Frohlick et al. v. Pinkerton Canada Ltd. et al. [Indexed as: Frohlick v. Pinkerton Canada Ltd.]
88 O.R. (3d) 401
Court of Appeal for Ontario,
Weiler, Sharpe and Rouleau JJ.A.
January 8, 2008
Civil procedure -- Pleadings -- Amendment -- Plaintiff moving under rule 26.01 of Rules of Civil Procedure to amend statement of claim after expiry of limitation period -- Motion judge properly dismissing motion -- Loss of limitation defence giving rise to presumption of prejudice under rule 26.01 -- Plaintiff failing to show existence of special circumstances that rebutted presumption of prejudice -- Amendment sought by plaintiff advancing entirely new claim -- Rule 26.01 not contemplating addition of unrelated statute-barred claims by way of amendment to existing statement of claim -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 26.01.
The plaintiff was suing the defendant for damages for wrongful dismissal. The dismissal allegedly occurred when the defendant P Ltd. transferred part of its business to S Ltd. After the expiry of the applicable limitation period, the plaintiff brought a motion under rule 26.01 of the Rules of Civil Procedure to amend her statement of claim to allege that she was constructively dismissed over a year before the transfer, at a time when P Ltd. significantly reduced her pay rate. The motion was dismissed. The plaintiff appealed.
Held, the appeal should be dismissed.
Under rule 26.01, the loss of a limitation defence gives rise to a presumption of prejudice. The moving party must show the existence of special circumstances that, in the context of the existing claim, rebut the presumption that the responding party will suffer prejudice from the loss of a limitation defence. It is only after the court has determined that there is no prejudice that cannot be compensated by costs or an adjournment that the mandatory nature of rule 26.01 comes into play. Rule 26.01 does not contemplate the addition of unrelated statute- barred claims by amendment to an existing statement of claim. Conceptually, this should be treated no differently than the issuance of a new and separate statement of claim that advances a statute-barred claim. The amendment that the plaintiff sought to make constituted a fundamentally different claim. The presumption of prejudice occasioned by the passing of the limitation period therefore applied, and the plaintiff did not rebut that presumption.
APPEAL from an order of Riopelle J. of the Superior Court of Justice, dated November 2, 2006, dismissing a motion to amend a statement of claim.
Cases referred to Deaville v. Boegeman (1984), 1984 CanLII 1925 (ON CA), 48 O.R. (2d) 725, [1984] O.J. No. 3403, 6 O.A.C. 297, 14 D.L.R. (4th) 81, 47 C.P.C. 285, 30 M.V.R. 227 (C.A.); M. (K.) v. M. (H.), 1992 CanLII 31 (SCC), [1992] 3 S.C.R. 6, [1992] S.C.J. No. 85, 96 D.L.R. (4th) 289, 142 N.R. 321, 14 C.C.L.T. (2d) 1; Mazzuca v. Silvercreek Pharmacy Ltd. (2001), 2001 CanLII 8620 (ON CA), 56 O.R. (3d) 768, [2001] O.J. No. 4567 (C.A.); Mota v. Hamilton-Wentworth (Regional Municipality) Police Services Board (2003), 2003 CanLII 47526 (ON CA), 63 O.R. (3d) 737, [2003] O.J. No. 1100, 225 D.L.R. (4th) 295, 32 C.P.C. (5th) 23 (C.A.); Novak v. Bond, 1999 CanLII 685 (SCC), [1999] 1 S.C.R. 808, [1999] S.C.J. No. 26, 63 B.C.L.R. (3d) 41, 172 D.L.R. (4th) 385, 239 N.R. 134, [1999] 8 W.W.R. 499, 45 C.C.L.T. (2d) 1, 32 C.P.C. (4th) 197; Zapfe v. Barnes (2003), 2003 CanLII 52159 (ON CA), 66 O.R. (3d) 397, [2003] O.J. No. 2856, 230 D.L.R. (4th) 347, 39 M.P.L.R. (3d) 161, 41 M.V.R. (4th) 171, 35 C.P.C. (5th) 317 (C.A.) [page402] Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 5.04(2), 26.01
Peter J. Doucet, for appellant. Robert T. Leung Yu, for respondent.
