April 2019 – Under the Limit

Reconsidering mistakes of law and discoverability

Samuel Beswick, a Harvard legal scholar, studies the impact a mistake of law has on the discovery of a claim. In Under the Limit‘s first guest post, he makes a compelling argument for reconsidering how Canadian limitations law might alter its approach to mistakes of law in the discovery analysis.

Mistake of law as a basis for extending the limitation period?

Common law countries have long determined that discoverability governs limitation on actions “grounded on” mistake (as the former Alberta statute put it) or that seek “relief from the consequences of” mistake (as the English Limitation Act provides). Back when the law of unjust enrichment was thought to allow restitution only for mistakes of fact, discoverability provisions had not much to do with mistakes of law. Now that the mistake-of-law bar has been abandoned, it is apt to ask: when can a mistake of law be discovered?

In England, this problem has driven multi-billion-pound-sterling unjust enrichment litigation, spurring private law scholars and confounding courts. The answer that the English courts have given, succinctly put in FII Test Claimants v HMRC, is that:

[372] … [I]n the case of a point of law which is being actively disputed in current litigation the true position is only discoverable … when the point has been authoritatively resolved by a final court.

I have recently sought to show that England’s answer to the discoverability of mistakes of law is arbitrary, jurisprudentially strained, internally inconsistent, and effects bad policy.

What’s remarkable (albeit it hasn’t to date been remarked on) is that this doctrine is also totally contradictory to Canadian precedent on this issue. The position in Canada, summarized in Hill v Alberta, is that:

[9] … Discoverability refers to facts, not law. Error or ignorance of the law, or uncertainty of the law, does not postpone any limitation period.

In Canada, time runs on mistake-of-law claims whether or not a claimant has discovered their mistake. This causes other problems, which I have endeavoured to draw out in a recent paper.

There is, however, a middle ground between England’s “authoritative judgment” understanding of limitation on mistakes of law and Canada’s “exception” to the discoverability principle, a full account of which will be appearing in the LQR. The short answer, though, is this: mistakes as to the law should be considered discoverable once a claimant is in a position to plead them in a statement of claim. Discoverability is not about finding out one’s legal position from a court. It is about having adequate time to be able to plead one’s case to a court.

Ontario: the limitation of breach of resulting trust claims

In Sinclair v. Harris, the plaintiff argued that no limitation period applies to claims for breach of a resulting trust relating to real property. The court rejected this argument and found that the ten-year limitation period in s. 4 the RPLA applies. The defendant relied on a dubious interpretation of the Court of Appeal decision in Drakoulakos, in which some unlikely facts allowed me to make a successful s. 24 argument:

[18]           The first issue that needs to be resolved is what limitation period, if any, is applicable in this case. There is a stark difference in the position of the parties. The plaintiffs submit that no limitation is applicable to a resulting trust in equity. The defendants submit that a 10-year limitation period applies to this trust.

[19]           The definition of a resulting trust is succinctly stated in Waters’ Law of Trusts in Canada 4^th Ed.:

Broadly speaking, a resulting trust arises whenever legal or equitable title to property is in one party’s name, but that party is under an obligation to return it to the original title owner, or to the person who paid the purchase money for it.

See Pecore v. Pecore, 2007 SCC 17 (CanLII) at para. 20.

[20]           The responding parties argue that the plaintiffs’ action should be dismissed because any resulting trust established on the evidence is statute barred. They rely upon the 10-year limitation period found in s. 4 of the Real Property Limitations Act, R.S.O. 1990, c. L.15 (“RPLA”):

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.

[21]           In McConnell v. Huxtable, 2014 ONCA 86 (CanLII), Rosenberg J.A. traced the history of the law of limitations in this province. With respect to s. 4, he held that it applied to constructive trusts where the claimant did not have any interest in the property until so declared by the court. In other words, it applied to an equitable interest in land through the imposition of a constructive trust.

[22]           In Waterstone Properties Corp. v. Caledon (Town), 2017 ONCA 623 (CanLII), the court made it clear that the 10-year limitation period in s. 4 did not just apply to claims for the possession of land but would encompass claims of ownership of land advanced by way of a resulting trust (at para. 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. 56; McConnell v. Huxtable, 2014 ONCA 86 (CanLII), 118 O.R. (3d) 561, at paras. 38 – 39.

