Court of Appeal distinguishes between new causes of action and alternative forms of legal relief in determining whether a party can amend its pleadings after the expiry of the limitation period

In Klassen v Beausoleil, 2019 ONCA 407, the Court of Appeal reiterated the principle that a party cannot circumvent the operation of a limitation period by amending their pleadings to add additional claims after the expiry of the limitation period. The Court affirmed that where the amendment involves adding alternative relief on the same material facts, it is integrally related to the existing claim, and therefore, no prejudice arises.

Rule 26.01 provides that “[O]n motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.” The expiry of a limitation period is one form of non-compensable prejudice. When analyzing whether to allow the amendment, the Court will:

1. Consider whether the appellant’s original pleading contained all the facts necessary to support the amendment;
2. Interpret the original pleadings generously, including an allowance for some drafting deficiencies; and
3. Determine whether non-compensable prejudice will arise as a consequence of the amendments.

An amendment will be refused when it seeks to advance, after the expiry of a limitation period, a “fundamentally different claim” based on facts not originally pleaded.

In this case, the original pleading sought a declaration of a 50% ownership interest in a corporation. The appellant sought to amend his claim to plead, in the alternative, a request for a declaration that he had a 33% ownership interest in the corporation. The respondent argued that the appellant’s amendment was a new cause of action and was therefore statute-barred under the Limitations Act, 2002. The Court of Appeal found that a generous reading of the original pleadings suggested that the amendment flowed from the material facts as initially pled. In the Court’s opinion, the appellant’s amendment did not introduce any new facts; rather, the amendment constituted a “quintessential example” of an alternative form of legal relief that derived from the same set of facts. The Court supported its conclusion by pointing to the explicit mention of escrow conditions and the share purchase agreement in the appellant’s original pleadings. Moreover, the Court held that the amendments did not cause prejudice to the respondents.

Co-authored by Nour Chehab Eddine