Divisional Court cautions that seeking declaratory relief is not a means to circumvent applicable limitation periods

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In Skylark Holdings Limited v. Minhas2018 ONSC 1568 (Div. Ct.)​, the issue on appeal was whether there is a genuine issue requiring trial that a limitation period had expired where there was a claim for declaratory relief in relation to share ownership. The Divisional Court held that in the context of a limitation period analysis, declaratory relief should be narrowly construed so as to ensure that s. 16(1)(a) is not used a means to circumvent applicable limitation periods. In order to do so, the motions judge is required to assess the essential nature of what the party is seeking.

The appellants appealed an order dismissing their motion for summary judgment and granting the respondent leave to amend its statement of claim. The issue on both motions below was whether there is a genuine issue requiring trial that the limitation period had expired before the respondent commenced the proceeding.

The appellant owned both corporate appellants. The respondent sued the appellants alleging that in 2002 the appellants agreed to transfer to the respondent 5% of the common shares of 2012111 Ontario Inc. as payment for the respondent’s services. The appellants claimed that the 2002 agreement was overtaken by a new agreement between the parties in 2003 under which the appellants paid the respondent in full in cash for its services rendered. The appellants moved for summary judgment to dismiss the claim based on the expiry of the limitation period. The respondent answered with a motion to amend its claim. The amendments proposed to remove nearly all of the relief the respondent had claimed limiting the claim only to a simple declaratory judgment that it is the legal and beneficial owner of the 5% of the shares of 2012111 Ontario Inc.

Section 16(1)(a) of the Limitations Act, 2002 provides that “[t]here is no limitation period in respect of … a proceeding for a declaration if no consequential relief is sought.”

The Divisional Court allowed the appeal and held that in order to determine whether s. 16(1)(a) is being used to circumvent an applicable limitation period, the motions judge is required to assess the essential nature of what the respondent is seeking. In this case, the respondent claims to be entitled to a 5% interest in 2012111 Ontario Inc. Any entitlement that it has today flows from a contract – the meaning and enforceability of which is in dispute – but any cause of action that the respondent may have in respect of the 2002 contract is statute barred. The Court held that to overcome this difficulty, the respondent “seeks to use the device of a declaration to do an end run around the applicable limitation period.”

Moreover, were the respondent to obtain the declaration it would be ineffective without further mandatory relief directed to the corporation or a shareholder to implement the shareholding interest. A determination that the respondent is entitled to a 5% interest does not say from whom and by what means the shareholding interest is to be implemented. Therefore, a declaration of entitlement alone is of no avail without further consequential relief, which brings it outside s. 16(1)(a) of the Limitations Act, 2002.