Canada: Brokers' Report October 2010 Edition - Limitation Periods

Last Updated: October 29 2010
Article by John Blair, QC

Most Read Contributor in Canada, September 2016

Editors: David Di Paolo and Kara Beitel

Released on Tuesday, October 26, 2010

An issue that often arises in litigation against financial advisors is whether the client has brought their action in time. Every Canadian province has limitation laws to bar late actions, but in broker cases it can be difficult to ascertain exactly when the broker went offside and, more importantly, when the client discovered that they might have a cause of action. An April 20, 2010 decision of the Alberta Court of Appeal indicates that how the action is framed against the broker can be an important factor. In that case, the client's claim for negligence was summarily dismissed, but her claim for recklessness has been allowed to proceed.

In Stack v. Hildebrand, 2010 ABCA 108, Stack sued her financial advisor, Hildebrand, and his company, PRG Financial Inc. (PRG), alleging that they misrepresented investments in certain viatical contracts that Stack purchased in 1998. She did not sue until 2006. A viatical contract is created when an insured person sells his or her entitlement to receive a life insurance policy's death benefit to a financial company, who later sells a fractionalized portion of the entitlement to investors. The financial company typically pays the premiums on the insurance policy, although this was not the case in Hildebrand where Stack was expected to pay part of the premiums. The primary risk is that the insured person (the viator) will exceed his or her life expectancy and thereby delay the insurance payout while payment of premiums continue.

On Hildebrand's recommendation, Stack purchased an interest in the life insurance policies of two people from an insurer, Mutual Benefits Corporation (MBC). She alleged that Hildebrand provided incorrect information on the investment, some of which was misinformation provided to brokers by MBC, but some of which she alleged was recklessly exaggerated by Hildebrand. Stack framed her claim two ways, alleging both negligence and fraudulent misrepresentations by Hildebrand. She claimed she was told that: the investments were guaranteed; the principal was 100% safe; the viators would be terminally ill and die within one to three years, i.e. by 2000 or 2001; only two viators had ever lived past their expected life expectancy; and, the investments were safe and secure. Happily for the viators, but less so for Stack, the viators did not expire within the expected period and Stack sued for her losses. Hildebrand successfully applied to summarily dismiss the action on the basis that the action was time-barred under the Alberta Limitations Act, R.S.A. 2000, c. L-12 (the Act). That decision was appealed.

At issue was s. 3(1)(a) of the Act which establishes a two year knowledge-based limitation period, stating that a person cannot sue unless they do so within two years after the date on which they first knew or ought to have known: (i) that the injury (damages) for which they sue had occurred; (ii) that the injury was attributable to conduct of the defendant, and; (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding. In dismissing Stack's action, the lower court had found that the three criteria in s. 3(1)(a) of the Act were met. In 2003, five years after her investment, Stack had received information from MBC that the medical conditions of the viators were not imminently terminal and that in fact their actual complaints were matters such as menopause, sinusitis and insomnia! Stack knew at that time that her investment would lose money. Also, Stack knew or ought to have known that her loss resulted from the conduct of Hildebrand in convincing her to invest in the viatical contracts since he was the only person with whom she had dealings. Finally, in 2003 the viators were both still alive and written information on the medical condition of one had been provided, so Stack knew or ought to have known that the injury warranted bringing a proceeding. As a result, summary judgment was granted to Hildebrand and PRG on the basis that the action was brought too late.

The Court of Appeal allowed the appeal in part. Stack's cause of action, remember, was based on both negligent and reckless misrepresentation. The Court of Appeal considered the two causes of action individually.

It found that the lower court did not err in concluding that Stack's suit for negligent misrepresentation was barred by the Limitations Act since the limitation for that cause of action started in 2003, three years before she sued. By then she knew that the investment had not performed as promised and that she had not received the return of her capital by the anticipated dates. The Court of Appeal found that by 2003, at the latest, Stack ought to have realized that the viators were not terminally ill and her investment was not what she had allegedly been promised.

However, the Court of Appeal did allow Stack's action to proceed on the reckless misrepresentation claim. It found that Stack did not learn until 2005 that in fact only 70-80% of viators actually die within the predicted period and that Hildebrand had allegedly exaggerated the information that MBC had provided to him by saying only one or two ever survived beyond their expectancy. The court said that this statement could be reckless, could therefore result in a fraudulent misrepresentation finding and that Stack should be allowed to proceed on that element only.

This case serves as a cautionary tale for both investors and brokers. Investors should beware of the risks associated with viaticals, most notably that predicting life expectancy is far more art than science despite the extensive actuarial data that is available today. In a broker context, investment firms and investors alike should be aware that when it comes to the application of a limitation period, the two year "drop dead" date (pun not intended) can apply or not apply depending on how the cause of action is framed and how effectively the investor can argue that he/she did not know all the facts pertinent to their claim until a certain point.

Alberta Court of Queen's Bench

On May 21, 2010 Borden Ladner Gervais LLP (BLG) was successful in two motions before Justice Ronald Stevens of the Alberta Court of Queen's Bench in Shopplex v. Brown. A corporation applied to adjourn its own Annual General Meeting (AGM)scheduled for May 27. Some concerned shareholders vehemently opposed the notion of an adjournment in the middle of a heated proxy battle. The court refused to adjourn the AGM and, as well, granted our clients' side motion to appoint an Independent Chairman to preside over the AGM rather than a company representative as provided in the by-laws.

About BLG

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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