Debtor and Creditor Relations Outline
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Debtor and Creditor Relations Outline Spring 2013 TABLE OF CONTENTS Alternative Financial Sector ........................................................................................4 Debt Information ......................................................................................................................................................4 Debt Trap DVD ............................................................................................................................................................... 4 “Household debt in Canada” – Chawla and Uppal......................................................................................... 4 “Regulatory Issues and Approaches” Ramsey .................................................................................................. 5 Debt Collection Practices ............................................................................................7 Prohibited Collection Practices ...........................................................................................................................7 Licensing ......................................................................................................................................................................9 Privacy........................................................................................................................................................................ 10 Obtaining Judgment .................................................................................................. 11 Limitation Periods ................................................................................................................................................. 11 White Paper on Limitation Act Reform ............................................................................................................13 Proceeding to Judgment...................................................................................................................................... 14 Default Judgment ........................................................................................................................................................15 Summary Judgment and Trial...............................................................................................................................16 Foreign Judgments ................................................................................................................................................ 17 Enforcement of Canadian Judgments and Decrees Act .............................................................................17 Court Order Enforcement Act................................................................................................................................18 Common Law Action..................................................................................................................................................19 judgments without Civil Actions ..................................................................................................................... 19 Debtor Examinations ................................................................................................ 20 Examination in Aid of Execution – SCCR 13-4 ........................................................................................... 20 Subpoena to Debtor – SCCR 13-3 .................................................................................................................... 21 Payment Hearing – Small Claims 12 .............................................................................................................. 21 Acting for Debtors after Judgment ................................................................................................................. 22 Pre-Judgment Execution ........................................................................................... 23 Injunctions ................................................................................................................................................................ 23 Interlocutory Injunctions ........................................................................................................................................23 Mareva Injunctions ....................................................................................................................................................23 Preservation Orders ............................................................................................................................................. 24 Pre-Judgment Garnishment............................................................................................................................... 25 Having a GO Set Aside – 2 Methods ....................................................................................................................26 Affidavit Requirements.............................................................................................................................................27 Professional Responsibility ....................................................................................... 27 1 Debtor and Creditor Relations Outline Spring 2013 Garnishment ............................................................................................................. 28 Timing of Garnishment Orders ........................................................................................................................ 28 Funds Subject to Garnishment ......................................................................................................................... 29 Wages ...............................................................................................................................................................................29 Rent ...................................................................................................................................................................................29 Lawyer’s Trust Account............................................................................................................................................30 Bank Accounts/Term Deposits/Line of Credit ..............................................................................................30 Accessing Garnished Funds ............................................................................................................................... 31 Execution Against Land ............................................................................................. 31 Process for Execution Against Real Property ............................................................................................ 31 Problems for the Creditor .................................................................................................................................. 33 Exemptions.....................................................................................................................................................................33 Interest of Good Faith Purchaser.........................................................................................................................33 Joint Tenancy ................................................................................................................................................................34 Priorities..........................................................................................................................................................................34 Execution Against Personal Property ......................................................................... 35 Process for Seizure and Sale ............................................................................................................................. 36 Procedure for Obtaining a Writ ...........................................................................................................................36 Procedure for Obtaining an Order ......................................................................................................................36 Sheriffs/Bailiffs ............................................................................................................................................................36 Property Subject to Seizure and Sale............................................................................................................. 37 Exemptions from Seizure.........................................................................................................................................37 Execution Against Shares .......................................................................................... 39 Money and Securities for Money ..................................................................................................................... 39 RRSP's......................................................................................................................................................................... 39 Execution Against Securities and Shares ..................................................................................................... 