Reconsidering mistakes of law and discoverability

Samuel Beswick, a Harvard legal scholar, studies the impact a mistake of law has on the discovery of a claim.  In Under the Limit‘s first guest post, he makes a compelling argument for reconsidering how Canadian limitations law might alter its approach to mistakes of law in the discovery analysis.

Mistake of law as a basis for extending the limitation period?

Common law countries have long determined that discoverability governs limitation on actions “grounded on” mistake (as the former Alberta statute put it) or that seek “relief from the consequences of” mistake (as the English Limitation Act provides). Back when the law of unjust enrichment was thought to allow restitution only for mistakes of fact, discoverability provisions had not much to do with mistakes of law. Now that the mistake-of-law bar has been abandoned, it is apt to ask: when can a mistake of law be discovered?

In England, this problem has driven multi-billion-pound-sterling unjust enrichment litigation, spurring private law scholars and confounding courts. The answer that the English courts have given, succinctly put in FII Test Claimants v HMRC, is that:

[372] … [I]n the case of a point of law which is being actively disputed in current litigation the true position is only discoverable … when the point has been authoritatively resolved by a final court.

I have recently sought to show that England’s answer to the discoverability of mistakes of law is arbitrary, jurisprudentially strained, internally inconsistent, and effects bad policy.

What’s remarkable (albeit it hasn’t to date been remarked on) is that this doctrine is also totally contradictory to Canadian precedent on this issue. The position in Canada, summarized in Hill v Alberta, is that:

[9] … Discoverability refers to facts, not law. Error or ignorance of the law, or uncertainty of the law, does not postpone any limitation period.

In Canada, time runs on mistake-of-law claims whether or not a claimant has discovered their mistake. This causes other problems, which I have endeavoured to draw out in a recent paper.

There is, however, a middle ground between England’s “authoritative judgment” understanding of limitation on mistakes of law and Canada’s “exception” to the discoverability principle, a full account of which will be appearing in the LQR. The short answer, though, is this: mistakes as to the law should be considered discoverable once a claimant is in a position to plead them in a statement of claim. Discoverability is not about finding out one’s legal position from a court. It is about having adequate time to be able to plead one’s case to a court.

 

Ontario: Highways are still subject to limitation periods

The Court of Appeal allowed the 407’s appeal of Justice Edward’s decision in 407 ETR Concession Company Limited v. Day.  Apart from settling the great question of how the passage of time limits 407’s claims for unpaid tolls, Justice Laskin’s decision suggests a maturity in s. 5(1)(a)(iv) jurisprudence.

 The circumstances of the claim are rather bewildering.  The defendant Day, a person of some means, refused to pay the approximately $13,000 plus interest he owed 407 for unpaid tolls.  407 sued him.  Day pleaded a limitations defence, and  407 brought a r. 21 motion to resolve questions of limitations law.  Justice Edwards determined when 407 discovered its claims against Day and rejected the validity of an agreement between Day and 407 extending the limitation period.  407 appealed.

Facts

Some facts are necessary to understand the limitations issue.

407 can collect its unpaid tolls by civil action in the courts or by license plate denial.  The statutory authorization for these two methods is set out in the Highway 407 Act, 1998.

When a person drives a vehicle on the 407, s. 13(1) of the 407 Act provides that the person in whose name the vehicle’s license plate is registered is liable to pay the tolls and related charges.

Sections 15(1) and (2) of the 407 Act provide that tolls are due and payable on the day 407 sends a toll invoice, and that interest begins to accrue 35 days later.  Section 15(3) provides the 407 with a cause of action for nonpayment .

407 can also initiate a license plate denial.  Under s. 16(1) of the 407 Act, if a toll isn’t paid within 35 days after 407 sends an invoice, 407 may send the person responsible for payment a notice of failure to pay.  If the debt remains unpaid 90 days later, s. 22(1) of the 407 Act entitles 407 to notify the Registrar of Motor Vehicles of the failure.  This notice puts the defaulting debtor into license plate denial.  Section 22(3) requires 407 to inform the recipient of a notice sent under s. 16(1) that 407 has given notice to the Registrar.

Once 407 notifies the Registrar, s. 22(4) provides that the Registrar must refuse to validate the vehicle permit issued to the recipient of the s. 16 notice at its next opportunity, and refuse to issue a vehicle permit to that person.  The Registrar’s next opportunity is typically the date the validation for a vehicle permit expires and must be renewed.  The Vehicle Permits Regulation under the Highway Traffic Act  provides that the maximum validation period for a vehicle permit is two years.

Lastly, s. 25 of the 407 Act provides that license plate denial is a complementary rather than exclusive remedy.

