Facebook Icon. Twitter Icon. LinkedIn Icon. 

A Premier

Toronto Law Firm

serving all of Canada and International clients since 1996.

Fernandes Hearn LLP law firm logo with stylized F and H letters.

Telephone: 416-203-9500

Newsletter > December 2005

The [D]evolution of the “Discoverability Rule” in Ontario: Just how secure are Road Carriers’ Notice of Claim and Time Bar defences?

Involving a dispute on a commercial property lease – seemingly worlds away from the transportation law field – the decision in Vine Hotels Inc. v. Frumcor Investments Limited et ali is the latest word in Ontario on the “discoverability rule”. This decision leaves open for another day the possible expansion of the discoverability principle. As to how far this principle may apply may be the source of some concern. Under the discoverability principle, a cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence. The concern is addressed, as we read on further, as to whether this concept might affect carriers as concerns notice of claim and time bar provisions found in contracts of carriage and governing road carriage legislation.

The defendant, Frumcor Investments Limited (“Frumcor”) leased a commercial property to the plaintiff, Vine Hotels Inc. (“Vine”). The lease agreement provided Vine a right of first refusal to buy the property. The lease also provided that any action brought for a breach of the lease had to be brought within one year of the date that the alleged breach occurred.

Frumcor sold the property to a third party without providing the required notice and option to Vine. Several years later, Vine sued Frumcor for breach of contract.

Frumcor brought a motion for summary judgment, seeking the dismissal of the claim as time barred under the contract. Vine conceded that the contract contained the time bar provision in question, and that its action was commenced outside the agreed period for suit. Vine’s protest was simple: it did not know about Frumcor’s transgression until well after the contractual time period for suit expired. Frumcor conceded that it breached the contract but asserted that as the contract imposed a limitation period, that the doctrine of discoverability (historically considered in the context of statutorily imposed time bars) did not apply, and that there was no genuine issue for trial.

The motions judge dismissed Frumcor’s application to strike the action, ruling that the matter was a case of “first instance” as to whether the discoverability rule applied to a limitation period agreed upon by parties to a contract. The court could not find a reason why the ‘rule’ should not apply to simple contracts and therefore held that the matter should proceed to trial.ii

The defendant appealed to the Ontario Divisional Court. The issues on appeal were as follows:

  1. Does the ‘discoverability rule” apply to a limitation period agreed to by the parties to a contract, in the same way as it applies to a limitation period created by statute?
  2. Should the plaintiff be able to argue that the contractual limitation period contains an implied term that the limitation period runs from the time the plaintiff knew or ought to have known of any alleged breach of contract?

The Divisional Court dismissed Frumcor’s appeal on the basis that genuine issues existed calling for a trial. The matter now awaits a trial date. The Divisional Court did not actually rule that the principle applies to simple contracts but it did leave the “door wide open” in directing the action for trial, where:

  1. evidence could be led for a determination of any policy issues that favour or disfavour the application of the rule to simple contracts;
  2. evidence could be led on the interpretation of the contract time bar provision, that is, on “contractual intent”. Can an implied term be read into the contract as to when a “cause of action” arises? Was it implied that a plaintiff need know about a breach before it could be expected to bring an action? and
  3. evidence could be led as to when Vine ought reasonably to have discovered the breach.

In effect, the question has been reserved for another day. In its reasons, the Divisional Court revisited the history of the doctrine of discoverability.iii

History of the Doctrine in Canada

Under the discoverability principle, relief has been granted from the harsh effects that might be caused by the automatic application of limitation periods. This relief has been granted, as a rule, in tort cases. A cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence: Central Trust v. Rafuseiv. In the later case of Peixeiro v. Haberman (a case involving a claim for damages by the plaintiff, injured in a car accident, against a third party driver) the Supreme Court of Canada discussed the rationale behind this rule:

Short limitation periods indicate that the legislature put a premium on their function as a statute of repose. This is one of the three rationales which serve society and the courts’ continued interest in maintaining the respect of these statutes. Whatever interest a defendant may have in the universal application of a limitation period must be balanced against the concerns of fairness to the plaintiff who was unaware that his injuries met the conditions precedent to commencing an action… v

Thus, the rule has been used as an interpretive tool for constructing limitations statutes to avoid injustice whenever a limitations provision comes into issue:

