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Ontario: the limitations jurisprudence of 2014 in review

February 1, 2015 Leave a Comment

This post is a paper I wrote for LawPro on the year’s limitations jurisprudence. It may be of interest to Under the Limit readers; if you’d like a PDF version , just ask.

The limitations jurisprudence of 2014 in review

Dan Zacks[1]

January 1, 2014 marked ten years since the Limitations Act, 2002 came into force. Now many aspects of the old limitations regime are forgotten, or will be soon. Consider for instance the classification of actions. Once a key step in the limitations analysis, it is barely remembered, and rarely fondly.[2]

Meanwhile, the courts have developed an extensive body of jurisprudence interpreting and applying the new Act. To be sure, this jurisprudence remains in development. Many of 2014’s leading decisions consider fundamental limitations issues arising from the Limitations Act for the first time. For example, in 2014 we learned from the Court of Appeal how a plaintiff should plead a discoverability argument (by reply), and that there is no legislative gap that would prevent the Limitations Act from applying to claims for unjust enrichment (Collins v. Cortez and McConnell v. Huxtable respectively, both discussed below). The Superior Court also delivered decisions of consequence, in particular by confirming that the Limitations Act applies to will challenges (Leibel v. Leibel, also discussed below).

While it is difficult to identify definite trends in the year’s limitations jurisprudence, several lower court decisions point toward an increasing receptiveness to boundary-pushing discovery analyses. In one case, the “no, I won’t pay my 407 toll” decision, the Court found that proportionality can be a factor when determining whether a plaintiff has discovered that a proceeding is an appropriate means to seek a remedy.[3] In another somewhat eccentric case, the Court found that, pursuant to “cultural dimension theory”, being Slovenian can determine when a plaintiff discovers her claim.[4] It will be interesting to see whether courts follow either of these decisions, and more generally, whether they remain open to creative discovery arguments.

What follows is a summary of the more consequential Ontario limitations decisions from 2014. For mostly up-to-date reporting on this year’s limitations jurisprudence, you are welcome to visit limitations.ca.

McConnell v. Huxtable: In which the Court of Appeal says yes, a claim for unjust enrichment is subject to the Limitations Act[5]

McConnell is a family law decision involving an unmarried couple. The applicant made a constructive trust claim for an ownership interest in the respondent’s house and, in the alternative, for compensation in money. The respondent sought the dismissal of the claim on the basis that it was barred by the expiry of the limitation period.

The motion judge’s 2013 decision[6] was sensational, at least in the rather staid world of limitations. In thorough and persuasive reasons, Justice Perkins held that the discovery provisions of the Limitations Act cannot apply to a remedial constructive trust based on a claim of unjust enrichment. Taken to its logical conclusion, this meant that in a great many circumstances, only the equitable doctrine of laches and acquiescence would limit a claim for unjust enrichment.

A limitation period commences when the injured party discovers the claim within the meaning of section 5 of the Limitations Act. Justice Perkins concluded that a claim for constructive trust is not in all circumstances discoverable as contemplated by this section. If a claim is not discoverable, the limitation period will never commence. If the limitation period never commences, there is no limitation period. This is how he described the problem:

I think that section 5(1)(a) makes it impossible to know when if ever the limitation [period] would start running because the claimant may never (reasonably) know of a “loss, damage or injury” and because there is no act or omission of the respondent that the claimant is required to or is even able to point to in order to “discover” a claim for a constructive trust. Claims to recover land aside, the Limitations Act, 2002 may have been meant to but does not manage to encompass constructive trust claims. I am unable to give effect to the precise and detailed wording of sections 4 and 5 so as to make them apply to constructive trusts in family law cases.[7]

Not surprisingly, Justice Rosenberg, writing for the Court of Appeal, disagreed, and held that there is no legislative gap:

I do not agree with the motion judge that a remedial constructive trust claim does not require any act or omission by the person against whom the claim is brought. Generally speaking, a claim of unjust enrichment requires that the defendant retain a benefit without juristic reason in circumstances where the claimant suffers a corresponding deprivation. In other words, the relevant act of the defendant is simply the act of keeping the enrichment (or the omission to pay it back) once the elements of the unjust enrichment claim have crystallized. In the family law context, this may typically occur on the date of separation, when shared assets, including real property, are divided and the possibility therefore arises of one party holding onto more than a fair share.[8]

Justice Rosenberg acknowledged that in some cases it may be difficult to apply section 5 to a claim for unjust enrichment, but it applies nonetheless. Even if the difficulty means the claim is never discovered, the ultimate limitation period will still limit it. This is sound reasoning, but terribly disappointing to the plaintiffs’ bar, who had begun to think very hard about how to make every old claim one for unjust enrichment.

