Understanding limitation periods are of crucial importance in the construction industry, particularly when a contractor is faced with unpaid invoices for services or materials rendered. The Ontario Court of Appeal stepped back into the spotlight in this regard with its decision in Thermal Exchange Service Inc. v Metropolitan Toronto Condominium Corporation No. 1289, 2022 ONCA 186, in holding that a defendant's assurances may prolong the "discoverability" of a claim for non-payment.
The respondent on appeal, Thermal Exchange Service Inc. ("Thermal Exchange"), serviced HVAC units for 13 years as requested by the appellant, Metropolitan Condo Corporation (the "Condo Corp."). Each work order invoice required payment from the Condo Corp. within 30 days. However, the Condo Corp. typically delivered late payment, oftentimes some 300 days late. Despite the late payments, Thermal Exchange continued to perform the requested work orders.
Thermal Exchange's president had several conversations with the Condo Corp.'s property manager regarding the unpaid invoices. The Condo Corp.'s property manager would contend that she was busy and would not be able to attend to the matter immediately but was "working on" the invoices.[i] There was no refusal or indication of an inability to pay the invoices to suggest to Thermal Exchange that the Condo Corp. was not acting in good faith or materially misunderstood the contract.
Growing ever more frustrated with unpaid invoices, Thermal Exchange sent a demand letter to the Condo Corp. in hopes of speeding up payment on its unpaid invoices in October 2015. Thereafter, in November 2016, the Condo Corp., to the surprise of Thermal Exchange, informed the company that it was not responsible for the unpaid invoices, rather it was the responsibility of the individual unit holders in the condominium.[ii]
Thermal Exchange was operating with the understanding that the Condo Corp. first paid its invoices out of its operating budget and then sought reimbursement from the individual unit holders for whom the work was conducted. But as the Condo Corp.'s response in November 2016 helped to highlight to Thermal Exchange, it was instead taking Thermal Exchange's invoices and using those invoices to directly invoice the individual unit holders — which was a mistaken belief on how the contract was to operate.
In August 2017, Thermal Exchange filed a statement of claim seeking repayment of the unpaid invoices from the Condo Corp. On July 7, 2020, the Ontario Superior Court decided in favour of the plaintiff at trial, Thermal Exchange. The defendant, the Condo Corp. subsequently appealed the decision.
The Court of Appeal decision
On March 7, 2022, the Court dismissed the Condo Corp.'s appeal that Thermal Exchange did not bring its action within the applicable two-year limitation period, holding in favour of the trial judge's findings.
The main issue on appeal was "discoverability" according to section 5(1)(a)(iv) of Ontario's Limitations Act,[iii] specifically as to when Thermal Exchange should have known when commencing a proceeding would be an appropriate remedy to collect on its unpaid invoices.
Thermal Exchange was able to rebut the presumption under section 5(2) of Ontario's Limitations Act that a claim is discovered on the date the impugned act or omission occurs. The main hurdle for Thermal Exchange was the date on which it ought to have reasonably known a legal proceeding was an appropriate action to collect on the outstanding invoices.
The Court agreed that Thermal Exchange had a bona fide belief that the Condo Corp. property manager was acting in good faith and would, in turn, remedy the unpaid invoices and thus recourse to litigation would not be needed. Although the Court noted the trial judge erred in holding that the limitation period was trigged on the date the demand letter was sent, it was little help to the appellant as it held, instead, that the limitation period was triggered later — the date on which the Condo Corp. indicated it was not responsible for the unpaid invoices. It was this direct indication by the Condo Corp. that made it clear to Thermal Exchange that a legal proceeding would then be an appropriate means to collect on its invoices.
The Court therefore viewed the demand letter not as a letter contemplating litigation, due to the assurances communicated to Thermal Exchange by the Condo Corp., but rather a nudge to the Condo Corp. to expedite unpaid invoices.
Further, the Court agreed with the trial judge that the decision in Presley v Van Dusen, 2019 ONCA 66[iv] ("Van Dusen") regarding assurances was analogous to the case at bar. The Court stated that there is nothing in Van Dusen that "would restrict its application to comparative expertise over mechanical problems."[v] In the VanDusen case, the plaintiff was led to believe that the defendant could fix a mechanical problem, which was beyond its expertise.
The Court rejected the appellant's argument that the trial judge incorrectly applied Van Dusen as Thermal Exchange was not relying on mechanical expertise. According to the Court, the most important factor is simply whether a defendant who creates a problem, which is beyond the understanding of the plaintiff, leads the plaintiff to believe that can rely on it for the remedy.[vi] Thermal Exchange did not have knowledge of the Condo Corp.'s mistaken invoice operations and the company was provided assurances that the Condo Corp. was working on paying its invoices to it.
Given the above, the Court held that Thermal Exchange correctly commenced its action within the applicable two-year limitation period.
This case illustrates the importance of behaviour in contracts. The Court has expanded the decision in Van Dusen to situations where a defendant creates a problem, which is beyond the understanding of the plaintiff, and assures the plaintiff it will remedy the problem. Given this, a party's behaviour, such as providing assurances that it is working on a problem, may be sufficient to delay the triggering of a creditor's limitation period — as such, parties should be mindful when making assurances to creditors.