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Limitation Periods applicable to construction law disputes in British Columbia

Introduction
 
This paper briefly outlines notice and limitation periods that may apply to construction law disputes in British Columbia.
 
The purpose of limitation periods
 
The purpose of limitation periods is to define the time by which claims must be brought and to establish a deadline after which potential defendants need no longer keep historical records for the purpose of defending claims, or worry about being sued:
 
The policy behind that [limitation period] statute and successor limitation statutes is clear.  There should be an end to bickering.  Differences should be brought to an end when it is still possible to reach an informed conclusion about disputed events.  So an arbitrary but firm deadline is drawn as a matter of legislative policy.  After the deadline has passed, the incident is closed.  No discretion is left to the courts to try to temper the arbitrary deadline with considerations of justice or fairness.
(Lui v. West Granville Manor Ltd. et al. (1985) 61 B.C.L.R. 315 at 320-21 (C.A.))
 
Notice periods v. limitation periods
Notice periods and limitation periods are two different types of time limits that apply to persons who wish to bring claims.  The following definitions for notice periods and limitation periods illustrate the differences between these two types of time limits: 
  • Notice periods: A notice period is a deadline by which the claimant must send a letter or other document, or fill out and submit a form, giving notice of an intention to make a particular claim. In some cases failing to meet a notice period will prevent a claim being made, and in other cases the notice period will only prevent a claim if the party who was supposed to be given notice can establish that they have been prejudiced by not receiving timely notice.
  • Limitation periods: A limitation period is a deadline by which a court action or arbitration must be started. Failing to commence a court action or arbitration before a limitation period expires  generally prevents any claim being made.
 
A notice period requires the claimant to tell someone that they intend to claim, and a limitation requires the claimant to file court or arbitration documents actually making the claim. Generally, it is no excuse for missing a notice or limitation period for the claimant to say that he or she did not know of the notice requirement or limitation period.
 
Sources of limitation and notice periods: beware the contract!
Although most limitation periods are set out in legislation, it is important to understand that parties may agree in their contracts to specify shorter limitation periods than apply under statute:
 
In all of the cases cited, the limitation period is a statutory condition of the insurance contract.  In this case, it is pointed out that the limitation period is a contractual term only. However, in my respectful view, there is no real ground for distinction.
(National Juice Co. Ltd. v. Dominion Insurance Co., [1977] O.J. No. 2462 at para. 10, 18 O.R. (2d) 10 (Ont. C.A.))
 
Engineers and architects often specify relatively short limitation periods in their contracts, and sometimes specify limitation periods that expire before the harm may even have occurred, or before the problem giving rise to the claim has evenbeen discovered by the plaintiff. Where the wording of the such contractual limitation periods are clear, and there are no circumstances negating the inference that the parties understood what they were agreeing to, such contractual limitation provisions are generally upheld: Howe Sound School District No. 48 v. Killick Metz Bowen Rose Architects and Planners Inc., 2008 BCCA 195.
 
Labour and material payment bonds (“LMPBs”) are another form of contract that often specify relatively short limitation notice and limitation periods.  LMPBs often specify that notice of the intention to claim on the bond must be submitted:
  • for progress payments, within 120 days of last performing work or providing supplies; and
  • for holdback, within 120 days after the holdback should have been released.
 
LMPBs often specify a one year limitation period, which must be strictly complied with i.e. missed notice periods may (depending on the circumstances) be forgiven, but missed limitation periods are never forgiven: Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778 at 784-785.
 
Limitation periods under the Limitation Act, SBC 2012, c. 13
 
The Limitation Act, SBC 2012, c. 13 is the statute that specifies generally applicable limitation periods for claims brought in British Columbia.  In this section various features of the Limitation Act are discussed.
 
Generally applicable limitation period of two years now applies
 
Prior to June 1, 2013 limitation periods of:
·        two years applied to most claims for personal injury or damage to property.
·        six years applied to most other claims, including claims for payment due under a contract.
 
British Columbia’s new Limitation Act came into effect on June 1, 2013 and followed a national trend toward much shorter limitation periods.  The new Limitation Act specifies a single limitation period of two years for most claims. The two year limitation period is intended to provide sufficient time to a party, who is aware or who ought to be aware of the facts underlying the right to claim, to seek legal advice, consider available options, and start a court action or arbitration if appropriate.
 
The change from a six year limitation period to a two year limitation period is of benefit to defendants in the construction industry such as engineers and architects who were historically vulnerable to claims brought many years after building construction occurred (e.g. in leaky condo cases). Defendants in such cases would often face difficulties arising from missing witnesses, lost documents, and partial or non-existent insurance coverage.
 
The change from six to two years also means that parties cannot any longer engage in protracted pre-litigation negotiations, or give long-term extensions of time to pay. Even waiting until the end of a long term construction project is complete may result in claims related to the early part of the construction being out of time. For many in the construction industry litigation is a strategy of last resort, but with a two-year limitation period it may be necessary to commence proceedings while negotiations to resolve claims are still ongoing, or at least enter into a tolling agreement (see discussion below).
 