40 The Sale ...........................................................................................................................................................................40 Equitable Execution .................................................................................................. 42 Equitable Receivers .............................................................................................................................................. 42 Charging Orders ..................................................................................................................................................... 43 Execution Priorities ................................................................................................... 45 CAA .............................................................................................................................................................................. 45 Mortgages and Judgments.................................................................................................................................. 45 Family Maintenance Enforcement Act .......................................................................................................... 46 Employment Standards Act ............................................................................................................................... 46 Workers Compensation Act............................................................................................................................... 47 Exemptions and Immunities ...................................................................................... 48 2 Debtor and Creditor Relations Outline Spring 2013 Workers Compensation Act............................................................................................................................... 48 Employment and Assistance Act ..................................................................................................................... 48 CPP AND OLD AGE SECURITY ACT................................................................................................................. 48 Pensions Benefits Standards Act ..................................................................................................................... 48 Insurance Act........................................................................................................................................................... 48 Examples .........................................................................................................................................................................49 Crown Proceedings ............................................................................................................................................... 49 Indian Act ................................................................................................................. 50 Fraudulent Conveyances ........................................................................................... 52 Disposition of Property ....................................................................................................................................... 52 Intent .......................................................................................................................................................................... 53 Badges of Fraud ...........................................................................................................................................................53 Professional Obligations ..................................................................................................................................... 54 Professional Conduct Handbook ..........................................................................................................................54 Law Society BC – Discipline Digest .....................................................................................................................55 3 Debtor and Creditor Relations Outline Spring 2013 ALTERNATIVE FINANCIAL SECTOR DEBT INFORMATION DEBT TRAP DVD Key causes of Canadian debt loads identified in Debt Trap DVD: o Easy to get credit cards. o Consumerism, inability to delay gratification, inability to wait and save. o Wanting to keep up with your peers. o Income levels haven’t gone up and therefore maintaining one’s standard of living requires you to buy on credit. o Change in the labour market has made jobs more precarious and short term. o Tension between regulating our behavior has consumers and independence. o Symbol of “house” as a symbol of security. o Increase in our need to understand complex financial transactions. Benefits of having credit o Don’t have to carry cash. o Builds credit score, allow you to get more. o Unsecured credit has had a real democratizing effect. You used to be only be able to get a loan with credit. o Valuable to people with rising income expectations (get what’s coming to them). o Allow people to get a stock of capital goods all at once and pay them off over time. o Can be used to smooth over periods of need. o Family units are heavy users of credit. o Allow people to protect themselves when they are unemployed/ill. “HOUSEHOLD DEBT IN CANADA” – CHAWLA AND UPPAL Incidence and level of household debt are higher in certain population groups: younger homeowners, young families with children, the well educated, and those with higher household incomes. Over 60% of household debt was held by those under 45 years of age, and nearly one half was held by couples with children. Debt was not equally distributed within groups. Although they held a small portion of the total, household debt was more unequally distributed in populations that are considered more economically vulnerable, such as less educated, unattached individuals and renters. This is consistent with previous research that showed that these groups were more likely to experience financial insecurity. Debt was more equally distributed among better educated, couples with children, people with higher household incomes and mortgagees. 4 Debtor and Creditor Relations Outline Spring 2013 This study found that both financial literacy and self-assessed financial knowledge were associated with higher absolute debt levels, even when other characteristics were accounted for. However, other characteristics (such as home ownership and household income) were also strongly associated with higher debt loads. In addition to having better financial knowledge, people with a larger household debt load (defined as those who had at least $250,000 in household debt) were more likely to perceive themselves as good financial managers, and were more likely than others to seek financial advice on a variety of financial matters. “REGULATORY ISSUES AND APPROACHES” RAMSEY The alternative financial sector includes those institutions that primarily target individuals within the bottom 3rd of the economic ladder, or those with spotty or blemished credit records and includes the phenomena of “fringe banking” and “sub-prime lending.” Vulnerable consumers are those more likely to pay a high price for credit, those excluded from mainstream credit, and those who cannot access financial services. o Certain groups such as single parent mothers, unattached elderly people and unattached individuals under 25 have a much higher likelihood of experiencing low income. o Increasing inequalities of income and a reduction in the middle-income group, coupled with high debt to income ratios and a reduction in savings to income, make individuals vulnerable to unexpected changes in circumstances. COMMON FEATURES OF THE AFS Individuals pay higher prices for goods and services than in the mainstream financial sector. Evidence of fraudulent selling practices and oppressive collection tactics. Fewer social resources are devoted to monitoring and policing the sector on a continuing basis vs. middle-income markets. Regulatory enforcement is problematic due to the imaginative ability to restructure transactions to avoid the bite of regulation. Significant growth in a number of institutions: cheque cashing, payday loans, rent to own and pawnbrokers. o Growth in consolidation in several of these industries. Each individual transaction is relatively small in economic terms but may be significant in relation to the budget/resources of the consumer. Small amounts at stake means few people will litigate. Tendency to structure transactions in a form that evades regulation. WHY DO INDIVIDUALS USE THE AFS? 1. May have no reasonable choice because they do not have access to mainstream financial markets to meet their immediate needs. 5 Debtor and Creditor Relations Outline Spring 2013 2. 3. 