Inside This Issue
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Ontario: Ontario Court of Appeal’s Guidance on Calculating “Deficiency in the Holdbacks” Under Section 78(2) of the Construction Act: KingSett Mortgage Corporation v. Mapleview Developments Ltd.
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Quebec: Collaborative Contracting Now Permitted for Public Infrastructure Projects in Quebec
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Ontario: Talisman’s “Snowblower”: Ontario Court Rejects Surety’s Attempt to Avoid Performance Bond Liability
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British Columbia: Time at Large in Canada: An Update from CIMIC Morningstar Investments Ltd. v. Chandos Construction Ltd.
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Ontario: The Continuous Act or Omission Exception to the Ultimate Limitation Period
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Ontario: Update: Court of Appeal Overturns Handley Estate
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Editors’ Note
The Legal Update Committee is pleased to bring you our “summer issue”, Legal Update #175 consisting of six articles on legislative and caselaw developments from across Canada.
Andrea Lee provides a thoughtful review of the Ontario Court of Appeal’s decision in KingSett Mortgage Corporation, where the court confirms, in the context of determining priority of lien claimants over mortgagees, that where there are no subcontractor liens and a contractor’s invoices have been paid in full, any deficiency in holdback is calculated based on unpaid invoices only, not the total amount of invoices issued under the contract.
Patrice Morin and his colleagues discuss changes to Quebec’s public procurement and infrastructure delivery methods introduced by Bill 62, which permits collaborative contracting models to be used for public infrastructure projects. This shift from traditional fixed-price contracts toward shared-risk models has been welcomed by many, but it also raises important questions about public procurement rules, properly and accurately estimating and dealing with project contingencies and whether such project delivery models can truly reduce — or eliminate – litigation risk.
Brendan Bowles and Isa Dookie review the Ontario Superior Court of Justice’s decision in Graphic Packaging involving a surety’s denial of a claim under a performance bond. In siding with Graphic and holding the surety to its obligations under the bond, the court made statements that, on their face, appear to apply broadly to surety law in Canada. Brendan and Isa caution, however, that the decision be read carefully and in context, given its unique facts and the fact that it concerns a non-Canadian bond. Even so, sureties may find useful guidance in the court’s discussion of the investigation of bond claims.
Zach Seymour and Morgan Burris highlight an important decision from British Columbia. While an owner was unsuccessful in applying for leave to appeal where a contractor had succeeded in advancing a claim based on the prevention principle and time at large, in obiter dicta the court remarked that where a contractor has failed to with contractual delay notice requirements, they may not be entitled to rely on these principles. The authors note diverging caselaw in Australia and the United Kingdom on this issue and note that while there is not yet a Canadian case directly on point, the court’s obiter analysis in CIMIC Morningstar v Chandos may be of persuasive value.
Paul Ivanoff and Graeme Rotrand review a 2025 Ontario Court of Appeal decision which reversed a motion judge’s decision that an act or omission was ongoing and dismissed an action against a municipality for negligent inspection where construction had taken place more than 15 years ago. The authors review the distinction between Ontario’s basic two-year limitation period, which is premised on discoverability, and the 15-year “ultimate” limitation period which is premised more on the need for certainty and finality. The authors note that true “ongoing actionable conduct” is rare and where construction defects occurred more than 15 years prior an action based on those defects is likely to be dismissed. The authors also observe that cases dealing with Ontario’s ultimate limitation period are likely to become more prevalent, as it was only as of January 1, 2019, that this defence became applicable.
Finally, we conclude with an update from Legal Update #174 on the status of the law surrounding partial settlements in Ontario. Brendan Bowles and Robyn Jeffries provide their comments on the Ontario Court of Appeal’s decision overturning Handley Estate. This is an important and much welcomed development in the law regarding disclosure of partial settlement agreements in Ontario. Complex construction disputes can lend themselves to partial settlements, and although Handley Estate—and its draconian remedy—no longer applies, construction lawyers practising in Ontario should remain mindful of the applicable disclosure rules and their related obligations.
We look forward to bringing you our next issue this fall and in the meantime would welcome your submissions of relevant legislative or case updates to Catriona.Otto@RoseLLP.com, or brendanbowles@glaholt.com.
Ontario Court of Appeal’s Guidance on Calculating “Deficiency in the Holdbacks” Under Section 78(2) of the Construction Act: KingSett Mortgage Corporation v. Mapleview Developments Ltd.
On July 13, 2026, the Ontario Court of Appeal released its decision in KingSett Mortgage Corporation v. Mapleview Developments Ltd.,1 providing appellate guidance on a question of practical importance in construction claims: how should deficiency in the holdbacks under section 78(2) of the Construction Act be calculated in a priority dispute between a lien claimant and a mortgagee?
The Court of Appeal confirmed that, where there are no subcontractor lien claims at the time of the dispute and a payer has fully paid a contractor’s invoices, there can be no deficiency in holdback related to services and materials for which payment was received. Any deficiency in holdback is therefore calculated based on unpaid invoices only, not 10% of total invoices rendered under the contract.
The ruling is a comprehensive review by the Court of Appeal of holdback and priority rules in the context of insolvency proceedings and has significant implications for owners, contractors and financing parties.
Background and Facts
Mapleview Developments Ltd. (“Mapleview”) was the developer of a residential townhouse project in Barrie, Ontario. Alpa Stairs and Railings Inc. (“Alpa”) and Newmar Window Manufacturing Inc. (“Newmar”) were contractors retained directly by Mapleview. There were no subcontractors involved.
