Ontario: Court of Appeal on adverse possession and prescriptive easements

The Court of Appeal decision in Majewsky v. Veveris restates two real property principles:

  1. Adverse passion can be established with respect to lands registered under the Land Titles Act by possession meeting the necessary requirements during any continuous ten-year period prior to registration in Land Titles.
  2. To acquire a prescriptive easement whether under the doctrine of lost modern grant or by prescription under the RPLA, the claimant must demonstrate use that is continuous, uninterrupted, open, and peaceful for a period of 20 years.

Ontario: the Land Titles Act and possessory and prescriptive rights

Aragon (Wellesley) Development (Ontario) Corp. v. Piller Investements Ltd. will be useful to the real property bar for its summary of the effect of the Land Titles Act on possessory and prescriptive rights (starting at para. 122), abandonment of easements (starting at para. 154), and prescriptive easements (starting at para. 165).

 

 

Ontario: the limitation of stand-alone mortgage guarantees

In Hilson v. 1336365 Alberta Ltd., the court determined, for the first time, the limitation period for a stand-alone mortgage guarantee agreement. A stand-alone guarantee that affects or relates to an interest in land, and includes covenants to pay money secured by a mortgage, is subject to a ten year limitation period under s. 43(1) the Real Property Limitation Act.

[41]           The application of a predecessor provision to s. 43(1) of the Real Property Limitations Act (being s. 49(1)(k) of the Limitations Act, R.S.O. 1914, c. 75) was considered by the Ontario Court of Appeal in Martin v. Youngson (1924), 55 O.L.R. 658 (C.A.).  In that case, the mortgagee commenced an action against the guarantor of the mortgage more than ten years after the mortgage became due.  If the predecessor to s. 43(1) did not apply, the limitation period would have been 20 years.   Pursuant to s. 49(1)(b) of the predecessor statute, the 20-year limitation period applied to “an action under a bond, or other indenture, except upon a covenant contained in an indenture of mortgage”.  The guarantee covenant in Martin was contained in the mortgage indenture, which the guarantor had executed.  At p. 663, the court found that the applicable limitation period was ten years, as indicated below:

Dealing now with the successive points argued by the appellant, I think that this is “an action upon a covenant contained in an indenture of mortgage,” and therefore comes within sec. 49, subsec. 1(k), of the Limitations Act. The whole document, exhibit 1, is an indenture of mortgage. I express no opinion as to what would be the proper conclusion if the guaranty were contained in a separate collateral document. That point can be decided when it arises. But, so far as this action is concerned, it seems to me that it falls precisely within the words of the statute, and therefore that the period of limitation is 10 years, and not 20. [Emphasis added.]

[42]           In its 2012 decision in Equitable Trust, the Ontario Court of Appeal considered and affirmed its previous decision in Martin.  As in Martin, the issue in Equitable Trust was the applicable limitation period where the guarantee covenant was contained in the mortgage indenture that the guarantor signed, rather than in a “separate collateral document”.  Counsel did not bring to my attention any subsequent decision that considered whether the ten-year limitation period would apply to a claim under a guarantee covenant in a separate document, the issue that Martin expressly left outstanding.

[43]           In Equitable Trust, the guarantor argued that the limitation period for the guarantee contained in the mortgage was two years, based on the following reasoning.  The guarantee covenant in that case was a demand obligation governed by ss. 5(3) and (4) of the Limitations Act, 2002.  Those provisions were intended to apply to all demand obligations, including a demand guarantee obligation contained in a mortgage indenture.  The court rejected that argument.  Relying on s. 2(1)(a) of the Limitation Act, 2002, the court held that the ten-year limitation period in the Real Property Limitations Act applied.  In doing so, the court stated as follows (at paras. 27, 28, 30 and 31):

27        … [T]he effect of s. 2(1)(a) of the Limitations Act, 2002 is to preclude the limitation periods of that Act from applying when the Real Property Limitations Act applies. Put simply, the Limitations Act, 2002, was enacted to deal with limitation periods other than those affecting real property.

