In Ali v O-Two Medical Technologies Inc., 2013 ONCA 733, the Court of Appeal for Ontario addressed the issue of when the limitation period begins for an anticipatory breach of contract. The decision provides an answer to the ongoing debate of whether the limitation period will commence as soon as the defendant indicates that it will breach a future obligation under a contract, or until the defendant fails to perform the obligation. The case was decided in the context of an employee’s claim for unpaid commissions where the employer unilaterally changed the terms for the calculation of commissions earned.
On December 5, 2006, the employee plaintiff negotiated a large product sale, for which he was entitled to a commission. Once the buyer accepted delivery and paid for the products, the plaintiff would be entitled to the commission as calculated in the agreement with his employer. On December 12, 2006, one week after the sale was negotiated, the employer unilaterally changed the terms of the commission agreement and informed him that it would pay him a lower rate of commission. The plaintiff objected to the new commission agreement, but the employer ultimately tendered the commission payment based on the revised agreement on November 23, 2007.
On September 16, 2009 – more than two years from when he was advised of the new commission structure, but within two years of the actual payment of the revised commission – the plaintiff commenced a claim against his employer,alleging that he was entitled to the higher rate of commission. The defendant employer brought a summary judgment motion on the basis that if the plaintiff’s action was time barred.
The Court of Appeal held that the plaintiff’s claim was not time barred. The Court reasoned that the employer’s unilateral imposition of the new commission terms constituted an anticipatory breach of the commission agreement. At that point in time, the plaintiff could have either (i) elect to accept the repudiation of the agreement (in which case the limitation period would have begun to run upon such acceptance); or (ii) treat the initial contract as subsisting and insist on payment in accordance with the original terms of the contract (which is what the plaintiff did). Because the plaintiff acted in accordance with the latter, the Court held that his actions kept the initial agreement intact until the payment of his commission fell due and his employer did not make full payment. It was only at that point in time that the plaintiff suffered “damage” within the meaning of section 5(1)(a) of the Limitations Act, 2002, thus crystallizing his claim and triggering the running of the limitation period.
Therefore, the plaintiff did not “discover” his claim until November 23, 2007, as that was the day on which he first knew damage had occurred. Accordingly, the two-year limitation period under section 4 of the Limitations Act would not expire until November 23, 2009, and his claim was issued in time.
This case is important because it demonstrates that the running of the limitation period will depend on whether an anticipatory breach is accepted or rejected by the innocent party. Therefore, it is important for the innocent party to be clear that it is not accepting the repudiation of the agreement but continue to insist on its performance in order to delay the running of the limitation period. This way, if repudiation of the contract is clearly rejected, the limitation period will not begin to run until the date the defendant fails to perform the obligation.
