Presidential MSH Corporation v. Marr Foster & Co. LLP is another excellent decision from the Court of Appeal applying s. 5(1)(a)(iv) of the Limitations Act. Where the plaintiff relies on an alternative process that would substantially eliminate its loss so that court proceedings would be unnecessary to remedy it, and the date the alternative process runs its course is reasonably ascertainable, a proceeding will not be an appropriate remedy until that alternative process concludes.
While this decision doesn’t break new ground, it clarifies the impact remedial measures can have on discovery of a claim. This is of particular consequence in professional negligence claims, which was the case in Presidential.
The respondents filed the appellant’s corporate tax returns after their due date. As a result, the CRA denied tax credits that would have been available had the returns been filed on time.
The appellant received the CRA’s Notices of Assessment disallowing each of the claimed credits on April 12, 2010. When the appellant received the notices, he immediately asked the respodnents what to do and how to fix the problem.
The motion judge inferred that the respondents advised the appellant to retain a tax lawyer to determine how to solve the tax problem but didn’t advise him to obtain legal advice about a professional negligence claim against the respondents.
The appellant did retain a tax lawyer on April 15, 2010, but there was no discussion of a possible action against the respondents. The tax lawyer filed a Notice of Objection to the CRA assessments, as well as an application for discretionary relief. The respondent helped the appellant prepare its appeals to the CRA by drafting the application for relief and helping the appellant and its lawyer with whatever else they needed, until at least November 2011.
By letter dated May 16, 2011, the CRA responded to the Notice of Objection advising that it intended to confirm the assessments. It did in fact confirm them on July 7, 2011.
The motion judge found that, as late as July 2011, there was still a reasonable chance that the application for discretionary relief would mitigate some or all of the appellant’s loss.
On August 1, 2012, the appellant issued its statement of claim against the respondents. This was more than two years after the initial denial by CRA of the credits, but within two years of CRA’s refusal to alter the assessments in response to the Notice of Objection.
The motion judge held that the appellants claim would have been appropriate while the CRA appeal was still ongoing because the appeal would not have fully eliminated the appellant’s claim against the respondents. In particular, it would not have eliminated the appellant’s claim for the costs of retaining a tax lawyer to prosecute it.
Justice Pardu rejected this reasoning. She summarised the applicable principles:
[20] First, the cases suggest that a legal proceeding against an expert professional may not be appropriate if the claim arose out of the professional’s alleged wrongdoing but may be resolved by the professional himself or herself without recourse to the courts, rendering the proceeding unnecessary.
[…]
[26] Resort to legal action may be “inappropriate” in cases where the plaintiff is relying on the superior knowledge and expertise of the defendant, which often, although not exclusively, occurs in a professional relationship. Conversely, the mere existence of such a relationship may not be enough to render legal proceedings inappropriate, particularly where the defendant, to the knowledge of the plaintiff, is not engaged in good faith efforts to right the wrong it caused. The defendant’s ameliorative efforts and the plaintiff’s reasonable reliance on such efforts to remedy its loss are what may render the proceeding premature.
[27] Finally, I note that cases in which a defendant who is an expert professional attempts to remedy a loss that a plaintiff has discovered and alleges was caused by the defendant (engaging the potential application of s. 5(1)(a)(iv)) are distinct from cases in which courts have held that a client has not discovered a potential claim for solicitor’s negligence until being advised by another legal professional about the claim: see Ferrara, at para. 70; and Lauesen v. Silverman, 2016 ONCA 327 (CanLII), 130 O.R. (3d) 665, at paras. 25-31. In the latter category of cases, the issue is whether the plaintiff knew or ought reasonably to have knowninjury, loss or damage had occurred (under s. 5(1)(a)(i)) that was caused by or contributed to by an act or omission of the defendant (under ss. 5(1)(a)(ii) and (iii)). Section 5(1)(a)(iv) comes into focus where the plaintiff knew or ought reasonably to have known of his or her loss and the defendant’s causal act or omission, but the plaintiff contends the limitation period was suspended because a proceeding would be premature. Although discoverability under more than one subsection of s. 5(1)(a) may be engaged in a single case, it is important not to collapse the analysis of discoverability of loss or damage and the defendant’s negligence or other wrong with the determination whether legal action is appropriate although other proceedings to deal with the loss may be relevant to both questions.