28        A guarantee given in conjunction with a mortgage transaction affects real property law rights. Guarantors, if they have made payments toward the mortgage debt, need to be served in mortgage enforcement proceedings because they have an equity of redemption and an interest in the mortgaged property…. [Case citations omitted.]

30        It is true that it may not always be easy to determine whether a particular guarantee … is subject to the Limitations Act, 2002 or, like the guarantee in the case at bar, is subject to the Real Property Limitations Act. However, it does not follow that all guarantees should be treated the same way. It has been the case historically that guarantees associated with land transactions have different limitation periods from guarantees associated with contract claims. Moreover, as already noted, it is my view that the Legislature intended that all limitation periods affecting land be governed by the Real Property Limitations Act.

31        The mortgage enforcement practice, as demonstrated in the case at bar, is to give guarantors notice of power of sale proceedings. In my view, it would cause much more confusion and uncertainty in the law, if the limitation period for enforcing the mortgage debt was different from the limitation period for enforcing guarantees of that debt. [Emphasis added].

[44]           In its subsequent decision in Zabanah v. Capital Direct Lending Corp.2014 ONCA 872 (CanLII), 123 O.R. (3d) 350, the Court of Appeal acknowledged that it was appropriate to circumscribe the expansive expression in Equitable Trust (at para. 30) of the legislative intent that “all limitation periods affecting land be governed by the Real Property Limitations Act.”  In Zabanah, the assignee of a mortgage was unable to recover the amount due under the mortgage either from the mortgagor or upon the sale of the mortgaged property.  The assignee sued the original mortgagee for negligence and breach of contract.  Summary judgment was granted, dismissing the action against the original mortgagee on the basis that the action had not been commenced within the two-year limitation period in the Limitations Act, 2002.  The assignee argued on appeal that the ten-year limitation period in Real Property Limitations Act applied, relying on the statement in Equitable Trust that all limitation periods affecting land were governed by that statute.  The appeal court held that the motion judge was correct that the two-year limitation period applied.  The court distinguished Equitable Trust on that basis that the assignee’s action against the original mortgagee “is simply a negligence and contract claim, and is not a claim to an interest in land, as in [Equitable Trust].”

[45]           Defence counsel argued that as in Zabanah, the plaintiff’s claim against the Lightles under the stand-alone guarantees was a contract claim, not a claim to an interest in land.  By the same reasoning, the two-year limitation period would apply to the plaintiff’s claim against the Lightles under those agreements, according to the defence.

[46]            Defence counsel also argued that s. 43(1) of the Real Property Limitation Act does not apply because the stand-alone guarantees do not constitute an “other instrument … to repay the whole or any part of any money secured by a mortgage.”  While the term “instrument” is not defined in the Real Property Limitation Act, defence counsel referred to other statutory provisions to support his argument that the term “instrument” should be read as being limited to an instrument that affects or relates to an interest in land.  In his submission, the stand-alone guarantees did not fall within the meaning of “instrument” as that term was used in s. 43(1).

[47]           In particular, defence counsel referred to the definition of “instrument” in s. 1 of the Registry Act, R.S.O. 1990, c. R.20, as follows:

“instrument” includes every instrument whereby title to land in Ontario may be transferred, disposed of, charged, encumbered or affected in any other way, and, without limiting the generality of the foregoing, includes … a deed, conveyance, mortgage, assignment of mortgage, certificate of discharge of mortgage, … a contract in writing, … and every notice, caution and other instrument registered in compliance with an Act of Canada or Ontario;

[48]           Under s. 22 of the Registry Act, any instrument as defined in s. 1 may be registered under that Act, subject to specified exceptions.  As well, under s. 23 of that Act, the land registrar may refuse to accept for registration any instrument that, in the registrar’s opinion, does not affect or relate to an interest in land.  On the same basis, the registrar may refrain from recording part of a registered instrument.  As defence counsel also noted, there is no definition of “instrument” in the Land Titles Act, but s. 81 of that Act is to the same effect as s. 23 of the Registry Act.  Under s. 81 of the Land Titles Act, the land registrar may refuse to register all or part of an instrument on the basis that it does not affect or relate to an interest in land.

