Ontario: Court of Appeal limits the impact of knowledge of a debtor’s assets on the limitation of foreign judgment proceedings

Endean v. St. Joseph’s General Hospital considers the impact of knowledge of a debtor’s exigible assets in the limitation of foreign judgment recognition proceedings.

The appellant obtained a default judgment against the respondent in a South Carolina court. The appellant commenced an Ontario action more than two years later to recognise and enforce the default judgment.  Twelve days later, the appellant secured an ex parte Mareva injunction against the respondent.  The respondent then obtained an order setting aside the Mareva injunction and holding that the appellant had commenced the Ontario action outside the limitation period.

The Court of Appeal upheld the motion judge’s decision.  It was legally appropriate for the appellant to commence his proceeding after the time to appeal the South Caroling judgment had expired.  The appellant’s subjective knowledge of whether the respondent had exigible assets in Ontario did not impact on the commencement of time.  This is perhaps the most interesting aspect of the Court of Appeal’s decision because it suggests that knowledge of a judgment debtor’s assets in Ontario won’t materially impact on the limitations analysis outside of unusual circumstances:

[55]      Now suppose the plaintiff settled with B before trial. In the Pierringer Order situation, the plaintiff reduces their recovery from A (who did not settle) by the amount it is determined that B is at fault. At trial, A and B are each found to be 50% at fault. The plaintiff reduces their claim against A by the amount of fault attributed to B. A’s net payment is the same 50%.

The Pierringer Order in the Hearsey Action Did Not Authorize Reduction of Recovery Due to Fault of Persons Other Than the Oral Surgeons

[56]      The Pierringer Order in the Hearsey Action is similar to the example above in so far as the hospital and the oral surgeons were concerned. For ease of reference, that Pierringer Order is attached as ‘Schedule A’ to these reasons. The hospital’s cross-claim against the oral surgeons in the Hearsey Action had been made so that the hospital could obtain indemnity from the oral surgeons if it was obliged to pay the plaintiff’s full damages. To the extent fault was attributed to the oral surgeons, the hospital could recover indemnity from them and thus reduce its net out of pocket expenditure. The Pierringer Order dismissed the cross-claim of the hospital against the oral surgeons. It did not prejudice the hospital by doing so, as it required the Hearsey appellants to reduce their claim against the hospital by the amount of fault that would be apportioned at trial to the oral surgeons, and it provided procedures whereby that determination could be made at trial. If that was all the Pierringer Order in the Hearsey Action did, it would meet the objectives generally ascribed to a Pierringer Order discussed above.

[57]      However, the effect the hospital argues for goes much further. According to the hospital, the effect of the Pierringer Order was to also reduce the Hearsey appellants’ recovery from the hospital by the amount of fault the trial judge might attribute to the manufacturer and the distributor. These were entities against whom the hospital had not claimed indemnity under the Negligence Act, and from whom the hospital had no practical ability to recover indemnity even if claimed. The Pierringer Order, if so interpreted, would do more than maintain a level playing field for the hospital compared to its pre-Order position. The effect of the interpretation the hospital seeks is to put the hospital in a better position than it was in before the Pierringer Order. Before the Pierringer Order, the hospital was at risk, if found at fault to any degree, to pay all of the Hearsey appellants’ damages without the ability to obtain indemnity from the manufacturer and distributor. This risk was on the hospital, regardless of the degrees of fault of the concurrent tortfeasors. As interpreted by the hospital, the Pierringer Order would free the hospital of that risk. The hospital would be placed in as good a position as it would have been had it claimed indemnity from the manufacturer and distributor and had the manufacturer and distributor been creditworthy and able to pay indemnity, rather than being bankrupt. No reason why this should be the case was suggested.

[58]      The Pierringer Order’s language, including that incorporated into the amended statement of claim, does not, taken as a whole, support this broader interpretation. Paragraph 5 of the Pierringer Order provides that the “Plaintiffs will only claim from the Defendant Hospital those damages, if any, arising from the actions or omissions of the Defendant Hospital”, and refers to the “Defendant Hospital’s several liability, or proportionate share of joint liability, as may be proven against it at trial”. But that must be read in light of the context and the other provisions of the Pierringer Order, which demonstrate that this was only intended to ensure the Hearsey appellants’ claim and recovery from the hospital did not include anything for the fault that may be attributed to the oral surgeons.

[59]      The Pierringer Order was made in the context of an action that included the oral surgeons and the hospital as defendants — no one else. It was made in the context of a settlement by the appellants with the oral surgeons against whom the hospital had cross-claimed. It dismissed the hospital’s cross-claim against the oral surgeons. It expressly provided that the court at trial may apportion fault among “all Defendants named in the Statement of Claim (emphasis added), which meant only the hospital and the oral surgeons. It did not refer to apportionment of fault to anyone else. And it provided procedures, including for the obtaining and use of evidence from and about the oral surgeons, clearly aimed at assisting the parties to present their cases on what fault should be apportioned to the oral surgeons. It provided no similar procedures regarding the fault of any other entities.

