February 2019 – Under the Limit

Ontario: Court of Appeal says that the Limitations Act applies to claims, not causes of action

Justice Strathy’s decision in Apotex Inc. v. Nordion (Canada) Inc. is one of the most important limitations decisions from the Court of Appeal since the Limitations Act came into force. It’s the first decision to make explicit that the Limitations Act doesn’t apply to causes of action, but to “claims” (as defined in s. 1 of the Limitations Act).

This distinction is most often missed by Ontario courts., which generally treat the cause of action and the “claim” as interchangeable for limitations purposes. I have written about this issue extensively (see this, for example), including the problems that result.

Justice Strathy noted one of those problems. Because damage is always an element of the “claim” but not of any cause of action based on conduct that is actionable per se, they accrue differently. A breach of contract is the most common example:

[84]   Before the reform of limitations law brought about by the LA 2002, the previous statute, the Limitations Act, R.S.O. 1990, c. L.15, looked to when the cause of action arose (an expression not used in the LA 2002) to determine the commencement of the limitation period. The “cause of action” for breach of contract accrued on the date of the breach and the limitation period began to run on that date: see Graeme Mew, Debra Rolph & Daniel Zacks, The Law of Limitations, 3d ed. (Toronto: LexisNexis, 2016) at §9.6; Robert Simpson Co. Ltd. et al v. Foundation Co. of Canada Ltd. et al (1982), 1982 CanLII 1750 (ON CA), 36 O.R. (2d) 97 (C.A.), at p. 105; Schwebel v. Telekes, 1967 CanLII 163 (ON CA), [1967] 1 O.R. 541 (C.A.), at p. 544.

[85]   This was the case whether or not damages had yet been incurred. Damages are not an essential element of the cause of action for breach of contract: Mars Canada Inc. v. Bemco Cash & Carry Inc., 2018 ONCA 239 (CanLII), 140 O.R. (3d) 81, at para. 32.

[86]   Under the LA 2002, the limitation period for breach of contract does not necessarily run from the date of the breach. As I have observed, in contrast to the former statute, the date of the “act or omission” – the breach of contract itself – is not the only factor to be considered in determining when a claim is discovered under the LA 2002. Instead, the date on which the plaintiff knew of the occurrence of the act or omission is only one factor to be determined. In addition to that factor, the person with the claim must also know that the “injury, loss or damage had occurred” (s. 5(1)(a)(i)), that it was caused or contributed to by the act or omission (the breach of contract) (s. 5(i)(a)(ii)), and that the act or omission was that of the defendant (s. 5(1)(a)(iii)).

[87]   As a result of the presumption under s. 5(2), the limitation period begins to run on the date of the breach (being the date of the “act or omission”), unless it is proven that the person with the claim did not know of one or more of the matters set out in s. 5(1)(a), and that a reasonable person would not have known of those matters.

[88]   A plaintiff with a claim for breach of contract may displace the presumption in s. 5(2) if, for example, they establish that they did not know that “the injury, loss or damage” had occurred or, if it had occurred, they did not know that it was caused by an act or omission of the defendant – the breach of contract. But it is well-settled that the person need not know the extent of the injury, loss or damage to trigger the commencement of the limitation period. It is enough that they know that some damage has occurred. In Hamilton (City) v. Metcalfe & Mansfield Capital Corp., 2012 ONCA 156 (CanLII), 290 O.A.C. 42, at paras. 59-61, this court adopted the common law rule expressed in Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549, at para. 18, that “some damage” is sufficient to start the running of the limitation period.

Justice Strathy set out the impact this has on a limitations analysis for a breach of contract: 91-92

[91] First, to determine when a claim is discovered in a breach of contract case, it is necessary to examine the terms of the contract and the nature of the alleged breach (the “act or omission”) on which the claim is based: see Mew, Rolph & Zacks, at §9.5, citing to NFC Acquisition L.P. v. Centennial 2000 Inc., 2010 ONSC 733, 67 B.L.R. 218, at paras. 29-30, affirmed in 2011 ONCA 43 (CanLII), 78 B.L.R. (4th) 11; Hopkins v. Stockman, 2013 SKCA 118 (CanLII), 427 Sask. R. 4, at para. 10. As van Rensburg J.A. noted in Morrison v. Barzo, at paras. 33, 49, the application of the test in s. 5(1)(a) requires the identification or definition of the claims at issue. This is a necessary starting point.