[49]           Applying the foregoing legislative provisions, it is clear that only instruments that affect or relate to an interest in land are capable of being registered under the Land Titles Act or the Registry Act.  Registration under those statutes provides public notice relating to ownership and other interests in real property in Ontario, and provides the basis for determining the priority of those interests.  What was not clear to me was why the meaning of instrument for registration purposes was determinative (or even relevant) when interpreting the meaning of that term for purposes of determining the limitation period for court proceedings, as set out in s. 43(1) of the Real Property Limitation Act.

[50]           In any case, plaintiff’s counsel did not dispute that the term “instrument” in s. 43(1) should be interpreted as meaning an instrument that affects or relates to an interest in land.  As explained further below, I agree with plaintiff’s counsel that the stand-alone guarantees are instruments that affect or relate to an interest in land, applying the reasoning of the Court of Appeal in Equitable Trust.  As well, by their terms, the stand-alone agreements include covenants “to repay … money secured by a mortgage”, that is, the second mortgages between the plaintiff and the corporate defendants.  Accordingly, I have concluded that the limitation period for the plaintiff’s claim under the stand-alone guarantees was ten years.

This reasoning seems sound to me, but I find the real property limitations scheme as arcane as everyone else.

Ontario: the limitation of applications to recover real estate advances

In Scicluna v. Solstice Two Limited, the Court of Appeal reminds us that an application to recover monies advanced in a real estate purchase is subject to the Real Property Limitations Act:

[25]      Although the application judge should have responded overtly in her decision to Solstice’s limitation period defence, she was clearly correct to reject it. In my view, Yim v. Talon International Inc.2017 ONCA 267 (CanLII)137 O.R. (3d) 184 confirms that Ms. Scicluna’s claim is governed by the 10 year limitation period in s. 4 of the Real Property Limitations Act, R.S.O. 1990, c. L.15(“RPLA”), not by the Limitations Act. I reject Solstice’s attempt to distinguish this case based on the factual difference that Yim dealt with a deposit whereas the “forfeited money” claimed by Solstice is no longer a deposit. The RPLA governs actions to recover “land”, and “land” is defined in s. 1 as including “money to be laid out in the purchase of land”. Ms. Scicluna’s application to recover monies advanced in a real estate purchase falls under that definition regardless of whether it is properly characterized as a deposit.al

Ontario: RPLA applies to all claims to obtain land

After a prolonged summer break, Under the Limit returns!

In Waterstone Properties v. Caledon (Town), the Court of Appeal reminds us that s. 4 of the Real Property Limitations Act applies to any court proceeding to obtain land by court judgment:

[32]      The words “action to recover any land” in s. 4 of the RPLA are not limited to claims for possession of land or to regain something a plaintiff has lost.  Rather, “to recover any land” means simply “to obtain any land by judgment of the Court” and thus these words also encompass claims for a declaration in respect of land and claims to the ownership of land advanced by way of resulting or constructive trust:  Hartman Estate v. Hartfam Holdings Ltd.2006 CanLII 266 (ON CA)[2006] O.J. No. 69, at para. 56McConnell v. Huxtable2014 ONCA 86 (CanLII)118 O.R. (3d) 561, at paras. 38-39.

As to what it means to obtain land by court judgment, some direction comes from Justice Faieta’s decision in Wilfert v. McCallum from June 2017.  The prospect that a financial benefit may accrue to a plaintiff/judgment creditor resulting from a declaration to set aside a transfer of land under the Fraudulent Conveyances Act does not result in the the plaintiff obtaining land by court judgment.

[26]           With the greatest of respect for the views expressed by my colleague in Conde v. Ripley2015 ONSC 3342 (CanLII) at para. 48, the prospect that a financial benefit may accrue to a plaintiff/judgment creditor resulting from a declaration to set aside the transfer of land under the FCA does not result in the plaintiff “obtaining land by judgment of the Court”.  Accordingly, an action to set aside a fraudulent conveyance of land is not an action to recover land.

