Earlier this year the Court of Appeal released its decision in Presley v Van Dusen[1] (“Presley”) which considers, among other things, the “proper analysis” of Section 5(1)(a)(iv) of the Limitations Act, 2002 (the “Act”). This section of the Act addresses part of the discoverability test and specifically relates to the timing of when a party, having regard to the nature of the injury, loss or damage, knew or ought to have known that a legal proceeding would be the appropriate means to seek to remedy that injury, loss or damage. Given the litigious nature of the construction industry in Ontario, as well as the inherent risk to a claimant in having their actions statute barred if they fail to commence a proceeding in time (i.e. beyond the 2 year limitation period), the Presley decision provides critical clarification to a provision that is not often considered by the courts. That said, not everyone will be happy about the implications.

The Underlying Facts

The facts of the case are relatively straightforward. The appellants hired the respondent Jack Van Dusen (“Van Dusen”) to install a septic system in 2010. The respondent Leeds, Grenville and Lanark District Health Unit (the “Health Unit”) approved the proposed septic system the same year. The septic system experienced difficulties almost from the beginning. In 2012, Van Dusen advised the appellants that the cause was an unusually wet year. In the spring of 2013, he advised them that the problems could be fixed by applying a load of sand to the septic bed. He assured the appellants that he would return to perform that work. This assertion was repeated several times. Unfortunately for the appellants, for various reasons Van Dusen was unable to deliver the load of sand. In April 2015, the appellants called the respondent Health Unit, leading to an inspection of the septic system. As a result of the inspection, the Health Unit condemned the system and issued an Order to Comply requiring the appellants to replace it. The appellants commenced a Small Claims Court action in August of 2015 against Van Dusen (with the Health Unit being added later) in order to recover its losses.

The Issue

The trial judge dismissed the action on the basis that it was statute barred by the Limitations Act, 2002 on the basis of Section 5.1(b). Specifically, the judge found that “any reasonable thinking individual or homeowner” would have discovered the claim (based on the smell and lack of work) by the spring of 2013.[2] Accordingly, the action was out of time. The appellants appealed to the Divisional Court which dismissed their appeal. Neither the Small Claims Court nor the Divisional Court found it necessary to consider Section 5.1(a)(iv) on the basis that there was no requirement to make an explicit finding as to what was known in relation to that section.[3]

 

The Presleys appealed to the Court of Appeal. The sole issue for appeal was whether the appellants had discovered their claim for the purposes of section 5 of the Act and accordingly, whether the lower courts had erred in failing to conduct a proper analysis under Section 5.1(a)(iv) (i.e. the provision related to whether or not a proceeding would be appropriate):

 

(1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).  2002, c. 24, Sched. B, s. 5 (1).

The Court of Appeal’s Decision

The Court of Appeal considered first whether it was appropriate for the appellants to have delayed bringing their action against Van Dusen, and second, whether it was appropriate for the appellants to have delayed bringing their action against the Health Unit. Each respondent presented different issues which are relevant to the construction industry. Ultimately, the Court of Appeal held that the lower courts had erred by failing to conduct an analysis under Section 5.1(a)(iv).

 

Primarily, the court considered that the purpose of Section 5.1(a)(iv) is to “deter needless litigation”.[4] Specifically, the court considered that if a legal proceeding is inappropriate, the “start date for the commencement of the litigation period is postponed beyond the date on which the constitutive elements of the claim are discovered”.[5]

 

With respect to Van Dusen, the Court found that Van Dusen had (i) an expertise which the appellants had reasonably relied upon, and (ii) attempted to fix the problems with the septic system and then assured them that it could be remedied and would do so. Consequently, the appellants had been reasonably led to believe that the problem with the septic system could and would be remedied without any need for recourse to the courts. Thus, the claim against Van Dusen fell into a category previously held by the Court not to trigger the limitations period: “[A] legal proceeding against an expert professional may not be appropriate if the claim arose out of the professional’s alleged wrongdoing but may be resolved by the professional himself or herself without recourse to the courts, rendering the proceeding unnecessary.”[6] Consequently, the claim against Van Dusen had not run out of time.

