Pagnucco v. Sears Canada Inc., 2011 ABQB 810

Court of Queen ’ s Bench of Alberta Citation: Pagnucco v. Sears Canada Inc., 2011 ABQB 810 Date: 20111220 Docket: 0103 11666 Registry: Edmonton Between: Mark Thomas Pagnucco, a Minor, by His Next Friend, Jacqueline Pagnucco, and Her Majesty the Queen In Right of Alberta Plaintiffs - and - Sears Canada Inc. Defendant Corrected judgment: A corrigendum was issued on December 22, 2011; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Decision of W. S.

Schlosser, Master in Chambers _______________________________________________________ [ 1 ] This is an application for a late Third Party Notice.

[ 2 ] In May, 1999, the Plaintiff (then a minor), suffered injuries when the fork of his bike detached from the frame. [ 3 ] The Plaintiff ’ s bike was purchased at Sears. Sears got the bike from a Malaysian manufacturer. The Malaysian manufacturer is no longer in business. [ 4 ] Sears has now settled with the Plaintiff but wishes to issue a Third Party Notice against Pride International Inc., the company that brokered the deal between Sears and the manufacturer. Time line [ 5 ] The relevant time line is as follows: 1. January 1999 - Pride issues a warning about the defect and a Service Bulletin; 2.

March 1, 1999 - Limitations Act comes into force; 3. May 28, 1999 - accident; 4. May 18, 2001 - Statement of Claim; 5. December 12, 2003 - Statement of Defence; 6. May 20, 2004 - Plaintiff ’ s Affidavit of Records; 7. May 25, 2004 and October 6, 2004 - Defendant ’ s Affidavit of Records and Plaintiff ’ s Supplemental Affidavit of Records; 8. October 7, 2004 - Plaintiff ’ s examination; 9. October 7, 2004 and October 12, 2005 - examination of the Defendant ’ s corporate officer. 10.

December 16, 2004 - Third Party Notice issued against the bicycle and component manufacturers (these companies were later not pursued as they were later discovered to be defunct); 11. 2005 - Sears “ discovers ” a claim against Pride; 12. August 2006 - Motion (filed) to add Pride as a Third Party; 13. December, 2010 - Defendant settles with Plaintiff. [ 6 ] In mid-summer, 2006, Defence counsel wrote to counsel for the proposed Third Party setting out their intention to issue a Third Party Notice against Pride. The motion was taken out in August 2006, returnable in September.

[7] The application was held in abeyance until Pride investigated. Pride did not learn of the accident (or the claim) until June 29,2006. Affidavits in opposition to the application were filed. There were examinations on the Affidavits. Counsel for the proposed ThirdParty heard that there were settlement discussions between the Plaintiff and Defendant in the 2010 time frame. They were notified of thesettlement in the early part of 2011. [8] Under old Rule 66, the time to file a Third Party Notice would have expired June 12, 2004.

New Rule 3.45 requires a ThirdParty Notice to be filed and served within six months of the defence. [9] Rule 13.5 allows the Court to extend time. The factors to be considered are: 1. the length of delay; 2. the explanation for the delay; 3. the relative prejudice to the parties. [10] The test is flexible. An absence of an explanation for the delay may not be, in and of itself, fatal to the application. (Dean(below) para. 66 and Flight v. Dillon, 2001 ABQB 211 , [2001] AJ No. 329, per Moreau J.) [11] There is also authority to suggest that a late Third Party claim must have an ‘air of reality’: Condominium Corp.

No.9813678 v. Statesman Corp., 2008 ABQB 495 per Wittmann, ACJ (as he then was) para. 46 (and the cases cited there). The reason forthis latter requirement is that the Court will not act without purpose. There is little purpose in allowing a late proceeding that is bound tofail. [12] The most important factors are whether there is serious prejudice or inexcusable delay. If the delay is significant, evidence isrequired to explain it: Lister v. Calgary (City), (1997) (AB CA), 47 Alta.

