BC's New Limitation Act: Responding to the Call for a New Regime
Beyond Numbers · October 2012
By Emily Stock, MBA, LL.B., and David B. Wende, LL.B.
Update: On October 2, 2012, it was announced that the new Limitation Act will come into force June 1, 2013. This article was written prior to the announcement.
For years, the ICABC, along with many other local organizations, has been calling on the provincial government to reform British Columbia's outdated limitation laws. Finally, on May 14, 2012, a new Limitation Act ("New Act") received royal assent. Expected to receive proclamation and come into force in 2013, the New Act will simplify and reduce the time limits for commencing civil lawsuits, and respond to many of the concerns put forward about the current Limitation Act ("Current Act.")
The Current Act
The Current Act dates back to 1975. Since then, the predominant view among business professionals in BC has been that the Current Act permits prolonged exposure for an unreasonable period; adds
significant expense by requiring businesses to maintain records and evidence for an unreasonably long period of time; and significantly adds to the cost of professional liability insurance because of the
increased exposure for claims to be made.
Under the Current Act, an action may be brought against a CA for professional negligence six years after the cause of action is discovered—a sharp contrast to BC's two-year time limit for personal injury or damage to property claims, as well as to the shorter time limits for professional negligence claims in other provinces such as Alberta and Ontario.
A cause of action is considered "discovered" under the Current Act when:
The claimant knows, or should know, of the breach of a duty;
A reasonable claimant would conclude that an action would have a reasonable prospect of success; and
A claimant, acting reasonably, ought to be expected to bring an action.
The test for discoverability is referred to as "subjective/objective," and it has resulted in hundreds of cases, each decided on its own facts. Much focus has been placed on determining which facts were within a claimant's means of knowledge, and on the claimant's personal circumstances. Accordingly, in any given case, there is often great uncertainty as to when the limitation period in which to sue actually expires.
To illustrate the importance of discoverability, consider the length of time during which an action can be brought against a CA if the Current Act is applied:
Assume that the CA failed to discern a defalcation in a review engagement in 2011. Three years later, in 2014, the defalcation is discovered.
In this example, the CA could be sued as late as 2020—six years after the error was discovered, and nine years after the alleged error was made.
There is no question that the CA's defence would be severely prejudiced. Key witnesses, such as staff, might no longer be available or even if available, might not remember the salient facts. Moreover, evidence helpful to the CA may have been disposed of by their employer in the ordinary course of business (although presumably not by the CA, in accordance with Rule 218). Furthermore, the CA might no longer have
insurance that covers the claim.
In short, even if the CA did meet the appropriate standard of care, the passage of time alone would make it more challenging for the CA to successfully defend against such a claim.
Assume that the CA is alleged to have made an error in tax planning with a client (a more common example of much delayed litigation) . Under the Current Act, the limitation period may expire as late as six years after the CRA issues a Notice of Confirmation in response to a Notice of Objection. This means that if the planning error was carried into a 2011 return in 2012, and the Notice of Confirmation of Objection was not to be issued until five years hence, an action could be brought against the CA as late as 2023.
The New Act
Under the New Act, all civil claims will be subject to a two-year limitation period, with the exception of claims that are based on fraud and a few other narrow exceptions. The removal of the tiered two, six, and 10-year limitation periods for different causes of action is a significant improvement in the New Act.
For professional negligence claims, the time during which a claim may be started will be reduced from six years to two, bringing BC in harmony with most other provinces of Canada. In addition, the discovery rules will be simplified significantly. According to the new rule, a claim is "discovered" when the claimant knew or reasonably ought to have known that:
Injury, loss, or damage had occurred;
The injury, loss, or damage was caused by or contributed to by an act or omission;
The act or omission was that of the person against whom the claim is or may be made; and
Having regard to the nature of the injury, loss, or damage, a court proceeding would be an appropriate means to seek to remedy the injury, loss, or damage.
The new test will remove much of the subjectivity in the Current Act and should be easier to apply.
Considering the two examples set out earlier: Under the New Act, both claims would expire two years from the date of discovery. For the review engagement example, that would be 2016; and for the tax-planning example, that would be 2019.
Another significant change in the New Act is to the ultimate limitation period. Under the Current Act, the ultimate limitation period is 30 years from the date on which the right to make a claim arises, which is generally when there has been both a breach of a duty of care and damage sustained. Under the New Act, the ultimate limitation period will be 15 years from the date the act or omission took place. This will simplify the calculation of the ultimate limitation period and greatly reduce its duration.
Implicit permission to contract for a different limitation period
The New Act does not introduce any provisions that would prohibit an individual from negotiating a shorter limitation period. This is contrary to the situation in many of the other provinces; for example, in Alberta, any agreement that purports to reduce the limitation period is deemed invalid.
