When Does The Limitation Period Start When A Party Repudiates A Contract?

You might think that there is one answer to this question. But in Pickering Square Inc. v. Trillium College Inc., the Court of Appeal for Ontario recently reminded us that there are two answers, depending on whether the innocent party accepts the repudiation or not. If the repudiation is accepted, then the contract comes to an end and the limitation period starts to run for all claims under the contract. But if the innocent party does not accept the repudiation, then the contract continues and the repudiation may well constitute a continuing breach of contract. If that is so, then for each day of non-performance, the limitation period runs from that day.

Background

Pickering was the lessor and Trillium was the lessee under a lease of space in a shopping centre. In the lease, Trillium agreed to pay rent, to occupy the premises and to continuously operate its business as a vocational college, and to restore the premises at the expiry of the lease. Trillium gave notice to Pickering that it was vacating the premises and did so in December 2007. In June 2008, Pickering sued the appellant for rent arrears and payment under the lease for its failure to occupy the premises and to conduct its business continuously. The suit was settled in August 2008 and Trillium agreed to resume occupation of the leased premises. Trillium paid the rent for the remainder of the lease but it did not re-occupy the premises, did not conduct its business in those premises, and did not restore the premises at the end of the lease ended. After the lease expired, Pickering sued Trillium for breach of the lease.

Trillium brought a motion for summary judgment, arguing that Pickering’s claim was brought outside the two-year limitation period under s. 4 of the Ontario Limitations Act, 2002. The motion judge held that Trillium’s breach of the covenant to occupy the premises and operate its business continuously was of a continuing nature, such that each day of the breach gave rise to a fresh cause of action. As a result, only the claim relating to the breach occurring more than two years prior to commencement of the action ­­was barred by the Limitations Act, 2002.

The motion judge also held that Pickering’s claim for damages for breach of the covenant to restore the premises was not time barred. The obligation to restore arose when the lease expired on May 31, 2011, and Pickering’s action in February 16, 2012 was brought within two years of that date. .

The Appeal

Trillium argued that its breach of the covenant to operate its business continuously was complete on October 1, 2008, the first day it failed to resume occupation of the leased premises and operate its business. It submitted that each subsequent day that it failed to operate its business was not a separate breach and that each day of non-occupation did not give rise to a separate cause of action; rather, each such day constituted an instance of additional damages. Trillium submitted that a continuing breach of contract requires a succession or repetition of separate acts. In this case, it argued, there was a single act with continuing consequences and consequently, Pickering’s claim became statute-barred on October 1, 2010, two years after October 1, 2008 when Trillium failed to resume occupation and conduct its business, and long before Pickering commenced its action in February 2012.

The Ontario Court of Appeal rejected this submission. In doing so, the court differentiated between a repudiation of a contract which is accepted, in which case the contract comes to an end, and a repudiation of contract which is not accepted, in which case the contract remains in force. In the latter situation, the continuing failure of the repudiating party may amount to a continuing breach of contract. In that latter situation, the limitation period applies to each day of continuing breach. The limitation period expires on a rolling basis, so that once two years passes from a particular day then the limitation period for that day expires, but it has not yet expired for successive days and breaches.

The Ontario Court of Appeal explained the repudiation principle as follows:

“The election to cancel a contract as a result of a serious breach or repudiation brings a contract to an end and relieves the parties of any further obligations under it. The contract is not void ab initio: the innocent party may sue for damages for breach of the contract….By contrast, if the innocent party elects to affirm the contract despite the serious breach or repudiation, the contract remains in effect and the parties are required to perform their obligations under it. The innocent party retains the right to sue for past and future breaches…Pickering elected not to cancel the lease following Trillium’s October 1, 2008 breach. It affirmed the lease and, as a result, the parties were required to perform their obligations under it as they fell due….Trillium could have resumed performance of its obligations at any time prior to the end of the term of the lease by carrying on its business at the leased premises in accordance with the terms of the covenant. Had it done so, Pickering would have been required to accept Trillium’s performance and would have been unable to terminate the lease in the absence of a further serious breach or repudiation. Trillium would have been liable for damages from the date of its October 1, 2008 breach until the date it resumed the performance of its covenant obligations, but would not have incurred liability for breach of the lease beyond that date. Trillium chose not to resume its obligations at any point prior to the expiry of the lease.”

The Ontario Court of Appeal then explained the applicable limitations principle:

“In these circumstances, when did the two-year limitation period begin to run? It is clear that a cause of action accrues once damage has been incurred, even if the nature or the extent of the damages is not known….But accrual of a cause of action is not determinative for limitation purposes in the context of a continuing breach of contract and an election by the innocent party to affirm the contract. The motion judge properly concluded that a fresh cause of action accrued every day that breach continued – every day that Trillium failed to carry on its business in accordance with the covenant……The accrual of fresh causes of action has consequences for the innocent party as well as the party in breach of the contract. It sets the clock running for a new two-year limitation period. Pickering’s election to affirm rather than cancel the lease does not have the effect of postponing the date for discovery of the breach until expiry of the lease…..The limitation period in this case applied on a “rolling” basis……The two-year limitation period commenced each day a fresh cause of action accrued and ran two years from that date. Thus, Pickering was entitled to claim damages for breach of the covenant for the period going back two years from the commencement of its action on February 16, 2012 – the period that ran from February 16, 2010 until the lease expired on May 31, 2011.”

The Court of Appeal also upheld Pickering’s claim for repairs to be done at the end of the lease. Pickering was only claiming for breach of this covenant at the end of the lease, and not before. According, the limitation period for that breach arose in May 2011 when the lease expired, not in October 2008 when Trillium failed to resume occupation.

Discussion

This decision is a useful reminder of the distinction between an accepted and unaccepted repudiation of contract. The former brings the contract to an end. The latter does not, and as such has been described as something “writ upon water”. The fact that the contract remains in place is obviously important for the ongoing performance of the contract, as the obligation of performance remains in place on both sides of the contract. But as importantly, the limitation period continues to apply, on a rolling basis, to the breaches that occur after the unaccepted repudiation. And the Court of Appeal has held in this case that it does not require separate and positive acts by the defaulting party to occur for there to be continuing breaches of the contract. Rather, the failure to act and the omission of performance amount to continuing breaches of the contract.

There may be other implications of an unaccepted repudiation of the contract. It is not just the obligation of performance that continues. In addition, the parties remain entitled to exercise positive rights under the contract. Also, the performance of contracts with subcontractors and consultants, and the coverage and reporting obligations under insurance contacts and bonds, may be affected.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 8 part 8(b) and chapter 9 part 3.  

Pickering Square Inc. v. Trillium College Inc., 2016 ONCA 179

Contracts – repudiation – non-acceptance of repudiation – limitation period

Thomas G. Heintzman O.C., Q.C., FCIArb                                                 April 17, 2016  

www.heintzmanadr.com

www.constructionlawcanada.com

Waiver During A Bidding Process Held To Bar Claim Arising From The Tender

The Ontario Superior Court recently dealt with the troubling issue of whether an owner can rely upon a waiver of claims signed by a bidder during a tender to defeat a contractor’s claim arising from the tender. In Todd Brothers Contracting Ltd. v. Algonquin Highlands (Township), the court held that the owner was entitled to do so. The court also dealt with two other issues relating to tenders: whether there was a contract between the owner and the bidder; and whether the limitation period to assert a claim arising from the tender had expired.

