Ontario: Common law discoverability, and how it applies to the Competition Act

In Fanshaw College v. AU Optronics, Justice Grace held that the limitation period applicable to Competition Act claims is subject to discoverability. We wrote about it here.  The Court of Appeal has upheld this decision.

The appellant argued that the discoverability principle shouldn’t apply for the same reason that it doesn’t apply to section 38(3) of the Trustee Act: the limitation period is linked to a fixed event (in the case of the Trustee Act, death).  The Court rightly rejected this argument.  The limitation period in section 36(4)(a)(i) is linked to the accrual of the cause of action—the wrongful conduct—not a fixed event.  The term “conduct” in section 36(4)(a)(i) refers to the conduct giving rise to damages mentioned in section 36(1) (the statutory cause of action) and is a constituent element of the cause of action that is subject to the limitation period.

Apart from its significance to the competition bar, the decision is noteworthy because it includes a thorough discussion of the common law discoverability principle.  Common law discoverability became mostly academic in Ontario when the legislature codified it into sections 4 and 5 of the Limitations Act, but it remains relevant in certain circumstances.  I’m involved in a proceeding (ever more like Jarndyce and Jarndyce) that is subject to the previous limitations scheme and common law discoverability.

This is the Court’s discussion of discoverability:

[32]      The discoverability principle is a common law rule providing that “a cause of action arises for 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”: Central Trust Co. v. Rafuse, 1986 CanLII 29 (SCC), [1986] 2 S.C.R. 147, at p. 224; see also Graeme Mew, Debra Rolph & Daniel Zacks, The Law of Limitations, 3rd ed. (Toronto: LexisNexis Canada Inc., 2016), at p. 75.

[33]      Discoverability is also an interpretive rule relevant to the construction of limitation statutes: Ryan v. Moore, 2005 SCC 38 (CanLII), [2005] 2 S.C.R. 53, at para. 23. As explained below, it provides certain presumptions for courts interpreting statutory limitation periods.

[34]      The approach for determining whether a particular statutory limitation period is subject to the discoverability principle was discussed by Twaddle J.A. in Fehr v. Jacob (1993), 1993 CanLII 4407 (MB CA), 14 C.C.L.T. (2d) 200 (Man. C.A.), at p. 206:

[T]he judge-made discoverability rule is nothing more than a rule of construction. Whenever a statute requires an action to be commenced within a specified time from the happening of a specific event, the statutory language must be construed. When time runs from “the accrual of the cause of action” or from some other event which can be construed as occurring only when the injured party has knowledge of the injury sustained, the judge-made discoverability rule applies. But, when time runs from an event which clearly occurs without regard to the injured party’s knowledge, the judge-made discoverability rule may not extend the period the legislature has prescribed.

The Supreme Court of Canada has endorsed this passage in Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549, at para. 37, and in Ryan, at para. 23.

[35]      Ryan is the latest statement from the Supreme Court of Canada on this issue. In that decision, at para. 24, Bastarache J. concluded as follows:

Thus, the Court of Appeal of Newfoundland and Labrador is correct in stating that the rule is “generally” applicable where the commencement of the limitation period is related by the legislation to the arising or accrual of the cause of action. The law does not permit resort to the judge-made discoverability rule when the limitation period is explicitly linked by the governing legislation to a fixed event unrelated to the injured party’s knowledge or the basis of the cause of action.

[36]      The applicability of discoverability is a matter of statutory construction. The jurisprudence noted above only provides presumptions and, in Ryan, at para. 23, Bastarache J. cautioned against applying the principle automatically or “systematically without a thorough balancing of competing interests”.


Ontario: Discoverability applies to the Competition Act

In Fanshaw College v. AU Optronics, Justice Grace held that the limitation period applicable to Competition Act claims is subject to discoverability. The opportunity for a successful limitation defence in a competition class action is now much diminished. An appeal from this decision will be no surprise.

The action centres on LCD products. Fanshaw College alleges that the defendants unlawfully conspired to fix or artificially inflate the price of LCD products they purchased. The defendants moved for summary judgment on the basis that section 36(4) of the Competition Act bars the statutory claim and the expiry of the limitation period bars the conspiracy claim.

