Discoverability

Ontario: modified objective discovery

Justice Parfett’s decision in Fernandes v. Goveas is a textbook example of applying the modified objective test in a discovery analysis.

Section 5(1)(b) of the Limitations Act contains the test.  This provision asks when a reasonable person (the objective component) with the abilities and in the circumstances of the claimant (the modifying subjective component) first ought to have known of the discovery criteria in section 5(1)(a).

The facts in Fernandes were unusually sordid.  The plaintiff sued her sister for unpaid wages and damages for wrongful dismissal, leading Justice Parfett to observe “This case is a lesson in why family should not always be treated ‘like family’.  The Plaintiff in this case was misled, overworked and underpaid by her family.”

This is how Justice Parfett applied the test:

[16]           A reasonable person is defined at s. 5(1)(b) of the Limitations Act as someone ‘with the abilities and in the circumstances of the person with the claim’.  In this case, that means someone who

  •                  Was not born in Canada;
  •                  Spoke only minimal English;
  •                  Was living exclusively in the home of her employers and had little social interaction outside the family;
  •                  Trusted her employers implicitly given they were family;
  •                  Had a moderate education;
  •                  Was diagnosed as autistic and noted as having problems with speech and social interactions.

[…]

[21]           In my view […The Plaintiff’s] language, psychological and social limitations created a situation where the Plaintiff was unable to exercise due diligence in order to discover the state of her financial affairs until after she left the Defendant’s employ.

 

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: Officers of the court, slow down

That the courts discourage officers of the courts from immediately commencing litigation is a proper factor in a limitations analysis.

In Salewski Inc. v. BDO Canada Ltd., the defendant moved for summary judgment on a limitations defence.  The defendant was retained by a creditor to assign its debtor into bankruptcy.  The court appointed the defendant trustee in bankruptcy.  Friction developed between the defendant and the bankrupt’s interim receiver, the plaintiff.  The plaintiff claimed against the defendant for breach of fiduciary duty.  The defendant pleaded the expiry of the limitation period.

In denying the defendant’s motion, Justice Garson made some helpful observations about the effect of a trustee’s behavior on the commencement of the limitation period:

[77]           In my view, it is inappropriate to start the limitations clock while good faith efforts are ongoing to achieve a remedy.

[78]           Officers of the court should be discouraged from immediately commencing litigation and encouraged to discuss and negotiate differences.

[…]

[80]           The obstacles and delays erected by BDO throughout these proceedings have impeded the exercise of reasonable diligence on the part of DSI to discover the cause of action in this matter.  These obstacles are also sufficient to impact the start of the limitations clock.

[…]

[91]           It would be both unfair and improper for DSI to have been required to commence a legal action any earlier than 2009.  Both parties are officers of the court and should be discouraged from pursuing adversarial proceedings against each other until reasonable efforts to resolve the matter have been addressed.

[92]           To determine otherwise on the facts before me would send the wrong message regarding the duties of a trustee to act fairly and impartially to all creditors, even those opposing its SRD’s.  BDO should not benefit from their prior misconduct.

[93]           This court has and will continue to expect the highest standard of conduct on the part of trustees in the discharge of their duties to the court and the Estate:  see Murphy v. Sally Creek Environs Corporation, supra, at paras. 139, 151 and 155.

[…]

[96]           BDO’s behavior in withholding or not distributing pertinent and relevant information to DSI prevented DSI from discovering the material facts upon which this claim is based.

[97]           Although DSI was suspicious in 2006 and 2007 that BDO had (i) made false statements and omitted relevant facts in an affidavit; (ii) was pursuing a commercially unreasonable course of action; (iii) had made serious allegations about the behavior of DSI, and (iv) was being influenced by Unique, these suspicions were unsupported by material facts.

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: the law requires reasonable investigation, not perfection

In Bowen v Rengro Ltd., Master Dash provides a useful, and likely to be frequently quoted, description of the due diligence plaintiffs must establish when seeking to add a party to an action after the expiry of the presumptive limitation period:

[12]              In my view, it is not to any degree “the standard of perfection” to require counsel to make reasonable, meaningful, endeavors to ascertain the proper owner of the properties involved; but rather it is the reasonable standard of investigation that ought to be expected and provided, in cases such as this.

