The Supreme Court on the application of common law discovery

In Pioneer v. Godfrey, the Supreme Court considered the application of common law discovery to statutory limitation periods.  It is now the leading case on the subject.

The Court held that the common law discovery rule applies only when a limitation period runs from the accrual of a cause of action, or “some other event that can occur only when the plaintiff has knowledge of his or her injury”.

It doesn’t apply when a statutory limitation period runs from an event unrelated to the accrual of the cause of action.  This is because legislature displaces the discovery rule when linking the limitation period to an event unrelated to the plaintiff’s cause of action.

In determining whether a limitation period runs from the accrual of a cause of action, substance prevails.  Even where a statute doesn’t explicitly state that a limitation period runs from accrual, the discovery rule applies if the limitation period in substance commences on accrual of.

Thus s. 36(4) of the Competition Act, which the appeal concerned, is subject to discoverability:

[44]                          The text of s. 36(4)(a)(i) provides that no action may be brought under s. 36(1)(a) after two years from a day on which conduct contrary to Part VI occurred. From this, it is clear that the event triggering this particular limitation period is an element of the underlying cause of action. That is, the limitation period in s. 36(4)(a)(i) is triggered by the occurrence of an element of the underlying cause of action — specifically, conduct contrary to Part VI of the Competition Act. Therefore, it is subject to discoverability (Fanshawe College of Applied Arts and Technology v. AU Optronics Corp.2016 ONCA 621 (CanLII), 132 O.R. (3d) 81, at para. 18).

Justice Côté dissented.  When a limitation period commences on the occurrence of an element of a cause of action rather than the cause of action’s accrual, it does not necessarily follow that the discovery rule applies.  This is because the occurrence of the an element may not depend on the plaintiff’s knowledge:

[151]                     Conversely, “the occurrence of an element of the underlying cause of action” (Brown J.’s reasons, at para. 44) will not always fit within either category outlined above at para. 149. It may be that the occurrence of such an event does in fact depend on the state of the plaintiff’s knowledge, but unlike the accrual of a cause of action, this does not invariably follow as a matter of logical necessity. In Peixeiro, for example, this Court held that the point at which damages are sustained — a constituent element of (among other things) the tort of negligence — depends on when the plaintiff actually has knowledge of his or her injury. Knowledge will not form part of every element of the cause of action in negligence, however. A breach of a standard of care, for example, may occur years or even decades before the plaintiff first learns about it. Although such a breach is a prerequisite to a successful claim in negligence, it is also something that takes place without any regard to the plaintiff’s state of mind.

[153]                     With this in mind, I am respectfully of the view that my colleague’s approach is undermined by the well-settled principle that the discoverability rule is fundamentally a rule of statutory interpretation. The fact that a limitation period begins running upon the occurrence of anelement (and not upon the accrual or arising) of the plaintiff’s cause of action is not, on its own, indicative of any legislative intent regarding the applicability of the discoverability rule. As I have already indicated, my colleague’s conclusion is the same as the one reached by the Court of Appeal in this case and by the Ontario Court of Appeal in Fanshawe: in such circumstances, according to him, discoverability applies automatically. This, however, creates an arbitrary distinction between triggering events that are related to the cause of action and those that are not, despite the fact that both may occur independently of the plaintiff’s state of mind. How can it fairly be said that the legislature intended the discoverability rule to apply to one and not the other? Although knowledge is necessary for a cause of action to fully accrue to the plaintiff, it does not follow that an element of the cause of action also occurs only when the plaintiff has knowledge thereof.

[154]                     A preferable approach is instead one that considers each statutory limitation clause on its own terms, recognizing that a triggering event that relates to a cause of action can, but need not, be dependent upon the plaintiff’s state of mind. This approach is faithful to this Court’s jurisprudence, and respectful of the notion of discoverability as an interpretative tool and not a general rule that allows clear statutory wording to be disregarded. For my part, I would reaffirm the approach laid out in Fehr without any modification.