LR (3d) 14 (CA) at para. 9; Hein v.Barrett, 2008 ABQB 548 per Hanebury, M. (at para. 23), which contains a helpful review of the main points. [13] In this case, the first hurdle is whether a limitation has expired. If it is plain and obvious, or beyond doubt that the limitationhas expired, there is no point in allowing the Third Party Notice to be filed as it would just be struck out. Campbell v. Calgary (City)Police Service, 2009 ABQB 58; Alliance Pipeline Ltd. Partnership v. C.E. Franklin Ltd. 2007 ABQB 582; Dean v. Kociniak, 2001ABQB 412 (QB), per Slatter J. (as he then was).

If there is reasonable doubt that the limitation has expired, and all of the other elementsof the test are satisfied, the Third Party claim can proceed while preserving the Third Party’s rights to raise a limitations defence.Anderson v. Airsprint Inc.. 2005 ABCA 332, para. 15. [14] Limitations are one of the factors to be considered in determining the relative prejudice to the parties. The ability to start anew claim is apparently a reason for not allowing a Third Party action.

Conversely, the loss of a right to start a new action apparently canweigh in favour of a late Third Party Notice. (Dean at para. 58 and the cases cited there). [15] There is no reason to think that this law has changed under the new Rules. Limitations [16]

Section 3 of the Limitations Act is as follows:

3(1) Subject to

section 11, if a claimant does not seek a remedial order within (a) 2 years after the date on which the claimant first knew, or in the circumstances ought to have known, (

i) that the injury for which the claimant seeks a remedial order has occurred, (ii) that the injury was attributable to conduct of the defendant, and (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding, or (b) 10 years after the claim arose, whichever period expires first, the defendant, or pleading this Act as a defence, is entitled to immunity from liability in respect of the claim. 3(3) For the purposes of subsection 1(b), (

b) a claim based on a breach of a duty arises when the conduct, act or omission occurs; (

e) a claim for contribution arises when the claimant for contributions is made a defendant in respect of, or incurs a liability through the settlement of, a claim seeking to impose a liability on which the claim for contribution can be based, whichever first occurs. (emphasis added). [ 17 ] The proposed Third Party Notice has two distinct parts. One

part is based on the duties and obligations the proposed Third Party allegedly owed the Defendant. These allegations are pleaded in breach of contract, breach of warranty, negligence and misrepresentation. There is no doubt that these allegations could form the basis of a free standing claim, although the measure of damages might, to a certain extent, relate to the injuries suffered by the Plaintiff. [ 18 ] The second

part is a claim for contribution under the Tort-Feasors Act and the Contributory Negligence Act.

i) Breach of contract, breach of warranty, misrepresentation. [ 19 ] The evidence discloses that in 1998 (the year before the accident), Pride became aware of the defect that lead to the Plaintiff ’ s injuries. Pride met with Sears and, in 1999, shortly before the accident, issued a service bulletin and parts to remedy the problem. [ 20 ] This evidence has two consequences. First, it suggests that the claim against Pride would be vulnerable to

summary dismissal on the merits. Pride acted expeditiously in alerting Sears to the potential problem and in proposing a solution. The general quality of the manufacturer or the product is academic if the specific problem is identified and remedied. The accident happened five to six months later. This evidence raises questions about the ‘ air of reality ’ of this portion of the claim. [ 21 ] Second, this evidence suggests that all of the elements for a claim based on breach of contract, breach of warranty, or misrepresentation could have been present as early as 1999.

Even though Sears might not have known about this particular accident, it would have known that it might face a recall or at least a customer alert.

[ 22 ] Sears was served with the Statement of Claim in June, 2001. At that time, Sears knew about the defect and that there had been an alleged actual injury. In 2001, Sears had (or had at its disposal), all of the elements of section 3(1)(

a) of the Limitations Act . The primary limitation would have expired at about the time that Sears filed its defence. [ 23 ] A free standing claim would also be governed by the ten year cap based on s. 3(3)(b), which provides that time begins to run “ .... when the conduct, act or omission occurs; ” The time for the purposes of s. 3(1)(

b) would likely have started to run in the 1998-99 time frame, or earlier. The conduct, act, or omission giving rise to the breach of duty would have occurred when the defective bicycles were supplied. [ 24 ] The time for Sears to assert a claim against Pride based in negligence, misrepresentation, or breach of contract, would likely have expired before Sears filed its defence in 2003. The ultimate limitation would have expired in 2008 or 2009. No separate action has been commenced. Although the Limitations Act does not extinguish causes of action or otherwise bar claims, a limitation defence would be inevitable.