Mapleview defaulted on its obligations to its senior secured lender, KingSett Mortgage Corporation (“KingSett”). A receiver was appointed and conducted a sales process in respect of the project. Cavanagh J. issued a Sale Approval, Vesting and Ancillary Matters Order (“AVO”) on August 16, 2024, approving the sale to Dunsire Homes Inc. (“Dunsire”). The purchase price was to be sufficient to repay KingSett in full, plus amounts secured by charges ranking in priority to those held by KingSett and “Priority Payables” defined as including amounts having priority under s. 78(2) of the Construction Act.
Section 78(2) of the Construction Act provides:
(2) Where a mortgagee takes a mortgage with the intention to secure the financing of an improvement, the liens arising from the improvement have priority over that mortgage, and any mortgage taken out to repay that mortgage, to the extent of any deficiency in the holdbacks required to be retained by the owner under Part IV, irrespective of when that mortgage, or the mortgage taken out to repay it, is registered.
Alpa had invoiced $1,100,604.80 in total, of which $195,615.55 remained owing. Newmar had invoiced $2,924,385.76, with $445,756.09 outstanding. Both contractors had preserved and perfected construction liens. The Agreed Statement of Facts confirmed that no person other than the appellants (i.e. no subcontractors) had a lien claim in respect of either appellant’s holdback.
Cavanagh J. had previously held that KingSett’s mortgage had priority over all construction liens, except to the extent of any deficiency in the required holdbacks.2 This was not in dispute. However, the lien claimants and Dunsire could not agree on the quantum of the deficiency in holdback.
Steele J. heard the motion to determine the issue. Following the reasoning in Dufferin Concrete Products v. Waterbrooke Development Ltd.,3 Steele J. concluded that once a contractor’s invoices are paid in full, that contractor is not entitled to any priority for any holdback in respect of those invoices that the owner failed to retain, as this would amount to double recovery. A contractor in that situation is entitled to a holdback only for unpaid invoices, not all invoices relating to services or materials supplied under the contract.
The Issue on Appeal
Alpa and Newmar appealed, arguing that Dufferin Concrete and accordingly Steele J.’s decision were wrongly decided.
The central question on appeal was whether the “deficiency in the holdbacks” under s. 78(2) should be calculated as 10% of total invoices rendered under the contract, as submitted by the appellants, or 10% of unpaid invoices only, as argued by the respondent Dunsire.
Writing for a unanimous panel, Osborne J.A. first outlined the relevant holdback rules prescribed by the Construction Act. Section 22 of the Act establishes that a payer has an obligation to retain holdback equal to 10% of the price of the services or materials as they are actually supplied under the contract or subcontract until all liens have expired or been satisfied, discharged or otherwise provided for under the Act. Further, this obligation applies irrespective of whether the contract or subcontract provides for partial payments, as occurred in this case, or payment in full on completion.
Osborne J.A. then reviewed that under s. 14(1) of the Construction Act, a person who supplies services or materials to an improvement has a lien for the price of supplied services or materials.
Accordingly, the assessment of “deficiency in the holdbacks” under s. 78(2) requires consideration of two factors: (1) whether any liens may be claimed against the holdback at the time of the priority dispute, and (2) if so, whether those liens have been satisfied.
Here, both appellants rendered periodic invoices to the owner. Mapleview initially paid invoices to both appellants in full, failing to deduct the 10% holdback for some, but not all, invoices.
Osborne J.A. found that where an invoice has been paid in full and there is no other lien claimant, such as a subcontractor, who could claim against the holdback related to that invoice, there is no deficiency in holdback.
The Court agreed with the respondent that any deficiency in the required holdbacks for the purposes of a priority dispute under s. 78(2) of the Act must account for full payments already made to the lien claimants.
Osborne J.A. further held that, even if he was incorrect or the provisions of the Act were ambiguous, purposive interpretation principles supported the same result, citing Telus Communications Inc. v. Federation of Canadian Municipalities,4 Rizzo & Rizzo Shoes Ltd. (Re),5 and Bell ExpressVu Limited Partnership v. Rex.6 Accepting the appellants’ interpretation would produce a commercially absurd result in the context of a priority dispute. The contractor would effectively receive the same 10% holdback twice: once when the owner paid the invoice in full without retaining a holdback, and again through priority over the mortgagee. This is not only unfair to the mortgagee, but also to the owner’s other creditors to the extent that 10% is both paid directly to the contractor and also accounted for as part of the “deficiency in the holdbacks” benefiting the same contractor.
The Court invoked the longstanding principle that premature payment of a holdback cannot give a lien claimant a greater right than if the owner had properly retained the holdback, relying on Brooks v. Mundy7 and Otis Elevator Co. Ltd. v. Commonwealth Holiday Inns of Canada Ltd.8 The Construction Act is remedial legislation, but it balances the interests of owners, contractors, subcontractors and mortgagees. It is not intended to categorically favour lien claimants at the expense of other stakeholders.9
An Important Limitation
The Court emphasized that it was “a critically important fact” that there were no subcontractor lien claims at the time of the priority dispute. Osborne J.A. stated that the result might be “very different” if subcontractor lien claimants were present, and that nothing in the decision should be taken as endorsing Dufferin Concrete’s approach where such parties are involved.
This reservation leaves open the analysis of quantum in multi-tiered contracting structures where subcontractors are unpaid and preserve and perfect liens.
