It is often the case in construction disputes that the defendant will make claims for contribution and indemnity against a third party. Although often pursued together, the concepts of “contribution” and “indemnity” are not one and the same. A contribution claim seeks shared liability between a defendant and a third party for a plaintiff’s injury. For example, should a plaintiff property owner sue a defendant contractor for breach of contract because of an undue delay in the plaintiff’s development project, the defendant contractor may make contribution claims against subcontractors who contributed to the delay. Indemnity, on the other hand, seeks full recovery from a third party. Returning to the above example, should a subcontractor’s negligence be the sole cause of the undue delay, the defendant contractor may seek indemnification from the subcontractor, considering it would be inequitable for the defendant contractor to be “on the hook” for an injury caused by no fault of its own. In other words, the difference is the extent of the recovery. Indemnity is the recovery of all that was paid, contribution is recovery of only some portion of what was paid (Canaccord Capital Corp. v. Roscoe, 2013 ONCA 378).
Claims for both contribution and indemnity are routinely brought together as a means of risk and damages mitigation by defense counsel for their clients. Indeed, contribution and indemnity claims are treated together under section 18 of Ontario’s Limitations Act, 2002. Subsection 18(1) provides:
For the purposes of subsection 5(2) and section 15, in the case of a claim by one alleged wrongdoer against another for contribution and indemnity, the day on which the first alleged wrongdoer was served with the claim in respect of which contribution and indemnity is sought shall be deemed to be the day the act or omission on which that alleged wrongdoer’s claim is based took place.
Until recently, decisions in the Ontario Superior Court of Justice were split over the interpretation of this provision. Specifically, it was unclear whether the provision provides for an absolute or a presumptive limitation period of two years from the day the plaintiff serves the defendant bringing a third party claim. An absolute limitation period would bar any claim brought more than two years after this date, without exception. A presumptive limitation period would bar any claim brought more than two years after this date, subject to the principle of discoverability. The issue was addressed in an Ontario Court of Appeal decision Mega International Commercial Bank (Canada) v. Yung, 2018 ONCA 429, released on May 7, 2018. Although not a construction case, it is highly relevant to the construction industry due to the prevalence of third and even fourth party claims in construction disputes. With both projects and disputes often measured in spans of years, the limitations risks of claims for contribution and indemnity seems particularly acute in respect of construction project claims.
In Mega International, Justice Paciocco interpreted the provision using the purposive approach of statutory interpretation. The purposive approach establishes that:
…there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. Rizzo & Rizzo Shoes Ltd (re), [1998] 1 SCR 27 at para 87.
With this as a guiding principle, Justice Paciocco first turned to the opening line of section 18, which states “[f]or the purposes of subsection 5(2) and section 15” of the Limitations Act, 2002. Subsection 5(2) establishes a rebuttable presumption to the effect that the limitation clock begins to run against the plaintiff on the date of the alleged injury unless the they neither knew nor ought to have known of their injury on this date. Section 15 establishes an absolute limitation period of 15 years in Ontario from the date of any wrongdoing.
In regards to subsection 5(2), Justice Paciocco found that section 18 provides the “variable” used in subsection 5(2) to trigger a presumptive limitation period for contribution and indemnity claims. That said, subsection 5(2) provides that the limitation clock begins to run against the plaintiff on the date of the alleged injury, subject to the principle of discoverability. Section 18 provides that the date of the alleged injury for contribution and indemnity claims is the date the “first alleged wrongdoer was served with the claim in respect of which contribution and indemnity is sought”.
In regards to section 15, Justice Paciocco relied on the Supreme Court of Canada decision British Columbia Human Rights Tribunal v. Schrenk, 2017 SCC 62, which stands for the proposition that one can presume that a legislature avoids using “superfluous or meaningless” words in a statute. Justice Paciocco found that the reference in section 18 to section 15 would be superfluous and meaningless if section 18 provided for an absolute two year limitation period, reasoning that any invocation of the absolute limitation in section 15 would not make sense if section 18 established its own absolute limitation period ending thirteen years earlier.
Accordingly, section 18 provides for a presumptive, not an absolute limitation period. The Court found that this interpretation aligned with the goals of the Act, which is to strike a balance between a plaintiff’s right to sue and a defendant’s need for certainty and finality.
Mega International clarified a few other points. Firstly, the words “the day on which the first alleged wrongdoer was served with the claim”, in subsection 18(1) refer to the day the defendant who is bringing the third party claim is served by the plaintiff in the parent action. In this case, the third party suit was brought by two defendants the plaintiff had served two years apart in the parent action. The motion judge erroneously found that the limitation clock for the third party claims began to run against the second defendant when the plaintiff served the first defendant. The motion judge thus based his findings on a misinterpretation of “the first alleged wrongdoer” under subsection 18(1).
The second holding relates to the principle of discoverability and its relationship to fraudulent concealment. The defendants brought a third party claim for contribution and indemnity against their solicitor and his law firm after the solicitor allegedly failed to release the defendants from personal guarantees that formed the basis of the plaintiff’s parent action. Despite conflicting accounts, the motion judge found that both defendants knew they had a claim against the solicitor more than four years prior to bringing their third party claim. The motion judge reasoned that the plaintiff had sent letters to the defendants prior to commencing the parent action explaining the guarantees were never released.
Justice Paciocco clarified that even though the defendants might have known of the facts giving rise to their claim against the solicitor, this did not imply that they knew a claim against the solicitor was legally appropriate. The defendants made a number of allegations against the solicitor including that he assured the defendants they could not be found personally liable on the basis of the guarantees. This would by definition be considered fraudulent concealment and therefore the facts presented a genuine issue for trial. Justice Paciocco thus held that the motion judge committed an “error in principle” in granting summary judgment to the solicitor and his law firm.
The case was remanded for further proceedings in accordance with Ontario’s Rules of Civil Procedure. For construction practitioners, the counsel of prudence is to ensure that third party claims and the like which seek contribution and indemnity are served within two years of service of the statement of claim, remembering that the claim is deemed to be discovered on that date. This should always be the default advice of the careful lawyer.
However, Mega International is a helpful reminder that there are very few “absolutes” in our system of law, and in a proper case this presumption may be rebutted. This could be very useful in multi-year disputes where additional causes of action for contribution and indemnity are only uncovered during a process of discovery well after service of the original statement of claim. Counsel will at least be able to argue that the deemed discovery upon service of a statement of claim is a presumption that can be rebutted in an appropriate case. As always, each case will depend on its own facts to determine when it is appropriate to permit third party claims brought more than two years after service to proceed.
CanLii Reference:
https://www.canlii.org/en/on/onca/doc/2018/2018onca429/2018onca429.html