Vine Hotels Inc. v. Frumcor Investments Limited et al. [Indexed as: Vine Hotels Inc. v. Frumcor Investments Ltd.]

73 O.R. (3d) 374

[2004] O.J. No. 4997

Court File No. 533/03

Ontario Superior Court of Justice, Divisional Court Gravely, Carnwarth and Himel JJ.

November 24, 2004

Contract -- Interpretation -- Contract containing limitation period for bringing claims for breach of contract -- Discoverability rule applying to limitation provisions contained in contracts.

Limitations -- Contracts -- Discoverability -- Discoverability rule applying to limitation provisions contained in contracts.

Frumcor Investments Limited ("Frumcor") leased a property in London, Ontario, to Vine Hotels Inc. ("Vine"). Under the lease, Vine had a right of first refusal to purchase the property but, on January 22, 1997, without notice to Vine, Frumcor transferred 50 per cent of its interest in the property to Riocan (Westminister) Inc. ("Riocan") and Frumcor gave Riocan an exclusive option to purchase the remaining 50 per cent. On January 23, 2001, Riocan exercised the option.

On September 6, 2002, Vine sued Frumcor and Riocan for breach of contract. It alleged that it had been deprived of its right of first refusal. However, art. 6.12 of the lease provided that "[a]ny legal proceedings initiated by reason of an alleged breach of this lease . . . must be commenced within one (1) year from the date that such alleged breach occurred." Relying on art. 6.12, Frumcor and Riocan moved for a summary judgment dismissing Vine's action. The defendants submitted that the contract imposed a limitation period, that the doctrine of discoverability did not apply, and that there was no genuine issue for trial. Lissaman J. dismissed their motion. Leave to appeal having been granted, Frumcor and Riocan appealed. [page375]

Held, the appeal should be dismissed.

Under the discoverability principle, a cause of action arises for the purpose 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. It was a case of first instance whether the discoverability rule applies to a limitation period agreed to by the parties to a contract. The discoverability rule should apply to simple contracts. The injustice of a law that would bar a claim before the plaintiff is even aware of its existence is the same whether it deals with a statutory limitation period or a limitation period agreed to by the parties to a private contract. Consideration of this question should not be disposed of in a motion for summary judgment but rather at a trial. There, an evidentiary basis can be established to address any policy issues that favour or disfavour the application of the discoverability rule to simple contracts. Further, whether art. 6.12 of the lease should be interpreted to be subject to the discoverability rule was a genuine issue that required a trial. The question of when Vine ought reasonably to have discovered the breach was a question that could only be resolved at trial. Accordingly, the appeal should be dismissed.

APPEAL from an order of Lissaman J. dismissing a motion for summary judgment.

