Supreme Court of Canada

The Supreme Court on the application of common law discovery

In Pioneer v. Godfrey, the Supreme Court considered the application of common law discovery to statutory limitation periods.  It is now the leading case on the subject.

The Court held that the common law discovery rule applies only when a limitation period runs from the accrual of a cause of action, or “some other event that can occur only when the plaintiff has knowledge of his or her injury”.

It doesn’t apply when a statutory limitation period runs from an event unrelated to the accrual of the cause of action.  This is because legislature displaces the discovery rule when linking the limitation period to an event unrelated to the plaintiff’s cause of action.

In determining whether a limitation period runs from the accrual of a cause of action, substance prevails.  Even where a statute doesn’t explicitly state that a limitation period runs from accrual, the discovery rule applies if the limitation period in substance commences on accrual .

Thus s. 36(4) of the Competition Act, which the appeal concerned, is subject to discoverability:

[44]                          The text of s. 36(4)(a)(i) provides that no action may be brought under s. 36(1)(a) after two years from a day on which conduct contrary to Part VI occurred. From this, it is clear that the event triggering this particular limitation period is an element of the underlying cause of action. That is, the limitation period in s. 36(4)(a)(i) is triggered by the occurrence of an element of the underlying cause of action — specifically, conduct contrary to Part VI of the Competition Act. Therefore, it is subject to discoverability (Fanshawe College of Applied Arts and Technology v. AU Optronics Corp., 2016 ONCA 621 (CanLII), 132 O.R. (3d) 81, at para. 18).

Justice Côté dissented.  When a limitation period commences on the occurrence of an element of a cause of action rather than the cause of action’s accrual, it does not necessarily follow that the discovery rule applies.  This is because the occurrence of the an element may not depend on the plaintiff’s knowledge:

[151]                     Conversely, “the occurrence of an element of the underlying cause of action” (Brown J.’s reasons, at para. 44) will not always fit within either category outlined above at para. 149. It may be that the occurrence of such an event does in fact depend on the state of the plaintiff’s knowledge, but unlike the accrual of a cause of action, this does not invariably follow as a matter of logical necessity. In Peixeiro, for example, this Court held that the point at which damages are sustained — a constituent element of (among other things) the tort of negligence — depends on when the plaintiff actually has knowledge of his or her injury. Knowledge will not form part of every element of the cause of action in negligence, however. A breach of a standard of care, for example, may occur years or even decades before the plaintiff first learns about it. Although such a breach is a prerequisite to a successful claim in negligence, it is also something that takes place without any regard to the plaintiff’s state of mind.

[153]                     With this in mind, I am respectfully of the view that my colleague’s approach is undermined by the well-settled principle that the discoverability rule is fundamentally a rule of statutory interpretation. The fact that a limitation period begins running upon the occurrence of anelement (and not upon the accrual or arising) of the plaintiff’s cause of action is not, on its own, indicative of any legislative intent regarding the applicability of the discoverability rule. As I have already indicated, my colleague’s conclusion is the same as the one reached by the Court of Appeal in this case and by the Ontario Court of Appeal in Fanshawe: in such circumstances, according to him, discoverability applies automatically. This, however, creates an arbitrary distinction between triggering events that are related to the cause of action and those that are not, despite the fact that both may occur independently of the plaintiff’s state of mind. How can it fairly be said that the legislature intended the discoverability rule to apply to one and not the other? Although knowledge is necessary for a cause of action to fully accrue to the plaintiff, it does not follow that an element of the cause of action also occurs only when the plaintiff has knowledge thereof.

[154]                     A preferable approach is instead one that considers each statutory limitation clause on its own terms, recognizing that a triggering event that relates to a cause of action can, but need not, be dependent upon the plaintiff’s state of mind. This approach is faithful to this Court’s jurisprudence, and respectful of the notion of discoverability as an interpretative tool and not a general rule that allows clear statutory wording to be disregarded. For my part, I would reaffirm the approach laid out in Fehr without any modification.