The r. 21 motion

407 raised two issues on the motion.

The first issue was the discovery of 407’s claim.  Justice Edwards held that 407 discovered its claim on the earliest date under the 407 Act that it could have notified the Registrar to put Day into license plate denial.

The second issue was the enforceability of the 15-year limitation period in Day’s transponder lease agreement with 407.  Justice Edwards held that 407 could not rely on s. 22 of the Limitations Act, which permits parties to contract out of the basic limitation period, because the lease agreement was not a “business agreement” as defined by that section.

The Court of Appeal’s analysis

Discovery of 407’s claim turned on s. 5(1)(a)(iv) of the Limitations Act: when, having regard to the nature of the loss, a proceeding would be an appropriate means to seek to remedy it.

Assessing the date when a civil action became an appropriate means for 407 to recover its loss required considering the purpose of s. 5(1)(a)(iv) in the context of the statutory regime under which 407 operates.

To give effect to the legislature’s intent in the 407 Act, the limitation period must be tied to the license plate denial process: ” The legislature enacted that process for a reason: it was not content to force 407 ETR to sue in the courts for unpaid toll debts. I fully agree with the Divisional Court that licence plate denial is an effective, necessary and indeed integral feature of an open access toll highway. Tying the start date of the limitation period to the licence plate denial process acknowledges the significance the legislature attached to that process for the collection of unpaid tolls.”

A civil action becomes appropriate when 407 has reason to believe that it will not otherwise be paid.  This is when the usually effective license plate denial process runs its course.  This happens when a vehicle permit expires for failure to a pay a toll debt; thereafter, a claim becomes an appropriate remedy to recover the debt and the limitation period commences.

Justice Laskin cited four reasons in support of this conclusion.

[40]      First, under s. 5(1)(a)(iv) of the Limitations Act, 2002, the date a proceeding would be an appropriate means to recover a loss must have “regard to the nature of the … loss”. So, in fixing the appropriate date, it may not be enough that the loss exists and the claim is actionable. If the claim is the kind of claim that can be remedied by another and more effective method provided for in the statute, then a civil action will not be appropriate until that other method has been used. Here, a claim will not be appropriate until 407 ETR has used that other method, without success.

[41]      […] licence plate denial – is far more effective than a civil action. By providing for licence plate denial, the legislature must be taken to have recognized its effectiveness. People who cannot renew their vehicle permits until they deal with their toll debts have a powerful incentive to pay.

[42]      The statistical evidence bears out the effectiveness of licence plate denial. 407 ETR issues over one million invoices a month. Nearly 70 per cent of those invoices are paid within one month, which means just over 30 per cent are not. Significantly, about 75 per cent of permit holders in default pay their toll debts after being advised the Registrar has sent a s. 22 notice. Of those, just over one half pay before or on the date their vehicle permits have to be renewed; the remainder pay after their vehicle permits have expired.

[43]      These statistics show that the motion judge’s start date – the delivery of a s. 22 notice to the Registrar – is too early in the process. It comes at the beginning of the process instead of where I think it should come, at the end. The licence plate denial process should be allowed to run its course. As the statistics show, most people, fearing the consequences, eventually pay after receiving a s. 22 notice. Only if the process fails to prompt payment does litigation become an appropriate means to recover the debt.

[44]      Second, in determining when a claim ought to have been discovered, s. 5(1)(b) of the Limitations Act, 2002 requires the court to take account of “the circumstances of the person with the claim”. 407 ETR’s “circumstances” differ from those of many other creditors. Highway 407 itself is enormously busy: 380,000 trips on an average workday. As a consequence, 407 ETR must process an enormous number of invoices, almost all for amounts of no more than a few hundred dollars apiece. And unlike, for example a credit card company, which can cancel a customer’s credit card for non-payment of a debt, 407 ETR cannot bar a defaulting debtor’s access to the highway.

[45]      407 ETR’s “circumstances” strongly suggest that requiring it to sue before finding out whether licence plate denial has achieved its purpose would be inappropriate. An important case on the significance of a plaintiff’s “circumstances” is the majority judgment in Novak v. Bond, 1999 CanLII 685 (SCC), [1999] 1 S.C.R. 808. In that case, McLachlin J. considered s. 6(4)(b) of British Columbia’s Limitations Act, R.S.B.C. 1996, c. 266, which provided that time did not begin to run against a plaintiff until “the person whose means of knowledge is in question ought, in the person’s own interests and taking the person’s circumstances into account, to be able to bring an action” […].

[46]      […] holding that time begins to run against 407 ETR before it knows whether licence plate denial has prompted payment would be unfair, or to use the word of our statute, would not be “appropriate”.