[23]           The plaintiffs rely on the case of Drakoulakos v. Stirpe, 2017 ONCA 957 (CanLII). This was an appeal of a summary judgment motion whereby the motions judge granted summary judgment on the basis that the claim was statute barred based on the basic limitation period of the Limitations Act 2002. In that case, more than 15 years had passed since the plaintiff had known or ought to have known he had an action arising from a resulting trust. The Court of Appeal overturned the decision because there was no limitation period for a claim based upon the transitional provisions of the Limitations Act 2002, where there was no limitation period for the claim against the trustee of a resulting trust or property still in the possession of the trustee under the former Act and the claim was discovered before January 1, 2004.

[24]           These comments, which are relied upon by the plaintiffs to support their position that there are no limitations for any resulting trust, must be read with care. The Ontario Court of Appeal was dealing with the application of the transitional provisions when it came to a resulting trust. They were not making broad statements that are applicable to the facts before me. I further see Drakoulakos as distinguishable. In that case, the court was dealing with taxi licenses and shares in a company. It was unconnected to any real property. Thus, the Real Property Limitations Act would have no application to it. Similarly, in McConnell v. Huxtable, (at para. 41) Rosenberg J.A. held that s. 4 did not apply where the claimant was seeking an interest in a pension or a business. See also The Equitable Trust Co. v. Marsig, 2012 ONCA 235 (CanLII) at para. 19. I see no conflict in these authorities.

[25]           Likewise, comments made in McCracken v. Kossar, 2007 CanLII 4875 (ON SC), [2007] O.J. No. 664 (S.C.J.) at para. 36, relied upon by the plaintiff, that queries whether equitable trusts are subject to the RPLA have now been overtaken by the appellate authorities noted above, and must be viewed in that light.

[26]           The plaintiffs submit that the limitation period does not apply since the claim is not about land but it is about the monies that Ms. Rock gave the defendants. I cannot agree. First of all, it is clear from the statement of claim and the evidence that this claim is about a resulting trust in a piece of real property. The monies were expressly given to the defendants so that they could purchase the home and land. This is not a case where Ms. Rock gave a sum of money which was unrelated to any real property to the defendants. Here the connection is clear and direct. Further, to try and distinguish the defendants’ authorities on this basis is futile. In most real property transactions, money is involved. The RPLA cannot simply be avoided by an attempt to characterize the transaction as being about money and not land. The fact that the plaintiffs are not actually seeking the return of the Beeton property or any other piece of real property, does not avoid the application of s. 4 given what they are seeking is “money to be laid out in the purchase of land” which fits within the definition of “land” under the RPLA: Harvey v. Talon International Inc., 2017 ONCA 267 (CanLII) at paras. 50 to 54 (dealing with a return of a deposit on the purchase of land); Scicluna v. Solstice Two Ltd., 2018 ONCA 176 (CanLII) at para. 25 (dealing with relief from forfeiture of a deposit for the purchase of land); Goldhar Estate v. Mann, [2016] O.J. No. 6872 (S.C.J.) (holding that the Act applied to equitable mortgage).

[27]           In short, the plaintiffs’ claim is an action to recover land and as such falls within s. 4 of the RPLA.

Ontario: the codification of the discovery rule is not semantics (blog pedantry)

The decision in Loy-English v. Fournier requires some gentle criticism for its description of the limitations scheme:

[40]           Before turning to the evidence, I will just mention that counsel for the intervenor provided me with a useful review and critique of much recent jurisprudence. I have not found it necessary to address the argument that there is a difference between the time when a cause of action accrues at common law and the day when a claim is discovered under the Act. I need not seek to resolve what counsel identifies as inconsistency in the jurisprudence and failure of courts to recognize the extent to which the Act has changed the common law.

[41]           I will just observe that in the seminal decision of Peixiero v. Haberman, the Supreme Court of Canada endorsing the principle of discoverability in connection with Ontario’s motor vehicle regime uses language suggesting a cause of action under Ontario law only “accrues” when it is possible to determine that the injuries exceed the threshold.[18]  In Lawless v. Anderson our Court of Appeal declared that “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.” The court went on to define “cause of action” as “the fact or facts which give a person a right to judicial redress or relief against another.”[19]  Arguably, the effect of the Act is to identify discoverability as a constituent component of a cause of action in Ontario but this is largely a question of semantics.

[42]           The important point is the rationale underlying the discoverability principle. A limitation statute should not be construed to run before the plaintiff could reasonably know that she had a viable cause of action. It is this rationale that is codified in s. 5 of the Act. Whether the cause of action can be said to have arisen at an earlier date, knowledge that there is a cause of action and a legal proceeding is an appropriate avenue for relief is a component of discoverability. All four statutory components are necessary to trigger the running of the limitation period.

