Canada: The Revival Of Forum Shopping for Limitations Deadlines

Last Updated: June 26 2006

Article by Bryan Duguid, ©2006 Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Litigation - May 2006

Parties should exploit the strategic opportunities and be mindful of the potential pitfalls that arise from the double limitation period resulting from section 12 of the Alberta Limitations Act, section 27 of the Saskatchewan Limitations Act, and the recent decision of the Supreme Court of Canada in Castillo.

Limitations deadlines are unforgiving. If they are missed, the claim is extinguished. This raises important strategic considerations in connection with section 12 of the Limitations Act, R.S.A. 2000, c. L-12 (Alberta Section 12) and the related decision released in late December 2005 by the Supreme Court of Canada in Castillo v. Castillo (Castillo). Alberta Section 12 states:

"Conflict of Laws ... 12 The limitations law of the Province shall be applied whenever a remedial order is sought in this Province, notwithstanding that, in accordance with conflict of law rules, the claim will be adjudicated under the substantive law of another jurisdiction."

As confirmed in Castillo, the effect of Alberta Section 12 is to provide, perhaps unexpectedly, a double-layered limitations defence to defendants in Alberta court proceedings that are governed by the substantive law of another jurisdiction. This represents a significant change in the rules for the choice of the limitations laws to be applied by the courts in Alberta and Saskatchewan, with ramifications beyond the borders of those provinces. (Although not identical to Alberta Section 12, to the same effect is section 27 of the Saskatchewan Limitations Act, S.S. 2004, c-L-16.1 (Saskatchewan Section 27), enacted relatively recently. Accordingly, this article applies equally to Saskatchewan Section 27 and Saskatchewan limitations laws.)

Background

A key choice of law issue is whether a particular question is a matter of substantive law or procedural law and, related to this, the identification of the substantive laws that govern the merits of the dispute (the lex causae). The procedural laws that govern the process for a dispute are those of the jurisdiction in which the dispute is heard, whereas the lex causae may derive from a jurisdiction other than the venue for the proceedings.

Any review of the law in this area should include the decision of the Supreme Court of Canada in Tolofson v. Jensen (Tolofson). Before Tolofson, in general, limitations laws were classified as procedural in nature under Canadian private international law. As a result, generally, the limitations deadline for a claim was based on the limitations laws of the venue for the dispute. However, this categorization exercise was not certain – it depended upon whether the limitations deadline was characterized as merely barring a remedy or instead extinguishing the underlying right of action. In any event, this encouraged forum shopping by plaintiffs to commence action in the jurisdiction with the most favourable limitations deadline because, in some cases, a claim could be pursued in some jurisdictions but not in others. This meant that fundamentally inconsistent results could flow from any given claim, simply based on the choice of venue.

Tolofson was responsible for two main developments. First, the Supreme Court of Canada held that, generally, the substantive law governing a tort claim is to be the law of the place where the activity occurred (the lex loci delicti). Second, limitation periods are to be treated as matters of substantive (not procedural) law. As a result, in general, for law suits filed in a Canadian court, the applicable limitations deadline is set by the laws of the jurisdiction that govern the merits and substance of the dispute, even if that jurisdiction is a foreign jurisdiction or a province in Canada other than where the plaintiff chooses to file the claim.

The Castillo Decision

As was the case in Tolofson, Castillo involved a car crash. The accident occurred in California on May 10, 1998. Two years less a day later, on May 9, 2000, the plaintiff filed a Statement of Claim in Calgary. The defendant applied for summary dismissal of the claim on the basis that California law (including its limitations law) applied, such that the claim was barred by the one-year limitation period under California law.

In granting the application for summary dismissal, the Alberta Court of Queen’s Bench interpreted Alberta Section 12. Because the wrong occurred in California, Tolofson rendered applicable the one-year limitation deadline under California law. The Court found that Alberta Section 12 rendered also applicable the two-year limitation deadline under Alberta limitations law. The Court prescribed a twostep approach for matters in which the substantive law of the dispute is not Alberta. First, the Court must determine if there is a cause of action under the lex loci delicti (in this case, California law), including the limitations law of the foreign jurisdiction. Only if the answer to that question is affirmative does the Court proceed to the second step of the analysis based on Alberta Section 12, that is, whether the action is brought within the Alberta limitations deadline. In this particular case, since the cause of action was extinguished after one year under California law, that was the end of the inquiry. It was unnecessary to determine, based on Alberta Section 12, whether the action was brought within the Alberta limitations deadline.

This result and the two-step analysis were upheld by both the Alberta Court of Appeal and the Supreme Court of Canada.

Analysis And Strategic Considerations

Castillo means that, for cases filed in Alberta that are governed by the substantive laws of another jurisdiction, the plaintiff’s claim will avoid extinguishment by limitations defence only if the claim has been filed in time to satisfy both the limitations law of Alberta and the other jurisdiction.

