Archive for the ‘law of limitations’ Category

Does a lawyer’s duty of care extend to reviewing applicable limitation periods with a client?

January 22, 2013

Lawyer and Client - Cartoon

Does a lawyer’s duty of care extend to reviewing applicable limitation periods with a client?

The Court of Appeal for Ontario says: “No”:

[1] The appellant raises two issues on this appeal.

[2] First, she says the trial judge erred in finding that the respondent was not obliged to reduce to writing that he was not retained to act on the tort and accident benefit claims. We do not agree.

[3] Given the basis on which this appeal proceeded it is clear that the trial judge found as a fact that the appellant, despite her health challenges, understood what she had and had not retained the respondent for. There was no basis in the evidence, given these facts, to extend the respondent’s duty of care to putting in writing what the appellant already understood, namely that she had not retained him for the tort and accident benefit claims.

[4] Second, the appellant says that the trial judge erred in failing to decide whether the respondent’s duty of care extended to reviewing the applicable limitation periods with her.

[5] Again, we do not agree. The trail judge found that the appellant had not established that the respondent’s duty to her extended to this and had called no expert evidence that would suggest otherwise. There is no basis for us to interfere with that finding. Moreover, the trial judge clearly found as a fact that the respondent had reviewed the limitation periods with her thereby satisfying any duty had one been found to exist.

[6] In all the circumstances the appeal must be dismissed, with costs fixed at $6,000 in total in favour of the respondent.

Broesky v. Lüst, 2012 ONCA 701 (Ont. C.A.) per Goudge, Simmons and Juriansz JJ.A.

Ontario appeal court rules 2 year limitation period under Warsaw Convention is procedural

October 28, 2010
Are limitation periods under international treaties and conventions, substantive or procedural, in nature?
According to the Court of Appeal for Ontario, which today released its decision in  Mosregion Investments Corporation v. Ukraine International Airlines 2010 ONCA 715 ["Mosregion"], the answer is: procedural.  This result is surprising given that the Ontario Limitations Act, 2002 deems that limitation periods under conflict of laws are substantive. Moreover, it is arguable that extending time for service of process after a limitation period under an international treaty has tolled, is anathema to the goal of uniformity that underpins international treaties and conventions, generally.
In Mosregion, the plaintiffs/respondents on appeal, issued a notice of action against the defendant/appellant, Ukraine International Airlines, and others regarding the destruction of documents contained in an Air France jet that overran the runway and caught fire at Pearson International Airport.
The appeal concerned the interpretation of the Carriage by Air Act, R.S. 1985, c. C-26, implementing the Convention for the Unification of Certain Rules Relating to International Carriage by Air, 12 October 1929, 137 L.N.T.S. 11 (the “Warsaw Convention”), which regulates liability for the international carriage of persons and property by air.  The notice of action was issued in Ontario within the two-year limitation period under Article 28 and Article 29 of the Warsaw Convention (as implemented in the Carriage by Air Act), reads as follows:
Article 28
(1) An action for damages must be brought, at the option of the plaintiff, in the territory of one of the High Contracting Parties…
(2) Questions of procedure shall be governed by the law of the Court seized of the case.
Article 29
(1) The right to damages shall be extinguished if an action is not brought within two years, reckoned from the date of arrival at the destination, or from the date on which the aircraft ought to have arrived, or from the date on which the carriage stopped.
(2) The method of calculating the period of limitation shall be determined by the law of the Court seized of the case.
However, the respondents were unable to serve the claim on the appellant within the six-month period provided in Ontario’s Rules of Civil Procedure pursuant to Rule 3.02 of the Rules, which allows for the extension of time for service if the motion is brought either before or after the time for service has expired. The plaintiff/respondent in appeal thereafter brought an ex parte motion before Master Sproat for an order extending the time for service.  Master Sproat adjourned the motion for notice to be served on the appellant and the other defendants who had not yet been served.  The motion later returned for hearing before Master Hawkins, who granted the extension of time, nunc pro tunc.  The appellant did not appear before Master Hawkins, but afterward brought a motion for reconsideration before Master Dash, arguing lack of notice, or alternatively, failure to attend through mistake or insufficient notice.  Master Dash confirmed the decision, and a further appeal to the Divisional Court was dismissed
At the Court of Appeal, the appellant argued that the “extension of time was improper because the statement of claim had expired due to the failure to effect service before the extension was obtained and that given the language of article 29, the claim had expired and could not be revived.” (at para. 7).
Master Hawkins had applied the decision in Brown v. Humble, [1959] O.R.  586 (C.A.) which dealt with a statutory limitation period.  According to the per curiam opinion (per Sharpe, Blair and Rouleau, JJA):
“…In common law jurisdictions, the expiry of a statutory limitation period does not extinguish the underlying claim, but rather creates a procedural bar to proceeding with the claim.  The appellant submits that the two-year period laid down by the article 29 has a fundamentally different character and that after two years, the claim is extinguished.  It follows, in the appellant’s submission, that when the statement of claim expired for want of service after the two year prescription in article 29 had expired, the Warsaw Convention claim was extinguished and there was nothing to revive.