For these three reasons this decision is an important one in relation to the law of tenders. .

Background

Todd Brothers was the lowest bidder in an invitation to tender which closed in April 2009. The invitation to tender had been issued by the Township for the construction of a new runway and the rehabilitation of an existing runway at the Township’s airport. An environmental assessment of the project was undertaken of the project by the federal environmental agency. Todd Brothers then agreed to extend the time for acceptance of its tender to July 15, 2009. The municipality decided to proceed with the project in phases because some phases did not require environmental approval. Todd Brothers agreed to the phasing of the project, and to a further extension of the time for acceptance of its tender.

In September 2009, Township council passed a resolution accepting Todd Brothers’ tender in accordance with the tender documents, subject to the Canadian Environmental Assessment Act.

Prior to the Township council resolution accepting its tender, Todd Brothers signed a “Compensation Waiver Acknowledgment” which provided that Todd Brothers would:

“not seek any compensation for … work identified but not completed … in the event that the Township cannot proceed to any of the phases as a result of matters beyond the control of the Township of Algonquin Highlands, or delays resulting from the review being completed by the CEAA … any other public issues/concerns or the withdrawal of funding from applicable sources.”

The Canadian Environmental Assessment Agency (CEAA) completed its review in December of 2010. However, the new municipal council decided not to proceed with the project. Ultimately, the Township proceeded with a joint project with the provincial government which resulted in the first three parts of the original project not proceeding.

Todd Brothers started an action against the Township on July 10, 2013, asserting that the Township’s failure to proceed with the full project was a breach of contract. The limitation issue was whether Todd Brothers had discovered or ought to have discovered its claim prior to July 10, 2011. If so, its claim was barred by the two year limitation period in the Limitations Act, 2002.

Decision of the Ontario Superior Court

The first question was whether any contract had come into existence between Todd Brothers and the Township. The Township submitted that although the Township council passed a resolution accepting Todd Brothers’ tender, the tender documents said that an award of the contract required the Township’s “written confirmation mailed to the successful bidder”, and no such confirmation was mailed; and that no acceptance of the tender was ever communicated to Todd Brothers.
The court rejected that submission, stating:

 “This provision does not, as argued by the Township, make an award of the contract conditional upon the Township’s “written confirmation mailed to the successful bidder”. Rather, it provides an obligation on the part of the contractor to sign the contract contained in the RFT, within seven days of being advised that its tender was accepted. If the Township failed to mail written notice of the award to Todd Brothers, it cannot rely upon that failure to argue that acceptance of the tender did not create a binding agreement.”

In arriving at this conclusion, the court relied upon the Contract A/Contract B analysis of the Supreme Court of Canada in the Ron Engineering decision. The court in the present case explained the application of Ron Engineering as follows:

“Contract A is formed when a contractor submits a compliant bid in response to an invitation to tender. The principal terms of Contract A are the irrevocability of the tender during the acceptance period provided for in the RFT, and the obligation of both parties, if the tender is accepted, to enter into a contract (Contract B), on the terms set out in the RFT. The obligation of the parties to enter into Contract B arises from Contract A, and is not dependent upon communication of the acceptance from the owner to the contractor.”

The second question was whether the waiver signed by Todd Brothers barred its claim. The court held that it did. The circumstances fell within the wording of the waiver. The court concluded that the Township was unable to proceed with the first three parts of the project due to the ongoing CEAA review. Once that process was finished, then the Township was:

“unable to proceed with those parts of the original project after December of 2010, because of the joint airport improvement proposal made by MNR. Had the Township failed to pursue the joint project with MNR, as required by the OMAFRA contribution agreement, it risked withdrawal of provincial funding.”

The third issue was the limitation question. The court held that Todd Brothers did not discover nor ought to have reasonably discovered its claim before July 2011. Its claim only arose when “Todd Brothers discovered that this work would no longer be made available to it.” In July 2012, the discussions with the environmental authorities were still ongoing and Todd Brothers had reason to believe that they would work out. It was not reasonable to insist that Todd Brothers commence an action at that point when discussion between the parties were still unfolding.

Discussion

Each of these three issues are of interest. The first point raises two questions:

What events give rise to a contract under an invitation to tender?

And if a contract arises, did it oblige the Township to enter into Contract B-the building contract?

The court answered the first question. It concluded that Contract A was formed when Todd Brothers submitted its bid and the tenders closed. At that point there was a Contract A between Todd Brothers and the Township governing the bidding process. That contract came into being automatically and without any need for a communication from the Township to Todd Brothers.

The court did not apparently answer the second question. Under the Ron Engineering regime, Contract A required the Township to enter into Contract B – the construction contract – unless there was a justifiable reason not to do so. But the court did not consider whether there was justification for the Township not to enter into Contract B. Why were the CEAA process and the dealings with the province of Ontario not a sufficient justification for the Township not to proceed with the contract with Todd Brothers? Indeed, in its discussion of waiver, the court appears to have concluded that the CEAA process and the dealings with the provincial government did justify the Township in not entering into the building contract with Todd Brothers.

The court’s conclusions about waiver also seem problematic. What was the consideration for the waiver? Todd Brothers was the low bidder and, under the Ron Engineering analysis, the Township was obliged to enter into the building contract with Todd Brothers, absent reasonable justification for not doing so. It does not seem open to the Township to say that it awarded the contract to Todd Brothers in consideration of receiving the waiver: as the court said, the Township was obliged to award the contract to Todd Brothers due to the Ron Engineering regime. So what was the consideration that made the waiver enforceable? Why was it not a gratuitous promise or unilateral offer that Todd Brothers was entitled to withdraw?

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), chapter 3, part

Todd Brothers Contracting Ltd. v. Algonquin Highlands (Township), 2015 CarswellOnt 3045
2015 ONSC 1501

Building Contracts – Tendering – Contract A-Contract B- consideration – waiver – limitation periods

Thomas G. Heintzman O.C., Q.C., FCIArb                                     March 24, 2015

www.heintzmanadr.com

constructionlawcanada.com

 

A Mediation Obligation Is Enforceable Says The Ontario Court of Appeal

Is a person bound to mediate before commencing an action or arbitration if the contract or applicable statute requires mediation? Or should an obligation to mediate only become effective after an action or arbitration has been commenced? And if mediation is a pre-condition to suing or arbitrating, does the limitation period run before the mediation occurs?

In Madder v. South Easthope Mutual Insurance Co., the Ontario Court of Appeal recently held that if a statutory claims regime states that claimant must seek mediation of the dispute, then the claimant has no claim unless mediation has been attempted. The court also held that, under the applicable no fault insurance regime in question, the claimant had no claim unless the claimant had returned the funds already paid to her.

While this decision was made in the context of no fault automobile insurance legislation, it has real implications for all claims, particularly arbitration claims or claims involving the limitation period.

