In Albert Bloom Limited v. London Transit Commission, 2021 ONCA 74 (“Bloom“), the Court of Appeal for Ontario confirmed that once the second anniversary of the service of the claim in respect of which contribution and indemnity is sought passes, the party seeking contribution and indemnity bears the burden of establishing why its claim was not discovered or discoverable within the presumptive two-year limitation period. The decision is significant because it provides an explanation of what actual and constructive knowledge means in discovering claims for contribution and indemnity under section 18 of the Limitations Act, 2002, SO 2002, c 24, Sch B (the “Limitations Act“).
Factual and Procedural Background
Albert Bloom Limited (“Albert Bloom“), London Transit Commission (“LTC“), and Ramsden Industries Limited and its affiliates (“Ramsden“) own neighbouring properties. The groundwater in this neighbourhood flows in a westerly direction from LTC’s property toward the Albert Bloom and Ramsden properties. LTC acquired its property in this area in 1973 from the City of London, which, in turn, acquired the property from Eaton Industries (Canada) Company (“Eaton“). From 1949 to 1973, Eaton carried on business manufacturing automotive parts.
In March 2011, Albert Bloom informed Ramsden about the existence of Trichloroethylene (“TCE“) contamination on its property. TCE is a volatile organic compound, which was used as a degreasing agent in automotive manufacturing facilitates.
On February 3, 2012, counsel for Albert Bloom advised LTC that it had discovered environmental contamination potentially travelling from the property of LTC to Albert Bloom’s property. Albert Bloom provided LTC with five environmental reports, three of which identified Eaton, among other possible sources, as being potentially responsible for the contamination.
By notice of action issued on November 30, 2012, the plaintiff, Albert Bloom, commenced an action against the defendants, LTC, Ramsden, and the owners of two other neighbouring properties. Albert Bloom formally served LTC with the notice of action and statement of claim on May 22, 2013.
In January 2014, LTC filed a statement of defence and crossclaim in which it alleged, among other things, that “[…] if the [LTC property] in any way contributed to the alleged contamination of the [Albert Bloom property], which is not admitted but specifically denied, then it was caused by the prior owner of the [LTC property], the details of which LTC had no involvement in and has no knowledge of.”
LTC issued a third party claim against Eaton on March 16, 2016 seeking damages and contribution and indemnity for any amounts it may be found to be responsible to Albert Bloom. LTC alleged that Eaton had contaminated the LTC property between 1949 and 1973. Eaton brought a motion for summary judgment on the basis that LTC’s third party claim was statute-barred under the Limitations Act having been issued more than two years after LTC was served with Albert Bloom’s notice of action and statement of claim.
The motion judge determined that there was no genuine issue requiring a trial and granted summary judgment dismissing LTC’s third party claim against Eaton as out of time. The motion judge was of the view that LTC had both actual and constructive knowledge of its claim against Eaton by no later than May 22, 2013 (i.e., the date that LTC was formally served with the notice of action and statement of claim in the main action).
On appeal, LTC relied on the decision in Crombie Property Holdings Limited v. McColl-Frontenac Inc. (Texaco Canada Limited), 2017 ONCA 16 (“Crombie“) to argue that actual knowledge of the possibility of a claim does not constitute actual knowledge of a claim. LTC maintained that its suspicion of a claim against Eaton was only confirmed in March 2015 when its subsurface testing revealed that Eaton had operated a sludge pit on the property prior to 1973. Having regard to constructive knowledge, LTC stated that it acted with due diligence in retaining an environmental consultant and legal counsel to investigate its suspicion of a claim. Although LTC’s statement of defence and crossclaim referred to a “prior owner” of the property, LTC suggested that such language was boilerplate and did not denote knowledge.
Contribution and Indemnity
The limitation period for claims for contribution and indemnity is governed by section 18 of the Limitations Act, which provides as follows:
18 (1) For the purposes of subsection 5 (2) and section 15, in the case of a claim by one alleged wrongdoer against another for contribution and indemnity, the day on which the first alleged wrongdoer was served with the claim in respect of which contribution and indemnity is sought shall be deemed to be the day the act or omission on which that alleged wrongdoer’s claim is based took place. 2002, c. 24, Sched. B, s. 18 (1).
(2) Subsection (1) applies whether the right to contribution and indemnity arises in respect of a tort or otherwise. 2002, c. 24, Sched. B, s. 18 (2).
In the seminal decision in Mega International Commercial Bank (Canada) v. Yung, 2018 ONCA 429, Justice Paciocco confirmed the proper interpretation of section 18 incorporated the discoverability principles:
[…] The two-year limitation period prescribed by ss. 4, 5(2), and 18 for contribution and indemnity claims presumptively begins on the date of service of a claim in respect of which contribution and indemnity is sought. That presumptive limitation period start date, however, can be rebutted by the discoverability principles prescribed in s. 5 of the Limitations Act, 2002.
Under section 5(1) of the Limitations Act, the date of discovery is the earlier of when the person with the claim first had knowledge of the claim (i.e., actual knowledge) or when a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have knowledge (i.e., constructive knowledge). Section 5(1)(a) deals with actual knowledge and section 5(1)(b) deals with constructive knowledge.
The appeal in Bloom provided the Court of Appeal with an opportunity to reiterate that “once the second anniversary of the service of the claim passes, the onus shifts to the party seeking contribution and indemnity to establish why its claim was not discoverable.”