[47]      Holding that the two-year period begins after the licence plate denial process fails to prompt payment does not raise the concern Sharpe J.A. referred to in Markel Insurance Co. of Canada v. ING Insurance Co. of Canada2012 ONCA 218 (CanLII),109 O.R. (3d) 652, at para. 34. There, he said that “appropriate” must mean “legally appropriate”. By using that phrase he signified that a plaintiff could not claim it was appropriate to delay the start of the limitation period for tactical reasons, or in circumstances that would later require the court to decide when settlement discussions had become fruitless. In this case, however, 407 ETR seeks to delay the start of the limitation period for a legally appropriate reason: waiting until a statutorily authorized process has been completed.

[48]      A third consideration is what I take to be an important purpose of s. 5(1)(a)(iv). The overall purposes of limitation statutes are well-established and well-known: certainty, finality and the unfairness of subjecting defendants to the threat of a lawsuit beyond a reasonable period of time. But it seems to me one reason why the legislature added “appropriate means” as an element of discoverability was to enable courts to function more efficiently by deterring needless litigation. As my colleague Juriansz J.A. noted in his dissenting reasons in Hare v. Hare (2006), 2006 CanLII 41650 (ON CA), 83 O.R. (3d) 766 (C.A.), at para. 87, courts take a dim view of unnecessary litigation.

[49]      If the limitation period runs concurrently with the licence plate denial process, as would be the case under the motion judge’s start date, then there would be the real possibility of numerous Small Claims Court claims. And these claims would be needless because the vast majority of defendants would likely pay their debts to avoid having their vehicle permits expire. […]

[51]      Finally, although 407 ETR has discretion when and even whether to send a s. 22 notice to the Registrar, that discretion does not detract from the appropriateness of using the end of the licence plate denial process as the start of the two-year limitation period. In theory, I suppose, as Mr. Day contends, 407 ETR could use its discretion to manipulate the start date. But why, one may ask rhetorically, would it do so? Its commercial interests dictate otherwise.

Justice Laskin also overturned Justice Edwards’s decision on the second limitations issue: whether the lease agreement could extend the applicable limitation period.  Justice Edwards correctly found that the lease agreement was not a business agreement.  However, under s. 22(3) of the Limitations Act, parties can agree to contract out of the basic limitation period even in the absence of a business agreement:

[62]      Under s. 22(3), parties can only suspend or extend the two-year limitation period. Under s. 22(5), parties may vary or exclude altogether the two-year period. Importantly, in s. 22(6) “vary” is defined to include “extend, shorten and suspend”. Thus, parties to an agreement under s. 22(3), such as the transponder lease agreement, in which one party is a consumer, can suspend or extend the two-year limitation period. They cannot, however, shorten it. Only parties to a business agreement can also agree to shorten the two-year period. As Mr. Day’s transponder lease agreement extends the two-year limitation period to 15 years, it is enforceable under s. 22(3).

Day also argued that the 15-year limitation period was unenforceable at common law.  The common law imposes specific requirements on an agreement to vary a limitation period.  These include expressly referring to and excluding the application of the statutory limitation period.  Justice Laskin held that the Court of Appeal decision in Boyce is determinative of the issue:

[68]      The resolution of this issue and its interplay with s. 22 is governed by this court’s decision is Boyce v. The Co-operators General Insurance Co.2013 ONCA 298 (CanLII), 116 O.R. (3d) 56, leave to appeal refused, [2013] S.C.C.A. No. 296. […]

[70]      This court allowed Co-operators’ appeal. The panel held that the agreement was a business agreement, and at para. 16 held that an agreement could be enforceable under s. 22 without any of the requirements imposed by the motion judge:

We cannot accept that an agreement purporting to vary the statutory limitation period is enforceable under s. 22 of the Limitations Act, 2002 only if it contains the specific requirements set out by the motion judge. Nothing in the language of s. 22 offers any support for imposing these requirements. The only limitation in s. 22(5) is found in the definition of “business agreement”. No other limitation appears, expressly or by implication, and certainly no content related requirements appear in s. 22(5).

[71]      Instead, at para. 20, this court set out what was required for the enforceability of an agreement under s. 22:

A court faced with a contractual term that purports to shorten a statutory limitation period must consider whether that provision in “clear language” describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods. A term in a contract which meets those requirements will be sufficient for s. 22 purposes, assuming, of course, it meets any of the other requirements specifically identified in s. 22.