Background

In July, 2002, Ms. Madder was involved in a motor vehicle accident. She was insured by South Easthope under a no-fault policy for accident benefits governed by the Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, O. Reg. 403/96 (the “SABS”). She immediately applied for accident benefits pursuant to the SABS and in August, 2002, she began receiving income replacement benefits.

In April, 2003, South Easthope gave Ms. Madder notice that it was terminating the benefits claiming that Ms. Madder was able to resume her employment duties, and in May 2003 South Easthope stopped paying income replacement benefits to Ms. Madder.

In July 2003, before a DAC assessment could take place, and in exchange for a lump sum payment of $3,000, Ms. Madder signed a release in which she released South Easthope from any obligation to pay accident benefits.

The circumstances in which that release was signed were disputed. Ms. Madder said that South Easthope’s adjuster showed up at her apartment and convinced her to sign the release in exchange for the $3,000 and that she felt compelled to accept the settlement. According to South Easthope, Ms. Madder initiated the discussions due to her financial difficulties.

In April 2005, Ms. Madder commenced an action against South Easthope. In August, 2005 South Easthope advised Ms. Madder that she had a statutory obligation to repay the settlement funds received and to mediate the dispute through the Financial Services Commission of Ontario (“FSCO”) before commencing her action. In its defence, South Easthope pleaded that the action should be dismissed because, inter alia, Ms. Madder had not satisfied the statutory prerequisites to litigation.

Motion Judge’s Decision

Each side brought summary judgment motions. The motion judge dismissed Ms. Madder’s motion and granted South Easthope’s motion. The motion judge held that Ms. Madder was obligated to repay the settlement funds and proceed to mediation before she could commence litigation. The motion judge also held that Ms. Madder could not bring the claim as a stand-alone action not subject to the statutory requirements. Her claim was about her right to rescind the settlement agreement and claim accident benefits since the settlement date and such a claim was subject to the mandatory mediation provisions. Her claims of mental distress and bad faith were not independent causes of action but, rather, arose from South Easthope’s alleged breach of the insurance policy.

Court of Appeal’s Decision

The Court of Appeal held that Ms. Madder’s claims, whether asserted in an action or by way of FSCO arbitration, were subject to the statutory obligation to first seek mediation. “Without mediation”, the court said, “the court had no jurisdiction to hear the appellant’s claim.”

The court also held that, before Ms. Madder could assert a claim to rescind the settlement agreement, she was obliged to return any settlement moneys, pursuant to s. 9.1(7) of the automobile Insurance Regulation; and under s. 8.1(8) of the same Regulation she was not entitled to commence a mediation unless she returned the settlement funds.

The court held that Ms. Madder’s claims for conspiracy and bad faith also fell within the statutory regime and could not be asserted in the absence of Ms. Madder instituting mediation and returning the settlement funds.

Discussion

This decision raises, once again, the nature of an “obligation” to mediate. Is it an enforceable obligation, and is it a precondition to the existence of a cause of action? In this decision, the Court of Appeal has answered Yes to both of these questions. But is this the right legal and public policy result?

There is a body of law holding that an obligation to mediate is not an enforceable obligation because it is no more than an obligation to negotiate, which is too uncertain to constitute a legal obligation. The decision of the English Court of Appeal in Sulamerica CIA Nacional de Seugros S.A. v. Enesa Enenharia S.A., [2012]EWCA Civ. 648 is the leading decision to that effect. That decision was discussed in my article dated July 9, 2012 and this issue was also addressed in my articles dated July 27, 2014, Feb. 2013 and July 2014. However, in Madder v. South Easthope Mutual Insurance Co., the Ontario Court of Appeal has concluded, or proceeded on the assumption, that the obligation to mediate is enforceable and disentitles the claimant from commencing proceedings.

Even if the obligation to mediate is enforceable, what is the effect of that obligation? Does it mean that the claimant has no cause of action until mediation occurs, as the Court of Appeal has apparently found? Or does it mean that there is a cause of action but the court or arbitrator can stop it from being further prosecuted until the obligation to mediate is fulfilled? If this is second approach is adopted the result, then the action or arbitration is properly commenced but may be stayed pending a mediation.

There are a number of reason for questioning the approach adopted by the Court of Appeal. If mediation must be sought before a cause of action arises, then Ms. Madder’s cause of action remains suspended. The limitation period has not yet started to run because the mediation has not occurred. That means that Ms. Madder can now seek mediation and pay back the settlement money and go on with her claim. That approach allows actions or arbitrations to be continued long after the events in question have occurred. That, it could be argued, is not a good public policy result.

The other view of the matter is that the cause of action accrued when the insurer terminated payment. It was then that the claimant could start the action. Mediation is an element in the court’s or arbitrator’s jurisdiction to deal with the action, not a pre-condition to the existence of a cause of action. That view reflects the fact that mediation is part of, and not a precursor to, the court’s jurisdiction under the rules of civil procedure. That view would enable the court or arbitrator to stay the action until mediation occurs, if that is appropriate in all the circumstances.

If Ms. Madder, or another claimant, seeks to argue that the limitation period has not run until mediation has occurred, it will be interesting to see what decision the court arrives at. In the meantime, it will be important to pay close attention to a mediation obligation and the limitation period. Proceed with mediation if there is an obligation to do so, but be ready to commence an action or arbitration if the limitation period is expiring based on the events giving rise to the claim, even if the mediation hasn’t been completed.

Madder v. South Easthope Mutual Insurance Co., 2014 CarswellOnt 14500, 2014 ONCA 714

Mediation – Limitation Period – Commencement of proceedings

Thomas G. Heintzman O.C., Q.C., FCIArb                                 November 16, 2014

www.heintzmanadr.com

www.constructionlawcanada.com

 

Has The Limitation Period For Constructive Trust Claims Been Thrown Wide Open?

Constructive trust claims are a natural for construction projects. Unpaid subcontractors and suppliers may have improved the land owned by or secured to the owner or mortgagee. But they may have a worthless claim against a bankrupt contractor and may have let the time for filing a construction lien claim pass by. In these circumstances an unjust enrichment claim with a constructive trust remedy may be their last hope.

But what is the limitation period for a constructive trust claim?  In McConnell v. Huxtable, the Ontario Court of Appeal recently held that it is ten years and not the normal two years.  If that limitation period is available for constructive trust claims arising from unjust enrichment, then a lengthy period is available for subcontractors and suppliers to assert claims arising from a building project.

The Decision

The decision arose from a family law dispute. Ms. McConnell and Mr. Huxtable lived together for about 14 years. During that time, Mr. Huxtable bought several houses with his money. When the couple parted, Ms. McConnell knew that she had a potential claim for unjust enrichment and constructive trust. But she did not start her claim until five years later, after the two year limitation period in the Ontario Limitations Act, 2002 had expired but well within the 10 year limitation period in section 4 of the Ontario Real Property Limitations Act.

