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Limitations - Rolling

. Karkhanechi v. Connor, Clark & Lunn Financial Group Ltd.

In Karkhanechi v. Connor, Clark & Lunn Financial Group Ltd. (Ont CA, 2022) the Court of Appeal considered the useful issue of 'rolling limitation periods':
A. Did the motion judge err by failing to apply a rolling limitation period?

[20] The appellants argue that the motion judge erred by failing to apply a rolling limitation period that would enable them to sue for: (1) the deficient payments made in the two years prior to the launch of their action on December 10, 2019, and (2) the assessed value of Equestrian’s interest in CCL IP. I do not agree. In my view, the motion judge was correct in concluding that a single breach with continuing consequences occurred on March 27, 2017, when the respondents unequivocally rejected the appellants’ claim to a permanent 3% interest in CCL IP, thereby making a rolling limitation period inapplicable.

[21] The term “rolling limitation period” is used where a new limitation period arises with each breach of an ongoing or recurring contractual obligation. It is important to recognize, however, that not all breaches that lead to the failure to make ongoing or recurring payments provided for in a contract will give rise to rolling limitation periods. As Hourigan J.A. observed in Marvelous Mario’s Inc. v. St. Paul Fire and Marine Insurance Co., 2019 ONCA 635, 147 O.R. (3d) 186, at para. 35, “The jurisprudence suggests that a rolling limitation period may apply in a breach-of-contract case in circumstances where the defendant has a recurring contractual obligation” (emphasis added). This caveat applies, of course, to contracts that contemplate a recurring contractual obligation to make periodic payments. As the majority put it in Pedersen v. Soyka, 2014 ABCA 179, 373 D.L.R. (4th) 372, at para. 17: “Every time that there is a contract which calls for periodic payments, does the limitation period always start running afresh when each payment falls due? The answer is, ‘No, not always.’”

[22] The appellants argue that whether a rolling limitation period applies to a contract that provides for ongoing obligations depends on which of the “three categories” described in Pickering Square Inc. v. Trillium College Inc., 2016 ONCA 179, 395 D.L.R. (4th) 679, at paras. 23-25 that the case falls into, namely: (1) a single “once-and-for-all” breach of contract with continuing consequences; (2) a failure to perform an obligation scheduled to be performed periodically; or (3) a breach of a continuing obligation under a contract. The appellants argue that unless a case falls into category 1, a rolling limitation period applies. As I understood their argument, the appellants submit that the motion judge erred by failing to find this to be a category 2 case, and by finding that no rolling limitation period applied without finding that this is a category 1 case. I will make several observations in order of ascending importance.

[23] First, I do not read Pickering Square as holding that rolling limitation periods apply in all cases that can be placed into category 2. After describing this category, Huscroft J.A. said, at para. 24: “A failure to perform any such obligation ordinarily gives rise to a breach and a claim from the date of each individual breach” (emphasis added).

[24] Second, although the motion judge did not say so expressly, it seems plain from reading his decision as a whole that he did see this as a category 1 case. After describing the three Pickering Square categories, he concluded that “the material facts upon which the [appellants’] claims are founded do not arise on a continuous or periodic basis”, or in other words, that this is not a category 2 or category 3 case. The implication, of course, is that in the motion judge’s view this is a category 1 case.

[25] Third, although I recognize that the three Pickering Square categories provide an illustrative heuristic that assists in understanding the application of rolling limitation periods, I do not understand Huscroft J.A. to have been proposing that the three categories he identified operate as the test for identifying when a rolling limitation period will apply. In Marvelous Mario’s, at para. 34, Hourigan J.A. therefore returned to “first principles” to determine when a court should recognize a rolling limitation period.

[26] Those first principles begin with the guidance that Huscroft J.A. provided in Pickering Square, immediately before he introduced the three categories: “In order to determine the discovery date for the claim, the nature of the breach must first be determined”: at para. 22. The need to characterize the nature of the breach is the obvious place to begin since it is not possible to determine whether a plaintiff has discovered a breach until the relevant breach is identified.

[27] What is it about the nature of the breach that would attract a rolling limitation period? Hourigan J.A. gave assistance in Marvelous Mario’s, at para. 35: “The question is not whether the plaintiff is continuing to suffer a loss or damage, but whether the defendant has engaged in another breach of contract beyond the original breach by failing to comply with an ongoing obligation” (emphasis added). The material distinction is therefore between those cases where, in substance, the cause of action alleges a breach that gives rise to continuing loss or damage, and those cases where, in substance, more than one breach is being alleged leading to separate damage claims. 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”: Pickering Square, at paras. 37-38. Put simply, without a “new breach”, there is no justifiable basis for applying a rolling limitation period.

[28] Other first principles also inform this analysis. Since the Limitations Act, 2002, focuses on discoverability, discoverability considerations assist in determining whether rolling limitation periods apply. In Marvelous Mario’s, at para. 36, Hourigan J.A. cited with approval a passage from Richards v. Sun Life Assurance Company of Canada, 2016 ONSC 5492, [2016] I.L. 1-5911, at para. 26, where Bale J. helpfully explained that where a loss has occurred and the material facts of the breach ought to be known to the plaintiff, it would be unfair to require a defendant to litigate those facts for a potentially unlimited time, but where the material facts are arising on a periodic basis, “it will not be unfair to require a defendant to litigate those facts during the applicable limitation period following the date upon which an individual payment became due.”