McConnell also brings clarity to the application of the Real Property Limitations Act. The fact that the respondent sought a monetary award in the alternative to an interest in land did not mean that the claim wasn’t for a share of property, and subject to section 4 of the Real Property Limitations Act with its plaintiff-friendly ten year limitation period.[9]

Longo v. McLaren Art Centre: The Plaintiff must not delay, not even for Rodin[10]

This Court of Appeal decision written by Justice Hourigan quickly became a leading authority on the duty imposed by the Limitations Act on plaintiffs to investigate potential claims. It is already much-cited by defendants when arguing that a plaintiff was dilatory in discovering their claim and, more specifically, when envoking section 5(1)(b) of the Act.

Justice Hourigan’s reasoning is not especially novel; rather, he adopts a line of discoverability jurisprudence developed under the previous Act exemplified by Soper v. Southcott (1998)[11]. In essence, a plaintiff must take reasonable action to investigate the matters described in section 5(1)(a) of the Act. What is reasonable depends on the plaintiff’s circumstances and the nature of the potential claim. However, it is never necessary for the plaintiff to investigate to the point where she knows with certainty that a potential defendant is responsible for the impugned acts or omissions. It is enough that she has prima facie grounds to infer that the potential defendant caused the acts or omissions. Establishing these grounds may require an expert report.[12]

Longo has almost glamorous facts. At issue was the appellants’ discovery of damage to their sculpture Walking Man, possibly the work of Rodin. The sculpture was harmed while in the respondents’ care and the appellants claimed for damages. The court dismissed the claim on motion for summary judgment on the basis that it was commenced out of time.

Justice Hourigan set aside the decision of the motion judge and held that there was a genuine issue requiring a trial. Determining whether a reasonable person with the abilities and in the circumstances of the appellants ought to have discovered the claim required a full trial record. Justice Hourigan nevertheless shared his view on what was appropriate in the circumstances. On learning of concerns about the condition of Walking Man, a reasonable person would arrange for an inspection of the sculpture.

Collins v. Cortez: Respond with a reply[13]

This decision is a primer on how pleadings should address a limitations defence, which is often a point of confusion for counsel.

Cortez moved to dismiss Collins’s personal injury claim on the basis that it was commenced two years after her accident and statute-barred by the expiry of the limitations period. Justice Gordon granted the motion. He gave effect to the presumption in section 5(2) of the Limitation Act that the limitation period commenced on the date of the accident. He held that because Collins did not plead discoverability facts in her Statement of Claim, she could not make out a section 5(1) discoverability argument.

Not so, held the Court of Appeal. In the normal course, if a limitations defence is raised in a Statement of Defence, and the plaintiff relies on the discoverability principle, the plaintiff should plead the material facts relevant to discoverability in reply, not the Statement of Claim. The expiry of a limitation period is a defence to an action that must be pleaded in a Statement of Defence. As such, a plaintiff needn’t anticipate discoverability and address it in her Statement of Claim.

Leibel v. Leibel: Two year to challenge a will[14]

Since the Limitations Act came into force, the estates bar has speculated as to whether a limitation period applies to will challenges. Many thought that it would not, based in part on an influential article by Anne Werker on limitation periods in estate actions:

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

The courts have tended increasingly toward asserting the application of the Limitations Act, and it came to seem likely a court would apply the Act to a will challenge. This is what Justice Greer did in Leibel.

The case involved two wills. The testatrix’s son Blake applied for a declaration that the wills were invalid, and another son and other respondents moved for an order dismissing the application on the basis that it was statute-barred by the expiry of the limitation period.

Justice Greer held that the limitation period began running in June 2011, the date of the testatrix’s death, because a will speaks from death. However, Blake discovered his claim within the meaning of the Limitation Act about a month later in July 2011 (for reasons that don’t bear mentioning here, but are at paragraph 39 of the decision). This meant that he commenced his application out of time.

In particular, Justice Greer rejected Blake’s argument that no limitation period applied to his will challenge pursuant to section 16(1)(a). She held that the legislature did not intend for section 16(1)(a) to exclude will challenges from the two-year limitation period:

To say that every next-of-kin has an innate right to bring on a will challenge at any time as long as there are assets still undistributed or those that can be traced, would put all Estate Trustees in peril of being sued at any time. There is a reason why the Legislature replaced the six-year limitation in favour of a two-year limitation.[16]

Kassburg v. Sun Life Assurance Company of Canada: In business agreements, the party isn’t literal[17]

Kassburg demonstrates the Court’s commitment to protecting individuals from contracts that impose shortened limitation periods. It deals with section 22(5) of the Limitations Act, which permits contracting out of the statutory limitation period through “business agreements” unless one of the parties to the contract is an individual. Rather than limiting the word “parties” in this section to its literal meaning, the Court of Appeal instructs us to adopt a meaning consistent with the objective of protecting individuals from unexpectedly or unfairly abridged limitation periods.