Cases referred to 1061590 Ontario Ltd. v. Ontario Jockey Club (1995), 1995 1686 (ON CA), 21 O.R. (3d) 547, [1995] O.J. No. 132, 43 R.P.R. (2d) 161 (C.A.); Aguonie v. Galion Solid Waste Material Inc. (1998), 1998 954 (ON CA), 38 O.R. (3d) 161, 156 D.L.R. (4th) 222, 17 C.P.C. (4th) 219 (C.A.); Central Trust Co. v. Rafuse, 1988 46 (SCC), [1988] 1 S.C.R. 1206, varg 1986 29 (SCC), [1986] 2 S.C.R. 147, 75 N.S.R. (2d) 109, 31 D.L.R. (4th) 481, 69 N.R. 321, 86 A.P.R. 109, 34 B.L.R. 187, 37 C.C.L.T. 117, 42 R.P.R. 161 (sub nom. Central & Eastern Trust Co. v. Rafuse); Consumers Glass Co. Ltd. v. Foundation Co. of Canada Ltd. (1985), 1985 159 (ON CA), 51 O.R. (2d) 385, 9 O.A.C. 193, 20 D.L.R. (4th) 126, 30 B.L.R. 87, 33 C.C.L.T. 104, 1 C.P.C. (2d) 208 (C.A.); Costigan v. Ruzicka (1984), 1984 ABCA 234, 54 A.R. 385, 33 Alta. L.R. (2d) 21, 13 D.L.R. (4th) 368, [1984] 6 W.W.R. 1, 31 C.C.L.T. 281 (C.A.); Fidelity Trust Co. v. 98956 Investments Ltd. (Receiver of) (1988), 1988 ABCA 267, 61 Alta. L.R. (2d) 193, [1988] 6 W.W.R. 427, 47 C.C.L.T. 80 (C.A.); Grenier v. Canadian General Insurance Co. (1999), 1999 2156 (ON CA), 43 O.R. (3d) 715, 32 C.P.C. (4th) 267 (C.A.); Guarantee Co. of North America v. Gordon Capital Corp., 1999 664 (SCC), [1999] 3 S.C.R. 423, 178 D.L.R. (4th) 1, 247 N.R. 97, 49 B.L.R. (2d) 68, [2000] I.L.R. ÂI-3741, 39 C.P.C. (4th) 100; Home Savings & Loan Corp. v. Linton (1999), 1999 1832 (ON CA), 120 O.A.C. 316, [1999] O.J. No. 1999, 38 C.P.C. (4th) 278 (C.A.); Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 219 Sask. R. 1, 211 D.L.R. (4th) 577, 286 N.R. 1, 272 W.A.C. 1, [2002] 7 W.W.R. 1, 30 M.P.L.R. (3d) 1, 2002 SCC 33, 10 C.C.L.T. (3d) 157; Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, 66 B.C.L.R. 273, 10 D.L.R. (4th) 641, 54 N.R. 1, [1984] 5 W.W.R. 1, 29 C.C.L.T. 97, 26 M.P.L.R. 81; M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 677 (SCC), [1999] 1 S.C.R. 619, 69 Alta. L.R. (3d) 341, 170 D.L.R. (4th) 577, 237 N.R. 334, [1999] 7 W.W.R. 681, 49 B.L.R. (2d) 1, 44 C.L.R. (2d) 163, 3 M.P.L.R. (3d) 165; MacCulloch v. McInnes Cooper & Robertson (1995), 140 N.S.R . (2d) 220, 1995 NSCA 81, 125 D.L.R. (4th) 123, 399 A.P.R. 220, [1995] N.S.J. No. 185 (C.A.); Machtinger v. HOJ Industries Ltd., 1992 102 (SCC), [1992] 1 S.C.R. 986, 7 O.R. (3d) 480n, 91 D.L.R. (4th) 491, 134 N.R. 386, 40 C.C.E.L. 1, 92 CLLC 14,022, 11 C.P.C. (3d) 140 (sub nom. Lefebvre v. HOJ); MacMillan v. McDermid (2004), 2004 11918 (ON CA), 70 O.R. (3d) 252, [2004] O.J. No. 937 (C.A.); Morellato v. Wood, 1999 18634 (ON CA), [1999] O.J. No. 4931, 187 D.L.R. (4th) 760 (C.A.), affg 1999 15040 (ON SC), [1999] O.J. No. 2226, 175 D.L.R. (4th) 753 (S.C.J.); Peixeiro v. Haberman, 1997 325 (SCC), [1997] 3 S.C.R. 549, 151 D.L.R. (4th) 429, 217 N.R. 371, 30 M.V.R. (3d) 41, 12 C.P.C. (4th) 255; Rozin v. Ilitchev (2003), 2003 21313 (ON CA), 66 O.R. (3d) 410, [2003] O.J. No. 3158 (C.A.); Smyth v. Waterfall (2000), 2000 16880 (ON CA), 50 O.R. (3d) 481, 4 C.P.C. (5th) 58 (C.A.); Soper v. Southcott (1998), 1998 5359 (ON CA), 39 O.R. (3d) 737, 43 C.C.L.T. (2d) 90 (C.A.) [page376]

Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 19(1)(b), 131 [am.] Insurance Act, R.S.O. 1990, c. I.8 Limitations Act, R.S.O. 1980, c. 240 Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, ss. 5, 22(1) Municipal Act, R.S.B.C. 1960, c. 255

Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 20, 57.01 [am]

Authorities referred to Boeckle, P.K., and A. Varma "Peixeiro v. Haberman: Plaintiff's Dream Come True?" (Ontario: The Advocates Society, 1996) Mew, G., Law of Limitations, 2nd ed. (Toronto: Butterworths, 2000)

Michael Miller, for plaintiff/respondent. Howard W. Winkler, for defendants/appellants.

