The Alberta Anomaly

It is a commonly held perception that Alberta is a business-friendly province. With little red-tape, skinny regulations, modest taxes, a sizeable pool of entrepreneurs, a can-do attitude, near-absent unionization, political invariability, abundant resources, solid infrastructure, a reasonable cost of living, great skiing, private liquor stores and a young, well-educated workforce, it is difficult to argue that this perception is misguided. However, the same cannot be said of Alberta's laws relating to limitation periods.

Alberta is the only common law jurisdiction in Canada which expressly prohibits commercial parties from agreeing to reduced limitation periods in business agreements. Most provinces and territories, such as B.C. and Nova Scotia, are silent as to extension or reduction; Saskatchewan expressly permits extension but is silent as to reduction; and Ontario expressly permits parties to contractually extend or shorten its statutory two year limitation period in business agreements. Alberta's prohibition is ill-conceived and puts Alberta out-of-step with other provinces (apart from Québec).

Limitation statutes have historically not prohibited agreements from varying statutory limitation periods. On March 1, 1999, Alberta proclaimed into force a new limitations act which expressly sanctioned extensions of statutory limitation periods, but was silent with respect to reductions. Confusion reigned as to whether this silence meant that reduction agreements were prohibited.

The Alberta Law Reform Institute opined that the rule of statutory interpretation, expression unius est exclusion (to express one thing is to exclude another), impliedly prohibited parties from contractually abridging limitation periods. Although a review of Hansard suggests that the intention of the legislature was to prevent shortening of limitation periods, the legislature ultimately chose not to expressly prohibit reduction of limitation periods, signalling perhaps that some reduction agreements may be tolerated. The legislature could easily have expressly legislated against abridged limitation periods (as Québec did in both official languages in Articles 2884, 2925 and 2930 of the Civil Code and as Ontario did (but later rescinded) in 2004). This would also explain why the Government of Alberta later (in 2006) felt compelled to amend the limitations act to expressly prohibit reduced limitation periods.

Confusion prevailed, notwithstanding such amendment. How would the prohibition be interpreted by the courts? Broadly? Narrowly? does the prohibition apply retroactively to existing agreements? does the prohibition extend to contractual provisions which indirectly shorten limitation periods? What is its effect on time-limited contractual rights such as representations and warranties?

The 2008 decision of the Court of Queen's Bench of Alberta in Edmonton (City) v. Transalta Energy Marketing Corporation brought some welcome clarification. This case involved a claim by the City of Edmonton against Transalta for damages arising from the sale of a composting facility by Transalta. Transalta provided representations and warranties in respect of the composter, which remained, pursuant to the terms of the purchase agreement, in effect for 18 months after closing. The purchase agreement also required the City to give notice to Transalta of any misrepresentation within such 18 month period.

The City brought a claim against Transalta for misrepresentation within the statutorily prescribed two year period, but failed to give Transalta the requisite notice within the contractually prescribed 18 month period. The City argued inter alia that the 18 month survival period (yes, the same one that it negotiated and agreed to with Transalta) was invalid since it was shorter than the statutorily prescribed two year period. The Court (rightly) rejected this argument on the basis that the survival period merely defined the scope of the warranties provided and did not address the limitation period within which an action had to be commenced. Accordingly, the Court held that the notice requirement was valid, consistent with prevailing case law (including Arrow Transfer Co. Ltd. v. Royal Bank of Canada and Hunter Engineering Co., v. Syncrude). Other drafting techniques that indirectly shorten limitation periods have not yet been tested, resulting in continuing uncertainty in the law.

The public policy rationale behind prohibiting contractual reduction periods in situations where there is an imbalance of power between two parties simply does not exist in business agreements negotiated by sophisticated commercial parties. The blanket approach taken by Alberta ignores the essential differences between standard form consumer contracts on the one hand and bargained business agreements between commercial parties on the other.

The blanket prohibition is also incompatible with what Lord Reid in Suisse Atlantique Société d'Armement Maritime S.A. and N.V. Rotterdamsche Kolen Centrale described as the “general principle of English law that parties are free to contract as they see fit.” As Justice Fruman declared in Prenor Trust Co. of Canada v. Nunn, “Courts should not be quick to rewrite contracts between parties – especially parties who have equal sophistication, experience, bargaining strength and legal representation.”

Let's eliminate the Alberta anomaly and lingering uncertainty in the law by following Ontario's lead and once and for all proclaiming in force a limitations provision which expressly recognises the legitimate right of parties to business agreements to negotiate time periods within which claims may be brought. Such a move would reinforce Alberta's stature as a business-friendly province.