COURT FILE NO.: CV-23-00000005-0000 DATE: 2023-08-28 ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

2516216 Ontario Ltd. o/a NUMBRS Alexis Beale, counsel for the Applicant Applicant

• and -

AbleDocs Inc. Michael Prosia, counsel for the Respondent Respondent

HEARD: May 24, 2023 at Cayuga

THE HONOURABLE JUSTICE R. B. REID

REASONS FOR JUDGMENT

Introduction:

[1] The applicant, 2516216 Ontario Ltd. o/a NUMBRS (“Numbrs”), is a corporation which provides bookkeeping services to small and medium-sized businesses. Numbrs is owned and operated by Ms. Anna Carey (“Ms. Carey”).

[2] The respondent, AbleDocs Inc. (“AbleDocs”), is a corporation which provides IT services for electronic document accessibility and remediation. Mr. Adam Spencer (“Mr. Spencer”) is the president, CEO, sole director, and sole shareholder of AbleDocs.

[3] Pursuant to a written engagement agreement dated February 8, 2019, Numbrs agreed to provide bookkeeping services to AbleDocs. Services were provided from February 2019 to March 2022.

[4] Invoices were rendered by Numbrs. Some payments were received.

[5] Numbrs brought this application dated February 13, 2023, pursuant to rule 14.05(3)(d) and 14.05(3)(h) of the Rules of Civil Procedure which permit a proceeding to be commenced by application where the relief claimed is for the determination of rights that depend on the interpretation of a contract and in respect of any matter where it is unlikely that there will be any material facts in dispute. Numbrs seeks judgment for $111,680.38 which it alleges is the outstanding balance of the accounts rendered.

[6] AbleDocs admits that some amount is owing, but not in the amount claimed, and responds that the application should be converted into an action pursuant to rule 38.10(1)(b) because of the lack of agreement on several material facts. It brought a motion dated May 10, 2023, specifically requesting the conversion, which was heard with the application.

Facts and Positions of the Parties:

[7] The parties agree that Numbrs was retained by AbleDocs to provide bookkeeping services pursuant to an engagement agreement effective February 8, 2019. The hourly billing rate was established by that document, and services were rendered from February 2019 to March 2022.

[8] The terms of the engagement agreement are not in dispute.

[9] Numbrs states that it invoiced AbleDocs monthly by email for services rendered.

[10] No dispute was made by AbleDocs about the content of any invoice prior to the commencement of this application. In the course of litigation, AbleDocs noted that invoices rendered did not include supporting timesheets. Ms. Carey responded that, had she known that timesheets were desired, they would have been provided from the detailed records maintained by Numbrs, and she has now produced those records to Mr. Spencer.

[11] AbleDocs notes that over time there was a substantial increase in the number of monthly hours billed by Numbrs, resulting in an overbilling. The new bookkeeper retained by AbleDocs after the retainer with Numbrs ended provides substantially similar services for fewer monthly hours. Numbrs responds that no dispute was made by AbleDocs about the amounts billed or any aspect of the invoicing until after this litigation was commenced and that the scope of work increased substantially when AbleDocs’ CFO resigned in May 2021, requiring the expenditure of more hours and generating higher monthly invoices. No replacement for the CFO was hired until after Numbrs’ engagement ended. As well, Ms. Carey on behalf of Numbrs deposed that AbleDocs grew over time, for example from an initial processed payroll of 10 employees to 60 in December 2021 and that during the same timeframe, the number of monthly transactions processed in the Numbrs accounting system rose from about 700 to almost 4,900. There was also a corresponding growth in sales by AbleDocs over the period of the engagement from an average of $100,000 per month to more than $600,000 in December 2021.

[12] AbleDocs submits that invoices rendered between October 30, 2020 and January 30, 2021 are presumptively statute barred by virtue of section 4 of the Limitations Act, 2002, in that they were incurred more than two years before the commencement of this application. Numbrs responds that AbleDocs acknowledged the debts by email and texts, thereby extending the applicable limitation period and that, in addition, the parties entered a tolling agreement on April 14, 2022. The agreement to toll means that none of the unpaid invoices are statute barred.

[13] Part of Numbrs’ work for AbleDocs involved the provision of payroll services for AbleDocs USA LLC. AbleDocs alleges that Numbrs was negligent in providing those services, such that US tax remittances were not made by Numbrs on behalf of AbleDocs. The result was a significant US tax liability at the end of the Numbrs engagement, allegedly in the amount of $128,829.91 owed by AbleDocs USA LLC. If the application is converted into an action, AbleDocs intends to assert a counterclaim in negligence. Numbrs responds that the US tax issue is irrelevant to this application in that it involves a company other than AbleDocs and notes that there has been no action commenced by AbleDocs to date, despite the fact that the US tax liability issue has been known since late 2021 or early 2022, according to the affidavit of Mr. Spencer sworn April 16, 2023.

Analysis:

[14] Numbrs has a prima facie right to proceed by application where the relief claimed is for the determination of rights that depend on the interpretation of a contract. In this case, the terms of the engagement letter were clear and are admitted. There is also a prima facie right to proceed by application where it is unlikely that there will be any material facts in dispute.