[92] Second, in many cases, the act or omission, causation, and the injury, loss or damage will occur simultaneously, and will be discovered simultaneously. But this will not always be the case. In some cases, discovery of the “act or omission” will not start the limitation period running unless injury, loss or damage has occurred and has been discovered (s. 5(1)(a)(i)).

To understand the significance of this decision, compare it to the Court’s description of discovery in Lawless:

[22] The principle of discoverability provides that “a cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered, or ought to have been discovered, by the plaintiff by the exercise of reasonable diligence. This principle conforms with the generally accepted definition of the term ‘cause of action’ – the fact or facts which give a person a right to judicial redress or relief against another”:Aguonie v. Galion Solid Waste Material Inc. (1998), 1998 CanLII 954 (ON CA), 38 O.R. (3d) 161 (C.A.), at p. 170.

Here the Court describes discovery in terms of knowledge of the material facts of the cause of action, which is a statement of common law discovery, not discovery as codified in s. 5 of the Limitations Act. Apotex, together with recent decision in Gillham, suggests that the Court is moving away from the misconception that underlies reliance on Lawless.

Two other points:

Justice Strathy’s decision begins with s. 2 of the Limitations Act. Because this is the provision that determines the application of the Limitations Act, this is the correct starting point for any limitations analysis. However, you rarely see courts considering it.
It would have been helpful for the Court to include a paragraph explaining why the cause of action does not feature in the Limitations Act. It was a deliberate decision. The Legislature sought to resolve the enormous problems inherent in cause of action accrual by converting all causes of action into one unit, the claim. This also allowed for universal limitation periods, rather than limitation periods for different categories of causes of action.

Ontario: Court of Appeal says death is not a “condition”

In Lee v. Ponte, the Court of Appeal held that death does not trigger the application s. 7 of the Limitations Act.

Section 7 suspends the limitation period when the claimant “is incapable of commencing a proceeding in respect of the claim because of his or her physical, mental or psychological condition”. The appellant in Lee argued that this provision could extend the limitation period for an estate trustee to bring a claim that the deceased person had before death:

[5] The appellant urges that s. 7 should be interpreted to apply when the person having the claim dies before commencing proceedings. He argues that a deceased person is incapable of commencing a proceeding in respect of the claim because of his or her physical, mental or psychological condition. He submits that the same policy concerns for allowing additional time for a litigation guardian to be appointed and take over the management of the affairs of the incapable person apply to an estate trustee. He points out that it takes time for an estate trustee to review the affairs of the deceased, and to obtain probate.

The Court rejected this argument:

[6] We are not persuaded the motion judge erred by dismissing the claim as statute barred. The grammatical and ordinary sense of the words of s. 7 are simply not elastic enough to apply to a deceased person and to construe an estate trustee to be a litigation guardian.

This is a very sensible response to a doubtful argument. It’s plain that the Legislature didn’t intend that a “physical, mental or psychological condition” should be so broad as to encompass the condition of being dead. Besides, it’s the Trustee Act that limits the pursuit of a deceased person’s claim. The appellant didn’t rely on this provision, probably because it wouldn’t have helped, but it should be the starting point when considering the limitation of a deceased’s person claim.

Ontario: Court of Appeal on adding a party after the presumptive expiry of the limitation period

The Court of Appeal decision in Morrison v. Barzo sets out in detail the test for adding a party to a proceeding after the presumptive expiry of the limitation period. It’s now the leading decision on the subject.

To obtain leave, the plaintiff must first rebut the presumption in s. 5(2) of the Limitations Act by leading evidence as to the date of subjective discovery. The plaintiff doesn’t need to show evidence of due diligence; due diligence is immaterial to subjective discovery:

[31] The evidentiary burden on a plaintiff seeking to add a defendant to an action after the apparent expiry of a limitation period is two-fold. First, the plaintiff must overcome the presumption in s. 5(2) that he or she knew of the matters referred to in s. 5(1)(a) on the day the act or omission on which the claim is based took place, by leading evidence as to the date the claim was actually discovered (which evidence can be tested and contradicted by the proposed defendant). The presumption is displaced by the court’s finding as to when the plaintiff subjectively knew he had a claim against the defendants: Mancinelli, at para. 18. To overcome the presumption, the plaintiff needs to prove only that the actual discovery of the claim was not on the date the events giving rise to the claim took place. It is therefore wrong to say that a plaintiff has an onus to show due diligence to rebut the presumption under s. 5(2): Fennell, at para. 26.