Practical Implications of KingSett Mortgage v. Mapleview
This decision has practical consequences for participants in construction projects and insolvency proceedings.
For mortgagees and other creditors, the appellate court’s decision provides certainty in a priority dispute with a direct contractor where no subcontractor liens exist. In this circumstance, the building mortgagee’s exposure under s. 78(2) of the Act will be limited to 10% of amounts outstanding, not the full value of all work performed.
In addition, while owners should be cautious about retaining holdback or risk liability under Part IV of the Act, the ruling confirms that progress payments which inadvertently omit holdback retention do not create a windfall or double-recovery for the contractor at the expense of mortgagees or other creditors.
Contractor lien claimants now have more clarity as to their priority over a building mortgage under s. 78(2), where there are no subcontractor liens, which underscores the importance of timely lien preservation and perfection.
Finally, for parties involved in construction-related insolvencies, the decision will directly inform the quantification of reserves for lien claimants and “Priority Payables” in sale approval and vesting orders in scenarios where there are no subcontractor lien claims.
The decision of the Ontario Court of Appeal provides a principled and commercially sensible resolution of priority issues in the circumstances, grounded in the purpose of the Construction Act.
1 2026 ONCA 512
2 2024 ONSC 6477
3 (1992), 8 C.L.R. (2d) 132 (Ont. Gen. Div.)
4 2025 SCC 15
5 [1998] 1 S.C.R. 27
6 2002 SCC 42
7 (1914), 16 D.L.R. 119 (Ont. C.A.)
8 (1972), 2 O.R. 536 (Ont. Co. Ct.)
9 BCIMC Construction Fund Corp. v. 33 Yorkville Residences Inc., 2022 ONSC 2326, aff’d 2023 ONCA 1
Collaborative Contracting Now Permitted for Public Infrastructure Projects in Quebec
The Act mainly to diversify the acquisition strategies of public bodies and to offer them greater agility in carrying out infrastructure projects (also referred to as “Bill 62”) represents a significant reform of Quebec’s public procurement and infrastructure delivery framework. Adopted in 2024, the legislation addresses long-standing structural challenges affecting public infrastructure projects, including declining market participation and the proliferation of litigation arising from excessive risk transfer to private contractors.
Prior to the implementation of Bill 62, Quebec public construction contracts relied primarily on conventional fixed-price models that shifted most of the project risks to contractors. This approach led bidders to price uncertainty through substantial contingency margins, reducing competitiveness and discouraging participation. It also fostered adversarial project management practices, as contractors attempted to mitigate exposure by challenging contract changes, often culminating in litigation.
Through Bill 62, the legislature introduced a shift towards collaboration, flexibility and shared risk by creating a new contractual instrument: the Partnership contract. This model promotes negotiated and transparent allocation of risks, frequently relying on open-book financial mechanisms. By aligning risks with the parties best positioned to manage them, the Partnership contract aims to reduce disputes while improving cost predictability, budget reliability and schedule performance.
Bill 62 abolishes the former public-private partnership (PPP) regime under the Act respecting contracting by public bodies (LCOP). That regime, which was not available to municipalities, required private partners to assume responsibility for design, construction, financing and long-term operation. The new partnership contract regime is more adaptable, allowing responsibilities to be shared without mandatory private operation, and tailored to the specific needs of each project.
Collaborative contracting was also formally integrated into Quebec’s municipal procurement framework as of 1 April 2026, when the Act respecting contracting by municipal bodies (LCOM) came into force. The LCOM introduces the Partnership contract as a structuring legal instrument for municipalities, substantially expanding a contractual toolkit that had long been limited to awarding contracts to the lowest bidder under conventional models.
Under the new legislation, a Partnership Contract is an agreement under which a public body collaborates with a contractor in the design and construction of an infrastructure project, and potentially with additional responsibilities such as financing, maintenance or operation. The hallmark of this type of contract is its collaborative framework, which may be implemented either during the procurement phase or following the award process.
Chapter V of the LCOP authorizes multi-stage procurement processes, including structured dialogue with shortlisted proponents and negotiations intended to refine technical, financial or contractual elements, provided that the fundamental parameters of the call for tenders are preserved. Collaboration may also involve pooling resources and project information, as well as consensual sharing of risks, savings, gains or losses over the contract’s life cycle. This framework facilitates early contractor involvement and allows project solutions to evolve collaboratively before final contract execution.
The legislation grants public bodies considerable discretion to design collaborative mechanisms suited to specific project contexts. This flexibility enables the use of modern delivery models such as Integrated Project Delivery (IPD), progressive design-build, and alliance contracting.
Although the reform has generally been welcomed, concerns have been raised regarding the introduction of such flexibility into public contracting structures. Concerns have been raised that the discussions, workshops, and iterative design processes inherent in collaborative models could enable contractors to influence or modify contractual conditions established through the procurement process, potentially undermining fairness among proponents or conflicting with public procurement rules.
In response, Bill 62 strengthens oversight and integrity mechanisms by expanding the investigatory powers of the Autorité des marchés publics (AMP). The AMP may now scrutinize not only current stakeholders but also former directors, officers, shareholders and related third parties. In principle, these enhanced powers should help mitigate the risk of legal challenges based on alleged favouritism or non-compliance with public governance requirements.