Thus discoverability doesn’t apply to the s. 36(4) limitation period:

[157]                     The wording of the limitation period set out in s. 36(4)(a)(i) provides ample support for the proposition that the two-year period commences independently of when the plaintiff first learns of the wrongdoing. Rather than having the limitation period commence upon the accrual of the cause of action (as was the case in Central Trust and M. (K.)), Parliament decided that it would instead commence on “a day on which the conduct was engaged in” — which, contrary to the position taken by my colleague, is not “wording to [the same] effect” as “accrual of the cause of action” (paras. 37 and 41). There is simply no link between this triggering event and the plaintiff’s state of mind; it is, in short, an “event which clearly occurs without regard to the injured party’s knowledge”. The Certification Judge’s reading of this provision led him to the same conclusion (para. 54 (CanLII)). It was the existence of conflicting jurisprudence on this point that caused him “not [to be] satisfied that it is plain and obvious that the discoverability principle can never apply to the limitation period in s. 36(4)” (para. 58).

[158]                     I acknowledge that the “discoverability rule has been applied by this Court even to statutes of limitation in which plain construction of the language used would appear to exclude the operation of the rule” (Peixeiro, at para. 38). However, a consideration of the context surrounding s. 36(4)(a)(i) lends further support to the conclusion that the discoverability rule does not apply.

[159]                     First, the cause of action in s. 36(1)(a) is based on two essential elements: (i) the defendant engaging in conduct contrary to any provision of Part VI, and (ii) the plaintiff suffering loss or damage as a result of such conduct. It is only upon the occurrence of both events that the plaintiff can commence proceedings on the basis of this statutory cause of action. Cognizant of this, and of the fact that conspiracies of this nature take place in secret, Parliament decided that the limitation period would not begin when the plaintiff actually sustained loss or damage, but rather when the defendant engaged in the prohibited conduct. It is important to keep in mind that the point at which the conduct is engaged in necessarily precedes the point at which a claimant will suffer loss or damage as a result of such conduct. I would also note that the offence under s. 45 is complete as soon as an unlawful agreement is made, meaning that the “conduct” is “engaged in” even if the agreement is not actually implemented or prices do not actually increase. It follows as a direct consequence of this legislative choice that the limitation period can in fact expire before the plaintiff is in a position to commence proceedings under s. 36(1)(a).

[160]                     Second, s. 36(4)(a)(ii) provides a mechanism for the plaintiff to advance a claim that may be barred by s. 36(4)(a)(i): even if two years have expired from the day on which the prohibited conduct was engaged in, the limitation period will restart on the day on which criminal proceedings relating to the impugned conduct are finally disposed of. While s. 36(4)(a)(ii) applies only where the alleged conduct contrary to Part VI is the subject of criminal prosecution, it nevertheless provides an indication that Parliament was aware of the strictness of s. 36(4)(a)(i) and chose to enact this provision as the only means of relieving against it.

[161]                     Third, and unlike claims subject to the general limitation period in British Columbia’s Limitation Act, S.B.C. 2012, c. 13, s. 21, Parliament has not subjected claims under s. 36(1)(a) to any ultimate limitation period. Interpreting s. 36(4)(a)(i) as commencing only when the underlying conduct becomes discoverable will therefore have the effect of leaving defendants at risk of lawsuit indefinitely. As Paul-Erik Veel helpfully observes, the result would be that “companies could face claims decades later, well after the employees involved in the alleged conspiracy may have left and documents lost, without any ability to defend themselves” (Waiting forever for the axe to drop? Discoverability and the limitation period for Competition Act claimsLenczner Slaght, August 12, 2016 (online)). This runs contrary to the certainty and evidentiary rationales that underlie the law of limitations.

[162]                     Fourth, the two-year limitation period was enacted by Parliament at a time when limitation periods were comparatively much longer. For example, the provincial limitations statutes that were in force at the time in Ontario and British Columbia set out a general limitation period of six years (The Limitations Act, R.S.O. 1970, c. 246, s. 45(1); Statute of Limitations, R.S.B.C. 1960, c. 370, s. 3). The relatively short limitation period at issue here, which commences even before the cause of action fully crystalizes, provides a further indication of the premium that Parliament placed on granting repose to defendants and encouraging diligence by potential plaintiffs.