Second, the plaintiff must establish a prima facie discovery argument by leading evidence as to why the claim couldn’t have been discovered through reasonable diligence:

[32] Second, the plaintiff must offer a “reasonable explanation on proper evidence” as to why the claim could not have been discovered through the exercise of reasonable diligence. The evidentiary threshold here is low, and the plaintiff’s explanation should be given a “generous reading”, and considered in the context of the claim: Mancinelli, at paras. 20 and 24.

This is not a due diligence analysis. While a plaintiff’s due diligence is relevant to the finding under s. 5(1)(b), the absence of due diligence is a not a separate basis for dismissing a claim as statute-barred. This is so whether the expiry of the limitation period is at issue in a motion for summary judgment or in a motion to add a defendant.

When a claimant ought reasonably to have discovered a claim requires an evidentiary foundation. The court can’t say merely that the claim was discoverable before the expiry of the limitation period without explaining why. It may be that the court can only determine when discovery ought to have occurred at a later stage of the proceeding. In such a case, the motion to add the defendant should be granted, with leave for the defendant to plead a limitation defence:

[30] Reasonable discoverability of a claim under s. 5(1)(b) that precludes adding a party contrary to s. 21(1) requires an evidentiary foundation. The court must be satisfied that a reasonable person in the plaintiff’s circumstances ought to have discovered the claim, and the date of such reasonable discovery must be determined. It is not sufficient for the court to say that the claim was discoverable “before the expiry of the limitation period”, without explaining why. It may be that the date of reasonable discoverability can only be determined at a later stage in the proceedings, at trial or on a summary judgment motion. In such a case, the motion to add the defendant should be granted, with leave for the defendant to plead a limitation defence: Mancinelli, at paras. 31 and 34.

Conceptually, I recognise the distinction between the court assessing the plaintiff’s due diligence in investigating the claim against the proposed defendant, and the court assessing whether the plaintiff could through reasonable diligence have discovered the claim against that defendant. However, in practice, I suspect this is a distinction without a difference. In both cases, the plaintiff will lead evidence of the steps taken to investigate the claim—due diligence—and argue that she did what was reasonable to investigate the claim and still didn’t discover it. The proposed defendant will lead evidence of some other step the plaintiff could have taken and argue that it was a reasonable step and would have led to discovery. And so the adequacy of due diligence is always in issue.

The Court also make important points about the findings that are necessary in a limitations analysis. The court must identify the claims in question, and then find when they were discovered. This requires a specific finding of fact that answers the question asked by s. 5(1)(b):

[60] Instead, the motion judge was required, after clearly defining the nature of the claims against the respondents on the evidence, and after finding no actual knowledge of the claims, to make a specific finding of fact as to when a reasonable person “with the abilities and in the circumstances” of the appellants “first ought to have known of the matters referred to in clause (a)”.

Ontario: Court of Appeal on adverse possession and prescriptive easements

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

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.
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: two notable misnomer decisions

Master Short’s decision in Frederica Mitchell v. John Doe is notable for its comprehensive summary of misnomer principles.

So too is Master Short’s decision in Livska v. Molina . It’s an example of the circumstances where the court grants misnomer relief while granting leave to the correct party to plead a limitations defence. Usually, misnomer relief means the correct party can’t plead a limitations defence because misnomer relief is a correction, not an addition or substitution (although the Court of Appeal is inconsistent on this point). This means that the correct defendant was always a party to the proceeding, just misnamed, and if the proceeding was commenced in time, there can be no limitation defence for the correct defendant.

