There is a deadline for suing someone. In Alberta, the deadline is generally the earlier of two years from when you knew or ought to have known of the claim, or 10 years from the date of the claim (in Ontario: two and 15 years). This general rule is subject to a number of exceptions. One such exception is for claims for a debt, rent or other specific amount of money (an accrued liquidated pecuniary sum). For such a claim, the deadline can be extended if the person liable acknowledges the claim before the expiry of the normal deadline. Recently, the BC Court of Appeal held that by referring to a debt in its financial statements, a company can be found to have acknowledged the claim for the debt and thereby to have extended the deadline for others to sue it for the debt. The decision could have implications for Alberta and Ontario corporations, since the Alberta and Ontario limitations acts contain similar wording to the BC act.
Freeway Properties v Genco Resources
In Freeway Properties Inc v Genco Resources Ltd, 2012 BCCA 258, a corporation, Genco, owed $73,402 to two other corporations, Freeway and JBP, on account of rent, services and an unpaid loan. Freeway and JBP sued Genco for the amounts owing, but they missed the BC six-year deadline to sue. JPB and Freeway argued that the six-year deadline had been extended by an acknowledgment in the financial statements of Genco, which they argued had the effect of renewing the deadline. The alleged acknowledgment was contained in the balance sheet of the financial statements, which contained an entry of $73,402, described as a current liability "[d]ue to related parties".
The BC Court of Appeal agreed with Freeway and JBP. Referring to a line of English and Commonwealth cases, the Court found that a company's balance sheet is capable of amounting to an acknowledgement that can extend the deadline for others to sue it. By listing the $73,402 item in its balance sheet as a current liability and by describing it as "[d]ue to related parties", the Court found that Genco clearly admitted liability for that amount to the "related parties", whoever they might be. The Court brushed aside a number of contrary arguments raised by Genco, and held that the creditors did not have to be mentioned by name and the financial statement did not have to be sent to the creditors in their capacity as creditors for the financials to constitute an acknowledgment, so long as they were actually received by the creditors in some capacity. In fact, the Court speculated that whether the company actually intended for the creditor to receive the acknowledgment or not may not matter, so long as it was actually received by the creditor. In an age when financial statements can be readily found online, a creditor of a public company will almost always be in a position to have received them. A subsidiary issue addressed by the Court was whether the acknowledgement was effective as of the date of the balance sheet or as of the date the balance sheet was signed, with the Court preferring the date of the balance sheet. Ultimately, on the basis of that issue, the Court concluded that even with an extended deadline, the actions were commenced out of time.
While it is possible that an Alberta or an Ontario court would not follow this decision and conclude that a company's financials do not extend the deadline to sue, it would not do so lightly. Of course, every case will depend on its own circumstances.
If you have otherwise missed the deadline to sue for a debt, it may be worthwhile to examine the financial statements of the company that you wish to sue. The company may have included your claim within a line item in its financials before the expiration of the normal deadline thus potentially extending the time for you to sue. Professional legal and accounting advice could be sought to assist with this examination.
Conversely, it would be wise for a company to be careful how it describes any old debts in its financial statements. The Supreme Court of Canada previously made clear that an acknowledgement of a debt will only extend the time to sue if it both acknowledges the existence of a claim for the debt and admits liability for the debt. Thus it is possible to avoid inadvertently extending the time to sue—the limitation period—if an acknowledgment only recognizes the fact that a claim for a debt has been made and does not admit liability. But merely including such debt as a line item liability on the financial statements without further explanation could be interpreted as an acknowledgement of liability. This could be so even when the amount is included in a larger number of accounts.
The case reminds us how difficult it can be to determine whether the statutory deadline for suing someone has expired or not. What appears to be a simple matter—determining the limitation period—is, in reality, a much more complex question that poses numerous traps for the unwary.