The judgment of the court was delivered by

[1] HIMEL J.: -- Frumcor Investments Limited ("Frumcor") leased a property in London, Ontario to Vine Hotels Inc. ("Vine"). This lease gave Vine a right of first refusal to buy the property but Vine had to start legal proceedings for any alleged breach within one year of the breach. Frumcor sold to Riocan (Westminister) Inc. ("Riocan") without notice to Vine. Vine sued several years after the alleged breach.

[2] Lissaman J. refused the defendants' motion for summary judgment. Epstein J. granted leave to appeal his decision, finding his reasons inadequate. The appeal raises two questions:

1. Does the "discoverability rule" apply to a limitation period agreed to by the parties to a contract, in the same way 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?

Factual Background

[3] The plaintiff Vine Hotels Inc. claims damages from the defendants for losses suffered from the alleged failure of Frumcor Investments Limited to honour Vine's right of first refusal [page377] for property at 742-746 Baseline Road East, London, Ontario. In 1997, Frumcor sold a 50 per cent interest in the property to Riocan without notice to Vine, and gave Riocan an exclusive option to purchase Frumcor's remaining 50 per cent interest in the property. On January 23, 2001, Riocan exercised this option. The plaintiff claims that it was not given the required notice of the 1997 transaction and inadequate notice of the 2001 transaction involving Riocan. Vine says Frumcor and Riocan breached its lease because it was deprived of its right of first refusal.

[4] Frumcor sold the first 50 per cent interest to Riocan on January 22, 1997. Vine issued its statement of claim on September 6, 2002. Article 6.4 of the lease gives Vine a right of first refusal. Article 6.12 provides that any legal proceedings initiated by reason of an alleged breach of the lease must be commenced within one year from the date that the alleged breach occurred. The defendants concede there was a breach of contract by failing to give notice of the sale. However, the defendants submit the limitation clause applies.

[5] Justice Lissaman heard the motion for summary judgment on June 12, 2003 and released his decision on August 11, 2003 dismissing the motion. Epstein J. granted leave to appeal on November 4, 2003. Leave having been granted, I must consider the merits of the motion to dismiss.

Positions of the Parties

[6] The defendants submit that the doctrine of discoverability does not apply to actions in contract and that there is no genuine issue for trial. The plaintiff failed to sue until after the limitation period set out in art. 6.12 in the lease. Accordingly, the motion for summary judgment should be granted dismissing the plaintiff's action.

[7] The plaintiff says the court should not interfere with the order of Lissaman J. unless it can be shown that he disregarded, misapprehended, or failed to appreciate relevant evidence or drew an unreasonable inference from the evidence. The plaintiff argues the discoverability rule applies to contractual provisions and there is no basis for interfering with the order. There are factual issues involving discoverability which must be determined at trial.

Jurisdiction of this Court and the Standard of Review

[8] The Divisional Court has jurisdiction to hear this appeal under s. 19(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43, [page378] which provides that an appeal lies to the Divisional Court from an interlocutory order of a judge of the Superior Court of Justice, with leave as provided in the rules of court.

[9] The standard of review for appeals from the order of a judge was discussed by the Supreme Court of Canada in the case of Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, 211 D.L.R. (4th) 577, at p. 247 S.C.R., p. 584 D.L.R.:

On a pure question of law, the basic rule with respect to the review of a trial judge's finding is that an appellate court is free to replace the opinion of the trial judge with its own. Thus the standard of review on a question of law is that of correctness . . . .

The Doctrine of Discoverability

[10] Under the discoverability principle"a cause of action arises for the purpose 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 Co. v. Rafuse, 1986 29 (SCC), [1986] 2 S.C.R. 147, 31 D.L.R. (4th) 481, at p. 224 S.C.R.

[11] The rationale for the application of the discoverability rule was discussed in the decision of Peixeiro v. Haberman, 1997 325 (SCC), [1997] 3 S.C.R. 549, 151 D.L.R. (4th) 429 where the Supreme Court of Canada said at p. 562 S.C.R., p. 439 D.L.R.:

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 . . . .

