Court File and Parties

COURT FILE NO.: CV-17-2106 DATE: 20220114

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

DAVID WESTLAKE, Plaintiff

– and –

1160145 ONTARIO INC., carrying on business as O’NEILL CONTRACTING and M.J. DAVENPORT & ASSOCIATES LTD., Defendants

COUNSEL:

John W. Montgomery, for the Plaintiff Marie Sydney, for the Defendant M.J. Davenport and Associates Ltd. Robert Zochodne, for the Defendant 1160145 Ontario Inc.

HEARD: January 11, 2022

BEFORE: J. Speyer J

Endorsement

[1] David Westlake, the plaintiff, is the developer of a small residential subdivision in the City of Kawartha Lakes. The defendant M.J. Davenport and Associates Ltd. is an engineering consultant retained by Westlake, and was the engineer of record for the project. The defendant 1160145 Ontario Inc. is a contractor retained by Westlake to carry out the work required for the project.

[2] Westlake commenced this action in July 2017. Westlake claims that 1160145 breached its contract by constructing a cul-de-sac that was smaller than required by the design drawings, and that Davenport breached its duty of care by failing to properly design the cul-de-sac, failing to monitor the performance of 1160145, and failing to ensure that the cul-de-sac was constructed in accordance with the requirements of the City. Pleadings closed in February 2018. Nothing has happened since then to move the action forward. New counsel was retained by the plaintiff in 2020.

[3] In the fall of 2018, Westlake took steps to have a finishing topcoat of asphalt applied to the roadway. A new consultant recommended a geotechnical investigation to determine why the roadway was damaged. That investigation revealed that the damage was caused by poor drainage.

[4] Westlake moves to amend its statement of claim to add a claim for damages related to alleged deficiencies in the construction of the entire roadway, not limited to the cul-de-sac.

[5] Both defendants oppose the amendment, on the basis that the limitation period expired before the motion to amend was initiated. They accept that the plaintiff actually discovered the claim in January of 2019, when Westlake received a geotechnical report. It is their position that the plaintiff has not shown why the claim could not have been discovered earlier by the exercise of due diligence. They also argue that their defence of the proposed amended claim would be prejudiced by the passage of time.

[6] Counsel for the plaintiff concedes that the proposed amendments to the statement of claim constitute a new cause of action that is subject to the two year limitation period prescribed by s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched B. Counsel for the plaintiff also concedes that any claim based on the design of the road is barred by the ultimate 15-year limitation period because the design was completed in 2005.

[7] The issues to be decided are:

1. Has the two-year limitation period expired because the plaintiff should have discovered its claim by the exercise of due diligence before the limitation period expired?
2. Would the defendants suffer non-compensable prejudice if the statement of claim is amended as requested?

A. Material facts

[8] Westlake hired Davenport in 2005 to create the designs and engineering drawings for the project, and to inspect the work done by the contractor to ensure that it conformed with the designs and with the requirements of the City of Kawartha Lakes. The design was completed and approved by the City in 2005.

[9] In 2005, Westlake hired 1160145 to carry out the construction work required for the project. In 2005 and 2006 1160145 graded the site to conform to the grading plan developed by Davenport, constructed the storm water management system, and constructed the roadway. The roadway construction was completed to point of laying the base course of asphalt. The top course was to be laid later, after construction of the subdivision houses was completed.

[10] Sales of the serviced lots began in 2007 but proceeded slowly. By 2015, houses had been constructed on 14 of the 20 lots. Westlake contacted Davenport to initiate the process of applying to the City of Kawartha Lakes for the release of funds deposited under the terms of the subdivision agreement.

[11] On July 7, 2015, the City of Kawartha Lakes inspected the road. On July 10, 2015, the City wrote to Westlake and advised that the base asphalt was showing depressions and cracking. The City advised Westlake that the base asphalt would have to be repaired, and a further inspection conducted before it would approve the placement of the top course of asphalt. The general road base repair was not subject to the City’s immediate July 2015 deadline for the repair of deficiencies. Westlake forwarded the City’s letter to Davenport for its review.