Master Dash also criticised as unwise the plaintiff’s failure to inspect the site of an accident when ownership may be at issue:

[16]              […] I regard it as unwise to fail to make some investigation of the actual site in cases where ownership is likely to be a key element. However another approach might well be to conduct an examination of the available survey and other information preserved under the province’s Registry System[.]

Ontario: There’s no special discovery test for professional malpractice

In March, I wrote approvingly of Justice Stinson’s discovery analysis in Brown v. Wahl.  The Court of Appeal recently upheld the decision.

The Court of Appeal’s decision is noteworthy for two reasons. First, the Court rejected the appellant’s argument that Lawless v. Anderson created a four-part test for discoverability in respect of professional malpractice claims:

[3]         Lawless was a medical malpractice case.  In describing when the plaintiff knew all the material facts required to discover her claim against the defendant, this court stated, at para. 30:

It was clear to the appellant at this point that she had suffered more than an unfortunate and unsatisfactory outcome.  She was aware of what was wrong, why it was wrong, what would have to be done to correct it and who was responsible.  In other words, the appellant had all of the material facts necessary to determine that she had prima facie grounds for inferring that the respondent had been negligent.

[4]         The appellant submits that, in the above-quoted passage, the Lawless court established a four-part test for determining when a prospective plaintiff may be said to have known the material facts necessary for bringing a negligence claim against a medical practitioner in a cosmetic surgery action.  This test establishes, according to the appellant, that such a claim is discovered by the prospective plaintiff only when he or she knows: i) of the harm alleged; ii) why it was wrong; iii) what action is required to correct the wrong; and iv) who was responsible.

[5]         Based on this suggested four-part test, the appellant argues that the motion judge erred by failing to properly or adequately analyze the evidence and apply it to the questions of when the appellant was positioned to determine “why” her dental treatment by the respondents was “wrong” and “what would have to be done to correct it”.

[6]         We reject this argument.

[7]         First, Lawless does not create a new four-part test for discoverability in respect of professional malpractice claims.  To the contrary, Lawless confirms, at para. 30, that the test for discoverability is when a prospective plaintiff “had all of the material facts necessary to determine that she had prima facie grounds for inferring that the respondent had been negligent”.  The Lawlesscourt’s reference, immediately preceding this comment, to the four factors relied on by the appellant reflects the application of this test to the evidence before the court in Lawless.

This was the correct response to a dubious argument.  Whatever the Ontario limitations regime may need, it’s not new discovery tests for specific claims.

Second, the Court followed its description of discoverability in Lawless.  This is problematic because it’s a description of the common law discoverability test, rather than the section 5 test in the Limitations Act.  I describe the mischief resulting from this confusion here.

Ontario: Discoverability applies to the Competition Act

In Fanshaw College v. AU Optronics, Justice Grace held that the limitation period applicable to Competition Act claims is subject to discoverability. The opportunity for a successful limitation defence in a competition class action is now much diminished. An appeal from this decision will be no surprise.

The action centres on LCD products. Fanshaw College alleges that the defendants unlawfully conspired to fix or artificially inflate the price of LCD products they purchased. The defendants moved for summary judgment on the basis that section 36(4) of the Competition Act bars the statutory claim and the expiry of the limitation period bars the conspiracy claim.

Section 36(4) imposes a two-year limitation period on claims for recovery of damages under the Act:

 (4) No action may be brought under subsection (1),

(a) in the case of an action based on conduct that is contrary to any provision of Part VI, after two years from

(i) a day on which the conduct was engaged in, or

(ii) the day on which any criminal proceedings relating thereto were finally disposed of,

whichever is the later […]

The defendants argued that the section 36(4) is not subject to discoverability. A line of jurisprudence originating from the Federal Court supported this position. Discoverability would not apply because the limitation period is linked to a fixed event unrelated to the claimant’s knowledge—”the day on which the conduct was engaged in”. Justice Grace rejected this rationale:

[117]     It seems obvious that participants in a price-fixing scheme would attempt to conceal their activities. It is impossible to say categorically when those affected will learn or have the means of learning of the offending conduct. It will depend on the circumstances of each case.

