Leaving the Court in Peace: the Alberta Court of Appeal Applies Narrow Limitations Exception for Declaratory Relief

June 23, 2023

Written By Ciara Mackey, David Wahl and Krishen Singh

The Alberta Limitations Act does not apply to requests for "a declaration of rights and duties, legal relations or personal status". The exception is narrow. But as recently confirmed by the Alberta Court of Appeal in Bacanora Minerals Ltd v Orr-Ewing (Estate), 2023 ABCA 139 (Bacanora), declaratory relief can serve useful and valid purposes in a contractual dispute, where the party is prepared to "leave the court in peace" with only a declaration in hand. Although parties must advance claims for damages and other remedial relief within the limitations period, the Court held that no time limit applied for seeking a declaration that the parties' contract was void.

Background

Bacanora concerned the validity of a gross overriding royalty on revenues from lithium produced from certain mineral claims in Mexico. As part of an acquisition in 2009, the Plaintiff, Bacanora Minerals Ltd. (BML), extended royalty rights to Mr. Orr-Ewing (Royalty Agreement). In 2014, BML began inquiring into the validity of the Royalty Agreement. Mr. Orr-Ewing passed away, and in 2017, BML informed his estate of its position that the Royalty Agreement was invalid and unenforceable for misrepresentations and want of consideration.

BML filed a Statement of Claim in Alberta in late 2017 seeking a declaration that the Royalty Agreement was void and unenforceable, or alternatively, an order rescinding the Royalty Agreement. It also sought but later abandoned a claim for damages (including punitive or exemplary damages).

Following summary trial, the trial judge dismissed the claim for being out of time. Although the remaining relief sought was declaratory in form, the trial judge held that the effect was remedial as BML would hypothetically still require a further order to have royalties repaid.

The main issue on appeal was whether the relief sought by BML was declaratory, not remedial, and thus not subject to the Limitations Act.

Appeal Allowed Identifying Proper Declaratory Relief

The Court of Appeal allowed the appeal, finding that the Limitations Act did not apply and the trial judge's dismissal of the claim was both incorrect and based on palpable and overriding error.

The Court explained the concept of declaratory relief as providing parties with "a formal statement by a court pronouncing upon the existence or non-existence of a legal state of affairs", confirming or denying the existence of rights between disputing parties, including pronouncing on the non-existence of a contract. The substance, and not the label, is determinative. The Court unanimously restated the test:

If the Court granted the declaration, and the defendant resisted the implementation of the declaration, could the plaintiff "leave the court in peace" and enjoy the benefits of the declaration "without further resort to the judicial process"?

On the facts, the Court held that the trial judge erred in focusing on a hypothetical future claim for repayment of royalties paid or a return of the royalty interest under the Royalty Agreement. No royalties had been paid and the declaratory relief only had the effect of confirming that none should be paid. BML could "leave the court in peace" with no further court intervention, and therefore, the remedy was declaratory and not time barred.

That BML had also pleaded fraudulent or negligent misrepresentation did not detract from the request for a declaration that the Royalty Agreement was void. So, even though the problems with the Royalty Agreement were discovered more than two years before the claim was filed, it could not be dismissed for limitations.

The Court also noted the strategic risk in seeking a declaration as part of a request for damages or other remedial relief outside the limitations period—which may reveal that the declaration is just remedial relief in disguise. Looking to persuasive Ontario authority, the Court of Appeal confirmed that a party may seek both remedial and declaratory relief in the same claim, but remedial relief remains subject to the applicable limitations period. The question remains one of substance over form. Plaintiffs cannot circumvent a limitation period by joining a statute-barred remedial claim with a declaration that has no legitimate declaratory purpose.

Looking Ahead

Bacanora provides a recent appellate guide for identifying declaratory proceedings when faced with a limitations defence, and is a reminder of the potential usefulness of seeking proper declaratory relief in longstanding contractual disputes. The key factor is whether a declaration alone provides the necessary relief, without further court intervention.

But, caution: plaintiffs seeking declaratory relief together with other forms of remedy, including damages, may still face a limitations defence. Courts will look to the substance of the claim and expect plaintiffs to act with reasonable diligence and timeliness in launching proceedings.

If you have any questions about this decision, limitations periods, or declaratory proceedings in contractual disputes, please contact a member of the Bennett Jones Commercial Litigation group.

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