…Whenever a statute requires an action to be commenced within a specified time frame from the happening of a specific event, the statutory language must be construed. When time runs from the accrual of the cause of action or from some other event which can be construed as occurring only when the injured party has knowledge of the injury sustained, the judge-made discoverability rule applies. But when time runs from an event which clearly occurs without regard to the injured party’s knowledge, the judge-made discoverability rule may not extend the period the legislature has prescribed.vi

The case of Grenier v. Canadian General Insurance Co. involved a claim by the occupants of a motor vehicle directly against the liability insurer of another vehicle that was responsible for the accident. By its ruling in that case, the Ontario Court of Appeal might be seen to have extended the application of the rule in holding that while it is a rule of interpretation, the discoverability rule is a “strong rule” applied to statutes of limitation, even where the plain construction of the language of the statute would appear to exclude the operation of the rule.vii

Accepting that the discoverability rule applies generally to cases where a statutory limitation period applies, the Divisional Court in the Vine case then considered if the rule applied in cases involving breach of contract.

Discoverability and Contract Claims

In Central Trust v. Rafuse supra, the Supreme Court of Canada considered whether the discoverability rule applied to an action in tort. While that case involved a claim that was concurrently advanced in tort and contract (involving a claim for negligence by a client against a lawyer) the issue presented to the Court was strictly whether the rule applied to claims in tort. The plaintiff had conceded that if the claim was framed only in contract that it would be time barred. In this decision, the Supreme Court of Canada relied on its earlier judgment in Kamloops (City) v. Nelsonviii where it was ruled that the discoverability rule applied to a tort action.

The next development on the road to the rule being considered for contract claims came with the Ontario Court of Appeal considering an action framed in tort as well as in contract in Consumers Glass Co. Ltd. v. Foundation Co. of Canada Ltd.ix The claim concerned a building that was allegedly negligently designed and built. The defendants sought to dismiss the action as time barred under statute. Building on the principle advanced in Central Trust, supra, the Court of Appeal acknowledged that the issue of discoverability in a tort action had been resolved and also noted that the reasoning could be extended to breach of contract cases:

…In [our] opinion, in cases which are based on a breach of duty to take care, a cause of action does not arise, and time does not begin to run for the purposes of the Limitations Act, until such time as the plaintiff discovers or ought reasonably to have discovered the facts with respect to which the remedy is being sought, whether the issue arises in contract or in tort. . . .

…the underlying policy consideration was the injustice of a law which statute bars a claim before the plaintiff is even aware of its existence. That principle, in [our] opinion, is equally applicable where the issue arises in cases sounding in contract or in tort. That is not to say that the plaintiff would have to know the extent of the damage complained of before the time begins to run, but the cause of action does not arise, in my opinion, until the plaintiff could first have brought an action and proved sufficient facts to sustain it, or ought reasonably to have discovered the facts upon which the cause of action is premised. . . .

…I am not unmindful that the conclusion that I have arrived at may cause wider exposure to some potential defendants than is now current, but it would be a greater injustice to deprive a plaintiff, through no fault of its own, of a cause of action premised upon a breach of duty by the person seeking immunity. This exposure, of course, is tempered by the fact that in many cases the plaintiff by the very lapse of time will be hard pressed to prove a causal connection between the alleged breach and the damage.x (emphasis added)

This case stands as authority that in cases based on breach of duty to take care, the cause of action does not arise until the plaintiff discovers or ought reasonably to have discovered the facts with respect to which the remedy is being sought, whether the issues arise in contract or in tort.

Courts in other provinces have not been willing to extend the rule to breach of contract cases. The Alberta Court of Appeal has ruled that the discoverability rule does not apply to actions in simple contract.xi The Nova Scotia Court of Appeal has also denied the application of the rule to cases of contract.xii Both of these decisions upheld the traditional position that a cause of action in breach of contract arises from the date of the breach. The Alberta Court of Appeal did however leave open the possibility that the rule might apply to contracts of indemnity as opposed to simple contracts.

Having undertaken the above analysis, the Court in Vine recognized that distinct from the above authorities that Vine’s dispute was based solely in contract, not concurrently in contract and tort. Further, the limitation period in question was not statutorily imposed but was a contractual term. The Divisional Court noted that the application of the discoverability rule to a private contract time bar provision had yet to be judicially considered in Ontario. One published author on the law of the limitation of actions has suggested that:

…in the absence of a definitive Supreme Court of Canada decision that is not centered on the breach of a duty of care, the question of whether a breach of contract simpliciter (not being a contract of indemnity) is subject to the judge-made discoverability rulexiii remains unsolved.