Section 36(4) imposes a two-year limitation period on claims for recovery of damages under the Act:

 (4) No action may be brought under subsection (1),

(a) in the case of an action based on conduct that is contrary to any provision of Part VI, after two years from

(i) a day on which the conduct was engaged in, or

(ii) the day on which any criminal proceedings relating thereto were finally disposed of,

whichever is the later […]

The defendants argued that the section 36(4) is not subject to discoverability. A line of jurisprudence originating from the Federal Court supported this position. Discoverability would not apply because the limitation period is linked to a fixed event unrelated to the claimant’s knowledge—”the day on which the conduct was engaged in”. Justice Grace rejected this rationale:

[117]     It seems obvious that participants in a price-fixing scheme would attempt to conceal their activities. It is impossible to say categorically when those affected will learn or have the means of learning of the offending conduct. It will depend on the circumstances of each case.

[118]     Unless the discoverability principle applies, strict application of s. 36(4)(a) might well result in a claim being statute-barred before a person affected could possibly have known of the illegal activity. The right of action would only be resurrected if criminal proceedings – initiated by the state – ensued. As a matter of construction it does not seem possible that Parliament intended the right of action to be illusory. I am not satisfied that the rights conferred by s. 36(1) should be restricted in the fashion AU and Hannstar advocate.

Though sound, this reasoning has problematic implications. If it’s impossible to say that in all circumstances an affected person will learn of the illegal activity within two years of the date it was engaged in, the equivalent is true of other limitation periods that commence on fixed dates. Section 38(3) of the Trustee Act is an example. This limitation period commences on the death of the plaintiff or defendant, and death being a fixed event, it’s not subject to discoverability. Nevertheless, there are surely circumstances where the limitation period will expire before a person affected could have known of the death that triggered it.

The two limitations periods are perhaps distinguishable. The Competition Act resurrects a right of action in the event of a criminal proceeding. There is a greater likelihood of concealment regarding a price-fixing agreement than a death. Neither distinction is especially compelling. Should there be an appeal, it will be interesting to see how the Court of Appeal addresses this issue.

The other noteworthy aspect of the limitations defence was the defendants’ argument that the plaintiff through its reasonable diligence ought to have discovered the conspiracy claim as a result of the media’s coverage of the probe into the LCD industry and the commencement of proceeding:

 [65]     It is acknowledged that there was extensive media coverage concerning probes into the LCD industry starting in December 2006.

[66]     Several articles were published in Ontario. On December 13, 2006, the Globe reported that European and U.S. regulators had announced an ongoing investigation of “a possible cartel involving makers of liquid crystal display monitors” and of “the possibility of anti-competitive practices in the LCD industry.”

[67]     On the same day the Star reported that “[l]iquid crystal display makers in Japan, Taiwan and South Korea are facing probes by trade watchdogs as a widening price-fixing investigation” in the LCD industry. Falling share prices of various companies were reported, including L.G. Philips and Samsung. The Star noted that LCDs were “the displays used in flat-panel televisions and personal computers.”

[68]     Mr. Smith acknowledged that Fanshawe was a Globe and Star subscriber at the time. At paragraph 6 of his affidavit, Mr. Smith deposed that:

To my knowledge, no member of Fanshawe brought the articles to the attention of Fanshawe’s Board of Directors or senior management.

[69]     In cross-examination, Mr. Smith agreed that from 2006 to 2009 he did not speak with board members or senior managers about articles concerning the LCD industry except those he described as “direct report”. No other details were requested or given.

[70]     The December 13, 2006 edition of the Citizen included a report concerning the LCD industry. It also noted that “AU Optronics plans to co-operate with the Justice Department and Japan’s antitrust regulator”. AU Optronics was one of several companies involved in the LCD industry mentioned in an article appearing on the Canadian Press Newswire that day.

[71]     A day earlier, a class proceeding had been commenced in the United States. AU Optronics, AU Optronics Corporation America and Hannstar were included in the long list of defendants.[18]

[72]     The B.C. action was commenced on March 6, 2007.

[73]     The First Ontario action followed on May 2, 2007. Michael Harris was named as the representative plaintiff. Siskinds has acted throughout. On the same day that law firm posted a notice on www.classaction.ca bearing the heading “Liquid Crystal Display”. The notice said in part:

This class action alleges that the Defendants unlawfully conspired to fix, increase, and/or maintain prices at which LCD or products containing LCD were sold in Canada.

The plaintiff alleges that from at least January 1, 1998 through to the present, the defendants and their senior executives participated in illegal and secretive meetings and made agreements relating to price targets, specific price increases, market share divisions and production capacity for LCD.

