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Lindsay Williams

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Authors: Lindsay Williams

THE WHAT, WHY, WHEN AND HOW OF THIRD PARTY CLAMS

Third party claims are an often used and often misunderstood aspect of litigation. They can be a key component to a defence, but there are strict rules respecting how and when they can be brought, which must be followed carefully. This article will explain the purpose and pitfalls of third party claims.

What is a Third Party Claim and Why should you Bring one?

A third party claim is a claim brought within an existing action by a party against whom relief is sought, but who is not a plaintiff in the action. Generally, third party claims are brought by defendants, but they can be brought by third parties as well. The central purpose of third party claims is to prevent having different results on the same issues between the same parties in separate proceedings,[1] to provide a mechanism for the third party to defend the claims against it and to ensure the third party claim is decided before the defendant is called upon to pay the full amount of any judgment.[2]

According to Rule 3-5(1) of the BC Supreme Court Civil Rules (the “Rules”), a third party claim must allege:

  1. the party bringing the third party claim is entitled to “contribution and indemnity” from the proposed third party, with respect to the relief being sought in the action;
  2. party bringing the third party claim is entitled to relief against the proposed third party related to or connected with the relief sought in the action; or
  3. question or issue to be decided between the party bringing the third party claim and the proposed third party is substantially the same as the relief claimed in the main action or the subject matter of the main action and should be determined in the main action.

Contribution and Indemnity

The terms “contribution” and “indemnity” both refer to a restitutionary remedy rooted in unjust enrichment that provides a right of contribution toward a plaintiff’s damages as between concurrent tortfeasors.[3] While the two terms are often used together, they do not mean the same thing and cannot be used interchangeably. A claim for indemnity seeks recovery of the entire amount that a tortfeasor has paid to the plaintiff.  A claim for contribution seeks only a portion of that amount.

At common law, there was no right for concurrent tortfeasors to claim contribution and indemnity from each other, and the plaintiff had the right to recover 100% of his or her judgment from whichever tortfeasor he or she chose. This unfairness was remedied by the Negligence Act, RSBC 1996, c. 33, which allows tortfeasors to claim contribution and indemnity from each other to the degree to which they are respectively found to be at fault. Because the plaintiff still has the right to recover 100% of a judgment from the tortfeasor of his or her choosing, it is up to the defendants to bring third party claims for contribution and indemnity against each other or other parties.

A third party claim for contribution and indemnity pursuant to the Negligence Act  must be brought by way of third party notice, pursuant to Rule 21-9. Other third party claims can be brought in separate actions, but that is to be avoided, if possible.

Claims for Relief other than Contribution and Indemnity

A defendant or third party can bring an independent claim against a third party in which no claim for contribution and indemnity is made, so long as the claim is related to or connected with the claim in the overarching action.

In construction litigation, we often see a claim for breach of contract flowing through a contractual chain: from developer, to contractor, to subcontractor, to supplier. If the plaintiff has contracted with a defendant for work to be done, and the defendant subcontracted that work, the defendant can third party the subcontractor in the event that the subcontractor caused or contributed to the alleged loss.

However, regardless of the subject matter of the action, so long as there is a question or issue common to both the plaintiff’s claim and the third party claim and some of the evidence is common to both claims, third party proceedings may be allowed.[4]

When and How Should you Bring a Third Party Claim?

You should bring your third party claims as soon as possible after discovering them, and well before trial. The longer you wait, the more difficult the process becomes.

Pursuant to Rule 3-5(4), a third party claim can only be filed without leave of the court within 42 days after service of the notice of civil claim on the defendant. This Rule forces defendants to give early consideration to the question of adding additional parties. That is consistent with the object of the rules to secure the just, speedy and inexpensive determination of every proceeding on its merits.[5]

If the third party claim is not filed within the 42 day time period set by the Rules, the party wishing to bring the claim must obtain leave of the court to do so.

When considering whether to grant an order to allow a party to file a third party notice after the 42 day deadline, the court will consider:

  1. expiration of a limitation period;
  2. the merits of the proposed claim;
  3. delay in the proceedings;
  4. the timeliness of the application; and
  5. prejudice to the parties.[6]

The overarching consideration of the court should be whether greater injustice and inconvenience would arise from allowing the claim to continue as a third party proceeding, or from dismissing the application and, in the case of all except claims under the Negligence Act, allowing them to proceed as a separate action. Multiplicity of proceedings is to be avoided. 

Limitation

The former Limitation Act did not expressly address limitation periods for third party claims. The court determined in The Owners, Strata Plan LMS 1751 v. Scott Management Ltd., 2010 BCCA 192 that the limitation period for claims in contribution and indemnity did not begin to run until the defendant tortfeasor had been found liable. The tortfeasor then had six years to bring the claim for contribution and indemnity.

