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When is a cross-claim discoverable?

In Mega International Commercial Bank (Canada) v. Yung, the Court of Appeal for Ontario has recently clarified the operation of certain provisions of the Ontario Limitations Act, 2002. As background, the general scheme of the Act is as follows: subject to a few exceptions, there is a "basic limitation period" of two years commencing on the date a claim is discovered. Section 5(1) of theActdefines when a claim is discovered, and section 5(2) of the Act creates a rebuttable presumption to assist in applying the discoverability principles (see para. 55).

  • In Mega International, the appellants, Mr. Yung and Ms. Lai, sought to overturn a summary judgment against them based upon a limitations defence advanced by the respondents, Mr. Sun and Sun & Partners, before the motions judge. The appellants had made third party claims for contribution and indemnity from their lawyer, Mr. Sun, and his law firm, after being served with a claim by Mega International Bank under personal guarantees (from which, they had argued, Mr. Sun should have previously obtained releases). The respondents successfully argued before the motions judge that the third party claims were statute-barred.

    Section 18 of the Act deals how to treat the discoverability rule and the presumption set out in section 5(2) in the context of contribution and indemnity claims. In issuing the summary judgment, the motions judge concluded that s. 18 of the Limitations Act established an "absolute two-year limitation period" from the date of service of the initial claim against the "first wrongdoer" rather than incorporating the generally applicable discoverability principles of the Act.

    The Court of Appeal disagreed with the motions judge and allowed the appeal. It found that, based on a reading of the Act, and also taking into consideration the purpose of the Act, section 18 of the Act incorporates the discoverability principles. Moreover, the test for the discoverability principles, as they relate to section 18, are no different from the general scheme; in this regard, the Court of Appeal found that motions judge erred in relying upon fraudulent concealment findings to ground his conclusions regarding discoverability.

    As highlighted in the reasons of Paciocco J.A., prior decisions of the Ontario Superior Court of Justice were split on the proper interpretation of section 18 (para. 57). The judgment in Mega International therefore provides clarity and consistency. It confirms that section 18 operates in the same manner as the general scheme, based on the discoverability principle, to balance the right of would-be plaintiffs to sue and the need of would-be defendants for certainty and finality. Moreover, it confirms that there is a rebuttable presumption that the time-bar for a third party contribution and indemnity claim runs from the date of service of the claim on the "first wrongdoer" (i.e. the wrongdoer claiming contribution and indemnity).

    Parties in Ontario must always remain vigilant regarding their rights, particularly under a statutory regime that imposes a two-year limitation period. However, even in respect of contributions and indemnities, the salient issue remains discoverability, rather than a bright line time bar. This approach may provide less absolute certainty around limitations in Ontario, but provides protection against the possibility of barring diligent plaintiffs from pursuing meritorious claims.