[…]

[74]      Specifically in response to Mr. Day’s contention, it is unnecessary to refer expressly to the exclusion of the two-year period. There was no express reference to it in the agreement in the Boyce case, yet this court held the agreement was enforceable under s. 22. Similarly, I would hold that the transponder lease agreement signed by Mr. Day is enforceable under s. 22(3) of theLimitations Act, 2002 and is not rendered unenforceable at common law.

Why this decision matters

I think the real significance of this decision is a s. 5(1)(a)(iv) analysis that suggests s. 5(1)(a)(iv) jurisprudence is maturing into a settled, useful aspect of the discovery analysis.  I note in particular Justice Laskin’s recognition of the novelty of s. 5(1)(a)(iv):

[33]      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.

Given the Court of Appeal’s enthusiasm for citing the common law discoverability rule and applying it to limitations analyses under the current Act, this is noteworthy and refreshing.  I’ve written about the damage wrought by the Court of Appeal decision in Lawless, which is frequently cited for its statement of common law discoverability.  If you use the common law test (knowledge of the material facts of a cause of action) to determine the date of discovery, it becomes awkward if not impossible to apply the s. 5(1)(a)(iv), because it’s not a material fact of any cause of action.

I also think Justice Laskin’s consideration of the meaning of “appropriate” is significant:

[34]      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.

In Markel, the Court of Appeal defined “appropriate” as “legally appropriate” and discouraged courts from giving it an “evaluative gloss”.  In this paragraph, Justice Laskin cites Brown rather than Markel.  Justice Feldman held in Brown that what is legally appropriate turns on the facts (it was not legally appropriate for the plaintiff in Brown to sue her doctor while he continued to treat her).  Justice Laskin later in his decision considered Markel, and found that it was legally appropriate for 407 not to sue Day until the statutorily authorised plate denial process completed.

The Court of Appeal may have defined “appropriate” as “legally appropriate”, but as a practical matter the meaning of “legally appropriate” seems to be settling as “what is appropriate in the circumstances of the case”. I think this is a reasonable approach, though it doesn’t bring any more certainty to the commencement of limitation periods.

Interestingly, Justice Laskin does not cite Justice Juriansz’s decision in Clarke, where he gave “appropriate” an especially expansive meaning (“appropriate” means having good reason to believe there is a legal claim).  Clarke‘s influence on s. 5(1)(a)(iv) jurisprudence may prove to be limited.

Justice Laskin’s analysis also raises some interesting questions:

  • A civil action became appropriate when 407 had reason to believe that it will not otherwise be paid. Does this reasoning apply to other claims arising out of non-payment of invoices? If I bill you for my services, does my claim become appropriate only when it becomes reasonable for me to believe that you won’t pay me?
  • The fact that 407 could remedy its claim against Day by “another and more effective method” was a consideration in the s. 5(1)(a)(iv) analysis. The more effective remedy was statutory, which I think will limit the relevance of this decision to other s. 5(1)(a)(iv) analyses.  Still, what if another more effective non-statutory remedy is available? For example, what if the statistics indicate that engaging a collection agency to recover my many small debts is more effective than small claims court? Will a legal claim only become appropriate when the collection agency’s efforts fail?

Ontario: Common law discoverability, and how it applies to the Competition Act

In Fanshaw College v. AU Optronics, Justice Grace held that the limitation period applicable to Competition Act claims is subject to discoverability. We wrote about it here.  The Court of Appeal has upheld this decision.

The appellant argued that the discoverability principle shouldn’t apply for the same reason that it doesn’t apply to section 38(3) of the Trustee Act: the limitation period is linked to a fixed event (in the case of the Trustee Act, death).  The Court rightly rejected this argument.  The limitation period in section 36(4)(a)(i) is linked to the accrual of the cause of action—the wrongful conduct—not a fixed event.  The term “conduct” in section 36(4)(a)(i) refers to the conduct giving rise to damages mentioned in section 36(1) (the statutory cause of action) and is a constituent element of the cause of action that is subject to the limitation period.

Apart from its significance to the competition bar, the decision is noteworthy because it includes a thorough discussion of the common law discoverability principle.  Common law discoverability became mostly academic in Ontario when the legislature codified it into sections 4 and 5 of the Limitations Act, but it remains relevant in certain circumstances.  I’m involved in a proceeding (ever more like Jarndyce and Jarndyce) that is subject to the previous limitations scheme and common law discoverability.

This is the Court’s discussion of discoverability:

[32]      The discoverability principle is a common law rule providing that “a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence”: Central Trust Co. v. Rafuse, 1986 CanLII 29 (SCC), [1986] 2 S.C.R. 147, at p. 224; see also Graeme Mew, Debra Rolph & Daniel Zacks, The Law of Limitations, 3rd ed. (Toronto: LexisNexis Canada Inc., 2016), at p. 75.