While, in his dissenting opinion in Castillo, Justice Bastarache of the Supreme Court of Canada stated that there does not seem to be any legislative purpose served by allowing a defendant always to benefit from the shortest of the limitation periods available under Alberta limitations laws and the applicable foreign laws, the legislative purpose seems clear. The purposes and policy underlying limitation periods in general include the goals of protecting defendants from unjust results which can occur where litigation is based on stale evidence, allowing defendants the opportunity to advance reasonable defences, and ensuring that defendants know within a reasonable time whether they will ultimately be free from claims. Viewed in this light, it is clear that the legislative purpose for Alberta Section 12 is to impose a double limitation period on extra-jurisdictional claims brought before the courts of Alberta to grant additional protection to defendants in such actions. This provides a home field advantage to Alberta corporations or residents that are defendants in Alberta law suits.

In some cases, a claim may be statute-barred if filed in Alberta, but not elsewhere. Of course, that would cause the plaintiff to avoid filing the lawsuit in Alberta, if possible. However, that may not be possible.

If the assets of the defendant(s) are located in Alberta, the plaintiff ultimately will need to enforce, in Alberta, any judgment of the courts of an alternate jurisdiction. As a result, because recognition and enforcement of judgment requires a real and substantial connection between the dispute and the jurisdiction in which the judgment is granted, practically speaking, the plaintiff will only be able to forum-shop to avoid Alberta if another jurisdiction has a real and substantial connection with the subject matter of the dispute. Even then, the defendant may be able to raise a successful challenge to the choice by the plaintiff of the alternate jurisdiction on forum non conveniens grounds, on the basis that Alberta is clearly the most appropriate forum for the dispute. (It should be noted that, in advancing such a forum challenge, the defendant would likely be faced with a persuasive response from the plaintiff that, if the plaintiff is forced to litigate in Alberta, it would lose a juridical advantage, precisely because of Alberta Section 12.) Accordingly, if there is no alternate jurisdiction that has a real and substantial connection with the subject matter of the dispute, or if Alberta is clearly the most appropriate forum for the dispute, the plaintiff will be forced to litigate in Alberta, with the resulting elimination of its claim through the operation of Alberta Section 12.

If the plaintiff is able to identify an alternate forum that has and will exercise jurisdiction over the dispute, the shorter limitation period prescribed by Alberta Section 12 could be avoided, and a judgment of the alternate court pursued. If judgment of the alternate jurisdiction’s court is obtained, the plaintiff could apply to have the judgment recognized and enforced in Alberta. However, the need for this additional step may provide additional defences or protections to the defendant. For instance, merely the added costs, delays and risks of the subsequent recognition and enforcement process may provide a useful practical or negotiating advantage to defendants with their assets located in Alberta. In addition, if the judgment of the alternate jurisdiction’s court is not for a certain sum of money (for instance, if it is a declaratory judgment), it is currently a live question, awaiting decision from the Supreme Court of Canada, as to whether a Canadian court will recognize and enforce that type of judgment (Pro Swing Inc. v. ELTA Golf Inc., appeal heard and reserved). For further discussion of the Pro Swing decision, please see Pro Swing Drives Foreign Judgments Forward, Blakes Bulletin on Intellectual Property, October 2005. Moreover, even if the jurisdiction had a real and substantial connection with the subject matter of the dispute, the Alberta courts will not recognize or enforce the judgment of the alternate jurisdiction if the judgment is inconsistent with the public policy of Alberta, or was obtained by fraud or in a manner inconsistent with the principles of natural justice (Beals v. Saldanha).

As a result, though an attentive plaintiff might attempt to take steps to keep a dated claim alive by choosing an alternate jurisdiction in which to sue, this may not be a straightforward and trouble-free exercise.

The effect of Alberta Section 12 is clear. In no case shall a defendant in an Alberta court action be required to defend a claim on its merits if the claim is not filed in time under the limitations laws of Alberta.

Accordingly, Alberta Section 12 (and Saskatchewan Section 27) creates various strategic considerations including:

One. Increased attention must be paid to the jurisdiction in which a party has been sued (for example, in Alberta as in most jurisdictions, limitations defences must be pled expressly) or the jurisdiction in which a party chooses to sue, to ensure that the limitation period ramifications are factored into the strategic choices available.

Two. For corporations wanting to capitalize on the added protection against litigation offered by Alberta Section 12, consideration might be given to incorporating in, moving to, or relocating assets to, Alberta.

Three. By contract, parties can agree to render Alberta Section 12 inapplicable. (Obviously, this option is not available for purely extra-contractual relationships and claims.)

Four. It is necessary to set up systems to identify potential claims and to investigate the claims as soon as possible, so that they can be filed in time. While this is always a prudent course of action, its importance increases in light of Alberta Section 12 and its double limitations firewall.

Conclusion

Alberta Section 12, Saskatchewan Section 27, and Castillo represent a change in the choice of law rules applicable to limitations deadlines for claims that arise in any jurisdiction outside of Alberta and Saskatchewan that are filed in the courts of those provinces. The statutory provisions provide added protection to defendants in such lawsuits. Parties should exploit the resulting strategic opportunities and be mindful of the potential pitfalls. 

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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