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 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: Prescriptive easements (are a limitations issue)

Carpenter v. Doull-MacDonald well summarises the principles of prescriptive easements, which you may be surprised to learn is a limitations issue.  Section 31 and 32 of the Real Property Limitations Act govern the establishment of prescriptive easements:

[40]           As adjusted by the Land Titles Act,[15] discussed below, a prescriptive easement may be established in two ways under the Real Property Limitations Act,[16] and a third way pursuant to what is known as the doctrine of lost modern grant. At common law, prescription was based on the legal fiction that if there were 20 years of uninterrupted use by the owner of the dominant tenement, it could be presumed that there had been a grant of an easement and that the grant had been lost.[17]

[41]           The relevant provisions of the Real Property Limitation Act are set out below:

  1. No claim that may be made lawfully at the common law, by custom, prescription or grant, to any way or other easement, or to any water course, or the use of any water to be enjoyed, or derived upon, over or from any land or water of the Crown or being the property of any person, when the way or other matter as herein last before-mentioned has been actually enjoyed by any person claiming right thereto without interruption for the full period of twenty years shall be defeated or destroyed by showing only that the way or other matter was first enjoyed at any time prior to the period of twenty years, but, nevertheless the claim may be defeated in any other way by which it is now liable to be defeated, and where the way or other matter as herein last before-mentioned has been so enjoyed for the full period of forty years, the right thereto shall be deemed absolute and indefeasible, unless it appears that it was enjoyed by some consent or agreement expressly given or made for that purpose by deed or writing.
  2. Each of the respective periods of years mentioned in sections 30 and 31 shall be deemed and taken to be the period next before some action wherein the claim or matter to which such period relates was or is brought into question, and no act or other matter shall be deemed an interruption within the meaning of those sections, unless the same has been submitted to or acquiesced in for one year after the person interrupted has had notice thereof, and of the person making or authorizing the same to be made.

[42]           Section 31 of the Real Property Limitations Act sets a 20-year period or a 40-year period for the creation of prescriptive easements. The period of alleged prescriptive use is specified to be the period immediately before the commencement of an action.[18] For an easement created by the doctrine of lost modern grant, the duration of use does not have to be a 20-year or 40-year period immediately preceding the bringing of an action.[19] The doctrine of lost modern grant establishes that where there has been 20 years of uninterrupted enjoyment of an easement and such enjoyment has all the necessary qualities to fulfill the requirements of prescription, the law will adopt the legal fiction that such a grant was made.[20] The nature of the enjoyment of the land necessary to establish an easement under the doctrine of lost modern grant is exactly the same as that required to establish an easement by prescription under a statute of limitations.

[43]           To establish a prescriptive easement, the claimant must demonstrate a continuous, uninterrupted, open and peaceful use of the land, without objection by the owner.[21] To acquire an easement by prescription under a statute of limitations or under the doctrine of lost modern grant, the claimant’s use of the land must be “as of right” or, as described in the old authorities, “nec vinec clamnec precario”—“without violence, without stealth (secrecy), without permission”.

[44]           To say that the use of the easement must be “as of right,” is to say that the enjoyment of the easement is not just permissive (i.e., not just a licence) and the owner of the dominant tenement must actually manifest an ownership right; i.e., an entitlement to use the easement.[22] A claimant may rely on the use of predecessor owners to make up the requisite period of “as of right” use.[23]

[45]           During the 20-year period under the Real Property Limitations Act or pursuant to the doctrine of lost modern grant, the owner of the servient tenement’s oral or written consent or permission defeats any claim for a prescriptive easement.[24] During the 40-year period under the Real Property Limitations Act, a written but not an oral consent will defeat any claim for a prescriptive easement.[25]

[46]           The Ontario Law Reform Commission Report on Limitation of Actions stated that “as of right” means that the claimant must show that he or she enjoyed the easement “as if entitled to it.”[26] In the English case of De La Warr v. Miles,[27] Brett, L.J. said that “as of right” meant “that he who asserts a prescriptive right claims as having a right to do it without the Lord’s permission, and that he has so done it without that permission.”[28] The Ontario Law Reform Commission in its report, states at p. 143:

The person claiming the easement must show that the owner of the land has acquiesced in his enjoyment. The latter must have acquiesced yet not given permission. It is not easy to tell whether or not there was, in fact, acquiescence in a particular case.

[47]           The theory behind a claim for an easement based on prescription under a limitations statute or under the doctrine of lost grant is that the evidence establishes that the owner of the servient tenement has with knowledge consented or acquiesced to the establishment of an incorporeal ownership interest in land by the owner of the dominant tenement as opposed to licensing the use of the land without conferring an ownership interest in it.[29] Use by permission or licence is insufficient for establishing a prescriptive easement.[30] The theory was explained in Sturges v. Bridgman[31] by Thesiger, LJ. as follows:

Consent or acquiescence of the owner of the servient tenement lies at the root of prescription, and of the fiction of a lost grant, and hence the acts or user, which go to the proof of either the one or the other, must be, in the language of the civil law, nec vi nec clam nec precario; for a man cannot, as a general rule, be said to consent to or acquiesce in the acquisition by his neighbour of an easement through an enjoyment of which he has no knowledge, actual or constructive, or which he contests and endeavours to interrupt, or which he temporarily licenses.