Nevertheless, it remains uncertain whether such oversight will be sufficient to eliminate litigation risks altogether. Unsuccessful bidders or oversight bodies may still dispute whether a project genuinely satisfies the statutory criteria for a Partnership contract, particularly where extensive dialogue, qualitative evaluation or procedural flexibility has been employed.
At both the provincial and municipal levels, collaborative projects also introduce litigation risks stemming from the novelty and complexity of the partnership contract regime. Shared governance structures, negotiated risk-sharing arrangements and open-book financial models may blur traditional lines of responsibility among public bodies, contractors and professional service providers, raising complex issues of accountability during project execution.
The implementation of collaborative delivery models also necessitates a parallel shift in public-sector financing practices, as sufficient financial flexibility is required to accommodate the adaptive nature of these contracts. Underfinancing or underestimation of contingencies may negate the benefits of collaboration and undermine the relevance of using such models in the first place.
Finally, despite the proven success of collaborative approaches in many contexts, the risk remains that particularly complex or troubled projects may render collaboration impracticable. In such circumstances, parties may attempt to challenge the enforceability of “no-fault” clauses or invoke breaches of the duty of good faith in order to disengage from an unsustainable contractual relationship
In this transitional environment, early collaborative projects will likely serve as legal and institutional test cases in Quebec. While collaborative models may reduce traditional construction litigation, the need for robust governance frameworks, precise contractual drafting, and sustained legal oversight will remain essential.
Talisman’s “Snowblower”: Ontario Court Rejects Surety’s Attempt to Avoid Performance Bond Liability
The Ontario Superior Court of Justice opined on the purpose of a performance bond and the scope of a surety’s duties in investigating a claim in Graphic Packaging International Canada, ULC v. 2477621 Ontario Inc. and Talisman Casualty Insurance Company, 2025 ONSC 7210.
Background
The case arose from a Quebec project but was litigated in Ontario. Graphic Packaging International Canada, ULC (“Graphic”) sold a contaminated former paper mill in Jonquière, Quebec to 2477621 Ontario Inc. (“247”).
Although Graphic sold the property, Quebec environmental law still required Graphic, as the last operator, to complete the site rehabilitation. Under the Agreement of Purchase and Sale, 247 assumed responsibility for demolishing the mill structures and provided a $2 million performance bond from Talisman Casualty Insurance Company (“Talisman”) naming Graphic as the obligee. The APS required 247 to provide a demolition scope of work within 30 days and complete the demolition within 24 months. It did neither.
247’s default had immediate consequences. Demolition was the first stage of the rehabilitation process. Without it, Graphic could not properly advance the cleanup, and the Quebec regulator began increasing pressure on Graphic to act. Graphic therefore turned to the bond for the protection it had bargained for.
Talisman’s response
Graphic notified Talisman that it was considering declaring contractor default and requested the conference contemplated by the bond. Talisman did not respond.
Graphic later declared 247 in default and notified Talisman of its principal’s default. Talisman responded with a broad request for documents and later denied liability on multiple grounds, including alleged owner default, deficiencies in the default notice, failure to satisfy the “Balance of the Contract Price” requirement, prejudice, and variation of the bonded contract.
The Court’s response
Under pressure from the Ministry to complete the cleanup and faced with 247’s delays and Talisman’s denial, Graphic took matters into its own hands. It obtained injunctive relief, retook possession of the paper mill property, hired its consultants and contractors to carry out the work remaining under 247’s contract, and then brought an action against 247 and Talisman in Ontario under the bond. In that action, Graphic moved for summary judgment to enforce its claim against 247 for the expenses and against Talisman for breach of the performance bond.
The court was unimpressed with Talisman’s response. In particular, it held that Talisman’s document request was unsupported by the wording of the performance bond, describing it as “a snowblower approach” to bury Graphic in a document and data request resembling a documentary discovery request in litigation. The request for a long list of largely irrelevant documents, the court said, telegraphed an intention to renege on its performance bond, and concluded that, instead of honouring its obligations, Talisman had chosen “inaction, obstruction, and ultimately an illogical statement of denial of liability.”
Talisman unsuccessfully alleged as follows:
- Graphic failed to satisfy the conditions precedent to Talisman’s obligation. The court disagreed, holding that Graphic was not in default, and that it provided the requisite notices to the surety required by the bond. The court also construed correspondence by Graphic that it was retaining a demolition contractor as fulfilling the requirement under the bond to agree to pay the balance of the contract price to Talisman or a selected contractor.
- Graphic’s conduct prejudiced Talisman’s rights under the bond by failing to provide the requested documents and retaining a contractor and arranging to perform the work without Talisman’s consent, among other things. However, the court held that the bond contained no right to ask for the information or documents in Talisman’s request; it did contain a right to a meeting, but Talisman did not respond to Graphic’s request for one. As for moving ahead without Talisman’s consent, the court held that Talisman’s history of tardy or counterproductive responses meant that Graphic’s actions were reasonable.
- Graphic materially varied the contract to Talisman’s detriment without Talisman’s consent by providing 247 with periods of grace. The court held that allowing the contractor more time to perform the work could not prejudice Talisman. By providing Talisman timely notice of 247’s delay and anticipatory notice of Graphic’s intention to declare a default, Graphic provided Talisman with ample opportunity to engage with 247 and make plans to substitute 247.
The court held that the cost of demolition exceeded the limits of the $2 million bond. It held Talisman to be liable to Graphic under the performance bond up to $2 million and the balance of damages remained recoverable against 247.
