



COURT OF APPEAL FOR ONTARIO

CITATION:  Ali v. O-Two Medical Technologies
    Inc., 2013 ONCA 733

DATE: 20131205

DOCKET: C56718

Gillese, Juriansz and Strathy JJ.A.

BETWEEN

Samir Ali

Plaintiff (Appellant)

and

O-Two Medical Technologies Inc.

Defendant (Respondent)

Tim Gleason and Megan Reid, for the appellant

David A.S. Mills and Jennifer A.N. Corak, for the
    respondent

Heard: September 26, 2013

On appeal from the order of Justice Meredith Donohue of
    the Superior Court of Justice, dated February 7, 2013, with reasons reported at
    2013 ONSC 880.

Juriansz J.A.:

A.

OVERVIEW

[1]

This appeal raises the question of when time begins to run under the
Limitations
    Act, 2002
, S.O. 2002, c. 24, Schedule B (
Limitations Act
), for
    an employees claim for unpaid commissions in a situation in which the employer
    has unilaterally changed the basis for the calculation of commissions earned.

[2]

The appellant, Samir Ali (Ali), brought a claim against the respondent,
    O‑Two Medical Technologies Inc. (O-Two), to enforce a commission
    agreement in connection with a sale he arranged to Iraqs Ministry of Health. O-Two
    brought a motion for summary judgment on the ground that the
Limitations
    Act
barred Alis claim. O-Twos motion was granted, and Ali appeals.

[3]

For the reasons that follow, I would allow the appeal.

B.

facts

[4]

Ali worked as a mechanical engineer for O-Two from March 22, 2002 to
    September 10, 2007, when his notice of resignation given August 29, 2007 became
    effective. He also had a side agreement with O-Two to sell its products in Iraq
    on a commission basis. According to his statement of claim, Ali negotiated a large
    sale to the Iraqi Ministry of Health on December 5, 2006. Once the buyer
    accepted delivery and paid for the products, he would be entitled to the
    commission calculated as set out in the agreement.

[5]

Ali claims that one week after he negotiated the Iraqi sale, O-Two purported
    to unilaterally change the commission agreement and informed him on December 12,
    2006 that it would pay him a lower rate of commission.

[6]

The parties met and exchanged letters, in which Ali claimed he was
    entitled to commission at the higher rate and O-Two relied on the lower rate set
    out in its December 12 formula. Ali retained counsel who wrote to O-Two on
    August 28, 2007 demanding that commission be paid at the higher rate. O-Two replied
    by letter, dated September 7, 2007, reiterating its previous position.

[7]

O-Two and the Iraqi Ministry of Health went on to complete their
    transaction. The Iraqi Ministry provided its first payment to O-Two under the
    contract in October 2007 and Ali became entitled to receive his commission in
    November 2007. On November 23, 2007, O-Two tendered payment of Alis commission
    at the lower rate.

[8]

Ali issued a statement of claim for breach of contract and
quantum
    meruit
on September 16, 2009. O-Two took the position that Alis claim, if
    he had one, arose when it changed the commission structure on December 12, 2006
    and that he had not filed his action until more than two years later. O-Two
    applied for and was granted summary judgment on the basis that Alis alleged claims
    arose outside the two-year limitation period under s. 4 of the
Limitations
    Act
.

C.

Decision Below

[9]

After reviewing the factual background, the motion judge stated that the
    outcome of the motion turned on when the damage to Ali occurred. She cited
Caglar
    v. Moore
, [2005] O.J. No. 4606 (S.C.), at para. 24, for the proposition
    that a breach of contract action commences when the plaintiff has sufficient
    facts to recognize that the contract has been breached. She further noted that
    Ali did not need to know the precise extent of the alleged losses; it was
    sufficient that there be some damage:
Hamilton (City) v. Metcalfe &
    Mansfield Capital Corp.
, 2012 ONCA 156, 347 D.L.R. (4th) 657, at para. 61.

