Discoverability and Claims for Contribution and Indemnity

By Shanti Barclay Oct 09, 2018

There have been conflicting decisions in Ontario regarding the discoverability principle set out in ss.4 and 5 of the Limitations Act in terms of their applicability to section 18. [57]      Decisions of the Ontario Superior Court of Justice are split on the proper interpretation of s. 18. The leading case favouring the absolute two-year limitation period interpretation preferred by the motion judge is Miaskowski (Litigation guardian of) v. Persaud2015 ONSC 1654 (CanLII), 51 R.P.R. (5th) 234, at paras. 94-97, reversed in part 2015 ONCA 758 (CanLII), 393 D.L.R. (4th) 237. To the contrary, Demide v. Attorney General of Canada et al.2015 ONSC 3000 (CanLII), 47 C.L.R. (4th) 126, at paras. 84-95, is the most fully reasoned case holding that s. 18 simply identifies the presumptive trigger date for the limitation period for contribution and indemnity claims, subject to discoverability principles.

Recently, in Mega International v. Yung, the Court of Appeal held that the discoverability principle does apply to cases subject to section 18 of the Limitations Act, for contribution and indemnity.

Facts

Mega International v. Yung is a complex commercial litigation case involving the development of property at 207–209 Yonge Street,  in Toronto. The defendants, who were once married but then parted ways, invested in the property to develop it for mixed commercial use. The project, unfortunately, required refinancing in 2004 and 2006.  During the development, the defendants provided personal guarantees.

The third-party, Sun and his law firm, were involved in various roles throughout the development of the project. The defendants’ relied on  instructions to Sun to obtain releases from any personal liability for the development, and he failed to do so.  Sun denied this allegation.

In 2008, the mortgage on the property was in default and a Notice of Sale was issued. Yung was not concerned about the default because he understood that the property by this point, was worth more than the mortgage. Ultimately the property sold for $8 million with an outstanding mortgage of $9,138,963, leaving a $1,216 ,101.00  shortfall.

Mega International issued a Statement of Claim dated January 6, 2011 against Yung and Lai.  Lai, who resided in Ontario,  was served with the Statement of Claim and filed a  Statement of Defence on March 2, 2011. Yung, who did not reside in Canada, was not served with the Statement of Claim until April 30, 2013 when the plaintiff obtained an affidavit for substituted service via the Toronto Star. The plaintiff obtained default judgment which Sun had set aside September 1, 2015.  At that time, the defendants issued their third party claim against Sun.

The third parties motioned for summary judgment based on the expiration of the limitation period.

Motions  Judge Decision

The judge hearing the summary judgement motion heard conflicting evidence between Sun and Yung and Lai. The judge made findings of credibility against Yung and Lai and dismissed the their third party claim based on the strict enforcement of the 2 year limitation period applicable under s. 18 of the Limitations Act.

The Court of Appeal

The Court of Appeal allowed the appeal, set aside the summary judgment dismissing Yung and Lai’s third party claims for contribution and indemnity and ordered that the matter proceed in accordance with the Rules. The decision was unanimous.

The Limitations Act provides:

4 Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

Discovery

5(1) A claim is discovered on the earlier of,

(a)         the day on which the person with the claim first knew,

(i)           that the injury, loss or damage had occurred,

(ii)         that the injury, loss or damage was caused or contributed to by an act or omission,

(iii)        that the act or omission was that of the person against whom the claim is made, and

(iv)         that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b)         the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[…]

Ultimate limitation periods

15(1) Even if the limitation period established by any other section of this Act in respect of a claim has not expired, no proceeding shall be commenced in respect of the claim after the expiry of a limitation period established by this section.

General

(2) No proceeding shall be commenced in respect of any claim after the 15th anniversary of the day on which the act or omission on which the claim is based took place.

Contribution and indemnity

18(1) For the purposes of subsection 5(2) and section 15, in the case of a claim by one alleged wrongdoer against another for contribution and indemnity, the day on which the first alleged wrongdoer was served with the claim in respect of which contribution and indemnity is sought shall be deemed to be the day the act or omission on which that alleged wrongdoer’s claim is based took place.

Application

(2) Subsection (1) applies whether the right to contribution and indemnity arises in respect of tort or otherwise.

