Canada: Is Section 5(1)(a)(iv) Of Ontario's Limitations Act The New "Special Circumstances"?

When Ontario's Limitations Act, 2002 came into force in 2004, the Courts made serious efforts to ensure that the new two-year limitation period for most lawsuits was uniformally enforced.

The doctrine of "special circumstances", which had the effect of postponing the limitation period largely on fairness concerns, was dead. Parties to civil actions were warned: you have two years to bring your action, or else.

Fifteen years later, Ontario Courts are revisiting the harshness of their earlier ways.

They are apparently doing so by breathing life into section 5(1)(a)(iv) of the Limitations Act. This section did not appear in previous versions of the Act. It allows the plaintiff to postpone the running of the limitation period where a civil action is not yet "legally appropriate".

Three years of Ontario jurisprudence have now established that section 5(1)(a)(iv) delays the limitation period where:

  1. the plaintiff relies on the superior expertise of the defendant to remedy the plaintiff's loss; or
  2. where there is an alternative dispute resolution process that must be exhausted first before the plaintiff may resort to litigation.

A 2018 decision of the Court of Appeal, Gilham v. Lake of Bays (Township), 2018 ONCA 667, now appears to be expanding the scope of section 5(1)(a)(iv)—applying it to a construction deficiency case where the damages to the plaintiff were not initially apparent.

Cottage Defects Appearing as Early as 2009

Gilham involved a lawsuit by the plaintiffs against the defendants for deficiencies in the construction of their cottage.

The first defendant excavated the foundation of the cottage and constructed a stacked rock retaining wall (the "First Defendant"). The retaining wall was meant to ensure that the cottage had the required depth of backfill for frost protection.

The second defendant constructed the footings and foundation of the cottage and deck (the "Second Defendant").

All work was completed in 2006.

The plaintiffs first noticed a problem with one of their deck piers in 2009. They observed that it had sunk about 1 and ¼ inches.

The Second Defendant advised the plaintiffs that the issues they were observing had nothing to do with the cottage's construction. On the Second Defendant's recommendation, the plaintiffs retained an engineering firm to investigate.

In September, 2009, the engineering firm produced a report and recommended costly remediation. This included the removal of the retaining wall and the reconstruction of the deck. The engineering firm did not advise that there were any construction issues with the retaining wall or the foundation itself.

The plaintiffs later contacted the First Defendant. The First Defendant stated that retaining walls often settled a bit and that the plaintiffs should "monitor the situation and 'wait and see' if the stone retaining wall found its own level over the next year or two".

When problems persisted, the plaintiffs contacted a construction company and soil testing company, both of which investigated the property in 2012.

In their report dated July 30, 2012, the soil testing company concluded that the retaining wall was indeed failing. The company recommended that the wall be removed and reconstructed. Remedial work was commenced in 2013 and it was at that time that the plaintiffs discovered that the cottage foundation and footings had also been built on overly loose soil.

The plaintiffs started their action against the First and Second Defendants on October 21, 2013.

On a motion for summary judgment, the motion judge dismissed the plaintiffs' action as statute-barred under the Limitations Act as having been commenced more than two years after it was discovered.

The motion judge held that the plaintiffs should have known back in 2009 that there were issues with the construction of their cottage.

The plaintiffs appealed the dismissal of their action to the Court of Appeal.

Section 5(1)(a)(iv) to the Plaintiffs' Rescue

On appeal, the Court observed that the motion judge had misapprehended the underlying evidence which led to the erroneous conclusion that their action was out of time.

The Court noted that the First and Second Defendants had dismissed the issues with the retaining wall and deck pier as "not serious" and "due to settling"—issues which the Defendants represented would ultimately resolve.

In addition, the Court held that the motion judge erred by failing to consider the application of section 5(1)(a)(iv) of the Limitations Act.

The Court noted that in order for a limitation period to be triggered, the plaintiff was required to know two things:

  1. that a non-trivial loss has occurred; and
  2. that, under section 5(1)(a)(iv), a civil proceeding "would be a legally appropriate means to seek to remedy it".

The Court observed that one of the fundamental purposes of section 5(1)(a)(iv) was to allow "courts to function more efficiently by deterring needless litigation", as cited in 407 ETR Concession Company v. Day, 2016 ONCA 709.

In this case, the motion judge "failed to consider the specific factual or statutory setting" by not applying section 5(1)(a)(iv).

If the motion judge had done so, he would have concluded that it was not reasonable for the plaintiffs to have started an action after observing the sinking of the deck pier in 2009.

Rather, the plaintiffs quite rightly adopted a 'wait and see' approach, largely on the advice of the First Defendant:

Here, the motion judge failed to...determine whether it was reasonable for the [plaintiffs] not to immediately commence litigation but to 'wait and see' if the ¼ inch sinking of the deck pier observed in 2009 would worsen over time or if the issue would resolve once the stone retaining wall had settled, as had been suggested to the [plaintiffs] by [the First Defendant]. Neither [the First nor the Second Defendant] believed the problem was serious, or due to the manner of construction. This evidence does not support the conclusion that the [plaintiffs] knew or ought to have known in 2009 that their loss was not trivial and initiating legal proceedings was the appropriate means to remedy their loss.

Is Section 5(1)(a)(iv) the new "Special Circumstances"?

The Gilham case illustrates that section 5(1)(a)(iv) provides Ontario Courts with a degree of necessary flexibility in determining the start of a limitation period.

Using the principle that section 5(1)(a)(iv) was enacted for the express purpose of deterring needless litigation, the Courts have employed it as an effective tool in relieving against the harshness of enforcing limitation periods in specific cases.

In short, section 5(1)(a)(iv) allows the Court to assess the limitation period within the factual and legal context of a specific case.

While it is tempting to view section 5(1)(a)(iv) as a revival of the common law doctrine of "special circumstances", this does not appear to the case--at least for now.

In essence, section 5(1)(a)(iv) represents a slight retreat from the austerity of limitation period enforcement which followed the enactment of the Limitations Act, 2002.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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