4. Individuals may choose to deal with these high priced services rather than with mainstream financial system due to convenience, ability to obtain cash/good immediately, and because they dislike dealing with the banks. Certain consumers, particularly low income consumers, may be incapable of making rational choice and use these institutions because of limited planning, an inability to save, financial illiteracy, and individual inadequacies. Many consumer choices in the area of financial service occur from habit and convenience. RATIONALES FOR REGULATING THE AFS Correction of Market Failures o The two central failures are market power and information asymmetry. o The market failure approach is based on the normative goal of consumer sovereignty. Consumer policy is concerned with ensuring that the market will operate effectively to satisfy the preferences of the informed consumer in a competitive market. Costs of regulation should be balanced against its benefits. Level the Playing Field o Equality of access to information. o Interest rate ceilings are an attempt to redress perceived unfairness. o Fairness, financial exclusion and consumer protection and “positive welfare.” Paternalism o Protect the disadvantaged; alleviate problems associated with low income. o Slippery slope: it’s difficult to distinguish between situations where an individual may not be able to reach a rational judgment versus where a government is overruling and individual’s judgment and substituting its own. o Bounded Rationality: Economists assume that individuals are rational maximizers of utility. This assumes that individuals have perfect information processing capacities, and the choices they make don’t depend on how the information is framed. The market assumes that all people are rational economic actors but we’re not. At the very least, we don’t always act the way the market expects. Expanding Choices (realizing of regulation) o Lifeline Banking: recent federal legislation on financial services includes power to make regulations which would require banks to open low fee accounts for consumers. o Credit Unions: original goal was to avoid problem of usury for lower income consumers and provide a mechanism for individuals to develop a savings capacity. Requirement of membership share makes them unattractive to vulnerable consumers. BC has the highest percentage of credit union membership in Canada. o Direct Deposit: for government cheques. [Add in: credit reporting, financial literacy, payday loans] 6 Debtor and Creditor Relations Outline Spring 2013 DEBT COLLECTION PRACTICES Overview It is standard practice for a creditor seeking to recover repayment of a debt to make a demand for repayment first (before commencing legal action). This is often done through a demand letter sent from the creditor’s counsel to the debtor. May be required by the K between D and C. Also creates goodwill in the event that litigation ultimately ensues. However, such a demand will not be made if the C is concerned that the D will attempt to hide assets once put on notice. PROHIBITED COLLECTION PRACTICES Business Practices and Consumer Protection Act (“BPCPA”) – ss. 113-124, ss. 171-172 s. 113 s. 114 s. 115 s. 116 Definition – In this division, “collector” means a person, whether in BC or not, who is collecting or attempting to collect a debt. Harassment – (1) A collector must not communicate or attempt to communicate with a D, a member of the D’s family or household, a relative, neighbor, friend or acquaintance of the D, or the D’s employer in a manner or with a frequency as to constitute harassment. (2) Without limiting subsection (1), one or more of the following constitutes harassment: a. Using threatening, profane, intimidating or coercive language; b. Exerting undue, excessive or unreasonable pressure; c. Publishing or threatening to publish a D’s failure to pay. Disclosure – (1) C cannot collect until they have notified D in writing or has made a reasonable attempt to notify the D in writing of a. The name of the creditor with whom the debt was incurred, b. The amount of the debt, and c. The identity and authority of the C. (2) Must wait 5 days after sending out notice before contacting the D. (3) If D tells C they didn’t get notice, C must send notice to address provided. Communication – (1) No communication at place of employment unless a. The C doesn’t have home address/phone # and they are contacting solely to get that info, b. The C has been unsuccessful contacting at home, or c. The C has been authorized to contact the D at work. (2) The C must not make more than one verbal attempt, under subsection (1)(b), to contact that D at their place of employment. 7 Debtor and Creditor Relations Outline Spring 2013 s. 117 s. 122 s. 123 (3) When the C communicates the D, they must first indicate a. The name of the creditor, b. The amount of the debt, and c. The identity and authority of the collector to collect the debt. (4) A collector must not continue to communicate with a D a. Except in writing, if the debtor i. Has notified the collector to only communicate in writing, and ii. Has provided a mailing address. b. Except through the D’s lawyer, if the D i. Has notified the collector to communicate that way, and ii. Has provided lawyers address, or c. If the D has notified the collector and the C that the debt is in dispute and they are taking the matter to court. Communication with persons other than the D – (1) Except for the purpose of obtaining the D’s home address/phone #, a collector must not communicate or attempt to communicate with a member of the D’s family or household, or a relative, neighbor, friend or acquaintance of the D unless a. The person contacted has guaranteed to pay the debt, or b. The D has authorized the collector to discuss the debt. (2) A collector must not communicate with a D’s employer except a. For the purpose of confirming the D’s employment, business title and business address, or b. For the purposes authorized in writing by the D. Removal, seizure, repossession and distress – A collector must not, (a) Unless there is a court order to the contrary, remove from inside the D’s private dwelling any personal property claimed under seizure, distress or repossession, in the absence of the D, the D’s spouse, the D’s agent or an adult resident in the D’s dwelling; (b) Seize, repossess or levy distress against personal property that is not specifically charged or mortgaged, or to which legal claim may not be made under a statute, court judgment or order; (c) Remove, seize, repossess or levy distress against personal property during a day or during the hours of a day when doing so is prohibited. False or misleading information and misrepresentation – In collecting or attempting to collect payment of a debt, a collector must not (a) Supply any false or misleading information, (b) Misrepresent the purpose of a communication, (c) Misrepresent the identity of the collector or, if different, the C, or (d) Use, without lawful authority, a summons, notice, demand, or other document that suggests or implies a connection with any court. Debt Collection Industry Regulation – ss. 2(2), 4 s. 2(2) Section 115 (disclosure to debtor) and 121(1) and (2) (legal proceedings) of the Act (BPCPA) do not apply to a C collecting or attempting to collect a debt owed to the C. s. 4 Section 116(4)(c) of the Act does not apply in respect of a debt due to the government. Law Society of BC, Code of Professional Conduct – Chapter 7 8 Debtor and Creditor Relations Outline Spring 2013 7.2-6 Subject to rule 7.2-7, if a person is represented by a lawyer in respect of a matter, another lawyer must not, except through or with the consent of the person’s lawyer: (a) Approach, communicate or deal with the person on the matter; or (b) Attempt to negotiate or compromise the matter directly with the person. 7.2-7 A lawyer who is not otherwise interested in a matter may give a second opinion to a person who is represented by a lawyer with respect to that matter. Credit Business Practices Regulations – s. 7 Essentially says all of the things the BPCPA does – in your course pack. 7(11) Despite any agreement to the contrary between a D and an institution, any charges made or incurred by the institution in collecting a debt are not considered to be a part of the amount owing by the D and may not be recovered by the institution. Total Credit Recovery v. Roach (2007 BCSC) The D in this case is not faultless but the collection agency was in clear violation of the legislation. Collection of debt in this case involved a number of issues, including: o R was never informed by Canadian Tire that because she was late on her payments that they could demand the full amount under the K. o March 12, 2004 TCR sends R letter (as required by the legislation). o TCR did not wait 5 days after notice before contacting the D, they called and left a message on her home phone, then proceeded to call her at work one minute later. They then sent faxes to her work as well. She sends them a letter saying stop. o They continue to contact her at work (for an improper purpose), even after asking collector not to contact her at work. The Court found that there was clear evidence to support a finding that the debt collection agency used excessive and/or unreasonable pressure when the first call was made. At that time, they knew she was employed there. Further, the calls leaving “urgent” messages when there was no urgency was a clear breach. Finally, there was evidence that they were trying to collect in excess of what was due. LICENSING BCPCA s. 125 Collection Agent: means a person, whether in BC or not, who (a) in the court of business collects or attempts to collect payment of a debt from another person, or (b) in the course of business takes an assignment of a debt due to another person for the purpose of collecting or attempting to collect payment of the debt, and includes a bailiff. Debt Pooler: means a person, whether in BC or not, who in the course of business arranges or operates a debt pooling system. 