In Saskatchewan (Highways and Infrastructure) v Venture Construction Inc, the Saskatchewan Court of Appeal recently clarified important aspects of the test used to determine when the limitation period for filing a lawsuit begins running. This decision is about a lawsuit filed by a contractor against an owner regarding extra costs the contractor incurred on a construction project. The Court of Appeal ruled that the limitation period had started running before the construction project was completed because the contractor had known early in the project that it had incurred extra costs and that a lawsuit was the only viable way for it to recover those costs from the owner. Accordingly, the Court of Appeal concluded that the contractor had filed its lawsuit after the limitation period expired and dismissed the lawsuit.
Limitation periods and the “discoverability analysis”
Under The Limitations Act (Saskatchewan), a person has two years from when they “discover” a claim to file a lawsuit about it. If a person files a lawsuit more than two years after discovering their claim, their lawsuit may be dismissed for being “limitations-barred”. There are some exceptions to this two-year limitation period, but they rarely arise and are outside the scope of this article.
The issue of when a person discovered a claim can be complicated and contentious. Section 6 of The Limitations Act (Saskatchewan) provides that a person discovers a claim when they first knew or “ought to have known” all of the following four things:
- “that the injury, loss or damage had occurred”
- “that the injury, loss or damage appeared to have been caused by or contributed to by an act or omission that is the subject of the claim”
- “that the act or omission that is the subject of the claim appeared to be that of the person against whom the claim is made”
- “that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”
The process of considering these issues is often referred to as the “discoverability analysis”. Limitations legislation in many other provinces, including Ontario and Alberta, uses a similar discoverability analysis.
Facts of this case
The Saskatchewan Ministry of Highways (the “Ministry”) hired the Plaintiff, Venture Construction Inc. (“Venture”), to construct a section of highway. Venture hired a subcontractor, Johnston Bros. (Binscarth) Ltd. (“Johnston”), to lay the subgrade for the highway.
Johnston laid the subgrade in 2010. When Venture started surface paving in May 2011, it discovered that Johnston’s subgrade did not meet the specifications in the contract between Venture and the Ministry, and that the engineer hired by the Ministry had failed to properly test the subgrade when Johnston laid it. Venture fixed the subgrade at its own cost and completed construction of the highway on July 13, 2013.
Venture argued that the Ministry should compensate it for the cost of fixing the subgrade because Venture would not have had to fix the subgrade if the Ministry’s engineer had properly tested the subgrade when Johnston laid it. Venture requested compensation from the Ministry on December 17, 2013; the Ministry told Venture on January 9, 2014 that it would provide a formal response to Venture’s request in due course. Venture waited a few months for a formal response from the Ministry, then filed a Statement of Claim on April 7, 2014.
The Ministry applied for summary judgment dismissing Venture’s claim on the basis that Venture’s claim was limitations-barred. The Ministry argued that Venture discovered its claim more than two years before the lawsuit was filed, i.e. before April 7, 2012.
The Chambers decision
The Chambers judge held that Venture’s claim was not limitations-barred. The Chambers judge found that prior to April 7, 2012, two of the four elements of the discoverability analysis were absent: Venture did not know until sometime after April 7, 2012 that it had suffered a loss, and that a lawsuit would be an appropriate means of remedying the loss.
The Chambers judge’s conclusion was based largely on an “extra work” clause in the contract between Venture and the Ministry. That clause permitted Venture to receive payment for work the Ministry’s engineer directed Venture to perform that was outside the scope of the contract. Venture claimed not to have known that it had suffered a loss until sometime in 2014 because until then it believed the Ministry would compensate it through the extra work clause for the cost of fixing the subgrade. Further, Venture argued that a lawsuit was not an appropriate means of remedying the loss until the project was completed and it had exhausted its efforts to be paid through the extra work clause. The Chambers judge agreed with Venture’s arguments.
The Court of Appeal decision
The Court of Appeal determined that the Chambers judge made crucial errors in her discoverability analysis, and that Venture’s claim was in fact limitations-barred. The Court of Appeal therefore dismissed Venture’s claim.
