Financial Statements Can Inadvertently Extend Limitation Periods

by Bennett Jones LLP
Contact

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.

Implications

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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bennett Jones LLP | Attorney Advertising

Written by:

Bennett Jones LLP
Contact
more
less

Bennett Jones LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.