Canada: Limitation Periods After Hamilton (City) v Metcalfe & Mansfield Capital Corporation

Last Updated: May 31 2012
Article by Ryan Maynard

In Hamilton (City) v Metcalfe & Mansfield Capital Corporation1 ("Metcalfe"), the Ontario Court of Appeal ("ONCA") examined limitation periods and the discoverability principle in an action for negligent misrepresentation. While this decision does not directly deal with environmental law, the distinction between "damage" and "damages" will have a significant impact on the application of limitation periods in contaminated land litigation.

Facts

On July 24, 2007, the City of Hamilton (the "City") purchased $10 million in non‐bank sponsored asset backed commercial paper ("ABCP") in the form of Devonshire Series "A" Notes ("Notes") from Deutsche Bank Securities Limited. The Notes were due to mature on September 26, 2007, however, the market for ABCP collapsed before the Notes matured. The City, along with other investors, entered into an agreement on August 23, 2007 to address the collapse of the ABCP market (the "Montreal Accord") by which it agreed to a standstill period during which it would refrain from taking actions to hinder efforts to reestablish the non‐bank ABCP market in Canada. The standstill period expired insofar as the City was concerned on January 10, 2008. The City commenced an action against a number of financial institutions (the "Defendants") for negligent misrepresentation in connection with its purchase of the Notes on September 25, 2009. The action was commenced more than two years after the City purchased the Notes. The Defendants argued that the City had failed to bring the claim within the two year limitation period.

Analysis

The issue before the ONCA was whether the action had been commenced in time – i.e. within the two year limitation for such claims prescribed by statute. The City argued that the limitation period began to run at the point in time when it discovered it had suffered damages which it said was at the date the Notes had matured and the City was not paid (i.e. September 26, 2007). The Defendants argued that the clock started ticking when the City discovered that it not received what it believed that it had purchased – in other words – when the City discovered that the ABCP market had collapsed and entered into the Montreal Accord to mitigate its losses from the purchase of the Notes – i.e. sometime before August 23, 2007. The motions judge and the ONCA agreed with the Defendants and dismissed the claim as statute‐barred.

Damage vs. Damages

The ONCA distinguished between damage and damages and concluded that "damage" is the loss needed to make out the cause of action while "damages" constitute the monetary measure of the extent of that loss. The ONCA concluded that the City was wronged when it purchased the Notes and suffered "damage" at that time because it was then that the negligent misrepresentation on which it relied was made, absent which the City could have negotiated a better price or decided to pursue a safer and more liquid investment. At the time it bought the Notes, the City was already in a worse position than it would have been in had it had the proper information from the start.

The City suffered damage sufficient to complete the cause of action when it entered into the transaction, not when the loss was monetized into a specific amount. The City did not need to know the full extent of the damages suffered before it could bring a claim for negligent misrepresentation. Some damage is sufficient for a cause of action to accrue and the limitation period to commence. The City was aware that it had suffered a loss some time before it entered into the Montreal Accord and that even the best case scenario under the Montreal Accord would lead to an adverse outcome as compared to a scenario where it had not purchased the Notes. As the City knew it had suffered a loss attributable to the Defendants at that time, the cause of action was complete and the limitation period began to run.

Application to Contaminated Land Litigation

Metcalfe is consistent with Cousins v. McColl‐ Frontenac Inc2 ("Cousins"), the leading case on limitation periods in contaminated land cases. Cousins involved a purchase of a service station in 1986 and the subsequent discovery of contamination on the property in 1993. The Court determined that the limitation period began to run when the contamination was found, which was when the claim was discoverable.

In Cousins, there was no evidence of any misrepresentation as to the state of the land at the time of the purchase. Had there been any misrepresentation, the limitation period likely would still not have begun until the environmental assessment in 1993 because that would be the first time the purchaser would have been aware that he did not receive what he had bargained for.

Metcalfe should serve as a cautionary tale to parties seeking to recover for contamination to their property. The extent of the damages does not need to be known before the limitation period begins to run. While, the full extent of the damages are usually not known until remediation has been completed, plaintiffs should be aware that as soon as any damage is discovered, the limitation period beings to run.

If the claimant has failed to bring the claim within the two year limitation period, there is a narrow statutory exception for land contamination litigation in Alberta that may allow them to bring the claim after the limitation period has expired. The Environmental Protection and Enhancement Act3 allows a judge to extend a limitation period where the basis for the proceeding is an alleged adverse effect resulting from the alleged release of a substance into the environment.4 A judge must consider the timing and nature of the adverse effect and the potential prejudice to the defendant if the limitation period is extended. The court has considered this provision twice and granted the extension once.5 The purpose of the legislation was to extend the limitation periods in actions that allege damages to the environment because the release of harmful substances into the environment may not be evident for several years.6

Footnotes

1 2012 ONCA 156.

2 2006 NBQB 255, 300 N.B.R. (2d) 188, aff'd 2007 NBCA 83, 322 N.B.R. (2d) 159.

3 RSA 2000, c E‐12.

4 Ibid. s. 218.

5 Extension granted in Wainwright Equipment Rentals Ltd. v. Imperial Oil Ltd., 2003 CarswellAlta 1563, 2003 ABQB 898 [Wainwright]; extension not granted in Jager Industries Inc. v. Canadian Occidental Petroleum Ltd., 2001 CarswellAlta 309, 2001 ABQB 182.

6 Wainwright, supra note 5 at para 4.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit: www.fmc-law.com

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