Thus discoverability doesn’t apply to the s. 36(4) limitation period:

[157]                     The wording of the limitation period set out in s. 36(4)(a)(i) provides ample support for the proposition that the two-year period commences independently of when the plaintiff first learns of the wrongdoing. Rather than having the limitation period commence upon the accrual of the cause of action (as was the case in Central Trust and M. (K.)), Parliament decided that it would instead commence on “a day on which the conduct was engaged in” — which, contrary to the position taken by my colleague, is not “wording to [the same] effect” as “accrual of the cause of action” (paras. 37 and 41). There is simply no link between this triggering event and the plaintiff’s state of mind; it is, in short, an “event which clearly occurs without regard to the injured party’s knowledge”. The Certification Judge’s reading of this provision led him to the same conclusion (para. 54 (CanLII)). It was the existence of conflicting jurisprudence on this point that caused him “not [to be] satisfied that it is plain and obvious that the discoverability principle can never apply to the limitation period in s. 36(4)” (para. 58).

[158]                     I acknowledge that the “discoverability rule has been applied by this Court even to statutes of limitation in which plain construction of the language used would appear to exclude the operation of the rule” (Peixeiro, at para. 38). However, a consideration of the context surrounding s. 36(4)(a)(i) lends further support to the conclusion that the discoverability rule does not apply.

[159]                     First, the cause of action in s. 36(1)(a) is based on two essential elements: (i) the defendant engaging in conduct contrary to any provision of Part VI, and (ii) the plaintiff suffering loss or damage as a result of such conduct. It is only upon the occurrence of both events that the plaintiff can commence proceedings on the basis of this statutory cause of action. Cognizant of this, and of the fact that conspiracies of this nature take place in secret, Parliament decided that the limitation period would not begin when the plaintiff actually sustained loss or damage, but rather when the defendant engaged in the prohibited conduct. It is important to keep in mind that the point at which the conduct is engaged in necessarily precedes the point at which a claimant will suffer loss or damage as a result of such conduct. I would also note that the offence under s. 45 is complete as soon as an unlawful agreement is made, meaning that the “conduct” is “engaged in” even if the agreement is not actually implemented or prices do not actually increase. It follows as a direct consequence of this legislative choice that the limitation period can in fact expire before the plaintiff is in a position to commence proceedings under s. 36(1)(a).

[160]                     Second, s. 36(4)(a)(ii) provides a mechanism for the plaintiff to advance a claim that may be barred by s. 36(4)(a)(i): even if two years have expired from the day on which the prohibited conduct was engaged in, the limitation period will restart on the day on which criminal proceedings relating to the impugned conduct are finally disposed of. While s. 36(4)(a)(ii) applies only where the alleged conduct contrary to Part VI is the subject of criminal prosecution, it nevertheless provides an indication that Parliament was aware of the strictness of s. 36(4)(a)(i) and chose to enact this provision as the only means of relieving against it.

[161]                     Third, and unlike claims subject to the general limitation period in British Columbia’s Limitation Act, S.B.C. 2012, c. 13, s. 21, Parliament has not subjected claims under s. 36(1)(a) to any ultimate limitation period. Interpreting s. 36(4)(a)(i) as commencing only when the underlying conduct becomes discoverable will therefore have the effect of leaving defendants at risk of lawsuit indefinitely. As Paul-Erik Veel helpfully observes, the result would be that “companies could face claims decades later, well after the employees involved in the alleged conspiracy may have left and documents lost, without any ability to defend themselves” (Waiting forever for the axe to drop? Discoverability and the limitation period for Competition Act claims, Lenczner Slaght, August 12, 2016 (online)). This runs contrary to the certainty and evidentiary rationales that underlie the law of limitations.

