On June 1, 2013 the significantly revamped Limitation Act will come into effect in British Columbia. The Act imposes a tight two-year limitation period on most claims. Any company or person with business ties to British Columbia should closely monitor areas where litigation may be necessary, and review contractual provisions concerning potential litigation, to make sure that any potential claims are not statute-barred by the new Act.
We set out below the main changes under the new Act: this alert is not intended to be an exhaustive review of the new Act.
GENERAL TWO-YEAR LIMITATION PERIOD
Under the new Limitation Act, in most circumstances, the claimant must sue within two years of the discovery of the claim. For most claims, this is a significant shortening of the limitation period under the present Act.
A claim is “discovered” under the new Limitation Act when the claimant knows that injury, loss or damage has occurred as a result of the defendant’s actions, and that a court proceeding would be an appropriate way to address that harm. A claimant must exercise reasonable diligence in investigating, discovering, and acting on a potential claim.
Readers should note that the new Limitation Act provides for special discovery rules for specific types of claims, including claims involving fraud, trust obligations, and future interest in trust property. There are also special rules relating to discovery of claims by successors, predecessors, principals and agents. These rules should be reviewed carefully, as they alter the calculating formula for determining the running of the limitation period.
Importantly, the new Act does not apply where other enactments govern the limitation period. Businesses should be sure to review all applicable legislation for compliance.
ULTIMATE LIMITATION PERIOD REDUCED TO 15 YEARS
Even if the two-year limitation period can be extended through late discovery, a claim must still be brought within the “ultimate limitation period”.
The new Act sets this period at 15 years (cutting in half the current ultimate limitation period of 30 years).
The ultimate limitation period “clock” starts ticking when the original act or omission takes place, regardless of whether damage has yet occurred or whether the claim has been discovered.
Once 15 years from the original act or omission has passed, all remedies, even private remedies (including arbitration rights and references to accountants and auditors), are extinguished: barring any claim.
This extinguishment, however, is modified in three important ways. First, if the defendant confirms that the claimant has a claim against the defendant, the limitation clock will be reset for both the basic limitation period and the ultimate limitation period. Second, the basic limitation period and the ultimate limitation period do not run, subject to few exceptions, while the person with the claim is under a disability or is a minor (under 19 years of age). Finally, the new Limitation Act sets out specific types of claims (including fraud) where the ultimate limitation period “clock” does not start until the discovery of the claim, which is subject to special discovery rules set out in the Act.
DOES THE OLD ACT OR THE NEW ACT APPLY?
The new Act does not provide for grandfathering or retroactivity. If the act or omission occurred and was discovered before the new Act is enacted (i.e. before June 1, 2013 ), the limitation period under the current Act will apply. If the act or omission occurred before the new Act comes into force, but was not discovered until after June 1st, the limitation period under the new Act will apply. This change may make a significant difference for litigants, as some claims discovered but not brought prior to June 1, 2013 may have a limitation period of 6 or 10 years, while that same claim, if discovered after June 1, 2013, will only have a limitation period of up to 2 years.
SHORTENED LIMITATION PERIODS FOR CLAIMS FOR CONTRIBUTION AND INDEMNITY
The new Act will also significantly reduce a defendant’s right to bring claims for contribution and indemnity against third parties. Under the current Act, a defendant may wait and see whether he loses at the first trial before claiming against another party for contribution and indemnity. Under the new Act, however, the defendant will have to name as a third-party or sue for contribution and indemnity soon after the start of the initial lawsuit.
ALL DISPUTES NOW IN REAL TIME
Claimants can no longer take a leisurely wait-and-see approach. All potential claims in all past and ongoing projects should be reviewed. Potential problem areas in ongoing projects and transactions should be anticipated, monitored, investigated, and swiftly acted upon. If in doubt, sue.
REVIEW CONTRACTUAL REMEDIES
When a limitation period expires, the claimant is not only barred from filing a claim in court. Instead, all judicial AND non-judicial remedies are extinguished. In other words, not only is the claimant prevented from suing, but is also be prevented from demanding payment, carrying out rent distress, repossessing vehicles and other secured goods, or starting an arbitration. Many contracts, such as joint-venture agreements, will set out processes for dealing with disputes. If those processes take longer than 2 years, the aggrieved party may be out of luck in pursuing a remedy. It is thus crucial to review all contracts with dispute-resolution provisions in light of the new Act.
IS IT POSSIBLE TO CONTRACT OUT OF THE NEW ACT, AND SHORTEN OR LENGTHEN LIMITATION PERIODS?
The new Limitation Act does not expressly allow parties to contract out of the Act. The validity of provisions that attempt to shorten or lengthen time periods for litigation remains uncertain, and whether they are upheld will depend on the circumstances.
That being said, contracts that set down a shorter (or longer) limitation period should be reviewed and potentially redrafted to better permit alteration of a time period for dispute resolution.
IMPORTANT IMPLICATIONS FOR REAL ESTATE TRANSACTIONS, POSSESSION AND OWNERSHIP
Of particular importance to those involved in real estate is that the new Limitation Act does not apply to the following court proceedings and has no impact on when or if such proceedings may be brought:
- a court proceeding to enforce a local judgment for the possession of land, and
- a court proceeding to enforce an easement, restrictive covenant or profit à prendre.
As well, the new Limitation Act does not apply to the following claims:
- a claim for possession of land if the person entitled to possession has been dispossessedin circumstances amounting to trespass;
- a claim for possession of land by a life tenant or person entitled to the remainder of an estate;
- a claim for possession of land by a person who has a right to enter for breach of a condition subsequent, or a right to possession arising under possibility of reverter of a determinable estate;a
- claim by a landlord to recover possession of land from a tenant who is in default or over holding;
- a claim for the title to property by any person in possession of that property;
For businesses, or individuals, dealing with such potential claims, it may be advisable to agree to contractual limitation periods for claims.
For those involved in real estate, it is also important to emphasize that, under the new discovery rules, a claimant must exercise reasonable diligence in investigating, discovering, and acting on a potential claim. It remains to be seen how this requirement will be interpreted by the courts. It may be of critical importance where a party, such as a landlord, does not invoke a contractual right to inspect (or fails to inspect diligently) a tenant’s property, and consequently identifies the damage or loss several years after it occurred. Depending on the amount of time that has elapsed, the landlord may not be able to sue. Two stark examples:
- A tenant damages a property on January 1, 2015. The landlord has an annual right of inspection, but does not exercise it until January 1, 2019 (a date past the basic limitation period) and at that time identifies the damage. The tenant might argue that the landlord cannot bring a claim against it because the landlord was not diligent in investigating potential claims (a necessary step for the landlord to benefit from the “discovery” principles of the Act). If a court accepts the tenant’s arguments, the landlord would not be able to sue.
- A tenant damages a property on January 1, 2015. The landlord does not identify the damage until 2035 (a date past the ultimate limitation period). Result: the landlord cannot sue.
These are not the only provisions that will likely be of importance to you, and the entire new Limitation Act should be reviewed.