British Columbia Court of Appeal confirms a strict two-year limitation period to commence third-party claims

Introduction

The Court of Appeal in Sohal v. Lezama, 2021 BCCA 40 (“Sohal”) recently held that a court does not have the discretion to permit a third-party notice for contribution and indemnity (“contribution”) if the limitation period has expired under the current limitation act.

In 2012, the new Limitations Act, SBC 2012, c 13 (the “New Act”) came into effect, replacing the old Limitations Act, RSBC 1979, c 266 (the “Old Act”). Questions still lingered around the effect of limitation periods on third-party contribution claims.

In Sohal, the appellants, Graham Lezama (“Lezama”) and Enterprise Rent-A-Car (“Enterprise”) (collectively, the “defendants”) sought leave to file a third-party notice for contribution against Lezama’s employer. This case considered whether the Old Act or the New Act applied to the appellants’, potentially time-barred, third-party claims.

Brief Facts

This claim arose because of a motor vehicle accident that occurred on October 27, 2012. On October 27, 2014, the plaintiff filed a notice of civil claim against Lezama and Enterprise, which owned the vehicle driven by Lezama. On September 1, 2015, the plaintiff amended the claim to include Lezama’s employer who had rented the vehicle from Enterprise for Lezama’s use. On August 1, 2015, the plaintiff served the amended claim on Enterprise. On September 15, 2015, the plaintiff served the amended claim on Lezama.

On February 23, 2018, Lezama filed a notice of application to add the employer as a third party, including a third-party notice for contribution under the Negligence Act, RSBC 1996, c 333.  On May 7, 2018, Enterprise also filed an application to add the employer as a third party.

Supreme Court

The master granted the appellants’ leave against the proposed third-party, who appealed to the British Columbia Supreme Court. Mr. Justice Kent set aside the master’s order on the basis that the third-party claims were time barred since they were subject to the two-year limitation period stated under the New Act.

The appellants claimed, however, that the judge erred and that the limitation period under the Old Act was applicable.

Appeal Court

The Court of Appeal, per Justice Christopher Grauer, J.A., dismissed the appeal and concluded that the third-party claims were subject to the provisions within the New Act – and so, they were time barred.

A large point of contention between the parties in this case involved the changes between the New Act and Old Act. The New Act effects limitation periods for contribution claims in three key ways:

1. It changes the starting point for the running of time of a claim – time now starts running upon discovery of the claim.
2. It sets out how to deal with contribution and indemnity claims, as well as highlighting when discovery occurs.
3. It sets out how to deal with contribution claims by way of counterclaim or third-party claim.

The first ground of appeal involved a claim that the provisions of the Old Act applied to the appellants’ current third-party claims, and so were not time barred. The appellants argued that the judge erred in his interpretation of the transition provisions of the New Act when he stated that the Old Act did not apply. Under the Old Act, the time for a limitation period begins running when a cause of action accrued, and a cause of action for contribution does not accrue until, at least, there has been judgement against a defendant who seeks to claim it. This changed under the New Act, where the time for a limitation period now begins running from the date of discovery of the claim for contribution.

The second ground of appeal in the case involved an argument by the appellants that even if they were time barred, they still had a right to assert their claims within a new third-party proceeding. This issue would turn on whether the appellants’ claims for contribution against the respondent constituted pre-existing claims within the definition in the New Act.

That definition of “pre-existing claim” provides that the claim must have been:

• based on an act or omission that took place before the effective date; and
• with respect to which no court proceeding has been commenced before the effective date.

The effective date is the date on which this section of the New Act came into force – June 1, 2013. In this case, no court proceeding occurred before June 1, 2013, partially satisfying the definition. However, the question was whether their claims for third-party contribution were “based on an act or omission” taking place before the June 1, 2013 date. After undergoing an extensive statutory interpretation exercise to understand the meaning of a “pre-existing claim,” it became clear that their claims did not satisfy this section of the New Act.

A “pre-existing” claim does not include third-party claims for contribution in an ongoing action, because the “act or omission” on which the claim for contribution is based is distinct from the “act or omission” that gave rise to the initial claim. Specifically, the act or omission that gives rise to a claim for contribution is the failure of the defendant or third-party to pay for their share of the damages, which is separate from the initial tort claim (in this case, the motor vehicle accident). This means that the Old Act governs the plaintiff’s initial claim and the New Act governs the subsequent claim for contribution.

Another point of contention concerned whether a third-party claim constituted a “court proceeding” under the New Act. If the definition of “court proceeding” was not applicable to the appellants’ third-party claims for contribution, they may not have been barred from raising them. The Court, however, confirmed that a “court proceeding” under section 22 of the New Act must include a claim for contribution, since the principles of statutory interpretation cannot support an alternative interpretation of the provision.

In summary, the Court of Appeal found that the Supreme Court interpreted the statute correctly, despite its misinterpretation of the transition provisions in section 30 of the New Act. The New Act does not permit proceedings for contribution to be brought by way of third-party notice or counterclaim after the applicable limitation period has expired. The New Act now departs from the Old Act in important ways:

• Under the Old Act, a court could consider delay and prejudice in determining whether to allow third-party proceedings after the limitation period had expired. This is no longer the case.
• A court does not have discretion to permit a third-party notice for contribution if the limitation period has expired under the New Act. The two-year limitation period starts to run on the “discovery” of the claim, which is the later of: (1) the date the defendant was served with the Notice of Civil Claim; or (2) the first day the defendant knew or ought to have known that it could claim contribution or indemnity.

Practical Considerations

It is important to consider third-party claims at the outset – when pleadings are served, or when you first have knowledge of potential third-party claims. Being mindful of these dates are important in order to preserve your clients’ right to make these claims.