Introductory Guide to Understanding the Law Applicable to Deadlines for Commencing Litigation Proceedings on Account Receivables
By: Giancarlo Mazzitelli
Generally, the limitation deadline available to a creditor within which to properly commence a claim is defined by section 4 of the Limitations Act, 2002, S.O., Chapter 24, Schedule B (the “Act”), a claim for debt owed under a contract must be commenced two years from the date it is discovered whereas section 4 specifically states:
Basic Limitation Period
4 Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.
The basic limitation period is intended to be a starting point in assessing whether or not a claim is statute barred. The Courts across Canada have created a framework, albeit not always clear cut, for claims with different scenarios and have determined that discoverability is unique to the set of circumstances an industry faces, including but not limited to statutory enforcement options that creditor may have available to them prior to commencing a claim. Circumstance relative to discovery is well articulated in the Supreme Court of Canada Report of Novak v. Bond,  1 S.C.R. 808, 1999 CanLII 685 (SCC) where Chief Justice McLachlin stated the following at paragraph 85:
…Litigation is never a process to be embarked upon casually and sometimes a plaintiff’s individual circumstances and interests may mean that he or she cannot reasonably bring an action at the time it first materializes. This approach makes good policy sense. To force a plaintiff to sue without having regard to his or her own circumstances may be unfair to the plaintiff and may also disserve the defendant by forcing him or her to meet an action pressed into court prematurely.
In a creditors world that provides credit by way of credit card, line of credit, or term loans, important initial factors to consider are:
- The last payment date;
- The charge date; and
- The correspondence.
Note: For debt buyers or for companies that have purchased or been assigned debt through the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34, initial factors are much more daunting from a segmentation perspective and we will broach the topic in a future blog.
Prior to getting into case specific circumstances, United Legal Service states loudly that you should seek advice for your specific situation rather than relying solely upon this article as legal advice and instead review this article from the perspective of an educational starting point for your account receivable files.
Within the Act, section 5 provides a summary definition of discoverability and states:
5 (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; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
Generally, most creditors assume that the last day to file a claim in Ontario would be two years minus one day from the date of last payment. Recently an Ontario Court of Appeal decision was released that gave creditors a closer look at subsection (iv) above, “that having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it.”
It was well articulated in 407 ETR Concession Company Limited v. Day, 2016 ONCA 709 at paragraph 44:
 Second, in determining when a claim ought to have been discovered, s. 5(1)(b) of the Limitations Act, 2002 requires the court to take account of “the circumstances of the person with the claim”. 407 ETR’s “circumstances” differ from those of many other creditors. Highway 407 itself is enormously busy: 380,000 trips on an average workday. As a consequence, 407 ETR must process an enormous number of invoices, almost all for amounts of no more than a few hundred dollars apiece. And unlike, for example a credit card company, which can cancel a customer’s credit card for non-payment of a debt, 407 ETR cannot bar a defaulting debtor’s access to the highway.
If we use logic and transfer the analogy in the 407 case to a credit card creditor’s “circumstances”, this would imply that the last payment date is not the correct date to begin the statute of limitation clock. The date when the creditor discovered a claim, according to the Ontario Court of Appeal, may very well appear to be the charge off date. In other words, the last payment or due date holds little relevance, or ought to.
Industry Specific Circumstance for a Credit Card Creditor
According to the third Quarter TransUnion industry Rights Report the average Canadian held $3,954 (2016). The TransUnion Report also quantified a delinquency rate of 2.26 per cent at ninety (90) days past due balance. According to the Canadian Bankers Association Statistics and Facts (2016), forty (40%) percent of Canadians carried balances past the due date of the next invoice. Based on the enormous difference between delinquency rates and the number of Canadians that carry a balance on their cards, it would be unfair to both the Plaintiff and the Defendant (or creditor and debtor) to assume that simply missing a due date justified commencement of a legal claim.
In some circumstances, a payment is received after a charge off date but before the two-year expiry date. The last payment date would now act as an acknowledgement under section 13 of the Act which states:
13 (1) If a person acknowledges liability in respect of a claim for payment of a liquidated sum, the recovery of personal property, the enforcement of a charge on personal property or relief from enforcement of a charge on personal property, the act or omission on which the claim is based shall be deemed to have taken place on the day on which the acknowledgment was made.
Additional forms of Acknowledgement can sometimes include but are not limited to, an email indicating an intent to pay by a certain date. As long as the anticipated payment date falls within two years of the charge off date the promised payment date would become the day to rely on. The theory of acknowledgement is well articulated in Cross Bridges Inc. v. Z-Teca Foods Inc., 2016 ONCA 27 (CanLII) at paragraph 10:
... under s. 13(9) of the Limitations Act, 2002, for an acknowledgement to reset the limitation clock, it must be made before the expiry of the limitation period applicable to the claim. Here, the cross-examination occurred long after the expiry date ...
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