When does the limitations clock begin to run in construction disputes?: Infiniti Homes Ltd v Gagnon, 2020 ABQB 691

Construction disputes often drag out far longer than anticipated by the parties. In the normal course of a construction dispute, a Statement of Claim must be filed within six to eight months of the dispute arising because lien claims are typically involved. However, if the dispute proceeds as an ordinary debt or breach of contract claim outside of the Builders’ Lien Act (Alberta) it is important to be mindful of the ticking of the two-year limitations clock. This importance was underscored in the recent Alberta  case Infiniti Homes Ltd v Gagnon, 2020 ABQB 691 (“Infiniti”), wherein the Hon. Graesser J. considered various arguments about when a limitation period started running in a contractor’s bid to preserve its debt claim against owners of a construction project.

The underlying dispute in Infiniti arose out of a contract by which the defendant owners, Robert and Susan Gagnon (the “Owners”), had hired the plaintiff contractor, Infiniti Homes Ltd. (the “Contractor”), to build a custom home. Near the end of the project, the Owners alleged there were various deficiencies, but nevertheless moved into the home and changed the locks on August 4, 2015. The dispute continued for several years, during which time the Contractor filed two liens, a subcontractor filed a lien, two of the liens were discharged, the respective counsel for each party exchanged various letters, and the Owners made a warranty claim. The Statement of Claim in Infiniti was filed on February 20, 2018, well past two years from the Owners’ move-in date, so the question before the Court was when the limitation clock began to run.

It is trite law that, without more, the limitation period within which a claimant must file a claim is two years from the date on which the claimant first knew or ought to have known that the claimant had suffered an injury attributable to the conduct of the defendant (s 3(1) of the Limitations Act (Alberta)). There were two potential limitation period start dates advanced by the Contractor in Infiniti and considered by the Court:

1. The date the warranty work was completed in early January of 2017; or
2. January 6, 2017, the date of a letter that the Contractor argued was an acknowledgement of the debt.

The Owners argued that the two-year limitation period began to run on August 4, 2015 and therefore the Contractor had initiated its claim against them many months outside of the limitation period.

Contractual Limitation Periods

A provision in the Contract between the Owners and the Contractor (the “Contract”) stipulated that payment of the balance owed by the Owners to the Contractor was due on the earlier of: (i) the completion of the work by the Contractor, or (ii) the possession of the home by the Owners. The Owners took possession on August 4, 2015, and that date was the last date the Contractor performed work on the property aside from minor stonework completed a three days later. Therefore, Justice Graesser determined that the limitation period for any claims the Contractor had against the Owners for payment of monies owed to it under the Contract began running on the possession date, August 4, 2015. That date was held to be when the Contractor knew or ought to have known the Owners owed them funds and the Contractor had suffered an injury because the funds remained unpaid.

Moreover, Graesser J. stated at paragraph 53 of Infiniti that “the applicable limitation period for work and materials supplied commences when [such materials are] supplied, not when they [are] invoiced (but for agreements to the contrary).” The Court held that neither deficiencies in the work nor any failure by the Contractor to complete the work in accordance with the Contact had any impact on when the limitation clock began to run.

Graesser J. also held that any warranty work performed on the project was relevant only to the Owners’ claims against the Contractor. Warranty work performed was irrelevant to the Contractor’s claims against the Owner in the absence of evidence to suggest that the Contractor put its claim on hold pending the resolution of the warranty work. Therefore, the initiation of the limitation period was not extended by the completion of the warranty work by the warranty provider.

Another possible start date for the limitation clock considered by Graesser J. was the date on which the Owners were to release the holdback to the Contractor. The Contract stated that so long as title to their property was free of liens, the holdback was releasable 45 days after the Certificate of Substantial Completion was issued – which was September 2, 2015. No subcontractors had liened the land within the 45-day period. Graesser J. held that the Contractor could not itself extend the operation of the applicable limitation period by liening the land:

[62]           As between the owner and the contractor, there is no reason why the contractual limitation period should be affected by the filing of a lien by the contractor. The purpose of the lien holdback and the 45 day wait period is to protect those who work for the contractor or for subcontractors, not the contractor. A contractor has a lien against the lands for 100% of the value of the work done on the lands, and the value of the contractor’s lien claim is unaffected by holdbacks.

[63]           An owner who does not maintain an appropriate holdback runs the risk of paying whatever should have been held back to the subcontractors, suppliers and workers, even if the owner has fully paid the contractor the contract price, or worse yet for the owner, overpaid the contractor.