[9]               We disagree.  In our view, once a claim is issued within the two-year limitation period, article 29 of the Warsaw Convention has been satisfied and the claim then falls to be governed by the procedure in the jurisdiction where the claim has been issued.  Any subsequent procedural requirements, including those relating to the time for service or renewal of the statement of claim, are governed by the Rules.  This is apparent from article 28(2) of the Warsaw Convention, which specifically provides that the procedure of the court seized of the claim governs.  Indeed, the very requirement that service must be effected within six months is provided for by the Ontario Rules, not by the terms of the Warsaw Convention.

The Court of Appeal concludes:

[11]          Applying the Rules of Civil Procedure and this court’s decision in Brown v. Humble does not violate any of the provisions of the Warsaw Convention – once the respondents complied with the requirement in article 29 that a claim be issued within the two-year period, they brought themselves within Ontario’s Rules.  Pursuant to those Rules and the jurisprudence governing them, the nunc pro tunc extension to the time for service did not amount to the bringing of a new claim; the claim had already been “intentée” and the time for service  of the existing claim was extended in accordance with Ontario procedure.  Accordingly, we see no error in the master’s application of the Ontario Rules, as interpreted by decisions of this court.
Recall that Article 29(2) of the Warsaw Convention states that: “The method of calculating the period of limitation shall be determined by the law of the Court seized of the case.”
 
However, section 23 of the Limitations Act, 2002, S.O. 2002, chapter 24, Schedule B, reads as follows: 
Conflict of laws
23. For the purpose of applying the rules regarding conflict of laws, the limitations law of Ontario or any other jurisdiction is substantive law.” 2002, c. 24, Sched. B, s. 23.
Section 23 of the Limitations Act, 2002, codifies the Supreme Court of Canada’s ruling in Tolofson v. Jensen; Lucas (Litigation Guardian of) v. Gagnon, [1994] 3 S.C.R. 1022 (S.C.C.) where the majority of the Supreme Court rejected the traditional common law position that characterized limitation periods as procedural in nature and held that, generally, limitation periods in the conflict of laws context should be treated as substantive in nature. 
Furthermore, the House of Lords in Sidhu v. British Airways, [1997] 1 All E.R. 193 preferred a uniform and exclusive approach to interpretation under the Warsaw Convention, noting at p. 212 that:
“The language used and the subject matter with which it deals demonstrate that what was sought to be achieved was a uniform international code, which could be applied by the courts of all the High Contracting Parties without reference to the rules of their own domestic law. The convention does not purport to deal with all matters relating to contracts of international carriage by air. But in those areas with which it deals—and the liability of the carrier is one of them—the code is intended to be uniform and to be exclusive also of any resort to the rules of domestic law.”
A similar approach was taken in another recent Ontario decision in Ashad v. Deutsche Lufthansa Aktiengesllschaft (Lufthansa German Airlines), 2009 CanLII 64820 (ON S.C.) which involved a motion by the defendant for dismissal or a stay of the action on the grounds that this court has no jurisdiction over the subject matter of the action. On or about April 20, 2006, the plaintiff was a passenger on the defendant’s Flight 503 from Sao Paulo, Brazil to Frankfurt, Germany. The plaintiff alleged that he suffered personal injuries as a result of unintentionally swallowing pieces of shredded glass that were in a fruit bowl served to him on board the flight.  The plaintiff commenced  (“brought”) the action on April 18, 2008, but served the defendant after the 2 year limitation period had expired. On May 30, 2008, the defendant delivered a statement of defence challenging the jurisdiction of the court.
In obiter, Pitt, J., writes,
“[59] The plaintiff waited until two days before the expiry of the limitation period to issue his claim. There is no evidence that the defendant conducted itself in any way prejudicial to the plaintiff’s position. As the statement of claim was served after the expiry of the limitation period, nothing the defendant did could have any impact on the limitation issue. That said, I am not persuaded that the plaintiff is without remedy. I note that he was represented by a solicitor in issuing the claim (who was not counsel on the motion).”
Nudge, nudge, wink, wink. In other words, sue your lawyer for missing the limitation period.
In another English case, Hall v. Heart of England Balloons Limited [2010] 1 Lloyds Rep 373, the defendant brought an application to strike out the pleading on the basis that once the right to damages under the Montreal Convention  (the successor to the Warsaw Convention) is extinguished, it cannot be resurrected by the application of a rule of civil procedure. In the Hall case, the plaintiff moved to correct a misnomer incorrectly naming the defendants. Just before the two-year limitation period expired, the defendant was named as “Heart of England Balloons Limited”. This defendant applied  to strike the proceedings, arguing that it could not be liable for the claimant’s accident, since it did not exist when the claimant suffered her accident on September 17 2006.