[12] The courts have applied the discoverability rule to avoid the injustice of precluding an action before the person is able to raise it. Justice Major wrote in Peixeiro as follows at p. 564 S.C.R.:

In this regard, I adopt Twaddle J.A.'s statement in Fehr v. Jacob (1992), 1993 4407 (MB CA), 14 C.C.L.T. (2d) 200 (Man. C.A.), at p. 206, that the discoverability rule is an interpretive tool for the construing of limitations statutes which ought to be considered each time a limitations provision is in issue:

In my opinion, the judge-made discoverability rule is nothing more than a rule of construction. Whenever a statute requires an action to be commenced within a specified time 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 [page379] the injured party's knowledge, the judge-made discoverability rule may not extend the period the legislature has prescribed.

[13] The Supreme Court of Canada held that the discoverability rule postpones the running of the statutory limitation period until the plaintiff knows, or by reasonable diligence, could have known the material facts upon which to bring an action. In Grenier v. Canadian General Insurance Co. (1999), 1999 2156 (ON CA), 43 O.R. (3d) 715, 32 C.P.C. (4th) 267 (C.A.), Morden A.C.J.O. wrote at p. 722 O.R.:

Although the discoverability rule is a rule of interpretation and not a general substantive rule, it is a strong rule. In Peixeiro, Major J. said that it applies to statutes of limitation "in which plain construction of the language used would appear to exclude the operation of the rule".

[14] The rule was considered by the Ontario Court of Appeal in the context of a motion for summary judgment in the decision of Aguonie v. Galion Solid Waste Material Inc. (1998), 1998 954 (ON CA), 38 O.R. (3d) 161, 156 D.L.R. (4th) 222 (C.A.), where the court wrote at pp. 169-70 O.R.:

Since the decision of the Supreme Court of Canada in Peixeiro, supra, it is clear that the discoverability rule applies to all cases in which a limitation period applies. It is a rule of general application.

As I have stated, this principle provides that 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. This principle conforms with the generally accepted definition of the term "cause of action" -- the fact or facts which give a person a right to judicial redress or relief against another.

Discoverability and Contract

[15] In the case of Central Trust Co. v. Rafuse, supra, the Supreme Court of Canada considered whether the discoverability rule applies to an action in tort. The Appeal Division of the Nova Scotia Supreme Court held the appellant's action was statute-barred whether it was in contract or tort. In the Supreme Court of Canada, LeDain J. noted the appellant had conceded that, if its recourse against the respondent was in contract only, its action was barred. Therefore, the issue of the application of the doctrine in contract was not before the court. In Central Trust, the court relied upon the earlier majority judgment in Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, 10 D.L.R. (4th) 641, which applied the discoverability rule to a limitation period in the Municipal Act, R.S.B.C. 1960, c. 255. Justice LeDain wrote as follows at p. 223 S.C.R.: [page380]

Although Wilson J., who delivered the judgment of the majority in Kamloops, did not comment explicitly on the opinion that the introduction of the discoverability rule should be left to legislative rather than judicial decision, it is an obvious implication of her reasons and conclusion that she disagreed with the views on this question expressed in Cartledge and Pirelli. She appears to have been led to this conclusion essentially by the acknowledged injustice of the rule applied out of judicial restraint in those cases. Referring to Pirelli, she said at p. 685 D.L.R., p. 40 S.C.R.:

But perhaps the most serious concern is the injustice of a law which statute-bars a claim before the plaintiff is even aware of its existence. Lord Fraser and Lord Scarman were clearly concerned over this but considered themselves bound by Cartledge. The only solution in their eyes was the intervention of the legislature.

This Court is in the happy position of being free to adopt or reject Pirelli. I would reject it. This is not to say that Sparham-Souter presents no problem. As Lord Fraser pointed out in Pirelli, the postponement of the accrual of the cause of action until the date of discoverability may involve the courts in the investigation of facts many years after their occurrence. Dennis v. Charnwood Borough Council, [1982] 3 All E.R. 486, is a classic illustration of this. It seems to me, however, to be much the lesser of two evils.

I am thus of the view that the judgment of the majority in Kamloops laid down a general rule that a cause of action arises for 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, and that that rule should be followed and applied to the appellant's cause of action in tort against the respondents under the Nova Scotia Statute of Limitations . . .