[118]     Unless the discoverability principle applies, strict application of s. 36(4)(a) might well result in a claim being statute-barred before a person affected could possibly have known of the illegal activity. The right of action would only be resurrected if criminal proceedings – initiated by the state – ensued. As a matter of construction it does not seem possible that Parliament intended the right of action to be illusory. I am not satisfied that the rights conferred by s. 36(1) should be restricted in the fashion AU and Hannstar advocate.

Though sound, this reasoning has problematic implications. If it’s impossible to say that in all circumstances an affected person will learn of the illegal activity within two years of the date it was engaged in, the equivalent is true of other limitation periods that commence on fixed dates. Section 38(3) of the Trustee Act is an example. This limitation period commences on the death of the plaintiff or defendant, and death being a fixed event, it’s not subject to discoverability. Nevertheless, there are surely circumstances where the limitation period will expire before a person affected could have known of the death that triggered it.

The two limitations periods are perhaps distinguishable. The Competition Act resurrects a right of action in the event of a criminal proceeding. There is a greater likelihood of concealment regarding a price-fixing agreement than a death. Neither distinction is especially compelling. Should there be an appeal, it will be interesting to see how the Court of Appeal addresses this issue.

The other noteworthy aspect of the limitations defence was the defendants’ argument that the plaintiff through its reasonable diligence ought to have discovered the conspiracy claim as a result of the media’s coverage of the probe into the LCD industry and the commencement of proceeding:

 [65]     It is acknowledged that there was extensive media coverage concerning probes into the LCD industry starting in December 2006.

[66]     Several articles were published in Ontario. On December 13, 2006, the Globe reported that European and U.S. regulators had announced an ongoing investigation of “a possible cartel involving makers of liquid crystal display monitors” and of “the possibility of anti-competitive practices in the LCD industry.”

[67]     On the same day the Star reported that “[l]iquid crystal display makers in Japan, Taiwan and South Korea are facing probes by trade watchdogs as a widening price-fixing investigation” in the LCD industry. Falling share prices of various companies were reported, including L.G. Philips and Samsung. The Star noted that LCDs were “the displays used in flat-panel televisions and personal computers.”

[68]     Mr. Smith acknowledged that Fanshawe was a Globe and Star subscriber at the time. At paragraph 6 of his affidavit, Mr. Smith deposed that:

To my knowledge, no member of Fanshawe brought the articles to the attention of Fanshawe’s Board of Directors or senior management.

[69]     In cross-examination, Mr. Smith agreed that from 2006 to 2009 he did not speak with board members or senior managers about articles concerning the LCD industry except those he described as “direct report”. No other details were requested or given.

[70]     The December 13, 2006 edition of the Citizen included a report concerning the LCD industry. It also noted that “AU Optronics plans to co-operate with the Justice Department and Japan’s antitrust regulator”. AU Optronics was one of several companies involved in the LCD industry mentioned in an article appearing on the Canadian Press Newswire that day.

[71]     A day earlier, a class proceeding had been commenced in the United States. AU Optronics, AU Optronics Corporation America and Hannstar were included in the long list of defendants.[18]

[72]     The B.C. action was commenced on March 6, 2007.

[73]     The First Ontario action followed on May 2, 2007. Michael Harris was named as the representative plaintiff. Siskinds has acted throughout. On the same day that law firm posted a notice on www.classaction.ca bearing the heading “Liquid Crystal Display”. The notice said in part:

This class action alleges that the Defendants unlawfully conspired to fix, increase, and/or maintain prices at which LCD or products containing LCD were sold in Canada.

The plaintiff alleges that from at least January 1, 1998 through to the present, the defendants and their senior executives participated in illegal and secretive meetings and made agreements relating to price targets, specific price increases, market share divisions and production capacity for LCD.

LCD is a thin, flat display device made of numbers of pixels arrayed in front of a light source or reflector. LCD is used in television screens, computer monitors (both desktop and notebook), mobile phones, personal digital assistants, digital cameras and other devices.