On 13 October 2009, the claimant applied for permission to amend the Particulars of Claim to name “Mr Gabb t/a Heart of England Balloons” as the defendant in the limited company’s stead. However, the limitation period under the Montreal Convention had expired by then. While the Civil Procedure Rules in England and Wales (CPR Part 17.4(3) and CPR 19.5) allows for amendment to a party’s statement of case or a change of name of a party after expiry of a limitation period, the court held that the limitation defense under the Montreal Convention was substantive, and that procedural rules cannot normally be used to remove substantive rights.Under these circumstances, to allow a procedural amendment would be in conflict with the express provision of the Montreal Convention.

The Mosregion decision is the rare instance where the adage “better late than never” actually applies.

Foreign arbitral awards subject to provincial limitation periods, Supreme Court of Canada rules: Yugraneft Corp. v. Rexx Management Corp.

May 20, 2010
In its decision released this morning, the Supreme Court of Canada in Yugraneft Corp. v. Rexx Management Corp.,2010 SCC 19 (S.C.C.) has ruled that the two-year limitation period under s.3 of Alberta’s Limitations Act governs when a party seeks the recognition and enforcement in Alberta of a foreign arbitral award.

By way of background, a dispute between Yugraneft Corporation (Yugraneft), a Russian company, and Rexx Management Corporation (Rexx), an Alberta company based upon Yugraneft’s claim for money paid to Rexx for equipment which Rexx failed to deliver. Yugraneft then commenced foreign arbitral proceedings against Rexx. On September 6, 2002, the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation made an award in favour of Yugraneft against Rexx in the amount of $952,614.43 USD.

Yugraneft then applied more than three years later pursuant to the International Commercial Arbitration Act (Alberta) for an order recognizing and enforcing the arbitral award in the province of Alberta. Rexx sought the dismissal of the application on the grounds that the limitation period had prescribed, or, alternatively, sought a stay pending resolution of a related RICO case pending in the U.S. which raised public policy defences that (1) Yugraneft had been fraudulently acquired by another company through corruption within the Russian judicial system; (2) forgery of shareholder meeting minutes, and (3) unlawful seizure of Yugraneft’s office by a “machine-gun toting private army”.

The application judge, Chrumka, J. rejected Yugraneft’s contention that there was no applicable limitation period for foreign arbitration awards based upon the definition of a “remedial order” in s.1(i)(i) of the Alberta Limitations Act, concluding that Yugraneft’s application was time-barred:Yugraneft Corporation v. Rexx Management Corporation, per Chrumka, J. at ¶¶’s 79-80.

Yugraneft appealed. On August 5, 2008, the Alberta Court of Appeal dismissed the appeal. Like the lower court judge, the Alberta Court of Appeal noted that since there are no comparable guidelines within the Model Law and the New York Convention, 1958 with respect to limitation periods, a foreign arbitral award, like a foreign judgment, was based upon a simple contract debt. As such, the action was statute-barred due to the expiry of the two-year limitation period set out in the Alberta Limitations Act.R.S.A. 2000, c. L-12, (as am): Yugraneft Corporation v. Rexx Management Corporation, 2008 ABCA 274 (CanLII).

Unlike most other Canadian provincial limitation statutes, the Alberta Limitations Act does not distinguish between substantive and procedural law and reads as follows:

Conflict of laws

12(1) The limitations law of Alberta applies to any proceeding commenced or sought to be commenced in Alberta in which a claimant seeks a remedial order.

(2) Notwithstanding subsection (1), where a proceeding referred to in subsection (1) would be determined in accordance with the law of another jurisdiction if it were to proceed, and the limitations law of that jurisdiction provides a shorter limitation period than the limitation period provided by the law of Alberta, the shorter limitation period applies.

Rothstein J. writing for the unanimous Court dismissed the appeal. The Court rejected the argument that foreign arbitral awards are not subject to a limitation period for enforcement purposes. The Yugraneft decision confirms previous Canadian jurisprudence that both foreign judgments and foreign arbitral awards are not automatically homologated and do not stand on equal footing with domestic judgments or domestic arbitral awards:

[49] Applying the limitation period set out in s. 3 is consistent with the overall scheme of Alberta limitations law. It also provides more generous treatment for foreign awards than for domestic awards and is therefore consistent with art. III of the Convention. The limitation period in s. 3 of the Limitations Act is subject to a discoverability rule, which is not the case for the time limit set out in s. 51 of the Arbitration Act governing domestic awards. This makes ample allowance for the practical difficulties faced by foreign arbitral creditors, who may require some time to discover that the arbitral debtor has assets in Alberta.