However, the current Limitation Act, SBC 2012, c. 13, which came into force on June 1, 2013, sets very specific expiration periods for third party claims. A claim for contribution and indemnity now expires two years after the later of: (1) the day on which the party claiming contribution and indemnity is served with a pleading in the main action; or (2) the first day on which the party claiming contribution and indemnity reasonably ought to have known that a claim for contribution or indemnity may be made.

The wording of the current Limitation Act makes it very important to keep track of the day you were served with notice of the action and provide your lawyer with the letter serving you with the pleading, because the day you were served will often be when the limitation period starts to run.

There is no right to bring a claim for contribution and indemnity after the limitation period to do so has expired,[7] and the court will dismiss any application after that date.

According to s. 22(1) of the current Limitation Act, a third party claim, other than a claim for contribution and indemnity, may be brought after the limitation period applicable to that claim has expired, so long as the overarching action was brought within the limitation period. Judges still have discretion to refuse relief on grounds unrelated to expiry of a limitation period,[8] so it is still wise to bring any third party claim as quickly as possible.

Merits

In considering whether the proposed third party claim has merit, the court does not weigh the evidence. Rather, the court examines the proposed pleadings and considers whether they disclose a reasonable cause of action, related to the subject matter of the plaintiff’s claim, which, if made out, would lead to liability being found against the proposed third party.[9] If this is the case, the claim will show sufficient merit.

Delay

Delay relates to the potential delay allowing a third party claim may cause to the proceedings as a whole. On this point, a plaintiff may argue that allowing the third party application will overcomplicate, prolong, and/or delay the litigation. These arguments are particularly compelling if a notice of trial has been filed, and the addition of third parties will lead to an adjournment. The court may compensate parties who are inconvenienced by the late filing of a third party notice by ordering costs against the late filing party.

Timeliness

The court has made it increasingly clear that parties are expected to bring applications to add third parties with reasonable dispatch and will be required to explain why they have delayed in bringing their applications. If parties cannot provide a clear and compelling excuse for delay, particularly after a notice of trial has been filed, and if the joinder of third parties may lead to an adjournment of trial, leave may very well not be granted.[10] There may also be cost consequences for delay without reasonable excuse.[11] There is no clear caselaw on what constitutes an “inordinate delay;” it is dependent on the circumstances of the case.

Prejudice

The court will weigh the comparative prejudice to all parties in the proceeding when deciding whether to grant leave to file a third party notice. This will include weighing all of the above considerations, including how long after the original action the third party claims are commenced, the status of the litigation, whether trial dates are imminent, whether there is evidence of actual prejudice (for example, missing documents or witnesses) and whether a limitation period applies.[12]

What Next?

Once the third party notice is filed, it must be served within 60 days or it expires, unlike a notice of civil claim, which expires after one year. For this reason, it is not generally advisable to file the claim and wait to serve it for strategic reasons. The claim should be filed and served as soon as possible. Default may be taken if the third party does not file a response by the applicable deadline, which is dependent on when and where the third party was served.

A defendant will be required to prove the third party claim on a balance of probabilities in the same way that the plaintiff will be required to prove his or her claim. If settlement is reached before trial, the third party claims will also, generally, have to be settled. If they are not settled, they will generally survive the settlement of the claims between the defendants and the plaintiff. If the settlement of the action against the defendant also disposes of the claim against the third party, the third party will be entitled to costs pursuant to Rule 9-8(5), unless otherwise negotiated.

Conclusion

While third party claims can sometimes complicate matters, they ultimately assist parties in avoiding a multiplicity of proceedings. They further allow defendants to make claims for contribution and indemnity pursuant to the Negligence Act.

The Rules have been created to encourage defendants to commence third party proceedings early. defendants and third parties should start thinking of potential third party claims as soon as they discover a claim against them, and seek legal advice as quickly as possible. By bringing third party claims within the 42 day deadline set by Rule 3-5(4), parties can avoid the time, expense and uncertainty of an application for leave to bring a third party claim. If you are in a position to bring such an application, we recommend that you retain legal counsel as soon as possible.

[1] Canfor Pulp Limited Partnership v. Siemens Building Technologies Ltd., 2016 BCSC 2089

[2] McNaughton v. Baker, 1988 CanLII 3036 (BCCA)

[3] The Owners, Strata Plan LMS 1751 v. Scott Management Ltd., 2010 BCCA 192

[4] Eli v. Royal Bank of Canada (1985), 68 BCLR 353

[5] Tyson Creek Hydro Corporation v. Kerr Wood Leidal Associates Limited, 2013 BCSC 1741; aff’d 2014 BCCA 17

[6] Tyson Creek, supra.

[7] Sohal v. Lezama, 2019 BCSC 1709

[8] Sohal, supra.

[9] Soprema Inc. v. Wolrige Mahon LLP, 2016 BCSC 813

[10] Hadland v. Reems, 2015 BCSC 115; Tyson Creek, supra.

[11] Rotzetter v. Robertson, 2018 BCSC 494

[12] Canfor, supra.

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