BC Court of Appeal clarifies correct interpretation of section 16(a) of the Limitation Act

In Neale Engineering Ltd. v. Ross Land Mushroom Farm Ltd.¹, a five-judge panel of the British Columbia Court of Appeal clarified the law of limitation of claims of contribution and indemnity.

The BC Court of Appeal’s previous law had been interpreted as holding that a claim for contribution and indemnity is only discovered when a plaintiff brings a claim alleging fault on the part of two or more persons. In other words, service of a claim on a single defendant would not trigger the limitation period for a claim of contribution and indemnity.

In Neale, the BC Court of Appeal held that this interpretation was wrong. Under section 16(a) of the Limitation Act, S.B.C. 2012, c. 13, a claim for contribution or indemnity is “discovered” on the date that a claim is served for which the defendant knows or ought to know that it 1) may be jointly liable with a third person or 2) may claim indemnity from a third person. With respect to limitation periods for contribution and indemnity, there is no distinction between a claim against a single defendant or a claim against multiple defendants.

What you need to know

• In BC, the limitation period for a claim for contribution and indemnity begins running on the date a defendant is served with a claim for which it knows or ought to know that it 1) may be jointly liable with a third person or 2) may claim indemnity from a third person.
• The prior distinction in the caselaw between claims against single and multiple defendants for the purpose of limitations has been abolished; the limitation period commences regardless of whether the claim is brought against a single defendant or multiple defendants.

Applicable statute: section 16(a) of the Limitation Act

BC’s Limitation Act provides a general two-year limitation period running from the date that a claim is “discovered”. Section 16 addresses how the doctrine of discoverability applies to claims for contribution or indemnity, providing that such claims are discovered on the later of

(a) the day on which the claimant for contribution or indemnity is served with a pleading in respect of a claim on which the claim for contribution or indemnity is based, or

(b) the first day on which the claimant knew or reasonably ought to have known that a claim for contribution or indemnity may be made.

Background

In Neale the defendant sought leave to file and serve a third-party claim claiming contribution and indemnity more than two years after being served with a notice of civil claim². The original action was commenced against a single defendant.

Relying on the Court of Appeal’s decision in Sohal v. Lezama, 2021 BCCA 40, the application judge allowed the application. In Sohal, the Court of Appeal had commented that a defendant is not served with a pleading “in respect of a claim on which the claim for contribution or indemnity is based” until served with a claim alleging damage caused by the fault of two or more persons³. That statement has been relied on in subsequent BC decisions for the proposition that no limitation period for contribution and indemnity begins to run from the date of service of a claim upon a single defendant.

In accordance with Sohal, the application judge in Neale held that the third-party claim at issue was not time-barred, because time did not begin to run when the defendant was served with a claim in which it was the only named defendant. Whether it knew or ought to have known at that time that it had a plausible claim for contribution or indemnity was irrelevant.

The proposed third-party defendant appealed. It argued that the passage from Sohal was obiter dicta and should be followed or, in the alternative, that Sohal was wrongly decided.

Correct interpretation of section 16(a) of the Limitation Act

The BC Court of Appeal, sitting five judges, held that Sohal was indeed obiter and should not be followed.

The Court of Appeal held that under section 16, the limitation period for a claim for contribution and indemnity runs from the later of two “discovery” dates: service of pleadings or knowledge of entitlement to make a claim. The interpretation adopted by the application judge would result in no effective limitation of third-party claims for contribution or indemnity in the very common scenario where a plaintiff only names a single defendant.

When a defendant is served with a claim for which they know or ought to know they 1) may be jointly liable with a third person; or 2) may claim indemnity from a third person, then that defendant has been served with pleading in respect of a claim on which the claim for contribution or indemnity is based. On the date of the service of such a claim, the limitation period begins for a claim of contribution or indemnity.

It is for the defendant to determine if there are other parties who may be responsible for the plaintiff’s loss or could be liable to indemnify the defendant. If so, the defendant must initiate proceedings before the expiration of the limitation period against the potential third parties to preserve their right to seek contribution and indemnity.

Summary

In Neale Engineering Ltd. v. Ross Land Mushroom Farm Ltd., the British Columbia Court of Appeal clarified that under section 16(a) of the Limitation Act, S.B.C. 2012, c. 13, a claim for contribution or indemnity is “discovered” on the date that a claim is served for which the defendant knows or ought to know that it 1) may be jointly liable with a third person or 2) may claim indemnity from a third person.