Date: Fri, 16 Jun 2006 08:22:14 -0400

From: David Cheifetz

Subject: Glitches, Limitation Periods, Abuse of Process

All:

I'm segueing into Neil's mention of actions being dismissed on the basis that they are stale on "abuse of process" grounds even though commenced timely in limitation period terms.

For those interested in "glitches" as Neil Foster described them - resulting in seemingly valid actions being dismissed on "abuse of process" grounds, HSBC Securities (Canada) Inc. v. Davies, Ward & Beck, 74 O.R. (3d) 295, 249 D.L.R. (4th) 571, 2005 CanLII 1626, [2005] O.J. No. 277 (Ont. CA.) affirming on other grounds (2003), 68 O.R. (3d) 289, 2003 CanLII 20888 (S.C.J); leave to appeal denied 345 N.R. 394 (note), 2005 CarswellOnt 2737, 2005 CarswellOnt 2738 (S.C.C. Jun 30, 2005). That was the basis of dismissal of a claim at first instance. The dismissal was affirmed on appeal on other grounds that amount to the action being out of time under what the court construed as a form of limitation period. (It wasn't.)

The case involves a contribution claim. (It shouldn't surprise anybody that I've something to say about the case, given that.)

I'm going to collapse the facts description a bit. The description is substantively accurate. The contribution claimant DWB (HSBC's lawyers) was alleged to have injured HSBC by missing a limitation period in respect of a claim that HSBC had on an insurance policy. Whether it missed the limitation period depended on the results of an action between HSBC and the insurer. So, HSBC and DWB agreed, within Ontario's 6 year limitation period applicable to an action by HSBC against DWB, to "extend" the limitation period for a period of 1 year from the time of the ultimate decision in the action between HSBC and the insurer. HSBC's action was dismissed against the insurer on the grounds that it was commenced too late, after the expiration of the policy limitation period. HSBC then commenced an action against DWB more than 6 years after the date of DBW's alleged breach, but within one year of the judgment dismissing HSBC's action against the insurer. (I can't recall, as I type this, whether the final judgment in underlying action was more than 6 years after the event - I just checked, it was - about 8 years - but that's an irrelevant curiosity.) DWB commenced third party proceedings against KPMG, claiming contribution, alleging that the conduct of KPMG was also a cause of HSBC's loss. We'll ignore the underlying question of whether the conduct of both DBW and KPMG caused the "same loss" to HSBC, since the courts did, too. I'm not saying the courts said that wasn't an issue - just that there's no indication the judges saw the issue.

KPMG moved to dismiss the third party claim. It succeeded. At first instance, the motion judge dismissed the third party claim on abuse of process grounds. Essentially, he said that DWB had voluntarily agreed to expose itself to liability that it did not have to expose itself too, and so it would be an abuse of process to allow this voluntary assumption of a risk of liability to found the basis of a contribution claim. He ignored - not ignored in the sense that he dealt with it, but in the sense that there's no indication one way or the other whether the issue was considered - the reality that HSBC and DWB made the agreement within the 6 year limitation period. Had DWB not agreed, HSBC could (and probably would have) commenced the action against DWB and obtained an order (on consent) staying the action until the determination of the underlying action against the insurer.

The Ontario Court of Appeal affirmed the dismissal on different grounds. I don't suggest that any of you read the reasons, unless you've a mind for Alice in Wonderland analyses. In substance, what the court seems to have said (or thought, without actually saying this) is that it is a substantive precondition to contribution rights arising, under Ontario law, in tort that the limitation period applicable to the injured person's cause of action against contribution defendant not have expired at the time the contribution action is commenced. Putting this more simply, the Ontario CA seems to have assumed that it is a substantive prerequisite for contribution that the contribution defendant be, at the time the contribution action is commenced, a person who, if sued by the injured person at that moment, would have subsequently have been held liable. As I put it elsewhere, the Ont CA held, in effect, that the contribution defendant's potential liability to the injured person must not only exist as of the time of the wrong, but as of the time of the commencement of the contribution action.

Now, why do I say that the analysis has an Alice quality? Because the Ont CA didn't actually explain itself the way I've described what the decision has to mean to have logical validity. It found in the provision in the Ontario contribution statute (the Negligence Act) which is intended to preserve the right to contribution claims against loss due to the expiration of the contribution action limitation period - the contribution claimant is given a minimum of one year from the time of settlement or judgment - a rationale for asserting that the DWB claim had to fail since, according to the court, the facts of the DWB situation didn't fall within that section. It was, somehow, missed that the contribution action limitation period not only had never expired but it had never even begun to run - since DWB had not yet been held liable to HSB, nor had it settled. As the late comedian Gilda Radner would have said in the guise of one of her SNL characters "oh, well ... never mind".

Best,

David Cheifetz

-----Original Message-----
From: Neil Foster
Sent: June 16, 2006 6:01 AM
Subject: Re: ODG: Do duties of care ever die?

...

Of course all this becomes reasonably "academic" in the bad sense of that word because there are indeed limitation statutes. Which I will use as a segue to say that anyone interested in reading some interesting cases on the different glitches that can arise under such statutes might like to read the House of Lords decision in Horton v Sadler [2006] UKHL 27 or the High Court of Australia decision in Batistatos v Roads and Traffic Authority of New South Wales; Batistatos v Newcastle City Council [2006] HCA 27, both handed down on 14 June 2006, both dealing with limitations issues, and both numbered "27" (spooky!). The majority of the High Court in Batistatos holds that a plaintiff who has commenced an action within a limitation period (deemed to be extended due to his mental disability) may still find his action struck out (in circumstances where he is guilty of no delay or other fault) on the ground that it is an "abuse of process" because the events occurred so long ago.

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