Ontario Court of Appeal Clarifies When a Claim is Considered “Discovered” Under the Limitations Act

In Davies v. Davies Smith Developments Partnership, the Ontario Court of Appeal revisited the doctrine of discoverability. The appellant was a former partner in a construction business. The partners signed an agreement in June 2005, which called for the appellant’s equity and his share in the profits of various projects to be paid to him between June 2005 and June 2008. The agreement included a schedule of payments to be made and the dates on which they were to be made. The payments were not made at the times set out in the schedule, because the respondent did not have sufficient funds to make them and there were disagreements over the quantification of the appellant’s share of the profits. The appellant commenced litigation in September 2012, some four years after the date the last of the payments were to have been made.

The trial judge dismissed the action on the basis that the claim became discoverable in July 2008, when the business failed to pay the appellant the profits owed to him. The appellant however waited four years before commencing the action. The judge noted that the appellant’s claim was based entirely on the respondent’s breach of the June 2005 agreement. The statement of claim and the appellant’s evidence were consistent in asserting that the profits owing to him were to be paid by June 2008. Although the appellant had knowledge that he had a cause of action against the respondent for breach of the agreement, he chose not to take action to enforce the payment and instead was happy to receive draws against his share of the profits and earn interest on the monies owed to him.

On appeal, the appellant argued that the limitation period had not expired as: (a) the amount owing to the appellant was in dispute; (b) the profits could not be ascertained until the partnership’s projects had been completed; (c) an action was not an “appropriate” means to remedy the appellant’s loss because he knew the partnership did not have funds; and, (d) there had been forbearance or novation, making it inappropriate to commence an action. The appellant submits that the claim was not discovered until 2011, when he realized that the respondent had made improper charges to his capital account. The Court rejected all four arguments and provided further clarification on the interpretation of section 5 of the Limitations Act, which states:

5. 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). 2002, c. 24, Sched. B, s. 5 (1).

The Court stated that the word “appropriate” in section 5(a)(iv) means “legally appropriate”. The fact that the respondent did not have the funds to pay, while perhaps explained the appellant’s conduct, did not stop the limitation period from running. The appellant’s claim had “fully ripened” by July 2008. The appellant could not now rely on his own tactical reasons for delaying the commencement of legal proceedings.

The Court also noted that the appellant’s submissions confused “damage” with “damages”. The fact that the appellant knew by the end of June 2008 that he had suffered damage was sufficient to trigger the commencement of the limitations period, even though the amount of his damages was a matter of dispute and had not been quantified.

The case serves as a good reminder that the limitation period starts to run once a party becomes aware that it has a cause of action against another. Parties who wait to commence a claim because of another party’s financial position or the lack of clarity about the quantum of damages may find out later that they are out of time to assert their claim.

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