Kassburg was an insured under a group policy issued by the appellant Sun Life to the North Bay Police Association. The respondent submitted a claim for long-term disability benefits that Sun Life denied.

She commenced an action claiming entitlement to the benefits. Sun Life moved for summary judgment on the basis that her claim was out of time. Among other things, Sun Life relied on a one-year limitation period contained in the insurance contract. It argued that this was a limitation period subject to section 22(5).

The motion judge held that the insurance policy fit within the business agreement exception. Because the parties to the insurance contract were the Police Association and the appellant, the contract was not entered into by an individual.

Justice van Rensburg rejected this reasoning. The word “parties” in section 22(5) must be given a broad, purposive reading. The literal reading of “parties” is inconsistent with the objective of section 22, which is to restrict the circumstances in which a contract can alter the statutory limitation periods in the Limitations Act. Although the group insurance contract under which Kassburg made her claim was between the Police Association and Sun Life, Justice van Rensburg deemed Kassburg to be a party for the purpose of asserting her claim, and for Sun Life’s limitations defence.[18]

Green v. Canadian Imperial Bank of Commerce: Plaintiffs must fully control whether they commence an action in time[19]

In Green, the Court of Appeal overturned its decision in Sharma v. Timminco (2012)[20], thus restoring peace and order to the limitation scheme under the Securities Act. [21]

Timminco created a distinctively perverse phenomenon in limitations jurisprudence: a limitation period that did not allow plaintiffs to control whether they commenced an action in time. As Justice Feldman noted in her decision for the Court of Appeal, this was unprecedented and entirely foreign to the concept of limitations.

At issue in both cases was the statutory cause of action in section 138.3 of the Securities Act. This section creates a cause of action for misrepresentations regarding shares trading in the secondary market. A plaintiff, most often a representative plaintiff in a class proceeding, can only commence a section 138.3 claim with leave. Pursuant to section 138, a plaintiff has three years from the date of the misrepresentation to obtain leave and commence the action. [22]

The Timminco Court held that a claim for damages under section 138.3 is statute-barred if the plaintiff does not obtain leave to commence it within the three-year limitation period, and that section 28 of the Class Proceedings Act[23], which suspends limitation periods in favour of class members once a claim is asserted in a class proceeding, will not operate in respect of a 138.3 claim until leave is obtained.

The Timminco Court reasoned that a section 138.3 claim is “asserted” within the meaning of section 28 of the Class Proceedings Act only when leave is granted because leave is a component of the cause of action. Given the dictionary definitions before the Court of “assert”, this conclusion was sound, at least in theory.

In practice, it was problematic. Its effect was to require representative plaintiffs to move for and obtain leave to commence a section 138.3 claim within three years, but the plaintiffs could not control the timeliness. Obtaining leave within three years was challenging, if not impossible.

This limitation period is not subject to the discoverability provisions of the Limitations Act because it commences on the date of the misrepresentation. The longer it takes to discover the misrepresentation, the shorter the time for obtaining leave and commencing the action. Even if a plaintiff brought the motion in good time, the defendant could initiate procedural steps resulting in delay, and court availability could affect the timing of the hearing and the rendering of the decision.

And so the Court reversed itself. Justice Feldman set aside the Timminco Court’s interpretation of the Class Proceedings Act, holding instead that when a representative plaintiff brings a section 138.3 claim within the limitation period, pleads section 138.3 together with the facts that found the claim, and pleads an intent to seek leave to commence, the claim has been “asserted” for the purposes of the Class Proceedings Act, and the limitation period is thereby suspended for all class members.

This decision is obviously of great significance to the securities bar, but beyond that, it preserves the fundamental principle of limitations that a plaintiff must have unilateral control over whether it misses a limitation period.

And for the insurance bar…

Lastly, several insurance decisions bear noting.

From Sagan v. Dominion of Canada General Insurance Company, we learned that time begins to run for a claim for denied accident benefits on the date of the denial. A party can’t stop the commencement of the limitation period by sneakily (or inadvertently) omitting certain documents from the accident benefits application.[24]

In Sietzema v. Economical Mutual Insurance Company,[25] the Court of Appeal held that the limitation period begins to run for a claim for statutory accident benefits when the insurer denies the application for those benefits.