[16] Justice LeDain held that the discoverability rule applied to the tort action and the action was not statute- barred. In the case of Consumers Glass Co. Ltd. v. Foundation Co. of Canada Ltd. (1985), 1985 159 (ON CA), 51 O.R. (2d) 385, 20 D.L.R. (4th) 126, the Ontario Court of Appeal considered an action framed in tort and contract relating to a building that was allegedly negligently designed and built. The appellants moved to dismiss the claim on the ground that it was statute- barred by reason of the Limitations Act, R.S.O. 1980, c. 240. The court acknowledged that the issue of discoverability in a tort action had been resolved by the Supreme Court in Kamloops (City) v. Neilson, supra, where it was held that the statute of limitations begins to run once the cause of damage is or ought to have been discovered. Dubin J.A. wrote at 398-99 O.R.:

For the reasons above, I am respectfully of the opinion that the case of Schwebel v. Telekes, supra, is no longer authoritative in this province. In my 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. [page381]

As I read the judgment of the Supreme Court of Canada in Kamloops, supra, 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 my opinion, is equally applicable where the issue arises in cases sounding in contract or in tort. That is not 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.

[17] The Alberta Court of Appeal took a contrary position and held that the discoverability rule does not apply to actions in simple contract: see Fidelity Trust Co. v. 98956 Investments Ltd. (Receiver of), 1988 ABCA 267, [1988] 6 W.W.R. 427, 61 Alta. L.R. (2d) 193 (C.A.), at p. 435 W.W.R.. Similarly, the Nova Scotia Court of Appeal in MacCulloch v. McInnes, Cooper & Robertson, 1995 NSCA 81, [1995] N.S.J. No. 185, 125 D.L.R. (4th) 123 (C.A.), denied the application of the discoverability rule to a contract and relying on Fidelity Trust, supra, held at para. 80:

In my opinion the law in respect to the applicable rule respecting actions in contract survives the judgment of the Supreme Court of Canada in Rafuse, that is, the time begins to run as of the date of the breach.

[18] At issue in Fidelity Trust was whether the Limitation of Actions Act barred a counterclaim by the defendant. The parties agreed that the action was entirely framed in contract. After reviewing the traditional position, as expressed in Costigan v. Ruzicka (1984), 1984 ABCA 234, 54 A.R. 385, 13 D.L.R. (4th) 368 (C.A.), that a cause of action arises from the date of the contractual breach, Harradence J.A. considered the Supreme Court decisions in Kamloops, supra, and Central Trust, supra, and held that the discoverability rule was not meant to apply to actions in contract. Harradence J.A. did acknowledge that the rule could have application to contracts of indemnity and said at p. 436 W.W.R.:

Arguably, the question of limitation periods must be addressed differently when dealing with contracts of indemnity. Because the very nature of a contract of indemnity is that it is a reimbursement obligation for an amount of damages that has actually been suffered, it would seem to me that no cause of action can even arise until the extent of the loss has been quantified. [page382]

[19] However, the counterclaim was not one of indemnity, so the discoverability rule did not apply and the action was statute-barred.

[20] In addition to the judicial authorities cited above, the following commentary by Peter K. Boeckle and Anil Varma in their article"Peixeiro v. Haberman: Plaintiff's Dream Come True?", published by The Advocates Society (Ontario) on January 12, 1996 considers the application of the discoverability rule in contact:

Until recently, it was settled law that time starts to run from the occurrence of the breach that is alleged, whether or not the claimant was aware of the breach. But in the Consumers Glass case, Dubin J.A. (as he then was) made it clear in this passage that the discoverability doctrine applies equally to actions based on breach of contract as to actions in tort.

As I read the judgment of the Supreme Court of Canada in Kamloops, supra, 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 my opinion, is equally applicable where the issue arises in cases sounding in contract or in tort.

This judgment leaves little doubt that the limitation period will not begin to run until the plaintiff has or reasonably ought to have discovered that an actionable breach of contract has occurred.

[21] Another interesting development worthy of note is the provisions of the new Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. Although the Limitations Act, 2002 does not apply to the case at bar, both because the limitation period is contractual, not statutory, and because the contract was entered into before the new Act was enacted, its provisions are of interest as they indicate the legislature's growing acceptance of the discoverability rule:

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

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) 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

(b) 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).

[22] Not only has the discoverability rule been entrenched in the Act, but parties are expressly prohibited from contracting out [page383] of the limitation provisions, including the application of the discoverability rule:

22(1) A limitation period under this Act applies despite any agreement to vary or exclude it.

