Indemnification clauses are fairly standard in commercial contracts. The decision to invoke those clauses, however, are often a matter of strategy. It may strain the relationship of cooperating defendants if a claim for contribution or indemnity is hanging over the parties’ heads, or the parties may, initially, feel that indemnification is not beneficial for an ongoing commercial relationship.

Regardless, the Ontario Court of Appeal has confirmed that despite the contractual nature of an indemnification clause, it is properly characterized as a claim for contribution and indemnity, and is governed by the two-year limitations period in section 18 of the Limitations Act, 2002 (“Limitations Act”).

In Canaccord Capital Corporation v Roscoe, Roscoe’s employment contract with Canaccord Capital Corporation (“Canaccord”) contained an indemnification clause that required Roscoe to indemnify Canaccord for any claim made against Canaccord arising out of Roscoe’s acts or omissions. When Canaccord and Roscoe were sued by two former clients, they presented a unified defence, funded by Canaccord . Only after settling the claim did Canaccord seek to enforce the indemnity provision in the employment contract with Roscoe, which was more than three years after the commencement of the original claim.

Canaccord argued that the limitations period did not begin to run until after Roscoe refused to indemnify Canaccord and thereby breached his employment contract, which occurred after the parties reached a settlement. In response, Roscoe argued that Canaccord was statute barred by the two-year limitations period set out in section 18 of the Limitations Act.

The Court of Appeal agreed with Roscoe and held that Canaccord's claim was properly characterized as a claim for contribution and indemnity, not a breach of contract, meaning that it had to be brought within two years of the initial claim. In coming to its decision, the Court noted that section 18 refers to “wrongdoers”, not just “tortfeasors”, and is broad enough to include claims arising out of contract. Ultimately, Canaccord’s claim was dismissed because the limitation period had expired.

The Court’s decision makes it clear that any claim for contribution and indemnity, whether grounded in tort or contract, is strictly governed by the two-year limitation period set out in section 18 of the Limitations Act.

Co-authored by Jennifer Saville, Summer Student.