The judgment of the court was delivered by
ROULEAU J.A.: --
I. Overview
[1] The appellant sought to amend her statement of claim against the respondent for wrongful dismissal to allege that she had been constructively dismissed as a result of events that occurred well over a year before the events described in the claim. The motion judge refused to allow the amendments on the basis that they essentially advanced a new and unrelated claim and that this new claim was statute barred.
[2] The issue in this appeal is the proper interpretation of rule 26.01 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] when a party seeks to amend a pleading after expiry of the relevant limitation period. More specifically, the issue is whether the loss of a limitation defence in and of itself gives rise to a presumption that the opposing party is prejudiced by the amendment and, if such a prejudice is presumed, what a moving party must demonstrate to rebut this presumption.
II. Facts
[3] The appellant, Melanie Frohlick, was an employee of the respondent, Pinkerton Canada Limited ("Pinkerton"), from 1990 until February 2001.
[4] In 1999, due to internal changes within Pinkerton, the appellant's rate of remuneration was significantly decreased from $25 per hour to $15 per hour. Prior to this change the appellant's income was approximately $45,000 per annum; it dropped to $26,676 per annum in 2000.
[5] On February 1, 2001, the respondent transferred the business for which the appellant worked to Securicor Canada Ltd. ("Securicor"). At that time, the appellant and other employees were told that they would continue their employment with [page403] Securicor, the new owner. As a result, they never received any notice, severance or payment in lieu of notice from the respondent. The appellant continued with Securicor but her duties and remuneration were substantially reduced despite the assurances to the contrary.
[6] On October 1, 2003, the appellant and three other employees issued the present claim. The statement of claim briefly sets out the events that transpired when the respondent transferred its business to Securicor in 2001 and alleges that the respondent breached the terms of the employment contract by dismissing or constructively dismissing these four employees without prior notice or payment in lieu of notice.
[7] In January 2006, the appellant changed counsel. New counsel sought to amend the claim to make reference to the significant salary reduction imposed on the appellant by the respondent in 1999 and to allege that this "dramatic reduction in her rate of remuneration and overall pay [by the respondent] constitutes constructive dismissal". Counsel for the respondent refused to consent to the proposed amendments on the basis that the limitation period had expired.
III. The Judgment Below
[8] The motion to amend was heard on November 2, 2006. After noting that rule 26.01 is mandatory and that amendments to pleadings are to be granted except when the prejudice is such that the other party cannot be compensated for by costs or an adjournment, the motion judge concluded that the motion should nonetheless be dismissed. In his view, the amendments advance a new cause of action which is statute barred. The constructive dismissal claim as originally framed was concerned with the 2001 transfer to Securicor. The 1999 salary reduction which the appellant now sought to plead in support of the constructive dismissal claim is unrelated to the 2001 events and constitutes a separate and distinct cause of action.
[9] The motion judge noted that when a limitation period has expired and the moving party seeks to amend the statement of claim, the court will presume prejudice to the responding party. On the record before him, the motion judge found that the appellant had not rebutted this presumption. Further, even if the presumption of prejudice had been successfully rebutted, the motion judge was of the view that special circumstances had to be demonstrated before an amendment would be allowed. No special circumstances were shown to exist in this case. [page404]
IV. Discussion
[10] The issue is the proper interpretation of rule 26.01 when the amendment to the statement of claim seeks to advance a new claim after the limitation period has expired.
(a) Comparing rules 26.01 and 5.04(2)
[11] Rule 26.01 reads as follows:
26.01 On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[12] It is also helpful to consider rule 5.04(2), which deals with the addition, deletion or substitution of parties and uses the same language as rule 26.01 with respect to prejudice. Rule 5.04(2) reads as follows:
5.04(2) At any stage of a proceeding the court may by order add, delete or substitute a party or correct the name of a party incorrectly named, on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[13] The motion judge correctly observed that the burden of showing prejudice that would militate against allowing the amendments rests with the responding party. The same can be said in a rule 5.04(2) application.
[14] Both rules 26.01 and 5.04(2) have as a prerequisite that the proposed amendment or change in the parties must not give rise to prejudice that cannot be compensated by costs or an adjournment. However, rule 26.01 is mandatory as it provides that if the prerequisite is met the amendment "shall" be allowed. In contrast, the language of rule 5.04(2) is discretionary as it provides that if the prerequisite is met the relief sought "may" be granted.
