One of the challenges in subrogation claims is identifying all of the potential Defendants.  For example, in a claim alleging a manufacturing defect, the ‘manufacturer’ may have sourced our part or all of the manufacturing process.  This sometimes creates challenges in ensuring that all potential defendants are at the table when litigation commences.

In Alberta you generally have 2 years from the date of loss to sue, or 10 years from the date of negligence, whichever expires first.  You then have 1 year to serve the Statement of Claim, unless you get a 3 month extension, and that application for an extension must be made within the 1 year service period.

The relevant provision in the Limitations Act says:

3(1)  Subject to subsections (1.1) and (1.2) and section 11, if a claimant does not seek a remedial order within

(a)    2 years after the date on which the claimant first knew, or in the circumstances ought to have known,

(i)    that the injury for which the claimant seeks a remedial order had occurred,

(ii)    that the injury was attributable to conduct of the defendant, and

(iii)    that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding,

or

         (b)    10 years after the claim arose,

whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim.

Cases interpreting section 3 of the Limitations Act frequently speak of “discoverability” in assessing when a party knew or ought to have known of a claim.

Section 3 outlines the test for new claims.  However, there is a completely different regime for adding parties to already existing actions.   Cue section 6 of the Limitations Act.  Section 6 (4) allows adding parties to an existing litigation after the expiry of the limitations period, if the added claim relates to the “conduct, transaction or events described in the original pleading” and the defendant received notice of the added claim within the limitation period plus the time for service, such that the defendant is not prejudiced in defending the claim on its merits:

6(4)  When the added claim adds or substitutes a defendant, or changes the capacity in which a defendant is sued,

(a)    the added claim must be related to the conduct, transaction or events described in the original pleading in the proceeding, and

(b)    the defendant must have received, within the limitation period applicable to the added claim plus the time provided by law for the service of process, sufficient knowledge of the added claim that the defendant will not be prejudiced in maintaining a defence to it on the merits.

Section 6(5) of the Limitation Act then shifts the onus of proof.  The Plaintiff must initially prove that the claim relates to the “conduct, transaction or events described in the original pleading”, but then the onus of proof shifts to the Defendant to prove that he or she was not served within the limitation period plus time for service and that he or she has been prejudiced in defending the claim on the merits:

6(5)  Under this section,

(a)    the claimant has the burden of proving

(i)    that the added claim is related to the conduct, transaction or events described in the original pleading in the proceeding, and

         (ii)    that the requirement of subsection (3)(c), if in issue, has been satisfied,

 and

(b)    the defendant has the burden of proving that the requirement of subsection (3)(b) or (4)(b), if in issue, was not satisfied.

 (a)  Conduct, Transaction or Events Described in the Original Pleading

This is often referred to as the “relatedness test”.   In 513320 Alberta Inc. v. Jean, 2015 ABQB 826, the Court confirmed that the test has a low threshold, and the real question is whether additional evidence will be required to prove the new allegations in the proposed amendment.  In the Court’s view, “The key is whether the proposed amendments simply elaborate on existing allegations or whether they broaden the scope of the Plaintiff’s claims beyond the parameters of the original pleadings”.

In most subrogated cases the relatedness test is unlikely to play a significant role if substituting one manufacturer for another or one subcontractor for another.  In most cases you are simply seeking to substitute the actual corporate entity for your John Doe or ABC Corporation.  As soon as the Plaintiff has established that the added claim is related to the original pleading, the burden of proof immediately shifts to the proposed defendant to prove that they did not have notice of the claim during the relevant period of time and that they will be prejudiced in maintaining a defence.

(b)  Notice of the Claim

The starting point for notice is that related companies will generally be viewed as one and the same such that notice to one will be deemed to be notice to the other.

