Sohal v. Lezama: The Absolute Prohibition to Commencing Third Party Claims in British Columbia

By Administrator // In Articles // 2022.02.24 // Read More

Author: Silvia Purcarin, Associate

On January 29, 2021, the Court of Appeal for British Columbia decided that third party proceedings may not be brought after the expiry of the two-year limitation period under the Limitation Act, SBC 2012, c. 13 (the “New Limitation Act”). This decision has broad implications for multi-party proceedings in B.C.

Limitation Periods under the New Limitation Act in BC

There are currently two types of limitation periods in British Columbia, a “basic limitation period” and an “ultimate limitation period” – the old Limitation Act used the term “limitation period” interchangeably  to refer to both. The New Limitation Act introduced a definition for the “basic limitation period” as two years after the day on which the claim is “discovered” (as opposed to when the right to sue accrued at law, under the former Limitation Act). This basic limitation period is applicable to all claims, unless otherwise specified under the New Limitation Act (i.e. claims that enforce monetary judgments) or unless the claim is subject to a limitation period prescribed by another statute.

Under section 8 of the New Limitation Act, a claim is “discovered” when a person knows or ought to have known that he/she has a cause of action.

Section 16 of the New Limitation Act sets out the discoverability rules applicable to claims for contribution or indemnity (i.e. for commencing third party proceedings). Specifically, it provides that a claim for contribution or indemnity cannot be brought against a third party more than two years from either the time when the original claim was served, or, if it is later, two years from the date the claimant knew or reasonably ought to have known that such a claim for contribution or indemnity could be made. [1]

For present purposes, it is important to note that section 22(1) of the New Limitation Act gives the courts discretion to allow a person to commence a “related claim” even when the limitation period for such a claim has expired, as long as the “original claim” was commenced within its applicable limitation period. However, section 22(2) prohibits claims for contribution or indemnity after the expiry of the limitation period applicable to such claims.

The limitation period for commencing a claim for contribution or indemnity under the Negligence Act expires two years following discovery of the negligence claim (i.e. on the later of service of the Notice of Civil Claim or on the first day the plaintiff know or reasonably ought to have known that such a claim for contribution or indemnity could be made). In Sohal, the court considered whether section 22(2) of the New Limitation Act gives any discretion to the court to allow third party claims for contribution under the Negligence Act when the limitation period for such claims had expired.

Overview of Facts

The action in Sohal arose out of a motor vehicle accident that took place on October 27, 2012. The defendant Lezama struck the plaintiff Sohal with his vehicle. Lezama’s vehicle was owned by a rental car company, Enterprise Rent-A-Car (“Enterprise”), and had been rented by Lezama’s employer (the “Employer”) for Lezama to use.

Chronology of Events & Procedural History

A chronology of events is essential to understanding the arguments advanced by the parties in this case:

1. October 27, 2012: the Accident occurred
2. June 1, 2013: the New Limitation Act came into force
3. October 27, 2014: the plaintiff brought an action for personal injury against Lezama, Enterprise and John Doe (who was later on identified as the Employer) via Notice of Civil Claim (“NOCC”);
4. July 27, 2015: the plaintiff filed an Amended NOCC to correct Lezama’s name;
5. Aug 1, 2015: the Amended NOCC was served on Enterprise;
6. Sept 1, 2015: counsel representing both Lezama and Enterprise wrote to counsel for the plaintiff identifying the John Doe defendant as the Employer;
7. Sept 15, 2015: Amended NOCC was served on Lezama;
8. April 14, 2016: Response to Civil Claim filed by Lezama and Enterprise (subsequently, different counsel were appointed to represent each defendant);
9. Feb 23, 2018: Lezama filed an application seeking leave of the court to add the Employer as a third party;
10. March 28, 2018: the Employer filed an Application Response opposing Lezama’s application on the basis that section 22(2) of the New Limitation Act was a complete defence to both the claim itself and the application to add the two companies as third parties (section 22(2) prohibits the commencement of third party proceedings after the expiry of a limitation period applicable to that claim);
11. May 7, 2018: Enterprise filed a separate application to add the Employer as a third party; and
12. May 8, 2018: the Employer filed an Application Response opposing Enterprise’s application on the same grounds as above.

