The recent decision of the Court of Appeal for Ontario in Placzek v. Green (January 2009) interpreted for the first time the transition provisions under Ontario’s new Limitations Act as they relate to claims for contribution and indemnity. It is now clear that these provisions do not apply to contribution and indemnity claims arising from actions that were commenced after the new Act came into force. It is less clear, however, whether the transition provisions have any application to claims for contribution and indemnity at all.

Coming into effect on January 1, 2004, the new Act’s transition provisions are set out in section 24. The starting point of any analysis under this section is found at subsection 2:

This section applies to claims based on acts or omissions that took place before the effective date [January 1, 2004] and in respect of which no proceeding has been commenced before the effective date.

What makes the decision of Placzek v. Green so interesting is that the facts are not all that uncommon. Albert Green rear-ended Edward and Carmen Placzek in a motor vehicle accident. Edward Placzek had been driving. Carmen Placzek was his passenger, and the only one who got hurt. Although the accident occurred before the new Act came into force, the Placzeks commenced their lawsuit against Green after it came into effect on January 1, 2004.

More than two years after delivering his statement of defence, Green sought leave to add counterclaims for contribution and indemnity against Edward Placzek and two new parties. Green argued that the two-year limitation period under the new Act began to run from his examination for discovery, when his proposed counterclaims were discovered.

Green’s request was denied at first instance on the basis, inter alia, that section 21 of the new Act prohibits the addition of a party to an existing proceeding after the limitation period has expired. Because Green would, or should, have known the facts upon which he was basing his proposed counterclaims when served with the statement of claim, the two-year limitation period under the new Act then started to tick. Green was out of time.

At the Court of Appeal, Green put forth a new argument without challenging the decision below: the transition provisions of the new Act applied to sustain the six-year limitation period applicable to tort claims under the former Limitations Act, which began to run from the date of the accident.

The court disagreed with Green’s implicit assertion that the proposed counterclaims were based in tort. The court applied decades of jurisprudence standing for the proposition that claims for contribution and indemnity are statutory claims for restitution based on unjust enrichment, as opposed to being claims for damages.

Applying section 24(2) of the new Act, the court stated that the term “acts or omissions” are those of a defendant. In the context of Green’s proposed counterclaims, this meant the failure of the proposed defendants to pay their fair share of Carmen Placzek’s damages before Green was found liable for them.

A defendant can only begin to contemplate claims for contribution and indemnity once he or she is exposed to a claim for damages. Since the Placzeks commenced their action against Green after the new Act came into force, Green’s proposed counterclaims could not have fallen under the former limitations regime. Therefore, the basic two-year limitation period under the new Act governed. Section 18 deems the date upon which a claim is served as the date to let the clock run for contribution and indemnity claims. Green was out of time.

It can now be said that the transition provisions have no application to claims for contribution and indemnity arising from actions commenced after January 1, 2004. While the court did not have to consider the application of section 24(2) to other scenarios involving claims for contribution and indemnity, the decision has left many wondering whether the very nature of these claims even fall within the scope of the transition provisions.

Take, for example, contribution and indemnity claims that are based on actions brought before January 1, 2004. Section 24(2) of the new Act requires that “no proceeding” be commenced before the effective date for it to apply. Could it be that the fact of the underlying cause of action being commenced prior to January 1, 2004 negates the application of the transition provisions? This seems to contradict the recent reasoning of the Court in St. Jean (Litigation Guardian of) v. Cheung (2008) where it was held that the word “proceeding” in section 24(2) must be interpreted with reference to the party against whom an action is brought. In other words, “proceeding” in this context refers solely to the claim for contribution and indemnity. Applying that logic to this example may very well mean that the transition provisions are triggered for contribution and indemnity claims not commenced prior to January 1, 2004, notwithstanding that the underlying claim for damages existed before then.

This may be the desired result to obtain. Indeed, it seems only fair to afford those defendants who were entitled, prior to the enactment of the new Act, under section 8 (now repealed) of the Negligence Act the opportunity to advance claims for contribution and indemnity within one year of judgment or settlement. But for the purpose of applying section 24(2) of the new Act, how do defence counsel reconcile the difference between when the Negligence Act and the new Act say claims for contribution and indemnity are crystallized? If under the Negligence Act these claims did not accrue until settlement or judgment was rendered against a defendant, then what happens if the date of judgment takes place after January 1, 2004 on a claim for damages commenced before then? Would a defendant seeking contribution and indemnity still receive the benefit of a longer limitation period under the former limitations regime? Or would the two-year limitation period under the new Act have retrospective application in those circumstances?

These are all questions that Ontario defence counsel must now ask when considering the application of the transition provisions to claims for contribution and indemnity.