”. Similarly, the finding that there was insufficient evidence to rebut the presumption under s. 5(2) that the plaintiff knew all the matters referred to in s. 5(1)(a) cannot stand as there was no consideration of s. 5(1)(a)(iv).

[15]      This court has repeatedly held that consideration of when a proceeding was an appropriate means to remedy a claim is an essential element in the discoverability analysis and that failure to consider s. 5(1)(a)(iv) is an error of law: Gillham v. Lake of Bays (Township), 2018 ONCA 667 (CanLII), 425 D.L.R. (4th) 178, at paras. 33-34; Kudwah v. Centennial Apartments, 2012 ONCA 777(CanLII), at paras. 1-2; Har Jo Management Services Canada Ltd. v. York (Regional Municipality), 2018 ONCA 469 (CanLII), 91 R.P.R. (5th) 1, at paras. 21 and 35.

It’s common for the court to making a determination under s. 5(1)(b) without making explicit findings as to the plaintiff’s knowledge of the discovery matters (though I think everyone benefits from explicit findings).  What makes this case unusual, and something of an outlier, is that the trial judge made this s. 5(1)(b) determination while finding that it was unnecessary to consider one of the discovery matters.  That’s the kind of error that seems especially prevalent in the Small Claims Court.

The Court of Appeal undertook its own s. 5(1)(a)(iv) analysis, which is noteworthy for emphasising that the superior knowledge and expertise that might engage s. 5(1)(a)(iv) is not restricted to strictly professional relationships.  Accordingly, the plaintiffs could reasonably rely on the expertise of a person licensed to install septic systems:

[21]      These principles are applicable to the facts of this case. Van Dusen is licenced to install septic systems. The appellants contracted with him because of his special training and expertise. While the respondents argue he may not qualify as “an expert professional”, there can be no question he did have expertise upon which the appellants reasonably relied.

[22]      Moreover, reliance on superior knowledge and expertise sufficient to delay commencing proceedings is not restricted to strictly professional relationships: Presidential, at para. 26. I acknowledge that the previous cases where this court has made a finding that it was reasonable for the plaintiff to rely on the defendant’s superior knowledge and expertise have concerned defendants belonging to traditional expert professions. For instance, Brown v. Baum, 2016 ONCA 325 (CanLII), 397 D.L.R. (4th) 161, involved a physician, Chelli-Greco v. Rizk, 2016 ONCA 489 (CanLII), involved a dentist, and Presidential MSH involved an accountant. However, recent Superior Court decisions have applied the superior knowledge and expertise prong of Presidential MSH to persons who are members of non-traditional professions or who are not professionals at all. For instance, in YESCO Franchising LLC v. 2261116 Ontario Inc., 2017 ONSC 4273 (CanLII), the court found that s. 5(1)(a)(iv) applied in a franchisor-franchisee relationship where the franchisees relied on the franchisor’s superior knowledge and expertise, even though the franchisor was not a member of an expert profession. Similarly, in Barrs v. Trapeze Capital Corp., 2017 ONSC 5466 (CanLII), aff’d 2019 ONSC 67 (Div. Ct.) (CanLII), the Superior Court and the Divisional Court found that s. 5(1)(a)(iv) applied to investors who relied on the superior knowledge and expertise of their investment portfolio managers.

 

Ontario: the codification of the discovery rule is not semantics (blog pedantry)

The decision in Loy-English v. Fournier requires some gentle criticism for its description of the limitations scheme:

[40]           Before turning to the evidence, I will just mention that counsel for the intervenor provided me with a useful review and critique of much recent jurisprudence. I have not found it necessary to address the argument that there is a difference between the time when a cause of action accrues at common law and the day when a claim is discovered under the Act.  I need not seek to resolve what counsel identifies as inconsistency in the jurisprudence and failure of courts to recognize the extent to which the Act has changed the common law.

[41]           I will just observe that in the seminal decision of Peixiero v. Haberman, the Supreme Court of Canada endorsing the principle of discoverability in connection with Ontario’s motor vehicle regime uses language suggesting a cause of action under Ontario law only “accrues” when it is possible to determine that the injuries exceed the threshold.[18]  In Lawless v. Anderson our Court of Appeal declared that “the principle of discoverability provides that a cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered, or ought to have been discovered, by the plaintiff by the exercise of reasonable diligence.” The court went on to define “cause of action” as “the fact or facts which give a person a right to judicial redress or relief against another.”[19]  Arguably, the effect of the Act is to identify discoverability as a constituent component of a cause of action in Ontario but this is largely a question of semantics.