Venture’s knowledge that it suffered a loss
The Court of Appeal found Venture knew it had suffered a loss by the spring of 2011, when Venture discovered that the subgrade did not meet specifications and began incurring costs to fix it. The Court of Appeal ruled that Venture’s belief that it would be compensated for this loss through the extra work clause is not relevant to the first element of the discoverability analysis, knowledge of the loss. Simply put, the Court of Appeal found that Venture knew it had suffered a loss as soon as it began incurring costs to fix the subgrade. Venture’s belief that it would be compensated through the extra work clause only factors into the final element of the discoverability analysis, when Venture knew that it would be appropriate to file a lawsuit against the Ministry.
Venture’s knowledge that a lawsuit would be appropriate
The Court of Appeal focused most of its analysis on the final element of the discoverability analysis, knowledge that a lawsuit would be an appropriate means of remedying the loss. The Chambers judge had held that “it was not legally appropriate for Venture to proceed with its claim until its work on the Contract was complete and it reasonably pursued a demand for additional compensation pursuant to the Contract, as an alternative mechanism for resolving its claim”. The Court of Appeal found that the Chambers judge had reached this conclusion through a series of errors.
The Court of Appeal first considered the law on this element of the discoverability analysis generally, noting that it is sometimes appropriate to delay filing a lawsuit if the claim could be resolved outside of the litigation process. For example, it could be appropriate to wait to file a negligence lawsuit against a professional such as a lawyer or accountant if the professional is attempting to fix the harm their negligence caused. The Court of Appeal also stated that it may be appropriate to delay filing a lawsuit if there is an alternative process for resolving the dispute and it is reasonable in the circumstances to exhaust that process before filing a lawsuit. The Court of Appeal observed that the question of whether it is reasonable to exhaust an alternative dispute resolution process before filing a lawsuit is “highly fact-specific”, and requires the court to consider factors such as whether the claim could actually have been remedied by the alternative process, the circumstances of the claimant, and the merits of avoiding unnecessary litigation.
In this case, the Chambers judge had found that it was reasonable for Venture to delay filing its lawsuit while it sought compensation through the extra work clause. However, the Court of Appeal found that the extra work clause did not apply to Venture’s claim because the extra work clause applied only to extra work for which the Ministry’s engineer had given Venture advance written authorization. Venture had received no such authorization and therefore could not be compensated through the extra work clause.
Additionally, the Court of Appeal found that Venture waited too long to seek payment through the extra work clause. Even if the extra work clause had applied in the circumstances, Venture did not make any efforts to invoke it until months after the project was completed, years after it incurred the costs. This was not a case where the plaintiff reasonably delayed filing a lawsuit until after it did all it could to pursue an alternative means of dispute resolution. Venture had acted with insufficient diligence.
Finally, the Court of Appeal held that the Chambers judge erred in finding it was reasonable for Venture to wait until after the project was completed to file its lawsuit. The Chambers judge had found it was reasonable for Venture to wait because filing a lawsuit before the project was completed “likely would have resulted in Venture being prevented from completing the work, causing further delay[.]” This was a novel finding: the Court of Appeal noted that there did not appear to be any prior cases in which a court found that waiting until the project was completed to file a lawsuit was reasonable because filing a lawsuit before then might have delayed the project. The Court of Appeal left the door open for such a finding to be made in a future case, but in this case overturned the Chambers judge’s finding because there was no evidence that the project would have been delayed if Venture had filed its lawsuit before the project was completed.
Takeaways
Contractors who incur extra costs or losses on a multi-year construction project should not wait until the project is completed to seek legal advice. Based on this case, the court will likely find that the limitation period started running as soon the contractor incurred the extra costs or losses. Following the contractual process for seeking compensation may not delay the expiry of the limitation period. Accordingly, waiting until the end of a multi-year project to address the extra costs or losses puts the contractor in danger of having their claim dismissed as limitations-barred. Contractors should seek legal advice regarding extra costs or losses promptly and should endeavour to file their lawsuit well within the limitations period.
If a contractor is concerned about the effect of a lawsuit on an on-going project, in Saskatchewan the plaintiff can wait to serve their lawsuit on the defendant(s) for up to six months after it is filed (though the existence of the lawsuit could still be discovered through a courthouse search). This is an option the contractor should discuss with their lawyer.
Caroline J. Smith is a partner at McKercher LLP and member of the CBA Construction and Infrastructure Law section.