Ontario: Court of Appeal on rolling limitation periods and contractual limitation periods

The Court of Appeal decision in Marvelous Mario’s Inc. v. St. Paul Fire and Marine Insurance Co. is a noteworthy addition to “rolling limitation period” jurisprudence.

The appellants sought coverage under the business interruption cover of a commercial insurance policy issued by the respondent.  The policy contained a contractual limitation period:

ACTION: Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.

The trial judge held that the claim for business interruption losses was an ongoing claim and subject to a rolling limitation period.  The appellants discovered it on a date more than a year before commencing the coverage action.  However, it was subject to a rolling limitation period, a new claim accrued each day the appellant sustained a business interruption loss.  Those days within a year of the action give rise to timely claims.

The Court of Appeal rejected this reasoning.  First, it considered the nature of a rolling limitation period:

[35]      The jurisprudence suggests that a rolling limitation period may apply in a breach-of-contract case in circumstances where the defendant has a recurring contractual obligation. The question is not whether the plaintiff is continuing to suffer a loss or damage, but whether the defendant has engaged in another breach of contract beyond the original breach by failing to comply with an ongoing obligation. In cases where there have been multiple breaches of ongoing obligations, it is equitable to impose a rolling limitation period.

Second, it found that the trial judge erred by considering whether the appellants were continuing to suffer damages rather than whether the respondent was breaching a recurring contractual obligation:

[37]      In my view, where the trial judge erred was in focussing her analysis on the question of whether the appellants were continuing to suffer damages rather than on the issue of whether the respondent had a recurring contractual obligation. Unlike Pickering Square, where the tenant had a recurring obligation to occupy the premises every month during the term of the lease, the respondent was not obliged to make recurring payments. Rather, the policy covered business interruption losses and the respondent was obliged to pay those losses in their totality, subject to any limits in the policy. The fact that there was a 24-month cap on the business interruption losses does not convert the respondent’s obligation to indemnify into a recurring contractual obligation. Therefore, this was not a proper case for the application of a rolling limitation period.

[38]      The appellants knew as of the closing date for the sale of the businesses that they no longer had the assets under their control and that consequently they would thereafter suffer business interruption losses. While the precise amount of the damages was unknown, the appellants knew at that point that they had suffered loss or damage and under the policy they were obliged to commence a claim within one year. The fact that the extent of damages may not be known with precision does not stop the commencement of the limitation period: Peixeiro v. Haberman, 1997 CanLII 325 (SCC)[1997] 3 S.C.R. 549, at para. 18. The Second Action was consequently time-barred in its entirety.

This reasoning raises some interesting issues (which, I note sheepishly, I missed entirely when writing about the trial decision).

First, a word on the “rolling limitation period”.  The court’s language suggests that it’s an equitable principle: “In cases where there have been multiple breaches of ongoing obligations, it is equitable to impose a rolling limitation period”.  This isn’t quite right.

Statutory limitation periods apply to causes of action.  Subject to certain exceptions, one limitation period applies to one cause of action (in the case of the Limitations Act, one basic and one ultimate limitation period apply to one “claim”, which derives from a cause of action).

When there are circumstances that cause multiple causes of action to accrue periodically, one limitation period applies to each cause of action.  In the case of a contractual obligation that recurs daily (the court’s example), each day the defendant fails to perform the obligation a discrete breach of contract occurs that gives rise to a discrete cause of action.  Each discrete cause of action has its own limitation period.

Because these limitation periods have the same length, it will appear as if one limitation period commences anew each day,  The limitation period appears to roll.  This is the “rolling limitation period”.

A rolling limitation period is accordingly just convenient way to describe multiple limitation periods of the same length commencing regularly and consecutively.  It’s not a special kind of limitation period that exists independently of the statutory limitation scheme to be invoked as equity requires.

On my reading, the Court’s analysis is correct.  The Court found there was one cause of action that accrued on a particular date. There were no multiple causes of action, and there were accordingly no multiple limitation periods that could appear to roll.

All of this is to say that I question the value of the “rolling limitation period” in limitations analyses.  What purpose does it actually serve?  Instead of asking whether there is a rolling limitation period, you might just as easily, and certainly more accurately, ask whether there are recurring causes of action.

Now for the second issue: I’m doubtful cause of action accrual, or causes of action generally, had any place in the parties’ limitations analysis.

The limitation period is contractual.  It reflects the parties’ agreement on when the insured can sue the insurer.

The limitation period commences on the occurrence of the “loss or damage” and bars “absolutely” an action “against the insurer for the recovery of any claim” under the policy (that is, a claim for indemnification).

The triggering event is not the accrual of a cause of action, but the occurrence of the “loss or damage” for which the insured claims indemnification.  I suspect the policy provided coverage for some business interruptions that don’t arise from actionable misconduct.  This means the insured could seek recovery for a claim for indemnification of a loss that has nothing to do with a cause of action.

