Introduction
The Ontario Court of Appeal decision in Ontario (Transportation) v. J & P Leveque Bros. Haulage Ltd., 2025 ONCA 573, provides critical guidance on the interpretation of dispute resolution provisions in standard form government construction contracts and the limitation periods pertaining to same. The case centers on whether a contractual limitation period can bar litigation when the prerequisite steps, namely, a referee decision, are not completed within that period. The decision clarifies the interplay between contractual limitation clauses and Ontario’s Limitations Act, 2002, and reinforces the principle that commercial contracts must be interpreted in a manner that avoids commercial absurdity.
Background and Procedural History
The dispute arose from a contract between the Ministry of Transportation of Ontario and J&P Leveque Bros. Haulage Ltd. for the rehabilitation of Highway 60. The contract included a multi-tiered dispute resolution process culminating in a referee decision. If either party disagreed with the referee’s decision, they were required to file a notice of protest and engage in alternative dispute resolution (ADR) before commencing litigation. Interestingly, the notice of protest and engaging ADR were contractually required to be invoked after contract completion, but within two years of the contract’s completion date. In other words, after a referee’s decision, the final steps before litigation could be commenced were contractually restricted to a defined 2-year period.
In this case, the referee decision itself was released more than two years after the contract’s completion. After the referee’s decision was released, MTO promptly filed a notice of protest, initiated ADR, and subsequently commenced litigation. Leveque brought a motion for summary judgment, arguing that the contractual two-year limitation period barred MTO’s claim. The motion judge agreed, holding that the contract, as a business agreement under the Limitations Act, ousted the statutory limitation period.
Issues on Appeal
The Court identified two central issues:
- What is the appropriate standard of review for interpreting the contract?
- Did the motion judge err in interpreting the contractual claims review process?
Standard of Review
Although appellate courts typically review a lower court’s interpretation of a contract deferentially (Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras 50-52), the Court cited Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, in applying the correctness standard. Ledcor identified three criteria for when an appellate court should use the correctness standard when interpreting a contract:
- the contract at issue is a standard form contract;
- interpretation has precedential value; and
- no factual matrix specific to the parties exists to guide the interpretive process.
In this case, the Court found that all three criteria were met. The contract at issue was a standard form contract, used repeatedly in government construction projects, and its interpretation had precedential value. There was no unique factual matrix to guide the contract’s interpretation. As such, the appellate court was not bound by the motion judge’s interpretation and could substitute its own.
Contractual Interpretation and Commercial Absurdity
The Court emphasized and relied on three principles of contractual interpretation:
- the contractual interpretation must be grounded in the textual language and read in light of the entire contract;
- surrounding circumstances, although a necessary component of contractual interpretation, are of limited value in interpreting standard form contracts and must relate to the overarching commercial objective; and
- contracts must be interpreted to make commercial sense and avoid absurdity.
The motion judge had focused on whether the claims review process could have been completed within the two-year window, attributing delays to MTO. However, the Court of Appeal found this analysis misguided and unnecessary. The key question was not whether the process could have been completed within the two-year window, but what the contract required when the referee decision was released outside of the two-year window.
The Court held that the plain language of the contract contemplated that the referee decision would be issued within two years. However, the contract was silent with respect to the process for when a referee’s decision was released after two years of contract completion. Accordingly, the Court found that the requirement to file a notice of protest and engage in ADR within the contractually defined two-year window only applied if a decision had been rendered on or before the end of the two-year window. The interpretation advanced by Leveque would result in a commercial absurdity whereby a party would be required to deliver a notice of protest when no decision was made.
The Court noted: “Without a decision, there is no way of knowing who should protest and on what basis. There is similarly no ability to engage in meaningful ADR before litigation.”
Thus, enforcing the contractual two-year limitation in these circumstances would deprive MTO of any meaningful opportunity to challenge the referee decision, leading to an unjust and commercially unreasonable outcome.
Interaction with the Limitations Act
The motion judge had found that the contract, as a business agreement under s. 22(6) of the Limitations Act, validly substituted its own limitation period. While the Court agreed that the contract could extend the statutory limitation period, it disagreed that it could shorten it in the absence of clear language.
The Court cited Boyce v. The Co-Operators General Insurance Company, 2013 ONCA 298, which held that a contractual term purporting to shorten a statutory limitation period must clearly describe the limitation period, its scope, and exclude other limitation periods. The contract in this case did not meet that threshold. It did not explicitly state that a referee decision rendered outside the two-year window would be immune from review or litigation.
Accordingly, the Court held that the statutory limitation period under s. 4 of the Limitations Act applied. Since the MTO commenced its action within two years of receiving the referee decision, its claim was not statute-barred.
Implications for Construction Law Practice
This decision has significant implications for construction lawyers and contractors working with government contracts in Ontario:
- Standard Form Contracts Are Subject to Correctness Review
Appellate courts may substitute their own contractual interpretation rather than giving deference to the lower court’s interpretation of standard form contracts, especially when the interpretation has precedential value and there is no factual matrix specific to the parties which guides the interpretive process.
- Tailoring Contractual Procedures to Account for All Possible Situations
Courts will interpret contracts to avoid outcomes that defy commercial logic. Parties cannot be expected to take procedural steps based on events that have not occurred, such as protesting a decision that has not been issued. If a contract does not contemplate and provide guidance in such situations, the “default” statutory laws will govern. To avoid this, lawyers should draft contracts which provide procedural steps for all possible situations.
- The Limitations Act Still Governs Unless Clearly Excluded
Even in business agreements, the statutory limitation period remains applicable unless the contract clearly and unambiguously excludes it. This decision underscores the need for careful drafting when attempting to contract out of statutory limitation periods.
Conclusion
The Court’s decision reaffirms the importance of interpreting construction contracts in a manner that aligns with commercial reality and fairness. The decision also provides valuable guidance on the limits of contractual limitation periods and the need for more careful drafting of contractual limitation periods. For construction law practitioners, the case serves as a reminder to scrutinize dispute resolution clauses and ensure they are both clear, commercially sensible, and define a process for all situations.