Last November at the 2016 SCORE Statistical Consulting Dormant Debt Conference in Toronto, I listened to panel members express differing opinions on when the limitation period starts for contractual debts. It was my first time attending this conference and I wanted to “graze around the edges” before joining the herd so I kept my thoughts to myself. Now that I’ve been persuaded to start sharing my views with our industry through a blog, this topic came to mind as one that may be of interest and value.
First, I’ll share the latest Ontario court decisions that in my view are strong authority for the limitation period starting to run not from the date of last delinquency or last payment, but from the date the statutory “credit-denial” process has run its course, the creditor’s parallel efforts to cure the default have failed, and the creditor terminates the agreement and charges off the account. Second, as an aside I’ll comment on the appropriateness of Small Claims Court staff and judges advocating for delinquent debtors and asserting the limitation period defence on their behalf.
When the Limitations Act, 2002 (https://www.ontario.ca/laws/statute/02l24) came into effect on January 1, 2004 in Ontario reducing the limitation period for contractual debts from six to two years, when the limitation period starts became a high-dollar-impact issue.
From my observations, the common opinion in the industry has been that the two-year limitation period starts to run at the later of the date of first delinquency or the date of last payment. That is not correct, in my view. We have been advising our clients that so long as the wording of the credit agreement supports it, the limitation period starts when escalating derogatory credit reporting has failed and the creditor concludes the customer will not voluntarily cure the default, terminates the account and charges it off.
The seminal case in Ontario on this point is Bank of Nova Scotia v. Mazin, 2010 CarswellOnt 7993, 2010 ONSC 5827 (C.A.) at paras. 12-15 (http://christensenlawfirm.com/resources/case-book/bank-of-nova-scotia-v.-mazin/). In Mazin, the Divisional Court stated that “a breach of the Cardholder agreement does not necessarily occur when there is a failure to make the minimum monthly payment . It is clear that the Cardholder agreement contemplates that the card may continue to be used by the appellants while in arrears”. The court held that the limitation period began to run when the bank terminated the agreement, not when the customer breached the agreement by failing to make the minimum payment.
That ruling has been buttressed by recent decisions of the Ontario Court of appeal in 407 ETR Concession Co. v. Day 2016 ONCA 709, 2016 CarswellOnt 14831 and Brown v. Baum, 2016 ONCA 325, 2016 CarswellOnt 6735. Those cases are summarized, affirmed and clarified by the Court of Appeal in Presidential MSH Corp. v. Marr, Foster & Co. LLP, 2017 CarswellOnt 5780, 2017 ONCA 325, 277 A.C.W.S. (3d) 852.
In short, those cases hold that section 5(1)(iv) of the Limitations Act, 2002 (https://www.ontario.ca/laws/statute/02l24) can have the effect of postponing the start date of the two-year limitation period beyond the date when a plaintiff knows it has incurred a loss because of the availability of other non-judicial remedies. In such instances, it may not be “appropriate” to sue until such non-judicial remedies have first been utilized. That section provides that a claim is “discovered”, i.e. the limitation period begins to run, on the day “that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”.
In the 407 v. Day case, the statutory remedy is the ability to deny renewal of vehicle registration to drivers who fail to pay their tolls. The court held it was not appropriate to sue, and thus the limitation period did not begin to run, until the “plate-denial” remedy had failed to work. In our firm’s view, the statutory “credit denial” scheme of the Consumer Reporting Act (https://www.ontario.ca/laws/statute/90c33) of escalating derogatory reports in a consumer credit file is a similar statutory remedy that should be allowed to run its course before it is “appropriate” to sue on a credit card or similar debt. As the delinquent customer progresses from R2 to R9, contract termination and charge-off whilst being offered zero-interest hardship programs etc. to try and cure the default it is not “appropriate” to sue. Consequently, the limitation period does not start until the “credit-denial” remedy has failed and parallel attempts to cure the default voluntarily have run their course; the limitation period does not start until the date the account agreement is terminated, the account closed, and the balance owing charged off.
Our firm outlined those arguments for Ontario’s Divisional Court recently in our client’s successful appeal in Capital One Bank v. Ramirez-Rodriguez, 2017 ONSC 3536 in the appellant’s factum. The appeal was of a decision of Justice Pamela Thomson of the Small Claims Court where she unilaterally, without inviting submissions from the parties, found that the limitation period had expired and dismissed the plaintiff’s claim.
The Divisional Court Judge hearing the appeal, Justice Nordheimer, reversed Justice Thomson’s decision and sent the matter back for trial. Justice Nordheimer said, “Indeed, there would appear to be a live issue as to when the limitation period begins to run respecting a credit card debt in light of decisions such as 407 ETR Concession Co. v. Day (2016), 2016 ONCA 709 (CanLII), 133 O.R. (3d) 762 (C.A.).
In reversing Justice Thomson’s decision, Justice Nordheimer rebuked her for her improper interference in what in my experience is strong language for an appellate court judge: “Unfortunately this is not the first that that this judge has proceeded in such a fashion: Kipiniak v. Dubiel,  O.J. No. 572 (Div. Ct.). The result is increased costs to the parties and considerable delay in having the claim properly determined. It also unnecessarily involves the time of this court.”
Our firm regularly runs into Small Claims Court staff and judges who seem to us to actively advocate on debtors' behalf. Like Justice Thomson, whom her immediate supervisory appellate court rebuked for doing so, they search for limitation issues and act unilaterally in the defendant’s favour breaching the procedural protections built into our adversarial common law system. For some of our clients, we avoid these problems by suing for Small Claims Court balances in Superior Court. The rules there limit cost awards to Small Claims Court-levels and there are some other complications, but the negatives are outweighed by the Superior Court, in my experience, reliably being a neutral adjudicator based on the submissions of the adversarial parties. The Ontario Court of Appeal has made clear that an expired limitation period is an affirmative defence that must be pleaded by a defendant. The court may not of its own initiative raise and apply the defence (S. (W.E.) v. P. (M.M.), 2000 CarswellOnt 2704,  O.J. No. 2792, 135 O.A.C. 161, 2 C.C.E.L. (3d) 8, 50 O.R. (3d) 70, 98 A.C.W.S. (3d) 833 (C.A.) at paras. 34-38). Such conduct by court staff or a judge is exacerbated when the court’s understanding of the law of limitations is incorrect.
This all boils down, in my view, to two points:
1. With credit card and similar debts in Ontario, where the credit agreement contemplates it, the limitation period begins to run not at the date of first default, but from the date the statutory “credit-denial” process has run its course, the creditor’s parallel efforts to cure the default have failed, and the creditor terminates the agreement and charges off the debt. We suggest the following contractual language to our clients on this point:
This agreement is not terminated by default in payment but will remain in force until terminated by the lender after it has exhausted its efforts to cure the default through the statutory remedy of escalating derogatory credit reporting and attempts to accommodate any financial hardship the customer may establish through financial disclosure.
2. In our common law adversarial system, the court is to be the neutral adjudicator based on the issues raised by the parties. With jurisdiction up to $25,000 in Ontario, many in our industry deal mostly with the Small Claims Court. Where that court’s staff in their administrative decisions or a judge in his or her rulings acts contrary to the law, in my view, creditors and their legal service providers have an obligation not only to protect their own interests but to be good citizens and preserve the integrity of the rule of law by engaging supervisory appellate courts to correct their too-frequent missteps and overreaching.
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