In Schmitz v. Lombard General Insurance Company of Canada[26], the court determined when the limitation period commences for a claim for indemnity under OPCF 44R, an optional endorsement for underinsured motorist coverage to the standard form automobile insurance policy. The limitation period does not start to run when the demand for indemnity is made because default must first occur. The limitation period begins to run the day after the demand for indemnity is made.

[1] Dan is a contributor to the upcoming fourth edition of The Law of Limitations and a lawyer at Clyde & Co. His practice focuses on commercial litigation and lawyers’ professional negligence. He also publishes Under the Limit, a blog about developments in the always riveting world of limitations jurisprudence.

[2] This is subject to the occasional exception. See for example Economical Mutual Insurance Company v. Zurich Insurance Company, 2014 ONSC 4763, in which the Court undertakes a classification of actions analysis, presumably out of nostalgia.

[3] See 407 ETR Concession Company v. Ira J. Day, 2014 ONSC 6409.

[4] See Miletic v. Jaksic, 2014 ONSC 5043 and the related post on Under the Limit, <http://limitations.ca/?p=19>.

[5] 2014 ONCA 86.

[6] 2013 ONSC 948.

[7] 2013 ONSC 948 at para. 143.

[8] 2014 ONCA 86 at para. 51.

[9] Conversely, the mere fact that a claim affects real property will not exclude the application of the Limitations Act. See Zabanah v. Capital Direct Lending, 2014 ONCA 872.

[10] 2014 ONCA 526 (“Longo”).

[11] 1998 CanLII 5359 (Ont. C.A.).

[12] See Longo, supra note 1, at paras. 41-44.

[13] 2014 ONCA 685.

[14] 2014 ONSC 4516.

[15] Anne Werker, “Limitation Periods in Ontario and Claims by Beneficiaries”, (2008) 34:1 Advocates’ Q at 24-28.

[16] 2014 ONSC 4516 at para. 52.

[17] 2014 ONCA 922.

[18] 2014 ONCA 922 at paras. 58-61.

[19] 2014 ONCA 90.

[20] 2012 ONCA 107.

[21] R.S.O. 1990, C. S.5.

[22] See also section 19 of the Limitations Act, 2002.

[23] S.O. 1992, C. 6.

[24]2014 ONCA 720.

[25] 2014 ONCA 111.

[26] 2014 ONCA 88.

Ontario: Read business agreements varying the limiation period “broadly and purposively”

January 11, 2015 Leave a Comment

Section 22(5) of the Limitations Act, 2002 permits contracting out of the statutory limitation period unless one of the parties to the contract is an individual. The word “parties” in this section does not have only its literal meaning. The Court of Appeal in Kassburg v. Sun Life Assurance Company of Canada instructs us to read it broadly and purposively so that its meaning is consistent with the objective of the section.

The respondent in Kassburg was an insured under a group policy issued by the appellant Sun Life to the North Bay Police Association. The respondent submitted a claim for long-term disability benefits that Sun Life denied.

The following exceptions apply only in respect of business agreements:

Section 22(5)

A limitation period under this Act, other than one established by section 15, may be varied or excluded by an agreement made on or after October 19, 2006.

A limitation period established by section 15 may be varied by an agreement made on or after October 19, 2006, except that it may be suspended or extended only in accordance with subsection (4).

Section 22(6)

“business agreement” means an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002 (“accord commercial”) [Section 1 of the Consumer Protection Act, 2002 defines “consumer” as “an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes; (“consommateur”)];

“vary” includes extend, shorten and suspend. (“modifier”)

The motion judge held that the insurance policy fit within this business agreement exception. Because the parties to the insurance contract were the Police Association and the appellant, the contract was not entered into by an individual acting for personal, family, or household purposes.

Justice van Rensburg rejected this reasoning. The word “parties” in section 22(5) must be given a broad, purposive reading consistent with the objective of the provision:

[58]      The clear wording of s. 22(5) permits contracting out of the statutory limitation period, unless the parties to the contract include an individual, and the contract was for “personal, family or household purposes”. There are therefore two requirements for a business agreement to exist: the parties must not include individuals, and the contract must not have been for personal, family or household purposes.

[59]      The literal reading of the “parties” aspect of the section that appears to have been accepted by the motion judge, in my view, is inconsistent with the objective of s. 22 of the Limitations Act, 2002, which is to restrict the circumstances in which the statutory limitation periods under the Act can be altered by contract. In my view, the word “parties” in s. 22(6) should be given a broader, purposive reading to accord with the objective of s. 22.