9 Debtor and Creditor Relations Outline Spring 2013 Debt Pooling System: means an arrangement or procedure under which a D pays to a debt pooler money to be distributed or paid, according to a system, by that debt pooler to 3 or more C’s of the D. s. 142 “designated activity” means a business, industry, trade, profession, occupation or employment designated by regulation under s. 142.1 s. 143 A person must not engage in a designated activity unless the person is (a) licensed to engage in the designated activity, or (B) exempted by regulation from the requirement to be licensed. Debt Collection Industry Regulation s. 1.1(b) For the purposes of the definition “designated activity” in s. 142, the following are designated (b) the business and occupation described in the definition of “collection agent” in s. 125. s. 3 The following persons or classes of persons are exempt from the requirement to have a license: (a) lawyers in the regular practice of their profession; (b) persons acting as officers of or under the process or authority of any court; (d) chartered banks; (e) credit unions; (h) persons collecting debts in the course of their employment with the government (and others). Canaccede International Management Ltd. v. Suttles (2012 BC Prov. Ct.) Canaccede is claiming against Suttles for $254,991.56 on a credit card. He claims he is not liable on the basis that their conduct was in contravention of BC law. C: As of June 2009, Suttles owed approx. $25,000 on his credit card and had failed to make any payments. In July, MBNA Canada Bank transferred certain accounts receivable by way of Bill of Sale to C. C submits that they were in compliance with the provincial law, retained a license collection agent in BC to collect the debt. S: Claimed that through correspondence (e-mail), C was trying to collect on the debt. Claimed that C/MBNA had not informed him that the debt had been assigned. Claims they did not comply with the law relating to assignment, disclosure of the debt and failed to obtain a license required for collection agents in BC. Held: C was engaged in a “designated activity” because it includes “an assignment of a debt due to another person for the purpose of collecting or attempting to collect payment of the debt” and therefore should have obtained a license. However, although C failed to comply with the legislation, S is still obligated to pay the debt. PRIVACY Personal Information Protection Act s. 12(1)(j) An organization may collect personal information about an individual without consent or from a source other than the individual if the information is necessary to facilitate (i) the collection of a debt owed to the organization, or (ii) the payment of a debt owed by the organization. 10 Debtor and Creditor Relations Outline Spring 2013 s. 15(1)(j) An organization may use personal information about an individual without the consent of the individual if the personal information if necessary to facilitate (i) the collection of a debt owed to the organization, or (ii) the payment of a debt owed by the organization. OBTAINING JUDGMENT LIMITATION PERIODS Limitation Act S. 1 S. 3(3) S. 3(4.1) S. 3(5) S. 5(1) S. 5(2) Extraprovincial Judgment: A judgment, order or award other than a local judgment. Local Judgment: Means the following (a) a judgment or award of (i) the SCC relating to an appeal from a BC court, (ii) the BCCA (iii) the BCSC (iv) the Prov. Ct. of BC, and (v) an arbitration under the Commercial Arbitration Act. Writ of Execution: Includes an order for seizure and sale issued under the Small Claims Rules. After the expiration of 10 years after the date on which the right to do so arose, a person may not bring any of the following actions: (a) Against the personal representatives of a deceased person for a share of the estate; (b) Against a trustee in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; (c) Against a trustee for the conversion of trust property to the trustee’s own use; (d) To recover trust property or property into which trust property can be traced against a trustee or any other person; (e) To recover money on account of a wrongful distribution of trust property against the person to whom the property is distributed, or a successor; (f) On a local judgment for the payment of money or the return of personal property. Can’t bring an action on an extra-provincial judgment for payment of money/return of personal property after the time for enforcement has expired in the jurisdiction where the judgment was made, or later than 10 years after the judgment became enforceable in the jurisdiction where the judgment was made. General 6 year limitation period for most debt claims if not specified in Act. Note: Always check whether the cause of action is specifically dealt with in the Limitation Act or in another piece of legislation. Where there is an ambiguity, use the earliest date. Confirmation of a cause of action must occur before expiration of the limitation period. The effect of a confirmation is that the time that ran before the cause of action was confirmed doesn’t count towards the calculation of the limitation period, and so a new period, generally 6 years, is granted. For the purposes of this section, (a) A person confirms a cause of action only if the person i. Acknowledges a cause of action, right or title of another, ii. Makes a payment in respect of a cause of action, right or title of another, 11 Debtor and Creditor Relations Outline Spring 2013 S. 5(5) S. 5(6) S. 5(7) S. 5(8) S. 5(9) S. 5(10) S. 8(1)(c) S. 9 (b) An acknowledgment of a judgment or debt has effect i. Whether or not a promise to pay can be implied, and ii. Whether or not it’s accompanied by a refusal to pay. (c) Confirmation to pay interest operates as confirmation for principal debt. (d) Confirmation to recover income falling due at any time operates as confirmation of a cause of action to recover income falling due at a later time on the same account. For the purposes of this section, an acknowledgement must be in writing and signed. A person only has the benefit of a confirmation if it is (a) Made to the person or to a person through whom the person claims, or (b) Made in the course of proceedings or a transaction under the Bankruptcy Act. A person is bound by a confirmation only if any of the following applies: (a) The person made the confirmation; (b) After the confirmation is made, the person becomes, in relation to the cause of action, a successor of the person who made the confirmation; (c) The person who made the confirmation is, at the time of it, a trustee and the first mentioned person is at the date of the confirmation or afterwards becomes a trustee of the trust which the person who made confirmation is a trustee; (d) The person is bound under subsection (8). If a person who confirms a cause of action to (a) Recover property, (b) Enforce an equitable estate or interest in property, (c) Realize on collateral, (d) Redeem collateral, (e) Recover principal money or interest secured by a security agreement, by way of a. The appointment of a receiver of collateral or of the income or profits of collateral, b. Sale, lease or other disposition of collateral, or c. Another remedy affecting collateral, or (f) Recover trust or property into which trust property can be traced, Is on the date of the confirmation in possession of the property or collateral, the confirmation binds any person in possession during the ensuring period of limitation, not being, or claiming through, a person other than the maker who is, on the date of the confirmation, in possession of the property or collateral. For the purposes of this section, a confirmation made by or to an agent has the same effect as if made by or to the principal. Except as specifically provided, this section does not operate to make any right, title or cause of action capable of being confirmed that was not capable of being confirmed before July 1, 1975. Ultimate Limitation Date – 30 years from the date on which the cause of action arose. Applies notwithstanding any other confirmation under s. 5. Ex. A payment is due on Sept. 15. The limitation period starts ticking on Sept. 16, the first day on which you could bring enforcement proceedings – 6 years. Ex. A judgment is made on Sept. 15. The 10 year limitation period for enforcement starts ticking on the 15th because that’s the day the judgment becomes enforceable. (1) On expiration of the limitation period, the right and title of the person formerly 12 Debtor and Creditor Relations Outline Spring 2013 S. 11 having the cause of action and of a person claiming through the person in respect of that matter is, as against the person against whom the cause of action formerly lay and as against the person’s successors, extinguished. (1) Despite ss. 