Ontario: Court of Appeal continues to disagree about limitations analyses (and clarifies that fraudulent concealment doesn’t apply to s. 5)

 

It’s not often that the Court of Appeal disagrees on a limitations issues (or at least until recently when there have been a number of dissents in limitations decisions), and it’s especially rare that the Court disagrees about whether there have been errors of fact.  That’s what make Zeppa v. Woodbridge Heating & Air-Conditioning Ltd. interesting.  Justice Brown, with Justice Strathy concurring, disagreed with Justice Feldman about what facts were necessary for the plaintiff to know that the defendant HVAC installer had caused or contributed to a faulty HVAC system.   

The motion judge found that problems with the HVAC system were necessarily the result of the defendants’ act or omissions because the defendant installed it:

It is crystal clear from these reports, as well as Christopher’s Examination, that the Plaintiffs knew long before February 2010 that the HVAC system was not functioning properly. Woodbridge was clearly responsible since they had installed the system

Justice Brown did not find any error with this reasoning:

[46]      Unlike my colleague, I see no error in the factual findings that would justify appellate intervention. The motion judge did not misapprehend the evidence. His findings were solidly grounded in the record before him. Accordingly, I would not give effect to this ground of appeal.

However, Justice Feldman didn’t agree that it necessarily followed from the fact of the HVAC problems that the defendant had caused or contributed to them:

[92]      The motion judge found, at para. 33, that “it was not necessary for Christopher to have knowledge of the fact that the Quietside boilers were installed improperly in order for the limitation period to commence running. What was needed was knowledge, actual or imputed, that he had a “claim” against Woodbridge.” This was a legal error.

[93]      In the circumstances of this case, knowledge of the improper installation was an essential element of discoverability of the appellants’ claims for negligence and breach of contract.

[95]      Until Woodbridge’s improper installation was revealed, the Zeppas knew that the system had many problems, but they did not know that the problems were caused by the act of improper installation by the respondent. They did not know of any act or omission by Woodbridge or the day it occurred.

[96]      In fact, when the Zeppas first came to Woodbridge with complaints, Woodbridge informed them that the problems with the system were due to lack of maintenance. There were no problems with the HVAC system itself and no suggestion that the problem was caused by improper installation. On the basis of Woodbridge’s assurances, the Zeppas entered into a two-year maintenance agreement. This cost them approximately $4600.

[97]      However, Woodbridge knew that maintenance would never fix the HVAC system. Woodbridge concealed the fact that its faulty installation of the boilers was the central cause of the Zeppas’ problems. Until Quietside revealed that fact to the Zeppas, Woodbridge’s fraudulent concealment prevented the Zeppas from knowing whom to hold responsible for the damage to their family home and why.

[99]      If the action had been pleaded as a breach of an implied warranty, or if Woodbridge had provided an explicit warranty, the Zeppas’ knowledge that the HVAC system was not working properly may have been sufficient to trigger the running of the limitation period. But that is not the claim here.

[100]   Problems that can be resolved through maintenance are not necessarily caused by the acts or omissions of the installer. The motion judge’s finding that the Zeppas’ problems were clearly caused by Woodbridge’s acts or omissions was not based on any evidence other than the fact that there were ongoing problems with the HVAC system. He treated the cause of action as if it were for breach of warranty and not for negligence or breach of contract in the installation of the system.

[101]   Mr. Zeppa first contacted Quietside because he had heard that its boilers were terrible and that was why Quietside was no longer operating in Canada, i.e. the boilers had a possible manufacturing defect or were inherently faulty. When he asked the manufacturer for assistance, Quietside responded to his inquiries with the letter that revealed Woodbridge’s faulty installation of the boilers and Woodbridge’s knowledge that its faulty installation was the cause of the problems.

[103]   Mr. Zeppa’s evidence demonstrates why knowledge that the HVAC system was not working properly was not enough to trigger the basic limitation period. In the face of Woodbridge’s assurances, Mr. Zeppa reasonably suspected that the boiler manufacturer may have been responsible for the HVAC problems. Woodbridge’s false assurances continued until late 2010.

I find Justice Feldman’s reasoning significantly more persuasive.  It’s not evident to me why the court considered it “crystal clear” that if the HVAC wasn’t working it was the installer’s fault.  Knowledge that the installation was faulty is not “the how it happened” that Justice Brown refers to (at para. 43) of his reasons, but prima facie knowledge of actionable conduct.  In the absence of prima facie knowledge that defendant at contributed to the loss, I don’t see how the plaintiff could have discovered the claim.  Perhaps there’s something in the record that explains this, but not on the face of the decision.

Two other aspects of the decision are noteworthy.

First, it reiterates that the principle of fraudulent concealment is not a consideration in a s. 5 analysis, a point on which the majority and the dissent agree.  This is because s. 5 achieves the same result:

[71]      The decisions in Dhaliwal and Kim, together with the plain language of ss. 4 and 5 of the Act, support the conclusion that there is no independent work for the principle of fraudulent concealment to perform in assessing whether a plaintiff has commenced a proceeding within the basic two-year limitation period. That is because the elements of the discoverability test set out in ss. 5(1)(a) and (b) address the situation where a defendant has concealed its wrong-doing. If a defendant conceals that an injury has occurred, or was caused by or contributed to by its act or omission, or that a proceeding would be an appropriate means to seek to remedy it, then it will be difficult for the defendant to argue that the plaintiff had actual knowledge of those facts until the concealed facts are revealed. Whether the plaintiff ought to have known of those matters, given their concealment, is a matter for inquiry under s. 5(1)(b).