[12] Davenport then inspected the site and, by letter dated August 26, 2015, advised the City and Westlake that in its view, the roadway was in “excellent condition” after nine years of use, and recommended that the topcoat of asphalt be applied in the fall of 2015. The City disagreed.

[13] In an email sent on September 3, 2015, Davenport advised Westlake of a further deficiency. The cul-de-sac constructed by 1160145 was smaller than specified in the approved design and remedial work was required to reconstruct the cul-de-sac. The email also listed other “primary issues with the existing condition of the subdivision”. None refer to problems with the roadway or the roadbed. An email sent a minute later by Davenport to Westlake added that “the road crossing culvert that has heaved must be reconstructed”.

[14] By letter dated February 3, 2016, Davenport instructed 1160145 to repair the base coarse of asphalt to the satisfaction of the municipal staff in the summer of 2016, and to then apply the surface coat of asphalt. The work was not carried out in 2016 for reasons that are not fully explained in the evidence on this motion. However, email exchanges between Westlake and Davenport on February 5, 2016 reveal that a dispute arose between Westlake and Davenport over invoices sent by Davenport to Westlake for Davenport’s work in the fall of 2015. Davenport told Westlake that while Davenport remained as engineer of record on the project, the project “is now officially on hold until payment is received in full”.

[15] By the fall of 2016, Westlake had retained counsel [not counsel on this motion]. This action was commenced on July 27, 2017, seeking recovery of costs and losses associated with the remediation of the cul-de-sac.

[16] In the summer of 2017, Westlake retained a new consultant, M.V. Wilson Engineering Inc., to provide a grading certificate for one of the lots at a homeowner’s request. Wilson conducted a survey that revealed deficiencies in some elevations and drainage features of the project which did not conform to the approved project design. These deficiencies were investigated and remediated in February 2018. These deficiencies did not relate to the construction of the roadway.

[17] In September 2018, Westlake asked Wilson to begin work to plan the supply and installation of a top course of asphalt on the roadway. Wilson recommended that a geotechnical investigation be conducted because the roadway was in poor condition.

[18] A geotechnical investigation was carried out by Cambium Inc. Cambium provided its report to Westlake on January 4, 2019. The report indicates that groundwater at shallow depths under the roadway caused damage to the roadbed and the asphalt. The report recommends that the asphalt and roadbed be pulverized and excavated, and that the roadway be reconstructed. It also recommends that the existing culverts be replaced, and that the existing drainage ditches be improved.

[19] The proposed amendments to the Statement of Claim relate to the cost of the roadway repairs recommended by Cambium. The Notice of Motion to amend the Statement of Claim is dated January 28, 2021, and the motion record was served on the defendants by email on that date. There is no suggestion that the delay in hearing the motion was caused by anything other than pandemic-related adjustments to court operations.

[20] Since pleadings closed in February 2018, no steps have been taken to advance the action until May 2020, when the plaintiff retained new counsel. Affidavits of documents have not been served, and discoveries have not been scheduled.

B. Analysis

(1) Has the two-year limitation period expired because the plaintiff should have discovered its claim by the exercise of due diligence before the limitation period expired?

[21] Westlake concedes that he seeks to add a new cause of action arising from facts not pleaded in the original statement of claim.

[22] In Polla v. Croatian (Toronto) Credit Union Limited, 2020 ONCA 818, leave to appeal refused, , at paras. 32-33, the Court of Appeal explained that amendment to a statement of claim will be refused if a limitation period has expired in respect of a proposed new claim.

[32] The general rule respecting the amendment of pleadings is that an amendment shall be granted at any stage of a proceeding on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 26.01. The expiry of a limitation period in respect of a proposed new claim is a form of non-compensable prejudice, where leave to amend to assert the new claim will be refused: Klassen v. Beausoleil, 2019 ONCA 407, 34 C.P.C. (8th) 180, at para. 26.