[60]      In this action, the respondent is asserting a personal claim for LTD benefits provided under a group policy. She is entitled to assert the claim directly against the insurer under s. 318 of the Insurance Act, R.S.O. 1990, c. I.8. Although the group insurance contract under which she is making her claim was entered into between the NBPA and the appellant, the appellant relies on a limitation period contained in that contract to exclude her claim. The respondent is in effect deemed to be a party for the purpose of asserting her claim, and for the purpose of the appellant’s limitations defence.

[61]      With respect to the “purposes” requirement, the contract is for personal purposes, and accordingly is not a “business agreement” under s. 22(5).

Ontario: Even highways are subject to limitation periods (plus a novel discovery argument)

November 17, 2014 Leave a Comment

Readers of Under the Limit rejoice! There is now an answer to the question that worried us so while driving the 407: what limitation period applies to the collection of unpaid 407 tolls?

Not only did the Court answer this question in 407 ETR Concession Company v. Ira J. Day, it emphasised the universal application of the Limitations Act, 2002 and added a novel proportionality component to the discovery analysis.

Mr. Day refused to pay his 407 tolls. Unfortunately, the cameras of the 407 ETR Concession Company are all-seeing, and so in June 2013 the 407 ETR commenced an action against Mr. Day for payment of $9,808, plus interest, owed for driving the 407 on 2,194 occasions. Mr. Day admitted his use of the 407, but chose to fight a portion of the 407’s claim against him on the basis that it was statute-barred. 407 brought a r. 21 motion to determine the limitation issues. The 407 ETR was represented by a team of three from Lenczners led by Tom Curry. Mr. Day was represented by a team of two captained by Ronald Manes of Torkin Manes. The 407 is, evidently, serious business.

The 407 ETA’s argument was threefold. First, they argued that the Limitations Act, 2002 does not apply to claims brought by the 407 ETA. The basis for this position was the Highway 407 Act, which provides that “a toll and any related fee or interest is a debt owing to the owner, and the owner has a cause of action enforceable in any court of competent jurisdiction for the payment of that debt”. If the legislature intended this debt to be like any other, the 407 ETA suggested, there would be no reason to specify separately that the 407 ETR has a cause of action to enforce the debt. By implication, the cause of action is a stand-alone remedy available to the 407 ETA that is not subject to the Limitations Act, 2002 (presumably, the limiting principles of equity would still apply, though the 407 ETA doesn’t appear to have addressed this).

This is a problematic argument because it’s entirely at odds with a limitation period of general application. Justice Edwards rightly had none of it, noting that it “flies in the face” of the universal limitation period in section 4 of the act:

[41] There is nothing from my review of the Limitations Act nor the Highway 407 Act which would explicitly exempt the 407 ETR from Ontario’s limitation regime, nor is there anything that prescribes a separate limitation period for the toll debt. Presumptively the toll debt owed to the 407 ETR is, in my view, subject to sections 4 and 15 of the Limitations Act.

[…]

[43] In my view it would take explicit language in the 407 Act, and or an exception provided for in the Limitations Act, to give to the 407 ETR an ability to make a claim free of any limitations defence. No such language can be found in the 407 Act, nor is there any exception in the Limitations Act.

The 407 ETA’s second argument was that the applicable limitation period was 15 years pursuant to the transponder lease agreement Mr. Day signed. It argued that the agreement was valid under section 22 of the Limitations Act, 2002, which permits parties to extend a limitation period by agreement.

This argument also failed. Section 22(5) allows for the variance and exclusion of limitation periods under the act in respect of “business agreements”. The act defines “business agreement” as “an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002”. The Consumer Protection Act, 2002 defines a consumer as “an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes.”

The lease agreement could not be a business agreement:

[51] The application for the Transponder Lease signed by Mr. Day makes quite clear on its face that he is signing for personal use as opposed to business use. The 407 ETR must have therefore known of the distinction between a consumer applying for a transponder in his personal capacity versus someone acting in his business capacity. Mr. Day, when he leased the transponder, did so as a consumer as defined by the Consumer Protection Act. As such, the 407 ETR cannot rely upon the 15 year limitation period set forth in the Transponder Lease Agreement, as the 407 ETR does not fall within the exception set forth in section 22(5)(1) of the Limitations Act given that it only applies in respect of business agreements. The Transponder Lease Agreement as signed by Mr. Day was not a business agreement.

This serves as a reminder to carefully word agreements excluding the Limitations Act, 2002.

The 407 ETA’s last argument was that the limitation period commenced when Mr. Day’s license plate went into “denial”, and not, as Mr. Day argued, on the date the 407 ETA issued each invoice. The Highway 407 Act empowers the 407 ETR to ask the Registrar of Motor Vehicles to deny the renewal of a license plate associated with outstanding 407 invoices.

