In Neale Engineering Ltd. v. Ross Land Mushroom Farm Ltd., 2023 BCCA 429 the British Columbia Court of Appeal brought clarity to the law on limitation periods for bringing third party claims.
The takeaway from Neale is that a claim for contribution or indemnity is “discovered” under s. 16(a) of the Limitation Act on the later of either the date of service upon the claimant of a pleading which could, if the cause of action is proven, result in a defendant paying more than its share of damages, or when the party knew or ought to have known there might be a third party claim. It is not necessary that the plaintiff name more than one defendant for limitation period for a third party claim to start running. A defendant is expected to exercise due diligence to uncover material facts that support a claim for contribution and indemnity.
If a defendant knew or ought to have known that the cause of action, if proven, would result in the defendant paying more than its share of damages, the claim for contribution and indemnity is “discovered” for the purpose of the Limitation Act.
Analysis:The Limitation Act, S.B.C. 2012, c. 13 provides for a two‑year limitation of causes of action running from the date a claim is discovered. Section 16 provides:
16 A claim for contribution or indemnity is discovered on the later of the following:
(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;
(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.
The appeal considered the two recent cases of Sohal v. Lezama, 2021 BCCA 40 and Sharma v. Mohammad, 2022 BCSC 270 wherein the respective Courts held that a claim is “discovered” for the purposes of s. 16(a) on the date upon which a plaintiff brings a claim alleging fault on the part of two or more persons. The courts held that if a defendant was served with a claim where they were the lone defendant, time did not begin to run regardless of whether they knew or ought to have known that they had a claim for contribution and indemnity against a third party.
The Respondent Defendant Ferro Building Systems Ltd. (“Farro”) argued that the Order it received granting leave to file a Third Party Notice against Appellant Third Party Neale Engineering Ltd. (“Neale”) be upheld. Neale argued that the passage from Sohal that the chambers judge considered to be binding upon her was obiter dicta, inessential to the outcome and non‑binding, and that it ought not to have been followed and applied in Sharma. In the alternative, it argued that Sohal was wrongly decided.
The Court wrote:
 In my view, the appellant is correct to say that when a defendant is served with pleadings describing a claim for which that defendant knows or ought to know he may be jointly liable with a third person, or for which he knows or ought to know he may claim indemnity from a third person, he has been served with pleading in respect of a claim on which the claim for contribution or indemnity is based.
 I agree with the appellant’s characterization of the statutory definition of the date upon which a claim is discovered under s. 16(a): it is the date of service upon the claimant of a pleading which could, if the cause of action is proven, result in a defendant paying more than its share of damages. Contrary to this Court’s reasoning in Sohal, the pleading need not allege fault on the part of two or more defendants. It is for the defendant to determine if there are other potential tortfeasors who may be responsible for the plaintiff’s loss or parties potentially liable to indemnify the defendant. If so, it is for the defendant to initiate proceedings before the expiration of the limitation period against the potential third parties if they wish to preserve their right to seek contribution and indemnity.
The Court observed that if the timeline for expiry of the limitation to make a third party claim only began to run once the plaintiff served a pleading that named more than one defendant, this would result in there being no effective limitation of third party claims in cases where the plaintiff only names one defendant. Additionally, plaintiffs often have no reason to pursue every single joint tortfeasor, and often will have no idea who might be liable to indemnify defendants.
The appeal was allowed and the Order granting leave to Ferro to file the Third Party Notice against Neale was set aside.
Conclusively, the safest approach is to consider that the third party limitation clock begins ticking once you are served with a notice of civil claim; when in doubt, file the third party notice within two years from this date.