LCD is a thin, flat display device made of numbers of pixels arrayed in front of a light source or reflector. LCD is used in television screens, computer monitors (both desktop and notebook), mobile phones, personal digital assistants, digital cameras and other devices.

[74]     A link to the statement of claim was provided as were contact details for those seeking more information. AU and Hannstar were mentioned but not named as defendants.

[75]     On May 23, 2007, the Star reported that LCD market participant LG Philips “is one target of an investigation into anticompetitive practices in the industry by U.S. and Asian regulators.”

[76]     A class proceeding was commenced in the Province of Quebec the following month.[19]

[77]     All of these facts pre-date July 20, 2007. The moving parties submit that they support the conclusion that Fanshawe ought to have discovered the claim more than two years before it was commenced. Alternatively, AU and Hannstar maintain that Fanshawe has failed to prove that it acted with due diligence in determining if it had a cause of action.

Justice Grace disagreed. He couldn’t conclude on the evidence that the plaintiff ought to have known the section 5(1)(a) facts based on media reports. Nor did the commencement of the class action necessarily crystalise the plaintiff’s discovery of the claim. The commencement of a class action does not fix all members of the putative class with knowledge of the cause of action (in contrast to a conventional action, the commencement of which means that the plaintiff has discovered the claim even if the plaintiff lacks knowledge of the section 5(1)(a) facts):

 [79]       Fanshawe is a large educational institution. It might well be appropriate to conclude that a reasonable person in its position would have read and fully digested the reports appearing in Canadian publications. However, on the evidence introduced so far, it is a distant and unwarranted stretch to conclude Fanshawe ought to have known of any of the items listed in s. 5(1)(a), let alone all four of them as the subsection requires.

[80]     According to the press, a price-fixing investigation was underway involving a component used in flat-panel televisions and personal computers. No conclusions had been reached, even on a tentative basis. The possible implications were unaddressed beyond declining prices of the shares of some of the participants in the LCD industry. None of the defendants in this action were mentioned in the two publications to which Fanshawe subscribed; the Globe and the Star. The Citizen mentioned AU Optronics but Fanshawe was not a subscriber. In any event, that article simply indicated that AU planned to cooperate in the investigation.

[81]     Class proceedings were commenced in various jurisdictions including Ontario. A short notice was posted by Siskinds on one website concerning the First Ontario action. There was no evidence that anyone from Fanshawe accessed the website or saw the notice.

[82]     Nothing else was done that I recollect seeing or hearing about. There were no press releases. There were no media reports of any of the proposed class proceedings. Notices do not appear to have been created, let alone disseminated.

[83]     Hannstar noted that Mr. Harris, initially the representative plaintiff in the First Ontario action, was a consumer. In its factum Hannstar submitted that:

It defies logic to suggest that a large academic institution like Fanshawe was less capable of ascertaining the facts giving rise to the claim than individual consumers.

[84]     I disagree. I have no knowledge of Mr. Harris. I do not know how he came to be a representative plaintiff. Did he approach Siskinds? Mr. Smith deposed that Siskinds approached Fanshawe. Was Mr. Harris in the same position? I simply do not know. It is not self-evident to me that a high level of sophistication necessarily leads to greater knowledge about a particular topic. It would be folly to equate Fanshawe and Mr. Harris simply because Fanshawe is a large academic institution and Mr. Harris is an individual.


[92]     I do not understand why commencement of an action would fix all members of the putative class with knowledge of the cause of action. As noted, aside from one short notice on a website created by Siskinds, the proceeding was not publicized.

[93]     In Lipson v. Cassels Brock & Blackwell LLP (2013), 2013 ONCA 165 (CanLII), 114 O.R. (3d) 481 (C.A.) at para. 84, the Court of Appeal noted that the commencement of a limitation period “may be an issue that must be determined individually for each class member, depending on what individual class members were told and when.”

[94]       Determining that the commencement of a proposed class proceeding serves as the last possible day for the commencement of a limitation period would be arbitrary. It would not be based on the evidence in this case. It would be a legal fiction. A procedural vehicle would be converted into something more.[21] I decline the invitation to be its creator.

[95]     At this stage I am not satisfied that Fanshawe knew or ought to have known of the elements set forth in s. 5(1)(a) of the Limitations Act. I simply cannot make dispositive findings based on the evidence before me.