Over the last few years, we discussed a series of Ontario Court of Appeal decisions in this newsletter in which the court held that despite having become aware of a claim more than two years ago, the claimant had not “discovered” its claim for the purposes of the Limitations Act because the person with the claim did not know that a proceeding would be an appropriate means to seek to remedy it.
In Presley v. Van Dusen, 2019 ONCA 66, which we wrote about here, the Court of Appeal held that legal proceedings against an expert professional were not appropriate if the claim arose out of the professional’s alleged wrongdoing but could be resolved by the professional himself or herself without recourse to the courts. In that case, which concerned the failed installation of a septic system, the contractor kept assuring the owners that the problem could be readily fixed and that he would fix it. The owners reasonably relied on those assurances, which led them to the reasonable belief that the problem could and would be remedied without cost and without any need to have recourse to the courts. The owners therefore did not know that a proceeding would be the appropriate way to deal with their claim.
That decision was based on two earlier Court of Appeal decisions, 407 ETR Concession Co. v. Day, 2016 ONCA 709 and Presidential MSH Corp. v. Marr, Foster & Co. LLP, 2017 ONCA 325, both of which we discussed here.
Last summer, the court extended the Van Dusen principle to any situation in which a defendant created a problem, the remedy for which was beyond the reach of the plaintiff’s understanding, and assured the plaintiff that it would take care of the problem. In Thermal Exchange Service Inc. v. Metropolitan Toronto Condominium Corporation No. 1289, 2022 ONCA 186, the Court dealt with the issue when a contractor who is not paid for its invoices should know that a proceeding is an appropriate means to seek to remedy the non-payment.
The condo corporation argued that this was a simple matter of non-payment of invoices and that Van Dusen was therefore entirely distinguishable, given that the contractor was not relying on the condo corporation to fix a mechanical problem beyond the expertise of the contractor; it never promised unequivocally to pay the invoices, but was simply stringing a creditor along; and the contractor waited substantially longer to begin a proceeding than the plaintiff in Van Dusen did.
The Court of Appeal disagreed and held that Van Dusen was analogous, as we discussed here. The condo corporation created a barrier to a contractor receiving payment by not paying unless it first received payment from the unit owners, but not taking any steps to getting the unit owners to pay. Rather than telling the contractor, the condo corporation led the contractor to believe that it would take care of the problem. That prevented the contractor from understanding the nature of the problem and made the situation analogous to Van Dusen.
One could be forgiven, therefore, for thinking that the two-year limitations period imposed by the Limitations Act had lost some of its draconian aspect, and that one could likely get away with adopting a wait-and-see stance in light of unpaid claims. A recent Superior Court decision serves as a reminder that that is a risky proposition.
In Normar Drywall v. 4241258 Canada Inc o/a Laurin General Contractor and Dennis Laurin, 2023 ONSC 3106, the court granted a motion for summary judgment and held that the plaintiff’s action was barred by the Limitations Act because an action seeking damages in the amount of $361,674.19 for breach of contract based on alleged non-payment of invoices had been brought out of time.
On November 24, 2016, the parties met to discuss outstanding issues for payment. The parties disagreed as to what was agreed upon during this meeting. The defendant stated that he agreed to pay a total of $314,979.85 but did not promise any further payments on the contract. The plaintiff understood that further payments would be made in the future.
The parties met again in December 2016 and again disagreed as to what was discussed at this meeting. The parties did not communicate again for quite some time. In April 2018, Normar invoiced Laurin for holdback amounts owing on the contract. Laurin stated that the invoice was never received. In October 2018, the parties exchanged correspondence in which it became apparent that both parties believed that they were owed outstanding amounts on the contract.
The plaintiff stated that on October 16, 2018, he learned for the first time in an email that the defendant was taking the position that Normar owed Laurin for the Project and not the other way around. Until then, he believed that Laurin was still going to provide Normar with the outstanding amounts in satisfaction of the agreement reached on November 24, 2016. However, when he discovered that Laurin was not going to make any further payments for the Project, and was in fact claiming amounts owed, he commenced litigation. Normar issued its Statement of Claim in this action on September 15, 2020. The Statement of Claim was served on the Defendants on February 8, 2021.
Based on those facts, the court dismissed the plaintiff's claim on a summary judgment basis. In so finding, Justice Jensen summarized a number of principles governing limitations in the context of unpaid invoices in the construction industry:
- In assessing when a plaintiff might have discovered a claim, courts will look at whether the plaintiff acted with reasonable diligence to ascertain the facts upon which a claim could be based. It is not acceptable to simply wait and see what might happen.
- A plaintiff cannot rely on assurances that payments will be made in due course and that the process will be handled fairly to delay the commencement of the limitation period. The case law clearly establishes that the tolling of a limitation period is not suspended while a party waits to see what may happen.
- The cause of action in construction claims does not necessarily arise when the invoice is issued and not paid; it arises from the expiration of a reasonable period of time for the plaintiff to deliver an invoice to the defendants and the expiration of a reasonable time for the defendants to pay that invoice. Otherwise, plaintiffs could delay issuing invoices for tactical or strategic advantages.
- A reasonable time for an invoice to be delivered is one or two months after the work is completed.
- A reasonable time for payment is thirty days after receipt of an invoice.
- Once a reasonable time to issue an invoice and the reasonable time for payment of that invoice have passed, it would be appropriate for the contractor to commence a proceeding if the invoice remains unpaid.
Therefore, unless there is some conduct by the defendant that would bring the case squarely within the Thermal or Van Dusen line of cases (and probably even then), it remains a very good idea to diarize the time for commencing an action based on a date no more than a month after non-payment of the invoice on which the claim is based.