[42]           The important point is the rationale underlying the discoverability principle. A limitation statute should not be construed to run before the plaintiff could reasonably know that she had a viable cause of action.  It is this rationale that is codified in s. 5 of the Act.  Whether the cause of action can be said to have arisen at an earlier date, knowledge that there is a cause of action and a legal proceeding is an appropriate avenue for relief is a component of discoverability.  All four statutory components are necessary to trigger the running of the limitation period.

  1. It’s not arguable that the Limitations Act makes discoverability a constituent element of a cause of action, nor is the argument one of semantics.  At common law, the discoverability rule relates to the accrual of a cause of action, not the elements of a cause of action.  The rule provides that a cause of action accrues when the plaintiff discovers its material elements.  Section 5 of Limitations Act contains a codified discoverability rule that applies to “claims”, a defined term, not causes of action.  It also doesn’t make discoverability an element of a cause of action or “claim”, but determinative of when discovery occurs.  This isn’t at all an issue of semantics.  “Claims” and causes of action are not interchangeable, a point made recently by the Court of Appeal.
  2. It is not so that the Limitations Act prevents time from running before a plaintiff can reasonably know that she has a viable cause of action.  Knowledge of the elements of a cause of action will not result in discovery of a “claim” under the Limitations Act.  This is because the s. 5(1)(a)(iv) discovery matter—the appropriateness of a proceeding as a remedy—is not an element of any cause of action, and also because discovery requires knowledge of damage, and damage is not an element of any cause of action based on conduct that is actionable per se (like breach of contract).

Ontario: another good “abilities and circumstances” analysis

 

The decision in Service Mold + Aerospace Inc. v. Khalaf is another good example of the court’s assessment of a plaintiff’s abilities and circumstances for a limitations analysis.  The fact that the plaintiff had no background or education in bookkeeping, accounting, or finances informed the court’s analysis of when the plaintiff could reasonably discover a fraud committed by his bookkeeper.

It’s also a noteworthy decision for the dubious (and unsuccessful) position taken by the defendant:

[21]           TD Bank acknowledges that the plaintiffs did not actually discover the fraud until early 2015 and relies on s. 5(1)(b).  The position of TD Bank is as follows:

1.         The plaintiffs ought to have discovered the claim at least by 2009 or 2010.  TD Bank takes the position that bookkeeper fraud is a well-known risk and a prudent businessman would have measures in place to control it.  Mr. Schuurman, in effect, turned a blind eye to the risk. TD Bank therefore invites me to dismiss the action.

To discover a claim, the plaintiff must know that the defendant has caused or contributed to his loss (and there is no “claim” as defined by the Limitations Act until loss occurs).  Whether the plaintiff was blind or not to a risk that ultimately resulted in his loss, until the loss occurred, the claim was not discoverable.  This position might support a contributory negligence argument, but it’s immaterial to a limitations defence.

Ontario: a good “abilities and circumstances” s. 5(1)(b) analysis

Lewis v. Plaskos is noteworthy for its findings regarding the plaintiff’s abilities and circumstances for the purposes of a discovery analysis.  The court doesn’t often make these findings explicitly (though it should).

The court found that plaintiff had the abilities of her experienced medical malpractice lawyer, and a reasonable experienced medical malpractice would be alert to the possibility that physician’s notes are incomplete.  It was accordingly unreasonable for the plaintiff, through her lawyer, not to consider the possibility and make the accordant inquiries:

[49]           The focus of the dispute is on sub-section 5(1)(b), Limitations Act, 2002.  In particular, the issue is whether the analysis of hospital records by Ms. McCartney has met the test of being objectively reasonable.

[50]           After the firm was retained by the plaintiffs, Ms. McCartney was assigned the task of reviewing the hospital records.  In that process, she was looking to see what was or was not done and why.  Ms. Cartney was considering who was responsible.  She knew this was a case of potential delayed diagnosis.  Those responsible were to be named as defendants in the statement of claim.

[51]           There are three preliminary matters that are of concern, namely delay, the state of the hospital records and the lack of notes by Ms. McCartney.

