The Ontario Court of Appeal's recent decision in Hamilton (City) v Metcalfe & Mansfield Capital Corporation(1) is essential reading for persons considering bringing a tort-based action in Ontario. In its decision, the appeals court was clear that the 'damage' required to crystallise an actionable claim flows from the alleged tort, as opposed to the actual financial losses suffered by the plaintiff as a result. Thus, as was the case in Hamilton, where a plaintiff enters into a transaction in reliance on a negligent misrepresentation and fails to receive what it expected, 'damage' is suffered at the moment that the plaintiff enters into the transaction because it is then in a worse position than before the transaction. It is at this point (and not when the amount of actual loss is understood) that the cause of action is complete. Once such 'damage' is discovered, the limitation period commences.
On July 24 2007 the City of Hamilton purchased $10 million in non-bank sponsored asset-backed commercial paper – a short-term debt instrument (the notes) – allegedly on the basis of representations made by the named defendants. The notes were set to mature on September 26 2007; however, on August 13 2007, the Canadian market for non-bank sponsored asset-backed commercial paper (including the notes) collapsed. The notes subsequently matured and the defendants defaulted on payment.
On August 23 2007, in an effort to address the market collapse, various financial institutions and investors (including the city) entered into an agreement referred to as the Montreal Accord. Under the Montreal Accord, the signatories agreed to an initial 60-day standstill period during which they would refrain from taking any actions that would hinder the restructuring proposals contained in the agreement. This standstill period was extended until January 10 2008, at which time the city abandoned the Montreal Accord.
On September 25 2009 the city commenced an action alleging in relevant part that the defendants "negligently or knowingly falsely represented to the city" certain material facts as to the assets underlying the notes that made it highly unlikely or impossible that the defendants would be able to pay the city the amount owed under the notes. The city pleaded that it would not have purchased the notes had it known their actual asset structure and claimed that, as a result of the defendants' misrepresentations, it had suffered damages.
The defendants brought a motion for summary judgment seeking to dismiss the action, which was granted by the motion judge partly on the basis that the city's claim for negligent misrepresentation was statute-barred by the two-year limitation period in the Limitations Act, 2002.(2) The city subsequently appealed the motion judge's decision.
The two-year limitation period in Ontario is set out in Section 4 of the act, which provides that "a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered". Section 5 of the act specifies that a claim is 'discovered' when the plaintiff knows or ought to know:
- that injury, loss or damage had occurred;
- that the injury, loss or damage had been caused by an act or omission;
- the identity of the person who made the act or omission; and
- that a proceeding would be the appropriate means to remedy the injury, loss or damage.
On motion, the parties disputed when the city knew or ought to have known that damage had occurred as a result of the defendants' misrepresentations. The city argued that its action was timely as 'damage' did not occur until September 26 2007, when the notes matured and the defendants were unable to pay the city. The defendants' position was that the action was statute-barred because 'damage' had occurred on July 24 2007, when the city purchased the notes. This damage was discovered by the city by no later than August 23 2007 when it signed the Montreal Accord - more than two years before it commenced the action on September 25 2009.
The motion judge sided with the defendants, holding that the limitation period commenced when the city discovered that it had not received what it believed it had purchased, which was some time before the Montreal Accord. By the time the city signed the accord, it knew that:
- it would not be able to redeem the notes on the maturity date;
- there were no buyers for the notes at that time; and
- if the Montreal Accord were successful, the notes would be converted into longer-term instruments, which it acknowledged would result in a present value loss.
Accordingly, the city was out of time when it commenced its action.
On appeal, the city made several submissions – primarily that its claim for negligent misrepresentation could not have been discovered before the notes matured because the damage element of the claim did not occur until the defendants actually failed to repay the city. In rejecting this argument, the appeals court held that the city's position was based on an erroneous characterisation of the 'damage' required for a claim in negligent misrepresentation to accrue in Ontario.
The appeals court held that for the purpose of a tort claim in Ontario, 'damage' is the condition of the plaintiff being worse off than if the defendant had not made the misrepresentation. As in this case, where a negligent misrepresentation made during negotiations is said to have induced a plaintiff to enter into a transaction, the court must compare the plaintiff's positions before and after it entered into the transaction. In this case, the city was worse off and suffered damage as soon as it entered into the transaction, as the notes were worth less than what the city had been led to believe by the defendants.
The court further noted that the city's position (that actionable damage occurred only when the notes matured) failed to appreciate the distinction between 'damage' and 'damages'. 'Damage' is the loss needed to make out a cause of action which in this case, as noted above, is the condition of being worse off as a result of the defendant's conduct. 'Damages', on the other hand, is the monetary measure of the extent of a plaintiff's loss, which need not be ascertained in order for a cause of action to accrue. While the city may not have known the monetary measure of its loss until the defendants failed to honour the notes, the city incurred loss – that is, damage – sufficient to complete its cause of action when it entered into the transaction. It discovered that damage by no later than the time that it signed the Montreal Accord, which triggered the running of the limitation period.
The court's decision in Hamilton makes it clear that a plaintiff in Ontario need not know the extent of the losses it has suffered as a result of an alleged tort in order to have an actionable claim. Instead, the court has now confirmed that as soon as a party discovers that it has been misled as to what it contracted for and is in a worse position as a result, its claim has accrued and the time for bringing that claim commences. Potential claimants would be wise to familiarise themselves with the distinction between 'damage' and 'damages' so as to avoid finding themselves in a position similar to that of the city in this instance.
For further information on this topic please contact Mark G Evans or Michael Beeforth at Fraser Milner Casgrain LLP by telephone (+1 416 863 4511), fax (+1 416 863 4592) or email ([email protected] or [email protected]).