Canada: The Alberta Anomaly

Last Updated: October 28 2010
Article by Bryan Haynes

Previously published in the Canadian Lawyer magazine

It is a commonly held perception that Alberta is a business-friendly province. With little red tape, skinny regulations, modest taxes, a sizeable pool of entrepreneurs, a can-do attitude, nearabsent unionization, political invariability, abundant resources, solid infrastructure, a reasonable cost of living, great skiing, private liquor stores, and a young, well-educated workforce, it is difficult to argue against this perception. However, the same cannot be said of Alberta's laws relating to limitation periods.

Alberta is the only Canadian common- law jurisdiction that expressly prohibits commercial parties from agreeing to reduced limitation periods. Most provinces and territories, such as British Columbia and Nova Scotia, are silent on extension or reduction; Saskatchewan expressly permits it but is silent as to reduction; and Ontario expressly permits parties to contractually extend or shorten its statutory two-year limitation period. Alberta's prohibition is ill-conceived and puts Alberta out of step with other provinces (apart from Quebec).

Statutes have historically not prohibited agreements from varying statutory limitation periods. On March 1, 1999, Alberta brought in a new limitations act, which expressly sanctioned extensions of statutory limitation periods, but was silent with respect to reductions. Confusion reigned; did this silence mean reduction agreements were prohibited?

The Alberta Law Reform Institute opined that the rule of statutory interpretation, expressio unius est exclusio alterius (to express one thing is to exclude another), impliedly prohibited parties from contractually abridging limitation periods. Although a review of Hansard suggests the intention of the legislature was to prevent shortening of limitation periods, the legislature ultimately chose not to expressly prohibit reduction of limitation periods, signaling perhaps that some reduction agreements may be tolerated. The legislature could easily have expressly legislated against abridged limitation periods (as Quebec did in both official languages in Articles 2884, 2925, and 2930 of the Civil Code and as Ontario did, but later rescinded, in 2004). This would also explain why the government of Alberta, in 2006, felt compelled to amend the limitations act to expressly prohibit reduced limitation periods.

Confusion prevailed, notwithstanding such amendment. How would the prohibition be interpreted by the courts? Does the prohibition apply retroactively to existing agreements? Does it extend to contractual provisions which indirectly shorten limitation periods? What is its effect on time-limited contractual rights such as representations and warranties?

The 2008 Alberta Court of Queen's Bench decision Edmonton (City) v. TransAlta Energy Marketing Corp. brought some welcome clarification. It involved a claim by the City of Edmonton against TransAlta for damages arising from the sale of a composting facility by TransAlta. TransAlta provided representations and warranties in respect of the composter, which remained, pursuant to the terms of the purchase agreement, in effect for 18 months after closing. The purchase agreement also required the city to give notice to TransAlta of any misrepresentation within such 18-month period.

The city brought a claim against TransAlta for misrepresentation within the statutorily prescribed two-year period, but failed to give it the requisite notice within the contractually prescribed 18 months. The city argued inter alia that the 18-month survival period (the one it negotiated and agreed to) was invalid since it was shorter than the statutorily prescribed two-year period. The court, rightly, rejected this argument on the basis the survival period merely defined the scope of the warranties provided and did not address the limitation period within which an action had to be commenced. Accordingly, the court held the notice requirement was valid, consistent with prevailing case law (including Arrow Transfer Co. Ltd. v. Royal Bank of Canada and Hunter Engineering Co. v. Syncrude Canada Ltd.). Other drafting techniques that indirectly shorten limitation periods have not yet been tested, resulting in continuing uncertainty in the law.

The public policy rationale behind prohibiting contractual reduction periods in situations where there is an imbalance of power between two parties simply does not exist in business agreements negotiated by sophisticated commercial parties. Alberta's blanket approach ignores the differences between standard consumer contracts and bargained business agreements between commercial parties.

The blanket prohibition is also incompatible with what Lord Reid in Suisse Atlantique Société d'Armement Maritime S.A. and N.V. Rotterdamsche Kolen Centrale described as the "general principle of English law that parties are free to contract as they see fit." As Justice Adelle Fruman declared in Prenor Trust Co. of Canada v. Nunn, "Courts should not be quick to rewrite contracts between parties — especially parties who have equal sophistication, experience, bargaining strength, and legal representation."

Let's eliminate the Alberta anomaly and lingering uncertainty by following Ontario's lead and once and for all proclaiming in force a limitations provision that expressly recognizes the legitimate right of parties to business agreements to negotiate time periods within which claims may be brought. Such a move would reinforce Alberta's stature as a business-friendly province.

Bryan Haynes is a partner and co-chairman of the commercial transactions practice group at Bennett Jones LLP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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