In Ontario (Transportation) v. J & P Leveque Bros. Haulage Ltd. (Leveque), the Ontario Court of Appeal ruled on a contradiction between a contractual and statutory limitation period in a construction dispute, providing guidance on whether contractual limitation clauses will be enforced.
The decision highlights the Court’s reluctance to apply a contractual limitation period in a commercial contract where doing so would offend good business sense, create a “commercial absurdity,” or undermine the purpose of an agreed-upon dispute resolution process.
Background
The dispute arose out of a construction contract that included a multi-step claims review process, culminating in a referee’s decision. Under the contract, a party seeking to challenge the referee’s decision was required to file a notice of protest and pursue alternative dispute resolution (ADR) before commencing litigation. The contract contemplated that this process would be completed within two years of contract completion.
However, the referee’s decision was released only after the two-year period had expired.
Once the decision was issued, the Ministry of Transportation of Ontario (MTO) promptly protested the decision, commenced ADR, and started litigation.
The Motion and Appeal
A summary judgment motion was brought by Leveque, arguing that the contractual two-year limitation period displaced the basic two-year limitation period set out in section 4 of the Limitations Act, 2002. The motion judge agreed and found the Statement of Claim to be time-barred.
The Court of Appeal disagreed and held that the contracts must be read as a whole and in a manner consistent with sound commercial principles. The Court emphasized that the key issue was how the contract was intended to operate when the referee’s decision was released outside the contemplated timeframe.
The Court found it commercially absurd to require a party to protest a decision that did not yet exist and therefore the contractual limitation period could not apply in these circumstances and therefore the claim was not time-barred
This case serves as a reminder that limitation periods are not something to trifle with. If your business is contemplating litigation or is navigating a dispute subject to contractual limitation periods, reach out to the undersigned before its too late.
Ariel Dorfman, Associate Lawyer