Issues of non-payment are all-too common in the construction industry. Say a contractor completes a job and delivers a final invoice, and the client does not pay the invoice. This can often lead to discussions between the parties that involve repeated demands for payment by the contractor, and promises to pay by the client. After weeks, months, or sometimes years of not getting paid, the contractor’s mind will often turn to legal action to recover payment for the unpaid invoices. In such a scenario, every contractor should be aware of the time limit within which they can commence an action (aka a lawsuit) for recovery of unpaid invoices.
Limitations Act in Ontario
In Ontario, the deadline to commence an action is typically 2 years from the date on which the claim was “discovered”. This is what’s known as the statutory limitation period. What does that mean?
Under s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (the “Limitations Act”), a proceeding may not be commenced more than two years after the claim is “discovered”. A claim is defined in s. 1 as: a claim to remedy an injury, loss or damage that occurred as a result of an act or omission.[i]
Under s. 5(1)(a) of the Limitations Act, a claim is discovered when the person first knew (or reasonably ought to have known) the following four elements: (i) the occurrence of the injury, loss, or damage, (ii) that it was caused by or contributed to by an act or omission, (iii) that the act or omission was by the defendant, and (iv) based on the nature of the injury, loss, or damage, a proceeding would be an appropriate means to seek a remedy.
Under s. 5(1)(b) of the Limitations Act, a claim is discovered 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 s. 5(1)(a).
Under s. 5(2) of the Limitations Act, a person with a claim shall be presumed to have known of the matters referred to in s. 5(1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.
Determining whether a person has “discovered” a claim is a fact-based analysis. The question to be posed is whether the prospective plaintiff knows enough facts on which to base an allegation of some wrongdoing against the defendant. If the plaintiff does, then the claim has been “discovered”, and the limitation begins to run.[ii]
So then when does a contractor “discover” they have a claim for unpaid invoices?
Limitation Period for Non-Payment of an Invoice
In the case of 1838120 Ontario Inc. v. Township of East Zorra-Tavistock, 2021 ONSC 3341, the Court considered when the limitation period begins to run for a claim based on non-payment of an invoice.
In short, the Court held that the limitation period on an invoice, issued for having supplied goods and services in accordance with a contract, does not commence at the time the goods and services are supplied or at the time the invoice was issued and submitted to the payors. Instead, it commences after (1) a “reasonable” period of time has passed for the invoice to be issued, and (2) a “reasonable” period of time has passed for the invoice to be paid.[iii]
What is “reasonable” is context- and circumstance-dependent and follows the parties’ contract and the parties’ past practices with respect to when invoices were issued and submitted and when payments were made.
In reaching this conclusion, the Court noted that “when an invoice goes unpaid, the sensible thing to do is to commence a dialogue with the defaulting customer in an effort to encourage payment. This is particularly the case when dealing with a repeat customer. The parties might consider a compromise on the amount owed or an extension to the terms of payment. Generally speaking, commencing a lawsuit would be the last resort after other efforts have failed to secure payment. None of those steps, though, would delay the commencement of the limitation period. Once the reasonably delivered invoice goes into default on the reasonable due date, the contractor knows, or should know, that the legally appropriate means to collect that debt, if it remains unpaid, is to commence a proceeding. That does not mean that he would be expected to commence a proceeding right away. It does mean that he would be expected to commence a proceeding within two years from that date.”[iv]
So, consider this hypothetical situation: A contractor completes a job on January 31, 2025 (a Friday). The contractor delivers their final invoice on Monday, February 3, being a “reasonable” period of time for the invoice to be issued. The contractor’s payment terms are Net 28 (in accordance with s. 6.4 of the Construction Act, and being a “reasonable” period of time for the invoice to be paid). On March 4 (day 29), the invoice remains unpaid. The contractor’s limitation period to commence an action for non-payment of the invoice would begin on that date, meaning the deadline to sue would be March 4, 2027.
About the Author:
Ryan Stubbs is a litigator at Soloway Wright LLP with a focus on Civil Litigation and Construction Litigation.
He regularly represents contractors and subcontractors in navigating all manner of complex construction disputes. For construction related inquires, please contact one of our litigation lawyers.
DISCLAIMER: This article is for general information purposes only and is not (and should not be construed as) legal advice. The information contained herein summarizes only certain aspects of the subject matter and is not a comprehensive review of applicable law. All of the foregoing is subject to legal and accounting advice based on the particular circumstances of each potential client.
[i] Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, s. 1.
[ii] Lawless v. Anderson, 2011 ONCA 102, para. 23.
[iii] 1838120 Ontario Inc. v. Township of East Zorra-Tavistock, 2021 ONSC 3341, para. 54.
[iv] Ibid, para. 53.
