Due Diligence

Ontario: lawyers should investigate claims with “real world” reasonableness

The Superior Court decision in Musslam v. Hamilton General Hospital contains a refreshing statement on the reasonableness of a lawyer’s actions when investigating a potential claim.  The standard is not perfection, but “contextual reasonableness in the ‘real world’”:

[41]   As I address the various issues, including the submissions not unreasonably advanced that the Oakley firm was arguably tardy or perhaps negligent in certain aspects of how it handled this matter (Mr. Mogil submitted that, while I may feel sympathy for the plaintiff, even if I dismiss this aspect of the motion, plaintiff may yet have a different remedy), I do so from the perspective that this is not now, nor has it ever been, “ a perfect world”. Not to wax too philosophically, but most people struggle daily—including lawyers to do right for their clients, and jurists who strive to come to the legally just result for all parties involved in a case. Indeed, I find all counsel in this complex matter did their best, including in their thorough, at times minute, dissection of what chronologically happened in this case.

[42]   Yet, in my view, a “standard of perfection” is not required. While limitation periods were certainly not enacted to be ignored, as Ms. Wood well submitted for Dr. Mistry, my assessment of the steps taken or perhaps not taken in a timely fashion by some of the parties in this case is based on a standard of contextual reasonableness in the “real world” in which these parties existed, not perfection based on 20/20 hindsight using a microscope or magnifying glass to minutely examine each and every step taken or not taken, or not taken in as timely a manner as ideally should perhaps have been done in some instances.

[43]   The plaintiff in this case, as was found by Master Abrams, has English as his second language and is hampered by various other significant challenges as described in her decision. The evidence before me is that before his surgery he drove a taxi. There is no evidence before me that he is an educated layman, let alone knowledgeable about medical issues or able to easily “connect the dots” so to draw inferences pertaining to causation or contribution. In my view, it is fair to conclude that the plaintiff is unsophisticated, including that he is an unsophisticated litigant. Accordingly, I so conclude, based on all the evidence.

[63]   Why May 17, 2017? Why not when the records were actually received: February 6, 2017 for the family doctor and September 2016 for the chiropractor? In response, I reference my above discussion about the imperfect “real-world” in which we all function. I again consider a small and very busy law firm, with many demands on their time. It was only this firm, after all the many lawyers whom the plaintiff saw, which was willing to take him on—and at no cost. Yet these lawyers also had other, prior commitments, including to trials and to existing clients. In my view, it was, in the context and all the circumstances, reasonable that they did not immediately drop everything when the records were received. After all, they did not expect the “bombshell” information contained therein. Moreover, the medical records were complex to read and decipher, as the step-by-step cross-examination transcript of the family doctor makes clear. If even Dr. Karmali had some challenges reading her own chart notes, these would surely not be an easy or quick read for anyone else, even a lawyer experienced in the field.  I thus find a period of about three months from when the chart of the family doctor was received until it was reviewed to be reasonable in all the circumstances.

 

Ontario: s. 5(1) requires specific factual findings

Cooper v. Toronto (City) follows Morrison v. Barzo for the principle that the court must answer the questions asked by s. 5(1)(a) and (b) of the Limitations Act.  The court found that a Master’s failure to make these specific findings was a reversible error:

[17]           The first ground of appeal is that the Master erred by dismissing the Motion without making findings regarding: (1) the date on which the plaintiff first knew the requisite elements of her claim against Hydro; and (2) when “a reasonable person with the abilities and in the circumstances of [the plaintiff] first ought to have known of such claim.” Such findings are a requirement before any finding that claims against a proposed defendant are statute-barred: see Morrison v. Barzo at para. 30.

[18]           I agree that the Master erred in law in dismissing the Motion without making either of these findings.