Ontario: claims for the return of condo deposits subject to ten year limitation period

The Court of Appeal has held that a claim for the return of deposits advanced toward the purchase of a condo unit is subject to the ten year limitation period in s. 4 of the Real Property Limitations Act.

Justice Epstein’s analysis in Harvey v. Talon International Inc. is refreshingly methodical and lucid.  It begins with the governing principle of statutory interpretation:

[40]      This is a matter of statutory interpretation. Statutory interpretation is governed by the approach described in Elmer Driedger,Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983), at p. 87, and adopted by the Supreme Court of Canada in Re Rizzo & Rizzo Shoes Ltd., 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

Principles Applied

[41]         Section 4 of the RPLA provides as follows:

No person shall make an entry or distress, or bring an action to recover any land or rent, but within ten years next after the time at which the right to make such entry or distress, or to bring such action, first accrued to some person through whom the person making or bringing it claims, or if the right did not accrue to any person through whom that person claims, then within ten years next after the time at which the right to make such entry or distress, or to bring such action, first accrued to the person making or bringing it.

[42]         When those aspects of s. 4 of the RPLA that do not apply to this case are removed, it provides that:

No person shall bring an action to recover any land, but within ten years after the time at which the right to bring any such action first accrued to the person bringing it

[43]         Thus, there are 3 requirements in s. 4: an “action”, to “recover” and what must be recovered is “land”.

[44]         An action is defined in s. 1 of the RPLA to include “any civil proceeding”.

[45]         “Recover” is defined in legal dictionaries as “gaining through a judgment or order”. This was the definition adopted for the use of “recover” in s. 4 in McConnell v. Huxtable, 2014 ONCA 86 (CanLII), 118 O.R. (3d) 561, at paras. 16-20, specifically, at para. 17, where this Court noted that the English Court of Appeal has held that the expression “to recover any land” in comparable legislation “is not limited to obtaining possession of the land, nor does it mean to regain something that the plaintiff had and lost. Rather, “recover” means to ‘obtain any land by judgment of the Court’”

[46]         I agree with the application judge’s approach on this point. This is clearly an action to recover.

[47]         The remaining question is whether what Ms. Yim seeks to recover – her deposit – is “land”. The definition of land in s. 1 of the RPLA is as follows:

“land” includes messuages and all other hereditaments, whether corporeal or incorporeal, chattels and other personal property transmissible to heirs, money to be laid out in the purchase of land, and any share of the same hereditaments and properties or any of them, any estate of inheritance, or estate for any life or lives, or other estate transmissible to heirs, any possibility, right or title of entry or action, and any other interest capable of being inherited, whether the same estates, possibilities, rights, titles and interest or any of them, are in possession, reversion, remainder or contingency;

[48]         In my view, the application judge was also correct in concluding that an application for the return of the deposit was an action for the recovery of “land”; specifically the recovery of “money to be laid out in the purchase of land”.

[…]

[51]         In support of this conclusion, I note that several cases have clarified the relationship between claims for damages and claims covered by the RPLA. The Supreme Court in Canson Enterprises Ltd. v. Boughton & Co., 1991 CanLII 52 (SCC), [1991] 3 S.C.R. 534, defined damages as “a monetary payment for the invasion of a right at common law”. In Toronto Standard Condominium Corp. No. 1487 v. Market Lofts Inc., 2015 ONSC 1067 (CanLII), the plaintiff sought damages based off the defendant’s failure to meet its obligations under a Shared Services Agreement. Perell J., beginning at para. 49, noted that the fact that real property is incidentally involved in an action does not necessarily mean that the action is governed by the RPLA. Among the cases he cited was Metropolitan Toronto Condominium Corp. No. 1067 v. L. Chung Development Co., 2012 ONCA 845 (CanLII). In that case, this Court made the following comment, at para. 7:

Finally, we do not think that the [RPLA] applies to the case as framed by the appellant. In its Statement of Claim, the appellant frames its action as one for damages flowing from the respondents’ negligence, breach of contract, conflict of interest, and breach of duty of care, fiduciary duty and statutory duty. None of these relates to the categories of actions encompassed by the [RPLA].

