Legal Blog

Discovery

Aside from the 15-year absolute limitation period, which, for the most part, applies regardless whether the aggrieved party even knows of its loss, discovery is the key to the running of a (standard 2-year) limitation period. The claimant must, or ought to, know that (i) the loss has occurred, (ii) it was caused by an act or omission of a specified person, and (iii) having regard to its nature, a proceeding would be an “appropriate means” to seek to remedy it. Invariably, the facts of the case drive the result. Such was the situation in Zeppa v. Woodbridge Heating & Air-Conditioning Ltd., a 2019 Ontario Court of Appeal decision.

Chronology

Homeowners were suing the mechanical contractor that had installed their HVAC system. The motion judge found the following facts:

• The owners began experiencing significant problems with the system almost immediately after it was installed in late 2006.
• The owners also knew that the contractor supplied and installed the system.
• When the owners complained to the contractor, it denied that the HVAC system was functioning improperly; it contended that any issues with the system resulted from the owners not maintaining it.
• Accordingly, in June 2007, the owners retained the contractor to maintain the system for 2 years.
• The problems persisted and the owners did not renew the maintenance contract when it expired in May 2009.
• By the fall of 2009, the owners were consulting other mechanical contractors and experts as to how to address the ongoing system problems and were no longer relying on any good faith efforts of the contractor to ease their concerns.
• In late 2009, the owners did not know why the system was malfunctioning, but most certainly knew that the system was problematic.
• The owners did not commence their action until February 2012, less than 2 years from the date on which they discovered why the system was not functioning properly, but more than 2 years from the date on which they no longer relied on the contractor to remedy the problems.

The motion judge noted that the limitation period did not start to run in 2007. It would not have been “appropriate” to commence an action against the contractor when it was assuring the owners that the system only needed good maintenance to function well.

The motion judge held that, after the maintenance period had expired and the owners were no longer relying upon the contractor’s  expertise to determine the cause of the problems, the limitation period started to run and did so well before February 2010. Accordingly, the owners’ action was statute barred. The owners appealed.

Appropriate

The previous jurisprudence as to when commencing an action would be an appropriate means to remedy a loss was set out in the 2017 decision of the Ontario Court of Appeal in Presidential MSH Corp.v. Marr, Foster and Co.

“(There are) two circumstances in which the issue of (appropriate means) … most often delays the date on which a claim is discovered. First, resorting to legal action might be inappropriate in cases where the plaintiff relied on the superior knowledge and expertise of the defendant, especially where the defendant undertook efforts to ameliorate the loss: at para. 26. Second, a legal action might not be appropriate if an alternative dispute resolution process “offers an adequate alternative remedy and that process has not fully run its course.”

Given this settled law, the court needed only to determine whether the motion judge had evidence before him to support his conclusion that, in the fall of 2009, the owners were no longer relying on the superior knowledge and expertise of the contractor. This was not difficult. At one point in late 2009, the owners stated the following to the contractor: “you’re full of … I don’t believe it. You’re full of it. You’ve been lying to me from day one … about maintenance. You’ve been lying. You’ve been lying.” This does not sound much like owners continuing to rely on a contractor’s expertise. The court listed further facts adverse to the owners’ position and held that that the motion judge had an abundance of evidence to support his conclusion.

Concealment

The owners alleged that the contractor knew from the start that the system problems arose from faulty installation of the boilers and fraudulently concealed that knowledge from the owners. Indeed, in its materials, the contractor did not deny this allegation. The owners therefore argued that the limitation period should not start until the owners knew about the faulty installation.

For fraudulent concealment to apply, the claimant has to be ignorant of the cause of action that arose due to the wrongdoer’s misconduct. The concept is relevant for some limitation periods that apply outside of the Limitation Act, 2002 and to determine whether the absolute 15-year limitation period under the Act starts to run. It is specifically referenced in the section setting out that limitation period. It is not, however, referenced as a consideration in the section dealing with the 2-year limitation period – because there is no need. The discoverability principle achieves the same result.

It did not matter whether the contractor fraudulently concealed the cause of the problems because, by the fall of 2009, the owners were no longer relying on the contractor’s expertise, had already alleged that the contractor’s representative was lying, ought to have known that an action against the contractor was appropriate, and had therefore “discovered” their cause of action against the contractor.

Upshot

The Court of Appeal dismissed the appeal and the owners lost their right of action against the contractor – even though, from what we can determine from the facts, the contractor supplied and installed a system that did not work. The owners simply waited too long to commence the action.

This action arose in the context of a residential installation, but it applies equally well to commercial construction. If an owner complains of a deficiency, even after the warranty period has expired, and the subcontractor is investigating and attempting to correct the problem, then it cannot be said that it would be “appropriate” for the owner to commence an action against the general for failing to fix the problem or for the general to commence an action against the sub. It becomes appropriate only when (i) the sub no longer attempts to correct the problem or (ii) regardless of the sub’s ongoing attempts, the owner or general no longer relies on the sub to  fix the problem.

You may have noted that this action was commenced in February 2012. The original judgment did not even arise after a trial; it was given in response to a motion for summary judgment. That motion was heard on September 15, 2017 (5 1/2 years after the commencement of the action) and the reasons for decision were delivered shortly thereafter on October 2, 2017. The appeal was heard on June 12, 2018 and the decision of the Court of Appeal was rendered on January 25, 2019. From what we can see, not only did the owners not commence the action on a timely basis, their counsel were not overly diligent in pushing the action forward.

To top it all off, the owners moved for leave to appeal to the Supreme Court of Canada. It denied that leave on July 18, 2019. The action is finally over. May it rest in peace.

 

Image courtesy of lucasgeorgewendt.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.