Accounting for Law
Commercial Litigation, Construction

Remember to include limitation provisions in contracts: Eckler

Toronto litigator Isabelle Eckler says a recent Ontario Divisional Court decision serves as a reminder to builders and designers to include limitation provisions in contracts to prevent them from becoming involved in third-party claims in the future.

Eckler, an associate with Shibley Righton LLP, tells the ruling found that although the Ontario Limitations Act says a defendant has two years from the date they are served with a claim, that deadline can be overruled by a contract.

"The limitations provision that the court was looking at in this case was the contribution and indemnification provision that provides two years for any claim for indemnity," Eckler says. "Because the third party had a contract with the plaintiff which provided for a six-year limitation period after substantial completion, by the time the defendant wanted to add the third party, those six years had gone by."

The case involved a couple who hired an architect in 1993 to design a new home. They signed a contract that provided a six-year limitation period after completion. The court heard the agreement stated that after the expiration of the period, "the client shall have no claim whatsoever against the architect."

In 2008, the couple found extensive water damage and mould in their home and filed suit against the contractor two years later, the court heard. The plaintiffs did not include the architect in their action.

The contractor, however, issued a third-party claim to include the architect.

"The plaintiffs retained an architect and a contractor to build their house. They eventually found construction deficiencies, so they sued the contractor,” says Eckler.

"The contractor wanted to include the architect on the basis that his actions contributed to any damages suffered by the plaintiffs. That’s tricky because, as a defendant, you wouldn't necessarily know the terms of a contract between a plaintiff and a third party when you're not a party to that agreement," she says.

The objective in including the architect was to share any possible blame "so the contractor wouldn't have to pay for all of the damages," Eckler says.

Construction cases often find both an architect and a contractor involved in a dispute centring on what caused a defect, whether it was a construction issue or a design issue, she says.

"That's often an allegation in construction claims where the contractor will say it was a design error and the design professional might say it was very clearly laid out in the plans and therefore a construction defect," Eckler says.

"But in this case, the contractor couldn’t add the architect because of the provision in the architect's contract with the plaintiff that included a limitation period of six years from substantial completion," she says.

She says it's not unusual for the contractor and the architect to have separate contracts with a homeowner.

"But this case highlights the fact that because parties can contract out of Limitations Act provisions, it is prudent to see if one can get a copy of the other document to know if there are any terms for limitations, or to include that in your own contract," Eckler says.

"It's prudent to put a provision in the contract that limits your liability to a fixed amount of time which would include third-party claims so you won't be dragged into a claim later on," she says.

A contractor or designer should develop a basic contract with counsel that would include time limits, she says. The ideal is to have counsel review the contract prior to signing but in many cases, companies don't have in-house counsel and don't want to retain a lawyer.

"I think many professionals have their standard form contracts that include limitations periods and other issues like dispute resolution," she says.

"It's always wise to create a contract with these terms already considered," Eckler says.  

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