Interpreting limitation periods in Saskatchewan - What the recent Court of Appeal decision in MFI Ag Reveals

The recent decision of the Saskatchewan Court of Appeal in MFI Ag Services Ltd. v. Farm Credit Canada, 2023 SKCA 30 [MFI Ag] interpreted s. 22 of The Saskatchewan Farm Security Act (the “SFSA”) in relation to its suspension of applicable limitation periods.

Introduction

Section 22 of the SFSA protects farmers against loss of their farm land. In part, it accomplishes its objective by requiring a lender to first serve notice (known as a “section 12 notice”) on farmers who are in default of obligations that are secured by mortgages on farm land. The service of the section 12 notice provides farmers with 150-day waiting period before an action can be commenced, and also triggers section 22 of the SFSA. Section 22, in turn, suspends the applicable limitation period.

The 150-day waiting period could prejudice lenders if their rights to enforce the mortgage expired under an applicable limitation period. The purpose of section 22 is to alleviate this prejudice. Section 22 of the SFSA excludes from the calculation of the limitation period the time between (i) the service of a section 12 notice, and (ii) the granting of an order under section 11 of the SFSA permitting a lender to commence an action.

However, subsection 12(16) of the SFSA provides that the section 12 notice expires after three years if the creditor does not apply to the court for an order under section 11. The SFSA does not address what happens when a creditor serves a section 12 notice but does not ultimately apply to the court under section. 11. This gap in legislation was one of the issues addressed by the Court of Appeal in MFI Ag.

Facts

In MFI Ag, the creditor served notices of intention on the farmer in relation to amounts owing on the farmer’s mortgage. The farmer and the creditor then entered discussions and the farmer made a series of repayments in 2012 and 2013. The farmer also acknowledged the debts. The creditor did not make an application under s. 11 because of the arrangement between the farmer and the creditor, and the creditors notices of intention expired pursuant to s. 12(16) of the SFSA.

In 2014, the creditor and the farmer entered a repayment agreement whereby the farmer would make periodic repayments in 2014. The farmer ultimately failed to make the November 2014 repayment. In early 2015, the creditor served new notices of intention on the farmer. The court granted the creditor permission to proceed with its action in December 2015. The creditor issued its claim in January 2016.

The farmer defended the claim on the basis that the two-year limitation period for commencing an action under s. 5 of The Limitations Act (Saskatchewan) had expired before the creditor served the second notices of intention.

Reasons

Justice Tholl for the Court of Appeal considered what happens to the applicable limitation period if, after the service of a section 12 notice, a section 11 SFSA order is never obtained. The Court considered three possibilities: i) the limitation period was suspended indefinitely; ii) the suspension of the limitation period was found never to have occurred; and iii) the clock for the limitation period would start running again after the section 12 notice expired.

The farmer offered the second interpretation. The creditor favored the third interpretation.

The Court interpreted section 22 of the SFSA and found: “[t]he suspension of the limitations clock is to allow for the alternative dispute resolution process to run its course” (para 54). The overall goal of Part II of the SFSA (where section 22 is located) is protecting farmers from losing their land. It does so by requiring and facilitating discussions without unduly prejudicing a lender because of the passage of time. Consequently, the Court determined the correct interpretation of section 22 suspends the limitation period upon service of a section 12 notice. Thereafter, if a section 11 application is not made before the section 12 notice expires after three years the suspension of the limitation period will cease and the limitation period clock will run again.

In the result, the limitation period was found to be suspended for the three years after the section 12 notice was served on the farmer, and the loans were enforceable through an action on the mortgages.

The Takeaway

The date of service of a section 12 SFSA notice will temporarily suspend the applicable limitation period pursuant to section 22 of the SFSA for such time until either:

i)    An application is made pursuant to section 11 of the SFSA; or

ii)    The section 12 notice expires after three years have passed, where no section 11 application has been initiated.

If the notice under section 12 expires, the countdown on any relevant limitation period will begin running again. In sum, the three-year duration under section 12 is excluded from the time calculation used to determine if the limitation period has expired.

The decision of Tholl J.A. speaking for the Court of Appeal can be found here.

If you have questions regarding this decision, please contact a member of our Insolvency & Restructuring or Civil Litigation teams.