It is noteworthy that the two-year limitation period prescribed by section 3 of the Limitations Act (Alberta) incorporates a “discoverability” element, allowing for extension of the 2 year limitation period from the earlier of the dates on which the claimant either actually knew, or in the circumstances ought to have known, the necessary facts in relation to the putative claim. As Rothstein, J. explains:

[52] In order to determine whether a proceeding is time-barred, it is necessary to ascertain when the injury occurred. In the case of non-performance of an obligation, the question is when the non-performance occurred.

[53] In the context of a proceeding to recognize and enforce a foreign arbitral award, if non-performance is assumed to occur on the date the award was issued, Yugraneft would have commenced its proceeding in Alberta approximately 16 months after the two-year limitation period had expired. However, I do not think the date of the issuance of the award can normally be considered as the date of non-performance of the obligation to pay.

[54] The Model Law provides that a party to an arbitration has three months to apply to the local courts to have an award set aside, beginning on the day it receives the award (art. 34(3) — see Appendix A). At least until that deadline has passed, the arbitral award may not have the requisite degree of finality to form the basis of an application for recognition and enforcement under the Convention. If an award is open to being set aside, it may be considered “not binding” under art. V(1)(e) of the Convention (Blackaby and Partasides, at pp. 649-50). The same can be said when proceedings to set aside the award are under way. Thus, if an award originates in a Model Law jurisdiction, or one with analogous provisions concerning the setting aside of an arbitral award, an arbitral creditor would not know and would have no reason to think that recognition and enforcement proceedings are warranted on the very date the award is rendered. In those circumstances, the limitation period under s. 3 of the Limitations Act will not be triggered until the possibility that the award might be set aside by the local courts in the country where the award was rendered has been foreclosed.

[55] That would appear to be the case here. Russia is a Model Law jurisdiction, and there is no indication in the record before this Court that Russia modified art. 34 in its adoption of the Model Law (Award of the Russian ICAC (English translation), A.R., vol. 2, at p. 84). Thus, the courts of any State party to the Convention would be entitled to refuse to grant recognition and enforcement of the award at issue in this case until the three-month appeal period had expired; or, if an appeal was launched, until the appeal was concluded.

[56] Accordingly, it is my view that for the purposes of the Limitations Act, Rexx’s obligations under the award did not crystalize until three months after Yugraneft had received the award. The award was issued on September 6, 2002, and Yugraneft has provided no indication that it received the award at a later date. As a result, non-performance of its obligation to pay Yugraneft would not have occurred before December 6, 2002. This would suggest that Yugraneft had two years after December 6, 2002, to commence proceedings against Rexx in Alberta, meaning that its action, which was brought on January 27, 2006, was clearly time‑barred.

Two potential discoverability arguments that Yugraneft appears not to have raised are: (1) whether any potential prejudice arose from delays in enforcement efforts in Russia, or (2) the extent of Yugraneft’s knowledge of the location and exigibility of Rexx’s assets in Alberta. Justice Rothstein outlines the factors relevant to the discoverability inquiry as follows:

[60] Section 3(1)(a)(iii) provides that the limitation period will commence only once the plaintiff knew or ought to have known that the injury it received warrants bringing a proceeding. Thus s. 3(1)(a) ensures that the scheme created by the Limitations Act balances the interests of both plaintiffs and defendants. However, much like its counterpart in the B.C. Limitation Act at issue in Novak v. Bond, s. 3(1) measures the conduct of the plaintiff against an “objective” standard. Section 6(4) of the B.C. Act provides that the limitation period will not commence until the facts available to the plaintiff are such that a “reasonable person . . . would regard those facts as showing” that the plaintiff was a) able to bring a claim, and b) that the claim had a reasonable prospect of success. Section 3(1) of the Alberta Act does not refer to a “reasonable person” and its discoverability criteria are not identical with those in s. 6(4) of the B.C. Act. However, it does subject the knowledge elements of its discoverability rule to an objective test: the plaintiff must know or “ought to have known” the elements that trigger the running of the limitation period. Thus, constructive or imputed knowledge, in addition to actual knowledge, will trigger the limitation period.