Judicial History

Chambers Hearing

On May 30, 2018, both applications were heard in chambers and the Master granted the leave sought by both defendants to file third party claims against the Employer based on claims of vicarious liability and negligence. The Master ruled that the two-year limitation period applicable to the defendant Lezama’s claim for contribution and indemnity had not expired (because his application was filed in February 2018). However, the Master found that the limitation period applicable to the defendant Enterprise’s claim for contribution and indemnity had expired (as their application was filed in May 2018, 2 years and one month after the date of filing of the Response to Civil Claim), but exercised her discretion under Rule 3-5 of the Supreme Court Civil Rules, to permit the claim to be brought notwithstanding expiry of that limitation period, thereby dismissing the defendant’s argument that s. 22(2) of the New Limitation Act prohibited the third party proceedings.

Supreme Court Decision

The Employer appealed the Master’s decision arguing that the third party proceeding was a transitional claim (under section 30 of the New Limitation Act) and the New Limitation Act applied, thereby barring the defendants’ claims to add it as a third party to the lawsuit. The defendants argued that the old Limitation Act applied and their third party claims were not time barred because the words “court proceeding” in section 22(2) is limited to originating proceedings for contribution (i.e. new/separate actions in respect of a contribution claim), excluding third party proceedings.

Mr. Justice Kent disagreed with the defendants’ reasoning and highlighted that, pursuant to Rule 1-1 of the Supreme Court Civil Rules, a Third Party Notice is a form of “originating process”; accordingly, the Third Party Notice” originates the contribution claim. It follows, then, that the contribution claim is a
“pre-existing claim” within the meaning of section 30(1) as it is based on an act or omission that took place before June 1, 2013 and no court proceeding was commenced before that date.

On October 8, 2019, Mr. Justice Kent reversed the decision of the Master and ordered that the Third Party Notices be struck out on the basis that the proposed third party claims were subject to a two-year limitation period under the New Limitation Act, and accordingly were time-barred (section 6(1) of the New Limitation Act stipulates that the proposed claims for contribution or indemnity “must not be commenced”).

The following points from Mr. Justice Kent’s analysis are noteworthy:

1. Under the New Limitation Act, the starting date for a limitation period is the date on which the claim is “discovered” and not when the right to sue on a cause of action accrues at law, as it was the case under the old Limitation Act.
2. Pursuant to s. 6(1) and 16 of the New Limitation Act, the limitation period for commencing a court proceeding in respect of a claim for contribution or indemnity under the Negligence Act is two years following “discovery” of that claim. Such “discovery” occurs on the later of the service of the underlying lawsuit or the first day the claimant knew or reasonably ought to have known that such a contribution claim could be made (in this case, the discovery date was August 2015 when the Amended Notice of Civil Claim was served on Enterprise).
3. Third Party Notices commence a court proceeding in relation to a claim for contribution or indemnity within the meaning of s. 22(2) of the New Limitation Act. Such proceedings will constitute a “pre-existing claim” within the meaning of s. 30(1) of the Act if they can be said to be based on an act or omission that took place before June 1, 2013 when the new Act came into force.
4. Rule 3-5(4) of the Supreme Court Civil Rules is a procedural rule, subordinate to the provisions of the New Limitation Act. The Act creates a limitation period for the enforcement of claims for contribution or indemnity, the expiry of which creates a substantive legal defence to the claim. That defence cannot be extinguished by a procedural rule. Therefore, the discretion granted to the court by Rule 3-5(4) does not permit the court to extinguish a proposed third party’s substantive legal defence to a contribution claim based on an expired limitation period.
5. On an application to add a third party, the court should adopt the following approach:
6. if it is clear the limitation period has expired, the application under Rule 3-5(4) to issue a Third Party Notice beyond the 42-day time limit must be dismissed;
7. if it is clear the limitation period has not expired, the court may exercise its discretion under Rule 3-5(4) taking into to account the well-established factors for the exercise of that discretion; and
8. if the parties disagree as to whether the limitation period has expired, and the court is unable to determine this issue on the leave application, the court should consider the factors for the exercise of its discretion under Rule 3-5(4), and if it is otherwise inclined to grant leave, direct that the merits of the limitation defence be decided in the third party proceedings on a more fulsome evidentiary platform.