[72]      If the defendant’s concealment of facts results in a lack of actual or objective knowledge by the plaintiff of the elements set out in s. 5(1)(a) of the Act, then the plaintiff does not discover his or her claim until the date the concealed facts are revealed to or known by the plaintiff, at which point time begins to run. That is to say, the analysis required by s. 5(1) of the Act captures the effect of a defendant’s concealment of facts material to the discovery of a claim.

Also note that this is now the leading description of the principle, as demonstrated by the Court’s reference to it in Endean.

Second, it contains a disappointing reference to Lawless:

[42]      As this court observed in Lawless, at para. 23, the question to be posed in determining whether a person has discovered a claim is whether the prospective plaintiff knows enough facts on which to base a legal allegation against the defendant. In support of that proposition, Lawless cited the decision of this court in McSween v. Louis (2000), 2000 CanLII 5744 (ON CA)132 O.R. (3d) 304 (C.A.), where Feldman J.A., writing for the majority, stated, at para. 51:

The question to be posed when assessing discovery is when the plaintiff had knowledge of the discovery matters, not knowledge of the facts necessary for a legal allegation (which is the question required by common law discovery).  Nevertheless, the Court’s point regarding the amount of knowledge necessary to satisfy the discovery matters—prime facie knowledge—remains valid without reverting to common law discovery principles to describe discovery under s. 5.

Ontario: A defendant’s expertise can impact on discovery even when the defendant isn’t a professional

 

The Court of Appeal’s decision in Presley v. Van Dusen is a reminder that a s. 5 analysis requires making findings with respect to each s. 5(1) discovery matter, and reliance on a defendant’s expertise may delay the appropriateness of a proceeding even when the defendant is not a professional.

This was an appeal from an appeal from a Small Claims Court trial decision.  The trial judge found that he could determine the commencement of the limitation period without considering s. 5(1)(a)(iv):

[9]         The trial judge did not consider the s. 5(1)(a)(iv) criterion as to when the appellants did know or should have known that a proceeding would be an appropriate means to remedy their claim. He gave the following reason for not considering s. 5(1)(a)(iv): “It is not necessary for me to make any determination under that subsection and I do not do so as I only have to find the earliest date and I have no difficulty, as I have said, in finding that that date was the spring of 2013.”

This is plainly an error of law; you can’t determine discovery without considering all four discovery matters.

The Divisional Court nevertheless upheld the trial judge’s decision.  Having determined when a reasonable person ought to have known of the discovery matters pursuant to s. 5(1)(b), it found that there was no requirement for the trial judge to make an explicit finding as to when the plaintiff ought to have known the matter in s. 5(1)(a)(iv).

The Court of Appeal overturned the Divisional Court’s order.  It was an error for the trial judge not to consider s. 5(1)(a)(iv).  The law required the trial judge to consider all four discovery matters:

[14]      The analysis of both the trial judge and the Divisional Court judge of ss. 5(1)(a)(iv), 5(1)(b) and s. 5(2) of the Limitations Act is flawed. The trial judge explicitly stated that he was not considering s. 5(1)(a)(iv). A determination under s. 5(1)(b) as to the date a reasonable person would have discovered the claim requires consideration of all four “matters referred to in clause (a)”. Similarly, the finding that there was insufficient evidence to rebut the presumption under s. 5(2) that the plaintiff knew all the matters referred to in s. 5(1)(a) cannot stand as there was no consideration of s. 5(1)(a)(iv).

[15]      This court has repeatedly held that consideration of when a proceeding was an appropriate means to remedy a claim is an essential element in the discoverability analysis and that failure to consider s. 5(1)(a)(iv) is an error of law: Gillham v. Lake of Bays (Township)2018 ONCA 667 (CanLII)425 D.L.R. (4th) 178, at paras. 33-34Kudwah v. Centennial Apartments2012 ONCA 777(CanLII), at paras. 1-2Har Jo Management Services Canada Ltd. v. York (Regional Municipality)2018 ONCA 469 (CanLII)91 R.P.R. (5th) 1, at paras. 21 and 35.

It’s common for the court to making a determination under s. 5(1)(b) without making explicit findings as to the plaintiff’s knowledge of the discovery matters (though I think everyone benefits from explicit findings).  What makes this case unusual, and something of an outlier, is that the trial judge made this s. 5(1)(b) determination while finding that it was unnecessary to consider one of the discovery matters.  That’s the kind of error that seems especially prevalent in the Small Claims Court.

The Court of Appeal undertook its own s. 5(1)(a)(iv) analysis, which is noteworthy for emphasising that the superior knowledge and expertise that might engage s. 5(1)(a)(iv) is not restricted to strictly professional relationships.  Accordingly, the plaintiffs could reasonably rely on the expertise of a person licensed to install septic systems:

[21]      These principles are applicable to the facts of this case. Van Dusen is licenced to install septic systems. The appellants contracted with him because of his special training and expertise. While the respondents argue he may not qualify as “an expert professional”, there can be no question he did have expertise upon which the appellants reasonably relied.