[61] Section 3(1)(a)(iii) therefore allows the courts to consider aspects of an arbitral creditor’s circumstances that would lead a reasonable person to conclude that there was no reason for the arbitral creditor to know whether proceedings were warranted in Alberta. For example, it is not infrequent for the parties to an international arbitration to have assets in a number of different states or jurisdictions within a federal state. An arbitral creditor cannot be presumed to know the location of all of the arbitral debtor’s assets. If the arbitral creditor does not know, and would have no reason to know, that the arbitral debtor has assets in a particular jurisdiction, it cannot be expected to know that recognition and enforcement proceedings are warranted in that jurisdiction. Thus, in my view, recognition and enforcement proceedings would only be warranted in Alberta once an arbitral creditor had learned, exercising reasonable diligence, that the arbitral debtor possessed assets in that jurisdiction.

[62] Nevertheless, a delay on this account would not be open to Yugraneft in this case. The contract entered into by Yugraneft and Rexx on October 1, 1998, indicates that Rexx was identified as an Alberta corporation (Contract No. 157, A.R., vol. 2, at p. 41). An arbitral creditor might well not be expected to know every location in the world in which an arbitral debtor might have assets, but this cannot be said of the jurisdiction where the debtor is registered and where its head office is located. In such circumstances, Yugraneft has not claimed and could not claim that it did not know or ought not to have known that a proceeding was warranted in Alberta at the time of (or indeed earlier than) the expiry of the three-month appeal period following receipt of notice of the award.

[63] Thus, I have no difficulty concluding that even taking into account the discoverability rule in s. 3(1)(a) of the Limitations Act, Yugraneft’s proceedings are time-barred.

Implications of the Yugraneft Decision in Ontario

Under Ontario law, a foreign judgment is simply evidence of a contract debt and must be sued upon as an “action on the case”. The old limitation period for a “specialty” (i.e. a domestic judgment) was twenty (20) years, however, the Ontario Court of Appeal held that a “foreign judgment” was not equivalent to a domestic judgment unless there was reciprocal enforcement legislation from the originating jurisdiction which granted judgment. Therefore, the old limitation period in Ontario was six (6) years, but was only triggered when the judgment debtor returned to Ontario. Lax v. Lax (2004) 70 O.R. (3d) 520 (Ont. C.A.).This exception has limited application in circumstances where the debtor has no physical presence in Ontario, but simply has assets there. In any event, the new limitation period for most actions commenced after December 31, 2003 in Ontario is now two (2) years, a relatively short time to sue. By contrast, in the US, the Federal Arbitration Act lays down a time-limit of three years for the confirmation and enforcement of awards made under the New York Convention:Alan Redfern and Martin Hunter (with Nigel Blackaby and Constantine Partasides), Law And Practice Of International Commercial Arbitration, (4th Ed.-Student Version) (London: Sweet & Maxwell, 2004), Chap. 9, at §9-46, p.508.

This is further complicated by some drafting ambiguity in the Limitations Act, 2002 (the “Limitations Act, 2002”) which omits reference to the ICAA (incorporating the Model Law). Furthermore, the New York Convention is silent on limitation periods, which is a substantive issue to be determined by the either the lex arbitri or the lex fori (at least in Canada and the US). The following are relevant excerpts from the Limitations Act, 2002 and the Model Law (as incorporated by the domestic enabling legislation):

Limitations Act, 2002, S.O. 2002, c. 24, Sched. B

No Limitation Period

No limitation period

16. (1) There is no limitation period in respect of,

(a) a proceeding for a declaration if no consequential relief is sought;

(b) a proceeding to enforce an order of a court, or any other order that may be enforced in the same way as an order of a court;

(d) a proceeding to enforce an award in an arbitration to which the Arbitration Act, 1991 applies;

International Commercial Arbitration Act, R.S.O. 1990, c. I.9

10. For the purposes of articles 35 and 36 of the Model Law, an arbitral award includes a commercial arbitral award made outside Canada, even if the arbitration to which it relates is not international as defined in article 1 (3) of the Model Law. R.S.O. 1990, c. I.9, s. 10.

Enforcement

11. (1) An arbitral award recognized by the court is enforceable in the same manner as a judgment or order of the court. R.S.O. 1990, c. I.9, s. 11 (1).

Idem

(2) An arbitral award recognized by the court binds the persons as between whom it was made and may be relied on by any of those persons in any legal proceeding. R.S.O. 1990, c. I.9, s. 11 (2).

The Ontario Limitations Act, 2002 refers only to the domestic arbitration statute, namely, the Arbitration Act, 1991, S.O. 1991, c. 17 (as am.) but fails to refer to the international domestic statute, namely, the ICAA. The statutory interpretation argument that the interplay and combined effect of section 16(b) of the Limitations Act, 2002 and section 11(1) of the ICAA, means that, in Ontario, no limitation period applies to the enforcement of a foreign arbitral award will not likely succeed following Yugraneft.