[52]           The hospital records were received by Ms. McCartney on or about October 14, 2011.  Thirteen months later, in November 2012, the review of those records commenced.  While Ms. McCartney was on a working maternity leave during part of that period of time, presumably meaning part-time attendance at the office and with responsibility for other files as well, the review process should have commenced much earlier.  Mr. Michael also had carriage of the file.  Other junior lawyers in the firm could have been asked to assist.

[53]           There is always a danger in waiting until the presumptive limitation period is about to expire.  The process can become rushed.  Due diligence was not met.

[54]           It is now known that Dr. Cameron failed to fully record her involvement with Ms. Lewis, particularly her consultation with Dr. Plaskos.

[55]           Litigation lawyers, particularly those involved in personal injury and medical malpractice cases, routinely review physician’s notes and hospital records.  These lawyers are aware of the dangers in conducting such review regarding illegible handwriting, abbreviated terms and incomplete recording.  The failure of physicians to fully record matters pertaining to a patient is often a topic in the litigation process, including at trial.  In the absence of records, physicians often have difficulty recalling specific events and discussions.

[56]           In my view, Ms. McCartney and Mr. Michael, both experienced medical malpractice lawyers, would have, or should have, been alert to the possibility the physician’s notes were incomplete.

[57]           The only contemporaneous note made by Ms. McCartney during her review and analysis of the hospital records was the summary previously mentioned.  The summary is incomplete, making no mention of her conclusions as now presented on this motion and lacking detail as to the analytical process undertaken.  Hence, on cross-examination, Ms. McCartney was unable to recall her state of mind when reviewing the records and the details of her thought process.  Like physicians, lawyers need to record all details of their involvement for future use.

[58]           The first step in the review process is to determine what was recorded.  When part of the record contains handwritten notes, the lawyer looks to see if such are legible.  There was a legitimate concern with Dr. Cameron’s handwriting and use of abbreviated terms.  Ms. McCartney and Mr. Michael, for example, looked at a key word and correctly concluded it to be “refused”.  “Radiol” was considered to be radiologist or radiology department.  When there is any concern as to what was written, it requires inquiry of the record keeper.

[59]           There are two conclusions Ms. McCartney made that are of critical importance.  First, she considered the phrase “will discuss with radiologist or radiology department re:  imaging” as connected to the preceding note “will check post void residual”.  Second, Ms. McCartney determined “MRI refused as normal rectal tone and no bilateral leg weakness” as Dr. Cameron declining to order an MRI.  Such are possible interpretations or conclusions but there are others that, in my view, are far more reasonable.

[60]           Just as physicians arrive at a “differential diagnosis” following examination of a patient, so too must a lawyer consider all reasonable options in their analysis of a case.

[61]           Connecting “will discuss with radiologist or radiology department re:  imaging” to “post void residual” is too restrictive.  The more reasonable interpretation is that Dr. Cameron was going to seek assistance in determining what further imaging tests were required.  At this point, Dr. Cameron was aware the lumbar x-ray, as interpreted by Dr. Plaskos, was inconclusive having regard to the nature of Ms. Lewis’ complaints.

[62]           Dr. Cameron’s note is all recorded under the time of 18:00 hours.  Ms. McCartney incorrectly assumed this represented one event.  But there are gaps in the recording and, having regards to the words used, it is more likely the record should have been seen as several separate recordings.

[63]           In this regard, the words “MRI refused” invites the question “by whom”.  Ms. McCartney’s conclusion that Dr. Cameron refused her own request is not reasonable.  It is contrary to normal use of English language and, as it follows the note “will discuss with radiologist …” with a gap in between, leads to the inference someone else is involved.  At a minimum, there are a number of possible interpretations and each must be pursued.  Indeed, Ms. McCartney acknowledged in cross-examination that one possible interpretation was that the MRI had been refused by someone else, but such a possibility did not occur to her at the time of her review.  It should have.

[64]           The failure to order an MRI in a timely fashion is central to the plaintiffs’ case.  Ms. McCartney knew that Dr. Plaskos was involved in interpreting an x-ray of Ms. Lewis on January 2, 2011, as had been requested by Dr. Reesor.  Ms. McCartney also knew that emergency department physicians will sometimes consult a radiologist as to what imaging to order or for an urgent MRI.  These factors, and others previously addressed, meant Ms. McCartney had to consider all reasonable scenarios.  Instead, she arrived at a conclusion without examining reasonable alternatives.  Her analysis, in result, was incomplete.