Justice Edwards undertook a discovery analysis. He focussed on the criterion in section 5(1)(a)(iv) of the Limitations Act, 2002, whereby a party must discover that, “having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”:

[57] It would be difficult to argue that the 407 ETR would not have the means to discover when an invoice is unpaid. In this age of computers it would undoubtedly be possible for the 407 ETR to have available to it the necessary information to determine that with the non-payment of an invoice 30 days after its issuance, that in fact “injury, loss or damage had occurred”. To require the 407 ETR to issue a claim for every unpaid invoice would not be an effective means, nor would it be an appropriate means to seek its remedy. The invocation of section 5(1)(a)(iv) of the Limitations Act is not a question of discoverability, but rather an application of proportionality, common sense and the effective means emphasized by the Divisional Court in 407 ETR Concession Company Limited (supra).

To my knowledge, this is a novel reading of section 5(1)(a)(iv). If there’s a standard definition of “appropriate”, it’s “legally appropriate” (see Markel Insurance Company of Canada v. ING Insurance Company of Canada at para. 34). This section is mostly invoked to delay the commencement of a limitation period while the underlying damage, though discovered, is trivial and a claim for damages is legally inappropriate. Here the issue isn’t the triviality of the 407 ETR’s damage, but the burden of imposing a limitation period that would oblige it to commence thousands of claims.

If this proportionality approach to section 5(1)(a)(iv) finds traction, I look forward to seeing how the courts determine the balance. If the prospect of thousands of actions means a claim is not legally appropriate, what of the prospect of just a thousand actions, or five hundred, or fifty? How much burden must there be to prevent a claimant from discovering its claim?

Another implication of Justice Edwards’s analysis is to give the 407 ETR control of the commencement of the limitation period. It’s the 407 ETR that initiates a plate denial. In theory, the 407 ETR could wait years before causing the limitation period to run, subject only to the 15 year ultimate limitation period, and enjoy the benefit of accruing interest. This gives defendants no security that they “will not be held to account for ancient obligations”, a fundamental purpose of limitations legislation (see M.(K.) v. M.(H.)).

Ontario: The Court of Appeal reminds us to respond to limitations defences by delivering a reply

October 10, 2014 Leave a Comment

The Court of Appeal decision in Collins v. Cortez is a reminder that plaintiffs may respond to a limitations defence by delivering a reply. Plaintiffs needn’t plead facts supporting a discovery argument in the Statement of Claim in anticipation of a limitations defence.

In Collins, Cortez moved to dismiss Collins’s personal injury claim on the basis that it was commenced two years after her accident and statute-barred by the expiry of the limitations period. Justice Gordon granted the motion. He gave effect to the presumption in section 5(2) of the Limitations Act, 2002 that the limitation period commenced on the date of accident. He held that because Collins did not plead discoverability facts in her Statement of Claim, she couldn’t make out a section 5(1) discoverability argument.

The Court of Appeal allowed Collins’s appeal:

In the normal course, if a limitations defence is raised, as here, in a statement of defence, and the plaintiff relies on the discoverability principle, the material facts relevant to discoverability should be pleaded in reply. I disagree with the conclusion of the motion judge that the appellant was required to plead the facts relevant to discoverability in her statement of claim. The expiry of a limitation period is a defence to an action that must be pleaded in a statement of defence. As such, discoverability, which is relevant to the limitations defence, need not be anticipated by a plaintiff and addressed in her statement of claim [citations omitted].

Update: Failing to deliver a Reply won’t necessarily bar a plaintiff from arguing discoverability.

Ontario: In loss transfer claims, each request for indemnification has its own limitation period

October 6, 2014 Leave a Comment

Economical Mutual Insurance Company v. Zurich Insurance Company has brought certainty to the limitation of loss transfer claims between insurers. In a loss transfer claim, each Request for Indemnification is an independent cause of action with its own limitation period.

The facts are straightforward. A person was injured in a motor vehicle accident in July 2005. Economical responded to her accident benefits claim and made payments to her. The truck that struck this person was insured by Zurich. Economical provided a Notice of Loss Transfer to Zurich in November 2005. Economical subsequently forwarded four Requests to Indemnification to Zurich in January 2006, February 2008, November 2009, and a final one in December 2011. Zurich didn’t pay. Economical commenced arbitration.

Zurich’s position was that the limitation period had expired. It argued that the limitation period commenced on the date of Economical’s first Request for Indemnification and Economical commenced arbitration more than two years later.

The arbitrator rejected this argument. She relied on the Court of Appeal decision in Federation Insurance Company of Canada v. Kingsway General Insurance Company, [2012] OJ No 1505, in which the Court held that the limitation period for a loss transfer claim runs from the date of the Request for Indemnification, to conclude that each request is a distinct claim subject to its own limitation period, not the limitation period applicable to the first request.