[10]

The
    motion judge concluded that there was no doubt damage had occurred when O-Two
    gave Ali the revised commission formula on December 12, 2006, and, at the
    latest, the damage was clear when it delivered two letters confirming its
    position on August 1, 2007 and September 7, 2007.

[11]

She
    rejected Alis argument that the doctrine of anticipatory breach applied
    because [Ali] was handed the commission formula by [O-Two] on December 12,
    2006 and [O-Two] honoured it. Similarly, the facts of the
quantum meruit
claim were clear to Ali by at least September 7, 2007, more than two years
    before he filed his claim.

[12]

Accordingly,
    the motion judge held that Ali failed to initiate his claim within the two-year
    period under s. 4 of the
Limitations Act
, and dismissed the claim.

D.

ANALYSIS

[13]

Section
    4 of the
Limitations Act
provides that a proceeding shall not be
    commenced in respect of a claim after the second anniversary of the day on
    which the claim was discovered. Section 5(1)(a) sets out factors for
    determining when a party discovers a claim:

(1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first
    knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by
    or contributed to by an act or omission,

(iii) that the act or omission was that of the
    person against whom the claim is made, and

(iv) that, having regard to the nature of the injury,
    loss or damage, a proceeding would be an appropriate means to seek to remedy
    it.

[14]

Ali
    accepts the motion judges conclusion that the limitation clock began to run at
    the time the contract was breached. However, he submits that the motion judge
    erred in concluding that a breach of contract occurred before the commissions were
    due in November 2007. Instead, he argues, O-Two gave notice of its intention to
    breach the commission contract in the future when it changed the commission
    rate, which was an anticipatory breach. As the innocent party to an
    anticipatory breach, Ali refused to accept the repudiation, affirmed the
    contract and continued to press for performance:
Brown v. Belleville (City)
,
    2013 ONCA 148, 114 O.R. (3d) 561, at paras. 42-45. By choosing this option, he
    submits that the breach did not occur until O-Two tendered a deficient payment
    on November 23, 2007.

[15]

In
    response, O-Two raised two principal arguments for why Ali suffered damage
    within the meaning of s. 5(1)(a)(i) more than two years prior to initiating his
    claim.

[16]

First,
    O-Two relies on this courts endorsement in
Wadsworth v. RBC Dominion
    Securities Inc.
, 2007 ONCA 340, [2007] O.J. No. 1739, for the proposition
    that Ali had to sue immediately upon the change in terms of the contract.

[17]

Wadsworth
does not assist O-Two.
Wadsworth
, which was decided under the former
Limitations
    Act
, R.S.O. 1990, c. L.15, arose out of similar circumstances. Wadsworths
    employer had unilaterally changed his compensation structure governing the
    calculation of trailer fees. The motion judge granted summary judgment to his
    employer because he had brought a claim more than six years after the change in
    compensation structure. This court, as O-Two points out, dismissed the major
    part of his appeal in a short endorsement. However, O-Two fails to recognize
    that the court allowed a part of Wadsworths appeal.

[18]

The
    portion of Wadsworths claim that this court allowed to proceed related to the
    trailer fees that were paid to him within the six-year limitation period that
    applied under the former legislation. Clearly, the court reasoned in
Wadsworth
that time did not begin to run until the employer actually paid Wadsworth the
    trailer fees at the lower rate.

[19]

As
    I see it, this courts decision in
Wadsworth
supports Alis position
    that he did not suffer damage until payment of his commissions came due and O-Two
    tendered payment at the lower rate.

[20]

Second,
    O-Two submits that this court cannot segregate the commission agreement from Alis
    employment relationship with O-Two. As a consequence, it argues, a unilateral
    change in compensation itself would constitute a breach of the employment
    relationship, and the limitation clock would begin to run at the time of the
    change.

