Marco Falco, Torkin Manes LLP, Torkin Manes
A marriage made in limitations heaven: Section 5(1)(a)(iv) strikes again
By Marco Falco
There are at least two situations in Ontario where a limitation period can be postponed because the plaintiff’s lawsuit is not yet “appropriate”: (i) if the plaintiff is relying on the defendant professional’s expertise to remedy the plaintiff’s loss, such that a lawsuit against that professional is premature; and (ii) where the plaintiff pursues an alternative process to the Courts to address their loss, such as at a tribunal.
Both of these scenarios aim to avoid unnecessary litigation. The plaintiff can take comfort that a limitation period won’t run while she is trying to resolve the dispute outside the context of a lawsuit.
A recent decision of the Ontario Court of Appeal, Nelson v. Lavoie, 2019 ONCA 431, marries the two circumstances where a limitation period is postponed because a civil action was not yet “appropriate”. Nelson represents the apex in a body of cases that have used section 5(1)(a)(iv) of Ontario’s Limitations Act, 2002 to delay the running of the limitation period.
Experts, Taxes and the CRA
The facts of Nelson are relatively simple.
The plaintiff, a Hydro One employee, was introduced to a financial planner who had devised a plan that would allegedly allow the plaintiff to retire early.
The financial planner told the plaintiff she could establish an independent pension plan (“IPP”) and transfer the commuted value of her Hydro One pension to the IPP. The financial planner then advised the plaintiff she would have to start a business, incorporate a company, and work for two years before she could retire.
The plaintiff agreed.
She contacted the Canada Revenue Agency (“CRA”) in June, 2008 to register her IPP. She then left her job at Hydro One that summer. The CRA confirmed the acceptance of the IPP in October, 2008. The commuted value of her Hydro One pension was transferred to the IPP in November, 2008.
Shortly thereafter, however, the plaintiff began noticing that the payments coming from her IPP were lower than expected.
By May, 2009, the accountant the plaintiff had retained for her newly-incorporated company began to advise her that there were issues with her IPP. The plaintiff addressed these issues with her financial planner, who reassured her all was fine. Despite these reassurances, the plaintiff retained a lawyer in May, 2009 and then sought the opinion of another financial advisor and an accountant.
The financial advisor provided an opinion to the plaintiff in July, 2009 advising that the IPP did not meet the requirements for registration under the regulations to the Income Tax Act. In August, 2009, the accountant provided a similar opinion to the plaintiff.
On August 25, 2009, the plaintiff’s lawyer wrote to the original financial planner to confirm whether the IPP complied with the Income Tax Act. The financial planner wrote back, enclosing a memorandum, which, it appears, confirmed that the IPP conformed to the Act’s requirements.
By October, 2010, the plaintiff’s lawyer contacted the CRA asking it to confirm that the IPP complied with the Income Tax Act. In March, 2011, the Trustee of the plaintiff’s IPP wrote to the plaintiff providing his opinion that there was a “potential risk to the plan”.
On September 28, 2011, the CRA responded to the lawyer’s inquiry and advised that the IPP did not comply with the Income Tax Act.
The plaintiff started her action against the financial planner and other related parties on June 20, 2012.
On a motion for summary judgment, the defendants argued that the plaintiff’s action should be dismissed as having been commenced more than two years after the limitation period expired.
The defendants argued that the plaintiff knew she had a claim against them back in August, 2009, when she received the reports of the financial advisor and accountants she had retained.
The motion judge disagreed.
The motion judge held that the two-year limitation period did not begin to run until the CRA confirmed in September, 2011 that the IPP did not comply with the Income Tax Act.
Under section 5(1)(a)(iv) of the Limitations Act, 2002, it was not “appropriate” for the plaintiff to start her action against the defendants while: (i) the defendants reassured her that her IPP was in conformity with Income Tax Act requirements; and (ii) the CRA had not finally pronounced on whether the IPP was in compliance with the Act.
The motion judge concluded that the plaintiff’s action was not out of time as the two-year limitation period did not begin to run until September 28, 2011, when the CRA confirmed the IPP’s questionable status under the Income Tax Act.
When Was the Action “Legally Appropriate”?
The Court of Appeal affirmed the motion judge’s ruling on appeal.
The Court began its analysis by noting that under section 5(1)(a)(iv), the question of when a civil action is “appropriate” is a factual issue that depends on the context of each case.
The Court affirmed the motion judge’s ruling that, given the disparate advice the plaintiff was receiving from her financial advisors and accountants, it was not legally appropriate for the plaintiff to start her action against the defendants until the CRA finally confirmed the IPP’s status under the Income Tax Act in September, 2011:
Nor…would we interfere with the motion judge’s conclusion that it was not legally appropriate for the [plaintiff] to commence a proceeding before the CRA advised her that her IPP did not conform to the relevant provisions of the Income Tax Regulations. [The plaintiff] was faced with what she viewed as conflicting advice as to whether her IPP conformed to the Income Tax Regulations: that of the [defendants], and that of the advisors she subsequently retained. To know whether [the defendants] had made misrepresentations about or provided negligent advice in relation to the tax effectiveness of their plan, she first needed to know that the [defendants’] advice was wrong.
A Marriage Made in Limitations Heaven
The Nelson decision represents the marriage of two conceptual frameworks in which limitation periods can be postponed in Ontario.
The plaintiff’s lawsuit against the defendants was not appropriate while she was relying on the mixed advice professionals were giving her about the soundness of her IPP.
At the same time, the plaintiff’s lawsuit was also not appropriate until an alternative process, the CRA’s final conclusion on the IPP, was exhausted. Until that point, the plaintiff wasn’t entirely confident she had suffered a loss. If the CRA had upheld the validity of her IPP, for example, a civil action against the defendants would have been unnecessary.
Three years after the Ontario Court of Appeal in 407 ETR Concession Co. v. Day, 2016 ONCA 709, first explored the use of section 5(1)(a)(iv) of the Limitations Act as a means of postponing the limitation period, Nelson has solidified a coherent and principled methodology.
The question now is what other circumstances will the Court recognize as applicable under 5(1)(a)(iv).