[19]           In dismissing the Motion without making the necessary findings of fact set out above to ground her decision, the Master erred in law by failing to apply the test as set out in Morrison v. Barzo. Accordingly, the Order must be set aside.
The decision also provides a good example of why taking the position that a particular step could have resulted in earlier discovery is not determinative of when discovery ought to have occurred.  Evidence that the step would have resulted in earlier discovery is necessary:
[27]           I pause to address the question of who has the onus of demonstrating that Cooper’s cause of action was actually discovered, or was reasonably discoverable, more than two years prior to the commencement of the Motion. While it is not made express in Fennell and Morrison, in circumstances such as the present where a plaintiff demonstrates a reasonable basis for concluding that a cause of action was discovered within the applicable limitation period, as a practical matter, a proposed defendant who asserts a limitation defence must demonstrate that the plaintiff had actual knowledge, or reasonably ought to have had knowledge, on an earlier date outside the limitation period.
 [28]           If the basis of the defendant’s position in such circumstances is not that the evidence demonstrates actual knowledge at an earlier date but rather that the plaintiff failed to conduct a duly diligent investigation, Morrison v. Barzo says that the plaintiff has the onus of providing a reasonable explanation for his or her failure to conduct any further investigation. As I understand the applicable case law including Skrobacky v. Frymer, in such event, a court may grant the defendant’s motion only if it finds the plaintiff’s explanation to be unreasonable. If, however, such a determination requires a finding of a material fact or a determination regarding the plaintiff’s credibility, a motions judge should not determine the reasonableness of the explanation without a trial to determine such matters. In such circumstances, therefore, the motions judge cannot make a determination of whether the plaintiff should reasonably have discovered his or her claim outside the applicable limitation period – that is, satisfied the plaintiff’s obligation of due diligence that is implicit in s. 5(1)(b) of the Limitations Act, 2002 – and must therefore dismiss the defendant’s motion.
 [29]           In my opinion, the Court finds itself in that position in the present circumstances.
 [30]           Cooper’s explanation for her failure to investigate the ownership of the Pole is essentially that her communications with the two most obvious potential defendants – the condominium corporation and the City – did not prompt a suggestion that Hydro might be the owner of the Pole. She says, in effect, that she was entitled to rely on the communication from the condominium corporation’s insurer and her communications with the City that suggested that the City was the owner in the absence of any suggestion to the contrary from the City until December 2016. Accordingly, Cooper’s argument proceeds on the basis that she never received any information that gave rise to a need to inquire further regarding the ownership of the Pole.
 [31]           Cooper submits that this is a reasonable explanation, given the low threshold for a reasonable explanation in the case law. She relies on the decisions in Galota v. Festival Hall Developments Ltd. et al., 2015 ONSC 6177; upheld 2016 ONCA 585; Madrid v. Ivanhoe Cambridge Inc., et al., 2010 ONSC 2235 and Kesian v. The City of Toronto, 2016 ONSC 6461 as evidence of this low threshold and as exhibiting similar circumstances in which courts have concluded that the threshold had been satisfied.
 [32]           Hydro effectively argues that Cooper’s explanation is not reasonable in view of either or both of her receipt of the Article and the City’s denial of jurisdiction in its statement of defence. In my view, however, given the evidence before the Master and this Court, neither Cooper’s mere receipt of the Article, without evidence that she actually read it, nor the City’s denial of jurisdiction in its statement of defence were sufficient to fix her with knowledge that required a further investigation for the following reasons.
 [33]           The mere existence of the Article cannot be a basis for concluding that Cooper ought reasonably to have conducted a further investigation. This would require a finding, by inference or otherwise, that she read the Article such that she was aware, at a minimum, of the subject-matter of the Article even if she did not have knowledge of the specific facts set out therein. However, the Court’s conclusion above that a trial is required to determine whether Cooper read the Article precludes such a finding by this Court.
 [34]           Accordingly, Hydro’s second submission really turns on whether Cooper’s receipt of the City’s statement of defence was sufficient to require a further investigation. I accept that a specific denial of jurisdiction could, in some circumstances, have such a result.  However, in this case, the denial was only one of at least ten alternative defences asserted by the City in its statement of defence. In addition, the denial was not accompanied by the assertion of any specific facts supporting this defence nor did it identify Hydro as the owner of the Pole. It is not reasonable to assume that a plaintiff would identify a potential issue of ownership from a bald denial of jurisdiction in such circumstances.
 [35]           I also note that Hydro has identified a number of searches that it says would have revealed its ownership of the Pole if Cooper had conducted one or more of them. I do not doubt the utility of such searches. However, the issue is not whether such searches would have revealed Hydro’s ownership of the Pole but rather whether any searches were required, that is, put in the negative, whether Cooper’s failure to undertake any of these searches was unreasonable.
 [36]           In summary, the relevant evidence before the Court is limited to the following. The Pole was located on a City sidewalk. There is no evidence of any indication on the Pole that Hydro was the owner. There is also no evidence that Cooper ever read, or understood the contents of, the Article prior to May 15, 2017, which would have alerted her to Hydro’s ownership. Lastly, for a period of more than 44 months after Cooper put the City on notice of her claim, the City did not deny ownership of the Pole in any communication with Cooper or her counsel. In these circumstances, I conclude that the determination of whether Cooper has a reasonable explanation for her failure to investigate further the ownership of the Pole will require a trial of the issue regarding whether, and if so when, Cooper or her counsel read the Article.

 

Ontario: in an MVA claim, obtaining an accident report isn’t necessarily sufficient due diligence

 

Obtaining a motor vehcile accident report is not in all circumstances sufficient due diligence in identifying a potential defendant.  In Harold v. Quigley, Justice Broad held that there was no evidence to suggest that the police officer who completed the MVAR had investigated whether the proposed defendant had maintained and kept the highway in repair as the plaintiff proposed to plead.  The plaintiff was not entitled to assume that the officer had done so.  These are the relevant paragraphs:

[17]         There is nothing in the motion material which would suggest that the plaintiff’s abilities and circumstances affected her ability to investigate and understand the facts upon which the claim might be based.

[18]         The affidavit of George B. Dietrich, the managing lawyer at the Dietrich Law Office, did not disclose any steps taken by the plaintiff or her lawyers to discover the identity of all responsible parties within the two-year limitation period following the accident other than to obtain the MVAR. The plaintiff argues that nothing further was required in the exercise of due diligence. Mr. Dietrich stated that his firm relied upon the MVAR which reported that the defendant Quigley hit an icy spot, left the road into the median and flipped over and that he was driving too fast for the conditions. No enquiries were initiated on behalf of the plaintiff respecting the nature and extent of the winter road maintenance carried out by the Crown and Carillion in the period leading up to the accident.

[19]         The plaintiff relies upon the Court of Appeal decision in Lingard v. Milne-McIssac (2015), 2015 ONCA 213 (CanLII), 125 O.R. (3d) 118 (C.A.) for the proposition that “reliance on the information contained in a motor vehicle accident report is reasonable and sufficient and constitutes due diligence.” She also points to the case of Todhunter v. Owles, 2015 ONSC 5656 (CanLII), 2015 ONSC 5656 (S.C.J.) in which Tausendfreund, J. referred to Linguard  and rejected the proposition that “each action arising out of an MVA in winter conditions would require the addition of municipalities as defendants to address the standard of care regarding winter maintenance.”

[20]         The Crown and Carillion argue that the plaintiff’s motion material does not contain evidence of any due diligence to displace the presumption in s. 5(2) of the Limitations Act, 2002. They say that certainty of a defendant’s responsibility for the act or omission that caused or contributed to the loss is not a requirement for discoverability, citing the case of Kowal v. Shyiak, 2012 ONCA 512 (CanLII), 2012 ONCA 512 (C.A.) at para. 18-19, and that neither is knowledge of the standard of care or whether conduct fell below it, citing Cassidy v. Belleville (Police Service), 2015 ONCA 794 (CanLII), 2015 ONCA 794 (C.A.) at para. 13.

[21]         In my view the Lingard and Todhunter decisions are not determinative of the question as to whether the plaintiff has provided a reasonable explanation as to why information was not obtainable with respect to the possible claims against the Crown and Carillion within the limitation period. The Court of Appeal in Pepper v. Zellers Inc.  2006 CanLII 42355 (ON CA), [2006] O.J. No. 5042 (C.A.) at para. 14 confirmed that a motion under rule 5.04(2) to add parties after the apparent expiration of a limitation period is discretionary and involves a fact-based inquiry. The court observed that, while the threshold of such a motion is low, the motion judge is entitled to consider the evidentiary record to determine whether there is a live issue of fact or credibility about the commencement date of the limitation period.

