Survival vs Limitation Periods

Background

Survival periods for representations and warranties are frequently used in commercial agreements. The interplay between these survival periods and the Limitations Act (Alberta),1 (the "Limitations Act"), has historically been treated differently in different jurisdictions, resulting in case law with inconsistent outcomes. However, the recent Alberta decision in NOV Enerflow ULC v. Enerflow Industries Inc.,2 (the "NOV case") firmly advanced the principle that survival periods contained in commercial agreements that effectively reduce the 2 year minimum time period provided for in the Limitations Act, do not violate the Limitations Act.

The Facts

Enerflow Industries Inc. ("Enerflow"), as vendor, and NOV Enerflow Industries Inc. ("NOV"), as purchaser, entered into a Purchase and Sale Agreement ("PSA") for the sale of the business of Enerflow to NOV. The transaction closed on May 11, 2012 (the "Closing Date").

On March 3, 2014 NOV brought an action for indemnification and breach of certain representations and warranties. In February, 2015 NOV hired a third party to perform a financial review of the books and records of Enerflow and discovered outstanding purchase commitments and excess inventory that preceded the Closing Date. On August 11, 2015 NOV applied to amend its Statement of Claim for additional breaches of representations and warranties of the PSA.

The survival period provided that all claims for indemnification for breach of representations and warranties must be made within 2 years from the Closing Date. While the original claim was within the 2 years, Enerflow opposed the amendments on the ground that the survival period for the representations and warranties in the PSA had expired. NOV argued that its original claim was broad enough such that the amendments were not new claims, rather merely particularized existing claims. NOV further argued that the survival period contravened the Limitations Act and as such could not be relied upon to bar the action.

The Decision

The Court ultimately agreed with Enerflow and held that although NOV may have discovered a basis for bringing new claims in February, 2015, NOV could not pursue such claims as the survival period in the PSA had expired. Secondly, the Court held that enforcing expiry dates on representations and warranties as provided in the agreement between the parties does not violate the Limitations Act.

The Reasons

NOV's argument that the amendments merely elaborated upon...