[162]                     Fourth, the two-year limitation period was enacted by Parliament at a time when limitation periods were comparatively much longer. For example, the provincial limitations statutes that were in force at the time in Ontario and British Columbia set out a general limitation period of six years (The Limitations Act, R.S.O. 1970, c. 246, s. 45(1); Statute of Limitations, R.S.B.C. 1960, c. 370, s. 3). The relatively short limitation period at issue here, which commences even before the cause of action fully crystalizes, provides a further indication of the premium that Parliament placed on granting repose to defendants and encouraging diligence by potential plaintiffs.

I find Justice Côté’s reasoning more persuasive.  I say that with the qualification that I am not as conversant with common law discovery jurisprudence as I am with codified discovery jurisprudence.

That said, I am sufficiently conversant to recognise a curious fiction that underlies the court’s competing arguments.  For the most part, courts apply common law discovery to limitation periods that predate the rule.

Take for example the limitation period in s. 38(3) of the Trustee Act, which commences on death.  It predates the 1997 Supreme Court decision in Peixeiro which determined that discoverability was of general application.  Thus in 2000, the Court of Appeal in Waschkowski noted that “Until the later decision of the Supreme Court of Canada in Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549, 151 D.L.R. (4th) 429, it was not clear whether the discoverability rule applied to all limitation provisions, or whether its application depended on the actual wording of the statutory limitation”

Section 38(3) dates from 1990.  It’s possible, but doubtful, that the legislature drafted s. 38(3) as a response to, say, the early SCC discoverability decisions like 1986’s Central Trust.  However, it’s beyond doubt that the Legislature did not draft the limitation periods in the former Limitations Act mindful of the discoverability rule.  Some of those limitation periods were centuries old before discoverability was even a glimmer in the Legislature’s eye.

Similarly, it’s not clear to me how Parliament could have intended discoverability to apply to s. 36 of the Competition Act when that provision appears to have been enacted in 1985, a year before Central Trust.

So, the court really isn’t arguing about what Parliament intended subjectively, because Parliament didn’t know that discoverability was going to be a rule of general application.  Instead, the court is trying to rationalise common law discovery with limitation periods drafted before the rule existed.  I think Justice Côté’s approach is the soundest conceptually.

In that regard, I note another problem with the majority’s analysis.  If a limitation period commences on the occurrence of an event that forms part of a cause of action, and if discoverability applies, it would be possible to discover the event before the cause of action accrues.  The limitation period would commence before there is a legal basis for an action.  This wouldn’t happen with s. 36(4), but insofar as the majority is setting out a rule, it’s one with problematic implications.

There are two other noteworthy aspects of the decision:

First, the decision includes what is now the leading consideration of fraudulent concealment.  Importantly, the court clarifies that the doctrine does not require a “special relationship between the parties” as its conventional formulation suggests:

[53]                          While it is therefore clear that equitable fraud can be established in cases where a special relationship subsists between the parties, Lord Evershed, M.R. did not limit its establishment to such circumstances, nor did he purport to define exhaustively the circumstances in which it would or would not apply (see T.P. v. A.P., 1988 ABCA 352 (CanLII), 92 A.R. 122, at para. 10). Indeed, he expressly refused to do so: “[w]hat is covered by equitable fraud is a matter which Lord Hardwicke did not attempt to define two hundred years ago, and I certainly shall not attempt to do so now” (Kitchen, at p. 249, emphasis added).

[54]                          When, then, does fraudulent concealment arise so as to delay the running of a limitation period? Recalling that it is a form of equitable fraud, it becomes readily apparent that what matters is not whether there is a special relationship between the parties, but whether it would be, for any reason, unconscionable for the defendant to rely on the advantage gained by having concealed the existence of a cause of action. This was the Court’s point in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19 (CanLII), [2002] S.C.R. 678, at para. 39:

[Equitable fraud] “… refers to transactions falling short of deceit but where the Court is of the opinion that it is unconscientious for a person to avail himself of the advantage obtained” (p. 37). Fraud in the “wider sense” of a ground for equitable relief “is so infinite in its varieties that the Courts have not attempted to define it”, but “all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken” [Emphasis added.]

