When Does a Limitation Period Run for a “Running Account”?

An important deadline for any litigation is the limitation period, which is the final date by which a lawsuit for specific a claim must be commenced. The limitation period is important because, if missed, the plaintiff may be barred from ever bringing a lawsuit to seek recovery of that claim.

In Thermal Exchange Service Inc. v Metropolitan Toronto Condominium Corporation No. 1289, the Court of Appeal for Ontario discussed when a limitation period may arise in the context of a contract who maintains a “running account” with its customer.

Background

The plaintiff contractor had an ongoing relationship from 2002 to 2015 with a condominium corporation where the contractor serviced the HVAC units in a condominium building. The contractor received work orders from the condo corporation and then performed the work requested. The contractor maintained a single “running account” with the condominium corporation for the work.

From 2002 to 2008, the contractor invoiced the condo corporation for the work performed under each work order. From 2008 onwards, the contractor began sending the condo corporation a semi-annual batch invoice for the entire account, and payments received from the condo corporation were credited to the overall account. The contractor’s invoices had 30-day payment terms.

Over time, many the contractor’s invoices remained unpaid. When asked about the invoices, the condo corporation’s property manager would respond that she was busy but was “working on it”. In 2015, after no payment from the condo corporation, the contractor sent a demand letter. In 2016, the property manager told the contractor that the condo corporation had no obligation to pay the contractor’s invoices. These unpaid invoices dated as far back as 2008. The condo corporation did not pay, and the contractor started a lawsuit in 2017.

The court’s decision

The standard rule in Ontario is that a plaintiff must start a lawsuit within two years of discovering its claim. A plaintiff discovers a claim one the plaintiff first knew of a loss that was caused or contributed to by an act or omission of another person, and that a legal proceeding is an appropriate means to seek to remedy the loss.

In this case, the court found that the contractor first realized its loss when it first became aware that its invoices remained unpaid 30 days after they were rendered. The court then had to decide when the contractor knew that a legal proceeding would be an appropriate means to seek to remedy the loss.

As the condo corporation’s property manager made statements to the contractor that she was “working on it” and did not outright refuse to pay, the court held that it was reasonable for the contractor to rely on the assurances of the property manager to hold off on commencing a lawsuit. It was not until 2016, when the property manager told the contractor that the condo corporation had no obligation to pay the invoices, that the limitation period started to run, i.e. when the contractor first knew that it had to sue the condo corporation to recover the arrears.

Key takeaways

The two-year limitation period to start a lawsuit in Ontario may be extended where a defendant makes assurances to a plaintiff and the plaintiff relies on those assurances.

If a plaintiff can prove that the parties used a “running account” (such as one with batch invoices and payments that are applied to the overall account), the limitation period to start a lawsuit for arrears in payment may be determined in relation to the entire account, rather than on an invoice-by-invoice basis.