[51]           The threshold for meeting the criteria for establishing a prescriptive easement under the Limitations Act or by lost modern grant is high, and courts are hesitant to recognize an easement by prescription because doing so would permit a landowner’s neighbourly accommodation of sufferance to ripen into a legal burden on his or her lands without compensations.[40] Use permitted by neighbourliness and enjoyed on that basis is insufficient to establish an easement by prescription.[41]

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: the limitation of mortgage enforcement

Curiously, posts about the Real Property Limitations Act receive the most views on Under the Limit.  My guess is that this reflects the murkiness of the Act more than people’s interest in it.  The Act is Part I of the former Limitations Act, renamed, but otherwise unchanged from its antiquated and impermeable glory.  When the Ontario limitations regime was being reformed, a complete review of limitations was too time-consuming, and so review of the real property limitation periods was abandoned to avoid delaying the other reforms.  Should you be interested, the legislative history is detailed here at paragraphs 27-33.

In the spirit of catering to my market, I present the decision in 552439 Ontario Limited v. Forbes Building Material Limited for its summary of the section 23(1) limitation period for mortgage enforcement:

Real Property Limitations Act

−        Paragraph 23(1) of the Real Property Limitations Act provides for a ten-year limitation period for the enforcement of a mortgage.  It reads as follows:

 

23(1)  “4.  No action shall be brought to recover out of any land or rent any sum of money secured by any mortgage or lien, or otherwise charged upon or payable out of the land or rent, or to recover any legacy, whether it is or is not charged upon land, but within ten years next after a present right to receive it accrued to some person capable of giving a discharge for, or release of it, unless in the meantime some part of the principal money or some interest thereon has been paid, or some acknowledgment in writing of the right thereto signed by the person by whom it is payable, or the person’s agent, has been given to the person entitled thereto or that person’s agent, and in such case no action shall be brought but within ten years after the payment or acknowledgment, or the last of the payments or acknowledgments if more than one, was made or given.”

−        It is the nature of the mortgage which will determine when the ten-year period is triggered.  The limitation cannot pass before the mortgagee has any right to enforce.  The limitation runs from the earliest time at which repayment can be required.

 

−        While there are exceptions, on a demand mortgage, the cause of action accrues upon execution of the mortgage.

 

–  Mortgage Insurance Co. of Canada v. Grant 2009 ONCA 655 (CanLII), [2009] O.J. No. 3769

–  Alter v. Csontos [2004] O.J. No. 1590

–  Cioccio v. Cioccio [2005] O.J. No. 1182

 

−        If the terms of the mortgage provide for payment upon the happening of a specific contingency, then the cause of action arises upon the happening of the contingency.  Thus, the ten-year statutory limitation does not run until the contingency is satisfied.

 

–  Re Gould Ex Parte Garvey 1940 CanLII 89 (ON CA), [1940] O.R. 250 (Ont. C.A.)

–  Canada Mortgage and Housing Corp. v. 447136 British Columbia Ltd. [2014] B.C.J. No. 497

 

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.

Ontario: just because a claim affects property doesn’t mean the limitation period is ten years

Update: The Supreme Court refused leave to appeal from the Court of Appeal’s judgment.

The Court of Appeal’s decision in Zabanah v. Capital Direct Lending brings certainty to the application of the Real Property Limitations Act (and its plaintiff-friendly limitation periods).  There mere fact that a claim affects real property will not exclude the application of the Limitations Act, 2002.

The appellant purchased a second mortgage on a home from the respondent, Capital Direct.  The mortgagor had fraudulently informed Capital Direct that the balance of the first mortgage on her home was $83,000 when it exceeded $200,000.  The mortgagor made an assignment in bankruptcy.  The first mortgagee advised the appellant that the sale of the home under power of sale had yielded insufficient proceeds to pay off the first mortgage. There was nothing left for the appellant.

The appellant claimed against Capital direct for negligence, breach of contract, and breach of fiduciary duty.  Capital Direct succeeded on a motion for summary judgment on the basis that the action was started after the expiry of two-year limitation period in the Limitations Act, 2002.  On appeal, the appellant argued that it was the ten-year limitation period in section 43 of the Real Property Limitations Act that applied. Section 43 provides as follows:

Mortgage covenant

(1) No action upon a covenant contained in an indenture of mortgage or any other instrument made on or after July 1, 1894 to repay the whole or part of any money secured by a mortgage shall be commenced after the later of,

(a) the expiry of 10 years after the day on which the cause of action arose; and

(b) the expiry of 10 years after the day on which the interest of the person liable on the covenant in the mortgaged lands was conveyed or transferred.

The appellant’s position was that her claim affected real property because her loss was the reduced value of her security interest in the property.  She relied on the Court of Appeal decision in The Equitable Trust Co. v. Marsig (2012) for the proposition that the Limitations Act, 2002 does not apply to a claim affecting real property.

Justice Blair disagreed. The appellant’s claim sounded in negligence and contract.  The negligence related to what Capital Direct allegedly did and said.  The contract related to the transaction where the appellant acquired the second mortgage.  Neither claim was within the category of claims described by section 43.  Marsig involved a guarantee covenant contained in a mortgage and was distinguishable on that basis.  The court’s obiter in Marsig about the application of the Limitations Act, 2002 to claims affecting real property was limited to the distinction between guarantees associated with land transactions, which are subject to the Real Property Limitations Act, and guarantees associated with contract claims, which are not.

Accordingly, section 43 does not apply to every action in which a mortgage or real estate is involved:

[18]      We agree with the motion judge’s qualification regarding s. 43 of the RPLA, that “[t]o the extent that language could be read as encompassing every action in which a mortgage or piece of real estate is in any way involved, I do not believe that it accurately describes the present state of the law.” The motion judge’s statement at the end of para. 46 is unassailable, and makes all the difference: “Nothing that this court decides will affect any party’s relationship to the second mortgage or the property.” The appellant’s action, as against Capital Direct, is simply a negligence and contract claim, and is not a claim to an interest in land, as in Marsig.