[22]          Lingard dealt with information set forth on a MVAR with respect to insurance coverage of the defendant driver, holding that it was reasonable for the plaintiff to assume that the police officer who completed the report asked the defendant for proof of insurance and that the plaintiff was justified in relying upon the motor vehicle accident report for that information.

[23]         In the present case, there is nothing to suggest that the police officer who completed the MVAR conducted an investigation into whether the Ministry of Transportation and its contractor had maintained and kept the highway in repair, nor that the plaintiff was entitled to assume that the police officer had done so. Although the MVAC identified that the road was icy, it did not comment on whether the icy condition was connected to a failure of the Ministry and its contractor to keep the highway in a reasonable state of repair.

[24]         Teusendfreund, J. in Todhunter was considering a motion for leave to appeal to the Divisional Court from a decision of Tranmer, J. to grant leave to the plaintiff to amend to add two municipalities as defendants. Tranmer, J. found that the plaintiff had demonstrated due diligence in determining the parties liable for the accident by obtaining the MVAR, by moving to discovery and in bringing the motion shortly thereafter. He found that the MVAR did not suggest negligence on the part of either municipality with regard to road maintenance and it was not until the defendant’s examination for discovery that any issue with respect to the existence of black ice was identified.

[25]         As indicated above, Teusendfreund, J. rejected the proposition that each action arising out of an MVA in winter conditions would require the addition of municipalities as defendants. However, he did not hold that plaintiffs should be relieved in all circumstances from any obligation to carry out due diligence on whether the relevant authority had failed to maintain and keep the subject highway or road in repair, particularly when she or he is in possession of information that such may be the case.

[26]         In the present case the MVAR noted that the road was icy. The plaintiff has led no evidence that, armed with this information, she took any steps to attempt to ascertain whether the icy condition may have been a result of a failure of the authority having responsibility to maintain and repair the highway to the requisite standard. As indicated by the Court of Appeal in Kowal at para. 18, certainty of a party’s responsibility for an act or omission that caused or contributed to the loss is not a requirement and that it is enough to have prima facie grounds to infer that the acts or omissions were caused or contributed to by the party or parties identified. In Cassidy, at para. 13, the Court of Appeal held that discovery of sufficient material facts to trigger the commencement of a limitation period does not depend on precise knowledge of the applicable standard of care and whether the party’s conduct fell below it.

[27]         In contrast the situation in Todhunter, the plaintiff in the present case had knowledge of the existence of an icy road surface which contributed to the accident.  In her application for statutory accident benefits dated February 27, 2014, the plaintiff described the mechanism of the accident as involving the vehicle hitting black ice on Highway 11. As indicated above, the MVAR, received by the plaintiff’s counsel on January 9, 2015, had noted the presence of black ice on the highway.

[28]         It is noteworthy that counsel for the plaintiff requested the consent of Crown and Carillion to the amendment to add them as defendants prior to receipt of any documentation or records from their counsel respecting maintenance of the highway during the relevant time period. No new facts were discovered by counsel for the plaintiff prior to making the determination to amend her pleading.

[29]         In Wong v Adler, 2004 CanLII 8228 (ON SC), [2004] O.J. No. 1575 (Master) aff’d 2004 CanLII 73251 (ON SCDC), [2005] O.J. No. 1400 (Div. Ct.) Master Dash stated, at para. 45, that if the court determines that there is an issue of fact or credibility on a discoverability allegation the defendant should be added with leave to plead a limitations defence, whereas, if there is no such issue, the motion should be refused. In my view there is no issue of credibility on the question of whether simply obtaining the MVAR constituted sufficient due diligence on the part of the plaintiff in the circumstances. The court on this motion is in as good a position to determine that issue as would a judge on a summary judgment motion or at trial.

[30]         In my view the plaintiff has failed to discharge the onus on her show, by evidence, that discoverability delayed the commencement of the running of the limitation period. Her motion to amend the Statement of Claim to add the Crown and Carillion as defendants must therefore be dismissed.

 

Ontario: CA on adding a party outside of presumptive limitation period

We overlooked this 2016 Court of Appeal decision in Arcari v. Dawson that considers adding a party to a proceeding after the presumptive expiry of the limitation period.

The Court described the relevant principles:

[10]      When a plaintiff’s motion to add a defendant is opposed on the basis that her claim is statute-barred, the motion judge is entitled to assess the record to determine whether, as a question of fact, there is a reasonable explanation on proper evidence as to why she could not have discovered the claim through the exercise of reasonable diligence. If the plaintiff does not raise any credibility issue or issue of fact that would merit consideration on a summary judgment motion or at trial and there is no reasonable explanation on the evidence as to why the plaintiff could not have discovered the claim through the exercise of reasonable diligence, the motion judge may deny the plaintiff’s motion (Pepper v. Zellers Inc. (2006), 2006 CanLII 42355 (ON CA), 83 O.R. (3d) 648 (C.A.), at paras. 18, 19, 24).

[…]

[15]      There is no evidence to support this submission, such as evidence from the engineer explaining why the issue was not clear to him. As is stated in Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 2d ed. (Markham, Ont.: LexisNexis, 2014), at para. 2.284: “it is incumbent upon the plaintiff to lead some evidence of the steps he or she took to ascertain the identity of the responsible party and provide some explanation as to why the information was not obtainable with due diligence before the expiry of the limitations period.” We also reject the appellant’s submission that merely retaining an engineer was sufficient to discharge the due diligence responsibility and postpone the limitation period indefinitely.

Two facts are noteworthy:

  1. The Court left open the possibility that it will revisit the rule in favour of committing the issue of discoverability to trial:

[17]      Although a motion to add defendants is not a motion for summary judgment, the goal of “a fair process that results in just adjudication of disputes” that is “proportionate, timely and affordable” is relevant in this context as well: Hryniak v. Mauldin, 2014 SCC 7 (CanLII), [2014] 1 S.C.R. 87, at para. 28. It may well be that this court should interpret Pepper in light of Hryniak and re-evaluate the suggestion that Pepper sets a strong default rule in favour of committing the issue of discoverability to trial.  We leave that matter for another day.

