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When Does The Limitation Period Clock Start Ticking?

Ferrara v. Lorenzetti Wolfe Barristers & Solicitors[1]

In 2006 Ferrara clearly knew someone thought his lawyer, Stephen A. Schwartz, was negligent. Arguably Ferrara would have to sue Schwartz by 2008[2] or his action would be statute barred. The Ontario Court of Appeal concluded that the limitation period was not triggered until 2009 which meant that Ferrara had until 2011 to start the law suit[3. In making that decision there was a divergence from a group of cases that suggested that the limitation period would have been triggered in 2006[4]. But, that’s the end of the story. Let’s start at the beginning and review the implications on the issue of discoverability[5].

The facts of this case are somewhat complicated, but for the purposes of focusing on the limitation period issue let’s set out a simplified version of what took place[6]. There was a sale of property. The lawyers for the vendors inaccurately prepared a statement of adjustments.[7] Schwartz, the lawyer for the purchaser Ferrara, also reviewed the statement of adjustments and approved of it. As a result of the mistake in the statement of adjustments Ferrara[8] was credited with more money than he was entitled to receive. In September 2006, vendor, King Line Investments Inc. (“King Line”) sued both his lawyer for the negligent preparation of the statement of adjustments and sued Ferrara to get the money (excess credit) back. The courts referred to this law suit as the “deficiency action”. In 2009, the court found for the vendor, King Line[9]. In 2011, Ferrara sued his own lawyer, Schwartz for negligence. Did Ferrara start his law suit too late? Schwartz made the argument that Ferrara’s claim was statute barred, an abuse of process and should be dismissed.

Schwartz brought a motion for summary judgment. He argued that pursuant to the Limitations Act, 2002[10] the two year limitation period was triggered in 2006 when the vendor, King Line, sued Ferrara and its lawyer. Arguably, based on that law suit a reasonable person with the abilities and in the circumstances of Ferrara ought to have known that the same claim could be brought against Schwartz. Arguably, Ferrara should have known that if the vendor’s lawyer could be negligent because he approved of the statement of adjustments so too could Schwartz be negligent because he also approved of the statement of adjustments. The judge, Allen J., granted the summary judgment motion and ruled that that the fact that Ferrara did not appreciate the significance of the vendor’s law suit against its lawyer did not delay running of limitation period. Moreover, Ferrara’s discovery of the claim was not contingent on the results of the Vendor’s law suit against its lawyers and Ferrara[11]. Ferrara appealed and in a split decision[12] the Ontario Court of Appeal granted Ferrara’s appeal. Let’s see why.

The Ontario Court of Appeal’s analysis of the law is instructive. In her dissent Gloria Epstein J.A. observed that “According to the principle of discoverability, ‘a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered by the plaintiff by the exercise of reasonable diligence’.[13] Section 5 codified the common law which provides that the claim is discovered at the earlier of when subjectively the plaintiff first had actual knowledge of the material facts constituting the cause of action or where objectively a reasonable person in the claimant’s position would have been alerted to the elements of the claim.[14] She believed that the triggering event occurred when Ferrara retained litigation counsel in the deficiency action. Justices Laskin and Sharpe disagreed.

For Justices Laskin and Sharpe the real question was whether Ferrara should have discovered his claim for damages for Schwartz’s alleged negligence before July 2, 2009 which was the date of the judgment of Belobaba J.’s decision in the vendor’s action against Ferrara. To that question Justices Laskin and Sharpe answered in the negative.

There were 3 possible dates that Ferrara could have discovered the claim:

  1. September 2006 – The motion judge agreed with Schwartz who said Ferrara’s claim was discoverable on the date the statement of claim was issued in the deficiency action. Given the facts of this case, no one at the Court of Appeal agreed with this position.
  2. November 2006 – While Epstein J.A. disagreed with the motion judge, she believed that the claim was discoverable on the date Ferrara retained litigation counsel in the deficiency action.
  3. July 2009 – Ferrara argued that the claim was discoverable on the date Belobaba J. released his decision in the deficiency action. Justices Laskin and Sharpe agreed.