[22]      Moreover, reliance on superior knowledge and expertise sufficient to delay commencing proceedings is not restricted to strictly professional relationships: Presidential, at para. 26. I acknowledge that the previous cases where this court has made a finding that it was reasonable for the plaintiff to rely on the defendant’s superior knowledge and expertise have concerned defendants belonging to traditional expert professions. For instance, Brown v. Baum2016 ONCA 325 (CanLII)397 D.L.R. (4th) 161, involved a physician, Chelli-Greco v. Rizk2016 ONCA 489 (CanLII), involved a dentist, and Presidential MSH involved an accountant. However, recent Superior Court decisions have applied the superior knowledge and expertise prong of Presidential MSH to persons who are members of non-traditional professions or who are not professionals at all. For instance, in YESCO Franchising LLC v. 2261116 Ontario Inc.2017 ONSC 4273 (CanLII), the court found that s. 5(1)(a)(iv) applied in a franchisor-franchisee relationship where the franchisees relied on the franchisor’s superior knowledge and expertise, even though the franchisor was not a member of an expert profession. Similarly, in Barrs v. Trapeze Capital Corp., 2017 ONSC 5466 (CanLII), aff’d 2019 ONSC 67 (Div. Ct.) (CanLII), the Superior Court and the Divisional Court found that s. 5(1)(a)(iv) applied to investors who relied on the superior knowledge and expertise of their investment portfolio managers.

 

Ontario: an alternative resolution process that didn’t impact on the limitation period

Soleimani v. Rolland Levesque provides an example of an alternative resolution process that doesn’t render a proceeding an inappropriate remedy pursuant to s. 5(1)(a)(iv) of the Limitations Act.

Th action involved claims between neighbouring property owners arising out of alleged contamination of the plaintiffs’ property by hydrocarbons flowing from the defendant’s property.  Following the discovery of the contamination, the plaintiffs notified the Ministry of the Environment (MOE), which  became involved in addressing the contamination.

In response to the defendant’s limitations defence, the plaintiffs argued that the MOE’s involvement was a reasonable means to attempt to remediate the damage, and a claim wasn’t an appropriate remedy for that damage until eight years later when expert investigation directed by the MOE (and funded by the defendant) determined the source of the contamination.

The court rejected this argument.  The MOE’s involvement was not part of a dispute resolution process or mechanism: the MOE acts at its own discretion, it has no power to award damages, and the there could be no certainty as to when its involvement would come to an end:

[45]           In considering whether the MOE’s interventions in this case constitute a legally appropriate means to remedy the plaintiffs’ damages it is necessary to recognize that the provisions of the EPA do not provide a dispute resolution process or mechanism.  The steps the MOE chooses to take are in the MOE’s discretion.  The MOE has no power to award damages or compensation to the plaintiffs.  Neither the previsions of the EPA nor the facts of this case allow the court to say with any certainty when the MOE’s involvement would come to an end so as to determine when the limitation period might commence.

[46]           Moreover the MOE intervention cannot result in a declaration of responsibility for the contamination nor can it award damages for stigma nor the full recovery of legal, engineering and other costs and expenses nor damages for other economic losses, all as claimed in the plaintiffs’ statement of claim.

[47]           On the other hand, I recognize that the MOE has substantial powers in the exercise of their discretion to require the defendants to investigate the cause of and remediate contamination on both the defendants’ and the plaintiffs’ lands and to direct that this be done at the defendants’ cost.

[48]           The EPA broadly empowers the MOE to make orders to clean up contamination and prevent the discharge of contaminants into the environment.  For instance, pursuant to section 17 of the EPA, the Director has the power to issue “remedial orders” where a person has caused or permitted a contaminant to be discharged into the natural environmental.  This section empowers the Director to order that person to repair the injury or damage:

Where any person causes or permits the discharge of a contaminant into the natural environment, so that land, water, property, animal life, plant life, or human health or safety is injured, damaged or endangered, the Director may order the person to,

a)            Repair the injury or damage;

b)           Prevent the injury or damage; or

c)            Where the discharge has damaged or endangered or is likely to damage or endanger existing water supplies, provide temporary or permanent alternate water supplies.

[49]           Pursuant to section 157.1 of the EPA, a provincial officer can also order a person who owns or who has management or control or property to take “preventive measures” to:

(a)           Prevent or reduce the risk of a discharge of a contaminant into the natural environment;

(b)         Prevent, decrease or eliminate an adverse affect that may result from:

(i)            The discharge of a contaminant from the undertaking, or

(ii)           The presence or discharge of a contaminant in, on or under the property.

[50]           In determining whether a court action is an appropriate remedy pursuant to s. 5(1)(a)(iv) of the Act, Laskin J.A. in ETR Concession instructed that the court should consider (a) the nature of the plaintiffs’ loss; (b) the circumstances of the plaintiffs, and (c) efficiency of the court.

[51]           This is an environmental claim.  The major dispute between the parties has been, at least until very recently, whether the pollutants are emanating from the defendants’ land onto the plaintiffs’ land or, as the defendants claim, from the plaintiffs’ land onto the defendants’ land.  On the facts of this case, there can be no doubt that the MOE’s interventions have provided a means to determine the source of the contamination and remedial orders have been made.

[52]           The plaintiffs submit that given their particular situation, the MOE interventions may substantially reduce the plaintiffs’ damages and therefore it would be inappropriate to require the plaintiffs to prematurely resort to court proceedings while the regulatory process under the EPA is ongoing.