Ms. McConnell commenced a claim for unjust enrichment in which she asserted a constructive trust remedy over Mr. Huxtable’s houses. Mr. Huxtable brought a summary judgment motion to dismiss the action on the ground that it was commenced outside the two year limitation period in the Limitations Act, 2002. The Court of Appeal agreed with the motion judge that the proper limitation period for the claim was the ten year limitation period in the Real Property Limitation Act.

Section 2(1) of the Limitations Act, 2002 states the Act applies to claims other than those governed by other specific statutes, including the Real Property Limitations Act. Section 4 of the latter statute applies to “an action to recover land or rent” or to “a right to make entry or distress”.  Mr. Huxtable’s argument was that the Real Property Limitations Act applies to claims relating to adverse possession, that the word “recovery” means that the person asserting the claim must have once had possession or title to the land and that a constructive trust claim does not fall within section 4.  The Court of Appeal rejected those arguments and held that the statutory history showed that the legislature intended to leave all claims in relation to land outside the new Limitations Act, 2002, including constructive trust claims.

The Implications of the Decision

This decision may have far reaching implications. The Court of Appeal held that its decision was not based upon the fact that Ms. McConnell’s claim was a family law claim. The court made it very clear that its ruling applies to any claim in relation to land, including a claim for constructive trust arising from unjust enrichment. Conversely, it held that a claim that seeks only monetary compensation falls within the two year limitation period in the Limitations Act, 2002, including a claim for unjust enrichment.  And a proceeding that asserts both a claim against land and a monetary claim falls within the ten year limitation period in section 4 of the Real Property Limitations Act. 

Constructive claims to land may be important for family law but they are equally important for construction law because the potential claimants – subcontractor and suppliers – improve the land involved in the construction project and they can claim that it is unjust if the owner or mortgagee is benefited and they are unpaid.  However, unjust enrichment claims in the construction industry will run into two obstacle: the building contract with the contractor and the construction lien legislation. Both those legal regimes provide a justification for the owner or mortgagee benefiting from the improvement to the land. So if the owner or mortgagee has paid the proper amount to the contractor and withheld the proper amount under the construction lien legislation, it will be difficult for the subcontractor or supplier to successfully assert an unjust enrichment claim.

But there can be circumstances in which such a claim could be made. For instance, in Atlas Cabinets & Furniture Ltd. v. National Trust (1990), 38 C.L.R. 106, the mortgagee assured a subcontractor that it would be paid if it continued to work on the project, even though the contractor was in serious financial condition. After the mortgagee foreclosed on the property, the British Columbia Court of Appeal held that the subcontractor was entitled to a constructive trust remedy over the property, although a monetary remedy was found to be sufficient and was awarded. Based on McConnell v. Huxtable, the limitation period for asserting this sort of constructive trust claim may be much longer than the normal two year limitation period.

McConnell v. Huxtable, (2014), 118 O.R. (4th) 561.

Building contracts  –   unjust enrichment  –   constructive trust  –   limitation period

Thomas G. Heintzman O.C., Q.C., FCIArb                              May 1, 2014

www.heintzmanadr.com

www.constructionlawcanada.com                                                                

Does An Informal Agreement To Mediate Stop The Limitation Period From Running?

Mediation seems like apple juice:  no harm in taking it and it might do some good. But mediation has a trap: — the limitation period. If a party enters into mediation and lets the limitation period go by, then that’s real harm.

In a number of reported cases, one party to a mediation did exactly that because it entered into a mediation agreement that was not enforceable. When the other party mediated until the limitation period passed, the first party was left without a remedy. That is what happened in Federated Insurance Co of Canada v. Markel Insurance Co. of Canada, 2012 ONCA 218, 2012 CarswellOnt 4051 (Ont. C.A.).

Fortunately, there is protection for this situation in Ontario which is not well known. It is found in Section 11 of the Limitations Act, 2002. By reason of a recent decision of the Ontario Court of Appeal, that protection just improved.

In Sandro Steel Fabrication Ltd. v. Chiesa, the Ontario Court of Appeal held that section 11 applies whenever there is an agreement to appoint a mediator, whether the agreement is formal or informal.  That means that section 11 provides broad and practical protection against the expiry of the limitation period during mediation.

Section 11 states as follows:

“11.  (1)  If a person with a claim and a person against whom the claim is made have agreed to have an independent  third party resolve the claim or assist them in resolving it, the limitation periods established by sections 4 and 15 do not run from the date the agreement is made until,

(a) the date the claim is resolved;

(b) the date the attempted resolution process is terminated; or

(c) the date a party terminates or withdraws from the agreement .”

Five aspects of this section should be noticed:

First, the section does not depend on a contract to mediate, only an agreement to mediate. So the section does not state that the agreement must meet the requirements of a contract, such as consideration, certainty of terms, etc. All there has to be is an agreement to mediate.

Second, and this is the point of the Santro decision, the agreement need not be in any particular form. It need not be a formal written agreement and it need not refer specifically to section 11. The respondent in the Sandro case asserted that section 11 could “only be triggered by express written agreement referencing the specific claim sought to be tolled and, in this case, the alleged agreement to mediate …was void for want of mutual intention to the agreement in all essential terms required by the law of contract.”

The Court of Appeal rejected that submission.  It held as follows:

“… the motions judge made a finding that there was an agreement to mediate the claim resulting from the collapse of the building which included the Sandro remediation damages. This finding is owed deference. Based on the evidence before him, this was a reasonable conclusion. As such, by virtue of s. 11(1) of the Limitations Act, 2002, the limitation period was suspended.”

The motion judge also held that section 11 applied even if there is ambiguity surrounding the existence of an agreement. The Court of Appeal was not prepared to endorse that view, but was satisfied that the motion judge had correctly held that there was an agreement to mediate.

Third, section 11 states with relative certainty the events which terminate the protection against the running of the limitation period. Each of the three events mentioned in sub-section 11 can be determined with objective certainty, and presumably it is the earliest of these events which ends the protection. Section 11 does not provide an uncertain event for the end to that protection, such as the termination of “good faith efforts” to settle as some mediation clauses do.

Fourth, section 11 does not terminate a mediation agreement, only the limitations protection of that agreement. So even if the obligation to mediate under the mediation clause continues, the protection against the running of the limitation clause does not. In these circumstances, once the protection under section 11 ends the party wishing to make a claim must commence the claim within the re-started limitation period even if the obligation to mediate continues.  For this reason, those drafting mediation clauses should use the termination language in section 11 so that there is not a disconnect between the obligation to mediate and the limitation period protection.

Fifth, section 11 provides protection that can be used whenever a decision to mediate is made. The protection does not have to be in the original contract under which the dispute arises, if there was such a contract. Indeed, section 11 could apply to a tort or other non-contractual claim. So section 11 is a convenient protection to use whenever a dispute exists which the parties wish to mediate.

The Sandro decision confirms that there is a safe harbour for mediation against the possibility of the limitation period expiring during the mediation. Any parties contemplating mediation should use this safe harbour carefully, by copying the wording of section 11 into the mediation agreement, or at least into a letter or email confirming the agreement to mediate:  “this confirms our agreement to have an independent third party resolve the claim or assist the parties in resolving it.”

