Ontario Court of Appeal: A Debtor’s Assurances May Postpone the ‘Discovery’ of a Claim

In its recent decision, Thermal Exchange Service Inc. v. Metropolitan Toronto Condominium Corporation No. 1289, 2022 ONCA 186, (“Thermal Exchange Services”) the Ontario Court of Appeal ruled that, under certain circumstances, a debtor may postpone the commencement of a limitation period on a claim for outstanding debts if assurances are provided that the debts can and will be paid.

For most civil actions in Ontario, the general rule is that a party cannot sue another party after two years from the date that the claim was “discovered.” There is a statutory presumption that a claim is discovered and the two-year limitation “clock” starts to run on the date that the injury, loss or damage occurred.

One way that a claimant can rebut this presumption is found under section 5(1)(a)(iv) of Ontario’s Limitations Act, 2002, which states that a claim is not “discovered” until a reasonable person in the claimant’s position first knew that a proceeding would be the appropriate means to remedy the claim.

The Facts

From 2002 to 2015, the plaintiff, Thermal Exchange Service Inc. (“Thermal Exchange”), provided HVAC services to the defendant, Metropolitan Toronto Condominium Corporation No. 1289 (“Condo Corp”). Thermal Exchange’s invoices for services rendered required that payment be made within 30 days of the invoice being issued; however, Condo Corp’s payments were frequently late – often by as many as 300 days.  

In 2008, Condo Corp stopped paying some of its invoices altogether. When Thermal Exchange contacted Condo Corp’s property manager to inquire about the non-payment, the property manager advised that she was “terribly  busy and unable to attend to the matter immediately, but was ‘working on’ the invoices.” On the strength of these assurances, Thermal Exchange was led to believe that receiving payment was nothing more than a matter of encouraging the property manager to process the invoices.

Importantly, Thermal Exchange’s belief was based on the understanding that Condo Corp maintained a “running account,” which was credited funds whenever Thermal Exchange received payment from Condo Corp. The existence of the running account suggested that Condo Corp could meet its obligations and that the property manager was merely putting off her duties to remit the funds.

In an effort to have the property manager finally deal with the outstanding debt, Thermal Exchange sent a demand letter to Condo Corp requesting payment. However, on November 4, 2016, the property manager advised Thermal Exchange that Condo Corp could not satisfy payment of the debt.

As a result, in August of 2017, Thermal Exchange launched a lawsuit against Condo Corp to recover damages for unpaid invoices that were issued between 2008 and 2015. Thermal Exchange won at trial and Condo Corp appealed.

The Decision

The core issue on appeal was whether the trial judge erred in finding that Thermal Exchange’s action was not barred by Ontario’s two-year limitation period. Condo Corp argued that the limitation period expired given that the claim related to invoices that were several years old.

Relying on section 5(1)(a)(iv) of Ontario’s Limitations Act, 2002 and relevant case law, the Court of Appeal held that the trial judge did not err in her decision. The court determined that Thermal Exchange rebutted its statutory presumption that the limitation period began to run when non-payment first occurred.

Owing to the property manager’s assurances that she was “working on” payment of the invoices, Thermal Exchange reasonably believed that a proceeding was not the appropriate means to seek a remedy until Condo Corp advised that it could not satisfy payment.

Accordingly, the claim was not “discovered” until November 4, 2016, when Condo Corp’s property manager first communicated that the outstanding debts could not be paid. This was the date that Thermal Exchange first became aware that it needed to commence proceedings against Condo Corp.

Since the action was commenced in 2017, within two years of the date the claim was discovered, the defendant’s limitation argument failed and the appeal was dismissed.

Takeaways

The Court of Appeal’s decision in Thermal Exchange Services suggests that the “discovery” of a claim for outstanding debt can be influenced by the communications between a debtor and creditor. Therefore, when engaging in discussions regarding outstanding debt, parties should be aware that an assurance might be interpreted as postponing a limitation period. Accordingly, detailed notes should be taken in any such discussion.

We caution, however, that this decision does not suggest that every assurance from a debtor will postpone the commencement of a limitation period. The court stated that the question of when Thermal Exchange knew that a proceeding would be the appropriate means to seek to remedy its loss could “only be answered in the specific context of the parties' legal relationship and their business dealings.” For that reason, notwithstanding assurances from a debtor, creditors should continue to exercise reasonable diligence in investigating potential losses and should pursue claims and potential claims in a timely manner.