2.  The plaintiff claimed based on injuries resulting from being hit by a car. The plaintiff retained an accident reconstruction expert to produce a report about the cause of the accident.  This engineer found that the driver’s speed was the cause.  The plaintiff subsequently learned that the design of the crosswalk where she was hit may also have contributed to her accident and sought to sue the parties who owned it.  The Court rejected the plaintiff’s submission that merely retaining an engineer to determine the cause was sufficient to discharge the due diligence responsibility.  Arguably, this heightens the responsibility.

Ontario: due diligence and motions to add a defendant

The Court of Appeal recently held in Fennell and Galota that the plaintiff’s due diligence is only factor in the discovery analysis.  This introduced some uncertainty into the test for determining whether to add a defendant after the presumptive expiry of the limitation period, which is, essentially, whether the plaintiff exercised sufficient due diligence to found a discovery argument.

Last June, in Wong v. Salivan Landscape Ltd., Master Haberman held that due diligence is no longer a consideration in determining whether to add a defendant.

[31]         The Court of Appeal has recently asked similar questions in Fennell v. Deol, 2016 ONCA 249 (CanLII).  There, Stewart J. concluded that while due diligence is a factor that informs the analysis of when a claim ought to have been reasonably discovered, lack of due diligence is not a separate and independent reason for dismissing a plaintiff’s claim as statue-barred. 

[32]         Though the issue arose in Fennel in the context of an appeal from a summary judgment motion dismissing the claim against Deol, in my view, a similar approach should be taken in the context of a motion to add a party after the expiry of the presumptive limitation period. A motion should not be dismissed on the basis of a lack of diligence.

[33]         Even before Fennell, the court had already sought to dilute the somewhat heavy onus that some case law had thrust on plaintiffs as a means of demonstrating their due diligence.  As Baltman J. noted (in Welsch v. Peel Standard Condominium Corp. No. 755, 2013 ONSC 7611 (CanLII)),Lauwers J. (as he then was) stated in Madrid v. Ivanhoe Cambridge Inc. 2010 ONSC 2235 (CanLII), that it is not in the interests of justice to impose an overly muscular level of pre-discovery due diligence; the parties should not have to conduct a pre-discovery form of discovery.   Baltman J. confirmed that as each case is unique and will turn on its own facts, whether the steps taken in each case will be sufficient will also vary.

Arguably, this rejects about twelve years of jurisprudence beginning with Master Dash’s decision in Wong v. Adler.  That’s problematic.  The purpose of Master Dash’s test is to require something more of a plaintiff than a mere invocation of discoverability to obtain leave to add a defendant after the presumptive expiry of the limitation period.  Master Dash required the plaintiff to establish reasonable due diligence to ensure there would be some substance to the discoverability argument.   It’s not clear what test Master Haberman proposed to use, if any, instead.

I don’t think that the Court of Appeal intended to change.  I agree with Justice Emery’s analysis in Fontanilla v. Thermo Cool Mechanical:

[34]      The Court of Appeal agreed. Galota does not change the law regarding the expectation that a party will exercise reasonable diligence to determine the facts that would support a claim for which a proceeding may be brought to seek a remedy. The court inGalota relied on the decision of Justice Van Rensburg in Fennell v. Deol,2016 ONCA 249 (CanLII). The court in Fennellrecognized that, although due diligence is a factor that the court must consider at the time a claim ought reasonably to have been discovered, lack of due diligence is not in and of itself a reason for dismissing a plaintiff’s claim as statute barred.

[35]       Instead, due diligence must be considered a part of the analytical process to determine on an objective basis the day on which a reasonable person with abilities and in circumstances of the person affected by the claim first would have known of the matters referred to in s. 5(1)(a) to bring an action. As Justice Van Rensburg explained in Fennell at paragraph 24:

[24]      Due diligence is part of the evaluation of s. 5(1)(b). In deciding when a person in the plaintiff’s circumstances and with his abilities ought reasonably to have discovered the elements of the claim, it is relevant to consider what reasonable steps the plaintiff ought to have taken. Again, whether a party acts with due diligence is a relevant consideration, but it is not a separate basis for determining whether a limitation period has expired.

I expect the courts will prefer Justice Emery’s approach.

Ontario: when no investigation is a reasonable investigation

 

Galota v. Festival Hall Developments Limited is a noteworthy, well-reasoned limitations decision from the Court of Appeal holding that in the circumstances, it was reasonable for the plaintiff to have taken no steps to discover her claim for about five years after her injury.

The plaintiff fell off a dance stage at a bar and broke her arm.  She sued the bar and its insurer defended.  The bar then closed, and the bar’s insurer became insolvent.

After learning of the insurer’s insolvency, the plaintiff sued the bar’s landlord.  She argued that she couldn’t have discovered her claim against the landlord until examination for discovery of the bar’s representative.  It was then that she learned the landlord participated in the design and construction of the dance stage from which she fell.

The bar moved for summary judgment to dismiss the action on the basis that it was statute-barred by the expiry of the limitation period.  The bar argued that the claim against it was discoverable well before examinations for discovery.

The motion judge agreed with the plaintiff.  He found that she wasn’t put on notice of the potential involvement of the landlord in the design and construction of the dance floor until examinations for discovery, and didn’t show a want of diligence in investigating the landlord’s potential involvement before then.

On appeal, the landlord challenged the motion judge’s finding that the plaintiff exercised sufficient due diligence on the basis that she took no steps at all to investigate her claim until three and a half years after her accident.  The landlord also challenged the trial judge’s call for expert evidence on the standard of care of a solicitor prosecuting an occupier’s liability claim.

The Court of Appeal upheld the motion judge’s decision.  The Court accepted the plaintiff’s position and held that the expert evidence was not material.

Justice Laskin cited the Court’s decision in Fennell for the principle that a plaintiff’s failure to take reasonable steps to investigate a claim is not a stand-alone or independent ground to find a claim out of time.  The reasonable steps a plaintiff ought to have taken to discover her claim is merely a consideration in deciding when a claim is discoverable under section 5(1)(b) of the Limitations Act.