[52]         Thus, had Ms. Yim’s claim been one primarily seeking damages, for example breach of contract, her application would be statute-barred. This would be true even if the claim for damages incidentally related to real property, specifically the condominium that was the subject of her APS. Claims for damages do not fit within the definition of “land” in the RPLA.

[53]         However, Ms. Yim is not seeking damages. She advances a specific claim under a provision in the Act, a provision that only allows for the return of her deposit and interest, not damages. The Tax Court defined a deposit in Casa Blanca Homes Ltd. v. R., 2013 TCC 338 (CanLII), as “a pool of money retained until such time as it is applied in partial payment or forfeited”. As noted by the Alberta Court of Appeal in Lozcal Holdings Ltd. v. Brassos Development Ltd. (1980), 1980 ABCA 72 (CanLII), 111 D.L.R. (3d) 598, “a genuine deposit ordinarily has nothing to do with damages, except that credit must be given for the amount of the deposit in calculating damages”.

[54]         This leads me to the consideration of “money to be laid out in the purchase of land”, a phrase on which there is scant jurisprudence. However, in my view an action for the return of a deposit fits comfortably within its plain meaning. Frankly, I struggle to understand what would fit within this phrase if not an action such as this.

[55]         On the basis of the foregoing analysis, I conclude that Ms. Yim’s application is not statute-barred. This is also true of the amendment of her initial application to specifically claim statutory rescission. As her application is covered by s. 4 of the RPLA, the applicable limitation period is ten years. The application is an action, which is defined as any civil action. She seeks “recovery”, which has been defined as “gaining through a judgment or order”. And the recovery she seeks is of “land”; namely, her deposit, which is money laid out in the purchase of land.

[56]         I would therefore not give effect to this ground of appeal.

Ontario: The limitation of claims for trusts over real property

Justice Doyle’s decision in Campbell v. Nicol contains a helpful summary of the limitation of claims for the imposition of a constructive trust on real property:

[71]           With respect to equitable claims, the Ontario Court of Appeal dealt with this issue in McConnell v. Huxtable, 2014 ONCA 86 (CanLII), 118 O.R. (3d) 561, where the court dealt with a claim for the remedial constructive trust over real property based on an allegation of unjust enrichment. The Court held that the applicable limitation period was the 10 year period under s. 4 of the Real Property Limitations Act.

[72]           The question for the Court was whether a claim for unjust enrichment in which the claimant asks the court to impose a constructive trust upon the respondent’s real property is an action to recover any land. The Court answered in the affirmative. The Court concluded that the constructive trust remedy for unjust enrichment as well as the purposes and contextual interpretation of the Real Property Limitations Act justified a finding that the claim fell within this category.

[73]           The Court also found that the applicant’s alternative claim for monetary compensation was also governed by the 10-year limitation, not the two-year limitation period pursuant to the Limitations Act, 2002.

Analysis

[74]           The applicant issued his application six years after the date of separation. Given the decision in McConnell, the court finds that the proper limitation period for the claim in unjust enrichment is 10 years under the Real Property Limitations Act.

[75]           A claim based unjust enrichment has two remedies. The Court must first consider a monetary remedy and secondly a property remedy: see Kerr v. Baranow; Vanasse v. Seguin, 2011 SCC 10 (CanLII), [2011] 1 S.C.R. 269.

[76]           Here, the applicant did couch the remedy he was seeking as a property claim for the unjust enrichment claim. The Ontario Court of Appeal in McConnell confirmed that the limitation period for an unjust enrichment claim requesting a property remedy is 10 years. Even though a trial court will, upon finding unjust enrichment, must first determine if the unjust enrichment can first be remedied by a monetary claim as stated in Kerr and Vanasse, the McConnell case states that the claim for unjust enrichment has a limitation period of 10 years even if the alternate claim is for monetary compensation.

