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Reasonable

Posted on February 1, 2021 | Posted in Collections

Courts in British Columbia have consistently held that, to determine the start date for a limitation period, it is unreasonable to expect a claimant to commence a fraudulent conveyance action until the claimant has obtained judgment based on the underlying contract or tort action. Just because the fraudulent conveyance action is technically available before the claimant has obtained a judgment in the underlying action, does not make it a reasonable manner in which to proceed.

Three arrows on pavement pointing forward and to each side.

Jasmur Holdings Ltd. v. Callaghan, a 2019 decision of the British Columbia Supreme Court is the latest case in this line of decisions.

Summary

A creditor arising out of a failed joint venture obtained a judgment against the debtor in 2016. The court found that the debtor had transferred his only real asset, a half interest in his house, to his wife in 2005. The creditor brought a fraudulent conveyance action. The judge had no problem in finding that the transfer was made to defeat or delay the debtor’s future creditors. The debtor admitted that he transferred the house to protect it against future creditors just before entering into a “speculative and risky business venture.” The judge also dismissed the limitations defence; he held that the limitation period normally starts upon the transfer of the land, but that it was not reasonable to expect a plaintiff to commence a fraudulent conveyance action until after the creditor obtained a judgment in its underlying claim.

Applicability

Can the same concept of reasonableness be applied to the Ontario Limitations Act, 2002? We suggest that it can – aside from the obvious conclusion that it makes sense to do so.

Section 5 of the Act sets out the criteria by which a claim is “discovered.” The discovery concept is important because a limitation period does not start to run under s. 4 until a claim is discovered. Section 5(1)(a)(iv) notes that, before a claim is discovered, the claimant must know that, “a proceeding would be an appropriate means to seek to remedy (an injury or loss).” Section 5(1)(b) states that a claim is discovered on “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).”

If it is not reasonable to expect a plaintiff to commence an action, then (i) a proceeding would not be an appropriate means to seek to remedy an injury or loss under s. 5(1)(a)(iv) and (ii) a reasonable person would not “have known” of the matters referred to in s. 5(1)(a)(iv).

Accordingly, we suggest that the Ontario courts would apply the same standard of reasonableness being applied in British Columbia; that is, discovery of a claim would not occur for limitation purposes until, at least, the date when judgment is obtained in the underlying action.

 

Image courtesy of geralt.

Jonathan Speigel

 

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

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