[15] This difference in wording has led to some confusion in the cases as to the interplay between prejudice and the mandatory nature of rule 26.01. In my view, the difference has no bearing on how a court is to address the issue of prejudice when a limitation period has expired. The mandatory nature of rule 26.01 only becomes important after the issue of prejudice has been dealt with. This will become clear in the discussion to follow.
(b) Interpretation of rule 26.01
[16] There are two main points of controversy:
(1) whether the loss of a limitation period defence gives rise to a presumption of prejudice and, if such a presumption exists, what is necessary to rebut it; and [page405]
(2) whether, in addition to rebutting the presumption of prejudice, the moving party must also show that special circumstances exist which justify the granting of leave.
[17] In my view, the proper interpretation of rule 26.01 is that the expiry of a limitation period gives rise to a presumption of prejudice. This presumption of prejudice will be determinative unless the party seeking the amendment can show the existence of special circumstances that rebut the presumption.
[18] In order to fully understand why the passing of a limitation period automatically gives rise to a presumption of prejudice, it is useful to examine the purposes behind limitation periods. In M. (K.) v. M. (H.), 1992 CanLII 31 (SCC), [1992] 3 S.C.R. 6, [1992] S.C.J. No. 85, at paras. 21-24, the Supreme Court of Canada set out the underlying rationale for the limitations statutes as follows:
There are three [purposes], and they may be described as the certainty, evidentiary, and diligence rationales. . . .
Statutes of limitations have long been said to be statutes of repose . . . The reasoning is straightforward enough. There comes a time, it is said, when a potential defendant should be secure in his reasonable expectation that he will not be held to account for ancient obligations. . . .
The second rationale is evidentiary and concerns the desire to foreclose claims based on stale evidence. Once the limitation period has lapsed, the potential defendant should no longer be concerned about the preservation of evidence relevant to the claim. . . .
Finally, plaintiffs are expected to act diligently and not "sleep on their rights"; statutes of limitation are an incentive for plaintiffs to bring suit in a timely fashion.
[19] In addition to these three purposes, the court must also consider the legislation establishing the limitation period as well as any statutory provision that might provide for extension of the limitation period. As appears from cases such as Novak v. Bond, 1999 CanLII 685 (SCC), [1999] 1 S.C.R. 808, [1999] S.C.J. No. 26, the way that the statutory limitation has been framed will often seek to balance the arbitrariness of a limitation period with the interests of the party seeking to overcome the limitation defence. As set out by the majority in Novak at para. 66:
Contemporary limitations statutes thus seek to balance conventional rationales oriented towards the protection of the defendant -- certainty, evidentiary, and diligence -- with the need to treat plaintiffs fairly, having regard to their specific circumstances. As Major J. put it in Murphy, supra, "[a] limitations scheme must attempt to balance the interest of both sides".
[20] Rule 26.01 is an enactment that allows a court to relieve against the harshness of an expired limitation period in certain circumstances. It would be wrong, however, to view rule 26.01 [page406] as allowing a party to use the existence of an outstanding claim, and nothing more, to defeat the protection of relevant limitation periods.
[21] The following excerpt from the decision of Deaville v. Boegeman (1984), 1984 CanLII 1925 (ON CA), 48 O.R. (2d) 725, [1984] O.J. No. 3403 (C.A.), at p. 730 O.R., conveys the correct perspective:
In my view, the expiry of the limitation period creates a presumption, however slight in some cases, of prejudice to the defendant. . . . If matters are left in balance, the usual rules apply and the applicant upon whom the burden lies has not discharged that burden.
[22] Where a limitation period has passed, there will be a presumption of prejudice that cannot be compensated for by costs or an adjournment. The moving party must demonstrate why, on the facts of the case, the court should not apply the normal rule that the presumption of prejudice flowing from the loss of the limitation period is determinative. This involves a consideration of special circumstances that would lead the court to conclude that the presumption of prejudice should not apply.
[23] The statute establishing the limitation period may itself provide for relief in certain circumstances. Absent a statutory basis for relieving against the harshness of a limitation period, the court, faced with a rule 26.01 motion, will consider whether it would be unfair to allow the opposite party to rely on the limitation period given the relationship the proposed claim has to the existing and ongoing claim and the way that the action has progressed to date. The court will consider the true nature of all of the claims and the knowledge of the parties.