Analysis
Arguably Graphic Packaging should be read carefully because it involved a bespoke non-Canadian bond and contains several generalized statements about surety law that may go too far.
In our view, that caution is fair, but only up to a point.
Indeed, the decision should not be read as holding that a surety has no meaningful right to request information or documents unless the bond expressly grants one. Read broadly, some passages of the judgment could be taken that way, and that would sit uneasily with established surety practice. But the better reading of the case is narrower. The real problem was not that Talisman investigated. The problem was that the court viewed the investigation as inadequate. The surety’s investigation amounted to a request for documents that the court found was overbroad, largely irrelevant, and deployed in place of meaningful action while the obligee was under mounting regulatory pressure. On that narrower reading, the criticism is fair as a doctrinal caution, but it does not undercut the result on these facts.
Likewise, as a general proposition, it is too broad to say that giving the contractor more time “cannot” prejudice a surety. In some cases, extensions or indulgences may materially alter the surety’s risk. The safer reading is that, on these facts, the indulgences given to 247 did not prejudice Talisman because 247 was already in obvious default, Talisman had early notice of that default, and the extra time simply gave the contractor another chance to do what it should have done from the outset.
Such critiques are fair as cautions against overreading the judgment, but not fair if they are taken to diminish the force of the decision on its facts. This was not a marginal case. The contractor had not delivered the required scope of work, had not completed the demolition, and had not meaningfully started the work within the contractual timeframe. Talisman received repeated notices, did not respond to the requested conference, made an overbroad document demand, advanced a late and unsuccessful owner-default theory, and ultimately denied liability on grounds the court found unpersuasive. Graphic Packaging stands on its facts but should be read with caution considering some of those facts are unique. With that qualification, sureties would do well to ensure that a timely, targeted and meaningful investigation is undertaken, and avoid the “snowblower” approach.
Time at Large in Canada: An Update from CIMIC Morningstar Investments Ltd. v. Chandos Construction Ltd.
Introduction
In the 2011 article Time at Large in Canada,1 authors Christopher O’Connor, K.C. and Dirk Laudan reviewed the law in Canada regarding the prevention principle and time at large. The prevention principle states that a party cannot insist on the performance of a contractual obligation if that party prevented its counterparty from performing the obligation. In the construction context, the prevention principle means that an owner cannot enforce a contractual completion date against a contractor if it caused critical delay and failed to grant a corresponding extension of time. In this scenario, the time to complete the contract is put “at large”, which means the contractor must only complete the contract within a reasonable time, and any obligations associated with the contractual completion date, such as liquidated damages, are rendered inoperable.
One of the issues considered by the authors in Time at Large was whether a contractor can rely on the prevention principle to put time at large if the contractor failed to give notice of the delay or request an extension within the time required by the contract. At the time of the article, the issue had yet to be addressed in Canada, but courts in Australia and England had reached opposite conclusions on the matter. In the Australian case, the prevention principle was found to apply on the basis that allowing otherwise would “‘result in an entirely unmeritorious award of liquidated damages for delays of [the owner’s] own making,’ in addition to avoiding a claim by the contractor for delay.”2 In England, the court expressly elected not to follow the Australian line of authority, finding that the subcontractor’s failure to seek an extension of time was its own fault.3
Nearly 20 years later, in CIMIC Morningstar Investments Ltd. v. Chandos Construction Ltd.4, the British Columbia Court of Appeal was asked to confirm that under Canadian law, the prevention principle does not apply where a contract allows a contractor to seek an extension of time, and the contractor failed to do so within the time required. In reasons that arguably were made in obiter, the Court agreed that where a contractor fails to meet the relevant notice requirements, the prevention principle may be ousted so as to preserve the owner’s right to liquidated damages.5
Facts and Background
The Court’s decision in CIMIC was made in response to an application by the owner for leave to appeal an arbitration award of approximately $7 million in damages in favour of the contractor for delays in the design and construction of a four-storey building. At the arbitration, both parties claimed damages against the other for delay. The arbitrator sided with the contractor, finding that the delay was caused by the owner, and that the contractor had delivered notice of the delay within the time required by the parties’ fixed price contract. The arbitrator found that the owner’s failure to grant the contractor an extension of time triggered the prevention principle, that time had been put at large, and that the owner was not entitled to enforce the liquidated damages clause in the contract.6
The Proposed Grounds of Appeal
In British Columbia, an arbitration award may only be appealed with the consent of the parties or leave of the Court of Appeal, which requires the appellant to satisfy the Court that, among other things, the appeal is on a question of law.7 Errors of fact or mixed fact and law are not subject to appeal.
In support of its application for leave, the owner argued that the arbitrator’s errors in law included her application of the contract notice requirements, and her decision to apply the prevention principle when the contractor had failed to successfully engage the extension provision included in the contract.8 The owner acknowledged that the latter ground of appeal could only succeed if the arbitrator’s finding that the contractor complied with the notice requirements was overturned on appeal.