[33] ... In 1100997 Ontario Limited v. North Elgin Centre Inc., 2016 ONCA 848, 409 D.L.R. (4th) 382, this court observed that an amendment to a statement of claim will be refused if it seeks to assert a “new cause of action” after the expiry of the applicable limitation period. As this court explained, at para. 19, in this context, a “cause of action” is “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person” (as opposed to the other sense in which the term “cause of action” is used – as the form of action or legal label attached to a claim: see the discussion in Ivany v. Financiere Telco Inc., 2011 ONSC 2785, at paras. 28-33).

[23] Sections 4 and 5 of the Limitations Act describe when a limitation period in respect of a claim has expired:

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

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).

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[24] The acts or omissions on which the new claim is based occurred in 2005 or 2006. The parties agree that the acts or omissions were actually discovered by Westlake when it received the geotechnical report in January 2019. The parties agree that if a reasonable person with the abilities and in the circumstances of Westlake first ought to have known that a loss had occurred in January 2019, that the limitation period has not expired. [^1] That is less than two years and 183 days prior to the commencement of this motion to amend the statement of claim, which stopped the limitation clock.

[25] Davenport and 1160145 submit that a reasonable person with the abilities and in the circumstances of Westlake first ought to have known in January 2018 that a loss had occurred. They say that when Wilson was hired as the new engineering consultant in 2017, Westlake knew that the base course of asphalt needed to be repaired. Had Wilson been asked to complete the roadwork when he was first retained in the summer of 2017, he would have recommended that the geotechnical investigation occur then. If Wilson had recommended a geotechnical investigation in the summer of 2017, then the report from Cambium would have been received by January of 2018, and Westlake would have discovered then that a loss had occurred. The limitation period would have expired in January of 2020.

[26] Thus, the outcome of this motion turns on whether a reasonable person with the abilities and in the circumstances of Westlake ought to have caused Wilson to complete the roadwork in the summer of 2017. There is no question that once Westlake, or a reasonable person with the abilities and in the circumstances of Westlake, knew that a loss had occurred, that they also knew that it was caused by or contributed to by an act or omission, that the act of omission was that of Davenport and/or 1160145, and that a proceeding would be an appropriate means to seek a remedy.

[27] All parties rely on the Court of Appeal’s explanation of the meaning of “reasonable discoverability” in Morrison v. Barzo, 2018 ONCA 979. While Morrison dealt with adding a party to an action, the principles that govern adding a new cause of action to a claim are the same. In Morrison, at paras. 29-32, van Rensburg J.A. stated:

[29] Where there is a question as to whether claims covered by the basic two-year limitation period are statute-barred, such that parties cannot be added pursuant to s. 21(1) of the Limitations Act, the court must make a finding as to when the plaintiff first knew the elements of the claim listed in s. 5(1)(a). If the date of actual discovery, as determined by the court, would bring the claim within the limitation period, and the proposed defendant relies on "reasonable discoverability" to contend the claim was brought outside the prescription period, the court must go on to determine under s. 5(1)(b) when "a reasonable person with the abilities and in the circumstances of [the plaintiff] first ought to have known of the matters referred to in clause (a)". While a plaintiff's due diligence is relevant to the finding under 5(1)(b), the absence of due diligence is not a separate basis for dismissing a claim as statute-barred: see Fennell v. Deol, 2016 ONCA 249, 97 M.V.R. (6th) 1 (Ont. C.A.), at paras. 18 and 24; Galota v. Festival Hall Developments Ltd., 2016 ONCA 585, 133 O.R. (3d) 35 (Ont. C.A.), at para. 23. This is the case whether expiry of the limitation period is at issue in a motion for summary judgment or in a motion to add a defendant: Mancinelli v. Royal Bank of Canada, 2018 ONCA 544, 24 C.P.C. (8th) 1 (Ont. C.A.), at para. 30.

