A recent Ontario Court of Appeal decision has imposed clarity and certainty on how much time the new Limitations Act, 2002, S.O. 2002, c. 24, Schedule B gives claimants to start a lawsuit for construction defects, particularly those not discovered until long after the work was done.

Time enough to sue: Ontario Court of Appeal interprets the new Limitations Act, 2002 Regime

Commencement of actions • Limitation periods • Transition provisions • Where claim is based on event occurring before January 1, 2004, but damage not discovered until after then • Event deemed to have occurred January 1, 2004, for the purpose of calculating two-year basic and 15-year ultimate limitation period

York Condominium Corp., No. 382 v. Jay-M Holdings Ltd. and Toronto (City)

This recent Ontario Court of Appeal decision has imposed clarity and certainty on how much time the new Limitations Act, 2002, S.O. 2002, c. 24, Schedule B (the “Act”) gives claimants to start a lawsuit for construction defects, particularly those not discovered until long after the work was done.

Ontario, like most, if not all, common law jurisdictions, has long had various statutes of limitation — laws that limit the time within which a claimant can start a lawsuit. The rationale is that it would be unfair to require people to defend themselves in court long after the event occurred, when memories have faded and evidence has been lost.

The general effect of these statutes is that once a limitation period expires, a claimant can no longer sue: it’s simply too late.

One of the problems with the earlier law in Ontario was that the limitation periods imposed by statute were subject to the “discoverability” principle. The courts had recognized that it would be unfair if a limitation period expired before a claimant even knew that it had been damaged; if, for instance, the effect of defective construction does not become manifest until long after the work has been done. This judicial gloss on the old Ontario Limitations Act meant that the limitation period for latent defects was, effectively, “forever”.

As part of a wholesale reform of the law of limitation periods, the Ontario government enacted effective January 1, 2004, the new Limitations Act, 2002. Its most significant change was to eliminate the indefinite (or infinite) potential liability created by the judge-made “discoverability” principle. Instead, for all but a few specific types of claims (for instance, environmental claims), the new Act imposed a 15-year ultimate limitation period, in s. 15 of the Act:

Even if the limitation period established by any other section of this Act in respect of a claim has not expired, no proceeding shall be commenced… after …the 15th anniversary of the day on which the act or omission on which the claim is based took place. [Emphasis added.]

The issue for the Ontario Court of Appeal in this case was how the new Act addressed old claims — those based on events that occurred before January 1, 2004, but not discovered until after the new Act had come into effect.

The Facts

York Condominium Corporation No. 382 (the “Condominium”) sued its builder Jay-M Holdings and the City of Toronto (“Toronto”), because the building’s demising walls were not fire rated. Presumably, the claim against Toronto was that its inspectors had failed to notice this oversight when inspecting the construction and issuing the occupancy permit.

The key dates were that:

• the building was built in 1977 and 1978, so that the most recent action Toronto took for which it could be negligent was February 14, 1978;
• the Condominium did not discover the problem until May 2004;
• the Condominium started its lawsuit in June 2005, well within the two-year basic limitation period under the new Act.

The legal issue was this:

• under the old Limitations Act, the Condominium’s lawsuit would have been timely: the discoverability principle would have given it six years from the time it actually discovered the problem;
• the Condominium, however, started its lawsuit after the new Act came into effect on January 1, 2004, where the general rule required a lawsuit be started within 15 years of the event — whether or not the damage had in fact been discovered, which would leave the Condominium without recourse.

The Courts’ Decisions

That is exactly what Toronto asked the court to do: dismiss the Condominium’s claim, because the new Act gave only 15 years to sue, while the Condominium took 27 years to start its lawsuit.

The original motions judge agreed, and dismissed the Condominium’s claim, based on the wording of s. 15 of the Act, which held that the 15-year ultimate limitation period applied “[e]ven if the limitation period established by any other section of this Act in respect of a claim has not expired….”

The Court of Appeal, however, disagreed, holding that the motions judge failed to properly apply the transitional rules put in the new Act to ease the change from a regime where the defendant was exposed to “potential liability indefinitely” to one where the exposure was limited to 15 years.

Section 24(5) of the new Act contained two transitional rules. Because the Condominium did not discover the claim until after January 1, 2004, it was the first that applied. It said:

If the claim has not been discovered by [January 1, 2004], the Act applies as if the act or omission had taken place on [January 1, 2004].

The Ontario Court of Appeal concluded that the Condominium’s claim was not statute-barred because:

…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 fifteen years starts to run as if the act or omission had taken place on January 1, 2004….

In calculating the time that the Condominium had to sue, the Act applied as if Toronto’s allegedly negligent conduct occurred the deemed date January 1, 2004, not the actual date February 14, 1978.

The Court of Appeal noted that statutes of limitation “should be liberally construed in favour of the individual whose [sic] right to sue for compensation is in question” because “access to justice should not be frustrated except in clear cases.” The motion judge’s initial decision in favour of Toronto was contrary to this broad principle.

The Court of Appeal recognized that its interpretation favoured those whose claims were based on pre-2004 events over later claimants, noting that it “effectively creates a 15-year transition period for” claims that were undiscovered as of January 1, 2004. However, it thought the new Act’s transition rules were a fair compromise to: “…ensure that, with respect to pre-existing situations, access to justice be preserved while limiting liability on a go-forward basis.”

The Court of Appeal acknowledged that, while its interpretation might be considered generous to those whose claims were based on pre-January 1, 2004 events,

It cannot be said to be an absurd result particularly when one recalls that, prior to the passage of the new Act, there was unlimited liability for as-yet-undiscovered claims (i.e. there was no ultimate limitation period).

In any event, eventually, on January 1, 2019, all claims subject to the 15-year ultimate limitation period based on events that took place before January 1, 2004 will expire, whether or not they have been discovered.

Court of Appeal for Ontario
   Weiler, Lang, and Rouleau JJ.A.
   January 29, 2007