The Santos and Federated Insurance decisions are two of the triumvirate of cases decided recently by the Ontario court of Appeal dealing with mediation and limitations. The third is L-3 Communication SPAR Aerospace Ltd. v. CAE Inc., 2010 ONSC 7133, 2010 CarswellOnt 10046 (Ont. S.C.J.), affirmed 2011 ONCA 435, 2011 CarswellOnt 4543 (Ont. C.A.).  In that case the Court of Appeal held that under the contract in question, mediation was a pre-condition to a cause of action arising, so the limitation period did not commence until the mediation was concluded. These three decisions provide an essential legal framework for the impact of mediation on the limitation period and vice versa.

See Heintzman and Goldsmith on Canadian Building Contracts, 4th ed., chapter 10, part 6

Sandro Steel Fabrication Ltd. v. Chiesa, 2013 CarswellOnt 8520, 2013 ONCA 434.

mediation  –  building contracts  –  limitation period

Thomas G. Heintzman O.C., Q.C., FCIArb                                                               April 13, 2014

www.heintzmanadr.com

www.constructionlawcanada.com

Same Court, Different Results: When Does The Limitation Period Start For An Arbitration Claim?

When does the limitation period start for an arbitration claim?  Can the very making of the demand start the period running?  Yes, the Ontario Court of Appeal recently said in Federation Insurance Co. of Canada v. Markel Insurance Co of Canada. In so deciding, the Court of Appeal seems to have reached a conclusion which is contrary to another of its decisions in 2011.

While this decision was rendered in the context of automobile insurance, it may have wide implications for commercial arbitrations, especially under bonds or indemnity contracts.  The decision may mean that, in a wide variety of settings, the very demand by a claimant may start the limitation period running under an arbitration clause.  That is because, under the particular language of the contract in which the arbitration clause is found, the claim may be “discovered’ before or at the very time when the claim is made.  If that is so, then the claimant should start counting the very day it makes its claim.

The Background

Between April and May 2006, Federation paid statutory accident benefits (“SABS”) to its insured under an automobile policy arising from an accident which the insured had with another motorist.  Under Ontario Insurance law, Federation was entitled to recover the SABS from the other motorist’s insurer and made a request for payment from the other insurer.   More than two years later and having not been paid by Markel, Federation instituted an arbitration claim against the other insurer for payment.

The other insurer took the position that Federation’s claim was barred by Ontario’s two year limitation period.  The arbitrator agreed and dismissed Federation’s claim.  The arbitration award was upheld by the Ontario Superior Court and Court of Appeal.

The Court of Appeal held that Federation suffered a loss and had discovered that loss at the very time that it made a demand for payment from the other insurer.  It said:

[T]he first party insurer suffers a loss from the moment the second party insurer can be said to have failed to satisfy its legal obligation to satisfy the loss transfer claim… the first party insurer suffers a loss caused by the second party insurer’s omission in failing to satisfy the claim the day after the Request for Indemnification is made.

I cannot agree with the proposition that no loss is suffered until the second party insurer unequivocally denies the claim. That argument ignores the fact that once a valid request is made, the first party insurer is legally entitled to be indemnified and therefore suffers a loss each day it is out of pocket for the SABS paid to its insured. I note here that this conclusion is supported by the passage I have quoted at para. 9 from the FSCO bulletin for loss-transfer claims stating that loss-transfer claims are to be paid “promptly” upon receipt of a Request for Indemnification and that the relevant arbitral jurisprudence holds that where a first party insurer is successful in establishing a loss transfer claim, interest is payable from the date the claim was asserted.”

The Court of Appeal then considered the language in section 275(4) of the Ontario Insurance Act.   That sub-section stated that “If the insurers are unable to agree with respect to indemnification under this section, the dispute shall be resolved through arbitration under the Arbitration Act.”  (emphasis added)

The Court said that this sub-section did not require, as a precondition to the cause of action arising and the limitation period beginning to run, that the parties actually engage in discussions and actually be unable to agree.  The Court stated its decision on this point as follows:

“In my view, s. 275(4) does nothing more that stipulate that any disputes that cannot be otherwise resolved by the parties are to be resolved by arbitration rather than by litigation. Section 275(4) says: if you cannot agree, your claim is to be resolved by arbitration. It does not say: you must be able to demonstrate a failure to agree or a clear denial of your claim by the other insurer in order to commence arbitration.

I accept that the loss-transfer regime assumes that virtually all claims can and should be resolved by agreement. I accept as well that as a practical matter, insurers should be encouraged to discuss and negotiate claims. Moreover, as a practical matter, no insurer would proceed with arbitration unless it was apparent that an acceptable agreement could not be reached by negotiation. But that does not mean that as a matter of law, an insurer must be able to demonstrate a failure to agree or clear denial of the claim by the other insurer as a condition precedent to commencing a proceeding to enforce a claim for indemnification.”  (emphasis added)

Federation submitted that this approach to the arbitration clause was contrary to public policy on the ground that it would discourage negotiation and real efforts at settlement.  The Court of Appeal disagreed:

“I fully accept that parties should be discouraged from rushing to litigation or arbitration and encouraged to discuss and negotiate claims. In my view, when s. 5(1) (a) (iv) [of the Limitations Act, 2002] states that a claim is “discovered” only when “having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”, the word “appropriate” must mean legally appropriate. To give “appropriate” an evaluative gloss, allowing a party to delay the commencement of  proceedings for some tactical or other reason beyond two years from the date the claim is fully ripened and requiring the court to assess to tone and tenor of communications in search of a clear denial would, in my opinion, inject an unacceptable element of  uncertainty into the law of limitation of actions.”

In this decision, the Court of Appeal arrived at a result which is contrary to the result in its 2011 decision in L-3 Communication Spar Aerospace Limited v. CAE Inc (which decision was not referred to in the Federation v. Markel decision, although one of the judges sat on both cases).

I dealt with the L-3 Communication decision in my article of July 17, 2011.  In that case, the contract provided for the dates for the delivery of data relating to a hardware and software aviation system.  The contract said that: “The price and other adjustments that are not agreed between the parties may be referred to arbitration”.  Based on that language and other language in the contract, the Court of Appeal held that the limitation period did not commence until the parties had undertaken negotiations and there had been a definite inability to agree on the price and other adjustments. The Court said:

The commercially reasonable interpretation is that a dispute over failure by SPAR to deliver information as required together with the cost consequences caused thereby is one that the parties were obliged to attempt to resolve between themselves. Failing agreement either party is entitled to take the dispute to arbitration

How can these two decisions be reconciled?

In L-3 Communications, the words “not agreed between the parties” were held to mean that the limitation period did not commence before a negotiation and absence of agreement occurred.  In Federation v. Markel, the words “unable to agree” were held not to require the parties to negotiate and be unable to reach an agreement, and not to delay the commencement of the limitation period.

It seems that the only way to reconcile the two cases is to examine the process leading up to the demand in each case.  In L-3 Communications, the parties were involved in a tender process and were in direct dealings and negotiations with each other over price and other adjustments.  The language of the tender documents contemplated real efforts to agree on price and adjustments.  So the Court of Appeal was able to conclude that the words “not agree” meant that the parties were obliged to engage in an actual process of negotiation leading to non-agreement, and until that process was concluded the claim did not arise in law and the limitation period did not begin.