Ontario courts therefore may now be amenable to applying the discoverability doctrine equally to actions based on breach of contract as to actions in tort. This opens up a new area for consideration. Tort claims are necessarily prescribed at some point by statute. Contract claims are likewise prescribed by statute, but parties to contracts frequently provide for shorter time periods for suit. Will the courts now construct contractual time bar provisions with this same approach? Does this mean that the courts may be willing to find an implied term of “cause of action awareness” in a contract? Might the rule be extended, in the cargo claim context, to time bar and notice of claim issues?

The discussion that follows will focus on the road carriage of goods, the liability provisions thereunder being prescribed by Ontario law. Air, rail and ocean carriage of goods are regulated federally in Canada and are beyond the scope of this paper, as to any discussion on “discoverability”, however similar concerns and arguments are likely to emerge. The writer is unaware of any discoverability jurisprudence in Canada on the carriage of goods for any mode of transit.

Looking to the road carriage context, a review of the Ontario law concerning limitation of actions generally and the special rules governing the carriage of goods is in order.

Time Bar in Ontario: The Ontario Limitations Actxiv

The legislation creates a basic limitation period of two years where, as a general rule (unless the Act provides otherwise) a proceeding must be commenced no later than the second anniversary of the day in which the claim was discovered. The “discovery” concept is prescribed in this statute as follows:


5. (1) A claim is discovered on the earlier of,

  1. the day on which the person with the claim first knew,
    1. that the injury, loss or damage had occurred,
    2. that the injury, loss or damage was caused by or contributed to by an act or omission,
    3. that the act or omission was that of the person against whom the claim is made, and
    4. that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
  2. the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

There is however a presumption against the application of the discoverability rule as it has been entrenched into this legislation. Under the Limitations Act, a person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) above on the day the act or omission on which the claim is based took place, unless the contrary is proved. The limitations statute in Ontario now in effect therefore prescribes a general two year time bar, expressly subject to ‘discoverability’. It should also be noted that parties to a contract are expressly prohibited from contracting out of the limitation provisions, including the application of the discoverability rule:

A limitation period under this Act applies despite any agreement to vary or exclude it.xv

To the extent then that carriers (or defendants generally) are concerned about indeterminate liability, there is some comfort – albeit hollow – in the existence of an ultimate limitation prescription in the Ontario Limitations Act of fifteen years from the day in which the act or omission on which the claim is based took place, regardless at that point whether the plaintiff had knowledge of facts necessary to sustain an action.

The Limitations Act of Ontario prescribes that as concerns a conflict of laws analysis, that the limitations law of Ontario or of any other jurisdiction is substantive law. What then is the practical effect on road carriers of the statutory time bar? It appears that we are concerned with contracts governed by Ontario law. Carriers then, for all intents and purposes, enjoy a two year time bar from the date of the loss or damage to cargo – or for delay, from the date when the cargo ought to have been delivered. The entrenched discoverability rule should likely not impact on carriers. Most freight claims are discovered within this two year period. Usual indicia of a “problem” (i.e. endorsement on a delivery receipt, piece counts or inspection following delivery) suggest that consignees will usually be fixed with a minimum knowledge such that they will not be able to “prove to the contrary” to get the benefit of any delay in the running of suit time. Perhaps a claim was filed on an insurer, who does not commence subrogation in a timely fashion.

The Notice of Claim Defence

Among those defences held sacred (to carriers at least) is that prescribed at paragraph 12 of the “uniform bill of lading”xvi being the Notice of Claim provision. This is a statutorily mandated provision. The following claim requirements are prescribed at clause 12 of the uniform bill:

  1. No carrier is liable for loss, damage or delay to any goods carried under the bill of lading unless notice thereof setting out particulars of the origin, destination and date of shipment of the goods and the estimated amount claimed in respect of such loss, damage or delay is given in writing to the originating carrier or the delivering carrier within sixty days after delivery of the goods or, in the case of failure to make delivery, within nine months from the date of shipment.
  2. ii) The final statement of the claim must be filed within nine months from the date of shipment together with a copy of the paid freight bill. (emphasis added)

As a statutorily mandated timing requirement, might the Notice defence be subject to “discoverability”? The Notice defence is more relevant to any discussion on point simply because there is now only a sixty day window (post delivery) for loss, damage or delay claims. The consignee might not have yet gotten around to a piece count, or breaking down the shipping pallets. Maybe cargo has been inventoried into short-term storage at the place of delivery.

