Ontario: confusion in the Court of Appeal on the historical limitation of demand obligations

The Court of Appeal decision in Michel v. Spirit Financial Inc. includes the following paragraph that compels me to pedantry:

[14]      The trial judge made a finding of fact that all the advances made by Michel to Kramer and Spirit were loans. The loans were advanced from 2000 to 2009, during which time the Limitations ActR.S.O. 1990, c. L.15 was largely replaced by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. On January 1, 2004 the basic limitation period for demand loans was changed from six years from the date of the loan to two years from the date of the demand: Hare v. Hare2006 CanLII 41650 (ON CA)83 O.R. (3d) 766 (C.A.), at para. 11 and Limitations Act, 2002, at s. 5.

Here are the issues:

  1. The Limitations Act didn’t change the limitation of demand loans when it came into force on January 1, 2004. Section 5(3) wasn’t present in the initial version of the Limitations Act, which didn’t address the discovery of a claim arising from demand obligations at all.The Court cites Hare, but Hare actually holds that, under the version of the Limitations Act in force when it was decided, a demand obligation was actionable as of the funds being advanced and not the date of the demand.  This was manageable under the Former Act, which applied a six-year limitation period, but it’s problematic with a two-year limitation period.  This caused the Legislature to amend the Limitations Act in 2008 to add s. 5(3), which makes presumptive discovery of a claim arising from a demand loan the date of the demand for repayment.

    Frankly, it’s surprising that the Court would misstate the development of the law so materially.

  1. It’s misleading to say that the Limitations Act “largely” replaced the Former Act. The Limitations Act and the RPLA together entirely replaced the Former Act.  To be fair, the RPLA is Part I of the Former Act repackaged, and in that sense the Limitations Act only partially replaced the Former Act.  Nevertheless, this statement suggests that some part of the Former Act remains in force.  It doesn’t.

BC: demand loans v. contingent loans

Kong v. Saunders provides a helpful overview of the limitation periods applicable to demand loans and contingent loans under the previous Limitations Act.  While the new Limitations Act recently turned two years old, it will be some time before it applies to all new actions, so there remains value in reviewing these concepts.  These are relevant paragraphs:

[17]        The previous Limitation Act applies to this case because it was still in effect at all materials times prior to the commencement of the underlying action.  Under s. 3(5) of that Act, the residual six-year limitation period, which applies in this case, began to run on the date on which the right to bring the action arose.

[18]        The jurisprudence has established a distinction between demand loans and contingent loans in respect of the commencement of the running of the limitation period.  Demand loans are, of course, loans payable on demand.  Contingent loans are loans that are payable on a future date or upon the occurrence of a specified event.

[19]        The limitation period in respect of contingent loans begins to run on the repayment date or the occurrence of the contingency.  This is because an action for repayment of the loan cannot be brought prior to the repayment date or the occurrence of the contingency, as the case may be.

[20]        It may seem intuitive that the limitation period in respect of demand loans begins to run on the date of the demand for repayment, but this is not so.  The reason is that the law has developed in a manner that it is not necessary for demand to be made before action can be brought for repayment of the loan.  This means that an action may be brought at any time after the demand loan is made.  As a result, the limitation period begins to run on the day the loan is made.

[21]        The above principles have been previously accepted by this Court in one of the cases relied upon by Mr. and Mrs. Kong, Berry v. Page, where Mr. Justice Wallace said the following at 247 (B.C.L.R.):

            The characterization of the loan as either a contingent loan or a demand loan determines whether or not the action is statute barred under theLimitation Act. It is well established that the cause of action accrues, and the statute of limitations runs, from the earliest time at which repayment can be required (Chitty on Contracts, 25th ed. (1983), vol. I, para. 1843, p. 1024). For a demand loan, the statute of limitations runs as of the date of the advancement of the funds, and not from the date of the demand. No demand is necessary in order for the cause of action to arise: Barclay Const. Corp. v. Bank of Montreal (1988), 1988 CanLII 2898 (BC SC), 28 B.C.L.R. (2d) 376 at 381, [1988] 6 W.W.R. 707, 40 B.L.R. 150 (S.C.); Heubach v. Sprague, 41 Man. R. 292, [1933] 2 W.W.R. 99, [1933] 3 D.L.R. 647 (C.A.).

            Case law supports the proposition that if money is lent to be repaid at a particular time in the future, or upon the happening of a specified contingency, then the cause of action arises at the time specified or upon the happening of the contingency: Ingrebretsen v. Christensen, 37 Man. R. 93,[1927] 3 W.W.R. 135 (C.A.); Re Gould; Ex parte Garvey, 1940 CanLII 89 (ON CA), [1940] O.R. 250, [1940] 3 D.L.R. 12 (C.A.). In these circumstances, the cause of action does not arise, and the statute of limitations does not run until the contingency is satisfied.

