Legal Blog

Reticence

Claimants who have been wronged, by breach of contract, tort, or otherwise, do not want to start a legal action. For good reason! It is costly both in legal fees and the claimant’s time; it is emotionally draining; and it can be unsuccessful. Accordingly, most claimants try to obtain some recompense for their claim without recourse to the courts or arbitration. They wait and wait for that recompense, but, sometimes, it never materialises and the only remaining option is to proceed with a legal action. Unfortunately, some claimants may delay that decision too long and find that their right to commence a proceeding has been lost because of the Limitations Act. You cannot dither forever.

Limitations issues were involved in two 2021 Divisional Court decisions: 1352194 Ontario Inc. v. Vince and 1159337 Ontario Ltd. v. Saplys.

Vince

Owners had retained the claimant to provide an engineering report for the owners’ action against the general contractor and others. The claimant estimated the cost of the report to be up to $10,000. Just before the mediation in the action was to begin, and after the owners had already paid the claimant $16,000, the claimant estimated the final additional cost of his work to be $20,000. The owners then settled their action during the mediation. Two months later, in January 2013, the claimant orally informed the owners that he expected to issue a final invoice for $40,000. The owners replied that this amount was too high and requested that the claimant issue the invoice for $20,000.

In March 2013, the claimant retained a lawyer to help him collect the debt – for the invoice that he had not even issued. Seven months later, the lawyer contacted the owners, who informed him that the claimant had not yet issued an invoice and that the ball was in the claimant’s court. In October 2015, the lawyer emailed the owners, offering to settle the claimant’s claim for $25,000. The owners rejected the offer, noting that the limitation period had expired. The claimant then issued his $40,000 invoice. In January 2016, the claimant commenced his action for payment of the invoice.

Principles

A claimant has 2 years to commence a proceeding after the claim is discovered. A limitation period for an unpaid invoice normally commences when a reasonable time for its payment has elapsed. A claim is not discovered until, having regard to the claim or injury, a proceeding would be an appropriate means to remedy it. In this regard, appropriate means legally appropriate; a claimant cannot delay commencing a proceeding for tactical or other reasons after the claim has fully ripened. Settlement discussions can delay or suspend the running of the limitation period in certain circumstances on the hypothesis that it would not be appropriate to commence a proceeding while the parties discuss settlement.

The trial judge applied these principles and held that the limitation period did not start to run until November 2015, once the owners had rejected the claimant’s $25,000 settlement offer. Because the action was issued a few months later, it was not statute-barred. The owners appealed.

Result

As in all cases with limitations issues, this case depended almost entirely on its facts, but, it seems, the trial judge incorrectly appreciated those facts. That allowed the Divisional Court to overturn the decision based on an error of law.

The claimant had retained the lawyer and discussed the outstanding debt and the prospect of commencing an action to collect the invoice. This occurred in March 2013 and that’s when the limitation period started. The first counteroffer to the owner’s $20,000 offer did not come until November 2015. This was seven months after the 2-year limitation period had expired in March 2015. Subsequent settlement discussions, or even an acknowledgment of the debt, cannot revive a limitation period that has already expired.

Comment

It is hard to sympathise with the claimant. He stalled in issuing his invoice; he did not respond, on a timely basis, to the owners’ offer of $20,000; he did not push his lawyer to do anything until years later. Consequently, not only did he not get the claimed $40,000, he did not even get the $20,000 the owners originally offered. He then had to pay his lawyer for the cost of the trial and the appeal and the owners for their cost of the trial and an additional $20,000 for their costs of the appeal.

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1159337 Ontco

This case is more complicated. A general commenced an action against an owner. The owner counterclaimed against the general and subsequently commenced a third party action (TP action) against the architect. However, the owner never obtained leave of the court, as required under s. 56 of the old Construction Lien Act (which is almost identical to s. 4 of a Regulation under the Construction Act). Consequently, although the TP action was actually issued, it was improperly issued and, therefore, of no effect.

The architect did not defend the TP action – because it did not know of it; it had not been served properly. The owner noted the architect in default and then did nothing with the TP action. In the meantime, the action between the owner and the general moved along at a glacial pace.

Five years later, the architect learned of the TP action and moved to set aside the noting in default so that it could defend, if necessary. The owner then realised that it had commenced its TP action improperly and moved for an order granting permission to commence the TP action retroactive to the date it commenced it or, alternatively, an order converting the TP action into an ordinary civil action.

The motion judge granted the architect’s motion to set aside the noting in default, refused to grant leave to the owner to issue the TP action, backdated or otherwise, refused to allow the action to be converted to an ordinary civil action (because, by that time, the limitation period had been expired for over three years), and stayed the TP action against the architect.

On Appeal

The owner did not appeal the order to set aside the noting in default or the refusal to grant leave to commence the TP action. It appealed the decision to not allow the TP action to proceed as a separate, non-construction lien, ordinary action

The court agreed with the decision to refuse leave to issue the TP action as of the date the TP action was commenced. The law is clear; one cannot do that if the limitation period has already passed. The court also dismissed the appeal to convert the TP action to an ordinary action, for the same reason. The motion to convert the action must be commenced before the limitation period has passed, something that did not occur in this case. The motion judge correctly held that she did not have the discretion to do so even had she wanted.

The court went further and held that, even if the judge had that discretion, she would not have exercised it. To do so would have prejudiced the architect. Seven years had passed since the project’s completion and many years since the expiry of the limitation period.

Again, it is hard to sympathise with the owner: it served the TP action improperly and then did nothing in the matter for 5 years.   

In both these cases, reticence devolved into no sense.

 

Image courtesy of Yummymoon.

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