[33]      Discoverability is also an interpretive rule relevant to the construction of limitation statutes: Ryan v. Moore, 2005 SCC 38 (CanLII), [2005] 2 S.C.R. 53, at para. 23. As explained below, it provides certain presumptions for courts interpreting statutory limitation periods.

[34]      The approach for determining whether a particular statutory limitation period is subject to the discoverability principle was discussed by Twaddle J.A. in Fehr v. Jacob (1993), 1993 CanLII 4407 (MB CA), 14 C.C.L.T. (2d) 200 (Man. C.A.), at p. 206:

[T]he judge-made discoverability rule is nothing more than a rule of construction. Whenever a statute requires an action to be commenced within a specified time from the happening of a specific event, the statutory language must be construed. When time runs from “the accrual of the cause of action” or from some other event which can be construed as occurring only when the injured party has knowledge of the injury sustained, the judge-made discoverability rule applies. But, when time runs from an event which clearly occurs without regard to the injured party’s knowledge, the judge-made discoverability rule may not extend the period the legislature has prescribed.

The Supreme Court of Canada has endorsed this passage in Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549, at para. 37, and in Ryan, at para. 23.

[35]      Ryan is the latest statement from the Supreme Court of Canada on this issue. In that decision, at para. 24, Bastarache J. concluded as follows:

Thus, the Court of Appeal of Newfoundland and Labrador is correct in stating that the rule is “generally” applicable where the commencement of the limitation period is related by the legislation to the arising or accrual of the cause of action. The law does not permit resort to the judge-made discoverability rule when the limitation period is explicitly linked by the governing legislation to a fixed event unrelated to the injured party’s knowledge or the basis of the cause of action.

[36]      The applicability of discoverability is a matter of statutory construction. The jurisprudence noted above only provides presumptions and, in Ryan, at para. 23, Bastarache J. cautioned against applying the principle automatically or “systematically without a thorough balancing of competing interests”.

 

Ontario: modified objective discovery

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

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

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

This is how Justice Parfett applied the test:

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

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

[…]

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

 

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

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

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

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

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

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

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

[6]         We reject this argument.

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

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

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

Ontario: Justice Perell on the interaction of the Insurance Act and the Limitations Act

In Farhat v. Monteanu, Justice Perell provides a typically thorough analysis of the interaction between the Insurance Act‘s section 267.5 threshold provisions and the limitation period.

The plaintiff sued for damages for his non-pecuniary injuries from a motor vehicle accident. The defendant pleaded a limitations defence and the plaintiff moved for partial summary judgment to defeat it.

The defendant ventured a novel defence. She argued that pursuant to section 5(2) of the Limitations Act, there is a presumption that a claimant discovers a motor vehicle accident claim when the accident occurs.  Because the plaintiff’s lawyer stated that the plaintiff’s injuries were serious in correspondence to the defendant eight days after the accident, this presumption was rebuttable only by the lawyer’s direct evidence that he delayed issuing the claim within two years of the accident because he wanted medical confirmation that the serious injury met the section 267.5  threshold.

No case law supported the defendant’s argument, and Justice Perell held that the jurisprudence “about the effect of the threshold on the running of limitation periods stands strongly against” it:

[27]           There is no onus on a plaintiff to prove or show: (a) that the limitation period was considered and a conscious decision made not to commence an action; (b) that a procedure was put in place to review the conscious decision at some reasonable point in the future; and (c) that a decision was made when additional information was obtained and counsel moved expeditiously.

[28]           Whether all this demonstration of what the lawyer must show “ought” to be the case is neither here nor there, because what “is” the case under the law about the running of limitation periods is that when an action is not commenced within two years after the accident the only onus on the plaintiff is to show that he or she could not have discovered the case during the period of delay before commencing the action […].

[29]           Mr. Farhat’s claim is apparently based on chronic pain becoming a permanent serious impairment of an important physical, mental or psychological function. Much to the dismay of insurance companies of defendants, almost invariably, it will take several months to determine whether ongoing pain suffered as a result of an accident is a permanent serious impairment. It will typically, almost invariably, be the case that a plaintiff with only a chronic pain claim will not know that the claim surpasses the Insurance Act threshold until sometime after the date of the accident.

[…]

[31]           Given the statutory presumption that a limitation period begins to run from the date of the accident, the onus is on the plaintiff to persuade the court that the seriousness of his or her injury was not discoverable within the applicable limitation period and the plaintiff must also persuade the court that he or she acted with due diligence to discover if there was a cause of action: Yelda v. Vu, 2013 ONSC 4973 (CanLII) at paras. 29-30.