[24] In my view, rule 26.01 does not contemplate the addition of unrelated statute-barred claims by way of amendment to an existing statement of claim. Conceptually, this should be treated no differently than the issuance of a new and separate statement of claim that advances a statute-barred claim.
[25] There is no exhaustive list of what constitutes special circumstances in the context of rule 26.01. They are often procedural or informational mistakes made by a party that have not misled the opposite party or induced the opposite party to defend the claim differently than it would have if the amendment had been made before the limitation period expired.
[26] From the foregoing discussion, it is apparent that I view the concept of "special circumstances" as overlapping with the moving party's burden to rebut the presumption of prejudice. Facts that indicate an absence of prejudice may also constitute special circumstances justifying leave to amend under the authority of rule 26.01. [page407]
[27] Previous decisions of this court have undertaken the prejudice analysis under rules 26.01 and 5.04(2) in a two-step process: see e.g. Mazzuca v. Silvercreek Pharmacy Ltd. (2001), 2001 CanLII 8620 (ON CA), 56 O.R. (3d) 768, [2001] O.J. No. 4567 (C.A.) and Mota v. Hamilton-Wentworth (Regional Municipality) Police Services Board (2003), 2003 CanLII 47526 (ON CA), 63 O.R. (3d) 737, [2003] O.J. No. 1100 (C.A.). The first step considered the prejudice to the responding party other than [what] might arise as a result of the loss of a limitation defence. The second considered whether special circumstances existed so as to justify relieving against the harshness of the expired limitation period. The integrated approach I have adopted is in substance consistent with these earlier decisions. It compresses the two stages into one by considering the prejudice suffered from the loss of a limitation defence and the existence of "special circumstances" as being encompassed in the "prejudice" analysis referred to in rules 26.01 and 5.04(2). This, in my view, logically emerges from the wording of rules 26.01 and 5.04(2) as they direct courts to consider the sole question of prejudice.
[28] In summary, therefore, the loss of a limitation defence gives rise to a presumption of prejudice. The moving party must show the existence of special circumstances that, in the context of the existing claim, rebut the presumption that the responding party will suffer prejudice from the loss of a limitation defence.
[29] It is only after the court has determined that there is no prejudice that cannot be compensated for by costs or an adjournment that the mandatory nature of rule 26.01 comes into play. The rule then provides that the motion judge "shall" grant the amendment sought. This can be contrasted with the permissive wording of rule 5.04(2), which grants the motion judge a residual discretion to deny the relief sought, even in the absence of the kind of prejudice contemplated by the rules. In exercising this residual discretion under rule 5.04 the court may once again consider special circumstances.
(c) Application to this appeal
[30] In the case at bar, there is no dispute that the applicable limitation period has expired. It is also apparent that the amendment the appellant seeks to make constitutes a fundamentally different claim. The allegations of constructive dismissal set out in the proposed amendments relate to events that occurred in 1999 well before the transfer to Securicor in 2001; they are unrelated to the original claim. The presumption of prejudice occasioned by the passing of the limitation period therefore applies and the party seeking the amendment must rebut that presumption. [page408]
[31] The material filed does not indicate that the respondent was made aware of these new allegations or the appellant's concerns prior to the appellant seeking the amendments. Nor has it been suggested that these events were put in issue or encompassed within the original claim. Having failed to rebut the presumption of prejudice, the appellant was not entitled to amend the statement of claim.
[32] For the sake of completeness, I note that there is no factual dispute as to when the limitation period began to run nor are there facts that might operate so as to extend it. In cases where such a factual dispute exists and the motion judge is not in a position to resolve it, the amendment will normally be allowed and the responding party will be given leave to plead the limitation period as a defence: see Zapfe v. Barnes (2003), 2003 CanLII 52159 (ON CA), 66 O.R. (3d) 397, [2003] O.J. No. 2856 (C.A.).
V. Conclusion
[33] In the circumstances, I see no basis to set aside the motion judge's decision and would dismiss the appeal. I would award the respondent partial indemnity costs fixed at $5,000 inclusive of GST and disbursements.
Appeal dismissed.