In Federation v. Markel, there were no ongoing dealings between the parties, apart from one insurer’s demand that the other insurer indemnify it.  There was no prior contract, tender or other relationship between the parties.  The parties were simply insurers whose insureds had been involved in a motor vehicle accident.  In this circumstance, the Court of Appeal held that the words “unable to agree” did not signify that the parties had to go through an attempt to agree as a pre-condition to the existence of a legal entitlement to payment and the commencement of the limitation period.

These decisions demonstrate the danger lurking in limitation periods relating to contract claims in general, and to claims under arbitration clauses in particular.  While the general law of limitations will apply to those arbitral claims, the terms of the contract and the terms of the arbitration clause may fundamentally affect the question of when a legal right under the contract or arbitration clause comes into existence.

All the ingredients of the cause of action may have arisen when the party with the claim makes its demand.  The party with the claim may have discovered all those ingredients when it makes its claim.  If these ingredients are in place then, unless the arbitration clause very clearly suspends the limitation period during settlement or negotiation, it may be unwise to rely on a suspension of the limitation period during that period.  Prudence may demand that the claim be issued and negotiations come later.

See  Heintzman and Goldsmith on Canadian Building Contracts (4th ed.), Chapter 6

Federation Insurance Co. of Canada v. Markel Insurance Co of Canada, 2012 CarswellOnt 4051, 2012 ONCA 218

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                            May 5, 2012

www.heintzmanadr.com

www.constructionlawcanada.com

The Limitation Period Quagmire Between Litigation And Arbitration

The limitation period is a vexing issue to any party involved in a commercial dispute.  This truism applies even more to construction disputes because there are a variety of events that may trigger the beginning of the limitation period.  The limitation issue becomes even more vexing when the proceeding can be either:  by way of arbitration, by way of an action or by way of a counterclaim.  Add to that confusion a motion by one party to stay its own action in favour of arbitration.  How could any party know when the limitation period started?  That was the situation in Penn-Co construction v. Constance Lake First Nation.

The bottom line of this decision is that the limitation period is not stayed while the court sorts out whether the dispute should be resolved by court litigation or arbitration.

The Background

In June 2003, Penn-Co entered into a contract with Constance Lake to build a school on the reserve.  The work was to be completed by November 2004.  Constance Lake took possession of the school in February 2005.  Disputes remained between the parties about payment and the completion of the project.  In December 2005, Constance Lake served a notice alleging that Penn-Co was in default under the contract and gave Penn-Co five days to cure the default or provide a schedule to do so.  In May 2006, Constance Lake then served a Notice of Default on Penn-Co’s bonding company.  In September, 2006, Constance Lake served a notice on Penn-Co terminating the contract due to the inability or refusal of Penn-Co to perform the balance of the contract work.  In October, 2006, Constance Lake entered into a contract with another contractor for the “completion” of the contract.

In January 2007, Penn-Co started an action against Constance Lake for damages for breach of contract.  At the same time, Penn-Co brought a motion to stay its own action pending arbitration.  Constance Lake opposed the motion on the basis that the action should proceed, not an arbitration.  The motion was dismissed in September 2007, and Penn-Co’s appeal was dismissed by the Court of Appeal in November 2008.  In May, 2009, Constance Lake served a Statement of Defence and Counterclaim, but did not have it formally issued by the court.  In September 2009, Penn-Co served its Defence to Counterclaim, and in October 2009, Penn-Co issued a third party notice seeking contribution and indemnity from certain sub-trades in respect of the counterclaim.  In April 2010, Penn-Co delivered an amended Defence to Counterclaim asserting that the Counterclaim had been issued outside the two year limitation period in the Ontario Limitatios Act, 2002.  Penn-Co then brought a summary judgment motion to dismiss the Counterclaim.

The Decision

The motion judge held that the Counterclaim had been issued outside the limitation period and dismissed the Counterclaim.  There was no dispute that the limitation period commenced at the latest in September 2006 when Constance Lake terminated the contract.  Accordingly, the two year limitation period ended in September 2008, long before Constance Lake served its Counterclaim in May 2009.

Constance Lake’s argued that the limitation period was extended due to Penn-Co’s motion to stay its action in favour of arbitration.  Constance Lake argued that until that motion was dismissed there was every possibility that Penn-Co’s action would be stayed and that the dispute would be dealt with by arbitration, and that accordingly the limitation period did not start to run until November 2008 when the Court of Appeal dismissed Penn-Co’s appeal on that issue.  Constance Lake argued that Penn-Co’s motion either suspended the limitation period or amounted to a waiver of the running of the limitation period by Penn-Co.

Section 52(2) of the Ontario Arbitration Act, 1991 does provide that, if the court sets aside an arbitration award, terminates an arbitration or declares an arbitration to be invalid, then the court may order that the time period from the commencement of the arbitration to the date of the order shall be excluded from the limitation period.  Constance Lake argued that, by analogy, the period during Penn-Co’s stay motion should also be excluded from the limitation period.

The motion judge rejected that argument.  The court which had dismissed Penn-Co’s stay motion, and the Court of Appeal, had not done any of the things referred to in Section 52(2);  setting aside the arbitration award or terminating or declaring invalid the arbitration.  Nor was the present motion judge doing any of those things.

The motion judge also rejected the assertion that he had discretion to go beyond either section 52(2) of the Arbitration Act, 1991 or the Limitation Act and, by judicial interpretation, expand on the specific terms of either statute.  To do so would be contrary to the Limitation Act itself which contemplates that the provision of that statute are the only limitation periods to be applied, and would also be contrary to the previous directions of the Court of Appeal that any suspensions of the periods contained in the Limitation Act must be found in that Act itself or another statute, not in judge-made law.  

The motion judge also did not accept the argument that Penn-Co had waived the limitation period or that there was, effectively, an agreement between the parties to waive the limitation period.  At any time Constance Lake could have commenced an action, or could have issued a Counterclaim in Penn-Co’s action after it was issued in January 2007.  At no time did Penn-Co relinquish or waive its right to rely on the limitation period.

The Importance of Keeping Your Eye on The Limitation Period

This decision is, perhaps, more about not letting the opposition dazzle you with fancy procedures than it is about determining when a limitation period commences and ends.  In the absence of statutory authority or agreement to that effect, the notices to bonding companies, the commencement of proceedings by the other party, or motions or other fancy moves by the other side will not do anything to stop the limitation period from running for the other party’s claim.

In a construction project, there may be all sorts of opportunities to serve notices, give directions, make claims against bonding companies and even commence litigation which may confuse and confound the other party.  But those moves should not distract the other party into thinking that the limitation period is no longer an issue for its own claim.  It is.

In particular, if any time is taken up in deciding whether one party’s claim should proceed in court or by arbitration, that period of time does not extend the limitation period for the other party’s claim to be commenced.

