In Ontario, the basic limitation period for commencing litigation is two years after the claim is “discovered” under the Limitations Act, 2002. Discovery can occur in a few different instances. In some cases, it is the day the person with the claim first knew that the event causing or contributing to their claim occurred, who carried out the impugned action, and that a proceeding in court would be the appropriate remedy. Alternatively, discovery occurs when a person reasonably first ought to have known that a claim existed and that a proceeding would be the appropriate means to remedy it.
But what happens when the person who causes the claim to arise repeats that action on an ongoing basis? It may be possible that such a claim is subject to a “rolling limitation period”. In a recent partnership dispute, the Ontario Court of Appeal reviewed the concept of rolling limitation periods and when they apply.
What is a rolling limitation period?
A rolling limitation period is used when an ongoing contractual obligation is breached on a recurring basis. With each breach, a new limitation period begins. However, it is not always applied to claims that involve an ongoing contractual obligation. Specifically, rolling limitation periods do not usually apply to disputes involving contracts with recurring payments.
Retiree claims rolling limitation period applies to agreement with former employer
In the recent case of Karkhanechi v. Connor, Clark & Lunn Financial Group Ltd., the appellant entered into a Partnership Agreement with his employer. The Agreement provided the appellant with an equity interest in the business. His compensation package involved a post-retirement scheme, which included periodic payments to the appellant for nine years following his retirement on a declining basis. In the ninth year, his share of equity in his employer would be zero. The Partnership Agreement also allowed the appellant to transfer the beneficial interest of this arrangement to a company. The appellant chose to exercise this option in 2016.
The appellant understood this agreement to mean that the clause regarding the reduction of his equity interest was obsolete. The employer, by contrast, maintained that the clause was still in effect, unperturbed by the transfer of beneficial interest to the appellant’s company. Despite bringing the disagreement up in March 2017 after receiving his first post-retirement compensation statement that had been reduced, the appellant did not take action to commence proceedings until more than two years later, in December 2019.
The motion judge did not apply a rolling limitation period
The motion judge decided that the basic limitation period applied in this instance instead of a rolling limitation period, finding that the claim had been discoverable in March 2017. Explaining his reasons, the motion judge concluded:
- The appellant knew that injury, loss or damage from the employer’s refusal to recognize the 3% permanent interest in the partnership had occurred;
- The appellant knew the injury, loss or damage was caused by the employer’s actors or omissions by refusing to recognize the appellant’s claimed interest, enforcing the retirement provisions of the Partnership Agreement, and paying the appellant (through his personal investment corporation) less than it was entitled to receive under the Partnership Agreement if its claimed interest was recognized; and
- The appellant knew that, having regard to the nature of the injury, loss, or damage, a proceeding would be an appropriate means to remedy it.
Rolling limitation periods are used for numerous breaches leading to separate claims
The Court of Appeal agreed with the motion judge’s decision not to apply a rolling limitation period. In agreeing with the decision, the Court elaborated on the distinction between those claims that attract a rolling limitation period and those that do not.
According to the Court, the key distinction is whether there are multiple, separate damage claims arising from the breach or continued loss or damage. In the latter situation, the basic limitation period still applies. The Court explained:
This distinction matters because entitlement to rolling limitation periods is premised on the notion that with each new breach a “fresh cause of action” arises that “sets the clock running for a new two-year limitation period” …. Put simply, without a “new breach”, there is no justifiable basis for applying a rolling limitation period.
Discoverability helps determine whether rolling limitations apply
If the distinction between basic and rolling limitation periods for ongoing contractual breaches is unclear, the Court suggested looking to discovery for further guidance.
Once a claim is discovered, it is not necessarily possible to fully appreciate the damages that may stem from it. If each breach that contributes to the ultimate financial loss is considered the start of a new cause of action, it would require the defendant to litigate the facts for each date payment is due. This brushes up against the principle that balances the plaintiff’s right to relief with the defendant’s right to have certainty and finality in their affairs.
The Court explained that rolling limitation periods would apply when certain payments are missed by a defendant, not when the defendant repeatedly misses periodic payments. Therefore, the appeal pertaining to the rolling limitation periods was dismissed.
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