3 or 9, if, on the expiration of the limitation period, there is an enforcement process outstanding, the JC and the JC’s successors may: (a) Continue proceedings on an unexpired writ of execution, but the writ may not be renewed; (b) Commence or continue proceedings against land on a judgment registered under Part 5 of the COEA, but the registration may not be renewed unless those proceedings have been commenced; (c) Continue proceedings in which a charging order is claimed. Interpretation Act s. 25 Calculation of time or age (5) To calculate time, first day is excluded and the last day is included. (2) If the time for doing the act falls on or expires on a holiday, the time is extended to the next day that is not a holiday. Ex. A judgment is made on Sept. 15, 2011. The limitation period for enforcement starts ticking on the 15th because that’s the day the judgment becomes enforceable. The last day for enforcement (after the 10 year period) is Sept. 15, 2021 (first day excluded, last day included). Court Order Enforcement Act (“COEA”) s. 29(1) If a judgment has been given in a court in a reciprocating state, the JC may apply to have the judgment registered in the Supreme Court unless (a) The time for enforcement has expired in the reciprocating state, or (b) 10 years have expired after the date the judgment became enforceable in the reciprocating state. Enforcement of Canadian Judgments and Decrees Act s. 5(1): A Canadian judgment that requires a person to pay money must not be registered or enforced under this Act (a) After the time for enforcement has expired in the province or territory where the judgment was made, or (a) Later than 10 years after the date on which the judgment became enforceable in the province or territory where it was made. WHITE PAPER ON LIMITATION ACT REFORM Presently, there are three basic limitation periods (2, 6, 10 years) which are tied to cause of action/type of civil suit. o For the repayment of debt, it’s generally 6 years. o For an action on a local judgment, it’s 10 years. Currently, the ultimate limitation period is determined under the accrual method. 13 Debtor and Creditor Relations Outline Spring 2013 o Both the negligent act/omission AND the damage need to occur before the time starts running. Proposals Reduce the limitation period for the repayment of most debts to 2 years. Maintain a 6 year limitation period for certain kinds of government debts related to social programs and certain services (ambulances, students loans) to be more debtor-friendly. Maintain the 10 year period for enforcement of local judgments for the payment of money. Reduce the ultimate limitation period for extra-provincial judgments to the earlier of 10 years or the limitation period in the other province. Reduce the ultimate limitation period in BC to either 10 or 15 years. Move from the accrual method of determining the ultimate limitation period to an act/omission model, whereby the time starts running on the date of the act or omission giving rise to the action (there would be exceptions for claims that don’t fit this mode). Rationale Seek to modernize and simplify BC legislation. Standardize legislation with other provinces. Encourage creditors to act more quickly on their rights. Prevent unfair surprise to debtors. Concerns Moving to the act/omission model creates more certainty but also seems to sacrifice fairness (extinguishes rights before those rights exist). Less time for negotiation and attempts to reach out-of-court settlements. 2 years may not be enough time to settle complex contractual disputes or small debts. PROCEEDING TO JUDGMENT Once you have the applicable limitation period figured out and have been trying to enforce the debt without success, you want to proceed to judgment against the D’s property. The first step is to determine the property court for the action: o Monetary limit in Small Claims Court: $25,0000. Also limits on the kinds of actions (cannot bring libel or defamation). o Supreme Court has no monetary limit, but there is a rule that if a settlement in SC is reached that is less than $25,000 you can only recover disbursements, not costs. Methods to obtain judgment: these 3 are used most often instead of full trial. o Default judgment. o Summary judgment. o Summary trial. 14 Debtor and Creditor Relations Outline Spring 2013 DEFAULT JUDGMENT Supreme Court Civil Rules – Rules 3-8 (1) A P may proceed against a D under this rule if (a) That D has not filed and served a response to civil claim, and (b) The period for filing and serving has expired. (2) A P who wishes to proceed against a D under this rule must file (a) Proof of service of the notice of civil claim, (b) Proof that the D failed to service response, (c) A requisition endorsed by a registrar with a notation that no response has been filed, and (d) A draft default judgment order in Form 8. (3) Claim should be for a specified and ascertainable amount. (11) Court can set aside or vary any judgment granted under this rule. Small Claims Rules - Rule 6 (1) If a D doesn’t file a reply within the time limit (Rule 3(4)), the claimant may ask the registrar for a default order. (7) A D who has not filed a reply is not entitled to receive a notice of a hearing under this rule. (9) The purpose of a hearing under this rule is to allow a judge to determine (a) The amount the claimant is entitled to, if the claim is for money, and (b) The terms of an appropriate order, in any other case. Many collections files are through default judgment because the D doesn’t respond. Ask the court for this when there is a claim for a debt or liquidated damages (already know the amount you’re seeking before you go to court) AND the D has not entered an appearance or reply. Two ways to set it aside: o If there is a procedural defect; can show that you weren’t actually served. Or that the claim is not actually for liquidated damages. Default in service (Bache Halsey) or may exercise its discretion when if D was put on notice (Miracle Feeds). o The judgment amount exceeds the courts jurisdiction. BACHE HALSEY STUART SHIELDS INC. V. CHARLES ESTATE (1982 BCSC) D not put on notice that the P was seeking default judgment. Even apart from it being a breach of the rules, it deprived him of his right to be heard. This is contrary to natural justice. 15 Debtor and Creditor Relations Outline Spring 2013 Ordered to treat it as a nullity instead of just a defect in the proceedings. MIRACLE FEEDS V. D & H Court will exercise discretion to set aside a default where a D was put not notice, but there are heavy conditions for the D to satisfy: o He did not willfully or deliberately fail to enter an appearance or file a defence to the P’s claim, Case law has been expanded to reflect that fairness is the overriding principle in determining if the default judgment should be set aside. o That he made application to set aside the judgment as soon as reasonably possible after obtaining knowledge of the default, or give an explanation for the delay o That he has a meritorious defence or at least one worthy of investigation. In this case, he hadn’t received proper legal advice. He did have a defence and the new lawyer expeditiously set aside the default judgment. Law Society of British Columbia, Professional Conduct Handbook Chapter 11, Rule 12 Proceeding in Default 12. A lawyer who knows that another lawyer has been consulted in a matter shall not proceed by default in the matter without inquiry and warning, unless expressly instructed by the client to the contrary, in which case such instructions should be communicated at the outset of the matter. SUMMARY JUDGMENT AND TRIAL Summary Judgment Available only at the Supreme Court level, under Rule 9-6. Debt actions one of the most likely claims that will be successful in applying to proceed summarily. Permits the court to grant judgment without a trial, so long as there is no genuine triable issue or genuine defence. P has to show that the judgment is obviously in its favour. To rebut, the D has to show that there is a triable issue (dispute the facts). They don’t need to have a meritorious defence, just some dispute. Summary Trial If there are triable issues that make it inappropriate to order summary judgment, then can try summary trial. This gives the court the power to grant judgment based on affidavit evidence. Available only at the Supreme Court level, under Rule 9-7. Consent Judgment: payment agreement made under Rule 8-3 where a payment is missed, the P can enter the order and it becomes a judgment. 16 Debtor and Creditor Relations Outline Spring 2013 MACMILLAN V. KAISER EQUIPMENT LTD. Outlines principles for court to follow in deciding to grant applications for summary trials: 1. 2. 3. If the court can make fair determination by summary, then do it. The fact that there is a conflict in evidence doesn’t mean there needs to be a full trial, so long as it can be resolved by affidavit. Crucial question is whether the court can achieve just and fair result by proceeding by summary. In deciding whether or not it would be unjust, the chamber judge can consider: 1. 2. 3. 4. 5. 6. 