[15] An order converting an application to a trial is made as an exercise of the court’s discretion, which typically occurs where there is conflicting evidence and complex and disputed questions of fact or credibility where oral evidence is required. See Dell v. The Corporation of the Town of Niagara on the Lake et. al., 2023 ONSC 1610, at para. 20.

[16] In Collins Barrow Toronto LLP v. Selectcore USA, LLC, 2016 ONSC 3826, at paras. 17-19, this court reviewed the criteria for converting an application to an action in a case, like this one, where the application was brought pursuant to rules 14.05(3)(d) and 14.05(3)(h):

To determine whether I should exercise my discretion to convert the application to an action and direct a trial, I must consider: (a) whether there are material facts in dispute; (b) the presence of complex issues; (c) whether there is a need for the exchange of pleadings and discovery, and (d) the importance and the nature of the relief sought by application. [Citations omitted.]

I should also consider whether the affidavits and transcripts of cross-examination are enough to decide any credibility issues or a trial is required. [Citations omitted.]

Finally, I should consider whether, if the application had been brought as an action and a party moved for summary judgment, the Court would be satisfied that there is no genuine issue requiring trial. [Citations omitted.]

[17] As was observed by Perrell J. in Sekhon v. Aerocar Limousine Services Co-Operative Ltd., 2013 ONSC 542, at para. 50, the overarching principle in determining whether an application should be converted into an action is procedural fairness:

If the application cannot fairly be determined by the summary process of affidavits and cross-examinations, then the application should proceed to trial and a hearing of witnesses. However, if the determination of the issues, including issues of credibility can properly be made on the application record, then the application should not be converted into an action with a trial. [Citations omitted.]

[18] I proceed on the basis that in this application, as with a summary judgment motion, the parties will have put their best foot forward as to evidence of the claim and any available defences.

[19] Numbrs has supported its claim with details of the invoices rendered monthly throughout the engagement period. It has identified the amounts received as part payment and applied those payments to the oldest accounts first.

[20] AbleDocs states that it misunderstood the amounts owing to Numbrs from accounts receivable summaries received from Numbrs relating to creditors of AbleDocs generally. However, any such misunderstanding does not affect the debt to Numbrs. There was never a challenge or question raised by AbleDocs as to the amount of any monthly account received from Numbrs. During 2021 through to the end of the engagement agreement in March 2022, there were multiple contacts between the parties on the subject of the accounts receivable with Numbrs, all in relation to the need for payment to be made and none querying any aspect of the invoices.

[21] Although AbleDocs infers that there must have been overcharging by Numbrs because the hours billed were higher than those subsequently expended by the bookkeeper who assumed the engagement with AbleDocs after March 2022, Numbrs has provided a reasonable explanation for why the monthly hours increased over the course of the engagement, to which I have referred above. There is no challenge to those factors and no evidence as to whether they continued to apply after March 2022.

[22] I am satisfied on the basis of the material filed and the lack of any meaningful dispute that monthly invoices were rendered by Numbrs pursuant to the engagement letter and, except as were offset by appropriately applied partial payments, remain outstanding. That total is $111,680.38.

[23] The two remaining issues which could impact on whether the application is converted to an action relate to the potential negligence claim against Numbrs and whether collection of some of the invoices are statute barred pursuant to the Limitations Act, 2002.

[24] As noted above, AbleDocs alleges negligence against Numbrs as to services rendered relating to the payroll remittances to the US government due from AbleDocs USA LLC. The failure to make remittances apparently resulted in a significant financial liability to that company. AbleDocs wishes to have the application converted to an action in order that it may pursue the negligence allegation as a counterclaim.

[25] The claim for unpaid accounts contained in the application and the potential claim for the negligent provision of bookkeeping services are discrete. As affirmed by the Ontario Court of Appeal in Collins Barrow Toronto LLP v. Augusta Industries Inc., 2017 ONCA 883, at paras. 3 and 7, determining the issue of AbleDocs’ liability for the unpaid invoices does not prevent the commencement of a claim in negligence. There is no reason to delay determination of liability for the invoices pending resolution of the negligence claim. In any event, the position of AbleDocs might have been more persuasive if an action had been started by it at some time after it became aware of the issue in late 2021 or early 2022 and date of this application hearing over a year later.

[26] There is no procedural unfairness to dealing with the contractual claim for payment of outstanding accounts separately rather than allowing it to be combined with a potential tort claim for negligence. In fact, there is some judicial economy to be achieved by dealing with the contract claim through the summary procedure provided by an application including the filing of affidavits and subsequent cross-examinations.

[27] Depending on the specific circumstances of the case, an issue of whether some accounts cannot be collected based on the expiry of a two-year limitation period could be a dispute about material facts.

[28] The last payment from AbleDocs was in the amount of $5,000 received on October 14, 2022. It was applied to invoices up to October 31, 2020 and included part payment of that invoice, leaving $2,276.73 outstanding. The engagement agreement provided that accounts would be due within 15 days of the date of the invoice. That term had been extended to a due date 30 days following the date of the invoice as was stated on each of the outstanding invoices from and after October 31, 2020. The two-year limitation period would therefore begin to run on the date the invoice was payable. Based on the date of the application, namely February 22, 2023, claims to accounts rendered prior to January 22, 2021 could be statute barred. Therefore, the amount in dispute is $9,007.85.