Some of the facts relevant to Justices Laskin and Sharpe include the following: Ferrara was a relatively unsophisticated client. Schwartz had acted for Ferrara for over 20 years and based on their history relied upon him. Both before the deficiency action began and throughout the litigation Schwartz continuously and repeatedly assured Ferrara that he, Schwartz, was right, and that Ferrara was entitled to a rollover credit[15]. In other words, that there was no error to the value Schwartz ascribed to the roll over credit. Contrary to his obligations under Rule 6.09 of the LSUC Rules of Professional Conduct, Schwartz never advised Ferrara that he may have been wrong or may have made a mistake. None of the three litigation lawyers he retained in the deficiency action recommended suing Schwartz. In the deficiency action Schwartz testified in support of his position that the minutes of settlement authorized the rollover credit in favour of his client, Ferrara.

The majority of the Court of Appeal concluded that the date Ferrara’s claim was discoverable turns on the modified objective test in s. 5(1) (b) of the Act[16]. Based on the facts reviewed above the Court of Appeal concluded that Ferrara showed that a reasonable person with his abilities and in his circumstances would not have known he had a claim against Schwartz until July 2, 2009, the date of Belobaba J.’s decision.

Two facts stood out to delay the discoverability of the claim until Justice Belobaba’s decision on July 2, 2009[17]:

  1. Schwartz’s repeated assurances that he was right; and
  2. Ferrara’s contradicted evidence that no one told him otherwise. When Ferrara was defending himself against the 2006 law suit he had experienced litigators none of which advised Ferrara to sue Schwartz[18].

All three justices of the Court of Appeal agreed with the comment of Molloy J. in Kenderry-Esprit (Receiver of) v. Burgess, MacDonald, Martin and Younger (2001), 53 O.R. (3d) 208, at para. 19: “The date upon which the plaintiff can be said to be in receipt of sufficient information to cause the limitation period to commence will depend on the circumstances of each particular case.”[19]

This decision may very well make a substantive impact on solicitor negligence cases which involve limitation period arguments. Arguably, this Court of Appeal decision opens the door to argue that a claim is not discovered when an unsophisticated litigant reasonably relies on the advice provided by his lawyers, and or the lack of advice given by his lawyers, that such a claim can be made.

 


Footnotes

[1] Ferrara v. Lorenzetti Wolfe Barristers & Solicitors 2012 CarswellOnt 957, 2012 ONSC 151, 216 A.C.W.S. (3d) 619 is a decision from a summary judgment motion brought by the defendant lawyer firm to strike out the claim on the basis that the claim was statute barred and an abuse of process. Beth Allen J. granted the motion. The Plaintiff’s appealed to the Court of appeal and in a two to one decision the OCA granted the appeal. The citation the case is Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors2012 CarswellOnt 15101, 2012 ONCA 851.

[2] Section 4 of the Limitations Act, 2002 S.O. 2002, CHAPTER 24 states “ Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.” In paragraph 32 of its decision the Ontario Court of appeal states, “According to the principle of discoverability, “a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered by the plaintiff by the exercise of reasonable diligence“: Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147 at 224. This principle is codified in s. 5 of the Act,…”.

[3] Section 5 of the Limitation Act deals with when a cause of action is discovered and the clock starts ticking. It is the earlier of the subjective discovery of the elements of the cause of action [5(1) ] or the objective discovery of the cause of the action [ 5(2) ].

[4] For a review of those cases please see the Ontario Court of Appeal discussion of them at paragraphs 35-37 of the Ontario Court of Appeal decision and paragraph 9 of the Ontario Superior Court decision. As stated by Allen J., These cases stand for the proposition that , “the activation of the limitation period does not have to wait until the plaintiff knows the legal significance of the facts of their case but rather when the plaintiff believes a meritorious claim exists. Applied to a case of solicitor’s negligence, it is not necessary to have a final judicial determination regarding the solicitor’s error to trigger the limitation period for the claim against the solicitor. The limitation period in such a case begins to run when the plaintiff knew or ought to have known there was a problem arising from the solicitor’s actions”:

  • Kenderry – Esprit (Receiver of) v. Burgess, MacDonald, Martin & Younger (2001), 53 O.R. (3d) 208 (Ont. S.C.J.), at para. 21;
  • Indcondo Building Corp. v. Steeles-Jane Properties Inc., 2001 CarswellOnt 2904 (Ont. S.C.J.), at para. 14; and
  • Isailovic v. Vojvodic, 2011 ONSC 5854 (Ont. S.C.J.) at para. 36.
[5] According to the principle of discoverability, “a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered by the plaintiff by the exercise of reasonable diligence”:

[6] See footnote xv below which sets out a fuller version of the facts of that case.

