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: the Court of Appeal on the evidence required for discovery

It sometimes happens that I miss notable decisions.  And so, better late than never, I draw Crombie Property Holdings Limited v. McColl-Frontenac Inc. to your attention.

These are the noteworthy aspects of the Court of Appeal decision:

1.  It recaps the standard of review for limitations analyses:

[31]      The Supreme Court of Canada in Hryniak v. Mauldin2014 SCC 7 (CanLII), [2014] 1. S.C.R. 87, at para. 81, established the standard of review on appeal of a summary judgment. The court stated that, “[w]hen the motion judge exercises her new fact-finding powers under Rule 20.04(2.1) and determines whether there is a genuine issue requiring a trial, this is a question of mixed fact and law”, reviewable only for a “palpable and overriding error”, unless there is an “extricable error in principle”. Further, the question whether a limitation period expired prior to the commencement of an action is typically a question of mixed fact and law and therefore subject to review on a “palpable and overriding error” standard: Longo v. MacLaren Art Centre Inc.2014 ONCA 526(CanLII)323 O.A.C. 246, at para. 38. A “palpable and overriding error” is “an obvious error that is sufficiently significant to vitiate the challenged finding of fact”: Longo, at para. 39.

2.  It succinctly summarises the evidentiary burden on a summary judgment motion to dismiss on the basis of an expired limitation period:

[33]      In order to obtain a summary dismissal of the action, the moving parties were required to establish that there was no issue requiring a trial about their limitation defence. The specific issue was whether Crombie’s claim in respect of the environmental contamination of its property was “discovered” within the meaning of s. 5 of the Limitations Act, 2002 before April 28, 2012.

3.  It cites Van Allen for the principle that it is reasonable discovery and not the mere possibility of discovery the causes the limitation period to commence: see para. 35
It inaccurately describes the knowledge necessary to cause discovery of a claim:

[35]      The limitation period runs from when the plaintiff is actually aware of the matters referred to in s. 5(1)(a)(i) to (iv) or when a reasonable person with the abilities and in the circumstances of the plaintiff first ought to have known of all of those matters: Longo, at para. 41. The knowledge sufficient to commence the limitations clock has been described as “subjective” knowledge or “objective” knowledge.

This paragraph appears to conflate the amount of knowledge required by s. 5 with the subjectivity of the knowledge.  A claimant requires prima facie knowledge.  This is knowledge that is greater than suspicion but less than certainty.  See for example Brown v. Wahl at 15.  Then there is question of whether the plaintiff subjectively or subjectively-objectively had this knowledge (not purely objectively, as the Court suggests in this decision, because the question asked in s. 5(1)(b) is a “modified objective” test as it doesn’t ask about the knowledge of a reasonable person, but a reasonable person with the abilities and in the circumstances of the claimant.

Knowledge of a possible wrong (a mere suspicion) is insufficient for discovery of a claim; prima facie knowledge of an actual wrong is necessary:

[42]      That the motion judge equated Crombie’s knowledge of possible contamination with knowledge of actual contamination is apparent from her statement that “[a]ll the testing that followed simply confirmed [Crombie’s] suspicions about what had already been reported on” (at para. 31). It was not sufficient that Crombie had suspicions or that there was possible contamination. The issue under s. 5(1)(a) of the Limitations Act, 2002 for when a claim is discovered, is the plaintiff’s “actual” knowledge. The suspicion of certain facts or knowledge of a potential claim may be enough to put a plaintiff on inquiry and trigger a due diligence obligation, in which case the issue is whether a reasonable person with the abilities and in the circumstances of the plaintiff ought reasonably to have discovered the claim, under s. 5(1)(b). Here, while the suspicion of contamination was sufficient to give rise to a duty of inquiry, it was not sufficient to meet the requirement for actual knowledge. The subsurface testing, while confirmatory of the appellant’s suspicions, was the mechanism by which the appellant acquired actual knowledge of the contamination.