[53]           In my view the principal difficulty with the plaintiffs’ position is that there is no reasonable basis to ascertain when the MOE’s involvement will end.  To date, it has gone on in excess of eight years with no end point in site.  I agree with the defendants’ submission that the EPA does not in any sense establish an alternative adjudication or dispute resolution process for contamination claims.  While the MOE has significant remedial powers to direct the investigation and remediation of ground water contamination, these powers are outside the land owners’ control and are discretionary in nature.  These powers do not include any right to award economic damages or to grant declaratory orders, which is a significant component of the relief sought in this action.

[54]           The plaintiffs have argued that the limitation period should not run until the causation question was resolved (within the last two years) concerning the direction of flow of the contaminants.  They suggest that prior to resolving that issue it would have been unreasonable to commence court proceedings.

[55]           The plaintiffs emphasize the benefits they have achieved by allowing the MOE to deal with the contamination.  Thanks to the MOE exercising its statutory powers to direct the investigation and remediation of the groundwater contamination, the plaintiffs have avoided the considerable engineering costs of investigating the problem, of obtaining experts’ reports and of soil removal and other remedial measures.  They have also avoided or lessened the litigation risk of a possible determination that the contamination emanated from their own property, rather than the defendants’ property.

[56]           In effect, the plaintiffs can be said, in retrospect, to have made a wise economic choice in leaving the contamination issue in the hands of the MOE.  However this was manifestly a tactical decision made by the plaintiffs to avoid the costs and litigation risks of investigating their claim and establishing their case on liability and damages.  They chose to stand back for some four years prior to commencing this action to allow the MOE to move matters forward.  The case law is clear that tactical decisions will not toll the limitation period, see Markel and Presidential MSR.  As Mew J. observed in J.C. v. Farant at para 87:

Another recent decision, Gravelle (CodePro Manufacturing) v. Denis Grigoras Law Office2018 ONCA 396 (CanLII), reinforced the principle that a tactical decision to delay the commencement of proceedings will not, absent other factors – such as the pursuit of alternative means to resolve the very claim that I the subject matter of the action – delay the running of time.  At para. 6, the Court of Appeal stated:

 The appellant decided for tactical reasons not to bring his action against the respondents until the arbitration proceedings were completed.  He was entitled to make this choice, but he must live with the consequences of it.

[59]           In my view this position is untenable and inconsistent with the appellate case law binding on this court.  The circumstances triggering the running of the limitation cannot be a moving target incapable of being ascertained with the level of reasonable certainty required.  This would create a situation in which the plaintiffs essentially determine when the limitation period commences.

[61]           In my opinion the approach advocated by the plaintiffs and the intervenors ignores the requirement that the appropriate means exception in sub-section 5(1)(a)(iv) of the Act be restricted to factual situations in which the alternate avenue of redress is legally appropriate in the sense that the courts must not be required to interpret the parties’ communications or negotiations or, be required to analyze the significance of the technical findings of ongoing engineering studies and importantly, there needs to be a fixed end point.

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: another good “abilities and circumstances” analysis

 

The decision in Service Mold + Aerospace Inc. v. Khalaf is another good example of the court’s assessment of a plaintiff’s abilities and circumstances for a limitations analysis.  The fact that the plaintiff had no background or education in bookkeeping, accounting, or finances informed the court’s analysis of when the plaintiff could reasonably discover a fraud committed by his bookkeeper.

It’s also a noteworthy decision for the dubious (and unsuccessful) position taken by the defendant:

[21]           TD Bank acknowledges that the plaintiffs did not actually discover the fraud until early 2015 and relies on s. 5(1)(b).  The position of TD Bank is as follows:

1.         The plaintiffs ought to have discovered the claim at least by 2009 or 2010.  TD Bank takes the position that bookkeeper fraud is a well-known risk and a prudent businessman would have measures in place to control it.  Mr. Schuurman, in effect, turned a blind eye to the risk. TD Bank therefore invites me to dismiss the action.

To discover a claim, the plaintiff must know that the defendant has caused or contributed to his loss (and there is no “claim” as defined by the Limitations Act until loss occurs).  Whether the plaintiff was blind or not to a risk that ultimately resulted in his loss, until the loss occurred, the claim was not discoverable.  This position might support a contributory negligence argument, but it’s immaterial to a limitations defence.

Ontario: a good “abilities and circumstances” s. 5(1)(b) analysis

Lewis v. Plaskos is noteworthy for its findings regarding the plaintiff’s abilities and circumstances for the purposes of a discovery analysis.  The court doesn’t often make these findings explicitly (though it should).

The court found that plaintiff had the abilities of her experienced medical malpractice lawyer, and a reasonable experienced medical malpractice would be alert to the possibility that physician’s notes are incomplete.  It was accordingly unreasonable for the plaintiff, through her lawyer, not to consider the possibility and make the accordant inquiries:

[49]           The focus of the dispute is on sub-section 5(1)(b), Limitations Act, 2002.  In particular, the issue is whether the analysis of hospital records by Ms. McCartney has met the test of being objectively reasonable.

[50]           After the firm was retained by the plaintiffs, Ms. McCartney was assigned the task of reviewing the hospital records.  In that process, she was looking to see what was or was not done and why.  Ms. Cartney was considering who was responsible.  She knew this was a case of potential delayed diagnosis.  Those responsible were to be named as defendants in the statement of claim.

[51]           There are three preliminary matters that are of concern, namely delay, the state of the hospital records and the lack of notes by Ms. McCartney.