[65]           I conclude the analysis of hospital records by Ms. McCartney was not objectively reasonable, particularly having regard to her abilities and experience as a medical malpractice lawyer.

[66]           The cause of action occurred on January 2, 2011.  The limitation issue is with discoverability and so the presumptive limitation date of January 2, 2013 does not apply.

[67]           The statement of claim was issued on October 7, 2014.  Was it discoverable prior to October 7, 2012?  I conclude it was.  The medical records were received in October 2011.  A diligent review would have led to further inquiry.  The potential claim against Dr. Plaskos, in my view, was discoverable by December 31, 2011 and certainly long before October 7, 2012.

[68]           In result, I conclude the limitation period had expired prior to the statement of claim being issued.  The claim against Dr. Plaskos is statute-barred by operation of Section 5, Limitations Act, 2002.  The claim against him must be dismissed.  I so order.

 

Ontario: Court of Appeal emphasises that discovery is contextual

The Court of Appeal’s decision in Fehr v. Sun Life Assurance Company of Canada is noteworthy for it its emphasis on the contextual nature of the discovery analysis:

[173]   However, when it came to assessing the limitation period defences applicable to the individual plaintiffs, the motions judge did not engage in a detailed examination of these idiosyncrasies. In particular, he did not consider the impact of each plaintiff’s circumstances and experiences on the critical issue of when each plaintiff discovered his or her claim or knew or ought to have known of the requisite facts grounding their claim. He failed to engage in an individualized and contextual analysis, and, instead, applied a broad presumption as to when they ought to have known of certain alleged misrepresentations.

[174]   An individualized and contextual analysis was necessary in this case for the very reason that misrepresentation claims are not generally amenable to class actions: people receive, process, and act upon written and verbal statements in different ways. Their behaviour varies depending upon a variety of factors, including their own particular circumstances, what specific representations and information they received and from whom, how they understood or processed those representations and information, the extent to which they relied upon them, and their own wishes and intentions.

[175]   An individualized and contextual analysis was particularly important in this case because, among other things: (a) there is a relationship of vulnerability between insurer and insured; (b) many of the plaintiffs are unsophisticated with respect to the insurance industry; (c) the insurance policies are complicated and not easily understood; (d) misrepresentations were made to some consumers and not others; (e) some or all of these misrepresentations were made by individuals on whom the plaintiffs might reasonably rely; (f) there is no evidence that the insurer expressly corrected the misrepresentations; and (g) the insurer may have reinforced or made further misrepresentations, to some or all of the plaintiffs, during the life of the policies.

Ontario: Court of Appeal changes (maybe?) the limitation of claims arising from coverage denials

The Court of Appeal in its decision Nasr Hospitality Services Inc. v. Intact Insurance has held that, at least in the circumstances of the case, the limitation period for a coverage action commences presumptively on the date the insured gives notice of its loss to the insurer.  This is a significant departure from the bar’s understanding, and seemingly at odds with the Court’s decision in Kassburg, and problematic enough that Justice Feldman dissented.  Both the issues and the implications of the decision are significant, so I summarise the facts in some detail.

The plaintiff purchased a commercial insurance policy from Intact. On January 31, 2013, a flood occurred on the plaintiff’s premises.  The Plaintiff notified its broker of its loss, and the broker notified Intact.

On February 13, 2014, Intact confirmed coverage, subject to policy terms and conditions, for the business interruption the plaintiff suffered, and issued a cheque to cover the losses.  Intact issued another cheque in May 2013.

The plaintiff disputed Intact’s valuation of the claim.  On May 13, 2014,  Intact wrote to advise that it would not accept the plaintiff’s valuation.  Subsequently, the plaintiff submitted a proof of loss.  On June 25, 2013, Intact rejected the proof of loss as incomplete, and advised that it was not rejecting or denying the plaintiff’s claim.

The plaintiff filed a further proof of loss on June 26, 2013.  On July 22, 2013, Intact rejected the proof of loss and advised the plaintiff that it would deny any further coverage under the policy.  Curiously, the decision suggests that Intact nevertheless provided the plaintiff with a blank proof of loss form and advised that it had two years from the date of loss to finalise its claim.

It appears from the decision that the plaintiff filed a third proof of loss on July 31, 2013, and that on August 15, 2013, Intact returned rejected that proof of loss.