The record supported the motion judge’s conclusion that there were no steps the plaintiff reasonably ought to have taken that would have enabled her to discover her claim against the Landlord before her lawyer examined the bar’s representative for discovery:

[24]      In substance, the motion judge found that there were no steps Ms. Galota reasonably ought to have taken that would have enabled her to discover her claim against Festival Hall before her lawyer examined a representative of Republik in November 2009. Some may view the motion judge’s finding to be questionable. But all these cases are very fact-specific. And the motion judge’s finding is a finding of fact, which in my opinion is well supported by the record, and therefore to which we should defer: Burtch, at para. 22; Longo, at para. 38.

Some aspects of Just Laskin’s analysis will be of interest, particularly to the personal injury bar:

  • The plaintiff had no need to pursue the landlord. Her claim against the bar was an insured claim.  The bar’s insurer responded to it and appointed an adjuster to investigate.  Accordingly, the plaintiff “had every reason to believe the insurer would settle her claim or pay any judgment she obtained after a trial […] the need to pursue another party would hardly have seemed reasonable.”  It would have been unreasonable for her to foresee the insurer’s insolvency.
  • While the bar and its insurer had no obligation to notify the plaintiff about the landlord’s potential liability, their failure to do so is a practical consideration in a section 5(1)(b) analysis. The insurer’s adjuster didn’t suggest that the landlord or any other party was potentially liable for her injury.  The bar didn’t allege that the landlord bore any responsibility or take third party proceedings against it.  Prior to examinations for discovery, neither the bar nor the adjuster suggested that there had been renovations to the bar and that the landlord had involvement in them.  The Court adopted Justice Lauwers’s point in Madrid v. Ivanhoe that a naked denial of liability doesn’t trigger a duty on the plaintiff to make further enquiries:

[27]      Second, the insurer’s adjuster never suggested that Festival Hall or any other party was potentially liable for Ms. Galota’s injury. Similarly, in its statement of defence, Republik did not allege Festival Hall bore any responsibility and Republik did not take third party proceedings against Festival Hall or anyone else. Indeed, before the examinations for discovery neither the adjuster nor Republik ever suggested there had been extensive renovations of the nightclub or that Festival Hall was involved in those renovations. I do not suggest either the insurer or Republik had any obligation to notify Ms. Galota about the potential liability of Festival Hall, but their failure to do so is a practical consideration supporting the motion judge’s finding. As Lauwers J. (as he was then) said in Madrid v. Ivanhoe, 2010 ONSC 2235(CanLII), 101 O.R. (3d) 553, at para. 17:

  • If Ivanhoe’s insurance adjuster had advised the plaintiff that liability was being denied because another party was liable, then the plaintiff’s duty to make further inquiries would have been triggered. But, on the actual facts of this case, a naked denial of liability should not trigger a duty on the plaintiff to make further inquiries.
  • On the date of her injury, the plaintiff couldn’t have known that the landlord was an “occupier” of the bar.  Perhaps the plaintiff’s lawyer should have obtained a title search early in the litigation, but this wouldn’t have determined whether the landlord was an occupier.  This would depend on the terms of its lease with the bar. The lease was not a public document, and the plaintiff had no automatic ability to require the landlord to produce it before litigation. Even if she had obtained the lease earlier in the litigation, she could only have discovered her claim against the landlord when she applied the lease to the facts that the landlord extensively renovated the bar, and the renovations might have breached the Building Code.  The plaintiff only learned of these facts after examinations for discovery.
  • Justice Laskin found that expert evidence is not needed to decide when a claim is discoverable under section 5(1)(b).

Curiously, Justice Laskin described the test in section 5(1)(b) as objective.  This is a departure from the Court’s more accurate description of it as “modified-objective” in Ridel and Ferrara. The “reasonable person” component of the test is modified by the subjective component of “with the abilities and in the circumstances of the claimant.”  Presumably, this was just inadvertence.

The Court’s decision also includes this potentially helpful summary of certain principles of discovery under section 5:

[15]      Three points about these provisions are relevant to the submissions on appeal:

  • Section 5(1)(b) codifies the common law rule of discoverability. If s. 5(1)(b) applies, the two year limitation period will run from a date later than the date the plaintiff was injured.
  • Under s. 5(1)(b), a plaintiff “first ought to have known” of the claim when the plaintiff has enough evidence or information to support an allegation of negligence, including facts about an act or omission that may give rise to a cause of action against a possible tortfeasor: Zapfe v. Barns (2003), 2003 CanLII 52159 (ON CA), 66 O.R. (3d) 397 (C.A.), at paras. 32-33; Burtch v. Barnes Estate (2006), 2006 CanLII 12955 (ON CA), 80 O.R. (3d) 365, at para. 24. The plaintiff cannot delay the start of the limitation period until he or she knows with certainty that a defendant’s act or omission caused the injury or damage: Longo v. MacLaren Art Centre Inc., 2014 ONCA 526 (CanLII),323 O.A.C. 246, at para.
  • The rebuttable presumption in s. 5(2) means that a plaintiff has the onus of showing that the rule of discoverability in s. 5(1)(b) applies: Fennell v. Deol, 2016 ONCA 249(CanLII), at para. 26

 

Ontario: the Court of Appeal on due diligence and discoverability

In Fennell v. Deol, the Court of Appeal clarified the role due diligence plays in the discovery analysis.  It’s a fact that informs the analysis, but not a separate and independent reason for dismissing a plaintiff’s claim as statute-barred.

Fennell was in a motor vehicle accident with the defendants.  He claimed against the defendant Shergill, and subsequently amended the statement of claim to add the defendant Deol.  Shergill served a statement of defence and crossclaim against Deol.  Deol moved for summary judgment to dismiss the claim on the basis of an expired limitation period.

Fennell argued that he discovered his claim when he received a medical report and learned that he met the Insurance Act threshold.  Justice Akhtar noted that Fennell’s discovery testimony indicated awareness of the seriousness of his injuries before receiving the report.  For Fennell to rely on discoverability to delay the commencement of the limitation period, Justice Akhtar held that he had to show due diligence in discovering his claim.  Fennell did not show sufficient due diligence, and had he acted diligently, he would have discovered his claim when he commenced his action against Shergill.  Justice Akhtar dismissed Fennell’s claim.