The Law on Summary Judgment

[23] Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 is intended to remove from the trial system those matters in which "there is no genuine issue for trial" [rule 20.04(2)]. Summary judgment shall be granted where the moving party establishes that there is no genuine issue of material fact requiring a trial and the responding party is unsuccessful in establishing that its claim has a real chance of success: see 1061590 Ontario Ltd. v. Ontario Jockey Club (1995), 1995 1686 (ON CA), 21 O.R. (3d) 547, [1995] O.J. No. 132 (C.A.); Guarantee Co. of North America v. Gordon Capital Corp., 1999 664 (SCC), [1999] 3 S.C.R. 423, 178 D.L.R. (4th) 1. The onus rests on the moving party to establish that there is no genuine issue for trial. On a motion for summary judgment, a respondent must "lead trump or risk losing": see 1061590 Ontario Ltd. v. Ontario Jockey Club, supra, at p. 557 O.R. The court is required to take a good hard look at the evidence and the merits of the action and determine whether there is a genuine issue for trial. Self-serving affidavits which merely assert defences without supporting evidence are not sufficient to create a genuine issue for trial: see Rozin v. Ilitchev (2003), 2003 21313 (ON CA), 66 O.R. (3d) 410, [2003] O.J. No. 3158 (C.A.).

[24] The application of a limitation period may be determined at a motion for summary judgment. Summary judgment is not foreclosed in cases where the applicability of the discoverability rule is a central issue: see Morellato v. Wood, 1999 15040 (ON SC), [1999] O.J. No. 2226, 175 D.L.R. (4th) 753 (S.C.J.). However, where the question is one of discoverability and the commencement of a limitation period, that may necessitate a trial of the issue. In Smyth v. Waterfall (2000), 2000 16880 (ON CA), 50 O.R. (3d) 481, 4 C.P.C. (5th) 58 (C.A.), Borins J.A. wrote at p. 485 O.R.: "The determination of when the limitation period begins to run is one of fact." In the recent decision of the Ontario Court of Appeal in MacMillan v. McDermid (2004), 2004 11918 (ON CA), 70 O.R. (3d) 252, [2004] O.J. No. 937 (C.A.), the court said at p. 252 O.R.:

. . . it is generally not appropriate to grant summary judgment when the rule of discoverability is central to the resolution of a limitation issue.

Decision

[25] The date of the alleged breach of contract was January 22, 1997, when Frumcor both transferred 50 per cent of its interest [page384] to Riocan and entered into the 1997 agreement, giving Riocan the sole and exclusive right to purchase the remaining 50 per cent of Frumcor's interest in the property. The limitation provision under the lease reads as follows:

Article 6.12

Any legal proceedings initiated by reason of an alleged breach of this Lease either by the Landlord or by the Tenant must be commenced within one (1) year from the date that such alleged breach occurred.

[26] Vine commenced legal proceedings on September 6, 2002, well outside the limitation period under the lease. The issue is whether the discoverability doctrine applies to this contractual provision negotiated by the parties. If it does not, then the limitation provision governs and the claim must fail. If it does apply, then the issue is whether there is a genuine issue of material fact requiring a trial.

[27] The case at bar differs from those discussed above. The action is based solely in contract, not concurrently in contract and tort. The limitation period at issue is not statutorily imposed, but rather a contractual term. The application of the discoverability rule to a limitation period agreed to by the parties to a contract has yet to be judicially considered. The case at bar deals not with a contract of indemnity, but with a simple contract. This lack of authority was addressed by Graeme Mew in the Law of Limitations, 2nd ed. (Toronto: Butterworths, 2000) at p. 174:

. . . in the absence of a definitive Supreme Court of Canada decision that is not centered on the question of a breach of 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 rule remains unsolved.

[28] I conclude the injustice of a law that bars a claim before the plaintiff is even aware of its existence is arguably the same whether it deals with a statutory limitation period or a limitation period agreed to by the parties to a private contract. Consideration of this question should not be disposed of in a motion for summary judgment, but rather at trial. There, an evidentiary base can be established to address any policy issues which favour or disfavour the application of the discoverability rule to simple contracts.

