The new Limitation Act: some key issues for construction disputes

Overview of the new Limitation Act

The new Limitation Act came into force on June 1st, 2013.  The new Act contains a number of substantive changes from the existing regime. Highlighted below are four key changes that are likely to have an impact on construction matters, as well as a brief summary of transition rules that will apply.

1. New 2-year basic limitation period

All actions are now subject to a 2-year basic limitation period from the discovery of the claim. Judgments are still subject to a 10-year limitation period for enforcement. Certain types of claims are exempted from the 2-year limitation period (for example, claims to redeem or realize collateral, claims for possession of land, or limitation periods established under other enactments).

Under the old Act, most construction matters, such as actions for breach of contract, debt collection matters, or claims relating to latent construction defects, were generally subject to a six-year limitation period.  The new, shorter limitation period means that claims will have to be dealt with and, if necessary, litigation commenced, much more quickly than in the past.  In many cases, individuals and corporations will not have the luxury of taking a “wait and see” approach to construction claims.  The move to a shorter limitation period is intended to encourage people and corporations to address legal claims in a more timely fashion.

It is important to note that the new 2-year basic limitation period does not apply where a particular statute establishes a different limitation period.  In the construction context, the most obvious examples are the timelines to file and enforce claims under the Builders Lien Act.  The timelines in the Builders Lien Act still apply to builders lien matters and remain unchanged by the new Act.

In addition, many construction contracts have time limitations for asserting claims against the other party, for example in respect of delays or extras.  In some cases, contractual limitation periods may be shorter than those provided for in the Act.  If you anticipate a dispute on a construction project, it is important to consider whether any contractual limitation periods may apply in addition to the basic limitation periods set out in the Act.

2. New 15-year ultimate limitation period

A new 15-year ultimate limitation period applies to bar all claims once 15 years have passed from the event giving rise to the claim.  Significantly, this time starts to run from when the original act or omission takes place, regardless of whether or not any damage has occurred.

This change could have considerable implications for cases where an act or omission has occurred but the actual damage does not materialize until many years later – for example, in cases involving inherent construction defects.  There may be considerable litigation over how this provision is to be interpreted, since a claimant could potentially lose a cause of action where the act which ultimately caused the damage occurred more than fifteen years prior to the damage actually materializing.

This will likely be a particularly important issue in cases where construction deficiencies ultimately result in water ingress, but the resulting damage to the building does not manifest itself until more than 15 years after construction was complete. Depending on how the Courts interpret these provisions of the Act, these changes may ultimately prove beneficial to contractors, subtrades and developers who are currently faced with the prospect of defending a building deficiency lawsuit many years after construction was completed, when it may be difficult to locate witnesses and documents or trigger insurance coverage.

3. Discoverability rules

The clock on the 2-year limitation period starts to run from the date the claim is discovered.  As was the case under the old Act, there is still a subjective/objective test which applies to determine when a claim is deemed to be ‘discovered’, but with new language.  The clock starts to run when the person knew or ought reasonably to have known that:

• • Injury, loss or damage occurred;
  • The injury, loss or damage was caused or contributed to by an act or omission;
  • The act or omission was that of the person against whom the claim may be made; and,
  • Having regard to the nature of the injury, loss or damage, a Court proceeding would be an appropriate means to remedy the injury, loss or damage.

All four elements have to be established for the clock to start running.  Under the language used in the Act, time arguably does not begin to run until damages have actually crystallized, which could be some time until after the act or omission causing the damage occurred.  One should not therefore assume that since two years have passed since a particular act or omission, any claim in relation to that act may be statute-barred.  Contractors, owners and professionals will all want to ensure that their document retention policies account for the possibility that the running of limitation periods may be postponed.

4. Limitation on claims for contribution and indemnity

This is a significant change from the old Act, which had no references to limitations on contribution and indemnity.  The B.C. Court of Appeal confirmed in OSP LMS 1751 v. Scott Management Ltd. et al., 2010 BCCA 192, that a defendant could wait until after judgment had been taken against them to commence an action for contribution and indemnity.

Under the new Act, no action for contribution and indemnity can be commenced after two years have passed from the later of:

• When the claiming party was served with the pleadings commencing the claim against it; or,
• When the claiming party knew or reasonably ought to have known it had a claim for contribution and indemnity.

In most construction cases involving claims for contribution and indemnity, the clock will likely start to run from the date of service of the pleadings, at the very least with respect to any other named defendants.  That said, it is not clear how the second branch of the test with respect to when a party knew or “ought reasonably to have known” that it had a claim for contribution and indemnity will be interpreted.  It will therefore be important to ensure that any third party claims for contribution and indemnity are identified early and appropriate third party proceedings issued before the limitation period expires.  Again, the new Act does not allow parties to construction disputes the luxury of taking a “wait and see” approach to claims.

Transition rules

The new Act contains a number of transition provisions which govern whether the new or the old Act will apply.  The key point is when the claim was discovered.  If the event giving rise to the claim occurred and was discovered before June 1st, 2013, the old limitation periods still apply.  If the event giving rise to the claim occurred before June 1st, 2013 but is discovered after June 1st, 2013, the new limitation periods apply.  If the event giving rise to the claim occurs after June 1st, 2013, the new limitation periods will apply.

If you have any questions or would like further information regarding the implications of the new Act, please do not hesitate to contact any member of Alexander Holburn’s Construction and Engineering Practice Group.