It follows that the concern which drives the application of the doctrine of equitable fraud is not limited to the unconscionability of taking advantage of a special relationship with the plaintiff. Nor is the doctrine’s application limited, as my colleague suggests, to cases where there is something “tantamount to or commensurate with” a special relationship between the plaintiff and the defendant (paras. 171 and 173-74). While a special relationship is a means by which a defendant might conceal the existence of a cause of action, equitable fraud may also be established by pointing to other forms of unconscionable behaviour, such as (for example) “some abuse of a confidential position, some intentional imposition, or some deliberate concealment of facts” (M. (K.), at p. 57, citing Halsbury’s Laws of England (4th ed. 1979), vol. 28, para. 919). In short, the inquiry is not into the relationship within which the conduct occurred, but into the unconscionability of the conduct itself.

Second, the majority formulates discoverability as applying when “a limitation period runs from the accrual of cause of action or knowledge of the injury”.   The language “knowledge of the injury” comes from Peixero, which takes it from the MB CA decision in Fehr, where it appears without any explanation.  I don’t know what it means.  Is it a reference to a circumstance where a wrong isn’t actionable unless it causes an injury that rises above a threshold?  I struggle to think of other scenarios where knowledge of an injury causes time to run, but knowledge of the cause of action wouldn’t.

It’s odd to me that the majority thought this would be so self-evident that no explanation was required.  At risk of a little (inexcusable) immodesty, the majority and the dissent cite the my text book: this is good indication that if I don’t know what it means, I’m not sure the court could reasonably assume it’s common knowledge.

 

 

Supreme Court says no, plaintiffs don’t need to control when they commence actions

In Canadian Imperial Bank of Commerce v. Green, the Supreme Court rejected a basic principle of limitations law: the plaintiff must always be in control of when it commences a proceeding.

This appeal concerned the interaction of the limitation period in section 138 of the Ontario Securities Act and section 28 of the Class Proceedings Act, which suspends the limitation period applicable to all the causes of action asserted in a class proceeding.

Section 138.3 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, and has three years from the date of the misrepresentation to obtain leave and do so.  In Sharma v. Timminco, the Court of Appeal 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 limitation period, and that section 28 of the Class Proceedings Act did not operate in respect of a 138.3 claim until leave is obtained.

The Timminco decision 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.  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.  In the context of limitations jurisprudence, this was both novel and perverse: plaintiffs did not control whether they commenced their action in time.

In this action, the Court of Appeal reversed itelf and set aside Timminco’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.

Subsequently, the legislature amended the Securities Act so that the limitation period is suspended on the filing of a motion for leave.   However, the issue remained live for actions commenced before the amendments, and so the Supreme Court heard the appeal.  In a lengthy decision from a fractured court, it overturned the Court of Appeal’s decision.

From a limitations perspective, the noteworthy aspect of the decision is the court’s willingness to accept that a plaintiff will not in all circumstances retain control of bringing its action in time.  This was a foremost concern for the Court of Appeal.

Justice Côté stated that requiring the plaintiff to have unilateral control over whether a claim is brought in time is misplaced, and fails to acknowledge that “modern limitation periods” balance the rights of the plaintiffs and the defendants:

[79]                          The Court of Appeal wrote that the effect of Timminco, namely that a plaintiff does not unilaterally control whether his or her claim is brought within the limitation period (because of the starting point of the limitation period or because of delays caused by the defendant or the court), was “foreign to the concept of a limitation provision” (para. 27). In my view, the Court of Appeal failed to appreciate not only that modern limitation periods flow from an exercise in balancing the rights of plaintiffs and defendants, but also that the legislature undertook that balancing exercise in designing the limitation period in question. Section 138.14 OSA does not have an internal suspension mechanism, and the limitation period begins to run regardless of knowledge on the plaintiff’s part, be it on when a document containing a misrepresentation is released, when an oral statement containing a misrepresentation is made, or when there is a failure to make timely disclosure. The scheme is exacting and even harsh, but it is structured in this manner to balance the interests of plaintiffs, defendants and long-term shareholders.

