It is common for construction contracts to contain provisions respecting the resolution of disputes. Industry participants employ a wide array of mechanisms to address and resolve claims. These may include straight-forward provisions, such as those contained in the CCDC-2 form of contract, to more elaborate resolution systems requiring many levels of review, mapped over various prescribed timelines. In navigating through a claims resolution process, parties must be mindful of their contractual rights and obligations in connection with dispute resolution, including those pertaining to limitation periods.
Under Ontario's Limitations Act, 2002 (the Act), there is a two-year basic limitation period founded on the concept of discoverability. The Act also provides that parties to a "business agreement" may vary limitation periods in certain circumstances and in the manner set forth in the Act. Contractual dispute resolution systems, including elaborate ones with multiple levels of review and stringent timelines, may include prescribed time limitations restricting a party's ability to resort to litigation. This was the case in the recent decision of MTO v. J&P Leveque Bros. Haulage Ltd. (Leveque) where the issue of the application of a contractual limitation period was front and centre.
In Leveque, the Court analyzed a claim by MTO that proceeded through an elaborate multi-level contractual dispute resolution system. The Court held that, although the claim of MTO was timely under sections 4 and 5 of the Act, the construction contract was a "business agreement" within the meaning of section 22 of the Act in which the parties had varied the statutory basic limitation period. In considering the facts, the Court concluded that MTO's claim was barred by the terms of the construction contract, which provided that, if either party wished to resort to litigation, then (a) the dispute resolution system would have to be completed, and (b) the litigation had to be commenced no later than two years after the date of contract completion. In the end, MTO failed to commence litigation within two years after the date of contract completion and as a result, its action was dismissed.
Introduction
In November 2022, the Ontario government (His Majesty the King in Right of Ontario, as represented by the Minister of Transportation) (MTO) sued J & P Leveque Bros. Haulage Ltd., a highway construction contractor for $1,769,023.40. The approximately $1.8 million claimed by the MTO was part of an award made by a referee panel of the Alternative Dispute Resolution Institute of Ontario.
In the court action, MTO submitted that, pursuant to the construction contract between it and Leveque, the referee's award was only provisional and that MTO was entitled to sue for a refund of the approximately $1.8 million it had paid Leveque.
Leveque moved for summary judgment to dismiss MTO's action, arguing that MTO's resort to litigation was out of time pursuant to the dispute resolution provisions of the construction contract. Leveque argued that (a) the construction contract was a "business agreement" within the meaning of s. 22 of the Act and (b) MTO's claim was barred by the terms of that construction contract. Leveque contended that, although MTO's claim would be timely under sections 4 and 5 of the Act, those time periods were replaced by the time limits prescribed by the parties in their business agreement, and thus MTO's resort to litigation was untimely. MTO accepted that the construction contract was a "business agreement". However, it submitted that, properly interpreted, the language of the construction contract had not supplanted the limitation period under the Act.
The construction contract
The construction contract between Leveque and MTO was for the removal and replacement of asphalt, grading, and drainage improvement. The construction contract included (a) the tender (b) drawings and standard drawings and (c) the MTO general conditions of contract applicable to Ontario provincial standard special provisions (the General Conditions).
Pursuant to the definitions of "construction contract" and "notice of protest" and clauses GC 3.14.13.07.03 and GC 3.14.14.02 of the construction contract, neither MTO nor Leveque could resort to litigation unless (a) the contract review process and/or the review process had run their course and (b) the litigation was commenced no later than two years after the date of contract completion. The construction contract provided an "elaborate dispute resolution system" involving a three-level claims review process, a referee process, a referee's decision, a notice of protest, and a 60 day period to explore alternative dispute resolution processes, after which either MTO or Leveque could resort to litigation.
Dispute resolution chronology
The Court found that, since the construction contract was completed on July 9, 2019, in accordance with its terms, if either party wished to resort to litigation, then (a) the dispute resolution system would have to be completed and (b) the litigation had to be commenced by no later than July 9, 2021.
The Court went on to set out a chronology of steps that the parties had taken in connection with the dispute resolution.
Did the limitation period in the construction contract apply to bar MTO's claim as untimely?
The Court considered the issue of whether the limitation period in the construction contract applied to bar MTO's claim as untimely. In particular, the Court considered whether pursuant to s. 22(5) para. 1 of the Act the two-year limitation period under the Act was varied by the construction contract.
After considering Leveque's argument, the Court agreed with Leveque and found that the action of MTO was untimely and barred by the contractual terms. In considering the contractual terms that purported to vary the statutory limitation period, the Court referred to the Ontario Court of Appeal's decision in Boyce v. Co-Operators General Insurance Co, stating that
In Boyce v. Co-operators General Insurance Co., the Court of Appeal stated that where a court is faced with a contractual term that purports to shorten a statutory limitation period, the court must consider whether the provision: (a) in clear language describes a limitation period; (b) identifies the scope of the application of that limitation period; and (c) excludes the operation of other limitation periods. In my opinion, that is what the language of the Construction Contract does in the immediate case.
In the end, the Court held that the parties had entered into a business agreement (as defined under the Act), which agreement "plainly and clearly excludes and substitutes a limitation period for the limitation period prescribed by the Act." With that being so, the action of MTO was dismissed.
Takeaways
Limitations clauses can be a critical aspect of a contract's dispute resolution regime. Contractual limitation clauses may be found to govern the period of time during which legal claims must be validly brought against a counterparty.
Levequere presents a cautionary tale for project participants and highlights several important considerations. First, at the outset of a construction project, it is prudent to carefully review any contractual limitation periods to consider how they may impact a party's rights. Second, Leveque is a reminder that courts may enforce contractual limitation clauses if they are unambiguous, clear in language and scope, and exclude the operation of other limitation periods. Third, to the extent that a contractual limitation period is shorter than the basic two-year limitation period set out in the Act, Leveque is a stern reminder that parties should be especially diligent in monitoring applicable timelines while proceeding with claims through dispute resolution.
This blog post is an excerpt from an article published in the Canadian College of Construction Lawyers Legal Update #167 on June 19, 2024.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.