So it is necessary to keep an eye on the limitation period from the beginning.  And certainly, after a party to a contract terminates that contract, or purports to do so, a big, solid mark and reminder should be made in the diary which alerts that party to commence court or arbitration proceedings within the limitation period after that date, no matter what the other party does.

Construction Law  –   Arbitration  –  Limitation Period:

Penn-Co construction v. Constance Lake First Nation, 2011 ONCS 5875

Thomas G. Heintzman O.C., Q.C.                                                                               November 4, 2011

www.constructionlawcanada.com
www.heintzmanadr.com

Tenders in Construction Projects – Which Limitation Period Applies?

What is the limitation period for the commencement of an action arising from a tender in a construction project?

If the owner is a municipality or other public body, does a limitation period in its incorporating legislation apply to the tender?  These were the questions recently faced by the Prince Edward Island Court of Appeal in Central Roadways v. City of Summerside.

In May 2008 the City of Summerside sought tenders for the resurfacing of city streets.  Two bidders, Central Roadways and another bidder, submitted tenders.  Central Roadways’ tender was the lowest, but on June 16, 2008 the City’s Council met and decided to award the contract to the other bidder, and advised Central Roadways the next day.

In November 2008, Central Roadways asked the City why its tender was not accepted and requested a copy of Council meeting minutes of June 16, 2008.  The City replied by letter and provided  a copy of the minutes but the minutes did not disclose any reasons why the other tender was accepted and not the tender of Central Roadways.

On February 20, 2009, Central Roadways commenced an action against the City.  The City brought a motion to dismiss the action on the ground that it was barred by the limitation period in s-s.46 (2) of the City of Summerside Act.

Section 45 and 46(1) of that Act provided that notice was to be given to the City in the case of damage sustained from unsafe conditions, or from nuisances or encumbrances, on City streets or sidewalks.  Section 46(1) then said that, except as provided in S. 46(1), all actions against the City were to be commenced within six months of the cause of action arising.

The City asserted that this limitation period applied to the claim arising from the tender, and the judge who heard the motion agreed.  But the P.E.I Court of Appeal reversed the decision.

The Court of Appeal examined the wording and history of the City of Summerside Act and concluded that the six month limitation period only applied to claims arising from City bylaws or claims relating to unsafe conditions or nuisances and encumbrances on City property.  Even though the word “all” in s. 46(2) was normally all-encompassing, it should not be so interpreted in light of these surrounding circumstances.

The Court of Appeal noted that the limitation period in P.E.I. for claims in contract is six years and that a limitation period of six months is a very different limitation period.  Since the shorter limitation period was found in a statute for the City’s benefit, it should be interpreted against the City in the event of any ambiguity.  The Court said:

“Interpreted to include all causes of action against the City, the very short six-month limitation period would seriously circumscribe the right of a person to commence any action against the City.  This being so, any ambiguity must be resolved in favour of a less restrictive limit on the time within which to commence an action.”

The Court of Appeal held that the claim by Central Roadways was in contract, since it arose from the alleged breach of its contract with the City inherent in its submission of a tender to the City’s invitation.   While there might be good policy reasons for the City to provide very short limitation periods for actions arising from slip and falls or other accidents on City streets,

“there is no valid policy reason why other actions against the City, like an action for breach of contract, should have the time for the commencement thereof limited to a very short six months…If the Legislature is of the mind that there are valid policy reasons for a shorter limitation period for the commencement of such actions against municipalities like the City, then it should express the policy more clearly in the Act  so as to specifically exclude these actions from the scope of the Statute of Limitations.”

This decision contains warnings about limitation periods relating to tenders.

The first warning is that a claim arising from a tender is a claim in contract and must be brought within the limitation period for a contract claim.  In addition, a tort claim relating to the tender must be brought within the limitation period relating to tort claims.

The second warning is this:  look for any limitation period contained in the tender documents. The tender documents may themselves contain a specific and shorter limitation period.  A shorter contractual limitation period may be permitted under the general limitation statute.  Thus, In Ontario, s.22(5) of the Limitations Act, 2002 permits the normal two year limitation period to be shortened in business agreements, but not consumer agreements.

And third, ensure that there are no other statutory limitation periods which may apply to the tender.  In Ontario, that is unlikely since s.19 of the Limitations Act, 2002 states that a statutory provision containing a conflicting limitation period is of no effect unless that provision is set out in the Schedule to the Limitations Act, 2002.  But if there is a limitation provision in another statute which is potentially enforceable, then depending on the origin and nature of that provision, the decision in the Central Roadways case may require that the limitation provision be read against the public body and only enforceable if it clearly applies to the tender.

Tenders – Limitation Period – Construction Contract – Actions – Breach of Contract – 

Central Roadways v. City of Summerside, 2011 PECA 4 (CanLII)  https://bit.ly/jnQhQk

When Does the Limitation Period Start For A Negligent Construction Claim?

When Does the Limitation Period Start For A Negligent Construction Claim?

The law of Limitations creates a difficult question for those involved in construction projects: When does the limitation period begin for a claim in negligence arising from a construction project?   In Timminco Ltd. v. ABB Industrial Systems Inc., an Ontario judge recently held that the answer is: when the plaintiff knew or ought to have known of the particular defect that gave rise to the damage for which the plaintiff sues.

The plaintiff produced magnesium billets.  In March 1998, it retained engineers and started the design of a new facility to mill, alloy and refine magnesium. In August 1998, it contracted with the defendant for the supply of the two furnaces for the facility. The furnaces were installed and tested in 1999.  In November 2000, molten magnesium spilled out of the furnace, through a gap in the floor and landed on the pipes carrying glycol coolant to the furnace. The glycol was ignited, a fire ensued and the furnaces were damaged.

The plaintiff did not commence an action against the defendant until November 2006 or just within the old six-year limitation period in Ontario if the limitation period started which the fire occurred in November 2000.  The plaintiff said that the damage which occurred in November 2000 was an essential element of its cause of action, that the cause of action did not accrue until then and therefore the six year limitation period had not expired when it started its action.

The defendant brought a summary judgment motion to dismiss the action. The defendant asserted that, well before November 2000, the plaintiff knew all about the circumstances which led to the fire.  The characteristics of the design of the facility were well understood by the defendant and its engineers during the construction of the facility.  Incidents had occurred prior to November 2000 – during the construction project itself, the testing period and the operation period leading up to November 2000.  Those incidents had caused damage, including damage arising from spilled magnesium causing a previous fire in September 1999.  From those incidents, the defendant said that the plaintiff knew or ought to have known of the very defects which allowed the spilled molten metal to come into contact with the pipes carrying the glycol to the furnaces.  Accordingly, the defendant said that, at the very latest, the limitation period ran from the date of those incidences, and that by November 2006 the limitation period had expired.

The problem with the limitation period is that the elements of the tort of negligence contradict the principles relating to limitations of action.  The occurrence of damage is an essential element of the tort of negligence. So, the “cause of action” in negligence should only arise when the damage occurs.  However, both the courts and the legislatures have said that it is unfair to expect a plaintiff to sue if the damage is unknown. The common law in Canada developed the principle that the limitation period for a claim in negligence only commences when the plaintiff knew or ought to have known of the cause of action. That principle is now contained in Ontario’s Limitations Act, 2004.