The two year period runs from when the claim is “discovered”
 
The two-year period begins when a claim is (or should have been) “discovered”. Most claims will be “discovered” on the first day when a person knew or reasonably ought to have known that:
·        injury, loss or damage had occurred;
·        the injury, loss or damage was caused or contributed to by an act or omission;
·        the act or omission was that of the person against whom the claim may be made; and
·        having regard to the nature of the injury, loss or damage a court proceeding would be an appropriate means to seek redress.
 
Special discoverability rules apply to certain types of claims e.g. in case of a demand loan the claim will be deemed not to be discovered until demand has been made.  As well, claims against minors will not (subject to certain exceptions) be “discovered” until the minor has reached the age of majority.
 
Ultimate limitation period of 15 years
 
Section 21 of the Limitation Act specifies an ultimate limitation period and states that all claims must be commenced not later than 15 years after the day on which the act or omission on which the claim is based took place. This means that even if the damage has not occurred within 15 years of the act which lead to the damage, claims in respect of the damage will be out of time.
 
The new 15 year ultimate limitation period is substantially reduced from the 30 year period that applied under the old Limitation Act, especially considering that under the old legislation the time ran only from the date on which a cause of action was complete, which in many cases was the date when the damage occurred (although in cases of defective construction the damage was generally held to have occurred at the time of construction; 410727 B.C. Ltd. v. Dayhu Investments Ltd., 2004 BCCA 379 at para. 39).  In any event, under the new legislation the ultimate limitation period runs from the date of the act or omission which lead to the damage, and so potential defendants can rest easy 15 years after performing acts which they are concerned may have led to damage.
 
An example of the operation of a similar modern / relatively short ultimate limitation period is found in the Alberta case of Bowes v. Edmonton (City of), 2007 ABCA 347. In that case three homes were severely damaged when a riverbank collapsed approximately 12 years after the homes were built. The court found that the City had negligently issued permits, but that the ultimate limitation period (which under the Alberta legislation was 10 years) applied to bar the claims even though the homeowners were unaware of the vulnerability of the riverbank before it collapsed.  The court made the following comments about the policy considerations in not allowing claims based on historical events to be allowed:
 
With no limitation periods, much of the country’s assets, infrastructure, and capital would be sterilized by the dead hand of history…
 
The second aspect of the harm is that trying to find and test evidence about events decades old is usually roulette, not a serious exploration of the truth. After some years, a defendant cannot prove a proper defence, or even disprove the plaintiff’s allegations.
 
(Bowes v. Edmonton (City of), 2007 ABCA 347 at para. 121 - 122).
 
10 year limitation period for renewal of judgment
A ten year limitation period applies to enforcement or suing on a judgment: Limitation Act, SBC 2012, c. 13, s. 7. It is possible to “renew” the judgment by filing a new claim in respect of the existing judgment before 10 years since the original order granting judgment, but the key point here is that even after obtaining judgment a plaintiff cannot disregard the passage of time – even judgments need to be renewed within 10 years of being granted. 
 
Extension of limitation periods
 
A limitation period can be extended if a potential defendant “acknowledges” liability in respect of the claim. Acknowledgement may occur if a party, in writing, acknowledges that they are liable for the claim:  Limitation Act, SBC 2012, c. 13, s. 24.
 
If the written communication is marked “without prejudice” it may not constitute an acknowledgement for the purposes of extending the limitation period.
 
A limitation period may also be extended if the proposed defendant makes a partial payment on the claim.
 
An acknowledgement by the party principally responsible will generally not extend the limitation period against a guarantor: Continental Steel Ltd. v. CTL Steel Ltd., 2015 BCSC 1672.  
 
Limitation and notice periods under the Local Government Act
 
Section 285 of the Local Government Act, RSBC 1996, c. 323 specifies a limitation period of six months, but that only applies to unlawful exercise of powers granted by municipal legislation (e.g. the power to expropriate land).  Generally, a two year period applies for suing a municipality for breach of contract or negligence.
 
An important requirement to be met when claims will be made against a municipality is the two month notice period specified in s. 286 of the Local Government Act, RSBC 1996, c. 323, counted from the date on which the damage was sustained.
 
Section 286(1) of the Local Government Act provides that the notice must set out the “time, place and manner in which the damage has been sustained”.
 
Section 286(3) provides that failure to give notice is not a bar to bringing a claim if there was reasonable excuse for not giving notice, and the defendant has not been prejudiced by the lack of notice.
 
While some cases have held that the notice requirement only applies in cases involving damage to persons or property, and not to claims involving breach of contract resulting in only pecuniary loss, in Windset Greenhouses (Ladner) Ltd. v. The Corporation of Delta, 2006 BCSC 339 it was noted that this is an unresolved issue and therefore notice should be provided in all cases.   
 
Section 294(2) of the Vancouver Charter imposes a similar two month notice period as that specified in the Local Government Act in respect of claims against the City of Vancouver.
 