[22]         A more recent decision of this Court, Ewachniuk Estate v. Ewachniuk, 2011 BCCA 510 (CanLII), has also acknowledged these principles.  In that case, the Court held that a loan payable one year after demand fell within the category of a contingent loan, with the result that the limitation period did not begin running on the day the loan was made.  The reason is that an action could not have been brought for repayment of the loan on the day the loan was made because the demand and the lapse of time after the demand were conditions precedent to the bringing of an action.

[23]        The common law is the same in other provinces: see, for example, Johnson v. Johnson, 2012 SKCA 87 (CanLII).  Interestingly, with the new Limitation Act, British Columbia has joined Alberta and Ontario in specifically addressing the limitation period for a demand obligation.  Section 14 of the newAct effectively provides that the limitation period does not begin running until demand is made.

Ontario: For limitation purposes, an “Undertaking” can be a demand obligation

In Bossio v. Nutok Corporation, Justice Kershman held that a document referred to as an “undertaking” can still be a demand obligation for the purposes of section 5(3) of the Limitations Act, 2002:

 [224]     While the demand in the case at hand is referred to as an Undertaking, it does not set out the specific amount of debt owing, and it is not signed by the lenders or their authorized agents, the Court finds that, on this particular set of facts, sufficient demand has, nonetheless, been made (See: Dow v. Canadian Commercial Bank, 1986 CarswellOnt 4633, at paras 20 and 26). The Court is persuaded by the fact that the demand provided notice in writing, required immediate repayment via an immediate payment plan, set a deadline for repayment, as well as a reasonable period of time for repayment of 50% of the debts. Moreover, the fact that Mr. Bossio signed the demand ensured that notice was provided and received by the borrower, fulfilling the underlying purpose of the demand: to notify the borrower of the lender’s “right to immediate repayment of such loans”.

Justice Kershman found that the demand was delivered more than two years before the action was commenced, and was therefore barred by the expiry of the limitation period. If you’d like a reminder why the lender’s delivery of a demand causes the limitation period to commence, notwithstanding the apparent meaning of section 5(3), see the Court of Appeal decision in Hare v. Hare.

Ontario: Condo owners take note, a special assessment may not be a demand obligation

Valentina Vasilescu Tarko et al. v. Metropolitan Toronto Condominium Corporation 626 (MTC 626) et al. holds that a special assessment levied on a condo owner is not a demand obligation within the meaning of section 5(3) of the Limitations Act, 2002. The section provides as follows:

Demand obligations

For the purposes of subclause (1) (a) (i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made.

Because the assessment provided a date for repayment, it wasn’t a demand obligation:

The appellants suggested that the Special Assessment was subject to s. 5(3) of the Limitations Act concerning demand obligations. A debt obligation that does not specify a date for repayment is a demand obligation. See Skuy v. Greenough Harbour Corp., 2012 ONSC 6998 (CanLII), 10 B.L.R. (5th) 146, at para. 31. The 2011 Special Assessment was made payable in three instalments, the first of which was July 1, 2011. Accordingly, the Special Assessment was an obligation which did specify a date when it was payable and it is not therefore a demand obligation. Section 5(3) of the Limitations Act has no application.

In his decision, Justice Marrocco also emphasised that there is no requirement for a limitations decision to refer to the specific wording of the Limitations Act,2002:

The appellants argued that the Deputy Judge’s oral reasons did not refer to the specific wording of the Limitations Act. The Deputy Judge was not required to refer to the specific wording of the Limitations Act.  A review of the oral reasons reveals that the Deputy Judge considered the relevant factors set out in s. 5(1) of the Limitations Act in deciding to stay the appellants’ claim. The Court of Appeal in Ali v. Triple 3 Holdings Inc., 2002 CanLII 45126, at para. 4,¸stated that “an appellate court should not presume that the judge of first instance was not aware of or failed to apply the appropriate legal test merely because the test is not explicitly set out in the judge’s reasons.” A judge’s reasons are adequate if they demonstrate that judge has considered the relevant factors and important issues in the case. In R. v. Sheppard, 2002 SCC 26 (CanLII), [2002] 1 S.C.R. 869, at para. 42, the Supreme Court quoted with approval the words of Major J. in R. v. R.(D.), [1996[ 2 S.C.R. 191: “where the reasons demonstrate that the trial judge has considered the important issues in a case, or where the record clearly reveals the trial judge’s reasons, or where the evidence is such that no reasons are necessary, appellate courts will not interfere.”

This is a point that bears remembering when considering whether to appeal from a limitations judgment, particularly from a judgment of the Small Claims Court.