In Karkhanechi v. Connor, Clark & Lunn Financial Group Ltd., 2022 ONCA 518, the Ontario Court of Appeal reviewed the concept of rolling limitation periods and held that rolling limitation periods do not apply to periodic payments when an employee is aware of a potential breach from the beginning and there is no “fresh cause of action” with each payment.
In Ontario, the Limitations Act, 2002 provides a basic limitation period of two years. The limitation period is triggered two years from the date the claimant knew, or ought to have known, that the potential defendant did or failed to do something that caused the claimant harm. This is referred to as the discoverability principle.
A rolling limitation period can be applied when an ongoing contractual obligation is breached on a recurring basis. With each breach, a new limitation period could begin. However, it is not automatically applied to claims that involve ongoing obligations. Specifically, rolling limitation periods do not typically apply to disputes involving contracts with recurring payments.
In this case, Mr. Karkhanechi (“Mr. K”) became an employee of Connor, Clark & Lunn Financial Group Ltd. (“CCL”) in 2014 at which time his compensation package was structured in a partnership agreement with CCL. The partnership agreement involved a post-retirement scheme, which included periodic payments to be made to Mr. K for nine years following his retirement on a declining basis. In the ninth year, his share of equity in his employer would be zero.
In 2016, Mr. K was terminated from his employment with CCL, triggering the compulsory retirement provision in the partnership agreement. Following Mr. K’s termination, he claimed that the post-retirement payments that he was receiving were less than he believed he was entitled to. CCL disagreed with Mr. K’s claimed entitlement to receive permanent post-retirement payments. Despite bringing the disagreement up in March 2017 after receiving his first post-retirement compensation statement that had been reduced, Mr. K did not take action to commence proceedings until more than two years later, in December 2019.
In September 2021, a motion judge granted summary judgment against Mr. K after finding that his claims were statute barred under the Limitations Act, 2002. The motion concluded that the applicable two-year limitation period began to run on March 27, 2019 because on that date the loss was discoverable. Mr. K appealed the order arguing that the motion judge erred by failing to apply a rolling limitation period, and by finding his request for a declaration to be statute-barred, contrary to s. 16(1)(a) of the Limitations Act, 2002, which provides that there is no limitation period for the seeking of a declaration.
The Court of Appeal disagreed that a rolling limitation period applied and found that the motion judge was correct in concluding that a single breach with continuing consequences occurred on March 27, 2017, when CCL clearly rejected Mr. K’s claim to permanent periodic payments under the partnership agreement. By March 2017, Mr. K had the material facts required to initiate an action relating to the ongoing damage that would arise from CCL’s denial to the claims Mr. K was making.
According to the Court, the key distinction in determining whether a roiling limitation period applies is whether there are multiple, separate damage claims arising from the breach or continued loss or damage. In the latter situation, the basic limitation period still applies. The Court explained: This distinction matters because entitlement to rolling limitation periods is premised on the notion that with each new breach a “fresh cause of action” arises that “sets the clock running for a new two-year limitation period” …. Put simply, without a “new breach”, there is no justifiable basis for applying a rolling limitation period.
It is important to understand any limitation periods that may apply to a claim that you may have, and to understand exactly when clock starts running on that limitation period. Generally, you have two years to start a lawsuit after you discover that you have suffered an injury, loss, or damage. In determining whether a rolling limitation period applies, one should always look at the nature of the breach. In cases where there is a breach that gives rise to continuing loss or damages, a rolling limitation period typically will not apply. On the other hand, where there is more than one breach leading to separate damages claims or a “fresh cause of action”, a rolling limitation period may apply.