 

Ontario: Adverse possession is a limitations issue

Justice McKinnon’s decision in Osman v. Heath sets out nicely the principles of adverse possession.  Perhaps surprisingly to those who don’t practice in the area, these are limitations principles determined by the Real Property Limitations Act.  Here are the relevant paragraphs:

The Law

[49]           The cases on adverse possession are legion and each case turns on its own set of particular facts. In Ontario, adverse possession claims are governed by sections 4, 13, and 15 of the Real Property Limitations Act, R.S.O. 1990, c. L.15, which establishes a ten-year limitation period in which a dispossessed owner must bring an action to recover possession once a right to possession has accrued. By section 15, when a person has not attempted to recover the land within ten years after the right to bring an action or make entry or distress accrued, the right and title of the owner of the land is extinguished. A person claiming a possessory title as against the legal owner must establish the following:

  1.    Actual possession for the statutory period;
  2.    That such possession was with the intention of excluding the true owner; and
  3.    That the true owner’s possession was effectively excluded for the statutory period: Pflug v. Collins, 1951 CanLII 80 (ON SC), [1952] O.R. 519 (Ont. H.C.); Marotta v. Creative Investments Ltd. (2008), 69 R.P.R. (4th) 44 (Ont. S.C.); Keefer v. Arillotta (1976), 1976 CanLII 571 (ON CA), 13 O.R. (2d) 680 (C.A.).

[50]           The claimant must meet each of these three criteria and time will begin to run against the owner from the last date when all three are satisfied: Masidon Investments Ltd. v. Ham (1984), 1984 CanLII 1877 (ON CA), 45 O.R. (2d) 563 (C.A.).

[51]           Marotta is a particularly helpful decision; it sets out in detail the applicable law, and I shall briefly follow the analysis employed in that decision.

Actual possession

[52]           The claimant must establish actual possession for the ten-year period and the acts of possession must be open, notorious, constant, continuous, adverse and exclusive of the right of the true owner. In Teis v. Ancaster (Town) (1997),1997 CanLII 1688 (ON CA), 35 O.R. (3d) 216 (C.A.), at paras. 14, 16, Laskin J.A. explained the requirement of open and notorious possession in these words:

First, open possession shows that the claimant is using the property as an owner might. Second, open possession puts the true owner on notice that the statutory period had begun to run. Because the doctrine of adverse possession is based on the true owner’s failure to take action within the limitation period, time should not run unless the delay can fairly be held against the owner….

 

The element of adversity means that the claimant is in possession without the permission of the owner. If the claimant acknowledges the right of the true owner then the possession is not adverse.

[…]

[57]           Further, the “inconsistent use” test does not apply to cases of honest unilateral mistake: Cunningham v. Zebarth Estate (1998), 71 O.T.C. 317 (Ont. Gen. Div.). The “inconsistent use” test does not apply in circumstances in which the person in possession operates under the honestly held belief that he or she is the rightful owner of the property or in cases where the legal owner and person in possession operate under a mutual mistake as to title or boundaries. In such cases, an inference may be drawn that the occupier is in possession of the land with the intention of excluding all others including the legal owners.

[…]

Actual exclusion of the true owners

[59]           The final part of the test for possessory title requires that the true owner be excluded from possession. In analyzing this subject, the conduct of the owners in relation to the land is considered.

[60]           As I have stated, the true owners had effectively abandoned the large shed certainly when the business was moved to another location in Kemptville, and probably during the 1980s. When the Doucettes acquired the Residential Property they closed off all entrances to the large shed on the side of the Commercial Property. It was effectively sealed off from access by the true owner. The sealing off was accomplished openly and notoriously. The entire building was raised and leveled, concrete was poured, and work was carried out on the exterior. Photos show Mr. Doucette on a ladder performing renovations to the exterior of the large shed. The true owners had been excluded from the large shed since at least 1990.

Ontario: limiting fraudulent conveyance actions

 

In Conde v. Ripley et al., Justice Dunphy held that the limitation period applicable to a claim under section 2 of the Fraudulent Conveyances Act depends on whether the claim is to recover land, in which case the ten year limitation period in the Real Property Limitations Act applies, or for personal property, in which case the general two year limitation in the Limitations Act, 2002 applies.

Section 2 of the FLA entitles a person to commence an action against a transferee of real or personal property to declare the transfer to be void as against “creditors or others” where there was fraudulent intent.