The plaintiff issued its Statement of Claim on April 22, 2015 seeking damages arising from the coverage denial.  Intact moved for summary judgment on the basis of an expired limitation period.  Intact lost the motion, and appealed.

The parties agreed that the plaintiff’s cause of action arose on February 1, 2013 and the Court of Appeal accepted this agreement as “an admission of fact that February 1, 2013 was the day on which [the plaintiff] first knew the matter in ss. 5(1)(a)(i)-(iii)” of the Limitations Act.  The court found this position was consistent with its decisions in Markel and Schmitz.  Once the insured requests indemnification, the insurer is under a legal obligation to satisfy it.

The court rejected the plaintiff’s s. 5(1)(a)(iv) appropriateness argument.  Though the jurisprudence recognizes that some conduct by an insurer after receiving notification of a claim under a policy can impact on the discovery of a claim, but to apply to in this instance would result in a form of promissory-estoppel, and the plaintiff had conceded that a promissory estoppel was unavailable:

[59]      Nasr has not pointed to any cases involving ordinary claims for indemnification under a commercial policy of insurance that have treated the appropriate means element in s. 5(1)(a)(iv) as some form of watered-down promissory estoppel. To treat s. 5(1)(a)(iv) in that manner for ordinary commercial insurance indemnification claims – as the motion judge effectively did – would risk ignoring the caution voiced by Sharpe J.A. in Markel Insurance, at para. 34 – and echoed by Laskin J.A. in 407 ETR, at para. 47 – that:

To give “appropriate” an evaluative gloss, allowing a party to delay the commencement of proceedings for some tactical or other reason beyond two years from the date the claim is fully ripened and requiring the court to assess to tone and tenor of communications in search of a clear denial would, in my opinion, inject an unacceptable element of uncertainty into the law of limitation of actions. [Emphasis added.]

[60]      The motion judge did not find that Intact had promised, expressly or impliedly, not to rely on the limitation period. Accordingly, it was not open to the motion judge to recast, for purposes of the appropriate means analysis, the conduct by Intact that Nasr conceded could not support a finding of promissory estoppel that the insurer would not rely on the limitation period.  With respect, the motion judge erred in doing so.

Justice Feldman dissented.

She rejected that the limitation period should commence on the date of the loss, rather than the breach of the insurance contract:

[65]      In a nutshell, the appellant insurer asked the court to dismiss the insured’s action on the flood insurance policy on the basis that its claim is statute-barred, the claim having been brought more than two years after the flood, referred to as the loss. The problem is that this is not an action against the person who caused the flood. It is an action against the insurer for breach of the insurance policy. Therefore, the triggering event for the discoverability analysis and for the two-year limitation to begin running is the date the insurer breached its obligation under the policy to indemnify the insured for the loss it suffered in the flood.

The insurance policy itself would determine when the obligation to pay arose, and therefore the date on which Intact failed to perform that obligation in breach of the policy.  Because neither party put the policy into evidence, the moving party couldn’t prove when the breach occurred, and therefore when the limitation period commenced:

[65]      In a nutshell, the appellant insurer asked the court to dismiss the insured’s action on the flood insurance policy on the basis that its claim is statute-barred, the claim having been brought more than two years after the flood, referred to as the loss. The problem is that this is not an action against the person who caused the flood. It is an action against the insurer for breach of the insurance policy. Therefore, the triggering event for the discoverability analysis and for the two-year limitation to begin running is the date the insurer breached its obligation under the policy to indemnify the insured for the loss it suffered in the flood.

[65]      In a nutshell, the appellant insurer asked the court to dismiss the insured’s action on the flood insurance policy on the basis that its claim is statute-barred, the claim having been brought more than two years after the flood, referred to as the loss. The problem is that this is not an action against the person who caused the flood. It is an action against the insurer for breach of the insurance policy. Therefore, the triggering event for the discoverability analysis and for the two-year limitation to begin running is the date the insurer breached its obligation under the policy to indemnify the insured for the loss it suffered in the flood.

Further, an agreement between the parties as to when a cause of action arose cannot bind the court:

[72]      However, on appeal, the insurer again asks the court to reject the respondent’s argument, overturn the decision of the motion judge, and grant summary judgment. To grant summary judgment this court must then decide when the cause of action against the insurer for breach of the insurance contract arose, in order to determine when the limitation period commenced to run.