[32]           In Everding v. Skrijel, 2010 ONCA 437 (CanLII), approving Vosin v. Hartin, [2000] O.T.C. 931 (S.C.J.), the Court of Appeal held that in applying the discoverability principle of the Limitations Act, 2002, the court should consider the threshold requirements of the Insurance Act, and the Court of Appeal held that a plaintiff will not have discovered his or her claim before he or she knows they have a substantial chance to succeed in recovering a judgment for damages. A person cannot be expected to commence an action before he or she knows that the necessary elements as set out in the legislation can be established on the evidence: Hoffman v. Jekel, 2011 ONSC 1324 (CanLII) at para. 9.

[33]           In Lawless v. Anderson, 2011 ONCA 102 (CanLII), the Ontario Court of Appeal stated at para. 23:

  1. Determining whether a person has discovered a claim is a fact-based analysis. The question to be posed is whether the prospective plaintiff knows enough facts on which to base an allegation of negligence against the defendant. If the plaintiff does, then the claim has been “discovered”, and the limitation period begins to run: see Soper v. Southcott (1998), 1998 CanLII 5359 (ON CA), 39 O.R. (3d) 737 (C.A.) and McSween v. Louis (2000), 2000 CanLII 5744 (ON CA), 132 O.A.C. 304 (C.A.).

[34]           When a limitation period defence is raised, the onus is on the plaintiff to show that its claim is not statute-barred and that it behaved as a reasonable person in the same or similar circumstances using reasonable diligence in discovering the facts relating to the limitation issue: Durham (Regional Municipality) v. Oshawa (City), 2012 ONSC 5803 (CanLII) at paras. 35-41; Bolton Oak Inc. v. McColl-Frontenac Inc., 2011 ONSC 6657 (CanLII) at paras. 12-14; Bhaduria v. Persaud (1985), 1998 CanLII 14846 (ON SC), 40 O.R. (3d) 140 (Gen. Div.). The limitation period runs from when the prospective plaintiff has, or ought to have had, knowledge of a potential claim and the question is whether the prospective plaintiff knows enough facts to base a cause of action against the defendant, and, if so, then the claim has been discovered and the limitation period begins to run: Lawless v. Anderson, supra at para. 23; Soper v. Southcott (1998), 1998 CanLII 5359 (ON CA), 39 O.R. (3d) 737 (C.A.); McSween v. Louis, 2000 CanLII 5744 (ON CA), [2000] O.J. No. 2076 (C.A.); Gaudet v. Levy (1984), 1984 CanLII 2047 (ON SC), 47 O.R. (2d) 577 at p. 582 (H.C.J.).

[35]           In some limitation period summary judgment motions, it may be necessary to demonstrate the time at which a plaintiff acting reasonably knew about his or her claim, but this motion is not one of those motions. For the purposes of the motions in the case at bar, for Mr. Farhat to rebut the presumption found in s. 5(2) of the Limitations Act, he need only show that he could not have discovered his chronic pain claim during the period between the date of the accident, May 18, 2006 and June 18, 2006 (two years before the date the action was commenced), which I am satisfied he has done.

[36]           Perhaps ironically, because s. 267.5 (5) of the Insurance Act was introduced to eliminate minor personal injury claims, its effect has also been to protect such claims from the running of a limitation period for a period of time commensurate with how long it would take a reasonable person with the abilities and in the circumstances of the plaintiff to have discovered that the threshold for a claim has been surpassed.

[37]           A simple comparison between Mr. Farhat’s automobile accident claim and a slip and fall case demonstrates why the operation of s. 267.5 on limitation periods rankles the insurance defence bar. Visualize, if Mr. Farhat had gotten out of his parked van and slipped and fell on a sidewalk in disrepair, there would be no waiting for a medical report and the limitation period for his occupier’s liability claim would immediately have commenced to run.

[38]           The law, however, for the discovery of slip and fall claims is not affected by s. 267.5 of the Insurance Act. Section 267.5, however, does influence the running of limitation periods for motor vehicle accident non-pecuniary claims.