The Court’s Reasons
The Court found that none of the grounds of appeal advanced by the owner raised questions of law, and that the application must be dismissed on that basis.9
In reaching this conclusion, the Court held that the arbitrator’s finding that the contractor was entitled to an extension of time pursuant to the contract was a finding of mixed fact and law, which is not subject to appeal. Although this arguably made it unnecessary for the Court to address the owner’s argument that the arbitrator erred in applying the prevention principle, the Court nevertheless engaged in a thorough analysis of the law, and delivered the following pronouncements:
- the prevention principle may not apply where there is an extension of time clause, depending on the interpretation of the clause and the application of that clause to the facts at issue; and
- where a contractor fails to meet the notice requirements applicable to its claim for an extension of time, or where an owner grants an extension of time for the owner-caused delay, the prevention principle may be ousted so that time will not be put at large.10
Takeaways
It does not appear that either of the relevant Australian or English cases was brought to the Court’s attention, and it’s unlikely that a future court would consider itself bound by the Court’s comments in CIMIC if asked to apply the prevention principle to a case where the contractor had in fact failed to seek an extension of time within the time required by the contract. However, the decision suggests a contractor in this position may have an uphill battle convincing the court that its failure to provide notice should not oust the prevention principle.
If the law is applied as proposed by CIMIC, there could be severe implications for a contractor who has failed to comply with the notice requirements for obtaining an extension of time on a project that has gone past its contractual completion date. In addition to losing the right to recover damages for the delay, the loss of the “time at large” remedy means the contractor could be held liable to the owner for liquidated damages even if the delays were caused by the owner. Similarly, if the owner has the right to terminate the contract for the contractor’s failure to meet the completion date, the contractor may lose the ability to argue that such termination was wrongful because time was put at large due to the owner’s interference.
The potential implications of the Court’s statements in CIMIC underscore the importance of contractors complying with their contractual notice requirements and highlight a potential gap in how delay risk is allocated in construction contracts.
1 2011 J. Can. C. Construction Law. 71.
2 Ibid. at 79 citing Gaymark Investments Pty Ltd. v. Walter Construction Group Ltd., NTSC 143, Adj LR 12/20 at para. 69.
3 Ibid citing Multiplex Constructions (UK) Ltd. v. Honeywell Control Systems Ltd., [2007] EWHC 447 (TCC).
4 2026 BCCA 2 [CIMIC].
5 CIMIC at para. 69.
6 CIMIC at paras. 11 and 43.
7 Arbitration Act, S.B.C. 2020, c. 2, s. 59; CIMIC at para. 13.
8 CIMIC at para. 51.
9 CIMIC at para. 60.
10 CIMIC at para. 69.
The Continuous Act or Omission Exception to the Ultimate Limitation Period
The Limitations Act, 2002, S.O. 2002, c. 24 (the “Act”) creates two distinct limitation periods: the 2-year “basic limitation period” and the 15-year “ultimate limitation period”. The two limitation periods operate based on different principles: the basic limitation period is predicated on the discoverability of the impugned act or omission, while the ultimate limitation period is predicated on the date on which the impugned act or omission occurs. Certain exceptions to the operation of the ultimate limitation period are provided for under the statute. One such exception is the “continuous act or omission” exception. Though provided for by statute, a recent decision of the Ontario Court of Appeal in Huether v. Sharpe suggests that the applicability of this particular exception may be “uncommon” and reserved for situations of “repetition of actionable conduct on a continuous basis.”.1
The evolution of limitation periods in Ontario
The Act came into force on January 1, 2004, introducing wholescale reforms to the law of limitation periods in Ontario with the goal of creating: “a clear and cohesive scheme for addressing limitation issues, one that balances the plaintiff’s right to sue with the defendant’s need for certainty and finality”.2
Among the Act’s most important and wide-ranging reforms was the introduction of an ultimate limitation period into the law of Ontario. Prior to January 1, 2004, the limitation periods for claims in Ontario were subject to the common law rule of discoverability, exposing defendants to potential indefinite liability, particularly in cases of latent defects. The discoverability principle was maintained for the basic limitation period codified at section 4 of the Act. An ultimate limitation period predicated on the date on which the impugned act or omission occurred, not its discoverability by the plaintiff, was introduced at section 15(2):
The 15-year ultimate limitation period was, however, made subject to a number of exceptions; including the stipulation at section 15(6)(a) that in the case of a “continuous act or omission”, the act or omission takes place “on the day on which the act or omission ceases”.
The Act also contains transitional provisions at section 24, providing that where a claim is not discovered until after January 1, 2004, but the act or omission took place before that date, the ultimate limitation period of 15-years began to run as if the act or omission had taken place on January 1, 2004.3 Accordingly, the limitation period for all claims undiscovered as of January 1, 2004, expired on January 1, 2019 – unless saved by one of the exceptions. Unsurprisingly given this chronology, pronouncements from our courts concerning the ultimate limitation period and its exceptions have been somewhat limited but are becoming more frequent in recent years.
Huether v. Sharpe: exceptions to the ultimate limitation period
Recently in Huether v. Sharpe, the Ontario Court of Appeal considered the “continuous act or omission” exception to the ultimate limitation period in the context of latent building defects. At issue was the construction of a dwelling some forty-years previously, between 1986 and 1987, in the Township of McMurrich Monteith (the “Township“). The homeowner respondents purchased the dwelling in 2021 and shortly thereafter discovered significant defects in the dwelling’s foundation and sued the Township, alleging negligence in supervising the construction of the dwelling and failing to conduct further inspections. The Township sought summary judgment, relying on the ultimate limitation period having expired.