It’s not arguable that the Limitations Act makes discoverability a constituent element of a cause of action, nor is the argument one of semantics. At common law, the discoverability rule relates to the accrual of a cause of action, not the elements of a cause of action. The rule provides that a cause of action accrues when the plaintiff discovers its material elements. Section 5 of Limitations Act contains a codified discoverability rule that applies to “claims”, a defined term, not causes of action. It also doesn’t make discoverability an element of a cause of action or “claim”, but determinative of when discovery occurs. This isn’t at all an issue of semantics. “Claims” and causes of action are not interchangeable, a point made recently by the Court of Appeal.
It is not so that the Limitations Act prevents time from running before a plaintiff can reasonably know that she has a viable cause of action. Knowledge of the elements of a cause of action will not result in discovery of a “claim” under the Limitations Act. This is because the s. 5(1)(a)(iv) discovery matter—the appropriateness of a proceeding as a remedy—is not an element of any cause of action, and also because discovery requires knowledge of damage, and damage is not an element of any cause of action based on conduct that is actionable per se (like breach of contract).

Ontario: another good “abilities and circumstances” analysis

The decision in Service Mold + Aerospace Inc. v. Khalaf is another good example of the court’s assessment of a plaintiff’s abilities and circumstances for a limitations analysis. The fact that the plaintiff had no background or education in bookkeeping, accounting, or finances informed the court’s analysis of when the plaintiff could reasonably discover a fraud committed by his bookkeeper.

It’s also a noteworthy decision for the dubious (and unsuccessful) position taken by the defendant:

[21] TD Bank acknowledges that the plaintiffs did not actually discover the fraud until early 2015 and relies on s. 5(1)(b). The position of TD Bank is as follows:

1. The plaintiffs ought to have discovered the claim at least by 2009 or 2010. TD Bank takes the position that bookkeeper fraud is a well-known risk and a prudent businessman would have measures in place to control it. Mr. Schuurman, in effect, turned a blind eye to the risk. TD Bank therefore invites me to dismiss the action.

To discover a claim, the plaintiff must know that the defendant has caused or contributed to his loss (and there is no “claim” as defined by the Limitations Act until loss occurs). Whether the plaintiff was blind or not to a risk that ultimately resulted in his loss, until the loss occurred, the claim was not discoverable. This position might support a contributory negligence argument, but it’s immaterial to a limitations defence.

Ontario: the limitation period in s. 51 of the SABS is not subject to discoverability

In Tomec v. Economical Mutual Insurance Company, the Divisional Court held that the limitation period in s. 51 of the Statutory Accident Benefits Schedule is not subject to common law discovery or the discovery provisions in s. 5 of the Limitations Act. It is a “hard” limitation period in that it runs from a fixed event, which is the refusal to pay the benefit claimed.

Update! The Court of Appeal overturned this decision. Discoverability doesn’t apply.

Ontario: a good “abilities and circumstances” s. 5(1)(b) analysis

Lewis v. Plaskos is noteworthy for its findings regarding the plaintiff’s abilities and circumstances for the purposes of a discovery analysis. The court doesn’t often make these findings explicitly (though it should).

The court found that plaintiff had the abilities of her experienced medical malpractice lawyer, and a reasonable experienced medical malpractice would be alert to the possibility that physician’s notes are incomplete. It was accordingly unreasonable for the plaintiff, through her lawyer, not to consider the possibility and make the accordant inquiries:

[49]           The focus of the dispute is on sub-section 5(1)(b), Limitations Act, 2002. In particular, the issue is whether the analysis of hospital records by Ms. McCartney has met the test of being objectively reasonable.

[50]           After the firm was retained by the plaintiffs, Ms. McCartney was assigned the task of reviewing the hospital records. In that process, she was looking to see what was or was not done and why. Ms. Cartney was considering who was responsible. She knew this was a case of potential delayed diagnosis. Those responsible were to be named as defendants in the statement of claim.

[51]           There are three preliminary matters that are of concern, namely delay, the state of the hospital records and the lack of notes by Ms. McCartney.

[52]           The hospital records were received by Ms. McCartney on or about October 14, 2011. Thirteen months later, in November 2012, the review of those records commenced. While Ms. McCartney was on a working maternity leave during part of that period of time, presumably meaning part-time attendance at the office and with responsibility for other files as well, the review process should have commenced much earlier. Mr. Michael also had carriage of the file. Other junior lawyers in the firm could have been asked to assist.

[53]           There is always a danger in waiting until the presumptive limitation period is about to expire. The process can become rushed. Due diligence was not met.

[54]           It is now known that Dr. Cameron failed to fully record her involvement with Ms. Lewis, particularly her consultation with Dr. Plaskos.

