Agreements to Reduce Limitation Periods Invalid After April 1, 2006

Written By H. Martin Kay

The Alberta Government has just proclaimed into force, as of April 1, 2006, a controversial amendment to the Province's Limitations Act ("L.A."). This amendment prohibits any agreement to reduce the statutory limitation periods applicable to a claim.

Section 7(1) of the L.A. permits express extensions of the statutory limitation periods applying to a claim, and has been in force since the Act first came into force on March 1, 1999. There has been some dispute among lawyers and government officials over whether the absence of a similar provision to permit reduction of limitation periods meant that such reduction agreements were allowed (as they were prior to the new Act), or prohibited. The Government then enacted s. 7(2), to prohibit such agreements. The section was originally proclaimed into force as of June 1, 2003 but, likely due to lobbying efforts by the legal profession and others, that proclamation was rescinded in order to allow further study. Section 7(2) will now come into force April 1, 2006. The section reads:

7(2) An agreement that purports to provide for the reduction of a limitation period provided by this Act is not valid.

The apparent impetus behind such a prohibition appears to be a concern over situations of unequal bargaining power, such as consumer insurance contracts. However, the blanket prohibition now enacted has every prospect of creating much concern and confusion over such things as time limited warranties and representations.

The operation of the prohibition is uncertain. It may not be immediately clear to contracting parties whether they have violated the prohibitions on shortening statutory limitation periods. Where a contractual limitation on bringing an action depends on the happening of a specified event, the parties would not know whether the limitation period is shorter or longer than the statutory period until the event occurs. This form of drafting may have to be abandoned.

The principal concern in respect of agreements which may shorten limitation periods and as such offend the statute, though, arises in respect of agreements which contain representation and warranty clauses. The effect of this amendment on contractual provisions that explicitly shorten limitation periods seems clear, while those agreements that indirectly shorten limitation periods (e.g. by requiring notice of a claim within a shorter period) are potentially valid.

Careful drafting may be able to create shorter notice periods without offending the legislative prohibition. However, a court could still conclude that these provisions were intended to be interpreted broadly, to prevent the abuses to which shorter, contractual limitation periods give rise by denying parties what may be viewed as a reasonable time (two years minimum) to assess and assert a claim.

When a similar prohibition against reducing limitation periods was passed in Ontario, consideration was given to having agreements governed by the laws of other jurisdictions in Canada.

Somewhat surprisingly, there is no transitional provision to guide Albertans as to whether s. 7(2) will govern existing agreements, or will only govern agreements entered into after April 1, 2006.

Backgrounder

A limitation period is the period of time within which a civil action must be commenced. A person with a civil claim (for example, damages for personal injury) will lose the right to bring the claim, and therefore to recover any damages and other relief, if he or she does not initiate legal action within the specified period of time. In Alberta, as in most provinces in Canada, limitation periods are found in legislation specific to the nature of the claim (e.g., Insurance Act), as well as in a uniform Limitations Act that covers all claims not specifically addressed in other legislation.

The Alberta Limitations Act which came into force on March 1, 1999 significantly changed the law governing limitation periods in Alberta. Subject to a grandfathering provision, and those claims which remain under other statutes, it applies to all litigation commenced in Alberta and to all claims governed by Alberta law. The Act provides a formula for calculating limitation periods that is applicable to most actions. While the formula appears straightforward, its implications may not be immediately recognized.

We trust this notice of the recent amendment to the Alberta Limitations Act is helpful. Should you require advice as to the implications of this amendment, we at Bennett Jones LLP would be pleased to assist you.