[29] The Limitations Act, 2002 provides at s. 22(3) that the limitation period under that Act may be suspended or extended by an agreement made on or after October 19, 2006.

[30] In the context of attempts by Numbrs to collect the outstanding accounts from AbleDocs, on October 14, 2022, which was about six months after the engagement ended, counsel for Numbrs sent an email to AbleDocs under the heading “RE: Claim to be issued against AbleDocs and Adam Spencer” as follows:

Numbrs will accept $5,000 today and the parties agree to toll all limitation periods so that we can work out a further payment plan. Please let me know before 12:15 if this is acceptable to you and AbleDocs.

[31] At 12:18 p.m. on October 14, 2022, Mr. Spencer responded by email on behalf of AbleDocs as follows:

We will send the $5000 by interac payment today. Please confirm where that payment shall go.

[32] The $5,000 payment was made. In his affidavit sworn April 16, 2023, although Mr. Spencer acknowledges having made the $5,000 payment, he also states: “I deny that any waiver or tolling of any limitation period was granted as part of this without prejudice payment.” No further information is provided to explain that denial.

[33] The correspondence took place in the context of collection proceedings. The title to the email makes it clear that a claim against AbleDocs was contemplated. The resolution, presumably in exchange for not issuing a claim, was for a part payment combined with the tolling agreement in exchange for time to negotiate a final resolution. An unsupported bald denial that the tolling agreement was made does not create a dispute about a material fact. I conclude, based on the wording of the email taken together with the lack of any other reasonable explanation by Mr. Spencer for the apparent agreement to toll “all limitation periods” that there was a tolling agreement which had the effect of suspending or extending the two-year limitation period such that outstanding accounts rendered prior to January 22, 2021, are not statute barred.

[34] Having reached the conclusion that a tolling agreement existed, it is not strictly necessary to deal with section 13 of the Limitations Act, 2002, which permits the extension of the basic two-year limitation period in relation to a claim for liquidated damages where an acknowledgement of the indebtedness is made. If such an acknowledgement exists, the debt is deemed to have been incurred on the date of the acknowledgement.

[35] In any event, on several occasions, Mr. Spencer corresponded with Ms. Carey about the outstanding accounts with Numbrs. For example, on February 26, 2021, he advised that: “… I hate that you aren’t paid”. On April 22, 2021, Mr. Spencer advised: “okay, I’m very concerned about how much is owed to Matt Kuznicki and you…We need to get on top of things. I really don’t want to be 90 days out.” By email dated May 25, 2022, Mr. Spencer advised that: “I assure you I want to get this wrapped up and you made whole.” There is no issue about the authenticity of the email or text messages. I find that the May 25, 2022 email, in particular, constitutes an acknowledgement of the debt which is implied in the promise to Ms. Carey to make her whole.

Conclusion:

[36] This is not a case where the issues are complex. It is a simple debt claim in contract with clear terms as to the engagement agreement and detailed invoices. No challenges were made to the amounts billed during the relationship between the parties. The potential tort claim based on negligent performance can be pursued separately. The presence of a tolling agreement answers the argument that collection of some of the invoices is statute barred. Even without the tolling agreement, there appears to be an acknowledgement of debt, with the effect that any limitation period is extended, and no invoice is statute barred.

[37] Affidavits have been exchanged and written or oral cross-examinations conducted. Conversion to an action with further pleadings and examinations for discovery is unnecessary to do justice to the case. Indeed, if this matter had been begun as an action, Numbrs could well have sought summary judgment based on the lack of a genuine issue requiring a trial. There are no significant credibility issues that must be resolved before a proper determination can be made.

[38] In short, there is no need to exercise the court’s discretion to convert this application to an action and no impediment to granting judgment in favour of Numbrs as requested.

[39] For the foregoing reasons, there will be judgment in favour of Numbrs against AbleDocs in the amount of $111,680.38 plus prejudgment interest at the rate of 4% and postjudgment interest at the rate of 6% pursuant to the Courts of Justice Act. The corresponding motion by AbleDocs dated May 10, 2023 is dismissed.

Costs:

[40] The parties are encouraged to resolve the issue of costs amongst themselves. If they are unable to do so, they may submit Bills of Costs and make written submissions, consisting of not more than three pages in length, according to the following timetable:

• Numbrs is to serve its Bill of Costs and submissions by September 8, 2023;
• AbleDocs is to serve its Bill of Costs and submissions by September 22, 2023;
• Numbrs is to serve its reply submissions, if any, by September 29, 2023.

[41] All submissions are to be filed with the court, with a copy by email to St.Catharines.SCJJA@ontario.ca, and uploaded to CaseLines by October 2, 2023.

[42] If no submissions are received by the court by October 2, 2023, or any agreed extension, the matter of costs will be deemed to have been settled.

Reid J. Released: August 28, 2023