[52]           The hospital records were received by Ms. McCartney on or about October 14, 2011.  Thirteen months later, in November 2012, the review of those records commenced.  While Ms. McCartney was on a working maternity leave during part of that period of time, presumably meaning part-time attendance at the office and with responsibility for other files as well, the review process should have commenced much earlier.  Mr. Michael also had carriage of the file.  Other junior lawyers in the firm could have been asked to assist.

[53]           There is always a danger in waiting until the presumptive limitation period is about to expire.  The process can become rushed.  Due diligence was not met.

[54]           It is now known that Dr. Cameron failed to fully record her involvement with Ms. Lewis, particularly her consultation with Dr. Plaskos.

[55]           Litigation lawyers, particularly those involved in personal injury and medical malpractice cases, routinely review physician’s notes and hospital records.  These lawyers are aware of the dangers in conducting such review regarding illegible handwriting, abbreviated terms and incomplete recording.  The failure of physicians to fully record matters pertaining to a patient is often a topic in the litigation process, including at trial.  In the absence of records, physicians often have difficulty recalling specific events and discussions.

[56]           In my view, Ms. McCartney and Mr. Michael, both experienced medical malpractice lawyers, would have, or should have, been alert to the possibility the physician’s notes were incomplete.

[57]           The only contemporaneous note made by Ms. McCartney during her review and analysis of the hospital records was the summary previously mentioned.  The summary is incomplete, making no mention of her conclusions as now presented on this motion and lacking detail as to the analytical process undertaken.  Hence, on cross-examination, Ms. McCartney was unable to recall her state of mind when reviewing the records and the details of her thought process.  Like physicians, lawyers need to record all details of their involvement for future use.

[58]           The first step in the review process is to determine what was recorded.  When part of the record contains handwritten notes, the lawyer looks to see if such are legible.  There was a legitimate concern with Dr. Cameron’s handwriting and use of abbreviated terms.  Ms. McCartney and Mr. Michael, for example, looked at a key word and correctly concluded it to be “refused”.  “Radiol” was considered to be radiologist or radiology department.  When there is any concern as to what was written, it requires inquiry of the record keeper.

[59]           There are two conclusions Ms. McCartney made that are of critical importance.  First, she considered the phrase “will discuss with radiologist or radiology department re:  imaging” as connected to the preceding note “will check post void residual”.  Second, Ms. McCartney determined “MRI refused as normal rectal tone and no bilateral leg weakness” as Dr. Cameron declining to order an MRI.  Such are possible interpretations or conclusions but there are others that, in my view, are far more reasonable.

[60]           Just as physicians arrive at a “differential diagnosis” following examination of a patient, so too must a lawyer consider all reasonable options in their analysis of a case.

[61]           Connecting “will discuss with radiologist or radiology department re:  imaging” to “post void residual” is too restrictive.  The more reasonable interpretation is that Dr. Cameron was going to seek assistance in determining what further imaging tests were required.  At this point, Dr. Cameron was aware the lumbar x-ray, as interpreted by Dr. Plaskos, was inconclusive having regard to the nature of Ms. Lewis’ complaints.

[62]           Dr. Cameron’s note is all recorded under the time of 18:00 hours.  Ms. McCartney incorrectly assumed this represented one event.  But there are gaps in the recording and, having regards to the words used, it is more likely the record should have been seen as several separate recordings.

[63]           In this regard, the words “MRI refused” invites the question “by whom”.  Ms. McCartney’s conclusion that Dr. Cameron refused her own request is not reasonable.  It is contrary to normal use of English language and, as it follows the note “will discuss with radiologist …” with a gap in between, leads to the inference someone else is involved.  At a minimum, there are a number of possible interpretations and each must be pursued.  Indeed, Ms. McCartney acknowledged in cross-examination that one possible interpretation was that the MRI had been refused by someone else, but such a possibility did not occur to her at the time of her review.  It should have.

[64]           The failure to order an MRI in a timely fashion is central to the plaintiffs’ case.  Ms. McCartney knew that Dr. Plaskos was involved in interpreting an x-ray of Ms. Lewis on January 2, 2011, as had been requested by Dr. Reesor.  Ms. McCartney also knew that emergency department physicians will sometimes consult a radiologist as to what imaging to order or for an urgent MRI.  These factors, and others previously addressed, meant Ms. McCartney had to consider all reasonable scenarios.  Instead, she arrived at a conclusion without examining reasonable alternatives.  Her analysis, in result, was incomplete.

[65]           I conclude the analysis of hospital records by Ms. McCartney was not objectively reasonable, particularly having regard to her abilities and experience as a medical malpractice lawyer.

[66]           The cause of action occurred on January 2, 2011.  The limitation issue is with discoverability and so the presumptive limitation date of January 2, 2013 does not apply.

[67]           The statement of claim was issued on October 7, 2014.  Was it discoverable prior to October 7, 2012?  I conclude it was.  The medical records were received in October 2011.  A diligent review would have led to further inquiry.  The potential claim against Dr. Plaskos, in my view, was discoverable by December 31, 2011 and certainly long before October 7, 2012.

[68]           In result, I conclude the limitation period had expired prior to the statement of claim being issued.  The claim against Dr. Plaskos is statute-barred by operation of Section 5Limitations Act, 2002.  The claim against him must be dismissed.  I so order.

