At some point, tolerance for slow payment of invoices runs out despite notions of good faith.
However, the exact reasons for the delays may be beyond the understanding of the party owed payment. A recent Ontario Court of Appeal ruling demonstrates how that lack of understanding could extend the expiry date for legal claims.
Thermal Exchange provided mechanical services to a Toronto condominium corporation. It was a long-term relationship, some 13 years according to court records. However, despite payment terms clearly stated as being due 30 days from invoice date, payments sometimes ran 300 days late. At some point, Thermal Exchange switched from individual invoices to a semi-annual batch invoice. Payments were still slow.
During regular phone calls between Thermal Exchange and the condo corporation office, the condo staff would invariably say the invoices were in process. Never was there any dispute over the invoices themselves.
Eventually, Thermal Exchange grew tired of the delays and excuses and sent a demand letter. The condominium corporation then informed Thermal Exchange that it was the corporation’s practice to simply re-invoice the condo owners for the work done on their unit. Therefore, it was individual condominium owners who were ultimately responsible for the payments, not the corporation.
This was news to Thermal Exchange. The company issued a claim seeking payment for all the overdue invoices.
As Gowling WLG partner Sahil Shoor and articling student Michael Piaseczny explain, the condominium corporation defended itself saying Thermal Exchange’s claim was made beyond the two-year limitation period. The Ontario Superior Court disagreed and ruled in favour of Thermal Exchange. The condo corporation appealed but lost again.
“The main issue on appeal was ‘discoverability,’” writes Shoor, “specifically, as to when Thermal Exchange should have known when commencing a proceeding would be an appropriate remedy to collect on its unpaid invoices.”
In other words, on what date should Thermal Exchange realized that taking legal action was appropriate? Did their demand letter constitute notice of legal action, or was it simply what Shoor describes as a “nudge to expedite unpaid invoices?” Did the time limitation clock, in fact, start running when the demand letter was sent?
In this particular case, the Court of Appeal ruled the demand letter did not set the limitation clock running. The time limit actually began when, as a result of the corporation’s letter, Thermal Exchange “discovered” that invoice payment was contingent on payment by the individual unit owners. By acting on this new knowledge, Thermal Exchange had, in fact, commenced its action within the allowed two-year limitation period.
“The court held that, in some cases, a debtor’s promise that it is working on paying a debt may toll the creditor’s limitation period until the debtor either refuses to pay or disclaims responsibility for payment because the creditor has not discovered that a claim exists,” write Jeremy Opolsky, Norman Chung and Julie Lowenstein of Torys LLP.
They add, however, that questions as to when the limitation clock begins boils down to individual case facts and can be influenced by the nature of the parties’ past business relationship.
The condominium corporation’s slow payment history over the course of several years could be such a consideration.
As Shoor points out, “There was no refusal or indication of an inability to pay the invoices to suggest to Thermal Exchange that the condo corp. was not acting in good faith or materially misunderstood the contract.”
“The defendant created a problem, the remedy for which was beyond the reach of the plaintiff’s understanding and led the plaintiff to rely on it for the remedy,” the Court of Appeal said. “The condo corp. created a barrier to Thermal Exchange receiving payment (it would not pay unless it first received payment from the unit owners and was not taking any steps to getting the unit owners to pay), prevented Thermal Exchange from understanding the nature of the problem, and led Thermal Exchange to believe that it would take care of the problem.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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