Canada: Breathing Room: The Alberta Court Of Appeal Addresses The New Limitation Period For Third-Party Claims

The limitation period for a defendant seeking contribution from a third party has changed. In last month's Alberta Court of Appeal decision of Whitecourt Power Limited Partnership v Elliott Turbomachinery Canada Inc., 2015 ABCA 252 (Whitecourt Power), the Court interpreted a recent amendment to the Limitations Act in respect of third party claims.

The introduction of this amendment, and the Court's interpretation of it, modifies the law in a manner that may provide a defendant named in a lawsuit with a longer limitation period for filing a third-party claim. This change in the law is significant for industries where the defendant is often faced with the question of third-party liability, such as project construction, energy, and industrial manufacturing.

Prior to the amendment, which became law on December 14, 2014, the limitation period for a defendant seeking contribution from a third party where the third party may be liable to the plaintiff, started from the time that the plaintiff knew or ought to have known of its claim against that third party. The difficulty created with this approach is that the defendant was often at the mercy of the plaintiff's limitation period relative to the third party even though the defendant may not have yet been sued. This limited the defendant's ability to bring third parties into the lawsuit where the limitation period between the plaintiff and the third party had expired.

The limitation period analysis that was the focus in Whitecourt Power should not be confused with Rule 3.45 of the Rules of Court, which requires a third-party claim to be served by the defendant within six months of receiving a statement of claim. The six-month requirement is often extended upon an application to the Court (and sometimes retroactively), particularly in complex litigation. In light of the new limitation period for claims by a defendant against third parties, Courts may be more willing to extend the six-month requirement, however, that remains to be seen.

Analysis

In Whitecourt Power, the plaintiff, Whitecourt, sued the defendant, Interpro, alleging breach of contract and negligence in respect of Interpro's 2008 overhaul of a turbine-generator belonging to Whitecourt. Whitecourt served its statement of claim on Interpro on August 20, 2010. Interpro filed and served its statement of defence on October 1, 2010. Later, on October 12, 2012, and after obtaining permission from the Court, Interpro filed a third-party claim against Elliott Turbomachinery, which was responsible for balancing the turbine rotor of the turbine-generator.

The third-party claim sought contribution from Elliot partly on the basis that Elliot owed a duty to Whitecourt directly in respect of the balancing work, otherwise commonly known as a contribution claim under the Tort-Feasors Act. Interpro also alleged, in the alternative, that Elliot owed Interpro a duty to balance the rotor, which is sometimes referred to as a common law claim of contribution

Elliott brought an application to summarily dismiss the third-party claim on a number of grounds, including the assertion that the third-party claim was barred by the Limitations Act. Elliot argued that since over two years had passed from the time that Whitecourt knew or ought to have known of a claim, to the time that Interpro filed its third-party claim, Interpro was statute-barred.

The application was first heard before a Master who found as fact that Whitecourt was aware of a potential claim against the third party, Elliott, on March 24, 2009 (2014 ABQB 135). Because Interpro's third-party claim was not filed within two years from that date, the Master concluded that Interpro's claim under the Tort-Feasors Act was statute barred. However, the Master dismissed the other grounds of Elliot's application with the result that Interpro's common law claim for contribution survived and Elliot remained in the lawsuit.

The Master's decision was upheld by the Court of Queen's Bench. Elliott appealed again to the Court of Appeal. During the course of its appeal, the amendment to the Limitations Act concerning limitation periods for third-party claims was passed. Pursuant to the transitional provisions associated with the amendment, the new law applied to Elliott's appeal. In light of the amendment, Interpro cross-appealed, alleging that its claim under the Tort-Feasors Act was not statute barred.

The Court of Appeal dismissed Elliott's appeal and allowed the cross appeal. In respect of the cross appeal, the Court overturned the decisions below that struck the third-party claim as it related to claims for contribution under the Tort-Feasors Act. In doing so, the Court relied on new sections 3(1.1) and (1.2) of the Limitations Act. Applying those provisions, the Court found that the earliest possible date for limitation purposes is when Interpro was served with the Statement of Claim by Whitecourt on August 20, 2010.

However, Interpro was still faced with a limitations problem since Interpro did not file its third-party claim until October 12, 2012, which was more than two years after it was served with the statement of claim. In determining this issue, the Court applied statutory interpretation principles and decided that the amendments contemplated a limitation period start date later than the service of the statement of claim. The Court recognized that a defendant may not know, or ought to have known, of its contribution claim against a third party even after being served with a claim. In this case, the Court found that it was unclear as to when Interpro would have discovered its third-party claim against Elliot and therefore declined to summarily dismiss it.

The amendment to the Limitations Act, together with the Court's interpretation of it, provides defendants with some added reassurance that they may not lose an opportunity to recover against a third party because the limitation period between the plaintiff and third party expired. They can take some comfort with the fact that the earliest date that the limitation clock will begin to run for a claim of contribution under the Tort-Feasors Act is when the defendant is served with a statement of claim. This change in the law will be particularly helpful for defendants that operate in industries where the question of third-party liability often arises.

Of course, as with all matters concerning limitation periods, it is prudent to identify potential claims as early as possible and to take steps that preserve those claims.

Christopher Petrucci appeared as lead counsel for the plaintiff, Whitecourt, before the Master and the Court of Appeal.

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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