 

Ontario: Court of Appeal on adding a party after the presumptive expiry of the limitation period

The Court of Appeal decision in Morrison v. Barzo sets out in detail the test for adding a party to a proceeding after the presumptive expiry of the limitation period.  It’s now the leading decision on the subject.

To obtain leave, the plaintiff must first rebut the presumption in s. 5(2) of the Limitations Act by leading evidence as to the date of subjective discovery.  The plaintiff doesn’t need to show evidence of due diligence; due diligence is immaterial to subjective discovery:

[31]      The evidentiary burden on a plaintiff seeking to add a defendant to an action after the apparent expiry of a limitation period is two-fold. First, the plaintiff must overcome the presumption in s. 5(2) that he or she knew of the matters referred to in s. 5(1)(a) on the day the act or omission on which the claim is based took place, by leading evidence as to the date the claim was actually discovered (which evidence can be tested and contradicted by the proposed defendant). The presumption is displaced by the court’s finding as to when the plaintiff subjectively knew he had a claim against the defendants: Mancinelli, at para. 18. To overcome the presumption, the plaintiff needs to prove only that the actual discovery of the claim was not on the date the events giving rise to the claim took place. It is therefore wrong to say that a plaintiff has an onus to show due diligence to rebut the presumption under s. 5(2): Fennell, at para. 26.

Second, the plaintiff must establish a prima facie discovery argument by leading evidence as to why the claim couldn’t have been discovered through reasonable diligence:

[32]      Second, the plaintiff must offer a “reasonable explanation on proper evidence” as to why the claim could not have been discovered through the exercise of reasonable diligence. The evidentiary threshold here is low, and the plaintiff’s explanation should be given a “generous reading”, and considered in the context of the claim: Mancinelli, at paras. 20 and 24.

This is not a due diligence analysis.  While a plaintiff’s due diligence is relevant to the finding under s. 5(1)(b), the absence of due diligence is a not a separate basis for dismissing a claim as statute-barred.  This is so whether the expiry of the limitation period is at issue in a motion for summary judgment or in a motion to add a defendant.

When a claimant ought reasonably to have discovered a claim requires an evidentiary foundation.  The court can’t say merely that the claim was discoverable before the expiry of the limitation period without explaining why.  It may be that the court can only determine when discovery ought to have occurred at a later stage of the proceeding.  In such a case, the motion to add the defendant should be granted, with leave for the defendant to plead a limitation defence:

[30]      Reasonable discoverability of a claim under s. 5(1)(b) that precludes adding a party contrary to s. 21(1) requires an evidentiary foundation. The court must be satisfied that a reasonable person in the plaintiff’s circumstances ought to have discovered the claim, and the date of such reasonable discovery must be determined. It is not sufficient for the court to say that the claim was discoverable “before the expiry of the limitation period”, without explaining why. It may be that the date of reasonable discoverability can only be determined at a later stage in the proceedings, at trial or on a summary judgment motion. In such a case, the motion to add the defendant should be granted, with leave for the defendant to plead a limitation defence: Mancinelli, at paras. 31 and 34.

Conceptually, I recognise the distinction between the court assessing the plaintiff’s due diligence in investigating the claim against the proposed defendant, and the court assessing whether the plaintiff could through reasonable diligence have discovered the claim against that defendant.  However, in practice, I suspect this is a distinction without a difference.  In both cases, the plaintiff will lead evidence of the steps taken to investigate the claim—due diligence—and argue that she did what was reasonable to investigate the claim and still didn’t discover it.  The proposed defendant will lead evidence of some other step the plaintiff could have taken and argue that it was a reasonable step and would have led to discovery.  And so the adequacy of due diligence is always in issue.

The Court also make important points about the findings that are necessary in a limitations analysis.  The court must identify the claims in question, and then find when they were discovered.  This requires a specific finding of fact that answers the question asked by s. 5(1)(b):

[60]      Instead, the motion judge was required, after clearly defining the nature of the claims against the respondents on the evidence, and after finding no actual knowledge of the claims, to make a specific finding of fact as to when a reasonable person “with the abilities and in the circumstances” of the appellants “first ought to have known of the matters referred to in clause (a)”.

Ontario: Court of Appeal emphasises that discovery is contextual

The Court of Appeal’s decision in Fehr v. Sun Life Assurance Company of Canada is noteworthy for it its emphasis on the contextual nature of the discovery analysis:

[173]   However, when it came to assessing the limitation period defences applicable to the individual plaintiffs, the motions judge did not engage in a detailed examination of these idiosyncrasies. In particular, he did not consider the impact of each plaintiff’s circumstances and experiences on the critical issue of when each plaintiff discovered his or her claim or knew or ought to have known of the requisite facts grounding their claim. He failed to engage in an individualized and contextual analysis, and, instead, applied a broad presumption as to when they ought to have known of certain alleged misrepresentations.

[174]   An individualized and contextual analysis was necessary in this case for the very reason that misrepresentation claims are not generally amenable to class actions: people receive, process, and act upon written and verbal statements in different ways. Their behaviour varies depending upon a variety of factors, including their own particular circumstances, what specific representations and information they received and from whom, how they understood or processed those representations and information, the extent to which they relied upon them, and their own wishes and intentions.

