There is a general limitation period for most debt related actions in Ontario that is provided by section 4 of the Limitations Act. You have up until 2 years less a day to commence a statement of claim in relation to debt owing. In most non demand debt obligations this would begin running on the date of the first default.
An acknowledgment of debt where properly made can restart the limitation period. The problem which will be discussed in this article is many businesses, debt collectors and individuals make the fatal error of not obtaining a sufficient acknowledgment to reset the limitation period. As a result, debtors are frequently able to avoid repayment as the debt effectively disappears by falling outside the limitation period.
Some types of debt are what is known as demand obligations. The limitation period to demand obligations made after January 1, 2004 does not begin to run until after the first day in which there is a failure to perform the obligation and a demand for performance is made per section 5(3) and 5(4) of the Limitations Act.
In Bank of Nova Scotia v. Williamson, 2009 ONCA 754 (CanLII) at paragraph 19 Justice Feldman et al. wrote:
“This amendment demonstrates the intent of the legislature that for all demand obligations, a demand is a condition precedent for the commencement of the limitation period.”
The law in relation to demand obligations is extremely complicated as if your instrument is not properly classified as a demand obligation you can easily face a successful limitation period defence. Additionally, it is not yet clear how the ultimate 15-year limitation period applies to demand obligations.
Section 13(1) of the Limitations Act provides the following about acknowledgment of debt:
“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.”
Section 13(9) of the Limitations Act requires that the acknowledgment of debt must occur prior to the expiry of the limitation period applicable to the claim. As an example, if there is a 2-year limitation period that expires on March 4th, 2020 you cannot revive the debt by obtaining a signed acknowledgment on March 6th, 2020.
Section 13(10) of the Limitations Act requires that the acknowledgment of debt must be in writing and signed by the person acknowledging the debt or their agent.
Justice Laskin et al made it clear that there must be a clear and unequivocal acknowledgment of the debt claimed in Middleton v. Aboutown Enterprises Inc., 2009 ONCA 466 (CanLII). This was subsequently followed by the Ontario Court of Appeal in 1702108 Ontario Inc. v. 3283313 Canada Inc., 2016 ONCA 420 (CanLII).
Justice D.L. Corbett in Toronto Common Elements Condo. Corp. No. 2041 v Toronto Standard Condo. Corp. No. 2051, 2015 ONSC 4245 (CanLII) at paragraph 23 makes it clear that the acknowledgment must include the amount owing in it.
In Skuy v. Greennough Harbour Corporation, 2012 ONSC 6998 (CanLII) at paragraph 56 Justice Perell also found that “an acknowledgment of an indebtedness for a liquidated sum must, at a minimum, confirm and concede the amount that remains owing.” Justice Perell in Montcap Financial Corporation v. Schyven, 2011 ONSC 4030 (CanLII), at paragraph 27 also came to the same conclusion.
However, Justice Perell in both the Skuy and Montcap cases cited Middleton v. Aboutown Enterprises Inc., [2008] O.J. No. 3608 (S.C.J.) at paragraph 11 which was appealed. The relevant portion of paragraph 11 reads:
“In order to stand as an acknowledgment, the letter and the Release would, at a minimum, have to demonstrate and confirm the amount of debt that remained owing. “
However, on appeal in Middleton v. Aboutown Enterprises Inc., 2009 ONCA 466 (CanLII) at paragraph 3 Justice Laskin et al wrote:
“We do not accept the motion judge’s statement that to stand as an acknowledgment, the letter and Release would, “at a minimum, have to demonstrate and confirm the amount of the debt that remained owing.”
It is important to understand that the Ontario Court of Appeal has binding authority over the lower courts. Unfortunately, we do not know what exactly Justice Laskin et al of the Ontario Court of Appeal did not agree with.
In University Plumbing v. Solstice Two Limited, 2019 ONSC 4276 (CanLII) at paragraph 20 Justice E.M. Morgan makes it clear that emails with digital signatures can constitute an acknowledgment of debt.
“The emails sent by Mr. Chalmers and Mr. Smith all contain digital signatures. Under different circumstances those might not amount to conscious acknowledgment of the debt, but here the two individuals who sent them specifically concede that they were intended to be unequivocal acknowledgments of the debt.”
In Lev v Serebrennikov, 2016 ONSC 2093 (CanLII) Justice Pattillo makes it clear that in some circumstances emails can constitute an acknowledgment of debt.
