Legal Blog

Long Gone

How long can a cause of action remain dormant before it dies? This question was answered, sort of, in Susin v. Genstar Development, a 2001 Ontario Superior Court of Justice decision.

Long Time Passing 

A general performed work in 1974. At the end of the contract, there was a $41,000 holdback. The owner did not want to pay it because of alleged deficiencies. The general took no steps to collect.

The general went bankrupt in 1979 and, in 1984, the general’s trustee in bankruptcy assigned the owner’s debt to the general’s former manager. The manager did nothing for 15 years and then commenced his action in 1999. He sued the owner’s successor. The decision did not specify how or when the successor became the owner’s successor.

The manager therefore commenced his action 25 years after the original cause of action arose and 15 years after his assignment of the cause of action.

The manager claimed for payment based on:

a)   Breach of contract;

b)   Unjust enrichment; and

c)   Breach of trust.

Contract 

The Limitations Act states that a cause of action under contract is barred if an action has not been commenced 6 years after the cause of action arose. That period is extended to 20 years if the contract is a specialty. The manager argued that the contract was a specialty and that his cause of action arose in 1984 when he obtained the assignment of it.

A specialty is an undertaking to pay, under seal. It is not just a contract executed under seal. There must be an obligation to pay that is being enforced by the contract. An ordinary construction contract is not a specialty whether executed under seal or not.

Regardless of this issue of law, upon which the judge did not comment, the manager’s argument was unsuccessful for two reasons. He could not produce the contract to prove that it was executed under seal and the cause of action arose in 1974, not when he received the assignment in 1984. Accordingly, regardless of whether the limitation period was 6 or 20 years, it had passed.

Unjust Enrichment  

To support a case for unjust enrichment, the manager first had to prove that there was an enrichment, a corresponding deprivation, and no juridical reason for the enrichment. Although the manager may have demonstrated an enrichment and a deprivation, there was a juridical reason for the enrichment: the contract and the Limitations Act. One cannot claim equitable remedies and ignore the legislation that made those remedies necessary.

The judge did not analyse the claim from this point of view. He noted that even if there was an equitable remedy, a claimant in equity must come to court on a timely basis to request it. The right will be lost if there is unreasonable delay and the consequences of that delay render the granting of the equitable relief unjust. This is known as the defence of laches.

The judge held that a 25-year delay was unreasonable and that the successor was prejudiced because of it. It would have been almost impossible for the successor to defend against the claim because of the passage of time, the death or lack of memory of witnesses, and the loss of records.

Trust Claim 

Although there are cases that state that a trust claim is not lost due to the Limitations Act (see July 2000 newsletter), the judge noted that the Limitations Act extends the benefits of statutory limitations to trustees in the same manner as if the trustee did not exist and the claim was really being made against a beneficial owner. With respect, this provision has no application to a trust fund claim. The claimant is not making a claim against the trustee in its capacity as a trustee for a beneficial owner; the claimant is making the claim against the trustee for breach of a trust.

However, the judge also dismissed this aspect of the claim regardless of the Limitations Act issue. The defence of laches applied as equally to a trust claim as it did to a claim for an equitable remedy.

Consequences 

The judge dismissed the action with costs. Whether these were costs on a partial indemnity scale or a substantial indemnity scale depended on whether the successor had made an offer to settle. Although the manager must have had some legal help to develop his claims, a lawyer did not represent the manager at trial. In most cases, that lack of representation is usually the kiss of death.