[175]   An individualized and contextual analysis was particularly important in this case because, among other things: (a) there is a relationship of vulnerability between insurer and insured; (b) many of the plaintiffs are unsophisticated with respect to the insurance industry; (c) the insurance policies are complicated and not easily understood; (d) misrepresentations were made to some consumers and not others; (e) some or all of these misrepresentations were made by individuals on whom the plaintiffs might reasonably rely; (f) there is no evidence that the insurer expressly corrected the misrepresentations; and (g) the insurer may have reinforced or made further misrepresentations, to some or all of the plaintiffs, during the life of the policies.

Ontario: Court of Appeal affirms that discovery of a cause of action isn’t discovery of a claim

The Court of Appeal decision in Gillham v. Lake of Bays (Township) is noteworthy for two  reasons.

First, it uses the concept of the “claim” (which is the language of the Limitations Act) rather than the concept of the “cause of action” (which is not the language of the Limitations Act) for its limitations analysis.  See for example para. 20:

[20]      The overarching question in the discoverability analysis under s. 5 of the Act is whether the claimant knew or reasonably should have known, exercising reasonable diligence, the material facts stipulated under s. 5(1)(a) that give rise to a claim: Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors2012 ONCA 851 (CanLII), 113 O.R. (3d) 401, at para. 32. Section 1 of the Act defines a claim as “a claim to remedy an injury, loss or damage that occurred as a result of an act or omission”. Section 2(1) provides that the Act “applies to claims pursued in court proceedings” (with certain enumerated exceptions that do not apply here).

(A slight quibble: the s. 5(1)(a) matters do not give rise to a claim.  Only two facts—an act or omission resulting in injury, loss, or damage—give rise to a claim pursuant to its definition in s. 1.  Knowledge of the s. 5(1)(a) matter results in discovery of the claim.)

It even puts “cause of action” in quotation marks–presumably to distinguish it from a claim–in the context of stating that knowledge of the material facts of a cause of action is not discovery of a claim:

[33]      The motion judge erred in failing to undertake an analysis of the criterion under s. 5(1)(a)(iv) of the Act. That the appellants might have a “cause of action” against the defendants, as the motion judge found, is not the end of the analysis under s. 5(1) of the Act. As this court said in Kudwah v. Centennial Apartments2012 ONCA 777 (CanLII), 223 A.C.W.S. (3d) 225, at para. 2:

It is important when considering a limitation period claim to appreciate that the terms of the 2002 Act must govern. A court considering the limitation claim must address the specific requirements of s. 5 of the Act, particularly on the facts of this case, the requirement of s. 5(1)(a)(iv).

 

Second, it acknowledges the accrual of a claim as the starting point of the limitations analysis, and that discovery of the claim requires knowledge that a proceeding is an appropriate remedy for the loss:

[34]      Therefore, the motion judge had to consider whether the appellants had a claim as defined under the Act. In considering whether the appellants knew or should have known that they had a claim, the motion judge had to go on to consider whether, having regard to the nature of the injury, loss or damage, the appellants knew or should have known that a proceeding would be an appropriate means to seek to remedy it. This omission by the motion judge is an error of law: Har Jo Management Services Canada Ltd. v. York (Regional Municipality)2018 ONCA 469 (CanLII), at paras. 21 and 35.

[35]      Section 5(1)(a)(iv) represents a legislative addition to the other factors under the discoverability analysis. As Laskin J.A. explained in 407 ETR Concession Company Limited v. Day2016 ONCA 709 (CanLII), 133 O.R. (3d) 762, leave to appeal to SCC refused, [2016] S.C.C.A. No. 509, at paras. 33-34:

The appropriateness of bringing an action was not an element of the former limitations statute or the common law discoverability rule. This added element can have the effect – as it does in this case – of postponing the start date of the two-year limitation period beyond the date when a plaintiff knows it has incurred a loss because of the defendant’s actions.

Also, when an action is “appropriate” depends on the specific factual or statutory setting of each individual case: see Brown v. Baum2016 ONCA 325 (CanLII), 397 D.L.R. (4th) 161, at para. 21. Case law applying s. 5(1)(a)(iv) of the Limitations Act, 2002 is of limited assistance because each case will turn on its own facts.

This is a very welcome statement from the Court of Appeal.  It’s a step away from the misapplication of common law discovery principles to limitations analyses that has caused a great deal of confusion and uncertainty.

Lastly, the decision finds that it was appropriate for the plaintiffs to “wait and see” in the context of a construction dispute before commencing a proceeding.  I often see it argued that Presidential stands for the principle that there are only two circumstances in which a proceeding will be an inappropriate remedy—where the defendant undertakes good faith ameliorative efforts or there is an alternative dispute resolution process. This is a misapprehension of the law, as this decision demonstrates.  Here’s the key analysis:

[37]      Here, the motion judge failed to consider “the specific factual or statutory setting” of the case before him and determine whether it was reasonable for the appellants not to immediately commence litigation but to “wait and see” if the 1 ¼ inch sinking of the deck pier observed in 2009 would worsen over time or if the issue would resolve once the stone retaining wall had settled, as had been suggested to the appellants by Mr. MacKay. Neither Royal Homes nor Mr. MacKay believed the problem was serious, or due to the manner of construction. This evidence does not support the conclusion that the appellants knew or ought to have known in 2009 that their loss was not trivial and initiating legal proceedings was the appropriate means to remedy their loss.