At issue before the Court of Appeal was whether the Township’s alleged negligence constituted a “continuous act or omission” which had not yet ceased within the meaning of section 15(6)(a) of the Act. If yes, then the act or omission on which the respondents’ claim was based would not yet have occurred, and the ultimate limitation period in section 15(2) of the Act would not yet have begun running. If no, then pursuant to the transitional provisions, the ultimate limitation period in s. 15(2) would have commenced running on January 1, 2004, and expired 15 years later, on January 1, 2019, rendering the respondents’ action statute barred. The Court of Appeal concluded the action was barred by the ultimate limitation period, unanimously reversing the motion judge’s conclusion that the Township’s alleged negligence was ongoing and continuous.
Applying the modern approach to statutory interpretation, the Court first considered the purpose of the ultimate limitation period. Relying on the words of Attorney General Bryant when introducing the Act, the Court concluded the ultimate limitation period had specifically been created to address the mischief of legal proceedings being brought in respect of hidden or latent defects discovered many decades later.4 More generally, the Court identified the following overall purposes of the ultimate limitation period:
- avoiding costs related to record-keeping and insurance due to continuous exposure to liability;
- addressing evidentiary concerns arising from deceased or missing witnesses or records that might have been destroyed by fires, floods, or other intervening events;
- recognizing that memories fade and even where a witness is available their ability to recall events that took place many decades in the past will be limited; and
- serving the public interest in bringing an end to litigation and the revisiting of past errors.5
Second, the Court considered the concept of a “continuous act or omission”, which was said to be a long-standing principle of procedural and limitations law in Ontario as well as other common law jurisdictions. Following a review of case-law on that concept dating back to the 19th century, the Court concluded that: “In essence, the term is used to describe causes of action that accrue from repeating actionable conduct. Because each repetition of the actionable conduct is identical and occurs continuously, it founds a new and discrete cause of action.”6 The Court stated that the Legislature had created the exception because in such a scenario, concerns over stale evidence are mitigated by the fact that the evidence will have continually renewed itself with the defendants’ repetitive conduct, and because there was no obligation to provide defendants with repose for wrongful conduct which just stopped.7 However, the Court noted that continuing causes of action “are uncommon”. Actionable conduct is not continuing merely because it can be rectified or because the harm it causes is either continuing or delayed. Rather, a continuous act or omission required a succession or repetition of separate acts of the same character.8
Finally, the Court concluded the motion judge had erred by characterizing the alleged negligence of the Township as a “continuing act or omission”, where no successive or repetitive conduct was pleaded or otherwise identified. The Court noted that, to the contrary, the record was clear that from at least 1988 onward, the Township ceased to have any role or involvement with the construction of the dwelling. Any alleged negligence on the part of the Township was accordingly complete by 1988 and “absolutely nothing happened” thereafter.9 The case was also not a situation of repeating actionable conduct mitigating concerns over stale evidence – to the contrary, the Court found the action was a classic illustration of the difficulties associated with belated litigation, given that all the individuals directly involved in the construction of the dwelling were now deceased. The Court stated that the practical effect of the motion judge’s reasoning was to effectively have no limitation period applicable to proceedings in respect of latent defects, a result directly contrary to Attorney General Bryant’s stated intention to preclude such litigation.10
Takeaways
Litigation on the ultimate limitation period is likely to become more prevalent, and Huether v. Sharpe serves as a reminder of the ultimate limitation period and its statutory exceptions. Unlike the basic limitation period, the ultimate limitation period is not predicated on concepts of discoverability by the plaintiff but instead prioritizes the defendant’s need for certainty and finality. As noted by the Court, by introducing ultimate limitation periods, the Ontario Legislature sought to do away with the specter of continuous exposure to liability for defendants, particularly in the case of latent defects which may not manifest for decades. In Huether v. Sharpe, the Court of Appeal for Ontario recognized the existence of certain exceptions and held that to extend the ultimate limitation period beyond 15-years based on a “continuous act or omission”, there must be repeating actionable conduct. In this case, no such actionable conduct was present.
1 2025 ONCA 140, leave to appeal to SCC ref’d 2025 CarswellOnt 19173, at paras. 42 and 55 (“Huether”).
2 Canaccord Capital Corp. v. Roscoe, 2013 ONCA 378, 115 O.R. (3d) 641, at para. 17.
3 York Condominium Corporation No. 382 v. Jay-M Holdings Limited, 2007 ONCA 49, leave to appeal to SCC ref’d 2007 CanLII 37188.
4 Huether, para. 34.
5 Huether, para. 35.
6 Huether, para. 39.
7 Huether, para. 36.
8 Huether, paras. 42-43.
9 Huether, para. 46.
10 Huether, paras. 50-52.
Update: Court of Appeal Overturns Handley Estate
In Legal Update #174 we summarized Ontario’s new approach to partial settlement disclosure as codified by Rule 49.14 of the Rules of Civil Procedure. At the time of publication, a gap remained in the case law as to whether the automatic stay of proceedings continued to be a default remedy if a partial settlement that entirely changes the adversarial landscape is not disclosed in a timely manner. We noted that the issue of whether the Handley remedy remained mandatory in such circumstances was heard by a five-judge panel at the Ontario Court of Appeal in 1086289 Ontario Inc., operating as Urban Electrical Contractors v. The Corporation of the City of Welland on October 24, 2025. That decision has now been released.
In a unanimous decision authored by a five-judge panel (Tulloch C.J.O., Lauwers, Sossin, Wilson, and Pomerance JJ.A.), the Court overruled Handley Estate v. DTE Industries Limited, 2018 ONCA 324, and restored the application of ordinary abuse of process principles to cases involving the non-disclosure of partial settlement agreements.