[55]           Litigation lawyers, particularly those involved in personal injury and medical malpractice cases, routinely review physician’s notes and hospital records. These lawyers are aware of the dangers in conducting such review regarding illegible handwriting, abbreviated terms and incomplete recording. The failure of physicians to fully record matters pertaining to a patient is often a topic in the litigation process, including at trial. In the absence of records, physicians often have difficulty recalling specific events and discussions.

[56]           In my view, Ms. McCartney and Mr. Michael, both experienced medical malpractice lawyers, would have, or should have, been alert to the possibility the physician’s notes were incomplete.

[57]           The only contemporaneous note made by Ms. McCartney during her review and analysis of the hospital records was the summary previously mentioned. The summary is incomplete, making no mention of her conclusions as now presented on this motion and lacking detail as to the analytical process undertaken. Hence, on cross-examination, Ms. McCartney was unable to recall her state of mind when reviewing the records and the details of her thought process. Like physicians, lawyers need to record all details of their involvement for future use.

[58]           The first step in the review process is to determine what was recorded. When part of the record contains handwritten notes, the lawyer looks to see if such are legible. There was a legitimate concern with Dr. Cameron’s handwriting and use of abbreviated terms. Ms. McCartney and Mr. Michael, for example, looked at a key word and correctly concluded it to be “refused”. “Radiol” was considered to be radiologist or radiology department. When there is any concern as to what was written, it requires inquiry of the record keeper.

[59]           There are two conclusions Ms. McCartney made that are of critical importance. First, she considered the phrase “will discuss with radiologist or radiology department re: imaging” as connected to the preceding note “will check post void residual”. Second, Ms. McCartney determined “MRI refused as normal rectal tone and no bilateral leg weakness” as Dr. Cameron declining to order an MRI. Such are possible interpretations or conclusions but there are others that, in my view, are far more reasonable.

[60]           Just as physicians arrive at a “differential diagnosis” following examination of a patient, so too must a lawyer consider all reasonable options in their analysis of a case.

[61]           Connecting “will discuss with radiologist or radiology department re: imaging” to “post void residual” is too restrictive. The more reasonable interpretation is that Dr. Cameron was going to seek assistance in determining what further imaging tests were required. At this point, Dr. Cameron was aware the lumbar x-ray, as interpreted by Dr. Plaskos, was inconclusive having regard to the nature of Ms. Lewis’ complaints.

[62]           Dr. Cameron’s note is all recorded under the time of 18:00 hours. Ms. McCartney incorrectly assumed this represented one event. But there are gaps in the recording and, having regards to the words used, it is more likely the record should have been seen as several separate recordings.

[63]           In this regard, the words “MRI refused” invites the question “by whom”. Ms. McCartney’s conclusion that Dr. Cameron refused her own request is not reasonable. It is contrary to normal use of English language and, as it follows the note “will discuss with radiologist …” with a gap in between, leads to the inference someone else is involved. At a minimum, there are a number of possible interpretations and each must be pursued. Indeed, Ms. McCartney acknowledged in cross-examination that one possible interpretation was that the MRI had been refused by someone else, but such a possibility did not occur to her at the time of her review. It should have.

[64]           The failure to order an MRI in a timely fashion is central to the plaintiffs’ case. Ms. McCartney knew that Dr. Plaskos was involved in interpreting an x-ray of Ms. Lewis on January 2, 2011, as had been requested by Dr. Reesor. Ms. McCartney also knew that emergency department physicians will sometimes consult a radiologist as to what imaging to order or for an urgent MRI. These factors, and others previously addressed, meant Ms. McCartney had to consider all reasonable scenarios. Instead, she arrived at a conclusion without examining reasonable alternatives. Her analysis, in result, was incomplete.

[65]           I conclude the analysis of hospital records by Ms. McCartney was not objectively reasonable, particularly having regard to her abilities and experience as a medical malpractice lawyer.

[66]           The cause of action occurred on January 2, 2011. The limitation issue is with discoverability and so the presumptive limitation date of January 2, 2013 does not apply.

[67]           The statement of claim was issued on October 7, 2014. Was it discoverable prior to October 7, 2012? I conclude it was. The medical records were received in October 2011. A diligent review would have led to further inquiry. The potential claim against Dr. Plaskos, in my view, was discoverable by December 31, 2011 and certainly long before October 7, 2012.

[68]           In result, I conclude the limitation period had expired prior to the statement of claim being issued. The claim against Dr. Plaskos is statute-barred by operation of Section 5, Limitations Act, 2002. The claim against him must be dismissed. I so order.