[74]     A link to the statement of claim was provided as were contact details for those seeking more information. AU and Hannstar were mentioned but not named as defendants.

[75]     On May 23, 2007, the Star reported that LCD market participant LG Philips “is one target of an investigation into anticompetitive practices in the industry by U.S. and Asian regulators.”

[76]     A class proceeding was commenced in the Province of Quebec the following month.[19]

[77]     All of these facts pre-date July 20, 2007. The moving parties submit that they support the conclusion that Fanshawe ought to have discovered the claim more than two years before it was commenced. Alternatively, AU and Hannstar maintain that Fanshawe has failed to prove that it acted with due diligence in determining if it had a cause of action.

Justice Grace disagreed. He couldn’t conclude on the evidence that the plaintiff ought to have known the section 5(1)(a) facts based on media reports. Nor did the commencement of the class action necessarily crystalise the plaintiff’s discovery of the claim. The commencement of a class action does not fix all members of the putative class with knowledge of the cause of action (in contrast to a conventional action, the commencement of which means that the plaintiff has discovered the claim even if the plaintiff lacks knowledge of the section 5(1)(a) facts):

 [79]       Fanshawe is a large educational institution. It might well be appropriate to conclude that a reasonable person in its position would have read and fully digested the reports appearing in Canadian publications. However, on the evidence introduced so far, it is a distant and unwarranted stretch to conclude Fanshawe ought to have known of any of the items listed in s. 5(1)(a), let alone all four of them as the subsection requires.

[80]     According to the press, a price-fixing investigation was underway involving a component used in flat-panel televisions and personal computers. No conclusions had been reached, even on a tentative basis. The possible implications were unaddressed beyond declining prices of the shares of some of the participants in the LCD industry. None of the defendants in this action were mentioned in the two publications to which Fanshawe subscribed; the Globe and the Star. The Citizen mentioned AU Optronics but Fanshawe was not a subscriber. In any event, that article simply indicated that AU planned to cooperate in the investigation.

[81]     Class proceedings were commenced in various jurisdictions including Ontario. A short notice was posted by Siskinds on one website concerning the First Ontario action. There was no evidence that anyone from Fanshawe accessed the website or saw the notice.

[82]     Nothing else was done that I recollect seeing or hearing about. There were no press releases. There were no media reports of any of the proposed class proceedings. Notices do not appear to have been created, let alone disseminated.

[83]     Hannstar noted that Mr. Harris, initially the representative plaintiff in the First Ontario action, was a consumer. In its factum Hannstar submitted that:

It defies logic to suggest that a large academic institution like Fanshawe was less capable of ascertaining the facts giving rise to the claim than individual consumers.

[84]     I disagree. I have no knowledge of Mr. Harris. I do not know how he came to be a representative plaintiff. Did he approach Siskinds? Mr. Smith deposed that Siskinds approached Fanshawe. Was Mr. Harris in the same position? I simply do not know. It is not self-evident to me that a high level of sophistication necessarily leads to greater knowledge about a particular topic. It would be folly to equate Fanshawe and Mr. Harris simply because Fanshawe is a large academic institution and Mr. Harris is an individual.

[…]

[92]     I do not understand why commencement of an action would fix all members of the putative class with knowledge of the cause of action. As noted, aside from one short notice on a website created by Siskinds, the proceeding was not publicized.

[93]     In Lipson v. Cassels Brock & Blackwell LLP (2013), 2013 ONCA 165 (CanLII), 114 O.R. (3d) 481 (C.A.) at para. 84, the Court of Appeal noted that the commencement of a limitation period “may be an issue that must be determined individually for each class member, depending on what individual class members were told and when.”

[94]       Determining that the commencement of a proposed class proceeding serves as the last possible day for the commencement of a limitation period would be arbitrary. It would not be based on the evidence in this case. It would be a legal fiction. A procedural vehicle would be converted into something more.[21] I decline the invitation to be its creator.

[95]     At this stage I am not satisfied that Fanshawe knew or ought to have known of the elements set forth in s. 5(1)(a) of the Limitations Act. I simply cannot make dispositive findings based on the evidence before me.