[73]      That is a question of mixed fact and law. The legal part requires the court to determine when the insurer became legally obligated to pay under the policy. The factual part is the determination of when the insurer did not pay in accordance with that obligation. Parties cannot bind the court on legal issues by agreement or concession. For example, in OECTA v. Toronto Catholic District School Board (2007), 2007 CanLII 6454 (ON SCDC), 222 O.A.C. 23 (Div. Ct.), Lane J. stated at para. 13:

The fourth difficulty is that the agreement asserted is an agreement not as to the facts, but as to the law. Whether the doctrine of culminating event applies only where the alleged culminating act is culpable is a question of law. Parties cannot agree on the law so as to bind a court or tribunal to their view; the law is the law and it is always open to the tribunal to determine what it is.

Justice Feldman rejected the support the majority found in Markel and Schmitz.  In those cases, the legal obligations of the insurers arose from statute:

[78]      Markel Insurance involved a transfer claim for indemnification by a first party insurer against a second party insurer in the motor vehicle accident context. The claim was governed by the Insurance Act, R.S.O. 1990, c. I.8, its regulations, and procedures set out by the Financial Services Commission of Ontario. The court had all the information before it that it required to determine when the second insurer’s obligation to indemnify arose and was breached.

[79]      Similarly, in Schmitz, the claim for indemnity at issue was brought within and was governed by the underinsured motorist coverage provided by the OPCF 44R, an optional endorsement to Ontario’s standard form automobile insurance policy.

There are many things that are problematic with this decision, which is perhaps why it is one of the very few limitations decisions to have a dissent. Let’s go through the list:

  1. The foremost flaw is the majority’s ratio that the cause of the action accrued on February 1, 2013 based on the parties’ agreement. Curiously, neither the majority nor the motion judge set out what occurred on February 1, 2013.  Because the majority presumes that the limitation period commenced presumptively on the date of notice of the loss, I assume February 1, 2013 was the date the insured through its broker gave notice of the loss to the insurer.  Markel and Schmitz are only relevant to the majority’s decision if this is so.
  2. It’s hard to understand why the plaintiff would agreed on this point, or why both parties had the misapprehension that cause of action accrual was determinative of the commencement of the limitation period. My guess is that the policy (which mysteriously wasn’t part of the record) contained a provision that the insured had two years from the loss to sue, which is reasonably common.  However, this kind of term has nothing to do with cause of action accrual, it just operates to vary the basic limitation period by making it run in all circumstances from a fixed date.
  3. This decision could have wonky implications. Insurers will undoubtedly rely on it as standing for the principle that the limitation period for a coverage action, certainly when coverage is under a CGL policy but probably also under other policies as well, commences presumptively on the date the insured gives notice of its loss.  This is certainly not the bar’s current understanding as it’s seemingly entirely at odds with the decision in Kassburg. 
  4. Fortunately, it will be possible to distinguish Nasr on the grounds that the limitations analysis flowed from the parties’ agreement as to cause of action accrual, and that such an agreement can have no precedential value. I think this argument will generally prevail, given both Kassburg and the decision’s ambiguity about what happened on February 1, 2013 that resulted in accrual.  However, the right limitations argument very often doesn’t prevail, and I see the potential for a body of dubious caselaw until the CA revisits the issue and, one hopes, distinguishes Nasr into irrelevance.  It’s not helpful that the Nasr court said that Markel and Schmitz supported the parties’ accrual analysis.  It’s easy to imagine a lower court considering that conclusive of the issue.
  5. Lastly, one quibble with the dissent’s statement about cause of action accrual:

[66]      As the moving party on the motion for summary judgment, the insurer had the onus to prove all of the elements that found the basis for its limitation claim, including the date when the cause of action arose, i.e. the date when the act or omission by the insurer caused the injury to the insured: see the definition of “claim” in s. 1 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, and ss. 4 and 5.

