Hamilton (City) v. Metcalfe & Mansfield Capital Corp., 2012 ONCA 156 (Discoverability and Tolling Agreements)

In Hamilton (City) v. Metcalfe & Mansfield Capital Corp., 2012 ONCA 156, the Ontario Court of Appeal examined discoverability principles in the context of an action in tort for negligent misrepresentation, and the application of ss. 11 and 22 of the Limitations Act, 2002, which suspend the running of a limitations period in certain circumstances.

The City purchased $10 million in non-bank sponsored asset backed commercial paper (“ABCP”) from the defendants on July 24, 2007, three weeks before the collapse of the Canadian ABCP market. The investment was to mature about two months later but some three weeks after the purchase, the market for this form of investment collapsed. The City and others took certain steps to try to preserve the status quo, such as entering into a standstill agreement known as the “Montreal Accord.” However, on September 25, 2009, the City commenced the action against the defendants with multiple causes of action including negligent misrepresentation. This was several months past the two-year anniversary of the date on which the notes had been purchased. The defendants raised a limitation defence; however, the City argued that, for the misrepresentation claim, the two-year limitation period did not begin to run until it suffered damages on September 26, 2007 when the City received no payment upon the maturity of the ABCP notes.

(i) Discoverability

With respect to when an action in tort is discoverable under section 5, the City argued that it could not have discovered its claim before the ABCP matured because the damage element of the negligent misrepresentation did not occur until the defendants actually defaulted on the notes.  The Court of Appeal disagreed and held that all that the City had to discover to start the limitation period was damage, instead of damages.  These are two different legal concepts: damage is the condition of being worse off than before as a result of the misrepresentation, while damages is the monetary measure of the extent of that loss. The plaintiff in this case did not need to know the full extent of the damages suffered before it could bring its claim for negligent misrepresentation; rather, some damage is sufficient for a cause of action to accrue and the limitation period to commence.  In this case, damage occurred when the City purchased the ABCP notes in reliance on the defendants’ representation, damages became clear when the notes were mature but no payment was advanced. In its conclusion the court deferred to the motions judge who found that although the City may not have known the full extent of its loss, it did know that it had incurred some loss at some time before August 23, 2007, the date on which it agreed to be bound by the terms of the Montreal Accord. 

 (ii) Tolling Agreement (i.e. suspension of the limitation period)

The Court of Appeal rejected the City’s argument that either sections 11 or 22 of the Act applied to suspend the limitation period during the Montreal Accord.  Section 11 provides that where parties are in a dispute over a claim, they can agree to have an independent third party resolve, or assist them in resolving the claim.  The court found that the Montreal Accord did not constitute an agreement to involve an independent third party to resolve the claim, but rather a committee overseeing restructuring negotiations.  Indeed, the evidence established that the City had never believed itself to be engaged in such a process.

The Court of Appeal held that if a party is entering into an agreement to temporarily suspend the limitation period, the agreement must be bilateral, provide for an exchange of consideration and be clear in its intent to suspend the limitation period with respect to the particular claims in question.  On this point, the Court noted that there are three ways by which a limitation period may be suspended by an agreement, as follows:

1. Under the common law, a tolling agreement may be enforceable in the typical creditor-debtor situation where consideration is provided by the debtor in exchange for the creditor’s promise to forbear from suing, the rationale being that the parties have in effect renegotiated the debt obligations to a later date;
2. Pursuant to section 11 of the Act, which provides that the parties may enter into an agreement to suspend the limitation period while an independent third party attempts to resolve the claims; or
3.  Section 22 of the Act provides that the parties may enter into a specific agreement to suspend the limitation period.

In the result the City’s action for misrepresentation was statute barred. The action for negligent misrepresentation in connection with the purchase of ABCP was discovered for the purposes of the Act at the time the plaintiff realized that it had incurred some loss as a consequence of the misrepresentation, and not when the ABCP matured (no later than August 23, 2007, the date the City agreed to be bound by the Montreal Accord).  The Montreal Accord did not suspend the running of the limitations period under the Act since it did not involve an agreement to have an independent third party resolve the claim [s. 11] nor did it involve a bilateral agreement to toll the limitation period [s. 22(3)].  An agreement to merely refrain from taking any action that would precipitate a default did not constitute a bilateral agreement to toll the limitation period.