[30] Reasonable discoverability of a claim under s. 5(1)(b) that precludes adding a party contrary to s. 21(1) requires an evidentiary foundation. The court must be satisfied that a reasonable person in the plaintiff's circumstances ought to have discovered the claim, and the date of such reasonable discovery must be determined. It is not sufficient for the court to say that the claim was discoverable "before the expiry of the limitation period", without explaining why. It may be that the date of reasonable discoverability can only be determined at a later stage in the proceedings, at trial or on a summary judgment motion. In such a case, the motion to add the defendant should be granted, with leave for the defendant to plead a limitation defence: Mancinelli, at paras. 31 and 34.

[31] The evidentiary burden on a plaintiff seeking to add a defendant to an action after the apparent expiry of a limitation period is two-fold. First, the plaintiff must overcome the presumption in s. 5(2) that he or she knew of the matters referred to in s. 5(1)(a) on the day the act or omission on which the claim is based took place, by leading evidence as to the date the claim was actually discovered (which evidence can be tested and contradicted by the proposed defendant). The presumption is displaced by the court's finding as to when the plaintiff subjectively knew he had a claim against the defendants: Mancinelli, at para. 18. To overcome the presumption, the plaintiff needs to prove only that the actual discovery of the claim was not on the date the events giving rise to the claim took place. It is therefore wrong to say that a plaintiff has an onus to show due diligence to rebut the presumption under s. 5(2): Fennell, at para. 26.

[32] Second, the plaintiff must offer a "reasonable explanation on proper evidence" as to why the claim could not have been discovered through the exercise of reasonable diligence. The evidentiary threshold here is low, and the plaintiff's explanation should be given a "generous reading", and considered in the context of the claim: Mancinelli, at paras. 20 and 24. [Emphasis added.]

[28] Davenport and 1160145 submit that Westlake has not adduced any evidence as to why he could not have discovered his claim through the exercise of reasonable diligence. They say that the City told Westlake that repairs were required in the summer of 2016. After his conflict with Davenport, Westlake did not ask Wilson to complete the roadwork until September 2018. There is no evidence that explains that delay. The defendants rely on Morrison, at para. 32, in support of their argument that Westlake has not provided a reasonable explanation on proper evidence as to why, given that he knew that he had to repair the road, he did not ask Wilson to deal with the road until September 2018.

[29] Westlake responds that in the face of Davenport’s inspection of the site and subsequent letter to Westlake of August 26, 2015, advising that the roadway was in “excellent condition” after nine years of use, and recommending that the top course of asphalt be applied in the fall of 2015, he had no reason to doubt the integrity of the roadbed. He relied on the defendant’s opinion. He did not do more because the defendant told him that not much was needed. While the City disagreed with Davenport’s opinion that no repairs to the base course were required, it required only that depressions and cracking be repaired before it would approve the application of a top course of asphalt. The City did not identify any problem with the integrity of the roadbed.

[30] In my view, in the summer of 2015 Westlake had no reason to believe that the roadbed was improperly constructed, or that its integrity was compromised. Westlake knew that the base course of asphalt would need to be repaired but had no reason to believe that that the roadbed would need to be rebuilt. Westlake had no reason to believe that any investigation of the roadbed’s integrity was necessary or prudent.

[31] The evidence satisfies me that nothing happened between the summer of 2015 and the summer of 2017 that would have caused a reasonable person with the abilities and in the circumstances of Westlake to realize that that the roadbed would need to be rebuilt or that any investigation of the roadbed was needed. The defendants acknowledge that there was no change in the condition of the road during that time. While Westlake retained Wilson in the summer of 2017, Wilson was retained to provide a grading certificate for one of the lots at a homeowner’s request, and to conduct a survey that revealed deficiencies in some elevations and drainage features of the project which did not conform to the approved project design. These deficiencies did not relate to the construction of the roadway. Westlake had no reason in the summer of 2017 to cause Wilson to examine the roadbed. This reasonably explains why Westlake did not cause Wilson to examine the roadbed in the summer of 2017 and is grounded in the evidence.

