Factoring In Recent Jurisprudence Regarding Estoppel Certificates

In the recent Ontario Court of Appeal decision, TFS RT Inc. v. Shoppers Drug Mart Inc. ("TFS v. Shoppers"),^1. Lauwers J.A., et al clarified the requirements and scope of estoppel certificates and "hell or high water" clauses. Factors should take note of this decision and ensure that all estoppel certificates obtained satisfy the requirements of the Court.

Factoring involves the sale by a seller of its accounts receivables, at a discount, to a factor. The factor assumes the credit risk of the seller's customer(s), and is entitled to all payments received pursuant to the receivables. Generally, the factor requires a "hell or high water" clause in the factoring agreement whereby the seller states that the factor is entitled to payment pursuant to the receivables despite any right of abatement, defense, set-off, compensation, counter-claim or the like which the customer may have against the seller. Similarly, sellers often include a corresponding provision in their