Where a party breaches a continuing contractual obligation to perform, when does the limitation period begin to run? Does a rolling limitation period apply, where the clock resets with each subsequent breach? What happens with breaches more than two years post-discovery? The Ontario Court of Appeal addressed these questions and others in a trilogy of cases: Pickering Square Inc. v. Trillium College Inc.;1 Marvelous Mario's Inc. v. St. Paul Fire and Marine Insurance Co.;2and Karkhanechi v. Connor, Clark & Lunn Financial Group Ltd.3
In these decisions, the Court of Appeal sought to harmonize the current state of the law around rolling limitation periods and breach of contract. The critical consideration when determining whether a rolling limitation period applies is whether the breach is properly categorized as a single breach or as a continuous breach. However, some uncertainty remains as to how that distinction is ultimately drawn. Recent lower court authority has sought to provide further clarity.
Pickering Square: where a rolling limitation period may apply
In Pickering Square, Trillium College was held to be in continuous breach of a contractual covenant to maintain a rental property "at all times" during the term of the rental. The central question at the Court of Appeal was: "[W]hen is a claim discovered for limitations purposes in the context of a continuing breach of contract?" The Court began its analysis by identifying three categories of potential breaches in contract cases:
- Failure to perform a single obligation due at a specific time, sometimes called a "once-and-for-all" breach. The breach occurs once and ordinarily gives rise to a claim from the date of the breach — i.e., the date that performance of the contractual obligation was due.
- Failure to perform an obligation scheduled to be performed periodically. A failure to perform any such periodic obligation ordinarily gives rise to a breach and a claim as from the date of each individual breach.
- Breach of a continuing obligation under a contract.
The Court determined that Trillium's contractual breach fell into the third category because Trillium had a continuing obligation to maintain its property "at all times" for the duration of the lease. Accordingly, the Court concluded that a fresh cause of action accrued every day that Trillium breached its contractual obligation — in other words, every day that Trillium failed to carry on its business in accordance with the contractual terms.
In the result, the Court held that a rolling limitation period applied, by which the two-year limitation began anew each day that the property was not maintained, and subsequently ran two years from each date. The plaintiff was entitled to claim damages from Trillium for its contractual breach for the period going back two years from the day the plaintiff commenced its action, but claims based on Trillium's breaches prior to that two-year period were statute-barred.
Marvelous Mario's: emphasis on recurring contractual obligation
In 2019, the Court of Appeal revisited this issue in Marvelous Mario's. The appellants had commenced an action for business interruption losses, claiming such losses were covered under the commercial policy issued by the respondent insurance company. The respondent refused to pay the claim, alleging that the action was time-barred because the limitation period began to run the day loss was first incurred. The trial judge concluded that the appellants' claim was subject to a rolling limitation period and, therefore, the clock reset every day losses continued to accrue.
The Court of Appeal held that the trial judge had erred and found that the appellants' claim was not subject to a rolling limitation period because the respondent did not have an ongoing contractual obligation. The Court held that the trial judge erred by focusing her analysis on the question of whether the appellants were continuing to suffer damages, rather than on the issue of whether the respondent had a recurring contractual obligation.
The Court distinguished Pickering Square, where a rolling limitation period was held to apply, noting that in that case, Trillium had a recurring obligation to maintain the premises every month during the term of the lease. In contrast, the Court held that the respondent in Marvelous Mario's was not obligated to make recurring payments. Once the breach occurred, loss was suffered and the breach was crystalized, regardless of whether loss would continue to accrue.
The Court referenced the reasoning in Richards v. Sun Life Assurance Co. of Canada4 as support for its conclusion. In Richards, the judge held that a rolling limitation period may apply to cases where it is already established or agreed that the plaintiff is entitled to periodic payments (e.g., payments of rent), such that each failure to pay constitutes a new breach. This was to be contrasted with cases where the issue is whether the plaintiff is entitled to periodic payments in the first place, such that the dispute is really over whether the obligation even exists. In the latter case, a rolling limitation period would not apply.
Given that the respondent did not have a recurring contractual obligation, the Court concluded that this was not a proper case for the application of a rolling limitation period.
Karkhanechi: where a rolling limitation period may not apply
In 2022, the Court of Appeal returned once more to this issue in Karkhanechi. In this case, the Court both discussed circumstances where a rolling limitation period may apply and provided more insight into the hallmarks of a recurring contractual breach.