The relevant portion of the email in this case which contains spelling and grammatical errors was at paragraph 18 as follows:
“I do would like to acknowledge the $20,000 you did give me, and I hope to re-pay back with in 2 month.”
Justice Pattillo found that it constituted a clear and unequivocal acknowledgment by the appellant and was sufficient for the signing provisions in section 13(10) of the Limitations Act.
In Cross Bridges Inc. v Z-Teca Foods Inc., 2015 ONSC 2632 (CanLII) at paragraphs 76 and 77 Justice Emery made it clear that an answer on cross examination does not restart the limitation period as it fails to meet the requirements of the Limitation Act.
“I do not see it that way. The fact that Mr. Sarracini answer truthfully at a cross examination long after the limitation period had expired is not sufficient to waive or reinstate the limitation period. The effect of section 4 of the Limitations Act, 2002 does not extinguish the cause of action itself, but rather the right of the plaintiff to make a claim in respect of it. Mr.Sarracini did not resurrect the ability of Cross Bridges to make its claim by acknowledging the debt. Mr. Sarracini did not waive the limitation period that had already expired and that ZTF had pleaded as a defence. If that were the case, every limitation period could be resurrected or dispensed with upon the appropriate question being asked of a defendant on an examination and the defendant giving a truthful answer.
Mr. Sarracini’s answer was not an acknowledgement under section 13(1) of the Limitations Act, 2002. It was not signed on behalf of ZTF as required by section 13 (10), or given before the expiry of the applicable limitation period as required by section 13(9). Nor did his answer waive the limitation period that ZTF relies upon.”
This decision was affirmed by the Ontario Court of Appeal in Cross Bridges Inc. v. Z-Teca Foods Inc., 2016 ONCA 27 (CanLII).
In 1702108 Ontario Inc. v. 3283313 Canada Inc., 2016 ONCA 420 (CanLII) Justice Jurianz et al wrote at paragraph 6 the following:
“In the present case, Mr. Durrani’s March 14 email did not acknowledge liability for the liquidated sum of $296,700 demanded by the appellant in its March 14 correspondence. At most, the respondent’s March 14 email proposed negotiating a settlement plan, without acknowledging that any amount remained owing. When the appellant subsequently pressed for an acknowledgement of liability for the liquidated sum, the respondent refused to give one. Accordingly, we see no basis to interfere with the motion judge’s conclusion that the March 14, 2013 email was not an acknowledgement. We would not give effect to this ground of appeal.”
In Middleton, an offer to settle without an acknowledgment that anything remained owing was also considered insufficient to restart the limitation period. Evidently, proposing a settlement plan may not be sufficient to restart the limitation period.
Section 13(11) of the Limitation Act provides that partial payment of a liquidated sum restarts the limitation period if the payment is made by the person whom the claim is made against (the “debtor”) or their agent.
In Favretto-Post v. Fontana, 2019 ONSC 4487 (CanLII), summary judgement was brought by the defendant on the basis that the claim was outside the limitation period. Justice McKelvey found that there is a triable issue as a court will have to determine whether a payment made in relation to a restitution order restarts the limitation period in section 13(1) of the Limitations Act.
Restitution orders are often awarded in relation to criminal fraud.
Section 13(10) of the Limitations Act clearly provides that an acknowledgment must be in writing and signed. What is considered a signature is certainly open to some debate at this point as some cases have considered an email as constituting signed. However, there is no case law suggesting that a verbal acknowledgment of debt can restart the limitation period.
If the defendant does not plead a limitations act defence, then they cannot defend a claim to debt owing on this basis. This was made clear in a case involving the current President of the United States, Donald Trump. In Singh v. Trump, 2016 ONCA 747 (CanLII) where Justice Rouleau at paragraph 136 wrote the following:
“In my view, the defendants’ failure, in this case, to plead a Limitations Act defence or even to seek an amendment to their pleading to do so is, as it was in S. (W.E.) v. P. (M.M.), fatal.”
In Proulx v Shaw, 2018 CanLII 110986 (ON SCSM) Deputy Judge Robert G. Julien followed the ONCA decision in Singh v. Trump and entitled the plaintiff to be paid for debts owing that were otherwise outside of the limitation period.
This has some relevance as it may be worth commencing an action in some situations where the debt falls outside the limitation period to see whether the defendant fails to defend on that basis. Additionally, defendants who have failed to plead a limitation period defence should strongly consider amending their defence.
If you require legal services in relation to debt collection, debt defence or a limitations act issue McMackin Law can help!