In these circumstances, the question is: What facts must the plaintiff know or ought to know for the limitation period to begin?  Any damage arising from the negligent act or omission? Any defects arising from the negligent act or omission?  The particular damage for which the plaintiff sues? Or the particular defect which gave rise to the particular damage for which the plaintiff sues?

If the first two answers were correct, then the plaintiff’s claim would have been out of time under Ontario’s old six-year limitation period.  The defendant asserted that the second answer was the correct one. If the third answer was correct, then the plaintiff’s action would be in time. This was the theory advanced by the plaintiff. If the last answer was correct, then the facts might establish that the plaintiff did, or did not, know about the particular defect which caused the fire until that fire occurred, or within six years of when the action was commenced.

The motion judge selected the last answer.  She held that in Grey Condominium no. 27 v. Blue Mountain Resorts, (2008), 90 O.R. (3s) 321,  the Ontario Court of Appeal had held that each deficiency in a construction project gives rise to a separate cause of action in negligence. She reasoned that the decision in Grey Condominium means that there are separate causes of action “not because there were separate and distinct injuries, but because the deficiencies in question were distinct deficiencies and the discovery of one would not reasonably give rise to the discovery of the other.”

Applying this principle, the motion judge held that two questions arose. First, were the defects giving rise to the fire in November 1999 latent or patent?  If they were latent, then they were arguably unknown and reasonably unknowable to the plaintiff. Second, even if the defects were known, were they the same defects as those that gave rise to the prior incidents?  If not, then this incident in November gave rise to a new limitation period.

The judge held that these questions could not be answered on a summary judgment motion, and accordingly ordered the action to proceed to trial.

In rejecting the third answer, the motion judge refused to apply a Massachusetts’ decision – Cigna Insurance Company v. Ov Saunatec Ltd, 241 F. 3d 1 (1st Cir 2001). In that case, the court held that each damage gives rise to a separate cause of action, even though caused by the same act of negligence, and that “if there are multiple injuries, there will be multiple causes of action with multiple dates of accrual if the injuries are separate and distinct.”  The motion judge said that, while the Grey Condominium decision appeared to support this approach, its reasoning dictated to the contrary. She held that it was the distinction between the defects, not the distinction between the damages, which led to the result in Grey Condominium.  Accordingly, if the same defect led to two occurrences causing damage, the first occurrence could well cause the limitation period to run.  If the defects were different, then the limitation period relating to the damage for this second occurrence only commenced at the date of that occurrence.

The motion judge did give effect to one part of the summary judgment motion. The contract limited the damage recoverable to the amount of the purchase price for the furnaces.  The motions judge granted a declaratory judgment limiting the amount of the plaintiff’s recovery to that amount.

Needles to say, these distinctions can make the head spin.  Whether the same deficiency led to the same damage, whether the deficiency was latent or patent and whether the plaintiff knew or ought to have known any of this, will confuse even the most sophisticated persons engaged in construction projects.  All the more reason to carefully monitor the course of construction and the condition of the constructed project, and to start any claim as soon as possible.  This is particularly so since, under the Limitations Act, 2004, the Ontario limitation period has now been reduced to two years.

Limitations – Negligence – Limitation clauses:

Timminco Ltd. v. ABB Industrial Systems Inc. 2010 ONSC 6971

The principle in the Timminco case was recently adopted and applied by the Ontario Superior Court of Justice in Jagosky v. Corporation of the Town of Huntsville, 2010 ONSC 4590 (CanLII).  The Court held that “distinct construction deficiencies not discoverable by due diligence may give rise to separate causes of action”.

Limitation Period for Construction Project Claims

January 30, 2011

Limitation Period for Construction Project Claims

This week I will examine a recent decision of  the Court of Appeal for Ontario which has settled an important issue concerning the Limitation period for actions arising from construction projects.  In Waterloo Region District School Board v. Truax Engineering Ltd, the Court confirmed that the limitation period for a claim for contribution and indemnity brought by a defendant against another party involved in the project is two years from the date that the defendant is served with the plaintiff’s claim.

The defendant Truax Engineering Ltd. provided services for a construction project.  Its services were concluded on February 19, 2003.  Under the Professional Engineering Act at that time, the limitation period was one year and expired on February 19, 2004.  Accordingly, the claim by the owner against Truax had expired by the time the owner sued all the parties in 2008.  The owner’s action against Truax was dismissed based on the limitation period.  However, one of the other defendants sought to maintain a claim for contribution and indemnity against Truax.

The Ontario’s new Limitations Act, 2002 had come into force on January 1, 2004.  It repealed, among other limitation periods, the limitation period in the Professional Engineering Act, and provided for a standard two year limitation period.  Section 18 of the new Act establishes a limitation period for a “claim by one alleged wrongdoer against another for contribution and indemnity”.  In that case, section 18 states that “the date on which the first alleged wrongdoer was served with the claim…shall be deemed to be the day the act or omission on which that alleged wrongdoer’s claim is based took place.”

Truax argued that the old law, which existed before 1946, was re-introduced by section 18.  Truax said that, since the limitation period for the plaintiff to sue it had long since expired, a claim for contribution and indemnity could no longer be asserted against it by a defendant, even though that defendant had been properly sued within the relevant limitation period applicable to it.

That old pre-1946 law had established a regime in which the limitation period for a claim over for contribution and indemnity could expire before the defendant was even sued by the plaintiff and before the defendant even knew that it had a claim over against another alleged wrongdoer.  That law had been changed by section 8 of the Negligence Act introduced in 1948, to allow such claims to be made by the defendant within one year of the judgment against it.  Truax argued that the new Limitations Act had re-established the old pre-1946 law.

The Court of Appeal disagreed.  It held that section 18 clearly and unambiguously provided that the limitation period for a claim for contribution and indemnity started on the date that a defendant is served with the plaintiff’s claim.  Therefore the limitation period had not expired when one of the defendants made a claim for contribution and indemnity against Truax within two years of being served with the plaintiff’s claim.

The Court of Appeal obviously considered this matter to be important as it assigned five members to the hearing panel instead of the normal three members.  In its decision, the Court made a number of observations.  First, it said that the two year period applies to the claim “whether in tort or otherwise”.  Second it said that “this is the only limitation period provision that applies to claims for contribution and indemnity.”  The court confirmed the position that the Limitations Act, 2002 is intended to create a “comprehensive and simplified limitations regime.”

Accordingly, there is one limitation period in Ontario for the claims for contribution or indemnity, whether they are in tort, contract or however they may arise.  In arriving at this conclusion, the Court of Appeal brought certainty to the limitation period for these sorts of claims which are very common in the construction industry.

Limitation periods relevant to construction projects are dealt with in my book Goldsmith and Heintzman on Canadian Building Contracts (“CBC”) in Chapters 1 (part 2(a)), 6, and 8 (part 3).

Limitations: Waterloo Region District School Board v. Truax Engineering Ltd, 2010 ONCA 838. https://bit.ly/i7Z52j