Notice and limitation periods under the Builders Lien Act
 
A 45 day notice period applies to the filing of builders liens in British Columbia, counted from any one of a variety of triggering events depending on the circumstances: Builders Lien Act, SBC 1997, c. 45, s. 20. 
 
A court action to enforce a claim of lien must be filed with the court, and a certificate of pending litigation must be filed in the applicable Land Title office, not later than one year from the date the lien was filed, but this one year period may be abridged to just 21 days by an owner, or another lien claimant who has filed an action, issuing a “21 day notice”: Builders Lien Act, s. 33.
 
The time for commencing a claim for a lien against the holdback (i.e. a Shimco lien) can potentially be filed at any time before the holdback has been released: Wah Fai Plumbing & Heating Inc. v. Ma, 2011 BCCA 26, but that is subject to the general 2 year limitation period discussed above.
 
The limitation period for a civil action for breach of trust under the Builders Lien Act is one year from completion, abandonment, termination of the head contract, or, if the owner did not engage a head contractor, one year from completion or abandonment of the improvement: Builders Lien Act, s. 14. Note that where a lien was filed “at the last minute” the limitation period for the breach of trust claim may expire up to 45 days before the one year limitation for filing a lien action expires i.e. because the breach of trust limitation period (one year) runs from the date of completion (as an example), but the limitation period (one year) for the lien action may only expire one year and 45 days after the date of completion.
 
Limitation and notice periods under the Insurance Act
 
Section 23 of the Insurance Act, SBC 2012, c. 1 provides that lawsuits related to claims under insurance contracts must be brought within two years of after the date the insured knew, or ought to have known, the loss or damage occurred (in cases involving property damage), or within two years of the date the cause of action arose (in cases not involving property damage).
 
Claims under new home warranty policies are an example of claims which must be commenced within two years of the date the insured (homeowner) knew, or ought to have known, of the defect that underlies the warranty claim.
 
The Insurance Act also specifies notice periods. For example, statutory condition 6 (which is set out in s. 29 of the Insurance Act) states that the insured must immediately give notice to the insurer after the happening of any loss or damage. In other words, any party who intends to claim on their insurance contract should give notice to their insurance company as soon as possible. 
 
Court Order Enforcement Act deadline for renewal of registration of judgment against land 
 
Registration of a judgment against land is a very common method for enforcing monetary judgments. In some cases, the person registering the judgment may not want to proceed with steps to force the sale of land immediately, but may prefer to simply minimize costs and wait until the owner wants to deal with the land, at which point the owner may be willing to take steps to ensure the judgment is paid out. Judgment holders adopting such strategy should keep in mind that judgments registered against land must be renewed every two years: Court Order Enforcement Act, RSBC 1996, c. 78, s. 83(1) and s.91.
 
Tolling agreements
 
A plaintiff who knows that a limitation date is approaching may request that the proposed defendant agree to a “tolling agreement” which will “stop the clock” for all limitation periods. The name “tolling” derives from the adjective “toll” which describes the sound bells make as time passes.  Under a tolling agreement the parties agree to stop the tolling of time. Such agreement typically also provide that the “clock” will start again in the future. The parties may agree that the clock will restart upon the proposed defendant giving notice to the plaintiff that the clock will start again, or that the clock will simply restart at some specified future date.
 
Tolling agreements are not specifically dealt with in the Limitation Act, but the Limitation Act does not restrict the ability of parties to extend limitation periods and it is open to the parties to extend the period of time for filing of claims either before or after disputes arise.
 
For projects expected to take longer than 2 years to complete, thought should be given to including a tolling agreement in the initial construction contract .  This allows the parties to focus on the construction project rather than worrying about whether limitation periods are being missed.  An example of such a clause is as follows:
 
The parties hereby agree to toll and suspend the running of any applicable limitations under the Limitation Act, SBC 2012, c.13 (the “Limitation Act”), whether such limitations begin to run before or after the date of execution of this agreement, with respect to any claims, rights, actions, causes of action, suits, proceedings, or demands (the “Claims”) arising out of or related to the Contract Documents or the Work, until the earlier of the date when Substantial Performance of the Work is achieved or the date the Contract is terminated (the “Trigger Date”).  The parties agree that, in respect of any Claim which was, or was arguably, discovered prior to the Trigger Date, the Trigger Date shall be conclusively deemed to be the date on which such Claim was discovered for purposes of triggering the running of any limitation period under the Limitation Act.  For purposes of this clause, “discovered” shall have the same meaning as set out in Division 2 of the Limitation Act.
 
This example uses “Substantial Performance of the Work”, a phrase commonly found in construction contracts, as the date on which the applicable limitation period begins to run.  The date actually chosen in any particular circumstance should reflect the commercial agreement between the parties.  This example does not contemplate suspension of the contract work or the project itself, but thought should be given as to whether a suspension should trigger a previously tolled limitation period.  The clause quoted above should not be used without careful consideration of whether it is appropriate for any given circumstance; ask your lawyer to review it and provide you advice.

 

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