Limitation Period (Ontario)

A limitation period is the time within which a person must start a proceeding to enforce a claim. Once it expires, the claim is barred, however strong it is. In Ontario the general rules are in the Limitations Act, 2002, which defines a claim as a claim to remedy an injury, loss or damage that occurred as a result of an act or omission. That covers ordinary business disputes: unpaid invoices, defective goods, a material breach of a services contract, or a false statement in a purchase agreement.

The deadline applies to arbitration as well as to court. Ontario's Arbitration Act, 1991 applies the law of limitation periods to an arbitration as if it were an action, so an arbitration clause does not buy extra time.

The Act sets two clocks that run side by side: a basic two-year period that depends on when the claim was discovered, and an ultimate 15-year period that does not. A claim must satisfy both.

Section 4 provides that, unless the Act says otherwise, a proceeding cannot be started after the second anniversary of the day the claim was discovered. Under section 5, a claim is discovered on the earlier of the day the claimant actually knew, and the day a reasonable person in its circumstances ought to have known, all of the following:

• that the injury, loss or damage had occurred;
• that it was caused or contributed to by an act or omission;
• that the act or omission was that of the person to be sued; and
• that, given the nature of the loss, a proceeding would be an appropriate way to remedy it.

The claimant is presumed to have known these things on the day of the act or omission unless it proves otherwise. For a simple payment default that is usually the due date. For a hidden problem, such as an undisclosed liability found months after a business closes, the clock may start later, but only from when the buyer knew or reasonably ought to have known.

Several rules adjust the start date:

• Demand obligations. For a demand loan or demand promissory note created on or after January 1, 2004, the loss occurs on the first day the debtor fails to pay after a demand is made.
• Acknowledgments. For a claim to a liquidated sum, a written and signed acknowledgment of the debt, or a part payment, made to the creditor before the period expires restarts the clock from that day.
• Mediation or arbitration. If the parties agree to have an independent third party resolve the claim or help resolve it, both limitation periods stop running until the claim is resolved, the process is terminated or a party withdraws from the agreement.

Section 15 sets an outside limit: no proceeding can be started more than 15 years after the day the act or omission on which the claim is based took place, whether or not the claim has been discovered. For a continuous act or omission, the period runs from when it stops; for a series of acts or omissions relating to the same obligation, from the last one.

The ultimate period does not run while the person being sued wilfully conceals the loss or its cause, or wilfully misleads the claimant about whether a proceeding is an appropriate remedy. The claimant bears the burden of proving that concealment.

The starting point in section 22 is that the statutory limitation periods apply despite any agreement to vary or exclude them. The exceptions are narrow and depend on the date and the type of agreement.

A business agreement is one in which none of the parties is a consumer under Ontario's consumer protection legislation, and "vary" includes extend, shorten and suspend. A standstill or tolling agreement, which pauses the clock while the parties negotiate, relies on these rules, as does the time bar often found in a limitation of liability clause.

The Court of Appeal for Ontario held in Boyce v. Co-operators General Insurance Co., 2013 ONCA 298, that a contractual limitation period is effective if it describes a limitation period in clear language, identifies the scope of its application, and excludes the operation of other limitation periods. A one-year deadline buried in an ambiguous clause may not meet that standard.

In a share purchase agreement or asset purchase agreement, the seller's representations and warranties usually survive closing for a fixed time, often 12 to 24 months for general representations and longer for tax and fundamental ones. Because the parties to a business purchase are generally not consumers, a survival clause drafted to meet the Boyce clear-language standard can operate as a contractual limitation period under section 22.

The drafting questions are practical:

• Notice or lawsuit? Say whether the buyer only has to give written notice of a claim within the survival period, or must also start a proceeding, and if so by when.
• Which claims? Set separate periods for tax, title to shares and other fundamental representations, and carve out fraud.
• Third-party claims. Make clear how the period applies when a customer or regulator brings a claim after closing.
• Holdbacks. Align the survival period with the release date of any purchase price holdback or escrow, so the money is still there when claims can be made.

The same discipline applies to everyday commercial contracts. Our contract review checklist flags the clauses that most often shift time and risk between the parties.

Marcus Bell bought all the shares of Bronte HVAC Ltd., an Oakville contractor, from Nadia Petrova for $2.4 million. The deal closed on March 2, 2023. The share purchase agreement said general representations survive for 18 months, that any claim must be made by written notice within that time, and that the buyer must start a proceeding within six months after giving notice. It also stated that these periods replace the periods in the Limitations Act, 2002.

In August 2024, Marcus's controller discovered about $140,000 of supplier rebates that the company had received before closing and had to repay, contrary to the financial statement representation. Without the clause, Marcus would have had two years from discovery, into August 2026. Under the agreement, he had to give notice by September 2, 2024 and sue within six months after that.

His lawyer delivered notice on August 20, 2024 and, when settlement talks stalled, issued a claim in January 2025, inside the contractual deadline. Nadia's lawyer accepted that the clause was clear and that the claim was in time, and the dispute settled for $120,000, paid from the $240,000 holdback.