The Notice defence has been the subject of limited judicial discussion in Canada. What precedent exists is largely very old. This defence is often scoffed at by cargo interests who assert that it is a technical defence, especially in cases where the damage to cargo – (or delay in delivery) is patent and obvious. The notice provision of course acts as a protection for the carrier to allow it the chance to timely investigate a claim and if need be, to answer to a claim sometime down the road. Recall that carriers are regarded effectively as insurers of goods and face a heavy factual burden to avoid liability. There is judicial precedent – largely concerning railway cases of a century or so old – that notice provisions in a contract of carriage must be complied with by cargo interests.

It should be recalled that the uniform bill of lading Notice of Claim requirements may not always govern. The parties may have a specific agreement, outside the bill of lading, or a special term may be endorsed on the bill of lading. Recent authority in Canada suggests that governing road carriage regulations have to be adhered to unless the parties agree to other terms in their contract, or agree to other terms implicitly by a course of dealings or industry practice.xvii As such, there remains an argument that a carrier might still be disentitled from relying on the notice period defence if it fails to issue a proper bill of lading. There may also be arguments that the carrier waived notice of claim requirements. There might be an argument that the discoverability rule applies to any privately negotiated notice of claim term, as may be the ultimate result in the Vine case. Case law has been generated on waiver issues, as to whether a carrier waived the requirement of notice where for example, it participated in a survey of cargo, or other particular circumstances (i.e. a rollover) suggesting the inevitability of litigation. However, Ontario has not yet seen a reported case on “discoverability” being applied to the Notice of Claim provisions.

There is precedent for a consignee not timely realizing a problem with cargo to its peril. Romoda Ltd. v. Atomic Transfer Ltd.xviii involved a case of a consignee failing to realize that it did not receive a shipment due to it. The consignee failed to file a notice of claim within the thirty day period prescribed by the bill of lading. The plaintiff’s action was dismissed.

Conclusion: Are the Time Bar and Notice of Claim defences in peril?

The time bar defence is under potential attack in two ways. If the carrier wishes to rely on the statutory time bar in Ontario, it has to contend with the entrenched discoverability concept. As mentioned above, this should however work against the carrier, by allowing an action to proceed after the two year time limit, only in the rarest of cases. If the carrier has a private contract, subject to the way things go with the Vine (and other) cases, the door may be opened, for a court to “construct” the provision, or find implied terms. By extension, the uniform bill of lading notice of claim requirement (or any private contract provision) may likewise come under attack. How likely are these provisions to fail?

It is submitted that these defences will likely survive most if not all “discoverability” challenges on the following basis:

  1. As mentioned, the time bar of two years should likely “stick”, it being the rare case where a plaintiff can lead evidence to explain why no claim was timely advanced.
  2. Despite general pronouncements from the Ontario Court of Appeal that the discovery principle should, in appropriate circumstances apply to benefit a plaintiff (even where the statutory wording in question is unambiguous) the Supreme Court of Canada judgments referred to above seem to distinguish cases where on the wording in question the legislature intended on a specific “baseline” for the calculation of time as distinct from the general “accrual of a cause of action”. The language in the uniform bill of lading is very specific that a notice of claim has to be provided, in writing, to the originating carrier or the delivering carrier within sixty days after delivery of the goods or in the case of the failure to make delivery, within nine months from the date of shipment. Certainly, it can be argued, that as a rule of statutory interpretation, the discoverability principle should not interfere to change what appears to be clear intent that is, that the time lines for filing a claim work from objective “standalone” dates.
  3. The Divisional Court in Vine referred the issue to the trial judge, on the basis, at least in part, that policy considerations could be argued with the benefit of a full evidentiary record. Certainly, there is strong policy, given industry practicalities, of fixing shippers and consignees with the obligation to count, inspect and vouch for cargo after a reasonable period of time following delivery or to keep an eye out for same if there is a concern of lateness in delivery. This should, by itself, amount to a due diligence obligation or practice on the consignee or receiver of cargo. This should bolster the evident legislative intent (or contractual, if the case) of a timely notice of claimbeing provided to the carrier.
  4. The case can be made that there ought to be uniformity with other modal regimes involving notice of claim and time bar defences. In the rail context in Canada, in the absence of a written agreement signed by a shipper or by an association or other body representing shippers, a railway company’s liability is limited to such extent as may be provided in terms or conditions filed with regulatory authorities or, if none are so specified, by the Railway Traffic Liability Regulations. Under section 6 of that Regulationxix no carrier is liable for the loss of goods unless a notice of loss, in printed or electronic form, is received by the originating carrier or delivering carrier within four months after a reasonable period for delay has expired, or for any damage to or delay in the transportation of goods unless a notice of that delay or damage, in print or electronic form, is received by the originating carrier or delivering carrier within four months after delivery of goods.In the aviation context, the Warsaw Convention regime has a specific time period in which a complaint must be filed with a carrier following receipt of the cargo or, in the case of delay, from the time that the cargo was ultimately placed at the consignee’s disposal. It is also noteworthy that the Warsaw Convention talks in terms of a right to claim damages actually being extinguished, that is, timely action being a condition precedent to recovery, if an action is not brought within two years reckoned from the date of arrival at the destination or from the date in which the aircraft ought to have arrived. Finally, as concerns maritime claims, the Marine Liability Actxx prescribes that under the Hague-Visby Rules (the ocean bill of lading regime in effect in Canada) “. . . the carrier and the ship shall be discharged from all liability . . . unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.”

