Legal Blog

Limitations (4)

Limitations cases, under the Limitations Act, 2002, just keep coming. Limitations issues abound: when did the period start, how long was the period, was it reasonable to commence an action, when was the cause of action discovered, etc.? Consequently, we have written about limitations issues in the construction context many times. Three of our newsletters have had the word “limitations” in the heading; hence, we entitle this newsletter, Limitations (4).

We now have two more cases to discuss: Weinbaum v. Weidberg, a 2017 decision of the Ontario Divisional Court and Employment Professionals Canada Inc. v. Steel Design and Fabricators (SDF) Ltd., a 2016 decision of the Ontario Superior Court of Justice.

Weinbaum

Homeowners commenced an action in 2010 against their contractor for a mould problem discovered in 2008 relating to a 1994 project. In 2011, the contractor commenced a third party claim against the architect for contribution and indemnity (i.e. if the contractor is liable to the homeowners, then the architect should be liable either to pay the award in whole or to contribute a portion of the payment).

The Act did not affect the homeowners’ action because they commenced their action within two years of discovering it (i.e. aside from the 15-year absolute limitation period that does not kick in until 2019, a limitation period does not start to run until the aggrieved party at least knows or ought to know that there is a problem). Further, under section 18 of the Act, a two-year limitation period for contribution and indemnity starts to run from the date that the party claiming indemnification (the contractor) is served with the statement of claim. Under that scenario, the Act did not affect the contractor’s third party claim.

Kicker

In law, however, there are, invariably, exceptions to the rule. Rarely is anything straightforward – including the facts in this case. The agreement between the homeowners and the architect contained a provision stating that any cause of action that the homeowners had against the architect expired in 2000.

In 1978, the Supreme Court of Canada, in its decision in Dominion Chain v. Eastern Construction, stated that, regardless of the then limitations law, contracting parties could limit their scope of liability in a contract. Accordingly, when the right of a plaintiff (homeowners) is lost by way of a contract to another (architect), similarly the defendant (contractor) has no right to claim contribution and indemnity against the other contracting party (architect). In essence, this case says that if, by contract, party #1 (architect) insulates itself from liability against party #2 (homeowners), then party #1 insulates itself from liability to everyone, including party #3 (contractor).

The contractor, of course, relied on section 18 of the Limitations Act to argue that its action against the architect should be allowed to continue, regardless of any contractual provision as between the architect and the homeowners. It argued that, in enacting the new Act in 2002, the legislature implicitly overruled prior jurisprudence and allowed actions for contribution and indemnity to be commenced within two years regardless of any contract between the plaintiff and defendant. After all, why should the contractor be prejudiced by a contract in which it was not involved?

Continuity

The court analysed the prior jurisprudence, the Negligence Act under which contribution and indemnity was claimed, and the Act. It noted that the Negligence Act (which also referenced limitations and contribution and indemnity) pre-dated the Supreme Court of Canada case. It also noted that section 18 of the Act dealt with the same type of limitation as was contained in the Negligence Act, the only difference being a change in procedure as to the starting point and the duration of the claim. The Act did not effect any changes so as to disallow contracts from taking precedence over the Act. The Act was not new in that regard.

The court therefore held that “it remains available to contracting parties to limit the scope of liability in a contract. Consequently, the right of a party to claim contribution and indemnity against another party is lost where the Plaintiff’s rights to advance a claim have been extinguished by contract.”

The architect was successful and the court dismissed the contractor’s third party claim for contribution and indemnity.

Steel Design

A personnel agency supplied labourers to a general on a construction project. The general was supposed to pay for the services within 30 days of each invoice, rendered weekly. Midway through the project, the general requested that the agreement be amended so that it be allowed to pay the invoices, not within 30 days, but only within a reasonable time after the owner paid it a corresponding sum. The agency agreed. Seventeen unpaid invoices later, the general went bankrupt and the agency sued its directors and officers for breach of trust under section 13 of the Construction Lien Act.

The directors brought a motion for summary judgment claiming that the action was commenced after the limitation period had expired. The key to the motion was to determine when the two-year limitation period started to run.

The directors noted that they could be liable under section 13 only if the general were liable for a breach of trust – which was true. They argued that the limitation period against the general commenced on the 31^st day after each invoice was rendered (i.e. there were multiple limitation periods, each commencing on the date after the corresponding invoice became due and payable).

No Consideration

The directors first had to explain away the amendment to the agreement. They claimed that the general gave no consideration for the amendment of the agreement and, accordingly, the amending agreement was invalid as between the general and the agency. If the amending agreement were invalid, then the invoices were due 30 days after they were rendered.

The judge was not impressed with this argument. A lack-of-consideration argument is usually made by the party who agrees to something for which that party receives no consideration. The general, in this case, was the very party who requested the better deal. The agency may have claimed, under different circumstances, that it not be bound to the deal; but not the general. The judge noted that the general enjoyed the benefit of the agency’s forbearance in collecting its invoices as well as the agency’s continued provision of services. Accordingly the general received consideration; “to come to any other conclusion would allow the doctrine of consideration to work an injustice.”

Timing

Even if the original agreement governed, a limitation period for breach of trust does not start immediately when the contractual obligation is due. The period starts only when the trust has been breached. You cannot breach a trust if the trust does not exist. Accordingly, in a section 13 action and a defence that a limitation period has passed, the crucial question is “When did the trust arise?” Under the Construction Lien Act, a trust cannot arise until the party alleged to have breached the trust has, at minimum, received the funds from its payor, one rung up the construction payment ladder.

The judge held that the directors did not establish sufficient facts to show when the trust existed. Unfortunately, the judge did not outline what facts were established. However, it seems that the matter was to be dealt with at trial because the judge did not immediately grant judgment in favour of the agency.

 

Image courtesy of  kconnors.

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