7. The amount of money involved; The complexity of the matter; The urgency; Any prejudice that will be caused by delay; How much it would cost to have a full trial (in relation to the claim); How the proceedings would have unfolded up to that date; and Any other matters. Small Claims Rules Summary judgment and trial are generally SC options, not small claims procedures, but there are two exceptions. Rule 9-2: Vancouver – There is a pilot project for summary trials for commercial lenders. Rule 9-1: In Richmond/Vancouver, simplified trials for claims up to $5,000. FOREIGN JUDGMENTS Judgment from any jurisdiction outside of BC. Want to enforce in BC because there are assets here, not in the foreign region. In general, there are three ways to enforce: o If a Canadian judgment – Enforcement of Canadian Judgments and Decrees Act (“ECJDA”) o If a judgment from a reciprocating state (outside of Canada) – COEA. o If a judgment not from a reciprocating state – Common Law Action. ENFORCEMENT OF CANADIAN JUDGMENTS AND DECREES ACT Provides for the registration and enforcement of judgments from other provinces. S. 1 - Canadian Judgment – Means a judgment, decree or order made in a civil proceeding by a court of a province or territory of Canada other than BC. 17 Debtor and Creditor Relations Outline Spring 2013 S. 2 - (1) Subject to subsection (2), a Canadian judgment, whether or not the judgment is final, may be registered under this Act for the purpose of enforcement. o (2) A Canadian judgment that requires a person to pay money may not be registered under this Act for the purpose of enforcement unless it is a final judgment. S. 3 - Procedure for Registration – File a certified true copy of the foreign judgment. o SCCR 19-2: Must file a certified English translation if in another language. S. 4 - Once registered, treat judgment as a judgment from BC. S. 5 - Can’t register a judgment that requires a person to pay money o (a) After the time for enforcement has been expired in the province or territory where the judgment was made, or o (b) Later than 10 years after the date on which the judgment became enforceable in the province or territory where it was made. S. 6(3) - A BC court will not hear an argument about a CND judgment suggesting that it should be stayed or limited in any way because the originating court doesn’t have jurisdiction or the BC court would decide differently (takes foreign judgment at face value). COURT ORDER ENFORCEMENT ACT This is only for reciprocating jurisdictions listed in the Act. S. 29 - Application for registration of judgment o (1) Can only be registered if time hasn’t expired and 10 years hasn’t passed. o (2) Order for registration can be made without notice in any case in which o (a) The JD (i) Was personally served with process in the original action, or (ii) Although not personally served, appeared or defended, or otherwise submitted to the jurisdiction of the original court. o (b) Under the law in force in the state where the judgment was made, (i) The time in which an appeal may be made against the judgment has expired and no appeal is pending, or (ii) An appeal has been made and has been disposed of. o (5) In all other cases, you need to give notice. o (6) Conditions/circumstances where court will not register an order (judgment obtained by fraud, appeal pending). S. 33 - Once judgment is registered, it has the same effect as though it was a BC court order. o Exception: s. 33(a) If registered in BC without notice to the D under s. 29(2), have to give notice and wait a month before enforcement. S. 34(1)(b) - Allows the judgment debtor 1 month after notice to apply to the registering court to set aside the registration. S. 38 - Nothing in this Part deprives a C of the right to bring an action on the judgment, or on the original cause of action (a) after proceedings have been taken under this Part, or (b) instead of proceedings under this Part. If you have an order from reciprocating state but can’t enforce under the Act (for whatever reason), you should start a common law action. 18 Debtor and Creditor Relations Outline Spring 2013 COMMON LAW ACTION This is for non-reciprocating jurisdictions or where you can’t have it registered under the ECJDA. Test: The Court looks for a real and substantial connection between the foreign jurisdiction and the subject matter that gave rise to the claim in the case. If the connection exists, it is enforceable. Court will look at the fairness of the proceeding. Fairness can only be challenged on grounds of: fraud, breach of natural justice, or contrary to public policy. JUDGMENTS WITHOUT CIVIL ACTIONS Under the Criminal Code, judgments can be made for monetary orders. S. 738 – Restitution orders to repay victims of offence, includes: o Damage to property. o Bodily or psychological harm. o Cost of spouse and children moving out of home if offender is a threat. S. 739 – If a person has bought stolen property in good faith, the court can order the offender to pay back the person. S. 740 – An order for restitution in this section take precedent over an order for a fine. S. 741 – These orders are enforceable as though ordered in a civil action – i.e. can enter as a judgment the amount to be paid and its an enforceable order. S. 741.1 – Notice must be given to a person who is supposed to receive money. S. 741.2 – This order doesn’t affect any other civil remedy (but doesn’t permit double recovery). 19 Debtor and Creditor Relations Outline Spring 2013 DEBTOR EXAMINATIONS Purpose: Getting more information about the D’s assets and/or getting a payment order. You want to make sure they aren’t judgment-proof. Identify sources of income that you could get to satisfy the judgment. Places to search: o ICBC. o Personal Property Registry. o Land Title Registry. Three options: o Examine the JD (13-4). o Subpoena to the D application (13-3). o Small Claims Rule (12-15). EXAMINATION IN AID OF EXECUTION – SCCR 13-4 This can be used to question the D to find out what the D’s assets are. Scope of the questions that can be asked is governed by Rule 13-4(2): o Any matter pertinent to the enforcement of the order; o The reason for non payment or non performance of the order; o The income and property of the JD; o The debts owed to and by the JD; o The disposal the JD has made of any property either before or after the making of the order; o The means the JD has, had or may have of satisfying the order; o Whether the JD intends to obey the order or has any reason for not doing so. The JC is not required to try to satisfy the judgment by way of execution first, they can have an examination so long as he is entitled to issue an execution. Under (3) the only parties that can be examined without an order are: o Officer or director of a corporate JD. o Person liable in the case of a partnership or firm JD. For anyone else you need an order under (5). 20 Debtor and Creditor Relations Outline Spring 2013 Under (4), unless the court orders otherwise, a person examined under (2) must not be further examined in the same proceeding for a year. Under (8), the information may be given in evidence in later proceedings. SUBPOENA TO DEBTOR – SCCR 13-3 Do if JC can’t find assets or income and to avoid wage garnishment. Can get order that judgment has to be paid by fixed date or by way of installments (but if you get this you cannot use any other enforcement means while that order is in effect). Scope of the questions that can be asked is governed by 13-3(4): o The income and property of the D. o The debts owed to and by the D. o The disposal the D has made of any property. o The means the D has, or has had, or in the future may have, of satisfying the order. This is narrower in scope than an examination in aid of execution. 13-3(5) – Examiner must be (a) the court; (b) a master; or (c) a registrar designated by the Chief Justice. 13-3(3) – The subpoena has to be served at least 7 days before the examination takes place. 13-3(1) – A subpoena can’t be issued if there is a writ of execution outstanding against the D. 13-3(11) – At the examination, the examiner may make a payment order. o By installments; o Fixed date; o Vary or rescind previous order; o Payment to be made to a registrar, to the C, or the C’s lawyer; o Fixing costs payable by the D without assessment. 22-8(5) – If the D refuses to attend or respond to the subpoena, then the examiner can order committal or apprehension. PAYMENT HEARING – SMALL CLAIMS 12 12(1) Purpose – Allow judge to (a) assess D’s ability to pay, and (b) consider whether a payment schedule should be ordered. 12(2) – A payment hearing will be held if it is: o (a) Requested by the C under sub-rule (3), o (b) Requested by the D under sub-rule (10), or o Ordered by the judge under Rule 11(5)(a). 12(4) – A C who has an order for seizure and sale outstanding against a D may not ask for a payment hearing without the permission of a judge. 12(7) – Person must have 7 days notice of payment hearing. 12(10) – If D asks for a payment hearing they must complete a notice (Form 13). 12(12) – Scope of the questions that can be asked: o (a) The income and assets of the D. o (b) The debts owed to and by the D. o (c) Any assets that the D has disposed of since the claim arose. 