This reasoning is hard to understand.  The very nature of limitation periods requires a balancing of plaintiff and defendant rights, and the courts engaged with this balance frequently under the pre-modern legislation (that is, the former Limitations Act).  See for example the Supreme Court decision in Peixeiro v. Haberman (1997): “Whatever interest a defendant may have in the universal application of a limitation period must be balanced against the concerns of fairness to the plaintiff who was unaware that his injuries met the conditions precedent to commencing an action”.

 In any event, this balance between plaintiff and defendant rights is normally a matter of the length of a limitation period—allow the plaintiff sufficient time to commence her claim, but not so much time that the defendant will suffer prejudice. Here it seems that the balance means taking some control over the running of time and handing it the defendant.  Perversely, this gives the defendant an incentive to delay the commencement of the claim (in this case, by delaying the application for leave).

It seems Justice Côté understood the perversion, because he dismisses it:

[81]                          Like Goudge J.A in Timminco, I am unwilling to rely upon an isolated purpose of limitation periods, taken out of context, in order to give priority to one stakeholder over others, particularly where the legislature was so clearly alive to these considerations in making the choices it made generally for Part XXIII.1 OSA, and more specifically for s. 138.14.

His solution to potential injustice is a nunc pro tunc order.  An order granting leave to proceed with an action is available nunc pro tunc where leave is sought prior to the expiry of the limitation period.

[85]                          The courts have inherent jurisdiction to issue orders nunc pro tunc. In common parlance, it would simply be said that a court has the power to backdate its orders. This power is implied by rule 59.01 of the Rules of Civil Procedure: “An order is effective from the date on which it is made, unless it provides otherwise”.

 

[90]                          In fact, beyond cases involving the death of a party or a slip, the courts have identified the following non-exhaustive factors in determining whether to exercise their inherent jurisdiction to grant such an order: (1) the opposing party will not be prejudiced by the order; (2) the order would have been granted had it been sought at the appropriate time, such that the timing of the order is merely an irregularity; (3) the irregularity is not intentional; (4) the order will effectively achieve the relief sought or cure the irregularity; (5) the delay has been caused by an act of the court; and (6) the order would facilitate access to [citations omitted[. None of these factors is determinative.

 

[93]                          Thus, subject to the equitable factors mentioned above, an order granting leave to proceed with an action can theoretically be made nunc pro tunc where leave is sought prior to the expiry of the limitation period. One very important caveat, identified by Strathy J., is that a court should not exercise its inherent jurisdiction where this would undermine the purpose of the limitation period or the legislation at issue.

 

[94]                          This is because, as with all common law doctrines and rules, the inherent jurisdiction to grant nunc pro tuncorders is circumscribed by legislative intent. Given the long pedigree of the doctrine and of rule 59.01, to which I have referred, it has been held that the legislature is presumed to have contemplated the possibility of a nunc pro tunc order:McKenna, at para. 27; Parker, at pp. 286-87; New Alger Mines, at pp. 570‑71. However, nunc pro tunc orders will not be available if they are precluded by either the language or the purpose of a statute. None of the other equitable factors listed above, including the delay being caused by an act of the court, can be relied on to effectively circumvent or defeat the express will of the legislature.

The practical reality is that there are very few circumstances in which plaintiff won’t be fully in control of when it commences its action.  Nevertheless, the court’s willingness to depart from this basic, common sense limitations principle on rather dubious grounds is troubling.

You may find the decision helpful for its high-level summaries of the doctrine of special circumstances (paras. 112-113) and the purpose of limitation periods (paras. 57-58).