[64]           I do not see that the fact that the contractor had a builders’ lien against the property at the expiry of the lien period for the major lien fund has any relevance to the normal limitation period for the contractor suing the owner in debt. I interpret the builder’s lien provisions of the Agreement to refer to builder’s liens filed other than by the contractor itself. Any interpretation to the contrary fails to recognize the business realities of builder’s liens filed against the owner’s property and the obligations of the contractor to discharge those liens.

Accordingly, the lien provision in the Contract had no effect on the commencement of the limitation period.

Section 8 of the Limitations Act

The Contractor argued that a letter sent by the Owners’ counsel to the Contractor’s counsel on January 6, 2017 qualified as an acknowledgement of the debt owed by the Owners to the Contractor within the meaning of s 8 of the Limitations Act. The relevant portions of that section read:

8(1)  In this section, “claim” means a claim for the recovery… of an accrued liquidated pecuniary sum, including, but not limited to a principal debt, rents, income and a share of estate property, and interest on any of them.

(2)  Subject to subsections (3) and (4) and section 9, if a person liable in respect of a claim acknowledges the claim, or makes a part payment in respect of the claim, before the expiration of the limitation period applicable to the claim, the operation of the limitation period begins again at the time of the acknowledgment or part payment.

(3)  A claim may be acknowledged only by an admission of the person liable in respect of it that the sum claimed is due and unpaid, but an acknowledgment is effective

(a)    whether or not a promise to pay can be implied from it, and

(b)    whether or not it is accompanied with a refusal to pay…

In the January 6, 2017 letter, the Owners’ counsel noted that not all defects and deficiencies had been remedied and, as such, the cost to fix those items was unknown but would need to be “set off against any amounts that [the Contractor] would otherwise be entitled to under the terms of the contract with [the Owners].” The Owners’ counsel further advised that they were of the position that the Contractor’s lien was improperly registered, but would refrain from taking steps to remove the lien until after the Owners had delivered a complete list of costs and damages they alleged the Contractor had caused to them. The letter was marked “Without Prejudice” but the Court held that the letter was not truly in furtherance of settlement and thus was not privileged.

To determine whether the January 6, 2017 letter was an acknowledgement of the debt that would re-start the limitations clock, Graesser J. extracted the following principles from the jurisprudence:

1. No particular form of acknowledgement is specified in s 8 of the Limitations Act [John Barlot Architect Ltd v 973189 Alberta Ltd, 2008 ABQB 458, aff’d 2009 ABCA 307];
2. The words in a purported acknowledgement must either expressly or by implication amount to an unconditional acknowledgement of a debt or a promise to pay [Re Heffren, 1922 CanLII 400 (MBKB)]; and
3. From Twinn v Sawridge Band, 2017 ABQB 366 at para 105, the following principles:
   • “Claim” is defined in s 8(1) as being an “accrued liquidated pecuniary sum;”
   • For the purposes of s 8, an acknowledgement need not refer to the specific amount of the debt;
   • The acknowledgement must be in writing; oral promises to pay are not sufficient;
   • The words used must expressly or by implication amount to an unconditional acknowledgement of the debt; and
   • The limitation period may be extended by either an acknowledgment or a part payment.

Graesser J. evaluated the language used by the Owners in the January 6, 2017 letter in light of the above principles and determined that, at most, the Owners acknowledged that they might owe the Contractor some funds, depending on the unknown cost of remedying deficiencies and defects. This acknowledgement was conditional and as such did not fulfil the jurisprudential requirement that the acknowledgement be unconditional, so Graesser J. held that the January 6, 2017 letter had no effect on the limitations period.

Conclusion

Ultimately, Graesser J. held that, with the exception of a trust claim that he could not evaluate on the evidence before him, the Contractor’s claims were out of time.

Infiniti is an illustration of the importance of filing a Statement of Claim or Civil Claim within two years from the earliest date on which the two-year limitation period could begin to run. When engaged in a lengthy dispute over a construction project gone bad, the end of that two-year period can arrive quickly, and, as happened in Infiniti, there may not be a way to resurrect your case. On the other hand, when drafting correspondence in the context of a dispute over unpaid funds, counsel must be cognizant of the risk that they may inadvertently re-start the limitations clock by acknowledging the debt, explicitly or impliedly, by unconditionally affirming that it is owing.