In Kaynes v BP p.l.c, 2021 ONCA 36, the Ontario Court of Appeal clarified when a claim for fraudulent misrepresentation is discoverable under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (Limitations Act), and in what circumstances it is appropriate for a limitation issue to be decided on a Rule. 21.01(1)(a) motion.

Facts:

The Deepwater Horizon incident occurred on April 20, 2010. In November 2012, the appellant, who had purchased shares of BP in 2008, commenced a putative class action in Ontario based on a decline in the value of his shares following the incident in which he alleged that BP had made misrepresentations about the safety of its drilling operations and its ability to respond to an oil disaster. Claims for common law misrepresentation and a statutory cause of action under s. 138.14 of the Ontario Securities Act were originally pleaded.

The claim for common law misrepresentation was subsequently abandoned, and in 2017, BP successfully challenged the timeliness of most of the statutory cause of action, reducing the proposed class period to only 55 days. Since the appellant had acquired his shares before the commencement of the circumscribed class period, his personal statutory claims were statute barred.

In 2019, in an amended statement of claim, the appellant added a new cause of action for fraudulent misrepresentation based upon the same misstatements that had formed the basis for causes of action for negligent misrepresentation and statutory misrepresentation. In response, BP filed a motion under Rule 21.01(1)(a) for an order declaring that the new cause of action was statute-barred pursuant to the Limitations Act.

Motion Judge's Decision:

The Motion Judge granted BP's motion, finding that all of the common law misrepresentation claims, whether negligent or fraudulent, were statute-barred pursuant to the Limitations Act. All were discovered when BP made its corrective disclosures between March and June 2010.

In the alternative, the appellant would have discovered any fraudulent intent in 2010 when Canadian and American shareholders were advancing claims against BP in the US based upon allegations of scienter.

It was appropriate for the court to determine the limitation period on a Rule 21 motion as it was plain and obvious from a review of the statement of claim that no additional facts could be asserted that would alter the conclusion that the limitation period had expired.

Court of Appeal's Analysis:

The Ontario Court of Appeal found that the motion judge erred in his analysis of the discoverability of the claim for fraudulent misrepresentation, but agreed that the claim was statute barred and that it was appropriate for the discoverability issue to be decided on a Rule 21 motion in the circumstances of the case.

Issue #1: When is a claim for fraudulent misrepresentation discoverable for purposes of the commencement of the limitation period?

According to the Court, the Motion Judge erred by failing to distinguish between discovery of the claim for fraudulent misrepresentation and of the claim for negligent misrepresentation, each of which had different constituent elements. A person must have discovered facts to substantiate each element of the particular cause of action pleaded in order to have discovered a claim for a remedy within the meaning of section 5(1)(a) of the Limitations Act. For fraudulent misrepresentation, that means that the appellant had to have discovered "that the misstatement that caused the damage was made with [the defendant's] knowledge that the misrepresentation was false, an absence of belief in its truth or recklessness as to its truth" in order for the limitation period to begin to run.

The claim for fraudulent misrepresentation advanced in 2019 could not be saved by factual allegations advanced in the 2017 pleading (that BP had made misrepresentations knowing that they were false) for the purpose of a statutory claim for misrepresentation. The cause of action for fraudulent misrepresentation constituted a "fundamentally different claim".

Issue #2: Was it appropriate for the court to decide to dismiss the claim as statute-barred on a Rule 21.01(1)(a) motion?

The Court of Appeal determined that where a plaintiff's pleading establishes when the plaintiff discovered the claim so that the issue is undisputed, it is appropriate for Rule 21.01(1)(a) to be used as an efficient method of striking out claims with no chance of success. This was such a case.

The appellant pleaded that up until July 2015, when BP settled a number of actions in the US and abandoned an appeal of a decision that it had acted with "conscious disregard of known facts", BP had concealed that its misstatements were made knowingly. By pleading that fact, the appellant had conceded that the latest date when it discovered or reasonably could have discovered BP's fraudulent conduct was July 2015, more than two years prior to the 2019 amended statement of claim alleging fraudulent misrepresentation. As the July 2015 date was not in dispute, it was plain and obvious that the fraudulent misrepresentation claim was statute-barred.

Takeaways

Determining discoverability in a fraudulent misrepresentation claim depends upon when the plaintiff became aware of the defendant's knowledge of the falsity of its alleged misrepresentation.

Although a Rule 21 motion can be an effective means to dismiss an action where it is out of time, it will be difficult to succeed on a motion to strike a claim for fraudulent misrepresentation on the basis that the limitation period has expired unless it is clear on the fact of the pleading that the defendant had knowledge of the claim at least two years prior to the assertion of that cause of action.

Originally Published by Norton Rose, March 2021

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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.