The defendants in Conde argued that such an action is subject to the Limitations Act alone.  In a well-reasoned and correct decision, Justice Dunphy rejected this position.

Section 2(1)(a) of the Limitations Act provides that the Act doesn’t apply to proceedings subject to the RPLA.  Section 4 of the RPLA applies to “an action to recover any land”.  If the two year limitation period in the Limitations Act applied to an FCA action seeking to invalidate a  transfer of an interest in land while the claim to the land itself is subject to the ten year RPLA limitation period, it would be “inconsistent in the extreme”; the action to set aside the  transfer would be barred before the action to claim the interest.  This result, Justice Dunphy noted, “appears contrary to common sense”. (I wonder whether it is the two year limitation period that would apply to the FCA claim under the Limitations Act; section 16(1)(a) provides that no limitation period applies to claims that seek only a declaration–ie, that a transfer of land is void).

The problem with the defendants’ position was their confusion between standing to bring a claim under the FCA and  the nature of the FCA claim itself:

[40]           In arguing for a two year limitation period, the moving parties have confused standing to bring a claim under the FCA with the nature of the FCAclaim itself.  Standing – which is granted by s. 2 of the FCA to “creditors or others” – is to be distinguished from the nature of the action itself.  As I have explained at some length, standing to bring FCA claims is granted to “creditors or others” whereas a claim, once brought by a creditor with standing, has many of the characteristics of a class proceeding.  For limitations purposes, in my view, it is necessary to consider the nature of the FCA claim and not the standing of the individual claimant.

[41]           An FCA claim, if successful, does no more or less than invalidate the impugned transfer as against “creditors or others” of whom the plaintiff is obviously an exemplar.  Where the conveyance attacked is of real property, such an action is thus quite literally an “action to recover land” since the outcome of the action, if successful, is to “recover” the land to the estate of the transferor (in this case Mr. Ripley) so that – once so recovered – it can respond to the claims of creditors or others as if it had never been transferred.  The outcome of the plaintiff’s claim against the transferor may well be a money judgment – the outcome of the claim against the transferee under the FCA is an order “to recover land” which is then available to satisfy that claim.

[42]           Importantly, even if the underlying claim of the “creditor or others” is a money claim, the outcome of an FCA action is not a money judgment ordering the transferee to pay that claim.  The transferee may well pay the judgment to free the property of the claim – if they so choose.  That, however, is a consequence of choice and not of the order made.

Justice Dunphy found nothing regrettable about the two separate limitation periods applying to FCA actions:

[44]           This might seem somewhat inelegant or even regrettable.  In my view, it is neither.  It is simply the by-product of the FCA being a descendent of a very old statute going back literally hundreds of years upon which has been overlaid a more comprehensive and newly-elaborated system of limitation periods than formerly applied.  FCA actions were once considered to be actions for which no limitation period specifically applied.  The Legislature has seen fit to change that, and in so doing, to differentiate between actions involving recovery of land and other types of actions.  The result, when applied to this old statute, is what I have described.

It’s also worth noting Justice Dunphy’s rather pithy reminder that for the purposes of the limitation period, the law will impute a solicitor’s knowledge on her client:

[67]           The limitation period commences when the plaintiff discovers the underlying material facts or, alternatively, when the plaintiff ought to have discovered those facts by the exercise of reasonable diligence:  Tender Choice Foods Inc. v. Versacold Logistics Canada Inc., 2013 ONSC 80 (CanLII) at para. 56.  The plaintiff here had the facts but chose to disbelieve them due to a search conducted without due care and accepted without sufficient examination.  As between the two, it may well be that the solicitor should have found what her client failed to, but I must attribute the knowledge of one to the other.

[68]           To hold otherwise would be, in my view, to provide a solicitor’s negligence exception to the Limitations Act, 2002.  While such a development would, I have no doubt, warm the hearts of lawyer insurance providers everywhere, I can find no support for it in the statute.  Section 5(1)(b) requires the application of an objective test to a consideration of the subjective capacities of the plaintiff.

Ontario: the limitations jurisprudence of 2014 in review

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.