Using Small Claims Court Effectively

I recently provided Small Claims training to a client. Along with this client’s dependable, regularly paid accounts came a fairly steady stream of unpaid debts. Individually, they were not significant enough to justify involving a lawyer, but cumulatively they required attention.

His existing collections process involved a series of phone calls and reminders to pay the bill. If that was unsuccessful, so was the collection. Our client knew that Small Claims Court was the proper legal channel to advance it further, but did not have this process established.

While the purpose of Small Claims is to speed up court actions and reduce costs to litigants, legal fees can still quickly exceed the amount of many claims. Our client decided it made financial sense to extend his internal collection procedures to include Small Claims. Since his business crossed provincial borders, our task was to canvass the differences across the Prairies, and teach his employees to pursue Small Claims from the drafting stages through collection of a judgment.

Using Small Claims effectively requires attention to detail and cost management; the best way to do so is to incorporate some important steps and considerations into the processes. This article outlines those considerations.

Before filing a claim, always make a formal demand for payment. It is recommended to set up a diary system for unpaid debts, select a standard period of non-payment, and follow non-payment with an automatic demand letter. If you receive a response, it helps to obtain a promissory note from the debtor.The promissory note is an enforceable promise to pay, and resets your limitation period to the date of signing. Many debtors will sign a note to avoid legal proceedings, or because it postpones their immediate problem.

Once a formal demand goes unanswered (which is usually the case), claimants must decide if Small Claims is the proper forum to have the claim heard. In doing so, pay attention to monetary limits, subject matter jurisdiction, and limitation periods.

Each province has a monetary limit for its Small Claims regime. This is a good example of where each jurisdiction is different. In Manitoba the cap is $10,000, in Saskatchewan $30,000 and Alberta’s is $50,000. Limits represent the maximum value that can be claimed in a jurisdiction, but litigants can pursue a higher claim, as long as they waive the amount that exceeds the limit. In other words, a Saskatchewan claim for a $40,000 debt could still proceed, but the maximum recoverable would be $30,000.

The subject matter of the claim must fall within the jurisdiction of the Court, and again, this varies between provinces. For example, Manitoba and Alberta Small Claims Courts will resolve liability for motor vehicle accidents, while Saskatchewan has a different scheme and will not. Where claims are for debt or damages, Small Claims will usually have the jurisdiction to decide the matter. However, certain jurisdiction rules can be found in different pieces of legislation. For instance, Saskatchewan’s Partnership Act states that determinations under it must be made by the Court of Queen’s Bench, and while the damages claimed may be below the monetary limit, this legislative direction will prevail. A claim which is brought in Small Claims Court may be dismissed or transferred to the more costly Queen’s Bench.

Before advancing a claim, litigants should ensure that the limitation period has not expired. In Saskatchewan, most limitation periods and rules for when they start running are set out in The Limitations Act; however, limitation periods can also be found within specific legislation. As a very rough guide, two years is a common limitation period. But there are instances where it is shorter or longer, and that should be carefully monitored. It is advisable to include expiration dates for promissory notes in your diary system. If the debt (or a portion of it) still exists, and the debtor is willing to sign again, you can refresh the limitation period.

If unpaid accounts are adding up, but legal fees to pursue them would potentially exceed their value, consider following this strategy, and seek legal advice on using Small Claims with your internal collection processes.

It needs to be noted in closing, however, that court is a messy, uncertain and costly approach to management of accounts receivable. It is far better to employ processes to avoid overdue accounts in the first place (such as with deposits or cash payment requirements), or to at least use security agreements to improve the chances of collection.