Unless and until there is federal and/or inter-provincial legislative reform to harmonize or unify the law of limitations for both foreign judgments and foreign arbitral awards, a party seeking recognition and enforcement of a foreign arbitral award in an Ontario court is well advised to commence an application to enforce the final arbitral award within the new two (2) year limitation period, subject to any discoverability issues.

Supreme Court of Canada judgment in Yugraneft Corp. v. Rexx Management Corp. to be released on Thursday, May 20th, 2010

May 18, 2010
According to the Supreme Court of Canada website, the much anticipated judgment in Yugraneft Corporation v. Rexx Management Corporation (Alta.) (Civil) (32738) will be delivered at 9:45 a.m EDT on Thursday, MAY 20, 2010. For a backgrounder, see my article, Recent Private International Law Developments before the Supreme Court of Canada The Globetrotter, OBA International Law Section Newsletter, Vol. 13, No.2, March 2009.

Here is the SCC summary:

32738 Yugraneft Corporation v. Rexx Management Corporation

Limitation of actions ‑ Arbitration ‑ Whether the Alberta Court of Appeal erred in finding that the Appellant’s application for recognition and enforcement of the award is barred by operation of the Limitations Act, R.S.A. 2000, c. L‑12.

On September 6, 2002, the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation granted an arbitration award in favour of the Appellant against the Respondent, in the amount of $952,614.43 U.S. The Appellant claimed that the money was owed for equipment paid for but not supplied by the Respondent. On January 27, 2006, more than three years later, the Appellant applied pursuant to the International Commercial Arbitration Act, R.S.A. 2000, c. I‑5, for an order recognizing and enforcing the award. The Respondent sought dismissal of the application or a stay, pending the resolution of a racketeer‑influenced and corrupt organizations case.

Two Kicks at the Class Action Can: Coulson v. Citgroup Global Markets Inc.

April 27, 2010
The recent Ontario decision in Coulson v. Citigroup Global Markets Inc., 2010 ONSC 1596 (CanLII) [“Coulson”] denying certification of shareholder class action under s. 130 of the Ontario Securities Act addresses the novel issue: 
“What does it mean to suspend and then resume the running of a limitation period in the context of a class proceeding? 
In Coulson, plaintiff class counsel attempted a proverbial “second kick at the can” to have an action certified under the Class Proceedings Act, 1992, S.O. 1992, c. 6 against the same defendants; an auditor and a group of Canadian underwriters.

Back in November 1997, Philip Services Corp. made a public offering of its common shares in the U.S. and Canada, which was underwritten by a group of Canadian underwriters. The prospectus contained statements from the underwriters and financial statements from Philip’s auditor, Deloitte & Touche. In early 1998, a series of press releases disclosed inaccuracies in the prospectus and the previously released Philip financial statements.  Unsurprisingly, Philip’s share value tanked and proposed class actions sprouted both north and south of the border. In Canada, on May 5, 1998, Joseph Menegon commenced a proposed class action against Philip, Deloitte, and the Canadian underwriters. Menegon purchased Philip shares in the secondary market and not from the primary distribution. Here is where too much pleading, like many things, is not necessarily a good thing. As it were, Menegon’s class action, asserted two causes of action: (1) on behalf of all purchasers following the primary distribution based upon a claim under s.130 of the Ontario Securities Act and (2) on behalf of purchasers, like Menegon, that purchased in the secondary market asserting a common law action for negligent misrepresentation.

The problem: Unlike Menegon, Coulson was not part of the initial group that contacted the plaintiff class law firm.
He contacted them later, but it was conceded that any misrepresentations on which Coulson’s claim under s.130 of the Ontario Securities Act was based were known by the spring of 1998. On August 27, 1999, Menegon’s action was certified as a class action as against Philip, and thereafter settled with Philip in November 1999. Menegon then forged ahead against the auditor and the underwriters, but on March 6, 2001, Justice Gans dismissed not only Menegon’s motion to certify the class proceeding, but his claim altogether. Justice Gans ruled that since Menegon had not purchased under the prospectus, he did not have a common law cause of action for misrepresentation; therefore, he could not represent the s.130 claimants and assert their cause of action. Justice Gans further refused a request for an adjournment so that a new plaintiff with a s.130 claim could be joined as a proposed representative plaintiff. Menegon appealed the judgment that he did not have a common law claim, and while conceding that he could not represent s.130 claimants, he also appealed Justice Gans’ ruling refusing an adjournment. On January 9, 2003, the Court of Appeal dismissed Menegon’s appeal. Menegon then sought leave to appeal to the Supreme Court of Canada on the ground that the Court of Appeal erred on the issue of lack of standing to pursue a common law action for misrepresentation. On July 8, 2003, while Menegon’s leave application was pending before the Supremes, Coulson, who was a purchaser in the primary distribution, started a different class action for the s.130 claimants. On July 17, 2003, the Supreme Court of Canada dismissed Menegon’s leave application. About six and half years later, Coulson sought to have the class action certified, while the auditor and the underwriters opposed the application on the ground that it was statute barred, and in the alternative, that Coulson’s claim was suitable for certification as a class action.