The Court of Appeal allowed Fennell’s appeal.  Justice Akhtar made a counting error (which is very easy for lawyers to do when it comes to limitations, and here I speak from ample experience).  If Fennell ought to have discovered his claim against Deol when he sued Shergill, the claim against Deol was in fact timely.

What makes Justice van Rensburg’s decision interesting is her discussion of Justice Akhtar’s error in focussing primarily on whether Fennell exercised due diligence, and in concluding that Fennel bore the onus to show due diligence to rebut the presumption that the limitation period ran from the date of the accident  (the statutory presumption in s. 5(2) of the Limitations Act).  To overcome the presumption, Fennell needed to prove only that he couldn’t reasonably have discovered that he met the statutory threshold on the date of the accident (s. 5(1)(b)), not that he exercised due diligence.

The fact that it wasn’t possible for Fennell to discover that he met the threshold on the date of the accident was enough to rebut the presumption.

Due diligence is the core of an analysis when determining whether to add a defendant to an action after the expiry of the presumptive limitation period (and then the threshold is low), but it is neither a standalone duty nor determinative of the section 5 discovery analysis:

[18]      While due diligence is a factor that informs the analysis of when a claim ought to have reasonably been discovered, lack of due diligence is not a separate and independent reason for dismissing a plaintiff’s claim as statute-barred.

[…]

[23]      Due diligence is not referred to in the Limitations Act, 2002. It is, however, a principle that underlies and informs limitation periods, through s. 5(1)(b). As Hourigan J.A. noted in Longo v. MacLaren Art Centre Inc., 2014 ONCA 526 (CanLII), 323 O.A.C. 246, at para. 42, a plaintiff is required to act with due diligence in determining if he has a claim, and a limitation period is not tolled while a plaintiff sits idle and takes no steps to investigate the matters referred to in s. 5(1)(a).

[24]      Due diligence is part of the evaluation of s. 5(1)(b). In deciding when a person in the plaintiff’s circumstances and with his abilities ought reasonably to have discovered the elements of the claim, it is relevant to consider what reasonable steps the plaintiff ought to have taken. Again, whether a party acts with due diligence is a relevant consideration, but it is not a separate basis for determining whether a limitation period has expired.

Ontario: the limitations jurisprudence of 2014 in review

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This post is a paper I wrote for LawPro on the year’s limitations jurisprudence.  It may be of interest to Under the Limit readers; if you’d like a PDF version , just ask.

The limitations jurisprudence of 2014 in review

Dan Zacks[1]

January 1, 2014 marked ten years since the Limitations Act, 2002 came into force. Now many aspects of the old limitations regime are forgotten, or will be soon. Consider for instance the classification of actions. Once a key step in the limitations analysis, it is barely remembered, and rarely fondly.[2]

Meanwhile, the courts have developed an extensive body of jurisprudence interpreting and applying the new Act. To be sure, this jurisprudence remains in development. Many of 2014’s leading decisions consider fundamental limitations issues arising from the Limitations Act for the first time. For example, in 2014 we learned from the Court of Appeal how a plaintiff should plead a discoverability argument (by reply), and that there is no legislative gap that would prevent the Limitations Act from applying to claims for unjust enrichment (Collins v. Cortez and McConnell v. Huxtable respectively, both discussed below). The Superior Court also delivered decisions of consequence, in particular by confirming that the Limitations Act applies to will challenges (Leibel v. Leibel, also discussed below).

While it is difficult to identify definite trends in the year’s limitations jurisprudence, several lower court decisions point toward an increasing receptiveness to boundary-pushing discovery analyses. In one case, the “no, I won’t pay my 407 toll” decision, the Court found that proportionality can be a factor when determining whether a plaintiff has discovered that a proceeding is an appropriate means to seek a remedy.[3] In another somewhat eccentric case, the Court found that, pursuant to “cultural dimension theory”, being Slovenian can determine when a plaintiff discovers her claim.[4] It will be interesting to see whether courts follow either of these decisions, and more generally, whether they remain open to creative discovery arguments.

What follows is a summary of the more consequential Ontario limitations decisions from 2014. For mostly up-to-date reporting on this year’s limitations jurisprudence, you are welcome to visit limitations.ca.

McConnell v. Huxtable: In which the Court of Appeal says yes, a claim for unjust enrichment is subject to the Limitations Act[5]

McConnell is a family law decision involving an unmarried couple. The applicant made a constructive trust claim for an ownership interest in the respondent’s house and, in the alternative, for compensation in money. The respondent sought the dismissal of the claim on the basis that it was barred by the expiry of the limitation period.

The motion judge’s 2013 decision[6] was sensational, at least in the rather staid world of limitations. In thorough and persuasive reasons, Justice Perkins held that the discovery provisions of the Limitations Act cannot apply to a remedial constructive trust based on a claim of unjust enrichment. Taken to its logical conclusion, this meant that in a great many circumstances, only the equitable doctrine of laches and acquiescence would limit a claim for unjust enrichment.

A limitation period commences when the injured party discovers the claim within the meaning of section 5 of the Limitations Act. Justice Perkins concluded that a claim for constructive trust is not in all circumstances discoverable as contemplated by this section. If a claim is not discoverable, the limitation period will never commence. If the limitation period never commences, there is no limitation period. This is how he described the problem:

I think that section 5(1)(a) makes it impossible to know when if ever the limitation [period] would start running because the claimant may never (reasonably) know of a “loss, damage or injury” and because there is no act or omission of the respondent that the claimant is required to or is even able to point to in order to “discover” a claim for a constructive trust. Claims to recover land aside, the Limitations Act, 2002 may have been meant to but does not manage to encompass constructive trust claims. I am unable to give effect to the precise and detailed wording of sections 4 and 5 so as to make them apply to constructive trusts in family law cases.[7]

Not surprisingly, Justice Rosenberg, writing for the Court of Appeal, disagreed, and held that there is no legislative gap:

I do not agree with the motion judge that a remedial constructive trust claim does not require any act or omission by the person against whom the claim is brought. Generally speaking, a claim of unjust enrichment requires that the defendant retain a benefit without juristic reason in circumstances where the claimant suffers a corresponding deprivation. In other words, the relevant act of the defendant is simply the act of keeping the enrichment (or the omission to pay it back) once the elements of the unjust enrichment claim have crystallized. In the family law context, this may typically occur on the date of separation, when shared assets, including real property, are divided and the possibility therefore arises of one party holding onto more than a fair share.[8]

Justice Rosenberg acknowledged that in some cases it may be difficult to apply section 5 to a claim for unjust enrichment, but it applies nonetheless. Even if the difficulty means the claim is never discovered, the ultimate limitation period will still limit it. This is sound reasoning, but terribly disappointing to the plaintiffs’ bar, who had begun to think very hard about how to make every old claim one for unjust enrichment.