[29] In Peixeiro, supra, the Supreme Court addressed the injustice of failing to apply the discoverability rule to an insurance contract. This action involved an insurance claim that, at first blush, appeared to be statute-barred by virtue of the Insurance Act, R.S.O. 1990, c. I.8. However, Major J. determined that the discoverability rule should apply and wrote, at para. 39: [page385]

In balancing the defendant's legitimate interest in respecting limitations periods and the interest of the plaintiffs, the fundamental unfairness of requiring a plaintiff to bring a cause of action before he could possibly have discovered that he had a cause of action is a compelling consideration. The diligence rationale would not be undermined by the application of the discoverability principle as it still requires reasonable diligence by the plaintiff.

[30] Vine claims it was not aware that the defendants had breached the lease, by failing to give notice so that it could exercise its right of first refusal, until several years after the one-year limitation expired. It would be unjust to prevent Vine from proceeding to trial because the defendants successfully concealed their breach of contract.

[31] If I am wrong in my conclusion, I turn to consider whether the principles of contract interpretation are relevant to the issues in this case.

[32] Vine argued there is an implied term that the limitation provision in art. 6.12 is subject to the discoverability rule and that the limitation provision is inapplicable because of special circumstances. Terms may be implied in a contract based on custom and usage or based upon the presumed intention of the parties: M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 677 (SCC), [1999] 1 S.C.R. 619, 170 D.L.R. (4th) 577, at pp. 634-36 S.C.R.; Machtinger v. HOJ Industries Ltd., 1992 102 (SCC), [1992] 1 S.C.R. 986, 91 D.L.R. (4th) 491, at p. 1008 S.C.R., per McLachlin J. Whether by way of custom and usage, or the presumed intention of the parties, the determination of whether a term should be implied in a contract depends on the evidence led and the trial judge's findings of fact. The plaintiff may argue that it could not have been the intention of the parties that the limitation provision arise from the date of the alleged breach of the contract as opposed to the date the breach became known.

The plaintiff may also argue there is an implied term of notice in the limitation clause and that the agreement makes no sense without such a term. While it may not be clear at this stage of the proceedings whether the parties intended that a breach be discovered before the limitation period would commence, it is a genuine issue of material fact requiring a trial.

[33] The defendants argue that if the discoverability doctrine applies, Vine had access to all the facts required to determine it had a cause of action during the 1999 tax dispute, at the very latest. It argues that Vine was aware of Riocan's status as joint owners of the property as early as September 14, 1998. The plaintiff's property manager received realty tax bills which showed there were two assessed owners of the property, including Riocan, and other documents relating to the settlement of [page386] the realty tax dispute in 1999. When a plaintiff becomes aware of the material facts to establish a cause of action is "determined by an objective standard, i.e. when they ought reasonably to have been discovered by the plaintiff by the exercise of reasonable diligence": see Soper v. Southcott (1998), 1998 5359 (ON CA), 39 O.R. (3d) 737, 43 C.C.L.T. (2d) 90 (C.A.); Morellato v. Wood, supra.

[34] In this case, the defendants say that Vine failed to "lead trump" -- it merely denied that it had notice of Riocan's involvement in the property.

[35] I find the question of when Vine ought reasonably to have discovered the breach is a question of material fact which can only be resolved at trial.

[36] Generally speaking, where an issue of discoverability arises in relation to a statutory limitation period that is central to the disposition of the matter, it is not appropriate to resolve the matter by way of a summary judgment motion. Where there are material facts in dispute as to the commencement of the limitation period, the matter must be remitted to the trial judge: see Aguonie v. Galion Solid Waste Material Inc., supra, at p. 171 O.R.; Home Savings & Loan Corp. v. Linton (1999), 1999 1832 (ON CA), 120 O.A.C. 316, [1999] O.J. No. 1999 (C.A.), at para. 6.

Result

[37] The appeal of the order of Lissaman J. dated August 11, 2003 is dismissed. The matter shall proceed to trial. Having received the submissions of counsel on costs at the hearing of this appeal, we exercise our discretion in accordance with s. 131 of the Courts of Justice Act and rule 57.01 and award costs as follows: $7,500 for the motion for leave to appeal and $12,500 for the appeal, each award on a partial indemnity basis inclusive of disbursements and GST payable by the defendants to the plaintiff within 30 days.

Appeal dismissed.