[39]           No doubt much to the chagrin of the defence bar, s. 267.5 (5) of the Insurance Act introduces some slack into the apparent rigidity of the presumption found in s. 5(2) of the Limitations Act, 2002. A plaintiff, and in some instances his or her negligent lawyer, can take comfort from this slack because the limitation period only begins to run when a sufficient body of information is available to determine whether the plaintiff has a claim that may meet the threshold. In this regard, I adopt the observations of Justice Langdon in Ioannidis v. Hawkings (1998), 1998 CanLII 14822 (ON SC), 39 O.R. (3d) 427 at pp. 433-434 (Gen. Div.), where he stated:

… [N]o one can seriously argue that the decision whether a particular injury meets the statutory criteria is an easy one or, perhaps more important, that it will be easy to predict the outcome of a motion to dismiss a claim which the defendant asserts is unworthy. Even in such a motion, the onus is upon the plaintiff to demonstrate that his or her injuries meet the statutory criteria. When one is seeking to apply the discoverability rule to the plaintiff in a case such as this, it behooves the court to grant a degree of latitude to a plaintiff before declaring that the limitation period has begun to run. … In practical terms, the question is not whether the plaintiff believes that her injury meets the criteria but whether there is a sufficient body of evidence available to be placed before a judge that, in counsel’s opinion, has a reasonable chance of persuading a judge, on the balance of probabilities that the injury qualifies. When such a body of material has been accumulated, then and only then should the limitation begin to run. This is not to say that the plaintiff is entitled to wait until he or she has an overwhelming case. It is only to say that the court must afford a degree of latitude to a plaintiff in making this very individual and complicated determination.

I have one quibble with this otherwise excellent decision.  The statement in paragraph 34 that a plaintiff discovers her claim when she “knows enough facts to base a cause of action against the defendant” is incorrect. A plaintiff subjectively discovers her claim on the date she knows each of the facts listed in section 5(1)(a) of the Limitations Act, including that a proceeding is an appropriate remedy (which is not a fact that bases a cause of action).

For the same reason, while there is a presumption that the limitation period begins on the date of a slip and fall accident pursuant to section 5(2) of the Limitations Act, it doesn’t necessarily commence on that date. It may be that the plaintiff can only reasonably discover that the claim is the appropriate remedy on a later date, and because the section 5(1)(a) criteria are conjunctive, the limitation period will not commence until this later date.  It’s simply wrong to analyse the commencement of the limitation period based on the accrual of a cause of action. (Consider this a second salvo in my fight against on diminishing the impact of Lawless on limitations jurisprudence).

Ontario: Discoverability applies to the Competition Act

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

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

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

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

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

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

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

whichever is the later […]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[…]

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

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

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

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

 

 

 

 

Ontario: Section 5 can require a plaintiff to bring a Wagg motion

In Lima v. Moya and Mata v. Moya, Master Haberman provides a detailed discussion of a plaintiff’s obligations under the Limitations Act, 2002 to investigate potential parties prior to the expiry of the limitation period. The relevant paragraphs are below.

Two issues bear noting. Firstly, Master Haberman refers to the discoverability doctrine and its application to the section 4 general limitation period.  Technically speaking, this is incorrect.  Section 5, which is the codification of the common law principle of discoverability, determines the commencement of the general limitation period.

Secondly, Master Haberman held that a plaintiff’s obligation to take reasonable steps to investigate a potential claim can include bringing a Wagg Rule 30.10 motion (see this helpful explanation of Wagg motions). She found it “inconceivable” that personal injury counsel would be unfamiliar with this procedure for gaining access to police records, and that the failure to bring such a motion in this case “amounts to a lack of due diligence, such that discoverability cannot be relied on” (at paras. 95, 117).

[59]        The applicable limitation period here is two years, as per s. 4, of the Act, so it expired in July 2011, subject to the application of the discoverability doctrine.   The Act states that a party is presumed to have known of all necessary matters to start its claim on the day on which the act or omission on which the claim is based occurred, so that the plaintiff bears the onus of establishing that the presumption should be ousted.

[60]        Discoverability is discussed in s.  5(1)(b) of the Act, which states that:

A claim is discovered on the earlier of 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).

[61]        Case law has interpreted first ought to have known to mean would have found out had they used reasonable diligence.  Thus, a plaintiff is bound to start his claim within two years of becoming aware of the material facts on which it is based having been discovered, or ought to have been discovered by the plaintiff by the exercise of reasonable diligence. (see Central Trust Co. v. Rafuse 1986 CanLII 29 (SCC), [1986] 2 SCR 147).

[62]        Where the plaintiff relies on their failure or inability to learn all of the facts they deem necessary to start their claim against a particular defendant, the onus is on him to lead cogent evidence to the effect that it would have been inappropriate or abnormal for him to have investigated further during the life of the limitation period (see Mercurio v. Smith [2011] OJ No. 5040).