In R. v. Canadian National Railway, 2001 ABQB 984, an application was brought outside of the limitation period and outside of the time for service to substitute a party.   This matter arose out of a fire.  RailLink Inc. was named as a Defendant, but it later came to light that a wholly owned subsidiary, Rail Link Canada Ltd. was the appropriate defendant.  In this case the Court, without any direct evidence, simply accepted that Rail Link Canada Ltd. had received notice within the time required by section 6(4) of the Limitations Act because of the relationship between the two defendants,.

27      While there is no direct evidence of this, I am also prepared to conclude that RaiLink Canada Ltd. obtained notice of the claim within the limitation period plus the time for service of process as required by ss. 6(4)(b). I draw this conclusion because RaiLink Canada Ltd. is a wholly subsidiary of RaiLink Ltd., and because of the correspondence quoted in para. 3, supra. In any event, ss. 6(5)(b) places on the defendant the burden of disproving the requisite knowledge. In this case the Defendant has filed no evidence, and the Plaintiff is entitled to succeed.

The decision was affirmed on appeal.

In Poff v. Great Northern Data Supplies (AB) Ltd., 2015 ABQB 173, the Court confirmed that receipt of an Amended Statement of Claim is not what is meant by notice of the claim.  Rather, simply knowledge of the added claim is generally sufficient.  In Poff the Plaintiff sued one corporate entity, but not its related organization.  Since both organizations shared directors, the Court attributed the knowledge of one corporate entity to the other.

The case law also suggests that notice to an insurer can be sufficient.  McDonnell v. Csaki, 2014 ABQB 452 involved multiple claimants and multiple actions arising out of a motor vehicle collision.  Not all of the Plaintiffs named the same Defendants in their respective actions and, after the limitation period expired, an application was brought to amend several claims to add various Defendants.   The Court approached the issue from agency principles and concluded that different rules apply when an insurer is involved:

44      With respect, I am not persuaded that as a general rule section 6(4)(b) should be interpreted as always requiring personal knowledge of a defendant, particularly an insured defendant. First, I am concerned it would do mischief to create a rule that when interpreting legislation, knowledge of an agent cannot be imputed to the principal except where expressly provided. The principles of agency would tend to the opposite presumption, because notification given to an agent is presumptively effective as notice to a principal if it is received by an agent within the scope of its authority — regardless of whether it is subsequently transmitted to the principal, and the law imputes the knowledge to the principal.

Further, the Court directed that the real issue was whether there was sufficient knowledge of the claim to avoid prejudice.

87      … A defendant cannot meet its burden of proving that the requirement of sufficient knowledge has not been met by relying on categorical assertions of who received the knowledge and what it contained. Rather, the defendant must show that it did not receive sufficient knowledge as to avoid prejudice in maintaining a defence on the merits.

The Court noted that the insurer was aware of the accident and conducted an investigation shortly after the loss:

91      I conclude that knowledge of Schnapps insurer, its claims adjuster and its appointed counsel constitute knowledge of Schnapps for the purpose of section 6(4)(b) of the Limitations Act. It is clear that after initial service of the first claim on Schnapps at its registered office, the insurer assumed control of investigation and defence. Gowlings were appointed as counsel for the first action and have represented Schnapps’ interests in respect of all the other actions — including these applications.

92      As observed earlier, the question of what constitutes “sufficient knowledge” within the meaning of section 6(4)(b) is linked to the avoidance of prejudice in defending the claim. The party responsible for defending the claims arising out of the accident, it can be inferred from the evidence, is Schnapps’ liability insurer. Indeed, it can also be inferred that it is the party at risk on the claims, given its apparent failure (or that of its counsel) to appraise Schnapps of the involvement of additional parties since service of the Wicks and Wright actions.

One of the arguments raised was that Schnapps’ defence counsel had a limited retainer.  This argument fell flat, and the Court concluded that defence counsel had an obligation to report on other claims even on a limited retainer:

93      Schnapps argues as well that notice to Gowlings such as in the form of the letter from McDonnell’s former counsel is not notice to Schnapps because Gowlings only had a retainer on actions in which Schnapps had been named. Whatever technical merit there may be in defining the retainer in those limited terms, it cannot tenably be suggested that in those circumstances Gowlings would not be obliged to notify the Schnapps party at risk (presumably the insurer) of notifications of this nature — unless it understood its retainer to already relate to all actions against Schnapps arising from the accident.

