If you ask most lawyers and potential litigants which issue causes them to lose the most sleep at night, the answer will most often be missing a limitation period. After all, no matter how much money is at stake in a lawsuit or no matter how egregious the facts are if a claim is not commenced within the deadline set out in the Limitations Act, 2002 (the “Act”), it will not be permitted to get off the ground.
Ontario’s highest court has recently delivered two significant decisions that may change how we think about the applicability of limitation periods in different circumstances. Litigants would be wise to be mindful of these decisions when deciding when to commence a claim.
In Amelin Engineering Ltd. v. Blower Engineering Inc., 2022 ONCA 785, the Ontario Court of Appeal recently dealt with whether the start of a limitation period can be delayed when a party is undertaking ameliorative efforts to resolve the issue. The Court in Amelin stated that “the rationale is that ameliorative efforts may reduce or eliminate a plaintiff’s damages or render litigation unnecessary.”
However, in that decision, it was affirmed that ameliorative efforts do not provide “carte blanche” reason to indefinitely delay the start of a limitation period. If the limitation period has expired, courts will dismiss a plaintiff’s claim if the plaintiff’s delay in bringing the claim was unreasonable, regardless of whether the defendant was undertaking ameliorative efforts.
In Amelin, the plaintiffs entered into an agency relationship with the defendants in 1995, whereby the plaintiffs would sell generators designed and manufactured by the defendants for a five-year term which was renewed for an additional five years.
Over the years, many issues arose with the generators, leading the plaintiffs to retain an independent firm, Bell Combustion, in April 2003. Bell conducted tests on a generator at one of the defendant’s facilities and delivered its report on April 16, 2003. Following the report, the plaintiffs sent the defendants a letter outlining the generators’ issues. On November 26, 2003, the defendants demanded outstanding payments. The defendants subsequently terminated the agreement with the plaintiffs on January 12, 2004.
On April 3, 2009, nearly six years after receiving the Bell report, the plaintiffs issued a statement of claim for negligent misrepresentation. The defendants issued a counterclaim on July 29, 2009, seeking a setoff for the unpaid invoices.
The trial judge dismissed the action because the plaintiff’s claim was commenced outside of the applicable limitation period and was, therefore, statute-barred. The counterclaim was also dismissed because the defendants failed to demonstrate evidence as to when the debts were due. The Court of Appeal upheld the trial judge’s finding that the plaintiffs’ claim was out of time.
On appeal, the plaintiffs argued that their statement of claim was issued within the required limitation period, as per the Act. In support of this position, the plaintiffs alleged that they relied on assurances and ameliorative efforts by the defendants, which delayed the discoverability of their claim until May 2003, when repair efforts concluded, or at the earliest, April 15, 2003, when Bell delivered its report. Specifically, the plaintiffs submitted that the president of the defendants had superior expertise on the subject and had made representations and proposed remedies regarding the operation of the generators on which they relied.
The Court of Appeal confirmed that in some cases, “it may be appropriate to delay the start of a limitation period if a plaintiff is relying on a defendant’s superior knowledge and expertise, especially where the defendant was taking steps to ameliorate a loss.” However, it was also noted that the discovery of a claim cannot be delayed indefinitely. Section 5(1)(b) of the Limitations Act, 2002 establishes a “modified objective” test that requires consideration of what a reasonable person with the abilities and in the circumstances of the claimant ought to have known.
In this case, it was held that the plaintiffs’ decision not to bring their claim until April 3, 2009, was unreasonable. As the trial judge noted, the plaintiffs ought to have known of their potential claim as early as 1998 when they became aware that the generators could not operate at their maximum output, or the very latest, November 2002 or January 2003, when they became aware of irregular emissions from the generators.
Additionally, this case involved two professional engineers, and it was not necessary for the plaintiffs to commission an expert report to confirm what they reasonably ought to have known, given that ameliorative efforts had already been underway for several years. The Court of Appeal ultimately held that the trial judge did not err in concluding that the claim was statute-barred. The appeal was therefore dismissed.
The Amelin decision is the second instance in the past year where the Ontario Court of Appeal made a critical ruling involving the applicability of limitation periods. Last year, in Thermal Exchange Service Inc. v Metropolitan Toronto Condominium Corporation No. 1289, the Court of Appeal introduced a possible exception to a limitations period defence.
In Thermal Exchange, an HVAC contractor provided services to a condominium corporation between 2002 and 2015 and issued invoices after completing its requested work. Payment was due within 30 days of the date of the invoices, but the Condominium Corporation often made payments as much as 300 days later. The contractor continued to provide its services and issued new invoices each time.
By 2008, many invoices were not paid, and when payment requests were made, the Condominium Corporation stated that it was looking into the invoices but never refused to pay them or stated that it would not be able to pay. By 2015, the Condominium Corporation was behind on payments by about eight years. The contractor sent out a demand letter, and almost a year later, the Condominium Corporation stated that it was not responsible for payment of the invoices.
The contractor sued for payment of the invoices and the Condominium Corporation argued that the claim was barred by the two-year limitation period set out in the Act, because the invoices were over two years old at the time. The trial judge sided with the contractor and held that it properly started the claim when it knew that it would have to take action to collect the invoices, even though many of them were over two years old.
It was noted that the limitations period had begun to run in October 2015 when the demand letter was sent, as that is when the contractor knew that it might have to take action, as per section 5(1)(iv) of the Act, which states that the limitation period begins to run when a party discovers that a legal proceeding is an appropriate remedy. It was also held that the contractor believed that the Condominium Corporation had “one running account, and whenever funds were received, they were credited to that one account.” The limitation period, therefore, did not start after each invoice was issued even though the Condominium Corporation had sometimes paid individual invoices,
The Condominium Corporation appealed, and the Court of Appeal agreed that its assurances that it was “working on” the invoices led the contractor “to the reasonable belief that [its] problem could and would be remedied without the need to have a recourse to the courts”. It was also noted the running account between the parties gave the contractor “no reason to believe it was disputing the invoices and that payment delays were the result of other demands on the property manager’s time”. The Court of Appeal concluded that the limitations period stated when the Condominium Corporation stated that it was not responsible for payment of the invoices, which is when the contractor became aware of the issue. The action was started within two years of that date and was therefore not barred by the limitations period, as set out in the Act.
These two decisions raise conflicting issues regarding the applicability of limitation periods. On the one hand, Amelin confirms that the limitation period for a plaintiff’s claim will not necessarily be stalled if the defendant undertakes ameliorative efforts to remedy the issue. On the other hand, as confirmed by Thermal Exchange, a limitation period will not begin to run if a defendant gives some indication that it is responsible for payment and does not deny a responsibility to pay.
Both of these decisions will undoubtedly raise many questions about how limitation periods will come into play in similar situations. But for now, claimants should never assume that a limitation period will stop running if the parties are undertakings efforts to resolve the issue out of court. Also, if a potential defendant is to contest a claim, they would be wise to do so at the outset rather than waiting until a formal demand is made.
Commercial & Business Litigation
About the Authors:
Daniel Waldman is Of Counsel in the firm’s Toronto office. He has a broad commercial litigation practice with an emphasis on real property litigation, including commercial leasing, commercial real estate, construction law, and debt collection. Daniel can be reached at 416-644-2838 or firstname.lastname@example.org. To read his full bio, please click here.
Jemark Earle is an Articling Student in the firm’s Toronto office. He can be reached at 416-777-4024 or email@example.com