I find Justice Côté’s reasoning more persuasive.  I say that with the qualification that I am not as conversant with common law discovery jurisprudence as I am with codified discovery jurisprudence.

That said, I am sufficiently conversant to recognise a curious fiction that underlies the court’s competing arguments.  For the most part, courts apply common law discovery to limitation periods that predate the rule.

Take for example the limitation period in s. 38(3) of the Trustee Act, which commences on death.  It predates the 1997 Supreme Court decision in Peixeiro which determined that discoverability was of general application.  Thus in 2000, the Court of Appeal in Waschkowski noted that “Until the later decision of the Supreme Court of Canada in Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549, 151 D.L.R. (4th) 429, it was not clear whether the discoverability rule applied to all limitation provisions, or whether its application depended on the actual wording of the statutory limitation”

Section 38(3) dates from 1990.  It’s possible, but doubtful, that the legislature drafted s. 38(3) as a response to, say, the early SCC discoverability decisions like 1986’s Central Trust.  However, it’s beyond doubt that the Legislature did not draft the limitation periods in the former Limitations Act mindful of the discoverability rule.  Some of those limitation periods were centuries old before discoverability was even a glimmer in the Legislature’s eye.

Similarly, it’s not clear to me how Parliament could have intended discoverability to apply to s. 36 of the Competition Act when that provision appears to have been enacted in 1985, a year before Central Trust.

So, the court really isn’t arguing about what Parliament intended subjectively, because Parliament didn’t know that discoverability was going to be a rule of general application.  Instead, the court is trying to rationalise common law discovery with limitation periods drafted before the rule existed.  I think Justice Côté’s approach is the soundest conceptually.

In that regard, I note another problem with the majority’s analysis.  If a limitation period commences on the occurrence of an event that forms part of a cause of action, and if discoverability applies, it would be possible to discover the event before the cause of action accrues.  The limitation period would commence before there is a legal basis for an action.  This wouldn’t happen with s. 36(4), but insofar as the majority is setting out a rule, it’s one with problematic implications.

There are two other noteworthy aspects of the decision:

First, the decision includes what is now the leading consideration of fraudulent concealment.  Importantly, the court clarifies that the doctrine does not require a “special relationship between the parties” as its conventional formulation suggests:

[53]                          While it is therefore clear that equitable fraud can be established in cases where a special relationship subsists between the parties, Lord Evershed, M.R. did not limit its establishment to such circumstances, nor did he purport to define exhaustively the circumstances in which it would or would not apply (see T.P. v. A.P., 1988 ABCA 352 (CanLII)92 A.R. 122, at para. 10). Indeed, he expressly refused to do so: “[w]hat is covered by equitable fraud is a matter which Lord Hardwicke did not attempt to define two hundred years ago, and I certainly shall not attempt to do so now” (Kitchen, at p. 249, emphasis added).

[54]                          When, then, does fraudulent concealment arise so as to delay the running of a limitation period? Recalling that it is a form of equitable fraud, it becomes readily apparent that what matters is not whether there is a special relationship between the parties, but whether it would be, for any reason, unconscionable for the defendant to rely on the advantage gained by having concealed the existence of a cause of action. This was the Court’s point in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd.2002 SCC 19 (CanLII)[2002] S.C.R. 678, at para. 39:

[Equitable fraud] “… refers to transactions falling short of deceit but where the Court is of the opinion that it is unconscientious for a person to avail himself of the advantage obtained” (p. 37). Fraud in the “wider sense” of a ground for equitable relief “is so infinite in its varieties that the Courts have not attempted to define it”, but “all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken” [Emphasis added.]