21 Debtor and Creditor Relations Outline Spring 2013 o (d) The means the D has, or may have in the future, or paying the amount owed. 12(13) – At a payment hearing, the court can make an order for payment. o May also occur under Rule 12, Default Hearings. o A payment hearing must occur before a party can ask for a default hearing; happens where the D fails to follow the payment schedule. ACTING FOR DEBTORS AFTER JUDGMENT COEA S. 5(1) – If garnishment order has been made against D they can apply for it to be released or if judgment has been made, thy can apply for payment of judgment by installments. (2) – Judge will order payment by installments if just in all the circumstances. (3) Order may be made without notice, if judge thinks it is just in view of changed circumstances on application by JC/JD. 3 days notice in writing of the application being given to the other party. (4) If installment order, no further GO may be made concerning the judgment debt. S. 48(1) – If an order has been obtained for a sum of money, the sum is payable immediately unless the court orders otherwise. S. 96 (1) – Any interest in land – order must be made by court declaring what interest in it is liable to be sold, and directing sheriff to sell it. (2) Despite subsection (1), if a premise is situated on the land is the home of the D the court may defer the sale. SCCR 13-3(11) – Examiner can make an order for payment of debts by installments etc. 13-2(31) – The court may, at or after the time of making an order (a) Stay the execution of the order until they see fit, or (b) Provide that an order for payment of money be payable by installments. Small Claims Rules 12(10) – To ask for a payment hearing, a D must complete a notice (Form 13), following the instructions on the form, and file it at the registry. 22 Debtor and Creditor Relations Outline Spring 2013 PRE-JUDGMENT EXECUTION INJUNCTIONS INTERLOCUTORY INJUNCTIONS SCCR Rule 10-4 (1) An application for a pre-trial injunction may be made by a party whether or not a claim for an injunction is included in the relief claimed. (2) The application can be made before the start of proceedings. MAREVA INJUNCTIONS This type of interlocutory injunction “freezes” assets where there is a concern they will be moved out of jurisdiction or wasted. o The effect is to prevent D from dealing with the property except as permitted by the order (prohibited from selling, conveyancing, encumbering etc.). Used as litigious blackmail to force settlement. o P must make undertaking (P will be liable for damages arising from injunction if unsuccessful at trial). Law and Equity Act, s. 39(1) court may grant injunction where “just and convenient” to do so; (2) unconditional or conditional order as the court sees just. Mareva injunctions are an equitable remedy, an extraordinary measure. Can be applied outside of the jurisdiction (Mooney, Aetna). TRACY V. INSTALOANS 23 Debtor and Creditor Relations Outline Spring 2013 Facts: Seeking a Mareva injunction because apparently Instaloan is arranging its affairs so as to be judgment proof. She is relying on affidavit evidence filed in other Instaloan class action cases. They were granted an injunction and the D’s are appealing it. Two part test for obtaining a Mareva injunction (Mooney v. Orr): o Strong prima facie or good arguable cause – means the same thing in this context, more than just arguable but not the threshold of “bound to succeed.” o Balance interests of the two parties to reach a just and convenient result. Is granting the injunction just and equitable in all the circumstances, given that a prejudgment order is an extraordinary measure? (Aetna). Factors: Evidence that establishes existence of assets in BC (for a domestic injunction), or outside (for national or international injunctions). Real risk of their disposal or dissipation (Aetna). Irreparable harm. Past conduct. Held: P had a good arguable case they were charging a criminal interest rate. There was a genuine risk that assets would disappear which would cause irreparable harm to P. upholds MI against companies but not individuals because not strong enough case against them. PRESERVATION ORDERS SCCR Rule 10-1 (1) The court may make an order for the detention, custody or preservation of any property that is the subject matter of the dispute. (2) If the right of a party to a specific fund is in dispute in a proceeding, the court may order the fund to be paid into court or otherwise secured. This only applies to subject property or funds that are in dispute, AND the court must be satisfied that if it doesn’t make the order the property or funds will be lost. Test: o Good arguable cause. o The D has the property. o Real risk that property/funds will be destroyed or lost. o Weighing of convenience. Anton Pillar Order The court can seize evidence regarding the existence of a debt (situations where transactions between the parties are in the hand of the D on computer file). Search and seizure of files related to the transaction where: o The files were the best evidence of the transaction between the parties and o Were in danger of being lost. Must show strong prima facie case and weigh the balance of convenience (potential damage to the property that they want seized would have a serious effect of the case). 24 Debtor and Creditor Relations Outline Spring 2013 Proof that the D has acted fraudulently or dishonestly can provide an inference that the D would destroy the documents. These types of injunctions/orders can seriously interfere with a D’s ability to carry on business. That’s why we usually have the requirement for the party seeking the order to undertake to pay damages in the event that they are not successful. o PRE-JUDGMENT GARNISHMENT This is where the P applies to intercept payments that would be paid by a 3 rd party to the D. it is done pre-judgment and generally without notice to the D (ex parte). A C basically gets this type of order by right; compared with Marevas and preservation orders, there’s no requirement for the C to show evidence that the D is trying to hide their assets. COEA S. 3(1) S. 3(4) S. 3(2) Definitions – Debt Due: Debts, obligations, liabilities owing, payable, or accruing due and wages that would in the ordinary course of employment become owing, payable or due within 7 days after the date on which an affidavit has been sworn. Debts, Obligations and Liabilities Does NOT Include – Obligation arising out of trust unless judgment recovered against it on the garnishee. Does Include – Without limitation all claims and demands of the JD arising out of trusts or K if the claims and demands could be made available under equitable execution. Ex: Bank account, term deposits, some RRSPs, child educations plans, lawyer’s trust accounts, accounts receivable, judgment payment from other action. Wages can’t be garnished before judgment – can’t get GO against D’s employer before a judgment or order for the payment of money has been obtained. A judge or a registrar may, on an application made without notice to any person by (a) a P in an action; or (b) a JC or person entitled to enforce a judgment or order for the payment of money, on affidavit by himself or herself or his or her solicitor or some other person aware of the facts stating: (c) If a judgment has been recovered or an order made, o (i) That it has been recovered or made, and o (ii) The amount unsatisfied, or (d) If a judgment has not been recovered, o (i) That an action is pending, o (ii) The time of its commencement, o (iii) The nature of the cause of action, (Knowles) o (iv) The actual amount of the debt, claim or demand, and (Sims) o (v) That it is justly due and owing, after making all just discounts. If P owes D money, need to reduce claim. (e) State that garnishee is indebted to the D or JD and in jurisdiction of court AND (f) With reasonable certainty, the place of residence of the garnishee. 25 Debtor and Creditor Relations Outline Spring 2013 Order that all debts due from the garnishee to the D, JD, or person liable to satisfy the judgment or order, as the case may be, is attached to the extent necessary to answer the judgment recovered or to be recovered, or the order made. (1) If a GO is made against a D or a JD, he or she may apply to the registrar or to the court in which the order is made for a release of the garnishment, or for payment by installments. (2) If just in all the circumstances, court can release all or part of the garnishment. (3) Subsection (2) can be done without notice. Debts bound from time of service of the order. Time – Debt has to be owing from the garnishee to the D at the time of the PJGO. This section says that if the claim/demand is not due at the time of the attachment, order may be made for payment upon maturity. S. 5 S. 9 S. 15 Procedure 1. 2. 3. File with the registry. Serve on the garnishee (s. 9 – takes effect as soon as they get it). Garnishee must pay what they owe the D into the court (up to the amount sought in the P’s statement of claim). Where a GO is set aside pre-judgment, there is no replacement. When it is post-judgment, the Court has to order a payment schedule. Rationale: Provides the P with assurance the funds will be paid. Can also be used as a bargaining tool for settlement. HAVING A GO SET ASIDE – 2 METHODS 1. 