OCA clarifies Limitations Act provisions related to third-party claims

Limitations Act provisions that have been the subject of conflicting Superior Court decisions related to third-party claims have finally been clarified by the Ontario Court of Appeal.

OCA clarifies Limitations Act provisions related to third-party claims
Eliot Kolers says a recent Ontario Court of Appeal ruling ‘does not mean people can sit on their hands to bring third party claims.’

Limitations Act provisions that have been the subject of conflicting Superior Court decisions related to third-party claims have finally been clarified by the Ontario Court of Appeal.

It concluded that while there is a presumption of a two-year deadline for the filing of “contribution and indemnity” claims, this can be rebutted based on the principle of discoverability.

The unanimous decision in Mega International Commercial Bank (Canada) v. Yung stated that while the statutory reforms that came into effect in 2004 were aimed at promoting “certainty and finality” in litigation, they are also about a balance between the rights of plaintiffs and defendants.

“Balance is generally achieved in the Limitations Act by adopting short limitations periods triggered by presumed knowledge of a claim, but subject to rebuttal based on the discoverability principles. There is no reason why a similar balance would not have been intended for contribution and indemnity claims,” wrote Justice David Paciocco with Justices David Doherty and Ian Nordheimer concurring.

The Court of Appeal overturned the finding of Superior Court Justice Lawrence Pattillo that the limitations period for defendants Tony Man Tung Yung and Yvonne Pui Ling Lai to file a claim against their former lawyer, expired two years after they were first served with a statement of claim by the plaintiffs. Pattillo concluded this was an absolute bar and not subject to principles of discoverability, unlike other claims.

“This does not mean people can sit on their hands to bring third party claims,” says lawyer Eliot Kolers, who acts for Yung and Lai.

“The Court of Appeal was balancing the interests of trying to have disputes resolved in a timely manner and also balancing access to justice,” says Kolers, a partner and head of the litigation and dispute resolution group at Stikeman Elliott LLP in Toronto. “Particularly in the area of solicitor’s negligence, a defendant may not initially be aware they have a claim,” he explains.

Daniel Zacks, a lawyer at Clyde & Co. in Toronto, says the ruling is a welcome one.

“This needed clarity. It was one of the last unsettled Limitations Act issues,” says Zacks, who specializes in limitations law.

“There was uncertainty in knowing how the time ran for a substantial amount of claims. It was unfair to carve out one kind of claim and say that the discoverability provisions did not apply. Why would it be this way for contribution and indemnity and not any other kind of claim,” Zacks says.

The Court of Appeal ruling on the limitations issues is in a proceeding that originated from a dispute over a mixed use development project in downtown Toronto. As a result of financial challenges with the project, Mega International issued a notice of sale and then filed a statement of claim in 2011 for $1.2 million against Yung and Lai.

The claim was for the difference between the sale price for the property and the amount owed to redeem a mortgage previously taken out by the couple. Lai was served in early 2011. 

Substituted service was permitted against Yung, who had moved to Hong Kong, although this did not take place until 2013.

The defendants sought to bring a third-party claim against their original lawyer, which was dismissed by Pattillo in a summary judgment motion.

In finding that the two-year limitations period was absolute and began when the first defendant was served, he relied on a 2015 ruling by Justice Paul Perell in Miaskowski v. Persaud.

“It would be a rare case that a defendant would not know the parties against whom to claim contribution and indemnity. Moreover, two years is ample time to exercise due diligence to determine whom should be sued after being served with the plaintiff’s statement of claim,” wrote Perell in that case.

The Court of Appeal noted there was a “split” in the Superior Court in its decisions on this issue. But it found that the Limitations Act is an “integrated legislative scheme” that if it is warranted on the evidence, would not impose an absolute time limit on filing a contribution and indemnity claim.

“There is an element of injustice in using a limitation period to deny a claim that could not have been discovered with reasonable diligence and the court should be reluctant to adopt a legislative interpretation that permits the possibility of such an injustice, unless that is the outcome clearly dictated by the legislation. In my view, that outcome is not clearly dictated by s. 18. On the contrary, the opposite outcome is indicated,” Paciocco wrote.

As well, the Court of Appeal indicated that the motions judge made an error in his interpretation of the term “first alleged wrongdoer” in section 18 of the statute and then finding that the limitations clock against Yung for a third-party claim started at the same time as Lai, even though he was not served until two years later.

“Properly understood, this is not a reference to the first wrongdoer to be served by a plaintiff in a case involving multiple wrongdoers. The term “first alleged wrongdoer” is meant to identify which of the two wrongdoers already mentioned in s. 18 – the wrongdoer claiming contribution and indemnity and the wrongdoer that the contribution and indemnity claim is brought against – is being referred to in the balance of s. 18,” stated Paciocco.

Free newsletter

Our newsletter is FREE and keeps you up to date on all the developments in the Ontario legal community. Please enter your email address below to subscribe.

Recent articles & video

Seven new judges join Ontario Court of Justice

Right of first refusal not 'eviscerated' by discouraging rights holder: Ontario Court of Appeal

Assess witness by age at testimony on events that occurred during childhood: Ontario Court of Appeal

Ontario government seeks to cut red tape with modernized legislation

Nominate now for Canada's top legal professionals!

LSO and federation push Metrolinx to find alternative to new subway station on Osgoode Hall property

Most Read Articles

Lawyers may ask courts to invalidate their retainer agreements: Ontario Court of Appeal

Buyer who failed to complete property purchase not entitled to return of deposit: Ontario court

Ontario Court of Appeal upholds summary dismissal of malicious prosecution lawsuit

LSO and federation push Metrolinx to find alternative to new subway station on Osgoode Hall property