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The year 2020 brought countless difficulties to many Albertans and their businesses. Included amongst the many hardships for some businesses are higher accounts receivables. This article discusses when companies must sue for unpaid work under:
- a properly issued invoice,
- a corrected or re-issued invoice; and
- an invoice that was never issued.
The general rule is found in Alberta’s Limitations Act, which states that a business has two years from the date on which it knew or should have known an “injury” occurred and an action is warranted.1
In the first scenario, the limitation period for a properly issued invoice will expire two years after the invoice is issued and a reasonable period of time for payment has passed.2
Where services have been performed and invoices have been issued but not paid, the injury referenced under the Limitations Act is the unpaid invoice.3 This means that two-year limitation period does not start on the date the work was performed because that is not the injury that is being claimed but rather on the date when payment should have been received.
In many cases, the issuing of invoices and the timing of their payment is addressed in an agreement between the parties, however, if there is no agreement between the parties, the law will impose a reasonable time period.4 This reasonable period will be a fact-specific determination by the court. It may be influenced by other terms in the parties’ agreement such as a term that imposes interest after a specified time period (i.e. interest begins after 30 days).5
In the second scenario, the limitation period for a corrected or re-issued invoice will not differ from the original invoice. The Court of King’s Bench of Alberta has determined that where a company fails to include services in the original invoice and issues corrected invoices at a later date, the issuing of a corrected invoice does not delay or restart the running of the limitation period.6 Therefore, businesses should not rely on re-issued invoices to extend the limitation period.
In the final scenario, the limitation period for payment of work where no invoice has been issued is two years after a reasonable period of time for both the issuance of an invoice and the time for payment.
The delayed issuance of an invoice (or failure to issue an invoice) has no bearing on the limitation period.7 Much like the reasonable time period for paying an invoice, if there is no agreement between the parties, the law will impose a reasonable time period for both the issuing of invoicing and the payment.
Practically this makes sense because a business should not have the benefit of a longer limitation period as a result of its lack of diligence in failing to issue an invoice.
The key take-away from this article is to remember that when payment has not been made the limitation period will begin two-years from the “injury”, which occurs on the date that payment should have been made but was not, regardless of whether an invoice has been issued.
The above considerations are not a complete review of factors impacting limitation periods and the ability of a business to bring a claim for unpaid work. Although beyond the scope of this article, many other factors may impact this analysis such as the Ministerial Orders issued throughout 2020 due to the COVID-19 pandemic that extend limitation periods for longer than the original two-year period.
1 Limitations Act, RSA 2000, c L-12, http://canlii.ca/t/544dn
2 Royal Well Servicing Ltd v Murphy Oil Company Ltd, 2018 ABQB 514 at para 30, http://canlii.ca/t/hsv7f
3 Royal Well Servicing Ltd v Murphy Oil Company Ltd, 2018 ABQB 514 at para 23, http://canlii.ca/t/hsv7f
4 Royal Well Servicing Ltd v Murphy Oil Company Ltd, 2018 ABQB 514 at para 32, http://canlii.ca/t/hsv7f
5 See 1402496 Alberta Ltd v Neustaeter, 2020 ABQB 179, http://canlii.ca/t/j615k
6 Royal Well Servicing Ltd v Murphy Oil Company Ltd, 2018 ABQB 514 at para 29, http://canlii.ca/t/hsv7f
7 See Royal Well Servicing Ltd v Murphy Oil Company Ltd, 2018 ABQB 514, http://canlii.ca/t/hsv7f