Even before COVID-19 forced us to interact with each other exclusively in front of screens, the world was already becoming a more digital place. Meetings were increasingly occurring over videoconference, documentation could be delivered by email (rather than by mail or fax) and electronic signatures were becoming the norm on contracts.
A recent decision from the Ontario Divisional Court has confirmed that this new reality must be accepted in practice and under the law.
In 1475182 Ontario Inc. o/a Edges Contracting v. Ghotbi, 2021 ONSC 3477, Edges Contracting (“Edges”) commenced an action against the defendant corporation and its principal for funds owing under a construction contract. In January 2015, the defendants hired Edges to construct leasehold improvements for the defendants. A final invoice was rendered on January 19, 2016, which was paid in part on March 11, 2016 and stated that the defendants would be withholding further payment until certain issues were resolved. On June 2, 2016, the balance of the invoice was still outstanding and the defendants’ principal sent Edges a text message acknowledging the amount was still owing, but failed to make further payment.
Edges commenced a claim against the defendants on May 30, 2018 in the Small Claims Court for the amount owing on its outstanding invoice. At trial, the defendants took the position that the applicable two-year limitation period commenced on March 11, 2016 when the last partial payment was made and when the defendants advised that they were withholding further payments, which put the claim outside the two-year period. Edges argued that the June 2, 2016 text exchange between the parties included an acknowledgment of the indebtedness by the defendants. As such, Edges took the position that the limitations clock started running on that date, which put the claim within the two-year period.
In making its argument, Edges relied on section 13 of the Limitations Act, which provides for the extension of the commencement date of a limitation period in relation to a claim for liquidated damages where an acknowledgment of the indebtedness is made. The section reads:
13 (1) If a person acknowledges liability in respect of a claim for payment of a liquidated sum, the recovery of personal property, the enforcement of a charge on personal property or relief from enforcement of a charge on personal property, the act or omission on which the claim is based shall be deemed to have taken place on the day on which the acknowledgment was made.
(8) Subject to subsections (9) and (10), this section applies to an acknowledgment of liability in respect of a claim for payment of a liquidated sum even though the person making the acknowledgment refuses or does not promise to pay the sum or the balance of the sum still owing.
(10) Subsections (1), (2), (3), (6) and (7) do not apply unless the acknowledgment is in writing and signed by the person making it or the person’s agent. [Emphasis added]
The defendants argued that section 13 of the Limitations Act did not apply because, even if the defendants did acknowledge the debt, the acknowledgment was not signed. The trial judge disagreed and accepted Edges’ position. It was held that the text message exchange on June 2, 2016 constituted an acknowledgement of the debt owing by the defendants and, even though the texts were not signed, their authenticity was not in dispute.
The defendants appealed the decision to the Ontario Divisional Court. On appeal, they argued that the trial judge misinterpreted section 13 of the Limitations Act. In particular, they contended that, in order to acknowledge a debt under this section, it requires (a) clear and unequivocal language; (b) the absence of a dispute regarding the amount owing; and (c) a signature.
The defendants took the position that the June 2, 2016 text messages contained none of the required elements and, as such, it could not be a valid and effective acknowledgment of the debt.
In deciding the appeal, Justice Boswell noted that there was no question that the acknowledgment of the debt was in writing, but the applicable question was whether it was signed. Although he agreed that the text message met the requirements of section 13 of the Limitations Act, he disagreed slightly with the trial judge in noting that just because the text messages were authentic, that alone did not necessarily mean that they were “signed”.
However, he did ultimately agree with the trial judge that the text messages were sufficient to satisfy the requirements of section 13 of the Limitations Act. In explaining his reasons, Justice Boswell stated:
“The world is changing. Everyone knows that. We live in a digital world now, much more than was the case when the Act came into force in 2002[1]. It is incumbent upon the court to consider not just traditional means of affixing one’s signature to a document, but other, more modern means, including digital signatures.
In this instance, there is no question about the authenticity of the text messages. There is no question that [the defendants’ principal] was the author of the June 2, 2016 texts in issue. From that perspective, the underlying purpose of s. 13(10) has been satisfied.
I would also find that the express requirement of a signature is met in this case. [The defendants’ principal] used his cellular telephone to send and receive texts with Mr. Lupo. [The defendants’ principal], like all other cellular telephone users, has a unique phone number linked with his phone. In fact, there will undoubtedly be other unique identifiers associated with [the defendants’ principal’s] phone including, without limitation, an International Mobile Equipment Identifier (IMEI) number. These unique identifiers provide, in effect, a digital signature on every message sent by the user of that particular device. Again, there is no dispute that the user of the device was [the defendants’ principal] and that he sent the texts in issue. In my view, that digital signature is sufficient to meet the requirements of s. 13(10) of the Act.”
This decision provides some much-needed clarity on an important issue in this day and age. It is often unclear what sort of weight and significance digital means such as text messages and other electronic communications have in forming binding agreements between contracting parties. We now know that a text message can bind someone to an agreement under the law and even reset a limitation period.
[1] [Sic] the Limitations Act, 2002, came into force January 1, 2004.
Co-Author: Daniel Waldman, Lawyer