The Ontario Court of Appeal's recent decision in Ontario (Transportation) v. J & P Leveque Bros. Haulage Ltd. (Leveque)1 overturned a lower court's ruling that a construction contract which had varied the basic statutory limitation period barred the Ontario Minister of Transportation (MTO) from bringing a claim against J & P Leveque Bros. Haulage Ltd. (Leveque).
Background
Leveque concerned the interpretation of general conditions in a construction contract that set out a detailed claims review process. A party contesting the final step in the process — the referee decision — was required to file a notice of protest and engage in alternative dispute resolution (ADR) before commencing litigation. Although this process was to be done within two years of contract completion, the referee decision (which ruled against MTO) was not released until after the two-year contractual limitation period expired.
Notwithstanding this, MTO quickly registered its notice of protest and invoked ADR after the referee released its decision. It subsequently commenced a civil action against Leveque, seeking recovery of the $1.8 million awarded to Leveque by the referee panel.
Leveque then moved for summary judgment, arguing that the contractual two-year deadline ousted the two-year basic limitation period under section 4 of the Limitations Act, 2002 (the Limitations Act) and that MTO was barred from bringing a claim as it commenced litigation more than two years after contract completion.
The motion judge's decision
As discussed in our blog "Beware the contractual limitation period," the motion judge agreed with Leveque that MTO's action was time-barred and granted Leveque summary judgment. He held that because the contract was a "business agreement" within the meaning of section 22 of the Limitations Act, it ousted the statutory limitations period and replaced it with the contractual limitation of two years from contract completion.
Court of Appeal's reasons
On appeal, the main issue was whether the motion judge erred in interpreting the contractual claim review process, and whether the parties could be bound by the contractual two-year limitation period when no referee decision had been rendered during that time.
The Court allowed the appeal and set aside the summary judgment as the motion judge erred in his interpretation of the contract. The Court held that since the referee decision was not released within two years of the contract completion date, MTO was not required to file a notice of protest and seek ADR within that period. As MTO could not protest a decision that had not been released, the two-year contractual limitation period did not oust the limitation period under section 4 of the Limitations Act and MTO's claim against Leveque was not statute-barred.2
In reaching this conclusion, the Court provided the following analysis:
- Governing principles: Applying well-settled principles of contractual interpretation, the Court emphasized that the contract must be read as a whole, "giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract". The Court also noted that commercial contracts must be construed in accordance with sound commercial principles and good business sense to avoid commercial absurdity.3
- The wrong question: Although the motion judge focused on whether the parties could have completed the claims review process within the designated two-year period, the Court held that this case did not turn on an assignment of blame for delay. The question was not whether the claims review process could have been completed within the two-year period or whether one party was more at fault for the delay than the other. Rather, the question was how to interpret the language of the contract when, for whatever reason, the claims review process was not completed within that period.4
- Plain language of the contract: The plain language of the
contract, viewed as a whole, contemplated that the referee decision
be released within two years from contract completion. Thus, the
two-year contractual limitation period does not bind the parties
when the referee decision is delivered outside of that period
because:
- the parties cannot be bound by a decision that does not exist, nor can a party protest a decision that has not been released
- without a decision, there is no way of knowing who should protest and on what basis (and there is similarly no ability to engage in ADR before litigation)
- if one accepts the premise that a decision cannot be protested until it is released, and if the decision is released after the two-year period has expired, compliance with the two-year contractual period is impossible
- to apply the contractual two-year limitation in the circumstances was to deprive MTO of any ability to challenge the referee decision and any ability to commence litigation and
- it is commercially absurd to require a party to protest a decision that has not yet been released, just as it is absurd to conclude that a decision rendered late is, for that reason alone, final and binding on the parties5
- The limitation period under the Limitations Act is not ousted where there is no decision: Lastly, the Court held that the statutory limitation period will apply where a decision that is part of the claims review process is released outside of the two-year contractual period.
While the contract was a business agreement for purposes of section 22 of the Limitations Act, the general conditions did not expressly authorize a reduction of the statutory period, nor did it provide that a decision released outside of the two-year period was effectively immune from review. Thus, a court faced with a contractual term that purports to shorten a statutory limitation period must consider whether that provision in "clear language" describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods. The Court held that no such clear language appeared in the contract before it.6
Takeaways
Leveque provides interesting guidance on the interplay between contractual and statutory limitation periods in construction disputes. In particular, the decision demonstrates the court's reluctance to enforce a contractual limitation period in a commercial contract where it would go against good business sense, result in a "commercial absurdity", and lead to an outcome that undermines the purpose of a dispute resolution process.
Footnotes
1 Ontario (Transportation) v. J & P Leveque Bros. Haulage Ltd., 2025 ONCA 573 (Leveque).
2 Leveque at paras. 35–38.
3 Leveque at paras.14–17.
4 Leveque at paras.18–20.
5 Leveque at paras. 21–29.
6 Leveque at paras. 30–34.
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