Revised Timeline for Construction Claims January 2019 the Cutoff for Projects Predating New Act
September, 2007

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By Howard Wise and Jennifer Leitch

Like most of the provincial jurisdictions in Canada, certain statutes have been drafted in Ontario that prescribe the time by which a party must commence an action. If a party commences a lawsuit after the expiration of the prescribed time period, it may risk its action being dismissed by the courts.

The principle of discoverability provides a possible qualification, however.  The courts have held that the time period by which a party must commence a lawsuit may not begin to run until the party knew, or ought to have known, that it had a claim.

The application of the principle of discoverability has resulted in situations where a claim discovered well after the events or omissions took place could still proceed. In the context of construction claims, latent defects or deficiencies might be discovered well after the construction project is complete, thereby potentially exposing parties to indefinite liability.

The new limitation regime in Ontario attempts to balance the right of a party to bring its claim to court and the right of a party to secure certainty and finality with respect to its actions. The new Limitations Act, 2002, S.O. 2002, c. 24, Schedule B, provides that parties commence an action within two years of the day on which the claim was discovered. However, under the Act, regardless of when the negligence was discovered, a party must commence a lawsuit within 15 years.

The Act also contains certain transitional provisions that provide for the move from the old limitation system to the new limitation system. If the claim was not discovered before January 1, 2004 (the date on which the Act came into force), the Act applies as if the events leading up to the claim occurred on January 1, 2004.

In a recent decision of the Ontario Court of Appeal entitled York Condominium Corp. No. 392 v. Jay-M Holdings Ltd., the Court interpreted the relevant provisions of the new Act and, in doing so, provided a timeframe for parties initiating claims for construction defects and deficiencies in Ontario.

In June 2005, the plaintiff, York Condominium Corporation No. 382 (York) sued its builders, Jay-M Holdings (Jay-M) and the City of Toronto (Toronto) over the fact that the condominium's demising walls were not fire-rated. York sued Jay-M for failing to fire-rate the walls, and sued Toronto for failing to notice Jay-M's deficient work when it performed its inspections.

The circumstances of the case were unique in that the building was built in 1977-1978, but the problem was not discovered until May 2004. Upon discovering the negligent construction and in accordance with the two-year limitation period in the new Act, York commenced its action in June 2005.

The defendant, Toronto, moved to have the action against it dismissed on the basis that the action started in June 2005 (subsequent to the new Act) was subject to the ultimate limitation period of 15 years and therefore York's right to sue had expired. The lower court that first heard Toronto's motion to dismiss the action agreed with Toronto and dismissed York's claim. York subsequently appealed to the Court of Appeal, which took a different position.

In a decision written by the Honourable Justice Weiler, the Court of Appeal ultimately held that if a claim "is not discovered until after January 1, 2004, but the act or omission took place before that date, the ultimate limitation period of 15 years starts to run as if the act or omission had taken place on January 1, 2004. The Court reasoned that such an interpretation was not inconsistent with the intention of the legislators in creating the new Act or the underlying policy of the Act that created an ultimate limitation period of 15 years.

The Court of Appeal held that the lower court that first heard Toronto's motion to dismiss York's claim failed to properly interpret the particular provisions in the Act that were aimed at transitioning from a limitation regime that contemplated indefinite potential liability to a regime that had an ultimate limitation period of 15 years. By providing a date by which the clock starts ticking (January 1, 2004) on claims that would have fallen under the old limitation regime, it can be assumed that potential claims arising from events prior to January 1, 2004 are not extinguished by the new Act, but should be addressed within 15 years.

By implication, construction claims based on events that took place prior to January 1, 2004 may expire on January 1, 2019. For construction projects underway or completed prior to January 1, 2004, this means that the parties may face exposure to claims up to January 2, 2019.

Howard Wise is a Partner and Jennifer Leitch is an Associate with Goodmans LLP, practicing in the area of construction law. The preceding article is excerpted from Engineering Business, June 2007.