The Court held that Handley Estate was wrongly decided because it departed from the fundamental principles governing the abuse of process doctrine. At its core, the doctrine has always required a contextual and discretionary assessment of whether the impugned conduct results in unfairness, prejudice, oppression, or otherwise undermines the integrity of the administration of justice. In other words, abuse of process is “characterized by its flexibility”. The Handley Estate rule, by contrast, mandated both a finding of abuse of process and the imposition of the most severe remedy, a stay of proceedings, without regard to the circumstances of the case. As the Court put it: “The time has come to exchange the Handley axe for a more precise scalpel, that can better achieve justice in individual cases.”
The decision resolves several questions raised in our article published in Legal Update #174. First, Handley Estate no longer applies in any circumstances including, critically, for partial settlements that pre-date Rule 49.14. The holding in Smialek that Handley continues to apply to partial settlements that “change the adversarial landscape” where Rule 49.14 does not apply is no longer good law. The Court specifically addressed and rejected the view expressed in Smialek that Handley Estate still applies to certain kinds of partial settlement agreements notwithstanding Rule 49.14. In fact, the Court found that the issue of retrospectivity falls away entirely because Rule 49.14 and the common law are now consistent, absent Handley.
Second, the Court confirmed that Rule 49.14 reflects and reinforces the discretionary and proportionate approach that properly governs this area. The rule clarifies the scope and timing of disclosure obligations and provides for a range of remedial responses, thereby avoiding the rigid consequences associated with Handley Estate. However, a breach of Rule 49.14 does not, in and of itself, mandate a finding of abuse of process or the imposition of any particular remedy. Rather, under Rule 49.14, both the finding of an abuse of process and the resulting remedy remain in the discretion of the judge.
Third, under the new framework, the determination of whether there has been an abuse of process, and the selection of an appropriate remedy, are matters for the informed discretion of the court, to be exercised after considering all the relevant circumstances. These include the nature of the non-disclosure, its timing, its effect on the litigation, and any resulting prejudice or harm to parties or to the administration of justice. A stay of proceedings remains available as a remedy, but only in “the clearest of cases,” where the prejudice to a party or to the integrity of the judicial process is such that no lesser remedy would suffice. This approach is in line with the broader abuse of process doctrine.
Fourth, the Court clarified the appellate jurisdiction over partial settlement disclosure disputes going forward. Orders granting a stay of proceedings are final and appealable to the Court of Appeal. Orders imposing remedies short of a stay, as well as orders declining to grant a stay in this context, are generally interlocutory and appealable to the Divisional Court, with leave.
The Court applied its new framework to four grouped appeals, reaching different results depending on the circumstances. These individual cases will be instructive in how similar circumstances will be dealt in future cases.
In Welland, where the motion judge had denied a stay under the old framework, the Court allowed the appeal and remitted the motion for a fresh hearing under the new abuse of process principles.
In Evertz, the Court dismissed the appeal and upheld the stay because the motion judge’s findings of fact supported a conclusion that the non-disclosing party had repeatedly misled both the opposing party and the court, warranting the most severe remedy. It is noteworthy that while Handley Estate is no longer good law, there will be cases where the breach of Rule 49.14 is so serious that a stay is appropriate.
In Howran, the Court dismissed the appeal, finding no abuse of process where the non-settling party suffered no prejudice or unfairness.
In Thrive, the Court allowed the appeal and set aside the stay, remitting the matter for a discretionary assessment of remedy, because the motion judge had expressly stated she would not have imposed a stay had she not been bound by the mandatory Handley Estate rule.
The practical significance of this decision cannot be overstated. The automatic stay—long feared by plaintiffs who made inadvertent or minor errors in disclosure timing—is no longer a foregone conclusion. Courts now have the full range of proportionate remedies at their disposal, including costs, further discoveries, striking of evidence, adjournments, or stays where warranted. However, the decision in Evertz makes clear that serious and deliberate non-disclosure, particularly where it involves misleading the court, will still attract the most severe consequences. Counsel should also be aware that the new framework places greater emphasis on the question of prejudice, which was irrelevant under Handley Estate but is now a significant consideration in the abuse of process analysis.
In Legal Update #174 we observed in respect of the new Rule 49.14:
“In the authors’ view, these are welcome developments which promote resolution of cases based on their substantive merits and not on tactics or technicalities, and which, as a practical matter, should make it easier for counsel to advise their clients and to ensure compliance with their disclosure obligations.”
If anything, the Court of Appeal has strengthened this conclusion by clarifying that Rule 49.14 is of universal application, and that the remedy for non-disclosure of a partial settlement is a matter for judicial discretion.
Canadian College of Construction Lawyers
Legal Update Committee
Committee Co-Chairs
Brendan D. Bowles (Ontario)
Catriona Otto-Johnston (Alberta)
Western Canada Members
British Columbia:
Dirk Laudan, Mike Preston, Christopher Hirst
Alberta:
Donald C.I. Lucky, KC, Corbin Devlin, Ryan Krushelnitzky
Saskatchewan:
Collin Hirschfeld, KC, Misty Alexandre
Manitoba:
David Marr
Eastern & Atlantic Members
Ontario:
Paul Ivanoff, Jason Annibale
Quebec:
Patrice Morin
Atlantic Provinces:
Greg Moores, Conor O’Neil
c/o Brendan D. Bowles & Catriona Otto-Johnston
E-mail: brendanbowles@glaholt.com | catriona.otto@rosellp.com
Nicholas J. Dasios