It follows that the concern which drives the application of the doctrine of equitable fraud is not limited to the unconscionability of taking advantage of a special relationship with the plaintiff. Nor is the doctrine’s application limited, as my colleague suggests, to cases where there is something “tantamount to or commensurate with” a special relationship between the plaintiff and the defendant (paras. 171 and 173-74). While a special relationship is a means by which a defendant might conceal the existence of a cause of action, equitable fraud may also be established by pointing to other forms of unconscionable behaviour, such as (for example) “some abuse of a confidential position, some intentional imposition, or some deliberate concealment of facts” (M. (K.), at p. 57, citing Halsbury’s Laws of England (4th ed. 1979), vol. 28, para. 919). In short, the inquiry is not into the relationship within which the conduct occurred, but into the unconscionability of the conduct itself.

Second, the majority formulates discoverability as applying when “a limitation period runs from the accrual of cause of action or knowledge of the injury”.   The language “knowledge of the injury” comes from Peixero, which takes it from the MB CA decision in Fehr, where it appears without any explanation.  I don’t know what it means.  Is it a reference to a circumstance where a wrong isn’t actionable unless it causes an injury that rises above a threshold?  I struggle to think of other scenarios where knowledge of an injury causes time to run, but knowledge of the cause of action wouldn’t.

It’s odd to me that the majority thought this would be so self-evident that no explanation was required.  At risk of a little (inexcusable) immodesty, the majority and the dissent cite the my text book: this is good indication that if I don’t know what it means, I’m not sure the court could reasonably assume it’s common knowledge.

 

 

Ontario: the misapplication of common law limitations principles

In Bailey v. Milo-Food & Agricultural Infrastructure & Services Inc., the Court of Appeal held that in a wrongful dismissal action, the cause of action for wrongful dismissal arises on the date of the termination notice:

[5]         The appellant submits that the motion judge erred in concluding that his cause of action for wrongful dismissal arose on the date he was provided notice and not on the last day he worked for Milo-FAIS. He argues that the motion judge’s reliance on Jones v. Friedman2006 CanLII 580 (ON CA)2006 CarswellOnt 120 (C.A.) in this regard was misplaced. His submission is that the motion judge erred by conflating actual dismissal with notice of future dismissal, since in Jones the date of dismissal, as pleaded, coincided with the date of notice. According to the appellant, subsequent trial decisions relying on Jones have continued to conflate these dates.

[6]         We do not give effect to this submission and decline to adopt the restrictive interpretation of Jones urged upon us by the appellant. In Jones the notice of termination was given on December 12, 1994 and the employment ended on January 31, 1995. The breach the appellant relied on occurred on December 12, 1994 when his employment was terminated without reasonable notice. This court fully appreciated the context, and decided the date of notice of termination was when the limitation period began. Jones stands for the principle that a cause of action for wrongful dismissal arises on the date of notice of termination. The motion judge made no error in his reliance on that case or in striking the wrongful dismissal claim.

This is an example of the misapplication of common law principles to a Limitations Act analysis.  Limitation periods under the Act commence on discovery of a claim, not the accrual of a cause of action.

The words “cause of action” do not appear in the Limitations Act.  It is the discovery of a “claim”, not a cause of action, that commences time.  This is by design.  Cause of action accrual was a leading grievance in the movement to reform the former limitations scheme; it required a confounding, even esoteric analysis that resulted in ambiguity and confusion.  Here are the essential differences between a “claim” and a cause of action:

  1. A “claim” as defined by the Limitations Act is materially different than a cause of action. A “claim” is purely a limitations concept, whereas a cause of action is what entitles a plaintiff to relief from the court.  A claim has only two factual components (wrongful conduct and resulting damage), whereas a cause of action may have multiple factual components (like negligent misrepresentation, which has five).  Damage is always a component of a “claim”, whereas it is not always a component of a cause of action (such as breach of contract).
  2. Discovery of a “claim” is materially different from discovery of a cause of action. Discovery of a “claim” requires knowledge that a proceeding is an appropriate remedy, whereas at common law, discovery of a cause of action requires knowledge of its material facts.  The appropriateness of a proceeding as a remedy is not a material fact of any cause of action.
  3. “Claims” and causes of action are connected. The cause of action informs the content of the “claim”.  The wrongful conduct in the cause of action is the wrongful conduct in the Claim.  The damage that is relevant to the wrongful conduct, whether it forms part of the cause of action or not, is the damage in the Claim.