For all intents and purposes a freestanding claim by Sears against Pride would be proscribed by the Act. ii) Contribution [ 25 ] Rule 3.45(c), which is substantially the same as its predecessor, Rule 66(4), allows claims for contribution to be made even when the primary limitation has run against the Plaintiff. This cures the potential problem of a derivative claim and a late suing Plaintiff. [ 26 ] In Dean v. Kociniak ,(above) Slatter, J. found: 42 I have concluded that the proper

interpretation of the new Limitations Act as it applies to a claim for contribution is that the “ injury ” referred to in s. 3(1)(

a) is the failure of the Third Party to contribute to the Defendant as called for in the Tort-Feasors Act . In other words, the limitation on the claim for contribution under the Tort-Feasors Act does not begin to run when the limitation begins to run against the Plaintiff. The new Limitations Act operates instead the same way as [old] Rule 66(4). [ 27 ] He observes later: 45 . . . . It is consistent with that objective to find there is only one limitation period applicable to claims for contribution and indemnity of all kinds.

I do not necessarily concur with the assumption of the Institute that the injury only arises when the Defendant is actually found liable to the Plaintiff (as opposed to when the Defendant knew or ought to know of the claim and the right to contribution), but I need not consider that point, and I make no further comment on it. [ 28 ] If “ injury ” in s. 3(1)(a) (

i) for a claim for contribution is: “ .... the time when a Defendant knew or ought to have known that a Third Party had a duty to contribute to any damages suffered by the Plaintiff, for which the Defendant might be held jointly liable with the proposed Third Party. ” Dean (above) para. 54, (emphasis added), Sears ought to have known of Prides involvement within a reasonable time of being served with the Statement of Claim - especially given the pre-accident service bulletin. In this case, Sears was sued in May, 2001 and served June, 2001.

The time to file a Third Party Notice under old Rule 66 would have expired in June, 2004. Sears may not have been reminded of Prides involvement until 2005 but actual subjective knowledge of a potential claim is not the test. Sears ought to have known about a claim for contribution against Pride much earlier. [ 29 ] I am not prepared to hold that the injury for the purpose of a claim for contribution only arises when a Defendant is actually found liable to a Plaintiff. [ 30 ] Section 3(3)(

e) of the Act which governs the ultimate limitation provides: (

e) a claim for contribution arises when the claimant for contributions is made a defendant in respect of, or incurs a liability through

the settlement of, a claim seeking to impose liability on which the claim for contribution can be based, whichever first occurs. (emphasis added). [ 31 ] The ten year ultimate period is absolute - knowledge or not. If “ injury ” for a claim for contribution meant a finding of liability, a claim subject to the ultimate period in s. 3(1)(

b) and 3(3)(

e) could remain open under s. 3(1)(a). I am unable to choose an

interpretation of section 3(1)(

a) that is likely to conflict with s.s. 3(1)(

b) and 3(3)(e). [ 32 ] Lawsuits are not supposed to last ten years but sometimes they do. In these circumstances it would not be helpful to find that the injury for the purposes of 3(1)(

a) might not arise until after the ultimate limitation had passed. Accordingly, I have difficulty seeing how “ injury ” for the purposes of a claim for contribution should require a finding of liability of the Defendant. [ 33 ] There is another reason. Finding that there is no injury until judgment robs the other parts of section 3(1)(

a) of meaning or purpose. It detracts from the intent of the Act and lands us back in the type of cause-of-action based analysis this Act was supposed to free us from. “ Derivative ” for the purposes of the Limitations Act does not require that the time for a claim is necessarily conditional.

In most circumstances the limitation clock for a claim for contribution can begin to run before liability has been determined. [ 34 ] In determining whether the elements of s. 3 of the Limitations Act had been satisfied, the Alberta Law Reform Institute invites the courts to step into the claimant ’ s shoes to make the assessment about whether proceedings are warranted.

