Limitation Period Considerations in Derivative Proceedings

Sabrina Saltmarsh, B.A. (Hons), J.D.Business Fraud, Business Law, Business Litigation, Closely-Held Business Disputes, Corporate Disputes, Corporate Litigation, Directors' and Officers' Liability, Family Business Disputes, Oppression Remedies0 Comments

Under modern business corporation legislation, a claim for wrongdoing against a corporation can only be brought by the corporation itself, or by way of a derivative action for which leave from the court is required. In Ontario, there is a standard two-year limitation period that applies to the commencement of most lawsuits, including derivative claims on behalf of a corporation.

When wrongs done to a corporation are alleged to have been done by a director or directors who exercise control and decision-making on behalf of the corporation, it is unlikely that those same directors will agree to commence a claim on behalf of the corporation for those wrongs. It is then up to other interested stakeholders, such as shareholders, to seek leave to commence a derivative claim on behalf of the corporation for the wrongs done to the corporation.

Until the release of a 2015 Supreme Court of Canada ruling on the issue, there was ambiguity in the law about the requirements to stop the running of a limitation period in situations where leave is required, such as the commencement of a derivative claim. By example: Is the limitation period suspended once an application or motion for leave is commenced? When the court grants leave to commence the proceedings? Or is a mere expression of an intention to seek leave, or notice of such intention enough to suspend the limitation period?

The debate was finally settled by the Supreme Court of Canada in three cases heard considering a similar leave requirement under the Class Proceedings Act: Canadian Imperial Bank of Commerce v. Green; IMAX Corporation v. Silver; and Celestica Inc. v. Trustees of the Millwright Regional Council, 2015 SCC 60, [2015] 3 S.C.R. 801, referred to as the CIBC Trilogy of cases.

In CIBC, the motion for leave was filed before the expiry of the limitation period.  In IMAX, the motion for leave was filed and argued before the expiry of the limitation period.  In Celestica, the motion for leave was filed after the expiry of the limitation period.

In this trilogy of cases the Court of Appeal for Ontario unanimously ruled in that even if leave has not yet been granted, so long as the facts that found the action and the intention to seek leave to commence the action have been plead the limitation period is suspended and as such none of the three situations in each of the cases resulted in the action being statute-barred.

A majority of the Supreme Court of Canada overturned the decision and held that the limitation period is suspended only when the action is commenced such that the leave requirement is a hurdle which must be cleared before the suspension of the relevant limitation period. In other words, pleading an intention to seek leave does not suspend the limitation period.

The Supreme Court of Canada nonetheless recognized, that where leave is sought prior to the expiry of the limitation period the court has inherent jurisdiction to issue orders nunc pro tunc pursuant to rule 59.01 of the Rules of Civil Procedure, and that such discretion can be exercised, but should not be exercised in a manner which undermines the legislative intention behind limitation periods.

The CIBC Trilogy provides useful insight on the interplay between the leave requirement and limitation deadline considerations. The analysis in the CIBC Trilogy has since been applied to the leave requirement to commence derivative claims. The Supreme Court of Canada’s ruling in this case makes it clear that those seeking to commence a derivative claim on behalf of a corporation must be mindful that there are additional legal steps that need to be taken before the claim can be issued and the clock on the limitation deadline is stopped. It is very important to seek legal advice early on if you are a stakeholder who believes that there are serious harms being done to a corporation by it’s directors or a director.

If you are a shareholder or stakeholder being affected by wrongs done to a corporation, we can help. The lawyers at Gilbertson Davis LLP have experience in representing parties to derivative proceedings. Please contact Gilbertson Davis LLP to request an initial consultation.

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About the Author
Sabrina Saltmarsh, B.A. (Hons), J.D.

Sabrina Saltmarsh, B.A. (Hons), J.D.

Practitioner in a broad range of business and civil litigation matters including commercial, real estate and condo disputes. Experienced at all levels of Ontario Courts. Bio | Contact

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