As a result, the amendments were permitted.

(c)   Prejudice

What is clear from the cases is that mere passage of time is not sufficient to establish prejudice.  McDonnell v. Csaki demonstrates the need for actual prejudice to be shown.

The approach taken in most of the cases is for the Defendant to focus on notice of the added claim without addressing any actual prejudice.   If a proposed Defendant fails to tender evidence on notice and prejudice, the amendments will be permitted.

(d)  Does Discoverability have any role?

In R. v. Canadian National Railway, the Court directed that section 6 of the Limitations Act applies to merely substituting a party.  This was affirmed by the Court of Appeal.

However, in 2010, the Court made the following comments in Dow Chemical Canada Inc. v. Nova Chemicals Corp.:

64      Traditionally, when there is an issue of limitations and an amendment is sought, a court may:

1. Determine the limitation period has not expired and allow the amendment.

2. Rule the limitation period has expired and therefore consider s.6 of the Limitations Act which provides for when an amendment can be made beyond the limitation period.

3. Find that because of uncertainty in the evidence, the amendments should be allowed subject to the determination of the limitation issue at trial: Hill v. Hill, [2007] A.J. No. 1515 (Alta. Q.B. [In Chambers]) at para. 22, aff’d 2007 ABCA 293 (Alta. C.A.) at para. 10.

Some subsequent cases have adopted this framework in approaching limitations issues.  They first consider whether discoverability applies under section 3 of the Limitations Act.  If that limitation period has clearly expired, then the Court looks to Section 6.  This opens the door to adding parties where their existence has been discovered after the limitation period has expired, and where they have not received notice of the claim within 3 years of the loss.

For instance, in Brough v. Yipp,  2015 ABQB 711, the Court determined that the Plaintiff’s limitation period for adding a physician to his medical malpractice suit started when he learned of that physician’s role at Questioning years after the loss.  Although there was mention of the physician in medical records, the scope of his involvement was not known until Questioning years later.  The Court concluded that the Plaintiff was within his limitation period to sue under the discoverability rules contained in section 3 of the Limitations Act, because he amended his claim to add the doctor within 2 years of Questioning.  As a result, the Court did not need to go further to consider section 6 of the Limitations Act.

This line of argument is far from settled, but certainly opens up the possibly for adding parties even where Section 6 of the Limitations Act does not assist.

The law was recently succinctly set out in 513320 Alberta Inc. v. Jean, 2015 ABQB 826, a decision from Justice Goss:

32      Where a party wishes to amend pleadings to add parties or to add claims after the expiration of a limitation period, the Court must evaluate whether each of the requirements of s 6 are made out in the circumstances of that particular case: Stout Estate v. Golinowski Estate, 2002 ABCA 49 (Alta. C.A.) at para 100; R. v. Canadian National Railway, 2003 ABCA 69 (Alta. C.A.) at para 3. This has been called the “functional approach” and presumes that amendments will be allowed unless the party resisting amendment can show it will suffer actual prejudice: Stout Estate at para 97. Where each of the requirements is satisfied, the cumulative effect of s 6 is to eliminate the immunity granted by s 3 of the Act, in favour of having the added claim heard with the original claim(s) in a single proceeding: Poff at para 37; R. v. Canadian National Railway, 2003 ABCA 69 (Alta. C.A.).

Overall, section 6 of the Limitations Act can play a pivotal role in ensuring that the necessary and proper parties are brought into an action, even if the initial limitation period to do so has passed.  Section 6 will not “save” a plaintiff every time, but it does provide a “second chance” to get all the necessary defendants to the table, and is therefore a valuable tool for a plaintiff advancing a subrogated claim to have at their disposal.