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In Ontario, the Limitations Act, 2002, S.O. c. 24 Sched B. imposes deadlines by which claims for damages, injury, or loss must be brought. Generally, the deadline or "limitation period" is two years from the date upon which the claimant discovers or reasonably ought to have discovered the wrongdoing (s.4 Limitations Act). Failure to commence a claim within the Limitation Period will result in the claim being statute-barred, meaning the claim cannot proceed.
Often, contracts include continuing obligations which create uncertainty as to when the claim is discovered. If the claim involves ongoing obligations, such as recurring payments, does the claim arise when the first payment is missed, or does it arise each time a payment is missed?
Where there is a continuous breach of contract, the court may apply a "rolling limitation" perio,d which allows the limitation clock to begin anew each time a new breach is made.
The Courts have had difficulty identifying when a claim has been discovered and whether to apply a rolling limitation period or not.
The Trilogy
Pickering Square Inc. v. Trillium College Inc., 2016 ONCA 179 ("Pickering")
Pickering involved a lessee ("Trillium College") and a lessor ("Pickering Square"). The terms of the lease required Trillium College to pay monthly rent, maintain the premises, and operate its business continuously throughout the term of the lease. When Trillium College vacated the premises, Pickering Square sued for failing to conduct its business continuously.
The issue before the Court of Appeal was "when is a claim discovered for limitations purposes in the context of a continuing breach of contract?"
Justice Huscroft's analysis first assessed the nature of the breach to determine the discovery date. In determining the nature of the breach, the Court outlined three potential breach of contract situations:
- Failure to perform a single obligation due at a specific time
- Failure to perform an obligation scheduled to be performed periodically
- Breach of a continuing obligation under a contract.
Justice Huscroft held that Trillium College's breach fell into the third category. The rationale was based largely on contract law principles. Specifically in contract law, upon the default or breach of one party, the innocent party has two options:
- accept the breaching party's repudiation and sue for damages; or
- affirm the contract, in which case both parties are required to fulfill their obligations.
Justice Huscroft imposed a rolling limitation period, noting that Pickering Square affirmed the contract and each day that Trillium College failed to conduct its business continuously, a fresh cause of action occurred. This entitled Pickering Square to sue for damages for every day from two years prior to the claim being commenced.
Marvelous Mario's Inc. v. St. Paul Fire and Marine Insurance Co., 2019 ONCA 635 ("Marvelous Mario")
Marvelous Mario involved a bankruptcy of the company Bakemates Group of Companies ("Bakemates"). The appellants claimed for business interruption losses on the grounds that the receiver in bankruptcy stole or mishandled the property of Bakemates.
On December 28, 2002, the receiver sold the Bakemates Group of Companies' businesses. It was determined that at this time, the Appellants ought to have been aware of a claim under their insurance policy. However, the trial judge held that because business interruption losses are, by their nature, an ongoing claim, the rolling limitation period applied.
Justice Hourigan of the Court of Appeal overruled this interpretation, finding that the business interruption losses were not subject to a rolling limitation period.
Justice Hourigan attempted to clarify the analysis of rolling limitation periods, providing "the question is not whether the plaintiff is continuing to suffer a loss or damage, but whether the defendant has engaged in another breach of contract beyond the original breach by failing to comply with an ongoing obligation. In cases where there have been multiple breaches of ongoing obligations, it is equitable to impose a rolling limitation period" (Marvelous Mario at para 35).
In Marvelous Mario, the business interruption losses were triggered by a single event, which began the limitation period for the insureds; just because they continued to suffer losses did not mean a new cause of action was created each time they suffered loss.
Karkhanechi v. Connor, Clark & Lunn Financial Group Ltd., 2022 ONCA 518 ("Karkhanechi v. CCL")
Karkhanechi v. CCL involved a dispute regarding compensation upon termination. The Plaintiff ("Karkhanechi") entered into a Partnership Agreement with the Defendants Connor Clark and Lunn Financial Group ("CCL"), which set out a payment structure for Karkhanechi. Upon termination, Karkhanechi sued, alleging breach of the post-retirement compensation agreement.
The Court of Appeal attempted to reconcile Marvelous Mario and Pickering. Justice Paciocco began the rolling limitation analysis with first principles, asking "what is the nature of the breach". To determine the nature of the breach, the question is not whether a continuing loss is suffered but whether the defendant has engaged in another breach of contract beyond the original breach (Marvelous Mario at para 35).
Justice Paciocco clarified that "the material distinction is therefore between those cases where, in substance, the cause of action alleges a breach that gives rise to continuing loss or damage, and those cases where, in substance, more than one breach is being alleged leading to separate damage claims." (Karkhanechi at para 27)
In Karakhanechi, Justice Paciocco held that the breach of post-retirement compensation was a singular breach of the compensation agreement, which resulted in continuous losses. As such, no rolling limitation period applied, and this case was statute-barred.
Post Trilogy
This trilogy of cases attempted to clarify the law regarding rolling limitation periods. However, the distinction between whether a breach of contract resulted in continuous losses compared to recurring breaches of contract remained a hotly contested issue in litigation.
The Court of Appeal was once again faced with the issue of a rolling limitation period in Spina v. Shoppers Drug Mart Inc., 2024 ONCA 642 ("Spina"). In Spina, the plaintiffs (the "Associates") were franchisees of Shoppers Drug Mart (the "Franchisor"). A contract dispute arose as to whether the Associates or the Franchisor were entitled to professional allowances per new legislation. The Franchisor alleged that the Associates' claims were statute-barred. The Associates argued that a rolling limitation period ought to apply.
Justice Thornburn approved of the approach in Karakhanechi v. CCL, citing Richards v. Sun Life 2016 ONSC 5492 ("Richards"). Richards lends significant assistance to reconciling the discrepancies between Marvelous Mario and Pickering Justice Bale clearly sets out when recurring breaches result in a rolling limitation period at para 26. If the facts which give rise to a breach ought to be known by the plaintiff, it would be unfair to require a defendant to litigate those facts for a potentially unlimited time; but when the facts which give rise to a claim appear on a periodic basis, it is not unfair to impose a rolling limitation period and require a defendant to litigate those facts.
The analysis requires a factual assessment of whether the breach of contract results in continuous breaches which give rise to a new cause of action upon each breach or whether the breach merely creates a continuous loss. In Spina, Justice Thornburn found that, given the trial judge's findings of fact, the initial breach would have alerted the Associates to the continuous damage claims, thus no rolling limitation period applied.
Conclusion
The Court is hesitant to grant a rolling limitation period where continuous damages are evident immediately upon the breach of contract. Where a potential claim for damages exists, it is important to immediately consult a lawyer to preserve your rights.
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.