[29] In this context, it is important to remember that “a cause of action accrues once damage has been incurred, even if the nature or the extent of the damages is not known”: Pickering Square, at para. 33. That being borne in mind, once the plaintiff has sustained a loss from a breach of contract, and the plaintiff knew or had the means of knowing that there would be ongoing damage arising from that breach, there is no basis for applying rolling limitation periods relating to that ongoing damage. This is in keeping with the aim of limitation periods to “balance the right of claimants to sue with the right of defendants to have some certainty and finality in managing their affairs”: York Condominium Corp. No. 382 v. Jay-M Holdings Ltd. et al, 2007 ONCA 49, 84 O.R. (3d) 414, at para. 2.

[30] As I read his decision, these are the first principles that Hourigan J.A. applied in Marvelous Mario’s. He also derived assistance, at para. 36, from further comments made by Bale J. in Richards, at para. 26:
A rolling limitation period may apply to claims for periodic payments, in cases where the issue is whether certain payments to which the plaintiff is entitled have been made (e.g. payments of rent), as opposed to cases where the issue is whether the plaintiff was entitled to the periodic payments in the first place [the “Richards distinction”].
[31] I am not persuaded by the appellants’ able submissions that we should reject the Richards distinction. Not only has the Richards distinction already been approved of by this court, but in my view, it provides a useful measure of whether, in substance, a cause of action alleges a breach that gives rise to continuing loss or damage, or more than one alleged breach, each of which leads to separate damage claims. I appreciate that there are decisions not binding on this court that are not easily explained based on the Richards distinction, but in my view the distinction provides a helpful analytical tool.

[32] Nor do I accept the appellants’ suggestion that the law I have just described is inconsistent with common law principles relating to anticipatory breach of contract. An anticipatory breach occurs when a party repudiates a contractual obligation before it falls due: Fram Elgin Mills 90 Inc. v. Romandale Farms Limited, 2021 ONCA 201, 32 R.P.R. (6th) 1, at para. 258. Where this occurs, the innocent party need not sue immediately, but can wait before suing until the promised performance fails to materialize: Elgin Mills, at paras. 259-260. In contrast, the principles I have described apply after a breach has occurred, where a party has already sustained a loss from that breach, and that party has or ought to have the material knowledge required to commence an action that will encompass the loss or damage that will arise from that breach. In my view, the law of anticipatory breach was never intended to arm plaintiffs with the option of purportedly rejecting a breach of contract that has already occurred in the expectation that this will extend limitation periods to allow for delayed lawsuits relating to identifiable damages that arise from the breach but have yet to materialize.

[33] Finally, the appellants argue that the principles I have described cannot be correct because the Limitations Act, 2002, speaks of actions to remedy losses that have “occurred”, whereas the approach I describe enables claims for future losses that have not yet occurred to be statute barred. I reject this argument. A limitation period will begin to run when a cause of action arises, even if all of the damages arising from that cause of action have yet to materialize: Hamilton (City) v. Metcalfe & Mansfield Capital Corporation, 2012 ONCA 156, 347 D.L.R. (4th) 657, at paras. 64-65. Accordingly, in Bonilla v. Preszler, 2016 ONCA 759, 134 O.R. (3d) 478, a case involving a claim relating to damages for a denial of income replacement insurance benefits, this court rejected the submission that limitation periods cannot apply to future benefits: at paras. 8-12. Indeed, the appellants’ position is undermined by their own attempt to recover in this action the assessed value of Equestrian’s interest in CCL IP based on the future quarterly payments the appellants claim that it should yield. Essentially, their position is that although they can sue now for future loss, that aspect of their action is not yet subject to a limitation period.

[34] In my view, the motion judge made no error in finding that rolling limitation periods do not apply in this case. He properly approached the issue as a question of substance. He found, as he was entitled to and with good reason, that at its core, the claim that was being made was that the respondents breached the Partnership Agreement by failing to recognize Equestrian’s entitlement to a permanent 3% interest in the CCL IP, a single decision that would cause ongoing loss to the appellants. He likened the case not to the circumstances of Pickering Square, where a new breach arose with each day that the occupancy covenant was dishonoured, but to Marvelous Mario’s, where the ongoing damage arose from the denial of business loss coverage, and to Beccarea v. Canadian National Railway Company, 2018 ONSC 630, 140 O.R. (3d) 389, where ongoing damage relating to the claimed right to periodic payments arose from the defendant’s denial of the plaintiff’s entitlement to survivor’s benefits. Put in the terms expressed in Richards, the issue arising from the alleged breach in this case was whether Equestrian was entitled to a permanent 3% interest in the CCL IP, making this a category 1 case under the Pickering Square rubric. Moreover, by March 27, 2017, the appellants had all of the material facts required to initiate an action relating to the ongoing damage that would arise from the respondents’ denial that they owed Equestrian the obligation that the appellants were claiming. As I say, I can find no basis for interfering.


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