[21]

In
    my view, this argument relies upon a mischaracterization of Alis claim. Alis
    statement of claim does not claim constructive dismissal. It challenges the
    commission agreement in particular rather than his employment relationship with
    O-Two in general. Ali is seeking damages for commissions due and owing
    pursuant to his commission agreement with respect to sales to Iraq. The time at
    which Ali suffered damage was therefore when O-Two breached the commission agreement.
    I agree with Ali that the doctrine of anticipatory breach is relevant to the
    timing of the breach.

[22]

An
    anticipatory breach of contract occurs when one party to the contract, by
    express language or conduct, or as a matter of implication from what he has
    said or done, repudiates his contractual obligations before they fall due: G.H.L.
    Fridman,
The Law of Contract in Canada
, 6th ed. (Toronto: Carswell,
    2011), at p. 585.

[23]

O-Twos
    change in Alis commission structure on December 12, 2006 was a repudiation of
    its contractual obligations before it became obligated to pay his commissions
    in November 2007. By purporting to apply a new agreement, O‑Two could
    hardly have made its intention to repudiate the prior commission agreement clearer.

[24]

Once
    the counterparty shows its intention not to be bound by the contract, the
    innocent party has a choice. The innocent party may accept the breach and elect
    to sue immediately for damagesin which case, the innocent party must clearly
    and unequivocally accept the repudiation to terminate the contract:
Brown
,
    at para. 45. Alternatively, the innocent party may choose to treat the contract
    as subsisting, continue to press for performance and bring the action only
    when the promised performance fails to materialize; by choosing this option,
    however, the innocent party is also bound to accept performance if the
    repudiating party decides to carry out its obligations: S.M. Waddams,
The
    Law of Contracts
, 6th ed. (Toronto: Canada Law Book, 2010), at para. 621.

[25]

This
    court recently applied this principle in
Brown
, where Cronk J.A.
    confirmed, at para. 42, that an anticipatory breach does not, in itself,
    terminate or discharge a contract. Rather, Cronk J.A. noted that the innocent
    party may elect to treat the contract as continuing, as the Supreme Court stated
    in
Guarantee Co. of North America v. Gordon Capital Corp.
, [1999] 3
    S.C.R. 423, at para. 40:

Contrary to rescission, which allows the rescinding party to
    treat the contract as if it were void
ab initio
, the effect of a
    repudiation depends on the election made by the non-repudiating party. If that
    party treats the contract as still being in full force and effect, the contract
    remains in being for the future on both sides. Each (party) has a right to sue
    for damages for
past or future breaches
 (emphasis in original):
Cheshire,
    Fifoot and Furmstons Law of Contract
(12th ed. 1991), by M. P. Furmston,
    at p. 541.

See also
Macnaughton v. Stone
, [1949] O.R.
    853 (H.C.), at pp. 858-59.

[26]

In
    this case, Ali, although he could have elected to do so, did not accept O‑Twos
    repudiation of the contract and immediately sue for damages. Rather, he continued
    to press for payment in full. Because he did not accept the repudiation, he did
    not know he would suffer damage within the meaning of s. 5(1)(a)(i) until the
    payment of his commissions fell due on November 23, 2007 and O-Two did not make
    full payment.

[27]

In
    conclusion, I would reject both of O-Twos arguments for why Ali suffered
    damage within the meaning of s. 5(1)(a)(i) more than two years prior to
    initiating his claim. Ali did not discover his claim for purposes of s.
    5(1)(a) until November 23, 2007, because that is the day on which he first knew
    damage had occurred. Accordingly, the two-year limitation period under s. 4 of
    the
Limitations Act
for Alis claim would not expire until November
    23, 2009. His claim issued on September 16, 2009 was in time.

E.

Disposition

[28]

For
    these reasons, I would allow the appeal, set aside the motion judges order and
    dismiss the motion for summary judgment.

[29]

As
    agreed, Ali is entitled to the costs of this proceeding fixed at $12,000
    inclusive of disbursements and taxes, and costs for the proceeding below of
    $5,763.

Released: December 5, 2013 (E.E.G.)

R.G. Juriansz J.A.

I agree E.E. Gillese
    J.A.

I agree G.R. Strathy
    J.A.