It would not have been difficult for Sears to assess its potential risk of exposure and the potential duty of others to contribute after it had been served with the Statement of Claim. [ 35 ] The final consideration is s. 6 of the Limitations Act . Section 6(4) provides: 6(4) When the added claim adds or substitutes a defendant, or changes the capacity in which a defendant is sued, (

a) the added claim must be related to the conduct, transaction or events described in the original pleading in the proceeding, and (

b) the defendant must have received, within the limitation period applicable to the added claim plus the time provided by law for the service of process, sufficient knowledge of the added claim that the defendant will not be prejudiced in maintaining a defence to it on the merits. [ 36 ] If this

section applies to the addition of a Third Party, the proposed Third Party has the onus of showing that s. 6(4)(

b) has not been satisfied. [ 37 ] The limitation period applicable to the added claim is not the limitation period applicable to the Plaintiff ’ s claim. As mentioned, the claim is derivative and the time runs from when, in this case, when the Defendant, knew or reasonably ought to have known that the proposed Third Party had a duty to contribute. To my mind, this should have occurred somewhere around the time that the Statement of Claim was served and the matter was first investigated.

Sears ought to have discovered the proposed third party ’ s involvement - or at least been reminded of it - in that time frame. [ 38 ] The primary limitation is two years. The time for service of process is usually presumed to be one year.

Section 6 is usually considered in the context of a Statement of Claim, Bow Valley Insurance Services

(1992) Limited v. Shah (Calgary Mack Sales Ltd. v. Shah) , 2005 ABCA 304 , paras. 18-20 But this is a Third Party Notice. There is no “ time for service ” specified by Rule 3.45, other than that the Third Party Notice has to be filed and served within six months of the defence. [ 39 ] This unresolved issue of the time for service of process of a Third Party Notice for the purpose of

section 6 of Limitations Act need not be resolved here because even if the time for service of process is treated as being one year, Pride did not get any notice of the

added claim until June 29, 2006, long after the three years was up. [ 40 ] In some cases, claims are allowed to proceed subject to limitation defences. However, given the above findings, it would be pointless to allow this to occur. Based on the foregoing, it is plain and obvious that the limitations have passed. [ 41 ] Even if I am incorrect about this, the discretion to allow a late Third Party Notice typically requires a consideration of (inter alia) the relative prejudice to the parties. In this case, the Plaintiff and Defendant have settled.

As Sears is the only Defendant, the action is, essentially, at an end. [ 42 ] Once joined, a Third Party becomes a party to an action with a wide range of rights. Although the options for both Plaintiff and Third Party have been expanded somewhat under the new Rules, one of the Third Party ’ s most important rights is to deny the Defendant ’ s liability to the Plaintiff and thereby head off contingent liability at the pass.

This proposed Third Party will be deprived of this strategy and it would also be deprived of any meaningful involvement in the lawsuit as the lawsuit is now essentially over. [ 43 ] There has been no finding of liability or degree of fault for the purposes of the Contributory Negligence or Tort-Feasors Act . There has been no finding of quantum of damages. [ 44 ] If Pride were a party, it (as a non-settling party) would be entitled to have the net settlement deducted from any damages award: Bedard v. Amin , 2010 ABCA 3 .

It is not yet clear that a non-party would be entitled to the same advantage. [ 45 ] Adding Pride as a Third Party at this stage would effectively unwind many of the steps in the lawsuit. Adding Pride would probably now require the Court to make findings of quantum and degree of fault (if any) which, at this late stage, would not only be a step backwards, it would be contrary to the Foundational Rules. Conclusion [ 46 ] For all of these reasons, it is my view that leave to issue the Third Party Notice ought not to be granted. Heard on the 28 th day of September, 2011.

Dated at the City of Edmonton, Alberta this 20 th day of December, 2011. W. S. Schlosser M.C.C.Q.B.A. Appearances:

Sandra Corbett Field Law for the proposed Third Party George (Joe) Chiver Brownlee LLP for the Defendant _______________________________________________________ Corrigendum of the Reasons for Decision of W. S. Schlosser, Master in Chambers _______________________________________________________ On page 9 under the heading “ Appearances ” , Sandra Corbett, Field Law has been referred to as “ counsel for the Plaintiffs ” this has been amended to read “ counsel for the proposed Third Party ” .