Resetting the limitations clock in actions to recover debts

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The Supreme Court of British Columbia is the most recent court latest to find that a debtor’s email can, in the appropriate circumstances, be sufficient to restart the two-year limitation period in which a creditor can initiate a court action to recover payment of a debt.

Two-year limitation period

The British Columbia Limitations Act, which came into force June 1, 2013, changed the limitation period for many types of actions from six years to two years. One of those changes relates to action for debts. As a result of the change in the legislation, a claim for debt will have a two limitation period where default in payment occurred after June 1, 2013. Different rules will apply for debts where default occurred prior to June 1, 2013.

The two year limitation period for commencement of the action for recovery of a debt that is in default can, however, in certain cases be extended if, within the two year period following the default the debtor acknowledges the debt. This can be done by either paying an amount towards reduction of the debt, or by an acknowledgment in writing, but such writing must be:

  • signed, by hand or by electronic signature within the meaning of the Electronic Transactions Act;
  • made by the person making the acknowledgement or the person’s agent; and,
  • made to the person with the claim, the person’s agent or an official receiver or trustee acting under the Bankruptcy and Insolvency Act (Canada).

In Johal v. Nordio, the plaintiffs loaned $250,000 to the defendant who gave a promissory note to one of the plaintiffs with a due date for repayment of April 25, 2014. When the due date came and went, several emails were exchanged between the parties, the last being on August 31, 2014. In those emails, the defendant made a variety of statements, which acknowledged the debt and included a promise to pay. When payment did not materialize, the plaintiffs commenced an action on July 24, 2016.

The defendant argued that the action was commenced outside of the two year limitation period given that the default occurred on April 25, 2014. The court found for the plaintiffs, based on provisions of the Limitations Act and Electronic Transactions Act.

The Electronic Transactions Act defines “electronic signature” as: “information in electronic form that a person has created or adopted in order to sign a record and that is in, attached to or associated with the record”. What will be sufficient to constitute an electronic signature is still to be determined. In this case the defendant had his name, and additional contact information. The court noted that if there was no name, the plaintiff who received the email may have doubted who had sent them. Depending on the surrounding circumstances, an email with merely the debtor’s first name might be sufficient to constitute an acknowledgement in writing, assuming all the other requirements are otherwise met.

If debtors use correspondence with promises of payment as delaying tactics, creditors may be able to use the same correspondence as a means of extending the period in which they can take legal action.

lawyer experienced in debt enforcement and collection can provide specific, case-by-case legal advice on timing, processes and remedies for creditors.

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