One precedent agreement, four vendor groups, four different answers on whether the survival clause was enforceable at all.
At a glance
A mid-sized Ontario facilities group spent eighteen months buying four independent commercial cleaning contractors — one each in Ontario, Alberta, Quebec and British Columbia — for $14.8 million in aggregate. All four were share purchases off the same precedent, and all four carried an identical survival clause: the general representations survive twelve months from closing, after which no claim may be brought on them. See the survival-period glossary entry for the drafting convention.
Local counsel was retained on each file for closing mechanics only. Nobody re-read the survival clause after local counsel did the one thing local counsel almost always does at a vendor's insistence: change the agreement's governing law to the vendor's own province.
At month twenty a fixed-asset audit found that the ride-on floor scrubbers on three of the four equipment schedules were leased, not owned, and the fourth had two machines listed twice. Aggregate deficiency $310,000: $96,000 Ontario, $84,000 Alberta, $71,000 Quebec, $59,000 British Columbia.
The buyer's Toronto counsel gave one answer for all four files: the general representations expired at twelve months, so the claims were gone. That was correct on exactly one of them. A survival clause is a contractual shortening of a statutory limitation period, and whether a contract may shorten one is decided by the province whose law governs the contract — which, on three of the four agreements, was no longer Ontario.
Four claims, one clause, four outcomes. Ontario: the clause was enforceable and the $96,000 claim was barred outright. Alberta: the statute invalidates an agreement reducing a limitation period, so the general periods applied and the $84,000 was recovered in full. Quebec: the Civil Code allows no agreed prescriptive period at all, the three-year period applied, and the $71,000 was recovered in full. British Columbia: the statute says nothing either way, and rather than fund a test case on a $59,000 claim the parties settled at $38,000.
Total recovered: $193,000 of $310,000. The reason the largest shortfall was lost was not the merits, the notice provisions, the indemnity basket or the cap — it was which province's limitations statute the agreement had quietly been made subject to.
Ontario. Section 22(1) of the Limitations Act, 2002 starts from prohibition: “A limitation period under this Act applies despite any agreement to vary or exclude it, subject only to the exceptions in subsections (2) to (6).” What rescues a survival clause is s.22(5), which applies only to business agreements, and whose first paragraph permits that “A limitation period under this Act, other than one established by section 15, may be varied or excluded by an agreement made on or after October 19, 2006.” Section 22(6) defines a business agreement as “an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002”, and adds that ““vary” includes extend, shorten and suspend”. Vendors selling their own operating business are inside that definition, because the Consumer Protection Act, 2002 defines a consumer as one acting for personal, family or household purposes and expressly excludes a person acting for business purposes.
The Court of Appeal for Ontario settled both halves of this in Boyce v. The Co-Operators General Insurance Company, 2013 ONCA 298. On the exception: “persons entering into agreements for personal, family or household purposes cannot contract out of the limitation periods in the Limitations Act, 2002”. On the drafting — a standard most survival clauses do not meet — a clause must in clear language “describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods”. A clause saying only that the representations survive for twelve months describes the life of an obligation; it does not exclude the two-year discovery period in s.4. This precedent said both, which is why the Ontario claim failed.
Alberta inverts it. Section 7 of the Limitations Act (Alberta) permits extension and forbids reduction. Section 7(1): “if an agreement expressly provides for the extension of a limitation period provided by this Act, the limitation period is altered in accordance with the agreement”. Section 7(2): “An agreement that purports to provide for the reduction of a limitation period provided by this Act is not valid”. So s.3(1) applied instead — two years from discovery, or “10 years after the claim arose”, whichever expires first.
Quebec closes both directions. Article 2884 of the Civil Code of Québec: “No prescriptive period other than that provided by law may be agreed upon.” Article 2925 supplies it — “An action to enforce a personal right or movable real right is prescribed by three years, if the prescriptive period is not otherwise determined.” Drafters wanting a shorter window in Quebec limit the duration of the substantive obligation instead, which is a different exercise from the one this precedent performed.
British Columbia is silent. The Limitation Act, S.B.C. 2012, c. 13 contains no provision permitting or prohibiting variation by agreement; every occurrence of “agreement” in the consolidated text was read for this file, and all of them concern security agreements, support and acknowledgements. Section 6(1) sets the basic period — “a court proceeding in respect of a claim must not be commenced more than 2 years after the day on which the claim is discovered” — and the rest falls back on general contract law. Silence is not a permission and not a prohibition. It is an open question, and the price of answering it is a motion.
Why the governing-law clause did the damage is Ontario s.23: “For the purpose of applying the rules regarding conflict of laws, the limitations law of Ontario or any other jurisdiction is substantive law.” Limitations law travels with the chosen law of the contract, not with the target's location, and the survival clause gives no warning of that.
The Alberta and Quebec vendors paid in full once the invalidity point was put to them; British Columbia settled at two-thirds; the Ontario claim was abandoned. The precedent now states the governing province's answer on the face of the survival clause. For the sibling problem — a clause that was enforceable and simply ran out — see warranties that expired before the problem appeared.
Nothing, which is the uncomfortable part. Had the governing law stayed Ontario throughout, the clause would have worked as drafted everywhere and the buyer would have recovered $0 rather than $193,000. The variation ran in the buyer's favour by accident, and it runs the other way whenever this buyer is the vendor: an Alberta or Quebec vendor who signs a twelve-month survival clause, prices the deal on it and distributes the proceeds is exposed for two, three or ten years instead.
The tell is on the signature page, not in the clause. A governing-law provision naming a province other than the one the precedent was written for should trigger a re-read of every clause that measures time — survival, notice, escrow release, non-competition duration. Here the change was recorded in a redline, accepted in one line of an issues list, and never connected to the survival clause four pages later.
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