Legal Blog

Time Start

We have written about construction limitations issues before (see newsletters of January 2004 and November 2008) and, in addition to this newsletter, will no doubt do so again. The latest case, Hugh Munroe Construction Ltd. v. Moschuk, a 2012 decision of the Ontario Court of Appeal, discusses when a limitation period starts to run.

History

A corporate contractor assisted an owner in building a cottage on an island. The contractor provided barge services to transfer materials and parts to the island, repaired some of the owner’s construction equipment, installed a septic field, and supplied solar lights.

The work was done between 2000 and March 2007. The contractor sent its only invoice on June 22, 2009 for $182,000. On July 6, 2009, the owner informed the contractor that he had already paid for the goods and services, and, on November 24, 2009, the contractor commenced an action.

The owner brought a motion for summary judgment for an order dismissing the action on grounds that the two-year limitation period had expired before the contractor commenced the action.

Issues

The main issue was whether the plaintiff commenced its action within two years of discovering its claim. A claim is discovered when the claimant knows the following: a loss has occurred, the loss was caused by an act of the person against whom the claim is to be made, and a proceeding (e.g. an action) would be an appropriate means to seek a remedy. Lest ignorance be used as a defence, a claim is also discovered on the day that a reasonable person ought to have known of the claim.

The plaintiff argued that it first knew of its claim when it received the owner’s letter in July 2009 disavowing the debt. It explained its late delivery of the invoice by noting that its sole officer and director had died in 2008 and that his heirs needed some time to piece together the financial affairs of the contractor. It also argued that it did not normally bill its work until a project was fully completed and that it did not complete its work on the cottage until it delivered the solar lights in March 2007.

Motions Judge

The motions judge discussed when the claim began to run for services rendered, even assuming that the contractor and owner had a  contract that did not allow for invoicing until the completion of the project. He referred to a prior case. It held that a limitations start date did not occur as soon as a project was completed; a claimant would not know, at that time, that the payor would refuse to pay. Similarly, the postponement of the delivery of an invoice would not necessarily postpone the limitations start date; to do so would be to allow a claimant to postpone the start date indefinitely simply by failing to send the invoice.

The motions judge chose a two-pronged approach. A start date occurs once two events take place: a reasonable time expires for the claimant to deliver an invoice and a reasonable time expires for the payor to pay the invoice.

Using this formula, the judge decided that, if the contractor had acted in accordance with its stated practice of sending the account after the completion of all work, it would have sent the invoice within a reasonable time after March 2007. The judge decided that two months was a reasonable time. The fact that the sole director and officer died in 2008 was therefore irrelevant. He then decided, based on the contractor’s own evidence, that the owner would have had to pay within 30 days. That would have started the time running in June or July 2007. Since the contractor commenced the action in November 2009, the action was statute barred and was dismissed.

Given the judge’s decision, it was unnecessary for him to deal with the contractor’s contention that there was a single project and that, therefore, the 2000 work remained alive at least until the contractor delivered the final invoice. However, the judge also weighed in on that contention. He stated, “There is no evidence that the parties entered into a contract that was to take seven years to complete and that in 2000, when the plaintiff repaired the defendant’s backhoe, the parties'(sic) also contemplated delivery of solar lights in 2007. There is also no evidence that the parties entered into a contract in 2000 which was amended from time to time through the years to 2007.”

Appeal

The contractor appealed the decision. The Court of Appeal dismissed the appeal with a tersely worded decision. It noted that the contractor launched its action more than two years after the last work was done and more than two years after a reasonably timed invoice would have been sent and payment made or refused.

Although the Court of Appeal did not determine its test from first principles, it seems that we now have conclusive law to determine the date upon which a limitation period starts to run for services rendered. 

Unfortunately, the flexibility of the test is also its detriment. What is a reasonable time to send an invoice? What is a reasonable time in which to pay?