 

The Health Unit raised a different argument. It argued that the appellants and the Health Unit had not engaged in any correspondence or other forms of communication prior to the spring of 2015. Unlike Van Dusen, it was not engaged in any ameliorative efforts. So, it argued, section 5(1)(a)(iv) had no application and the appellants’ action against it was limitations barred.

 

The Court rejected the Health Unit’s argument. It held that “[u]nder the Limitations Act, the discoverability issue is decided on the basis of what the plaintiff knew or ought to have known. It is not decided on the basis of fault or who is responsible for any gap in the plaintiff’s knowledge.” In other words, “[i]f a proceeding against Van Dusen was not appropriate until the appellants realized that the problem with their septic system was more serious than Van Dusen had led them to believe and that he was unwilling or unable to fix it, I fail to see how they could have known that a proceeding was appropriate against the Health Unit at an earlier date.”[7] Had it been otherwise, the appellants would have had to begin an action against the Health Unit while they still reasonably believed that the problem was readily fixable and that Van Dusen was going to fix it.[8]

Lessons Learned

First, this case is a strong reminder that where a professional (e.g. designer, engineer, architect, contractor, subcontractor, etc.) reassures a party (read, potential plaintiff) that a problem is fixable and promises to fix it, the running of the two year limitations period under the Act may be suspended. The risk here being that by telling a party that you are “working on” the problem, you may in fact be extending the time during which you are liable. The public policy rationale for this can be understood from the reasons of the decision. Specifically, it deters needless litigation as it prevents potential plaintiffs from having to launch actions simply to protect their rights under the Act in circumstances where the root problem could still be addressed by the party at fault. Unfortunately, the decision adds a level of uncertainty if you are either making such assurances or receiving them. Parties should be cognizant of whether or not the limitation period is running, but also whether or not the actions they take serve to suspend the running of the clock as they offer to resolve the problem. Further, professionals should document any reassurances given by them or their subcontractors to potential plaintiffs so that they can better assess their potential exposure.

 

Second, where remedial efforts are being made (or where remedial efforts have simply been promised by a professional), the limitations period may not only be suspended as against the professional, but it may also be suspended against other potential defendants (for example, the contractor). For parties who are otherwise unaware of issues on a project after their involvement has ended, this may become problematic. After projects are complete, particularly on projects with warrantied work, construction industry participants should remain alert for issues being raised beyond the two year limitation period in such circumstances. In that regard, it remains important to maintain strong records of your work and correspondence to ensure that claims, which would be seemingly be out of time under the Act, can be rebutted or defended effectively in any case.

 

The result of the Presley decision is a benefit to those who are looking to be protected in circumstances where they have been “led down the garden path” by a professional who ultimately did not intend to perform the ameliorative efforts they committed to doing or were otherwise unable to do so despite assurances to the contrary. The intent is laudable and may serve to achieve the public policy goals described above. That said, and as noted above, it does create significant uncertainty for construction industry participants in relation to clearly understanding their litigation exposure at any given time and whether or not litigation would be appropriate.

 

[1] Presley v Van Dusen, 2019 ONCA 66 [Presley]

[2] Presley at para 8.

[3] Presley at para 11.

[4] Presley at para 17 citing 407 ETR Concession Co. v. Day, 2016 ONCA 709, 133 O.R. (3d) 762, at para. 48, leave to appeal refused, [2016] S.C.C.A. No. 509.

[5] Presley at para 17 citing Presidential MSH Corp. v Marr, Foster & Co. LLP, 2017 ONCA 325 at paras 17-18.

[6] Presley at para 19 citing Presidential at para 20.

[7] Presley at para 29.

[8] Presley at para 30.