The Court of Appeal recognized the conflicting views counsel were grappling with in determining the limitation period for cases involving claims for contribution and indemnity:

[58]      This court has not yet settled the matter. There are passages in Canaccord Capital Corp. v. Roscoe2013 ONCA 378(CanLII), 115 O.R. (3d) 641 that appear to favour the absolute limitation period interpretation. By contrast, there are passages inPlacsek v. Green2009 ONCA 83 (CanLII), 307 D.L.R. (4th) 441, Waterloo Region District School Board v. Truax Engineering Ltd.2010 ONCA 838 (CanLII), 103 O.R. (3d) 81, and Levesque v. Crampton Estate2017 ONCA 455 (CanLII), 136 O.R. (3d) 161, reconsideration refused 2018 ONCA 75 (CanLII) that seem to support the presumptive trigger date interpretation. None of these cases, however, engage or purport to resolve the question of how s. 18 is to be interpreted.

Speaking for the court, Justice Paciocco ruled:

[54]      In my view, the motion judge erred in law in holding that the Limitations Act, 2002, s. 18 creates an absolute limitation period of two years for the commencement of contribution and indemnity claims. Properly interpreted, s. 18 works with other provisions of the Limitations Act, 2002 to create a presumed start date for the running of the limitation period. That presumed limitation period start date will result in a claim for contribution or indemnity being statute-barred two years after the party seeking contribution or indemnity is served with a claim in the proceeding in which contribution or indemnity is sought, unless that party proves that the claim for contribution or indemnity was not discovered and was not capable of being discovered through the exercise of due diligence until some later date.

In reaching this conclusion, the Court of Appeal adopted the one and only approach to interpreting s. 18 of the Limitations Act, “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.”

Applying the approach above to s.18, the court found that the wording of s. 18 did not establish a finite limitation period, such as the wordings in ss. 4, 15 which refer to “a proceeding shall not be commenced” or “no proceeding shall be commenced”, language absent in s. 18. Section 18 deems the day the act or omission on which that alleged claim took place to be when the party is served with the claim.  Read harmoniously with the other provisions of the Act, which is required to give the deemed fact meaning, the discoverability principles in ss. 4 and 5(1) apply.

The relationship between ss. 18, 4 and 5 is defined:

[64]      First, s. 18 is linked expressly to s. 5(2) in its opening phrase, “For the purposes of subsection 5(2) and section 15”. In my view, this opening phrase cannot be read as a direction to exclude contribution and indemnity claims from the operation of ss. 5(2) and 15, as was suggested in Hughes v. Dyck2016 ONSC 901 (CanLII)129 O.R. (3d) 495, at para. 37. The clause “for the purposes of” invokes these provisions. It simply cannot properly be read as dispensing with these provisions as if it said, “Notwithstanding subsection 5(2) and section 15”.

[65]      Second, the thing or fact that s.18 deems to have occurred is the same thing or fact that is used in s. 5(2) as the trigger for the presumptive limitation period in ss. 4 and 5. Section 18 deems “the day on which the first alleged wrongdoer was served with the claim in respect of which contribution or indemnity is sought [to be] the day the act or omission on which the alleged wrongdoer’s claim is based took place.” Meanwhile, s. 5(2) treats “the day the act or omission on which the claim is based took place” to be the day on which a person with a claim is presumed to know that they have a claim within the meaning of s. 5(1). Section 5(2) is the only other provision in the Limitations Act, 2002 apart from s. 18 that uses the operative phrase that I have underlined in the preceding sentences. The two sections are clearly meant to intersect and work together. In effect, s. 18 provides the variable used in s. 5(2) as the trigger for the presumed limitation period for contribution and indemnity claims.

[67]      Sections 18 and 5(2), in my view, work hand in glove in contribution or indemnity claims. Together, these two provisions identify the presumptive limitation period that applies in contribution and indemnity claim cases.

In addition to the language of the Limitations Act, the Court of Appeal also found that the above interpretation is also in keeping with the objective of the Act which is to create a clear and cohesive scheme for determining limitation issues that balances both the plaintiff’s right to sue with the defendant’s need for certainty and finality, resulting in a short limitation period defined by presumed knowledge but rebuttable by discoverability.  There is simply “no reason why a similar balance would not have been intended for contribution and indemnity claims.”

Conclusion

It is now clear that the two year limitation period prescribed by ss. 4, 5(2) and 18 of the Limitation Act for contribution and indemnity claims presumptively begins on the date of the service of the claim which seeks contribution and indemnity. However, that presumptive date can be rebutted by the discoverability principles as set out in s. 5 of the Limitations Act.

Mr. Sun and his law firm will now have to wait until the Court can determine when Yung and Lai’s claim was discoverable.  Given the fact that Yung and Sun discussed the claim in 2011, at which time, Sun referred Lai to retain litigation counsel, it appears likely, that the claim was discoverable four years before the third party claim was issued.

Shanti Barclay is a lawyer at ZTGH and the author of this blog. If you have a question about this decision or a similar file, please contact Shanti.

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