Actual Knowledge of a Claim is Fact-Specific
The Court of Appeal expressly rejected LTC’s argument that Crombie stood for the general rule that actual knowledge of contamination does not occur in environmental claims until subsurface testing has taken place. Crombie involved a lawsuit arising from the purchase of a contaminated property. The environmental information that the plaintiff had at the time it purchased the property at issue concluded that potential contamination was not a significant concern and that no further assessment was required. The plaintiff’s environmental consultant, however, recommended a further evaluation of the soil and groundwater. Ultimately, the plaintiff commenced an action within two years of receiving a draft report confirming that soil and groundwater samples exceeded the standards of the Ministry of the Environment. Subsurface testing had confirmed the plaintiff’s suspicions and led to its actual knowledge of the contamination.
According to the Court of Appeal, “[a] comparison of the facts of the case at bar to the facts of Crombie demonstrates why it is folly to try to establish a general rule as suggested by LTC.” The Court of Appeal agreed with the motion judge’s conclusion that LTC had actual knowledge of a claim against Eaton by no later than May 22, 2013 when it was served with the notice of action and statement of claim in the main action. At that time, LTC had multiple environmental reports that identified the LTC property as a potential source of contamination. Several of those reports pointed to the automotive manufacturing operations of Eaton as an environmental concern. In contrast to the facts in Crombie, subsurface testing was not required by LTC to establish actual knowledge of a contamination.
The Court of Appeal emphasized that there is no “bright-line test” to establish actual knowledge and that each case turns on its own facts:
To be clear, the determination of when a claimant obtains actual knowledge of a claim is case-specific. Little is to be gained from comparing the unique circumstances of one case to another. There is no bright-line test that establishes when a party has actual knowledge of a claim. Instead, the totality of factual circumstances will dictate how and when a claimant obtains actual knowledge.
The Court of Appeal referred to the statement of defence and crossclaim of LTC alleging that a previous owner of the property had caused the contamination as further support for the motion judge’s finding of actual knowledge. LTC submitted that there was no evidence before the court to suggest that this allegation was anything other than a boilerplate pleading and therefore it was not a proper basis for attributing actual knowledge to LTC. The Court of Appeal disagreed and held that LTC’s position reflected a fundamental misunderstanding of its burden on the motion: “LTC’s onus was not met by asserting that there was no evidence that this was not a boilerplate pleading. LTC had an obligation to adduce compelling and admissible evidence that it was boilerplate and thus could be ignored. It failed to adduce that evidence.”
Constructive Knowledge of a Claim Imposes a Due Diligence Requirement
The Court of Appeal agreed with the motion judge’s conclusion that LTC ought to have known that it had a claim against Eaton by May 22, 2013. Indeed, in February 2012, LTC had in its possession multiple environmental reports that identified its property as a potential source of contamination. It also possessed reports that indicated that Eaton’s automotive manufacturing processes involved the use of TCE. The co-defendant, Ramsden, for its part, had conducted its own investigation in 2011 immediately after receiving the environmental reports from the plaintiff.
The Court of Appeal cited the decision in Longo v. MacLaren Art Centre, 2014 ONCA 526 for the proposition that “when the due diligence obligation has been triggered, the party with the obligation (LTC) has a duty to investigate and the limitation period will not be tolled while it sits idle.” LTC was therefore required to adduce evidence to establish that it took the necessary due diligence steps to investigate its claim in the circumstances. Instead, LTC suggested that it had met its due diligence obligation by simply retaining environmental consultants and legal counsel. The Court of Appeal confirmed that “[t]he proof of due diligence requires more detailed information than a simple assertion. The particulars of the information and advice provided to and by the consultant must be adduced to enable the court to assess whether the actions were reasonable in the circumstances.” This makes good sense as “otherwise, a putative claimant could, for example, insulate itself from the operation of a limitation period by simply hiring a lawyer and then asserting solicitor-client privilege.”
In the result, the Court of Appeal dismissed the appeal: LTC knew, or ought to have known, that it had a claim for contribution and indemnity against Eaton by May 22, 2013. Accordingly, LTC’s third party claim was statute-barred on May 22, 2015 as it failed to rebut the presumptive limitation period in section 18 of the Limitations Act.
The two-year limitation period prescribed by section 18 of the Limitations Act for contribution and indemnity claims presumptively begins on the date of service of a claim in respect of which contribution and indemnity is sought. That presumptive limitation period, however, can be rebutted by the discoverability principles set out in section 5 of the Limitations Act. The Court of Appeal confirmed in Bloom that once the presumptive limitation period has expired, the onus shifts to the party seeking contribution and indemnity to demonstrate why its claim was not discoverable. Actual knowledge of a claim under section 5(1)(a) of the Limitations Act is fact-specific and there is no “bright-line test” to confirm when a party has actual knowledge of a claim. It is a contextual analysis and each case will turn on its own facts. Constructive knowledge of a claim under section 5(1)(b) of the Limitations Act is based on due diligence. A party is required to act with due diligence in determining if it has a claim, and a limitation period is not tolled while a claimant fails to investigate its claim when prompted to do so. Asserting that a lawyer and consultant were hired is not alone sufficient to discharge the due diligence onus. Bloom provides a helpful summary of these important principles in the law of limitations.