[7] This document adds or subtracts to the purchase price. For example, the Vendor will receive credit raising the amount of money a purchaser must pay for prepaid real estate taxes. Alternatively, if real estate taxes are in arrears that were the responsibility of the Vendor then the purchase price will be reduced by the amount of the arrears.

[8] It was not Ferrara – it was his company. Ferrara owned 973976 Ontario Ltd. See a fuller description of what transpired in footnote xv.

[0] See: King Line Investments Inc. v. 973976 Ontario Ltd., [2009] O.J. No. 2747. This decision was upheld by the Court of Appeal on May 12, 2010: King Line Investments Inc. v. 973976 Ontario Ltd., 2010 ONCA 345, [2010] O.J. No. 1984. King Line’s action againsts its lawyers had been settled so Justice Beloba’s decision resulted in 973 (owned by Ferrara) reimbursing $432,926.27 to King Line.

[10] See Footnote ii.

[11] The Ontario Court of appeal, in paragraph 18 of the decision summarized the position of Allen J. as follows: “The motion judge’s analysis focused on Ferrara’s objective knowledge — when a reasonable person in his position ought to have known about a potential claim against the respondents. At para. 42, she held that “there were various points in time and occurrences before July 2009 which would cause a reasonable person to believe they had a claim against their lawyer”. In the next paragraph, she made the following important finding:

I accept the [respondents’] position that on an objective standard a reasonable person in Ferrara’s position would have been alerted to a possible claim against Schwartz with the issuance of the claim in the [Deficiency Action] on September 19, 2006. After all, the central issue in that action was the negligence of King Line’s real estate [solicitors] in preparing the statement of adjustments which was prepared with Schwartz’s involvement. Ferrara knew at that time the material facts on which their current claim against Schwartz is based. [Citation omitted].

[12] Gloria Epstein J.A., dissenting and John Laskin J.A., and Robert Sharpe J.A., agreeing to grant the appeal.

[13] Please see pparagraph 32 of the Ontario Court of Appeal decision where Gloria Epstein J.A. refers to: Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147 at 224.

[14] See paragraph 33 of Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors2012 CarswellOnt 15101, 2012 ONCA 851.

[15] As previously indicated above the facts of this case were somewhat complicated and to understand the use of this term we have to go through those facts. Originally, King Line Investments Inc. (“King Line”) owned the property in question in trust for a number of joint venture parties. Two of the joint venturers agreed to purchase 50% each of the joint venture from King Line. Those two companies eventually declined to go through with the purchase because of the Ontario government’s designation of the property as being part of the green belt. King Line sued and there was a settlement of the action against the two companies in which one of the prospective purchasers assigned its rights to purchase to the other 973976 Ontario Ltd (“973”). As part of the minutes of settlement King Line’s real estate lawyer made a calculation in the statement of adjustments and credited the purchaser 973 and that credit is referred to as the “rollover credit”. It is not used by the Court of Appeal in the same way it is used under the ITA.

[16] In coming to that conclusion the OCA concluded that Ferrara had rebutted the presumption of section 5(2) of the act which says “A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.”

[17] See paragraph 72 of Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors2012 CarswellOnt 15101, 2012 ONCA 851.

[18] See paragraph 19 of the Ontario Court of Appeal’s decision where the court describes the appellants’ argument that, prior to the release of Belobaba J.’s decision, it was not reasonable for Ferrara to have known that the appellants had a claim against the respondents. Ferrara, a relatively unsophisticated man, had been Schwartz’s client for 20 years. Schwartz was intimately involved in the entire transaction. It was reasonable, therefore, for Ferrara to trust Schwartz and rely on his repeated assurances that the legal work performed for the appellants was correct. The reasonableness of this reliance, they argued, was reinforced because, as Ferrara stated in his affidavit, none of the experienced litigation lawyers representing the appellants throughout the resolution of this dispute — Smith, Sherkin or Pape — recommended that any action be taken against Schwartz.

[19] See paragraph 71 of See paragraph 72 of Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors2012 CarswellOnt 15101, 2012 ONCA 851.

 

Charles Wagner

The author of this blog is Charles B. Wagner. Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP.

This Toronto office is a boutique litigation law firm whose practice is focused on estate and commercial litigation.

This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
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