In Livska, the plaintiff named Molina, the alleged perpetrator of an assault, as a defendant. Molina didn’t defend, and the plaintiff noted her in default. Subsequently, the sister learned that Molina’s sister may have participated in the assault. Master Short granted misnomer relief on the basis that Molina, correctly named, was in fact both herself and her sister. Because Molina didn’t defend the action, whether the plaintiff’s proceeding was timely remained a live issue.

Ontario: the Court of Appeal on s. 36(8) of the Building Code Act

Nothern Bruce Peninsula (Municipality) v. Dolson considers the limitation period in s. 36(8) of the Building Code Act for proceedings under that Act. I don’t think it’s technically a civil limitations issues, and I’ve never encountered it before. Still, I’m all for completeness, so if you’re looking for a s. 36(8) authority, here you go.

Ontario: the limitation of will challenges

The decision in Shannon v. Hrabovsky follows Leibel for the principle that the Limitations Act applies to will challenges:

[63] As I understand the analysis in Leibel v. Leibel, because a will is effective as of the date of death, section 5(2) creates a presumption that an applicant has knowledge of the contents of the will on such date. Given this presumption, an applicant with knowledge at the date of death of a will, and its contents, together with all other facts upon which a claim for lack of testamentary capacity would be based would therefore be fixed with all necessary knowledge as of that date. In such circumstances, the date on which such a claim would have been discovered for the purposes of section 5(1)(a) would be the date of death. The same principle would appear to operate with respect to any claim for undue influence.

I’ve given this issue quite a lot of consideration in the course of drafting a paper on the limitation of will challenges. In short, I don’t think that it does. Statutory limitation periods have always applied to causes of action. A will challenge is not a cause of action. The Limitations Act applies to “claims”, not causes of action, but a “claim” is just a universalized cause of action that functions to simplify the accrual analysis and allow for a general basic and ultimate limitation period. If there’s no cause of action, there’s no “claim”. If there’s no “claim”, the Limitations Act doesn’t apply. Let me if know you’d like a copy of the draft paper; I’m happy to provide it.

The quotation above illustrates the problem. Section 5(2) creates a presumption that discovery occurs on the date of the “act or omission” giving rise to the claim. No act or omission necessarily occurs on the date of death. Indeed, there isn’t necessarily any act or omission at all in a will challenge.

The fundamental flaw in Leibel, and the jurisprudence that follows it, is to understand the Limitations Act as having expanded the scope of the statutory limitations scheme to include all court proceedings. This is wrong: the Limitations Act only expanded the scope of the limitations scheme to include all causes of action (the old Act applied to a closed list of causes of action, excluding some, like certain equitable causes of action, that were limited only by equity).

Ontario: Court of Appeal emphasises that discovery is contextual

The Court of Appeal’s decision in Fehr v. Sun Life Assurance Company of Canada is noteworthy for it its emphasis on the contextual nature of the discovery analysis:

[173]   However, when it came to assessing the limitation period defences applicable to the individual plaintiffs, the motions judge did not engage in a detailed examination of these idiosyncrasies. In particular, he did not consider the impact of each plaintiff’s circumstances and experiences on the critical issue of when each plaintiff discovered his or her claim or knew or ought to have known of the requisite facts grounding their claim. He failed to engage in an individualized and contextual analysis, and, instead, applied a broad presumption as to when they ought to have known of certain alleged misrepresentations.

[174]   An individualized and contextual analysis was necessary in this case for the very reason that misrepresentation claims are not generally amenable to class actions: people receive, process, and act upon written and verbal statements in different ways. Their behaviour varies depending upon a variety of factors, including their own particular circumstances, what specific representations and information they received and from whom, how they understood or processed those representations and information, the extent to which they relied upon them, and their own wishes and intentions.

[175]   An individualized and contextual analysis was particularly important in this case because, among other things: (a) there is a relationship of vulnerability between insurer and insured; (b) many of the plaintiffs are unsophisticated with respect to the insurance industry; (c) the insurance policies are complicated and not easily understood; (d) misrepresentations were made to some consumers and not others; (e) some or all of these misrepresentations were made by individuals on whom the plaintiffs might reasonably rely; (f) there is no evidence that the insurer expressly corrected the misrepresentations; and (g) the insurer may have reinforced or made further misrepresentations, to some or all of the plaintiffs, during the life of the policies.