The moving party did not bear the onus of establishing when the cause of action arose, but when the Claim arose.  The Limitations Act doesn’t tie the commencement of time to cause of action accrual, and the language “cause of action” doesn’t appear in the Limitations Act.  The cause of action was breach of contract.  A breach of contract is actionable per se and the cause of action doesn’t require damage to accrue.  The Limitations Act, pursuant to s. 2, applies to claims pursued in court proceedings.  Until there is a claim, the Limitations Act won’t apply.  A claim requires both wrongful conduct and resulting damage.  Until there is damage, there is no claim, and without a claim the Limitations Act doesn’t apply.  The limitation period commences presumptively from the date of the act or omission pursuant to s. 5(2), but the precondition to the application of s. 5(2) is the application of the Limitations Act itself, and therefore the occurrence of damage.  Here the point is likely practically of little consequence, as the breach and damage occurred contemporaneously (denial of coverage resulting immediately in the plaintiff being without indemnification for its loss), but conceptually it matters very much.

All of that said, the decision does have a good summary of s. 5(1)(a)(iv) principles:

[46]      In commencing his analysis under s. 5(1)(a)(iv) of the Act, the motion judge properly noted the general proposition that the determination of when an action is an appropriate means to seek to remedy an injury, loss or damage depends upon the specific factual or statutory setting of each individual case: 407 ETR Concession Company Limited v. Day, 2016 ONCA 709 (CanLII), 133 O.R. (3d) 762, leave to appeal refused, [2016] S.C.C.A. No. 509, at para. 34; Winmill v. Woodstock (Police Services Board), 2017 ONCA 962 (CanLII), 138 O.R. (3d) 641, leave to appeal to SCC requested, at para. 23.

[47]      However, as this court has observed, that general proposition is not an unbounded one.

[48]      First, in Markel Insurance this court confined the meaning of “appropriate” to “legally appropriate”. Writing for the court, Sharpe J.A. stated, at para. 34:

This brings me to the question of when it would be “appropriate” to bring a proceeding within the meaning of s. 5(1)(a)(iv) of the Limitations Act. Here as well, I fully accept that parties should be discouraged from rushing to litigation or arbitration and encouraged to discuss and negotiate claims. In my view, when s. 5(1)(a)(iv) states that a claim is “discovered” only when “having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”, the word “appropriate” must mean legally appropriate. To give “appropriate” an evaluative gloss, allowing a party to delay the commencement of proceedings for some tactical or other reason beyond two years from the date the claim is fully ripened and requiring the court to assess to tone and tenor of communications in search of a clear denial would, in my opinion, inject an unacceptable element of uncertainty into the law of limitation of actions. [Italics in original; underlining added.]

[49]      Second, in 407 ETR, Laskin J.A. noted, at para. 47, that the use of the phrase “legally appropriate” in Markel Insurance, “signified that a plaintiff could not claim it was appropriate to delay the start of the limitation period for tactical reasons, or in circumstances that would later require the court to decide when settlement discussions had become fruitless” (emphasis added).

[50]      Finally, in Presidential MSH Corporation v. Marr Foster & Co. LLP, 2017 ONCA 325 (CanLII), 135 O.R. (3d) 321, Pardu J.A. observed that the jurisprudence discloses two circumstances in which the issue of appropriate means most often delays the date on which a claim was discovered. First, resorting to legal action might be inappropriate in cases where the plaintiff relied on the superior knowledge and expertise of the defendant, especially where the defendant undertook efforts to ameliorate the loss: at para. 26. Second, a legal action might not be appropriate if an alternative dispute resolution process “offers an adequate alternative remedy and that process has not fully run its course”: at para. 29. See also paras. 28-48; and Har Jo Management Services Canada Ltd. v. York (Regional Municipality), 2018 ONCA 469 (CanLII), at paras. 21 and 34-35. In this regard, in Winmillthis court held that resort to a civil proceeding for a remedy in respect of damage flowing from an incident might not be an appropriate means while criminal proceedings in respect of the incident remain outstanding: at para. 28.

[51]      Although Presidential MSH does not purport to offer an exhaustive list of circumstances in which a proceeding might not be an appropriate means, I would observe that neither circumstance identified in Presidential MSH is present in this case. Some other factor would have to displace the s. 5(2) presumption that Nasr knew a proceeding was an appropriate means on February 1, 2013.

Ontario: Court of Appeal affirms that discovery of a cause of action isn’t discovery of a claim

The Court of Appeal decision in Gillham v. Lake of Bays (Township) is noteworthy for two  reasons.