Justice Lederer upheld the arbitrator’s decision. He found that Zurich sought to treat the loss transfer as if it were based on the underlying tort, “the negligence that was the cause of the motor vehicle accident”, when it’s not a tort but a statutory cause of action.

Justice Lederer relied on State Farm Mutual Automobile Insurance Co. v. Dominion of Canada General Insurance Co., a case decided under the old limitation act, for the principle that there is “no reason to apply the principles of limitation that have been developed in the common law of torts” to statutory causes of action. Instead, he reasoned, it’s more appropriate to apply the principles developed in the law of in contract:

The better analogy is to claims in contract, say for the payment of rent under a lease or for some product purchased over time. If a tenant or purchaser stops paying monthly rent or installments and no action is commenced for more than two years after the first payment is missed, it would not be the case that the landlord or the seller would lose out on its ability to sue for every and all future failures to pay. Rather, the entitlement to sue would remain for all payments not made within the preceding two years.

[…]

The limitation period should not be applied as it would be in common law torts. The proposition that no new action or claim would have to be commenced is equally true in the analogy to contract claims to which I referred earlier. If a claim is made for a failure to pay rent or to make periodic payments in the furtherance of the purchase of some product, it is unlikely that a new claim would be required for each failure that occurs after an action has begun.

There’s no faulting this conclusion: if each Request for Indemnification is a new cause of action as the Court of Appeal held in Federation Insurance, then each request has its own limitation period. However, the analysis is a surprising reversion to the previous limitation regime. The Court’s consideration of whether a loss transfer claim is better analogised to a claim in tort or contract could almost make a lawyer nostalgic for the days when the classification of an action was the first step in determining the applicable limitation period.

Since 2004, the law hasn’t distinguished between actions that sound in contract, tort, equity, or anything: the Limitations Act, 2002 applies alike to all claims “to remedy an injury, loss or damage that occurred as a result of an act or omission”.

Also since 2004, it’s section 5 of the Limitations Act, 2002 that determines when a limitation period commences:

Discovery

(1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(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; and

(b) 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). 2002, c. 24, Sched. B, s. 5 (1).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved. 2002, c. 24, Sched. B, s. 5 (2).

The question under section 5 is when Economical suffered its loss—non-payment of the Requests for Indemnification. This was apparently on the date of the requests. Because the requests are individual losses and not one loss, by operation of section 5(2), the limitation period for each is presumed to have commenced on its date.

Zurich’s non-payment of Economical’s first Request for Indemnification couldn’t have commenced the limitation period for subsequent requests, because Economical couldn’t have suffered a loss for non-payment until it made the request (assuming, as appears to have been the case, that it doesn’t follow from the non-payment of one request that the insurer won’t pay the subsequent requests).

A first party-party insurer like Economical could of course rebut the section 5(2) presumption and argue pursuant to section 5(1) that it discovered its loss on a later date . For example, a first-party insurer may only disover that the second-party insurer won’t pay a request sometime after the request is made (see G.J. White Construction Ltd. v. Palermo (1999), 7 C.L.R. (3d) 13).

It’s anyone’s guess why the Court rejected a section 5 analysis in favour of the old classification of actions approach. My theory is that counsel are very fond of The Law of Limitations and insist on using it until there is a new edition, which, thankfully, is forthcoming.

Ontario: Being Slovenian affects when you discover a claim

September 10, 2014 Leave a Comment

Slovenians may discover claims against each other more slowly than claims against people of other nationalities. In Miletic v. Jaksic, Justice Price inferred from the “power-distance index” that the Slovenian national culture created a relationship of dependency between two Slovenians , and that this dependency had an impact on when one discovered his claim against the other.

Justice Price’s decision summarises the general facts nicely:

[1]         Bozidar Miletic emigrated from Slovenia to Canada in 1996. In 2002, he began working as a machinist for George and Nada Jaksic, also natives of Slovenia, at a machine shop that the Jaksics had owned and operated since 1984.

[2]         On September 21, 2006, Mr. Miletic entered into an agreement with the Jaksics whereby he believed the machine shop business, Micro Precision Machining Limited, was sold to him. In fact, the shares of the business were never transferred to him, and the Jaksics continued to manage it.

[3]         Mr. Miletic, believing that he now owned the machine shop business, and that the Jaksics worked for him, made payments to them as salary and/or installment payments of the purchase price for his shares. It wasn’t until Nada Jaksic died in February 2010 that Mr. Miletic first gained access to the business’ financial records, and learned that it had owed substantial tax arrears, even when he had entered into his agreement to buy it, and was in dire financial difficulty.