[32] It was only in September of 2018, when Westlake asked Wilson to begin work to plan the supply and installation of a top course of asphalt on the roadway, that Wilson recommended that a geotechnical investigation be conducted. Westlake acted promptly on that recommendation by retaining Cambium.

[33] Westlake was under no obligation to complete the installation of the top course of asphalt at any particular time. The City had told Westlake in the summer of 2015 that the base course of asphalt would have to be repaired prior to further inspection to approve the placement of the top course of asphalt, but that the general road base repair was not subject to the City’s July 2015 deadline for the repair of deficiencies. There is no evidence that Westlake faced any deadline for the repair of the base course of asphalt.

[34] This case is unlike Gordon Dunk Farms Limited v. HFH Inc., 2021 ONCA 681, where the Court of Appeal concluded that the plaintiffs did not require an expert report to discover the specific acts or omissions that caused or contributed to their loss. The trial judge in that case found as a fact that the plaintiffs knew shortly after their barn collapsed that the defendants were responsible for the development and delivery of the barn, and that the barn collapsed because of the failure of one or more aspects of the planning and erection of the barn. The present case is different because I have found that the plaintiff did not know, and had no reason to know, until he received the expert report, that there was any problem with the roadbed. To the contrary, Westlake had been told by Davenport that the roadway was in excellent condition, and by the City that only patching was required. It was reasonable for Westlake to rely on those representations.

[35] In summary, I find that a reasonable person with the abilities and in the circumstances of Westlake first ought to have known of the problems with the roadbed, and the loss associated with those problems, when Westlake acquired actual knowledge of those problems in January 2019.

(2) Would the defendants suffer prejudice if the statement of claim is amended as requested?

[36] Leave to amend a pleading shall be granted on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment: Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 26.01.

[37] Both defendants submit that the passage of time since the roadbed was constructed in 2005 and 2006 leads to a presumption of incompensable prejudice. 1160145 additionally submits that it would be prejudiced if leave is granted to amend the pleading to add the new cause of action because Bill O’Neill is deceased. Davenport does not assert that it will suffer any specific prejudice if the amendment is permitted.

[38] Westlake responds that while there has been a significant passage of time since the roadway was built, the defendants will not be prejudiced by the amendment of the statement of claim. Discoveries have not yet been conducted. Work to reconstruct the roadbed has not been done yet, and therefore it can be inspected by the defendants. There is no evidence that the defendants have lost records or a key witness.

[39] Counsel for 1160145 advises the Bill O’Neill died on December 27, 2018. There is some evidence in the record about Bill O’Neill’s role in 1160145. It is contained in correspondence that was filed as exhibits to the affidavit of Murray Davenport. Mr. Davenport’s letter of February 3, 2016 listing work to be done in the summer of 2016 was addressed to Bill O’Neill. Emails from Mr. Westlake to Mr. Davenport dated February 5, 2016 note that “Bill constructed Westlake Court”, and state that “I got no explanation for this mistake from you or Bill at our meeting [apparently on February 3, 2016, between Mr. Westlake, Mr. Davenport and Mr. Bill O’Neill]”, and asks “Was this Bill’s fault? Was this your fault? Was this the City of Kawartha’s fault?”. The evidence is that Bill O’Neill was at least the point of contact between Westlake and 1160145. However, no affidavit has been provided on behalf of 1160145 that describes any specific prejudice to its ability to defend an amended action flowing from Mr. O’Neill’s death. No affidavit was provided from any representative of 1160145.

[40] I will first consider whether this is a case where a presumption of prejudice arises, and if so, whether that presumption has been rebutted. I will then assess whether, given the death of Bill O’Neill, 1160145 would be prejudiced if the statement of claim is amended.

