Div. Ct. Allows Addition of Defendant After Expiry of Limitation Period, Based on Discoverability

In Toneguzzo v. Corner, the Divisional Court dismissed an appeal from a decision of Justice Lynda Templeton, allowing the addition of a defendant after the expiry of the limitation period. While Justice Templeton rested her decision on “special circumstances”, the Divisional Court panel preferred to base its ruling on the discoverability principle (although it also cited “special circumstances” as an alternative ground).

The case arose out of a very familiar set of facts. The plaintiff was seriously injured in a collision with a tractor trailer on May 29, 2001. The police report identified one person (“Corner”) as the driver and another (“Way”) as the registered owner of the truck. As well, the police report said that the truck was insured by Lloyd’s of London.

The lawyer for the plaintiff commenced proceedings against Corner and Way. It was alleged in that pleading, that Corner had been the driver of the tractor trailer and that Way was the owner. A statement of defence was delivered on behalf of Corner and Way, admitting the allegation of ownership by Way. (It is not clear whether or not that defence was delivered by counsel retained by Lloyd’s. Ultimately, Lloyd’s denied coverage and had itself added to the action as a statutory third party. In its own statement of defence, Lloyd’s pleaded that it had “no knowledge” of the allegations regarding ownership of the truck by Way.)

In 2004, Way was examined for discovery and he swore that he was the owner of the vehicle.

In 2005, Way and Corner changed lawyers and the new lawyer raised, for the first time, an issue as to whether Way was, in fact, the owner of the truck. The lawyer for the plaintiff then arranged for a search to be done of the vehicle’s ownership and learned that in fact, it was owned by a company called “LAKES Leasing Corporation”.

The plaintiffs moved for leave to add LAKES as a defendant. Lloyds opposed the motion.

Justice Templeton’s reasons were largely taken up with a consideration of whether or not the enactment of the Limitations Act, 2002 had eliminated the court’s discretion to add defendants after the expiry of a limitation period in “special circumstances”. Her decision pre-dated the Court of Appeal’s decisions on this point in Joseph v. Paramount and Meady v. Greyhound, both of which were decided on June 12, 2008. Those decisions resolved a conflict that had existed in the lower court decisions. They made it clear that the former “special circumstances” power no longer exists, but that the old law (including “special circumstances”) continues to apply to cases falling under the transitional provisions of s. 24 of the Limitations Act, 2002.

Justice Templeton found that special circumstances were present here, warranting the addition of LAKES as a defendant in the action, notwithstanding the expiry of the limitation period. She had concluded that the “special circumstances” power survived the enactment of the Limitations Act, 2002. The Court of Appeal’s decisions last year make it clear that this conclusion was incorrect. However, in this case, the accident happened on May 29, 2001, which would mean that the limitation period expired on May 29, 2003, prior to the effective date of the Limitations Act, 2002. The Court of Appeal’s decision in Meady would preserve the “special circumstances” power in these circumstances, with the result that Justice Templeton’s application of that principle is defensible.

But to return to the Divisional Court’s decision, the panel dismissed the appeal but said, “We are of the view that the principle of discoverability was determinative of the issue before the motion judge and that it was not necessary for her to consider special circumstances.” (As noted above though, the Court did note that if it was wrong about the applicability of the discoverability principle, the facts “overwhelmingly constitute special circumstances”.)

Counsel for Lloyd’s had argued that the plaintiffs had failed to show due diligence and that they should not be permitted to rely on the discoverability principle. Although not referred to in the Court’s reasons, Lloyd’s relied on a decision of Mr. Justice Paul Perell in Ioannou v. Evans, albeit that case dealt with “special circumstances”.  Perell J. had refused to add a vehicle’s owner as  defendant after the expiry of a limitation period, in circumstances somewhat similar to those in this case. He noted that “the rudimentary and handy step of a licence plate search was not performed” by the plaintiff’s lawyer and that accordingly, there were no “special circumstances”. It would seem that the Divisional Court took a different view as to whether it is incumbent on plaintiffs’ lawyers to conduct ownership searches in every case.

With respect to discoverability, the Divisional Court said that once the defendants had admitted Way’s ownership in the statement of defence, ownership of the truck had ceased to be an issue. It also stressed the fact that Lloyd’s was the insurer of Corner and Way and the primary insurer of LAKES and that it “knew or ought to have known that the admission by the defendant Way, both in his statement of defence and on his examination for discovery as to his being the owner of the defendant’s vehicle was not correct.” It held that the claim against LAKES had not been “discovered” until December, 2005 and that accordingly, the amendment adding LAKES as a defendant should be made.

We would make two observations about this decision. First, in focusing on the knowledge of the insurer (Lloyd’s), the Divisional Court’s approach is reminiscent of one taken by Justice Gans in the unreported decision in Kostecki v. Goodman, a 2003 case involving facts similar to this one. There, Gans J. found that “special circumstances” existed, sufficient to warrant adding the a leasing company as a defendant after the expiry of the limitation period. In doing so, he emphasized the role of the insurer. He listed the following as “special circumstances”:

(1) All “preliminary” evidence lead [sic] to the erroneous but not unreasonable conclusion that Stanley Revich was the owner of the subject vehicle.
(2) It may under the circumstances have been reasonable to rely on the information provided by the police which was confirmed by the plate search in that respect.
(3) Zurich was advised straight away of the accident, knew about the seriousness and gravity of same.
(4) Zurich anyway will have had a fiduciary, if not legal, duty to give this information directly to the attention of the named insured, namely G.M.A.C.
(5) G.M.A.C. knew about the properly damage claim within days of the accident. I find it stretches the limits of credulity to say that they were not aware of the personal injury claim, but, as a minimum ought to have known about it. In any event no prejudice is suffered since its insurers knew all from the get-go.
(6) G.M.A.C. will have to defend in any event and will be at the table for the FLA claim. It is not as if it is insulated from being a party altogether.
(7) Perhaps Zurich, arguably G.M.A.C.’s agent, should have delivered up the policy particulars as was required under s. 258 of the I.A.
(8) There is no evidence of bad faith.

In emphasizing the insurer’s knowledge, the Divisional Court in Toneguzzo probably strengthened the agency and fiduciary arguments outlined by Justice Gans in Kostecki.

Secondly, we find it puzzling that counsel in these cases never seem to make the argument, that the true owner should be added after the expiry of the limitation period on the ground of misnomer. This principle was well-established prior to the enactment of the Limitations Act, 2002 and it was expressly preserved in s. 21(2) of that Act. The Court of Appeal has made it clear that the “litgating finger” test continues to apply (see Spirito Estate v. Trillium Health Centre). In all of these “leasing company” cases, the plaintiff’s lawyer intended to sue the person thought to be the owner of the vehicle. We would have thought that a fairly strong argument could be made, that failing to identify the correct owner amounted to a mere misnomer, if the “litigating finger” test can be met. In relation to the latter, attributing the knowledge of the vehicle’s insurer to the true owner, as the courts seem willing to do, would seem to go a long way towards meeting that test.

Still, even without the misnomer argument, this week’s decision of the Divisional Court will make it easier for plaintiffs to add defendants after the expiry of the limitation period, based on the principle of discoverability.


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