Justice Perell dismissed Coulson’s proposed class action as statute barred. But for the limitation period problem, Perell, J. would have found that Coulson’s action satisfied the criteria for certification, albeit the class definition and the litigation plan still required revision. Justice Perell’s cogent legal analysis spans a number of key legal issues and the reader is encouraged to read the decision in its entirety (i.e. I’m not providing case analysis gratis for ungrateful Big Law students and associates who visit my blawg and don’t give me credit in their memos or law review articles. No more free rides).

On the interplay between the limitation periods under s.138 of the Ontario Securities Act and s.28 of the Class Proceedings Act, 1992, which suspends the running of limitation periods, Perell, J. held:

“[33] For the purpose of the analysis that will follow about whether Mr. Coulson’s claims are statute barred, a key point to emphasize is that Mr. Menegon’s proposed class action expressly asserted claims under s.130 of the Ontario Securities Act against the auditor and against the underwriters. These are the claims that Mr. Coulson now asserts in his statement of claim in the case at bar.

[34] Purchasers of Philip shares now had knowledge of facts giving rise to a cause of action, and, thus, they were confronted with the running of limitation periods, including s.138 of the Ontario Securities Act, which applies to claims under s.130 of the Act.

[35] Section 138 of the Ontario Securities Act precludes the commencement of an action to enforce a right for rescission more than 180 days after the transaction, and precludes an action for damages more than the earlier of: (a) three years after the transaction; or (b) 180 days after the events giving rise to the s.130 claim were known. Section 138 of the Act states:

138. Unless otherwise provided in this Act, no action shall be commenced to enforce a right created by this Part more than,

(a) in the case of an action for rescission, 180 days after the date of the transaction that gave rise to the cause of action; or

(b) in the case of any action, other than an action for rescission, the earlier of,

(i) 180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action, or

(ii) three years after the date of the transaction that gave rise to the cause of action.

[36] It may be noted here that s. 19 (1) of the Limitations Act, 2002, S.O. 2002, c. 24, Schedule B provides that “a limitation period set out in or under another Act that applies to a claim to which this Act applies is of no effect unless the provision establishing it is listed in the Schedule to this Act.” Section 138 of the Ontario Securities Act is among the limitation periods listed in the Schedule”

According to the learned motion judge:

“[37] The Menegon action was timely. Using November 28, 1997 as the date of his transaction and March 5, 1998 as the date on which Mr. Menegon first knew about the facts underlying his claim, his May 5, 1998 action was commenced with seven days remaining for the rescission claim, and there were 120 days remaining for the other causes of action, which was the balance of the 180 days after knowledge of facts giving rise to the cause of action. The date of knowledge of facts was earlier than three years after the date of the transaction, and, thus, 180 days from March 5, 1998 was the applicable limitation period for the claim for damages under s. 130 of the Ontario Securities Act.

[38] Section 28 of the Class Proceedings Act, 1992 suspends in favour of a class member the running of limitation periods that are applicable to a cause of action asserted in the class proceedings until, among other events, the claims are dismissed and all rights of appeal have been exhausted or expired. Thus, the commencement of Mr. Menegon’s proposed class action suspended the running of the limitation period for the claims asserted on behalf of the putative class members, which would include Mr. Coulson”

Quaere: if the Menegon action was “timely” (para. 37 above), then why is there a limitation period issue at all? After all, if the action was commenced on time, then the denial of certification should not dictate whether putative class members may sue in a separate proceeding. It is arguable that Coulson simply suffered for the sins of Menegon.

Would the outcome have been different had Coulson been represented by a different law firm?:

“[126] Interestingly, the evidence for the motions now before the court reveals that the July 8, 2003 date was intentionally chosen by Mr. Coulson’s lawyers, who were concerned that Mr. Menegon’s application for leave to appeal did not continue to suspend the running of the limitation period. The date July 8, 2003 is 180 days after the Court of Appeal’s decision. Perhaps, Mr. Coulson’s lawyers realized that, given the nature of the grounds for appeal, which would have to be of national importance for leave to be granted, Mr. Menegon’s class action was no longer asserting a claim under s. 130 Ontario Securities Act and, therefore, the limitation period had resumed running with the Court of Appeal’s decision. Unfortunately, they miscalculated. They apparently regarded the Court of Appeal’s decision as a restart of the limitation period ignoring the fact that the running of the limitation period for the misrepresentation claim would resume, not restart. Applying the Defendants’ methodology for reckoning the running of the limitation period, Mr. Coulson’s action was out of time.

