Now in effect, changes ease enforceability concerns over tolling agreements and allow parties to vary or exclude statutory limitations.
Recent amendments to Ontario’s Limitations Act, 2002 have returned the ability to suspend, extend, shorten or exclude statutory limitation periods to litigation claimants and parties negotiating agreements – although shortening or excluding a period is still not permitted in a consumer agreement. Effectively, the changes restore much of the flexibility that was lost when the Limitations Act, 2002 replaced the previous Limitations Act. By taking this step, Ontario’s legislators have responded effectively to criticisms of the earlier reform from the province’s commercial law and litigation bars.
In force as of October 19, 2006, the new Section 22 creates distinct rules for agreements to shorten or exclude limitation periods and agreements to suspend (i.e. delay their commencement) or extend them.
Returning flexibility to commercial agreements
Parties to commercial agreements are primarily concerned about being able to control the period of time during which claims may be made. In some cases the desired period will be longer than the statutory limitation period, while in other cases it will be shorter or excluded entirely.
Under the amended Act, any parties – including businesses and consumers – can agree to suspend or extend a statutory limitation period. This includes both of the standard periods introduced by the Limitations Act, 2002: the basic limitation period (generally 2 years from the date of discovery or discoverability) and the ultimate limitation period, a 15-year cap on how long after the date of the act or omission on which a claim is founded an action may be commenced. However, it is important to note that the ultimate limitation period can be suspended or extended by agreement only after the relevant claim has been discovered.
The ability to shorten or exclude a limitation period is limited to "business agreements", defined (by reference to the Consumer Protection Act, 2002) as agreements among parties none of which is an individual acting for personal, family or household purposes. Provided, therefore, that they are acting for business purposes, individuals can be parties to contracts that shorten or exclude the limitation period, as can non-individuals no matter what their purpose (e.g. agreements involving entities with charitable purposes would appear to be covered, a noteworthy change from earlier drafts of the amendment). The upshot is that consumers cannot be subjected to shortened limitation periods.
Parties to business agreements can vary or exclude the statutory limitation periods, subject to the restriction that, as noted above, the ultimate limitation period cannot be extended beyond 15 years until after the relevant claim has been discovered. For instance, commercial parties entering into a contract could agree that claims may be made under the agreement for a period of 18 months (shorter than the statutory period) or for a period of 5 years (longer than the statutory period), but they could not agree to a period of indefinite duration (longer than the 15-year ultimate limitation period). However, once a claim had been discovered, they could then agree to extend the limitation beyond 15 years. In the case of agreements with consumers, the only permissible change permitted by the legislation is to extend or suspend limitation periods applicable to them, subject to the restrictions regarding the ultimate limitation period.
As long as they do not extend beyond the ultimate limitation period, parties to business agreements can once again generally have confidence in the enforceability of representation and warranty survival periods, which require claims to be made within a specific period of time. Where parties want to limit the duration of their potential exposure, it will generally be important to ensure that they clearly express the intention to vary both the ultimate limitation period and the basic limitation if that is what is intended. A statement that claims may be made at any time up to, but in no circumstance after, date X, should achieve this.
Removing a roadblock to negotiated litigation settlements
The benefits of these changes go beyond the context of contract negotiations, however. The ability to suspend or extend a limitation period also represents a significant improvement from a commercial litigation perspective. One of the more problematic aspects of the unamended Litigation Act, 2002 was that it effectively prevented litigation tolling agreements (agreements to delay the commencement of a limitation period pending an attempt to resolve a dispute amicably). Needless to say, this seriously undermined litigants’ ability to negotiate standstills for the purposes of settlement discussions or otherwise. The amendments will once again permit tolling, making it easier for litigants to explore other options in addition to litigation.
It should be noted that the Limitations Act, 2002 does not apply to agreements entered into before January 1, 2004.
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