Recently, the Court of Appeal considered limitation periods and
discoverability in the context of profits shared under a
partnership agreement. This case is significant as it deals with a
common scenario in which the terms of a business agreement are not
followed in a manner which is insignificant and difficult to detect
in the initial stages which, over time, has a more significant
The Court considered the responsibility of the parties to
discover that the precise terms of the contract were not being
In Van Allen v. Vos, the parties carried on
business as partners in a dental practice for over twenty years.
The parties entered into an agreement in 2004 which set out the
distribution of profits as between them. Each partner would receive
100% of the profits on the work that he performed. At the heart of
the dispute was the work performed by an associate dentist who was
the daughter of the appellant. The 2004 agreement set out that the
associate would be remunerated for 40% of the value of the work
that she did whether that work was performed on her own patients or
on patients of either partner. The expenses associated with the
associate's work would be apportioned according to whose
patient she was working on. If the associate worked on a patient
for one of the partners, that partner would receive credit for the
associate's billings minus the expense associated with the
Four years after the profit sharing agreement was entered into,
the parties decided to dissolve their relationship. In the course
of winding up their relationship, it was discovered that the
formula set out in the agreement, by which the profits would be
shared, had not been adhered to; The associate's expenses had
been treated as shared expenses, which benefitted the appellant,
who referred more clients to the associate. The respondent had
borne a disproportionate share of the associates expenses.
One of the points considered on appeal was whether the
plaintiff's action to recover the funds set out under the
agreement was barred by either a statutory limitation period or the
principles of laches and/or estoppel. The appellant argued that the
respondent knew or ought to have known that the funds were not
being shared as set out in the agreement, at an earlier date.
The Court of Appeal upheld the trial finding that the respondent
did not know that the 2004 agreement was not being followed. It was
not apparent, from reviewing the accounting statements, that the
formula set out for sharing profits in the agreement was not being
followed (the financial statements only showed the net figures for
each partners allocation). The Court held that the respondent had
no reason to believe that the agreement was not being followed and
therefore, the respondent was entitled to rely on the clear wording
of the agreement between the parties. The Court stated that
"it is reasonable discovery – rather than the mere
possibility of discovery – that triggers a limitation
period". The Court applied this reasoning equally to defeat
the appellants claims with respect to laches and estoppel.
In an ideal world, parties to business relationships are fully
aware of whether or not their contracts are being adhered to,
however, this decision is helpful in addressing the issue that
arises when there is a minor and undetected deviation from the
agreement, which, if not detected at the outset, leads to a
significant departure from the intentions of the parties to the
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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