This makes it bewildering that the parties appear to have agreed that common law discovery applied to this limitation period

As I read the provision, its language excludes discoverability of any kind. The limitation period commences on the date of an event—the occurrence of loss or damage—and expires absolutely one year later.  The word “absolutely” would seem an explicit bar to discoverability or the suspension of time.  If the parties intended for discoverability to apply, they could have used language like “…unless commenced within one year next after the insured could first reasonably have learned of the loss or damage”.

It’s also impossible to apply common law discovery to a limitation period that commences on the date of an event rather than on the accrual of a cause of action.  Discovery is of a cause of action: the rule provides that a cause of action accrues when a plaintiff can first reasonably discover its material facts.  This is why the rule doesn’t apply to statutory limitation periods that commence on the date of an event (like s. 38 of the Trustee Act) .

Further, discovery is always in relation to the cause of action that gives rise to the proceeding.  In this case, the cause of action giving rise to the proceeding was the breach of the insurance agreement, and this is the cause of action to which the contractual limitation period applies.  The discovery of some of other cause of action that may have resulted in the event that is the trigger of the limitation period wouldn’t in the normal course be material to the commencement of time.  It’s so unusual for the limitation of one cause of action to be determined by the accrual of another cause of action that if the parties intended this to be so I’d expect explicit language to that effect in their agreement (I’ve never seen such language).

More generally, because this is a contractual limitation period, the parties ought to have grounded their positions in the language of the policy.  The material question strikes me as being whether the “loss or damage” occurred within the meaning of the policy each day the business interruption lasted, or on the date of the event that caused the business interruption.  This is a question of policy interpretation.

Without having read the policy, I see arguments on both sides.  I think the strongest argument is the one the court accepted.  The day of the peril that caused the business interruption—the transaction—caused the appellants to suffer the “loss or damage” for which they sought indemnification.  That the interruption lasted days goes to quantifying the loss, not when it occurred.  I would think the appellants’ notification would have been helpful; it’s easy to imagine that the appellants filed one notification in regards of the business interruption, which might have indicated they considered there to be one loss. I’m not sure why this didn’t appear to be part of the record.

The counterargument is that each day of business interruption was a new occurrence of loss.  This is effectively the rolling limitation period argument, except not one based on cause of action accrual.

I welcome your thoughts on this!

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 Solicitors2012 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 Apartments2012 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. Day2016 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. Baum2016 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.


Federal: Where does a cause of action arise?

The limitation period in s. 39(2) of the Federal Courts Act applies when a cause of action arises otherwise than in a province:

(2) A proceeding in the Federal Court of Appeal or the Federal Court in respect of a cause of action arising otherwise than in a province shall be taken within six years after the cause of action arose.

When does a cause of action arise in a province? The Federal Court of Appeal’s decision in Canada (Attorney General) v. Liang clarifies:

[19]           A cause of action is a set of facts that provides the basis for an action in court: see Markevich, at paragraph 27. A cause of action arises in a province when all of the elements of the cause of action are present in that province: see Canada v. Canada Maritime Group (Canada) Inc.1995 CanLII 3513 (FCA)[1995] 3 F.C. 124 at page 129, 185 N.R. 104Apotex v. Sanofi-Aventis2013 FCA 186 (CanLII) at paragraph 105, [2015] 2 F.C.R. 644. The question as to which facts constitute the plaintiffs’ cause of action and where they arose does not appear to have been canvassed in the Federal Court and it was not debated on this appeal. Given the importance of the question for these litigants and for the jurisprudence, I would allow the appeal in part and return this question to the Federal Court, to be decided as directed by the case management judge.

Ontario: damage occurs when there is a change in position


In Sirois v. Weston, the Court of Appeal cites its decision in Hamilton for the principle that damage occurs when the plaintiff suffers a change in a position, not when the change of position monetises into a specific amount:

[11]      … the plaintiff suffers damage sufficient to complete the cause of action when he enters into the transaction, not when the loss is monetized into a specific amount.

This is an essential principle in any limitations analyses.  The Limitations Act applies to “claims” (as defined by s. 1) pursued in court proceedings, and damage is an element of a “claim”.

What is not an essential principle in any Limitations Act analysis is the accrual of the cause of action.  Cause of action accrual determined the commencement of time under the former act.  If you look it up, you’ll see that limitation periods commenced when the cause of action arose.  Now look at the Limitations Act, and you’ll see that the words “cause of action” do not appear at all.  This is because MAG recommended removing the cause of action as determinative of the commencement of time in 1991 because three centuries or so of cause of action accrual had demonstrated that it was a pretty lousy animating principle of a limitations scheme.