[4]         When Mr. Miletic consulted James Wheeler, the lawyer he thought had acted for both him and the Jaksics in the sale of the business to him, he discovered that Mr. Wheeler had represented only the Jaksics, and was now not prepared to assist him. He therefore retained another lawyer, who began the present action on his behalf, to recover the funds he had paid to the Jaksics.

[5]         Mr. Jaksic and his wife’s estate counterclaimed for the unpaid balance of the purchase price for the business. They now bring the present motion, pursuant to Rule 20.04 of the Rules of Civil Procedure, for summary judgment dismissing Mr. Miletic’s action against them on the ground that it is statute barred and discloses no cause of action. They also move for summary judgment against Mr. Miletic on their counterclaim

The Jaksics argued that the limitation period commenced in 2006 when Mr. Miletic purchased Micro Precision and ought to have discovered his claim. Justice Price rejected this argument and found that the claim was not discoverable until June 2010:

[93]      Mr. Miletic’s relationship with the Jaksics did not break down until June 2010. In so far as his ownership of Micro Precision was concerned, Mr. Miletic had no reason to suspect foul play until after Ms. Jaksic died and he discovered that:

(1)    Mr. Wheeler had not, in fact, been his lawyer;

(2)    The shares were not transferred to him in 2006;

(3)   The Jaksics had not resigned as directors at that time;

(4)   The company had owed a substantial tax liability throughout the period from when the Agreement was signed until 2010.

[94]      While Mr. Miletic would have liked to see the Jaksics leave the company, he did not consider it proper to force them out. He continued to pay Mr. Jaksic a salary until May 2010. Had he known that he had a claim against the Jaksics, he would have stopped paying their salaries. I find that that it was not until June 2010, when he retained Mr. Garvey, that Mr. Miletic knew that he had a cause of action against the Jaksics or Mr. Wheeler.

[95]      Mr. Miletic’s relationships with Mr. Wheeler and the Jaksics were ones of dependence. The Jaksics were older than Mr. Miletic, they had been his employers, and had been officers and directors of Micro Precision, with intimate knowledge of its business, since 1984. Both Mr. Miletic and the Jaksics were Slovenian, and the evidence supports an inference that the Slovenian culture which they shared is high in the power-distance index [citation to http://geert-hofstede.com/slovenia.html].

[96]      I find that, at the very least, Mr. Miletic relied heavily on the Jaksics to handle the financial affairs of the business, and that he relied on both them and Mr. Wheeler in concluding that he had become the owner of Micro Precision in 2006. This Court, in Sheeraz et al. v Kayani et al., found that s. 5 of the Limitations Act must be interpreted in a way that takes account of a relationship of dependence [quotation ommitted]

[97]      I find, in all the circumstances, including Mr. Miletic’s dependence on the defendants, that his claim was not discoverable until June 2010.

What distinguishes this decision is Justice Price’s recognition of the power-distance index (curiously, apparently without the benefit of any expert evidence). A CanLII search suggests that this is a first in Canadian jurisprudence. Mr. Miletic’s counsel Anser Farooq deserves credit for a novel argument.

The index is a component of the cultural dimension theory developed by the Dutch social psychologist Geert Hofstede. This theory analyses systematic differences in national cultures on four primary dimensions: power distance (PDI), individualism (IDV), uncertainty avoidance (UAI) and masculinity (MAS).

The Hofstede Centre, which hosts the website cited by Justice Price, defines power distance:

Power distance deals with the fact that all individuals in societies are not equal – it expresses the attitude of the culture towards these inequalities amongst us. Power distance is defined as the extent to which the less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally.

This is the Hofstede Centre’s power distance ranking for Slovenia:

Slovenia scores high on this dimension (score of 71) which means that people accept a hierarchical order in which everybody has a place and which needs no further justification. Hierarchy in an organization is seen as reflecting inherent inequalities, centralization is popular, subordinates expect to be told what to do and the ideal boss is a benevolent autocrat.

Should you be curious, Canada has a score of 39. Here, we are told, hierarchy exists for convenience.

It remains to be seen whether the cultural dimension theory gains traction as a factor in the discovery analysis. On its face, the theory is compelling. Any plaintiff would be pleased to envoke a high power-distance index to defeat a limitation defence (Malaysians take note: your national culture has the highest index at 104). Nevertheless, this case can only go so far as a precedent; it’s evident that the power index theory wasn’t determinative in the analysis. The facts were such that had the parties been native Canadians (or Austrians, with an index of 10) rather than Slovenians, Mr. Miletic would still have commenced the action in time.

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

September 10, 2014 Leave a Comment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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