McConnell also brings clarity to the application of the Real Property Limitations Act. The fact that the respondent sought a monetary award in the alternative to an interest in land did not mean that the claim wasn’t for a share of property, and subject to section 4 of the Real Property Limitations Act with its plaintiff-friendly ten year limitation period.[9]

Longo v. McLaren Art Centre: The Plaintiff must not delay, not even for Rodin[10]

This Court of Appeal decision written by Justice Hourigan quickly became a leading authority on the duty imposed by the Limitations Act on plaintiffs to investigate potential claims. It is already much-cited by defendants when arguing that a plaintiff was dilatory in discovering their claim and, more specifically, when envoking section 5(1)(b) of the Act.

Justice Hourigan’s reasoning is not especially novel; rather, he adopts a line of discoverability jurisprudence developed under the previous Act exemplified by Soper v. Southcott (1998)[11]. In essence, a plaintiff must take reasonable action to investigate the matters described in section 5(1)(a) of the Act. What is reasonable depends on the plaintiff’s circumstances and the nature of the potential claim. However, it is never necessary for the plaintiff to investigate to the point where she knows with certainty that a potential defendant is responsible for the impugned acts or omissions. It is enough that she has prima facie grounds to infer that the potential defendant caused the acts or omissions. Establishing these grounds may require an expert report.[12]

Longo has almost glamorous facts.   At issue was the appellants’ discovery of damage to their sculpture Walking Man, possibly the work of Rodin. The sculpture was harmed while in the respondents’ care and the appellants claimed for damages. The court dismissed the claim on motion for summary judgment on the basis that it was commenced out of time.

Justice Hourigan set aside the decision of the motion judge and held that there was a genuine issue requiring a trial. Determining whether a reasonable person with the abilities and in the circumstances of the appellants ought to have discovered the claim required a full trial record. Justice Hourigan nevertheless shared his view on what was appropriate in the circumstances. On learning of concerns about the condition of Walking Man, a reasonable person would arrange for an inspection of the sculpture.

 

Collins v. Cortez: Respond with a reply[13]

This decision is a primer on how pleadings should address a limitations defence, which is often a point of confusion for counsel.

Cortez moved to dismiss Collins’s personal injury claim on the basis that it was commenced two years after her accident and statute-barred by the expiry of the limitations period. Justice Gordon granted the motion. He gave effect to the presumption in section 5(2) of the Limitation Act that the limitation period commenced on the date of the accident. He held that because Collins did not plead discoverability facts in her Statement of Claim, she could not make out a section 5(1) discoverability argument.

Not so, held the Court of Appeal. In the normal course, if a limitations defence is raised in a Statement of Defence, and the plaintiff relies on the discoverability principle, the plaintiff should plead the material facts relevant to discoverability in reply, not the Statement of Claim. The expiry of a limitation period is a defence to an action that must be pleaded in a Statement of Defence. As such, a plaintiff needn’t anticipate discoverability and address it in her Statement of Claim.

Leibel v. Leibel: Two year to challenge a will[14]

Since the Limitations Act came into force, the estates bar has speculated as to whether a limitation period applies to will challenges. Many thought that it would not, based in part on an influential article by Anne Werker on limitation periods in estate actions:

It has been suggested that the 15-year absolute limitation period applies to will challenges. I do not agree. Section 16(1)(a) of the new Act expressly states that there is no limitation period in respect of “a proceeding for a declaration if no consequential relief is sought”. [15]

The courts have tended increasingly toward asserting the application of the Limitations Act, and it came to seem likely a court would apply the Act to a will challenge. This is what Justice Greer did in Leibel.

The case involved two wills. The testatrix’s son Blake applied for a declaration that the wills were invalid, and another son and other respondents moved for an order dismissing the application on the basis that it was statute-barred by the expiry of the limitation period.

Justice Greer held that the limitation period began running in June 2011, the date of the testatrix’s death, because a will speaks from death. However, Blake discovered his claim within the meaning of the Limitation Act about a month later in July 2011 (for reasons that don’t bear mentioning here, but are at paragraph 39 of the decision). This meant that he commenced his application out of time.

In particular, Justice Greer rejected Blake’s argument that no limitation period applied to his will challenge pursuant to section 16(1)(a). She held that the legislature did not intend for section 16(1)(a) to exclude will challenges from the two-year limitation period:

To say that every next-of-kin has an innate right to bring on a will challenge at any time as long as there are assets still undistributed or those that can be traced, would put all Estate Trustees in peril of being sued at any time. There is a reason why the Legislature replaced the six-year limitation in favour of a two-year limitation.[16]

Kassburg v. Sun Life Assurance Company of Canada: In business agreements, the party isn’t literal[17]

Kassburg demonstrates the Court’s commitment to protecting individuals from contracts that impose shortened limitation periods. It deals with section 22(5) of the Limitations Act, which permits contracting out of the statutory limitation period through “business agreements” unless one of the parties to the contract is an individual. Rather than limiting the word “parties” in this section to its literal meaning, the Court of Appeal instructs us to adopt a meaning consistent with the objective of protecting individuals from unexpectedly or unfairly abridged limitation periods.

Kassburg was an insured under a group policy issued by the appellant Sun Life to the North Bay Police Association. The respondent submitted a claim for long-term disability benefits that Sun Life denied.

She commenced an action claiming entitlement to the benefits. Sun Life moved for summary judgment on the basis that her claim was out of time. Among other things, Sun Life relied on a one-year limitation period contained in the insurance contract. It argued that this was a limitation period subject to section 22(5).