The appellants alleged that the respondents were in breach of a post-retirement compensation agreement by refusing to recognize that the appellants were entitled to certain quarterly payments. The appellants argued that the motion judge had erred by failing to apply a rolling limitation period because a fresh cause of action arose with each deficient quarterly payment.
The Court dismissed the appeal, agreeing with the motion judge that a "single breach with continuing consequences" had occurred when the respondents refused to recognize the appellants' interest. There had been a categorical refusal to pay a benefit allegedly due under contract, and it was therefore held that the limitation period would be triggered on the day of such alleged breach.
The Court concluded that a rolling limitation period would appropriately apply to cases where, in substance, more than one breach was alleged, leading to separate damage claims. By contrast, a rolling limitation period would not apply to cases where, in substance, the cause of action alleged a breach that gave rise to continuing loss or damage. The reason for this, the Court explained, is that once a plaintiff has experienced a breach of contract, the plaintiff would know or would have the means of knowing that there would be ongoing damage arising from that breach.
Takeaways
In this trilogy, the Court of Appeal has attempted to craft clear guideposts indicating when a rolling limitation period will and will not apply. However, applying the Court's reasoning to determine consistently whether a breach of contract should properly be categorized as a single or reoccurring breach remains challenging. It is difficult to marry the reasoning and conclusion from the Court in Karkhanechito their earlier reasoning and conclusion on the same topic in Pickering Square. Specifically, it is not entirely clear why the breach in Pickering Square was characterized as a continuous breach while the breach in Karkhanechi was characterized as a single breach with continuing consequences. As such, the lines that distinguish these two categories still appear somewhat blurred.
Properly categorizing the nature of a breach is critical to help litigants understand limitations issues going forward. The Superior Court in Spina v. Shoppers Drug Mart Inc.5recently offered some guidance on how to reconcile this trilogy — namely, when a breach should be categorized as a breach of a single versus a rolling obligation:
In a breach of contract case, where there is a continuing breach of an ongoing obligation to make period payments, the limitation period may sometimes roll, which is to say it may commence anew with each successive breach of the contract.
Where a breach of contract involves a failure to perform an obligation scheduled to be performed periodically (for example, a requirement to make quarterly deliveries or payments such as rent), a failure to perform any such obligation gives rise to a breach and gives rise to a claim as from the date of each individual breach.
Where there is an obligation to make periodic payments or to perform an obligation periodically, the limitation period bars claims for breach of contract for damages incurred outside of the limitation period for the particular periodic breach, but the limitations statute does not bar timely claims for damages that are suffered within the limitation period for subsequent period breaches.
Thus, where there is a continuing breach of a contract to perform an obligation scheduled to be performed periodically, the limitation period applies on a rolling basis and the period commences each day as a fresh cause of action accrues and runs two years from that date.
For example, if a tenant failed to pay rent for three years, and then the landlord commenced an action for the unpaid rent, the landlord's claim for the first year of the rent arrears would be statute barred but not the claims for the two years before the commencement of the lawsuit. For another example, an insured entitled to periodic disability payments under an insurance policy who is wrongfully refused payments would have his or her claims statute-barred for the period beyond two years before the date he or she commenced an action; however, as long as the entitlement to benefits continued, the limitation period would only bar claims originating outside of the prescribed period before the insured's commencement of the action.
However, if there is a categorical refusal to pay a benefit due under a contract or a repudiation of the contract, the running of the limitation period will be triggered by the single event provided that the termination was clear and unequivocal. Where there is a breach of a continuing contractual promise and the innocent party accepts the breach as grounds to terminate the contract, the limitation period begins to run from the date of the termination of the contract.
A rolling limitation period may apply to claims for periodic payments, in cases where the issue is whether certain payments to which the plaintiff is entitled have been made as opposed to cases where the issue is whether the plaintiff was entitled to the periodic payments in the first place...
The concept of a continuing breach may be difficult in application, and applying the concept depends upon determining the meaning of the contract promise and determining whether it may be breached once and for all or whether it is breached until the promise is made good.
Given the importance of limitation periods and the finality they may bring to an action, parties should continue to err on the side of caution by assuming that rolling limitation periods will be the exception to the rule. If a breach can arguably be categorized as a once-and-for-all breach with merely continuing damages, a lawyer should adopt a conservative approach and aim to file the corresponding claim within the limitation period running from the date of that breach.
Footnotes
1 2016 ONCA 179 ("Pickering Square").
2 2019 ONCA 635 ("Marvelous Mario's").
3 2022 ONCA 518 ("Karkhanechi").
4 2016 ONSC 5492 ("Richards").
5 2023 ONSC 1086 ("Spina").
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