March 30th, 2016
Each and every day that a party remains in breach of a continuing obligation in a contract, a new cause of action and corresponding limitation period arises, the Court of Appeal recently held.
In Pickering Square Inc. v. Trillium College Inc., Trillium was a tenant at a shopping centre owned by Pickering Square. As part of the long-term lease it had entered into with Pickering Square, Trillium had agreed to operate its school continuously on the premises. Trillium breached this covenant, as well as other obligations under the lease. Pickering Square commenced an action for damages.
Trillium brought a summary judgment motion and argued that Pickering Square was time-barred under the Limitations Act because it had not commenced its claim within two years of discovering Trillium had breached the obligation to operate its school on a continuous basis on the property, which was October 1, 2008. The motion judge held that while Pickering Square discovered Trillium’s breach on October 1, 2008 the breach was continuous and each day of the breach was a fresh cause of action. As such, only a part of Pickering Square’s claim was time-barred. Trillium appealed.
The Court of Appeal noted three forms of a breach of contract:
- a failure to perform one obligation due at a particular point in time
- a failure to perform an obligation due on a periodic basis
- a breach of a continuing obligation under a contract
In this case, Trillium’s failure to operate its business continuously for the duration of the lease gave rise to the third form of breach of contract. In the face of the breach Pickering Square could have either elected to cancel the lease or affirm it. Pickering Square affirmed the lease and as such Trillium was required to perform its obligations under the lease until it expired.
A fresh cause of action accrued each day Trillium failed to operate its business under the terms of the lease, the court held, triggering a fresh two-year limitation period each day. Pickering Square was entitled to claim damages for the period that ran from two years prior to the commencement of its action up to the date the lease expired.
This decision makes clear that a breach of contract always starts a limitation period, even if the innocent party elects to treat the contract as continuing in force. However, where the breach is a breach of an obligation to perform the contract on a periodic basis, each failure to perform will give rise to a fresh cause of action and corresponding limitation period. Similarly, a breach of a continuing obligation (such as obligation to maintain a continuous state of affairs) will give rise to a fresh cause of action, and corresponding limitation period, on each and every day that the breach continues. The limitation period works on a rolling basis in these cases. Thus the innocent party will begin to lose at least some rights on the second anniversary of the breach, regardless of the nature of the breach.