The motion judge held that the insurance policy fit within the business agreement exception. Because the parties to the insurance contract were the Police Association and the appellant, the contract was not entered into by an individual.

Justice van Rensburg rejected this reasoning. The word “parties” in section 22(5) must be given a broad, purposive reading. The literal reading of “parties” is inconsistent with the objective of section 22, which is to restrict the circumstances in which a contract can alter the statutory limitation periods in the Limitations Act. Although the group insurance contract under which Kassburg made her claim was between the Police Association and Sun Life, Justice van Rensburg deemed Kassburg to be a party for the purpose of asserting her claim, and for Sun Life’s limitations defence.[18]

Green v. Canadian Imperial Bank of Commerce: Plaintiffs must fully control whether they commence an action in time[19]

In Green, the Court of Appeal overturned its decision in Sharma v. Timminco (2012)[20], thus restoring peace and order to the limitation scheme under the Securities Act. [21]

Timminco created a distinctively perverse phenomenon in limitations jurisprudence: a limitation period that did not allow plaintiffs to control whether they commenced an action in time. As Justice Feldman noted in her decision for the Court of Appeal, this was unprecedented and entirely foreign to the concept of limitations.

At issue in both cases was the statutory cause of action in section 138.3 of the Securities Act. This section creates a cause of action for misrepresentations regarding shares trading in the secondary market. A plaintiff, most often a representative plaintiff in a class proceeding, can only commence a section 138.3 claim with leave. Pursuant to section 138, a plaintiff has three years from the date of the misrepresentation to obtain leave and commence the action. [22]

The Timminco Court held that a claim for damages under section 138.3 is statute-barred if the plaintiff does not obtain leave to commence it within the three-year limitation period, and that section 28 of the Class Proceedings Act[23], which suspends limitation periods in favour of class members once a claim is asserted in a class proceeding, will not operate in respect of a 138.3 claim until leave is obtained.

The Timminco Court reasoned that a section 138.3 claim is “asserted” within the meaning of section 28 of the Class Proceedings Act only when leave is granted because leave is a component of the cause of action. Given the dictionary definitions before the Court of “assert”, this conclusion was sound, at least in theory.

In practice, it was problematic. Its effect was to require representative plaintiffs to move for and obtain leave to commence a section 138.3 claim within three years, but the plaintiffs could not control the timeliness. Obtaining leave within three years was challenging, if not impossible.

This limitation period is not subject to the discoverability provisions of the Limitations Act because it commences on the date of the misrepresentation. The longer it takes to discover the misrepresentation, the shorter the time for obtaining leave and commencing the action. Even if a plaintiff brought the motion in good time, the defendant could initiate procedural steps resulting in delay, and court availability could affect the timing of the hearing and the rendering of the decision.

And so the Court reversed itself. Justice Feldman set aside the Timminco Court’s interpretation of the Class Proceedings Act, holding instead that when a representative plaintiff brings a section 138.3 claim within the limitation period, pleads section 138.3 together with the facts that found the claim, and pleads an intent to seek leave to commence, the claim has been “asserted” for the purposes of the Class Proceedings Act, and the limitation period is thereby suspended for all class members.

This decision is obviously of great significance to the securities bar, but beyond that, it preserves the fundamental principle of limitations that a plaintiff must have unilateral control over whether it misses a limitation period.

 

And for the insurance bar…

Lastly, several insurance decisions bear noting.

From Sagan v. Dominion of Canada General Insurance Company, we learned that time begins to run for a claim for denied accident benefits on the date of the denial.  A party can’t stop the commencement of the limitation period by sneakily (or inadvertently) omitting certain documents from the accident benefits application.[24]

In Sietzema v. Economical Mutual Insurance Company,[25] the Court of Appeal held that the limitation period begins to run for a claim for statutory accident benefits when the insurer denies the application for those benefits.

In Schmitz v. Lombard General Insurance Company of Canada[26], the court determined when the limitation period commences for a claim for indemnity under OPCF 44R, an optional endorsement for underinsured motorist coverage to the standard form automobile insurance policy. The limitation period does not start to run when the demand for indemnity is made because default must first occur. The limitation period begins to run the day after the demand for indemnity is made.

[1] Dan is a contributor to the upcoming fourth edition of The Law of Limitations and a lawyer at Clyde & Co. His practice focuses on commercial litigation and lawyers’ professional negligence. He also publishes Under the Limit, a blog about developments in the always riveting world of limitations jurisprudence.

[2] This is subject to the occasional exception. See for example Economical Mutual Insurance Company v. Zurich Insurance Company, 2014 ONSC 4763, in which the Court undertakes a classification of actions analysis, presumably out of nostalgia.

[3] See 407 ETR Concession Company v. Ira J. Day, 2014 ONSC 6409.

[4] See Miletic v. Jaksic, 2014 ONSC 5043 and the related post on Under the Limit, <http://limitations.ca/?p=19>.

[5] 2014 ONCA 86.

[6] 2013 ONSC 948.

[7] 2013 ONSC 948 at para. 143.

[8] 2014 ONCA 86 at para. 51.

[9] Conversely, the mere fact that a claim affects real property will not exclude the application of the Limitations Act. See Zabanah v. Capital Direct Lending, 2014 ONCA 872.

[10] 2014 ONCA 526 (“Longo”).

[11] 1998 CanLII 5359 (Ont. C.A.).

[12] See Longo, supra note 1, at paras. 41-44.

[13] 2014 ONCA 685.

[14] 2014 ONSC 4516.

[15] Anne Werker, “Limitation Periods in Ontario and Claims by Beneficiaries”, (2008) 34:1 Advocates’ Q at 24-28.

[16] 2014 ONSC 4516 at para. 52.

[17] 2014 ONCA 922.

[18] 2014 ONCA 922 at paras. 58-61.

[19] 2014 ONCA 90.

[20] 2012 ONCA 107.

[21] R.S.O. 1990, C. S.5.

[22] See also section 19 of the Limitations Act, 2002.

[23] S.O. 1992, C. 6.

[24]2014 ONCA 720.

[25] 2014 ONCA 111.

[26] 2014 ONCA 88.