These other regimes certainly indicate an interest in fixed and objective dates for the time lines mentioned. In summary, developments concerning discoverability should be monitored. Should the jurisprudence confirm the application of this rule to time bar provisions in private contracts, or, further extend its application to Notice of Claim provisions (however they be incorporated into a contract of carriage), it should only be in the rarest of cases that a carrier will be adversely affected by the extension of time for claim or suit. Presumably, such cases will concern a fact pattern whereby the cargo interest can be excused for not minding their affairs in accordance with industry practices, or where the strong policy arguments noted above in favour of carriers are not determinative. © Gordon Hearn, 2005

Endnotes i(2004) 73 O.R. (3d) 374 (Superior Court of Justice, Divisional Court) iiThe reference to “simple contracts” in this, and other published reasons, distinguishes contracts of indemnity from general contracts. The latter have been referred to in cases as “simple contracts”. iiiVine, supra at para. 10 iv[1986] 2 S.C.R. 147 at p. 224 v[1997] 3 S.C.R. 549 at p. 562 viIbid. at p. 564 vii(1999) 43 O.R. (3d) 715 (C.A.) viii[1984] 2 S.C.R. 2 ix(1985) 51 O.R. (2d) 385 xPer Dublin J.A. at pp. 398-399 xiFidelity Trust Co. v. 98956 Investments Ltd. (Receiver of) [1988] 6 W.R.R. 427 xiiMacCulloch v. McInnes, Cooper & Robertson [1995] 125 D.L.R. (4th) 123 xiiiGraeme Mew, Law of Limitations, 2nd ed. (Toronto: Butterworths, 2000) at p. 174 xivS.O. 2002, c. 24 Schedule B xvs. 22(1) xviPrescribed, in Ontario, by Regulation 1087 enacted under the Truck Transportation Act, R.S.O. 1990, c. T.22. The terms and conditions in the uniform bill of lading are substantially the same as those imposed by the other Canadian provinces. xviiPaine Machine Tool Inc. v. Can-Am West Carriers Inc. [2003] B.C.J. No. 148 (C.A.) xviii(1981) 9 A.C.W.S. (2d) 136 (Alta. Q.B.) xixS.O.R./91-488 xxS.C. 2001 c. 6

This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the “Content”) including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.

Contact Us!

1 + 11 =

Banner for our Toronto law firm newsletter called the Navigator.

Subscribe to our newsletter "The Navigator"

15 + 14 =

Fernandes Hearn LLP
155 University Avenue, Suite 700, Toronto, Ontario, Canada  M5H 3B7
Telephone: 416-203-9500 | Fax: 416-203-9444

A proud Canadian law firm specializing in Transportation, Insurance, Trade, Technology and Commercial Law.

Copyright © Fernandes Hearn LLP. All Rights Reserved. | Copyright | Disclaimer | Privacy Policy | Designed By: Christopher Chong Productions Inc. | SEO By: Spider Choice Inc.