Court of Appeal

Lezama and Enterprise appealed the decision of Mr. Justice Kent on the basis that the judge erred in his interpretation of sections 22(2) and  30 of the New Limitation Act. Specifically, the defendants/appellants argued that the applicable limitation period for their third party claim had not expired and the old Limitation Act should apply for the following reasons:

1. the term “court proceeding” used in sections 6, 22 and 30 of the New Limitation Act refers only to an originating proceeding, and not to claims brought by third party notices;
2. the words “if a pre-existing claim was discovered before the effective date” in subsections 30(3) and (4) refer to the discovery of the underlying tort claim, and not to the discovery of the third party claim for contribution;
3. since the tort claim was discovered before June 1, 2013, the old Limitation Act applies; and
4. even if the New Limitation Act applies, section 22(1) preserves their ability to bring third party proceedings.

With respect to the section 30 issue, the Employer pointed out that the defendants’ reasoning leads to the conclusion that “a third party claim for contribution in an ongoing action can never meet the definition of a ‘pre-existing’ claim in section 30(1)”. The Court of Appeal agreed.

The “act or omission” upon which the third party claim is based is different from the “act or omission” upon which the underlying tort action is based. Thus, the underlying motor vehicle claim was a “pre-existing claim” (i.e. MVA took place in October 2012 and proceedings were initiated in October 2014), but the third party claim for contribution does not satisfy the first part of the definition in section 30(1) – it is not a claim based on an act or omission that took place before the effective date” since the cause of action for a contribution claim only arises after a defendant has been found liable. As the Court put it at para 78, “the basis of a claim for contribution is a statutory right to restitution that flows from findings of liability, not from the commission of a tort. The connection to the underlying claim is not to the act or omission that gives rise to the tort claim.  Rather, the connection arises from the bare fact of the tort action itself, because it seeks to impose liability”.

Therefore, the notion of a “pre-existing claim” under section 30(1) does not include claims for contribution in ongoing lawsuits. Accordingly, the defendants’ third party claims are governed by the New Limitation Act.

Lastly, the Court held that section 22(1) prevents the defendants from initiating third party proceedings given that the limitation period to do so had expired, because section 22(2) prevents such proceedings after the expiry of the limitation period in accordance with sections 6(1) and 16 of the New Limitation Act. The appeal was dismissed.

Conclusion

Pursuant to Rule 3-5(4) of the Supreme Court Civil Rules, a party of record who is not a plaintiff in an action may commence third party proceedings for contribution against any person by filing a Third Party Notice with the court registry. The Third Party Notice may be filed without leave of the court, if it is filed within 42 days of being served with a Notice of Civil Claim or Counterclaim; if the Third Party Notice is filed outside the 42-day deadline, then the Third Party Notice may be filed at any time with leave of the court.

The New Limitation Act altered limitation periods applicable to claims in British Columbia in several ways. First, it expressly addresses claims for contribution or indemnity; second, it establishes that the running of time commences from the date when a claim is discovered; and third, it provides that a two-year limitation period applies to contribution or indemnity claims under the Negligence Act. In Sohal v. Lezama, the Court of Appeal confirmed that section 22(2) of the New Limitation Act bars a claim for contribution or indemnity after the limitation period for such claim has expired.

While the former Limitation Act allowed the court to consider delay and prejudice in determining whether to strike a third party notice for contribution or indemnity, the New Limitation Act puts pressure on defendants to identify potential third party claims early on so that third party proceedings can be brought in a timely manner.

Key Take-Away

Defence counsel and claims examiners alike ought to be aware that the courts have no discretion to grant leave to parties who wish to file third claims for contribution or indemnity once the limitation period applicable to such claims has expired.

[1] In Grant Thornton LLP v. New Brunswick, 2021 SCC 31, the Supreme Court of Canada has narrowed the scope of discoverability for the purposes of calculating limitation dates and held that a plaintiff will have “discovered” a claim when he/she has knowledge of the material facts upon which a plausible interference of liability on the defendant’s part can be drawn. Although this case dealt with the New Brunswick’s Limitation of Actions Act, its ratio extends to the rest of the provincial limitation statutes.