[41] Non-compensable prejudice will be presumed, absent evidence to the contrary, after “an exceptional delay”. This principle is grounded in concerns about fairness. The delay to be considered is any delay in seeking the amendment of the pleading. The prejudice must flow from the amendment and not from some other source: 1588444 Ontario Ltd. v. State Farm Fire and Casualty Company, 2017 ONCA 42 at paras. 25, 36-42.

[42] The delay in seeking the amendment of the pleadings in this case is the time between when the action was commenced, and when the amendment was sought. The statement of claim was issued in July 2017. The cause of action sought to be added to the claim was discovered in January 2019 and could not reasonably have been discovered until then. The motion to amend was brought January 28, 2021. Thus, there has been a delay of two years between the time when the motion to amend could have been brought, and when it was served. The delay is explained in part by the fact that the plaintiff retained new counsel during that time. Present counsel was retained by the plaintiff in June 2020.

[43] I do not consider this delay to be exceptional. The delay is not so lengthy, and the justification is not so inadequate, that prejudice to the responding party should be presumed.

[44] As to actual prejudice, the onus to prove actual prejudice is on 1160145: 1588444 Ontario Ltd. v. State Farm Fire and Casualty Company, at para. 25. Davenport has not alleged actual prejudice.

[45] The prejudice alleged by 1160145 Ontario Inc. is prejudice to its ability to defend an amended action caused by the death of Bill O’Neill. 1160145 has provided no evidence as to the impact of his death on its ability to defend the action if the statement of claim is amended to include the new cause of action.

[46] On the record before me, I am not persuaded that amendment of the statement of claim to include the claim arising from the construction of the roadway will result in prejudice to 1160145. The triable issues for 1160145, if the amendment is permitted, relate to the construction of the roadbed – how it should have been constructed, and how it was constructed. The claim is for breach of contract. Proof of the terms of the contract relating to how the road was to be constructed does not depend on viva voce evidence. The roadbed remains available for inspection by 1160145 to gather evidence about how it was in fact constructed. No procedural steps have been taken in the action after the pleadings were filed, so there will be no need to repeat any steps.

C. Conclusion

[47] The motion for leave to amend the statement of claim succeeds, and leave is granted.

[48] An issue arose during the hearing of the motion as to whether the plaintiff claims damages arising from the design of the roadway. Final design drawings were submitted by Davenport to the City on April 29, 2005 and were approved by the City on May 17, 2005. The design of the road has not changed. Counsel for the plaintiff conceded at the hearing of this motion that any allegation of negligent design of the roadway is precluded by the 15 year limitation period contained in s. 15 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.

[49] The defendants submit that if leave to amend the statement of claim is granted, that it should be granted without prejudice to the defendants’ ability to raise a limitation defence at trial. Westlake submits that the parties filed a complete record before me upon which the limitation issue can be finally determined.

[50] It would not be appropriate to preclude the defendants from pleading a limitation defence if such a defence becomes viable. This action is still in its early procedural stages. Affidavits of documents have not been exchanged. Discoveries have not taken place. As the litigation proceeds, the record will evolve. Therefore, leave to amend the statement of claim as sought in the draft amended statement of claim, is granted without prejudice to the defendants’ ability to raise a limitation defence at trial.

[51] If the parties are unable to agree as to costs, brief written submissions, not to exceed 3 pages in addition to a bill of costs, shall be submitted to my judicial assistant at Caitlyne.parsons@ontario.ca. The plaintiff’s submissions are to be filed not later than three weeks after the release of this judgment. The defendant’s submissions are to be filed not later than four weeks after the release of this judgment.

J. Speyer J Released: January 14, 2022

Footnote

[^1]: On March 20, 2020, the Ontario government issued Reg. 73/20 under the Emergency Management and Civil Protection Act, R.S.O. 1990, c. E.9, which suspended all limitation periods retroactive to March 16, 2020. The suspension was in force for 183 days, and in the circumstances of this case extended the limitation period by 183 days.