Canada: Limitations Act, 2002

On January 1, 2004, the Limitations Act, 2002 came into force in Ontario. This statute governs the limitation periods applicable to claims governed by the law of Ontario. The new statute makes significant changes to limitation periods generally. These changes will have a significant impact on claims related to pension matters. The previous Limitations Act in Ontario had a series of provisions imposing specific limitation periods for specific causes of action. For example, under the old statute, a six-year limitation period applied to claims for breach of contract or negligence. Also under the old regime, where a specific cause of action was not referenced in the statute, no limitation applied. It was on this basis that the courts had determined that there was no limitation period in Ontario for claims for breach of fiduciary duty.

The new statute takes a fundamentally different approach and creates a basic limitation period of two years from the date a claim is "discovered" and an ultimate limitation period of 15 years from the date of the act or omission in issue. These uniform limitation periods are applicable to all claims except those specifically excluded by the statute. The types of claims typical in the pension context – breach of contract, negligence, breach of fiduciary duty, breach of trust – are all now subject to the limitation periods contained in the new statute.

The basic limitation period under the new statute is prescribed by section 4. Section 4 provides that a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was "discovered".

The concept of discoverability, which the courts had read into the previous Limitations Act, is now made an explicit part of the limitation periods in the new statute. The basic limitation period under the new statute is two years from the date upon which the claim was "discovered" or ought to have been "discovered".

Section 5 of the new statute provides that a claim is discovered on the earlier of:

(a) the day on which a person with a claim first knew that:

  • the injury, loss or damage had occurred;
  • the injury, loss or damage was caused or contributed to by an act or omission;
  • the act or omission was that of the person against whom the claim is made;
  • having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek a remedy to it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim ought to have known of the matters referred to in clause (a).

When a claim has been discovered, let alone when it ought reasonably to have been discovered, is likely to give rise to vexing questions in the pension context. For example, under section 5, it appears that a claim cannot be discovered until "injury, loss or damage" has occurred. One can foresee cases in which pension plan members will claim that they only suffered an "injury, loss or damage" at the time of a plan wind-up when they recover no surplus, notwithstanding that the alleged cause of the "injury, loss or damage" was a plan amendment, contribution holiday or investment decision made years earlier.

The new statute superimposes an ultimate limitation period upon the basic limitation period of two years from the date a claim is discovered or ought reasonably to have been discovered. Section 15 of the new statutes provides that, even if the basic limitation period has not expired (in other words, even when a claim has not been discovered), no proceeding shall be commenced in respect of a claim after the 15th anniversary of the day on which the act or omission on which the claim is based took place. While the ultimate 15 year limitation period is in many respects a significant improvement for plan sponsors, who previously were protected by no limitation period with respect to claims for breach of trust and breach of fiduciary duty, there are exceptions to the 15 year ultimate limitation period which may result in this provision offering plan sponsors less protection than first impression would suggest.

First, the 15 year ultimate limitation period does not run during any period of time in which the person with the claim is incapable of commencing a proceeding with respect to the claim because of his or her physical, mental or psychological condition.

Second, the 15 year limitation period does not run if the person against whom the claim is made:

  • wilfully conceals from the person with the claim the fact that injury, loss or damage has occurred, that is was caused by or contributed by an act or omission or that the act or omission was that of the person against whom the claim was made, or
  • wilfully misleads the person with the claim as to the appropriateness of a proceeding as a means of remedying the injury, loss or damage.

Although the onus of proving wilful concealment lies with the person alleging it, it remains to be seen how the courts will apply this provision in pension cases where there may have been less than full disclosure to plan members of events related to the plan.

Third, the operation of the 15 year ultimate limitation period is also varied in respect of a continuous act or omission or a series of acts or omissions in respect of the same obligation. Where a claim relates to a continuous act or omission or a series of acts or omissions, the 15 year period begins to run only when the acts or omissions cease. As a result, where a claim in respect to a pension plan relates to an ongoing course of conduct over many years, there is a danger that the ultimate 15 year limitation period may never, in fact, begin to run.

The Limitations Act, 2002 has transition provisions with respect to claims in respect of matters which occurred prior to January 1, 2004. The basic rule is that if the claim was "discovered" on or before January 1, 2004, the provisions of the old statute apply. If the claim is "discovered" after January 1, 2004, the provisions in the new statute apply and the 15 year ultimate limitation period is deemed to have begun to run on January 1, 2004. One of the consequences of the transition provision is that where a claim for breach of fiduciary duty or breach of trust was "discovered" prior to January 1, 2004, there will continue to be no limitation period.

Section 22 of the Limitations Act, 2002 will also be important to pension plan sponsors. It provides that a limitation period under the statute of applies "despite any agreement to vary or exclude it". This provision raises concerns about the ability of the parties to enter into tolling agreements. This section also raises concerns about the ability of parties in Agreements of Purchase and Sale to prescribe longer or shorter periods for claims in respect of the representations and warranties than those provided for under the statute.

Until the courts clarify the meaning and scope of section 22, the ability of parties to a transaction to effectively extend indefinitely the survival of pension-related representatives and warranties is in doubt. Section 22 does not apply to any agreements entered into prior to January 1, 2004.

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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