[127] Applying the stricter methodology, which I outlined above, Mr. Coulson’s action was out of time.

[128] The ultimate conclusion is that Mr. Coulson’s action was barred by an ultimate limitation period at the time of its commencement. Thus, he did not have a cause of action and cannot be a representative plaintiff.

[129] Further, a statement of claim fails to disclose a reasonable cause of action if its claim is barred by a limitation period: Allen v. Aspen Group Resources Corp., [2009] O.J. No. 5213 (S.C.J.) at para. 43-45; Pearson v. Boliden Ltd. 2002 BCCA 624 (CanLII), (2002), 222 D.L.R. (4th) 453 (B.C.C.A.), leave to appeal to S.C.C. ref’d [2003] S.C.C.A. No. 29. It follows from the above analysis that Mr. Coulson’s statement of claim does not disclose a cause of action, and, therefore, his action does not satisfy the first of the five criterion for certification as a class proceeding found in s. 5 (1) of the Class Proceedings Act, 1992.

[130] And it further follows that the Defendants’ motions under rules 21.01 (1)(a) and 51.06 should be granted and Mr. Coulson’s action should be dismissed”

On the issue of choice of law, Perell, J. observes:

“[146] The fundamental point is that persons who cannot rely on s.130 of the Ontario Securities Act must rely, if at all, on the securities legislation of other provinces, but this legislation has not been pleaded in the case at bar. See Pearson v. Boliden Ltd. 2002 BCCA 624 (CanLII), (2002), 222 D.L.R. (4th) 453 (B.C.C.A.), leave to appeal to S.C.C. ref’d [2003] S.C.C.A. No. 29″

Once again, the pleadings not only frame the action, but dictate the result. Whether the Coulson decision has broader implications for national or world-wide class actions, with different or non-existent limitation periods, is doubtful. The decision in  Pearson v. Boliden Ltd., 2002 BCCA 624 (CanLII), 2002 BCCA 624 previously dealt with the issue of  whether the proposed class should include (1) purchasers of shares from Alberta, which has no securities legislation limitation period; New Brunswick, which had no statutory cause of action, and the Territories, which had no securities legislation; and (b) non-Canadian purchasers who bought their shares abroad not on the basis of the prospectus filed in Canada but on the basis of a different document prepared in accordance with U.S. or European securities laws. Further ,compare the approach to limitation periods taken by Strathy, J in  McKenna v. Gammon Gold Inc., 2010 ONSC 1591 (CanLII), also a recent securities class action certification motion:

“[36] Prior to the hearing of the certification motion, counsel for the Underwriters sought leave to bring a motion for, among other things, summary judgment dismissing the plaintiff’s s. 130 Securities Act claim on the ground that it was time-barred. I refused the request on several grounds. In particular, I was not satisfied that hearing the motion prior to certification would promote litigation efficiency: McKenna v. Gammon Gold Inc., [2009] O.J. No. 5151.

[37] There is no doubt that a putative class action can be dismissed, even prior to certification, where the claim of the proposed representative plaintiff is time-barred on the face of the pleading: Stone v. Wellington County Board of Education 1999 CanLII 1886 (ON C.A.), (1999), 120 O.A.C. 296, [1999] O.J. No. 1298 (C.A.); Farquar v. Liberty Mutual Insurance Co. (2004), 43 C.P.C. (5th) 361, [2004] O.J. No. 148 (S.C.J.). I note that in both these cases, however, while the motion was brought prior to certification, the defendants had delivered statements of defence pleading the limitations issue.

[38] Where the resolution of the limitations issue depends on a factual inquiry, such as when a plaintiff knew or ought to have known of the facts constituting the action, the issue should not be resolved at certification: Serhan (Trustee of) v. Johnson & Johnson reflex, (2006), 85 O.R. (3d) 665, [2006] O.J. No. 2421 (Div. Ct.) at paras. 140-145. Accordingly, it is not plain and obvious in this case that the claims of the class generally, or of Mr. McKenna personally, are statute barred due to limitations.

[39] If the defendants consider that the limitation period is an issue that can be resolved on a common basis, they may move to have it added as a common issue. Alternatively, the defendants may bring a motion for summary judgment on this issue, if so advised, at a future date. If necessary and appropriate, the plaintiff may move to add another representative plaintiff.”


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