(3) The effect of other processes which may eliminate the loss
[28] A second line of cases interpreting and applying s. 5(1)(a)(iv) of the Act involves a plaintiff’s pursuit of other processes having the potential to resolve the dispute between the parties and eliminate the plaintiff’s loss.
[29] This approach to discoverability is consistent with the rule in administrative law that it is premature for a party to bring a court proceeding to seek a remedy if a statutory dispute resolution process offers an adequate alternative remedy and that process has not fully run its course or been exhausted: see Volochay v. College of Massage Therapists of Ontario, 2012 ONCA 541 (CanLII), 111 O.R. (3d) 561, at paras. 61-70.
[…]
[39] Non-administrative, alternative processes have also been seen in other cases as having the potential to resolve a dispute, thus rendering a court proceeding inappropriate or unnecessary.
[…]
[45] Many of the cases dealing with the effect of alternative processes on the appropriateness of a court proceeding have applied the concept of a proceeding being “legally appropriate” articulated by this court in Markel. Markel involved a dispute between sophisticated insurers claiming indemnity under statutory loss transfer rules. The limitations issue that arose concerned whether a legal proceeding was “inappropriate” while settlement discussions between the parties were ongoing and thus, whether a claim was not discovered until these negotiations broke down.
[46] Recall that, in Markel, the court held that the term “appropriate” in s. 5(1)(a)(iv) means “legally appropriate”. This interpretation avoided entangling courts in the task of having to “assess [the] tone and tenor of communications in search of a clear denial” that would indicate the breakdown of negotiations between the parties. That would permit a plaintiff to delay the discoverability of a claim for “some tactical or other reason” and “inject an unacceptable element of uncertainty into the law of limitation of actions” (at para. 34).
[47] Similarly, in 407 ETR Concession Company, at para. 47, Laskin J.A. stated that the use of the term “legally appropriate” inMarkel “signified that a plaintiff could not claim it was appropriate to delay the start of the limitation period for tactical reasons, or in circumstances that would later require the court to decide when settlement discussions had become fruitless” (emphasis added).
[48] These cases instruct that if a plaintiff relies on the exhaustion of some alternative process, such as an administrative or other process, as suspending the discovery of its claim, the date on which that alternative process has run its course or is exhausted must be reasonably certain or ascertainable by a court.
Accordingly, the motion judge erred in holding that the appellant knew or ought to have known that its proceeding was appropriate as early as April 2010, when it received the CRA’s Notices of Assessment disallowing its tax credits. The proceeding was not appropriate, and the appellant’s underlying claim was not discovered, until May 2011, when the CRA responded to the appellant’s Notice of Objection and advised that it intended to confirm its initial assessments. The motion judge erred by equating knowledge that the respondents had caused a loss with a conclusion that a proceeding would be an appropriate means to seek a remedy for the loss.
Had the respondents together with the tax lawyer prosecuted the CRA appeal successfully, the appellant’s loss would have been substantially eliminated, and it would have been unnecessary to resort to court proceedings to remedy it. The fact that the appellant would have been unable to recover the fees it paid the tax lawyer, except through litigation, was inconsequential. It is the claim that is discoverable, not the full extent of damages the plaintiff may be able to recover. It would not have been appropriate under s. 5(1)(a)(iv) of the Act for the appellant to commence a proceeding until the respondents ameliorative efforts concluded.
The CRA appeal process had the potential to eliminate the appellant’s loss. As an alternative process to court proceedings, it could have resolved the dispute between the appellant and the respondents. These results would have made a proceeding unnecessary. It would not have been appropriate for the appellant to commence a proceeding until the CRA appeal process was exhausted in May 2011.
The court’s decision in Markel, as interpreted in 407 ETR Concession Company, about the meaning of the concept of a proceeding being “legally appropriate” under s. 5(1)(a)(iv) of the Act supported the appellant’s position. It was not a case where the appellant sought to toll the operation of the limitation period by relying on the continuation of an alternative process whose end date was uncertain or not reasonably ascertainable. It was clear that the end date of the CRA appeal was when the CRA responded to the appellant’s Notice of Objection advising that it intended to confirm the assessments. Thus the motion judge erred in invoking Markel to dismiss the appellant’s claim as time barred.
A last note: the Court of Appeal seems to still be ignoring its decision in Clarke where it held that the section 5(1)(a)(iv) discovery criterion requires the claimant to have “good reason to believe he or she has a legal claim for damages”. I don’t think any decision has followed this construction of the provision.