First, it uses the concept of the “claim” (which is the language of the Limitations Act) rather than the concept of the “cause of action” (which is not the language of the Limitations Act) for its limitations analysis.  See for example para. 20:

[20]      The overarching question in the discoverability analysis under s. 5 of the Act is whether the claimant knew or reasonably should have known, exercising reasonable diligence, the material facts stipulated under s. 5(1)(a) that give rise to a claim: Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851 (CanLII), 113 O.R. (3d) 401, at para. 32. Section 1 of the Act defines a claim as “a claim to remedy an injury, loss or damage that occurred as a result of an act or omission”. Section 2(1) provides that the Act “applies to claims pursued in court proceedings” (with certain enumerated exceptions that do not apply here).

(A slight quibble: the s. 5(1)(a) matters do not give rise to a claim.  Only two facts—an act or omission resulting in injury, loss, or damage—give rise to a claim pursuant to its definition in s. 1.  Knowledge of the s. 5(1)(a) matter results in discovery of the claim.)

It even puts “cause of action” in quotation marks–presumably to distinguish it from a claim–in the context of stating that knowledge of the material facts of a cause of action is not discovery of a claim:

[33]      The motion judge erred in failing to undertake an analysis of the criterion under s. 5(1)(a)(iv) of the Act. That the appellants might have a “cause of action” against the defendants, as the motion judge found, is not the end of the analysis under s. 5(1) of the Act. As this court said in Kudwah v. Centennial Apartments, 2012 ONCA 777 (CanLII), 223 A.C.W.S. (3d) 225, at para. 2:

It is important when considering a limitation period claim to appreciate that the terms of the 2002 Act must govern. A court considering the limitation claim must address the specific requirements of s. 5 of the Act, particularly on the facts of this case, the requirement of s. 5(1)(a)(iv).

 

Second, it acknowledges the accrual of a claim as the starting point of the limitations analysis, and that discovery of the claim requires knowledge that a proceeding is an appropriate remedy for the loss:

[34]      Therefore, the motion judge had to consider whether the appellants had a claim as defined under the Act. In considering whether the appellants knew or should have known that they had a claim, the motion judge had to go on to consider whether, having regard to the nature of the injury, loss or damage, the appellants knew or should have known that a proceeding would be an appropriate means to seek to remedy it. This omission by the motion judge is an error of law: Har Jo Management Services Canada Ltd. v. York (Regional Municipality), 2018 ONCA 469 (CanLII), at paras. 21 and 35.

[35]      Section 5(1)(a)(iv) represents a legislative addition to the other factors under the discoverability analysis. As Laskin J.A. explained in 407 ETR Concession Company Limited v. Day, 2016 ONCA 709 (CanLII), 133 O.R. (3d) 762, leave to appeal to SCC refused, [2016] S.C.C.A. No. 509, at paras. 33-34:

The appropriateness of bringing an action was not an element of the former limitations statute or the common law discoverability rule. This added element can have the effect – as it does in this case – of postponing the start date of the two-year limitation period beyond the date when a plaintiff knows it has incurred a loss because of the defendant’s actions.

Also, when an action is “appropriate” depends on the specific factual or statutory setting of each individual case: see Brown v. Baum, 2016 ONCA 325 (CanLII), 397 D.L.R. (4th) 161, at para. 21. Case law applying s. 5(1)(a)(iv) of the Limitations Act, 2002 is of limited assistance because each case will turn on its own facts.

This is a very welcome statement from the Court of Appeal.  It’s a step away from the misapplication of common law discovery principles to limitations analyses that has caused a great deal of confusion and uncertainty.

Lastly, the decision finds that it was appropriate for the plaintiffs to “wait and see” in the context of a construction dispute before commencing a proceeding.  I often see it argued that Presidential stands for the principle that there are only two circumstances in which a proceeding will be an inappropriate remedy—where the defendant undertakes good faith ameliorative efforts or there is an alternative dispute resolution process. This is a misapprehension of the law, as this decision demonstrates.  Here’s the key analysis:

[37]      Here, the motion judge failed to consider “the specific factual or statutory setting” of the case before him and determine whether it was reasonable for the appellants not to immediately commence litigation but to “wait and see” if the 1 ¼ inch sinking of the deck pier observed in 2009 would worsen over time or if the issue would resolve once the stone retaining wall had settled, as had been suggested to the appellants by Mr. MacKay. Neither Royal Homes nor Mr. MacKay believed the problem was serious, or due to the manner of construction. This evidence does not support the conclusion that the appellants knew or ought to have known in 2009 that their loss was not trivial and initiating legal proceedings was the appropriate means to remedy their loss.