The Discoverability Principle in the Context of Breach of Contract Requiring Third Party Satisfaction

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In Apotex Inc. v. Nordion (Canada) Inc., 2019 ONCA 23, the Court of Appeal considered “discoverability” within the meaning of s. 5(1) of the Limitations Act, 2002 in the context of a breach of contract. Chief Justice Strathy confirmed that the limitation period for a breach of contract does not necessarily begin from the date of the breach (which was the trigger under the former Limitations Act, RSO 1990, c. L. 15). Rather, the date of the act or omission giving rise to the breach only makes up one factor under the statutory test:

… the limitation period does not begin to run until all of the factors enumerated in s. 5(1)(a) have been satisfied, unless a reasonable person ought to have known of their existence at an earlier date (s. 5(1)(b)). In breach of contract cases, those factors include knowledge that some injury, loss or damage was caused by or contributed to by the act or omission that is the breach of contract.

The commencement of the limitation period must be analyzed by reference to the nature of the contract, the manner of its performance, and the nature of the breach on which the claim is based. In many cases, the act or omission, causation, and the injury, loss or damage will occur simultaneously, and will be discovered simultaneously. But that will not always be the case. In some cases, discovery of the “act or omission” will not start the limitation period running unless injury, loss or damage has occurred and has been discovered.

In this case, Apotex entered into a Master Laboratory Services Agreement with the appellant, MDS, for the performance of clinical research trials. Due to concerns about the integrity of the tests, the United States Food and Drug Administration (“FDA”) declined to accept MDS’s studies. To get their drug to market Apotex had to either repeat the studies or obtain an independent third party certification.

Under this contract the manner of performance required the satisfaction of a third party – the FDA. It was a contract for the delivery of a study conducted under conditions that met the requirements of the FDA, and that was in conformity with the requirements of the FDA.

On May 8, 2006 Apotex was cognizant that the approval would get delayed because of FDA’s concerns about the studies. Nevertheless at that time, Apotex did not know that the delay was caused by a breach of contract. MDS’s breaches, including the unacceptable FYR results, the mishandling of the FDA’s concerns, and that the FDA concluded that it would not accept the studies, were not known to Apotex until December 11, 2006, when that information was communicated to Apotex by the FDA.

As a result, Justice Strathy held that the factors set out in ss. 5(1)(a)(i), (ii) and (iii) of the Limitations Act, 2002, were not met until December 11, 2006. Until that date, Apotex did not know “that the MDS Studies would not be accepted by the FDA, resulting in delay and damage.” Since the claim was commenced in November 2008, the claim was not statute-barred.