When does the limitation period begin to run for an anticipatory breach of contract? Does the limitation period commence as soon as the guilty party indicates that it will breach a future obligation? Or can the innocent party safely assume that that the limitation period does not run until the time comes for the performance of the contract and the guilty party then in fact fails to perform its obligation? A recent decision by the Ontario of Court of Appeal brings much needed clarity to this important issue.
The facts of the decision in Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733 were as follows. The plaintiff (“Ali”) had a commission agreement with his employer. Ali negotiated a large sale on December 5, 2006, for which he was entitled to a commission. The commission was to be paid once the buyer accepted delivery and paid for the product that was sold. One week after the sale was negotiated, Ali’s employer unilaterally changed the terms of the commission agreement and informed him that it would pay him a lower rate of commission. Ali then objected to the new commission regime through a series of letters. The employer ultimately tendered the revised commission payment on November 23, 2007. Ali subsequently brought a claim against his (then former) employer 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 (two years being the applicable limitation period under Ontario’s Limitation Act, 2002).
The Court of Appeal ruled that Ali’s claim was not time-barred. The Court engaged in the following instructive reasoning process in arriving at this conclusion. The employer’s unilateral imposition of the new commission terms constituted an anticipatory breach of the commission agreement. Ali therefore could elect to accept the repudiation of the agreement (in which case the limitation period would have begun to run upon such acceptance). Alternatively, Ali could have chosen to treat the initial commission agreement as subsisting and press for payment in full – which is what he in fact chose to do. The Court ruled that Ali’s actions kept the initial agreement intact until the payment of his commission fell due and his (former) employer did not make full payment. It was only at that juncture that Ali suffered “damage” within the meaning of the Limitations Act, 2002, thus crystallizing his claim and triggering the running of the limitation period. Accordingly, the Court ruled that Ali had commenced his claim in time.
The decision in Ali demonstrates that the running of the limitation period will turn on whether an anticipatory breach is accepted or rejected by the innocent party. It will therefore be imperative for the innocent party to make clear that it is not accepting the repudiation of the agreement and continuing to insist on its performance in order to delay the running of the limitation period. Only when the repudiation has been rejected will be the limitation period begin to run from the date when the performance fails, in fact, to materialize.