Legal Blog

Knowledge of the Limitation Period

People either have knowledge; do not have it and should not be expected to; or do not have it, but ought to. No, this is not a philosophical discussion; it is a discussion relating to the proper commencement of a limitation period. Two relatively recent decisions of the Ontario Court of Appeal answer some questions regarding commencement of limitation periods and knowledge: Lauesen v. Silverman, 2016 ONCA 327 and Clarke v. Faust, 2016 ONCA 223.

Discovery

We have paraphrased provisions of section 5(1) of the Limitations Act, 2002 (the “Act“); the exact section follows:

“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 by 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).”

 

Our discussion centres on sections 5(1)(a)(iv) (i.e. subjective knowledge) and 5(1)(b) (i.e. objective knowledge)

 

Lauesen

 The client was unhappy with a personal injury settlement from the moment she entered into it; she felt she had received too little. Ultimately, she commenced an action alleging that her lawyer negligently advised her to enter into the settlement agreement, but she commenced her action more than 2 years after the date of the settlement. The lawyer moved to strike the claim based on the Act. The client claimed that, although dissatisfied with the settlement, she did not know, until five years later when her new lawyer obtained an expert report indicating that she had suffered a catastrophic impairment, that her lawyer had been negligent.

The court held that the limitation period ran not from the settlement date, but from the date the client realised that her lawyer may have negligently advised her. Although she felt she had received too little at the time of the settlement, she had no basis to believe that her lawyer had been negligent in his advice.

The lawyer had argued that, even before the expert report, the client knew all of the facts necessary to give rise to a duty to investigate further. The court turned that argument on its ear. If the client knew the facts, then most certainly the lawyer knew them; she was therefore obligated by Rule 7.8 (1) of the Rules of Professional Conduct to advise the client that the lawyer may have made an error and to notify LawPro. Since the lawyer did not do so, it did not lie with her to allege that the client had or ought to have had the requisite knowledge earlier than she did.

In effect, the court held that the client neither knew nor ought to have known that she had a cause of action against her lawyer until delivery of the expert report.

 

Clarke

Lawyer #1 allowed 2 years from the date of an accident to elapse without commencing an action. Lawyer #2 commenced the action 2 years and 2 months after the accident, but assured the plaintiffs that their action would not be proscribed – because of the concept of discoverability (i.e. they could not have known whether their injuries met the threshold of serious and permanent impairment for at least a few months after the accident).

Lawyer #2 died suddenly and lawyer #3 took over. He also assured the plaintiffs that their action would not be proscribed. Initially, the statement of defence in the personal injury action did not plead the Act. However, the defendant amended his statement of defence to do so. The plaintiffs then commenced a professional negligence action against lawyer #1 – just in case the limitations defence was successful. That action was commenced more than 2 years after lawyer #2 warned the plaintiffs of the limitation problem.

Lawyer #1 pleaded the Act in defending the action against him and brought a summary judgment motion to determine the issue. Lawyer #1 was successful on his summary judgment motion; the plaintiffs appealed.

 

Subjective/Objective

The court noted that:

 

“Section 5(1)(a) sets out a subjective test addressing the knowledge of the person with a claim. Section 5(1)(b) sets out a modified objective test by addressing the knowledge of a reasonable person in the shoes of the appellants. A claim is discovered on the earlier of the date when the person subjectively knew of the matters set out in s. 5(1)(a) and the date a reasonable person would have known of them. Section 5(2) stipulates the presumption the person with the claim knew of the matters in s. 5(1)(a) on the day of the act or omission giving rise to the claim ‘unless the contrary is proved’.”

 

The court stated that section 5(1)(a)(iv) requires “a person to have good reason to believe he or she has a legal claim for damages before knowing that commencing a proceeding would be an appropriate means to seek to remedy the injury, loss or damage.”

 

Using that criterion, the court held that the plaintiffs had no reason to know that commencing a legal proceeding was appropriate before the amendment of the statement of defence. Lawyers #2 & #3 and the defendant’s lawyer all thought that there would be no limitations issue in the plaintiffs’ personal injury action. Further, lawyer #1, when lawyer #2 notified him of the issue, took the position that he had not missed a limitation period. We therefore have four lawyers who either took the position or assumed that there was no limitations issue; until the statement of defence was amended, why would the plaintiffs believe that there was a problem?

Once that finding was made, it was a natural step for the court to determine that the objective test in section 5(1)(b) was also not met.

 

Musings

In this case, once the court ruled on the commencement of the limitation period it followed that the negligence action against lawyer #1 was commenced in time. However, could the clients have waited to commence their action until the completion of the underlying personal injury action? The court, in obiter, noted that this may well have been the case, but decided that it need not answer the question.

 

Accordingly, there is no judicial ruling that a limitation period commences only when the underlying action is completed and the client loses because of a limitations defence. This puts a client’s new lawyer in a difficult position. If the new lawyer waits and the client loses because of a successful limitations defence, a court may hold that the client’s new lawyer ought to have commenced the negligence action against the former lawyer without waiting for the decision in the underlying action. If the new lawyer, prudently, commences the negligence action against the former lawyer, that action may be utterly wasted if, ultimately, the client is not prejudiced by the limitations defence in the underlying action.

 

Under similar circumstances, we requested a tolling agreement so that it would not be necessary to commence a negligence action until we knew what happened in the underlying action. Our request was denied and, accordingly, we had to commence the action. We then wanted to sit on the action and do nothing until the underlying action was completed. For whatever reason, the defendant lawyer would not consent and wanted to go full steam ahead on the negligence action. We therefore had to bring a motion in our own action to stay it pending the completion of the underlying action. That motion was successful.

 

It would be helpful to have a judicial ruling as to the commencement of the limitation period so that plaintiffs who may have been prejudiced because of the actions of a former lawyer do not have to fight the lawyer until it has been determined whether that fight is even necessary.

 

Image courtesy of DodgertonSkillhause.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.