The highest court in British Columbia endorsed negotiating a shorter limitation period in Howe Sound School District No. 48 v. Killick Metz Bowen Rose Architects and Planners Inc. (2008 BCCA 195). The BC Court of Appeal stated that "parties are entitled to arrange their affairs and assume risks at variance with the duties otherwise imposed by the law of tort." The Court agreed with the defendants that—absent any policy reasons, such as unfair negotiations because of a power imbalance—there was no basis to interfere with the contractual arrangement. The decision was not appealed.
Thus, as long as the limitation period within an engagement letter is reasonable and brought to the client's attention with the opportunity to discuss and vary, it is our view that a shorter limitation period should be upheld by the Courts.
Note: The limitation period specified within any engagement letter only limits the time in which the client may sue the CA. Specific disclaimers may be appropriate within the work product to reduce or limit the CA's exposure to third parties.
Transitioning from the Current Act to the New Act
Until the New Act comes into force (expected in 2013), all of the provisions of the Current Act will continue to apply.
When the New Act comes into force, it will apply to some claims arising from acts or omissions that occurred before its implementation; specifically, the New Act will apply to those claims that are
"discovered" after it comes into force. In practice, this means that in order for a claimant to have the benefit of the longer limitation periods provided under the Current Act (i.e. six years for certain claims), they will have to establish that they discovered their claim before the New Act came into force.
Implications of the New Act for CAs
The New Act is good news for CAs and their clients. It will make BC's limitation regime more consistent with the other jurisdictions across Canada that have modernized limitation statutes, such as Ontario, Alberta, Saskatchewan, and New Brunswick. It will also provide more certainty about the application of limitation periods, and a more appropriate period of time in which claimants can start actions.
While the New Act will substantially reduce the time in which a claim may be started, there is still the risk of a lengthy limitation period of 15 years if a claimant does not discover their claim. Accordingly, the authors continue to recommend that CAs include a limitation of liability clause in their client engagement letters. This period of time must be reasonable—enabling a client to discover the error and assess whether to bring a claim.
The authors have made sample engagement letters available to all members on the Institute's website. The Institute has been supportive of our recommendation of a four-year limitation period in response to the current legislation. When the New Act comes into effect, we would suggest that a limitation period of three years would be reasonable for all engagements outside of tax planning. A three-year limitation period permits a one-year period for discoverability.
For a tax-planning matter, it may be more difficult to uphold a three-year limit, given the time in which the CRA is permitted to reassess a return. Therefore, it is our view that a four-year minimum limitation period for tax planning would be more appropriate.
CAs should be aware of the upcoming changes to the Limitation Act and should consider the implications for their clients and for their own practices.
Emily Stock, MBA, LL.B., is an associate with Alexander Holburn Beaudin + Lang LLP in Vancouver. David B. Wende is a partner of the firm through his professional law corporation, and leads the firm's Financial Professional Services practice group. Both have worked extensively with the ICABC's PD program, leading seminars on limited liability for the free, biannual risk management seminar, and teaching courses on engagement letters and other topics.
The authors have long advocated that CAs should negotiate a reasonable limitation period in their engagement letters, where appropriate. See for example, "Making the Case for Limitation of Liability Clauses" (Beyond Numbers, May 2007; www.ica.bc.ca/kb.php3?pageid=3931), and the suggested wording for such limitations in the sample engagement letters provided by Alexander Holburn Beaudin + Lang LLP on the ICABC website (www.ica.bc.ca/kb.php3?catid=969).
ICABC Government Relations Activities
The ICABC has consistently supported government policies that reduce the regulatory burden on business. As such, the Institute has advocated for a shorter ultimate limitation period in BC for many years.
In 2007, the ICABC provided feedback on a green paper the provincial government had issued on Limitation Act reform; the Institute recommended the adoption of a 10-year ultimate limitation period, which would bring BC in line with Alberta legislation. This recommendation was also endorsed in a joint position paper submitted by the ICABC, the Architectural Institute of BC, the Professional Engineers and Geoscientists of BC, and the Consulting Engineers of BC.
In 2011, MLA Ralph Sultan introduced a private members' bill resurrecting Limitation Act reform. Then in early 2012, the ICABC, along with the Consulting Engineers of BC and the Insurance Bureau of Canada, submitted a letter to BC's attorney general in support of legislative reform. The ICABC also called for a reduction in the ultimate limitation period in its 2012/2013 Budget Submission to the Select Standing Committee on Finance and Government Services.
The ICABC is pleased that the provincial government has made Limitation Act reform a priority. The new 15-year ultimate limitation period will align the province with other jurisdictions, provide protection for consumers, and reduce the cost of doing business for professionals.