[63]        In Aguonie v. Galion Solid Waste 1998 CanLII 954 (ON CA), 1998 CANLII 954, the Ontario Court of Appeal discussed the why discoverability was a necessary addition to the law of limitations.  One of the scenarios considered was a case where the seriousness of the injuries sustained by a plaintiff was not clear within the two-year limitation period.  Thus, though it might appear that a plaintiff was aware of all of the elements to allow the him to know he had a claim and against whom it should be brought within the limitation period, the essential ingredient of whether his injuries were serious enough to pass threshold may not have crystalized during that time frame.  In such cases, the court was of the view that the deadline for starting the action should be extended until he could know, and discoverability principles were used as a basis for doing so.

[64]        The Court of Appeal has also looked at cases where identifying tortfeasors was the issue, pointing out that:

The discovery of a tortfeasor involves more than the identity of one who may be liable.  It involves the discovery of his or her acts, or omissions, which constitute liability.     

[65]        Again, the plaintiff will be held to a standard of having used reasonable diligence to obtain this information.

[66]        It is also understood that, in certain types of actions, identifying possible defendants is not always a straightforward exercise.  For example, in medical malpractice cases, hospital charts may be illegible or not all medical staff in an operating room or on duty in the emergency room may be identified.  In slip and fall actions, it may take time to determine all possible occupiers, or those contractually bound to maintain the upkeep of the property where the accident occurred.

[67]        It is understood that there will be cases where the plaintiff is not even aware that he is missing critical information leading to the identity of a possible defendant until examinations for discovery so he cannot be found at fault for failing to pursue further information (see Madrid v. Ivanhoe Cambridge Inc. 2010 ONSC 2235 (CanLII).

[68]        As the court pointed out in Western Mercantile Financial Corp. v. Ernst & Young Inc., 1999 ABQB 144 (CanLII), 11, CBR (4th) 149, not every item of evidence to support the plaintiff’s claim need be known before the limitation period commences to run.

[69]        Similarly, in Lawless v. Anderson, 2011 ONCA 102 (CanLII), the court stated:

Determining whether a person has discovered a claim is a fact-based analysis.  The question to be posed is whether the prospective plaintiff knows enough facts on which to base an allegation of negligence against the defendant.  If the plaintiff does, then the claim has been “discovered” and the limitation begins to run.

…Certainty of a defendant’s responsibility for the act or omission that caused or contributed to the loss is not a requirement.

[70]        Further, in The Investment Administration Solution Inc. v. Silver Gold Glatt & Grosman LLP 2011 ONCA 658 (CanLII), the Court of Appeal pointed out that discovery of new facts that might help the plaintiff’s case does not restart the limitation period.

[71]        In summary, as long as the identity of a potential tortfeasor is known and there is some information on which a court could make a finding of liability, there is no room for discoverability to delay the starting point of the limitation period.   Having enough information to form an allegation of negligence is quite different from having a winning case against a particular defendant – it is only the former that is required for the limitation clock to start running.

[72]        Further, while new information may emerge down the road that strengthens the case against the proposed defendant, this will not restart the clock.  A plaintiff should not wait until he has a good case against a defendant before starting a claim against him – as long as he has a case he can try to make, he must move within the limitation period.

[73]        In terms of what does and does not constitute due diligence in assessing whether grounds to sue a particular individual exist, Master Dash noted in Wakelin v. Gourley et al 2005 CanLII 23123 (ON SC), 76 OR (3d) 272, that if all the plaintiff does during the two years after an accident in order to identify tortfeasors is request a copy of the police report, that will not constitute reasonable diligence.

[74]        The plaintiffs rely on the case law that dictates the approach the court should take when dealing with motions such as there, where the issue of discoverability is on the table and there is a credibility issue.  They maintain that the case law suggests that leave should be granted to add the proposed party, while also allowing the defendant to plead the expiry of the applicable limitation period.

[75]        However, it appears clear that such an approach is only advocated when there is an issue of credibility that has to be resolved regarding who knew what and when, such that a trial is a better mechanism for resolving the issue (see Wong v. Sherman [1998] OJ No. 1534).   The “let it go and flesh out the facts at trial” approach is only appropriate when the basis for the discoverability of the claim must be explored in more depth and the evidence about it needs to be tested.

[76]        I should not have to point this out in 2015, the plaintiff’s only salvation in the face of an expired limitation period is the application of the discoverability doctrine.  The doctrine of “special circumstances” was clearly laid to rest in Joseph v. Paramount Canada’s Wonderland, 2008 ONCA 469 (CanLII), a decision of the Ontario Court of Appeal released in February 2008.   Cases that talk about lack of prejudice are generally dealing with special circumstances so the presence or absence of prejudice really is not a factor here.   When dealing with discoverability, the issue is whether someone discovered, or ought to have, that they have a claim, along with the essential elements that go with it to enable them to start an action.  This is a fact-based analysis [emphasis in original].