The Bank of Nova Scotia (the
"Bank") v. Anthony R.
Williamson ("Williamson"), 2009
ONCA 754, Ontario Court of Appeal (the "Williamson
In our March 2009 Financial Services Update, we
summarized the decision of the Ontario Superior Court of Justice in
The Bank of Nova Scotia v. Anthony R. Williamson, 
O.J. No. 4756 (the "Williamson
Judgement"), in which the Court agreed with the Bank
in holding that the limitation period for the principal debt and
for the guarantee may commence at different times and that there is
no requirement that demand must be made upon the guarantor and the
principal debtor at the same time.
Williamson appealed the decision to the Ontario Court of Appeal,
which considered whether a demand guarantee requires a demand
before it is enforceable and the impact of the Limitations
Act, 2002 amendments in respect of the commencement of the
limitation period for demand obligations.
In the Williamson Appeal, the Court of Appeal held that where
the obligation of a third party guarantor is to pay on demand, as
was the case, the demand is a condition precedent to the obligation
to pay. It follows that the time for commencing an action on a
demand guarantee does not begin to run until a demand has been
Collateral obligations which include an obligation to pay on
demand, such as guarantees or collateral mortgages given by third
parties to secure the debt obligation of a primary debtor, require
a demand before they are enforceable.
In respect of the November 28, 2008 amendments to the
Limitations Act, 2002, which provide that the limitation
period with respect to a demand obligation starts to run on the
first day on which there is a failure to perform the obligation,
once a demand for performance is made, the Court of Appeal
confirmed that it was the intent of the legislature that for all
demand obligations a demand is a condition precedent to the
commencement of the limitation period.
In so doing, the Court of Appeal has affirmed that the
Limitations Act, 2002 amendments have the effect of
overturning its controversial decision in Hare v. Hare
((2006), 83 O.R. (3d) 766), in which it was held that the
Limitations Act, 2002 did not, nor was intended to change
the common law position that a debt is owed as soon as the monies
Consistent with the decision in the Williamson Judgment, the
decision in the Williamson Appeal is favourable to lenders in that
it solidifies the view that the limitation period on a guarantee
does not commence until demand has been made on the guarantee, and
affirms our reading of the Limitations Act, 2002
amendments such that lenders, among others, will have two years
from the date of the demand to commence a claim for recovery.
In respect of guarantees, we continue to advise that demand
phrasing should be explicitly included in guarantees, as should
enforceability phrasing indicating that the guaranteed obligation
is payable or enforceable at a certain time period after demand is
made. It would also be prudent to add a provision regarding the
Limitations Act, 2002 indicating that the basic period of
two years does not apply, which is permitted under the
Limitations Act, 2002 in that one can contract out of a
limitation period in respect of "business
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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