2. Failure to follow formalities/procedural requirements outlined in s. 3 COEA. By application under s. 5 of the COEA (court has discretion). WEBSTER V. WEBSTER Leading case on setting aside a GO – 5(1). Husband and wife going through a divorce, he attempted to get a GO against the W in the amount of $20, 000. She applies to have it set aside and the attached funds returned so that the action can be consolidated for trial with the divorce proceedings. The Chambers judge set aside the GOs, saying that the orders were “unjust in all the circumstances.” Judge said that s. 5(1) and (2) exist in order to provide remedy where undue hardship resulted or was likely to result from attachment proceedings or where they were unnecessary. To set aside, D must show: o GO is unnecessary; or o There was an abuse of process; or o That the GO creates an undue hardship. In this case, the W needed the money for maintenance pending settlement. She had sufficient money in trust to satisfy judgment and she was likely to get some property in the divorce. 26 Debtor and Creditor Relations Outline Spring 2013 AFFIDAVIT REQUIREMENTS KNOWLES V. PETERS S. 3(2)(d)(iii): nature of the cause of action Affidavit for GO defective because cause of action not sufficiently set forth. Attachment of debts before judgment is an extraordinary process; requires meticulous observance of the relevant statute. The form of the application is held to a high standard. AL SIMS AND SON LTD V. SABLE RESOURCES LTD (iv): liquidated sum There was a discrepancy in the amount listed in the statement of claim and the description of debt in the affidavit of support. They also didn’t specify whether the claim was one of debt or liquidated demand. Suggests a softening of the Knowles rule. The court found that the P does not need to use the word “debt” in their claim in order to include a claim for debt. Found that the discrepancy was easily attributable to costs associated with the garnishment proceedings as well as contractual un-liquidated claims for insurance and parts/labour supplied for each of the invoices. As such, requirements under the COEA were met. PROFESSIONAL RESPONSIBILITY Division 6 - Financial Responsibility APPLICATION - 3-43 This Division applies to the following as it does to a lawyer, with the necessary changes and so far as it is applicable: a. A non-practicing member; b. A retired member; c. An articled student; d. A practitioner of foreign law; e. A visiting lawyer permitted to practice law in British Columbia under Rules 2-10.2 to 2-12; f. A law corporation. STANDARDS OF FINANCIAL RESPONSIBILITY - 3-43.1 Instances in which a lawyer has failed to meet a minimum standard of financial responsibility include, but are not limited to, the following: a. A lawyer against whom a monetary judgment is entered and who does not satisfy the judgment within 7 days after the date of entry: b. An insolvent lawyer; c. A lawyer who does not produce and permit the copying of records and other evidence or provide explanations as required under Rule 3-79(2)(b); d. A lawyer who does not deliver a trust report as required under Rule 3-72 or 3-75(4); e. A lawyer who does not report and pay the trust administration fee to the Society as required under Rule 2-72.2. 27 Debtor and Creditor Relations Outline Spring 2013 FAILURE TO SATISFY JUDGMENT - 3-44 1) A lawyer against whom a monetary judgment is entered and who does not satisfy the judgment within 7 days after the date of entry must immediately notify the Executive Director in writing of a. The circumstances of the judgment, including whether the judgment creditor is a client or former client of the lawyer, and b. His or her proposal for satisfying the judgment. 2) Monetary judgments referred to in subrule (1) include a. An order nisi of foreclosure, b. Any certificate, final order or other requirement under a statute that requires payment of money to any party, c. A garnishment order under the Income Tax Act (Canada) if a lawyer is the tax debtor, and d. A judgment of any kind against an MDP in which the lawyer has an ownership interest. 3) Subrule (1) applies whether or not any party has commenced an appeal from the judgment. 4) If a lawyer fails to deliver a proposal under subrule (1)(b) that is adequate in the discretion of the Executive Director, the Executive Director may refer the matter to the Discipline Committee or the Chair of the Discipline Committee. GARNISHMENT Differences Between Pre- and Post- Judgment GO Affidavit requirements. Wages CAN be garnished post-judgment, but not for pre-judgment per s. 3(4). Where a GO is set aside pre-judgment, there is no replacement. When it is post-judgment, the Court has to order a payment schedule. TIMING OF GARNISHMENT ORDERS S. 5 S. 3(1) S. 9(1) Governed by Part 1 COEA: most post-judgment garnishment principles apply to prejudgment garnishment as well. Court has authority to set aside a garnishment order Pre-Judgment: Set aside order and funds are repaid to the D. Post-Judgment: Payment order is made and funds are paid to the D in installments. Definitions – “Debt or money accruing due”: Includes wages or salary that would become due or payable within 7 days after the day of the affidavit seeking the order. Anything that the garnishee owes the D when the order is served on the garnishee is paid into court. Strictest interpretation of s. 3 read with s. 9 is that liabilities must be owing at the time the GO is issued. 28 Debtor and Creditor Relations Outline Spring 2013 CIBC V. DABROWSKI The garnishee is the auctioneer selling things the D owned. Auction was March 3, at 11:30am. GO #1 was issued at 10am that day (Plakoln). The auction proceeds are a “debt due,” but those debts only became due at 11:30. Meanwhile, there are two lawsuits going on (Plakoln v. Dabrowski and BMO v. Dabrowski). BMO gets GO on March 9. They serve the order before the garnishee pays out GO #1. BMO argued that no debts owed by the D at the time the first GO was made. Held: GO #1 must be set aside because when they were issued, there were no debts owing. Significance: Essential time is when the GO was issued, not when it was served. VATER V. STYLES The garnishee is an insurances company that pays disability pension to the JD (Styles). Vater (P) got a GO because Styles owed them $189.65. They garnished against the $213 that the Insurance Company pays D. Get GO order on August 7, garnishee pays out on November 3. Held: GO set aside, insurance policy payment was conditional on a continued disability and remaining alive. Therefore, it is not technically a “debt due.” Significance: A conditional obligation is not garnishable or attachable. o An accruing debt is one that is not yet payable but still an existing obligation; can’t be said where conditions can arise that would prevent payment. FUNDS SUBJECT TO GARNISHMENT WAGES COEA S. 3(5) S. 3(6) S. 3(7) S. 6(2) S. 27(1) 70% of any wages due are exempt from seizure or attachment under a GO but the amount of the exemption allowed must not be less than: (a) $100/month for someone without dependents; or (b) $200/month for someone with dependents. Basically, you cannot garnish against 70% of their wages but that amount cannot be less than $100/month for someone without dependents, or $200/month for someone with them. Good for the JC. Exemption does not apply (a) to debt contracted for room and board OR in opinion of judge/registrar, exemption is not necessary for the support and maintenance of the D’s dependents. If it’s a family maintenance judgment, then exemption of: 50% up to $600/month (which mean 50% is eligible for GO). 33.3% for wages in excess of $600/month. The amount of the exemption cannot be less than $100/month. Government wages can be garnished (overrides common law rule). Employee cannot be demoted because of GO RENT 29 Debtor and Creditor Relations Outline Spring 2013 General: Garnishable if it’s overdue. ACCESS MORTGAGE V. STUART Facts: GO’s have been served to tenants for several months. Issue: Does a GO issued on September 23rd attach to a payment of rent due on October 1st? (Is next month’s rent payable or accruing due?). Held: Not attachable; rent is not payable or accruing due before the 1st. To be attachable, a debt has to be guaranteed to exist. If it’s in the future, you must show that it is certain. LAWYER’S TRUST ACCOUNT General: Garnishable. However, a retainer is not a debt due from a lawyer to a D so it’s probably not garnishable. AHAUS DEVELOPMENTS LTD V. SAVAGE Basically, the appellant (Lloyd) is a notory public who sold Savage’s home. She was meant to pay out against 3 mortgages with the money. Before she did so, Ahaus (the P), served her with a GO saying she needed to pay out to her first. She didn’t, she just gave the remaining money back to the vendor (Savage) after paying out the mortgages. The notory argues that the money was not due to S at the time of the GO (as it was conditional on paying out mortgages), and therefore Ahaus couldn’t garnish it. Held: The Court rejects the argument. The difference was “accruing due.” The key question is: did Savage have legal rights to the funds when the mortgages were clear? Yes. Rights and obligations of parties had crystallized at the time the GO was served. o The condition, which was required to be filled in order for the debt to Savage to be accruing due had been fulfilled by the time the GO, was served. Dissent: TD (mortgages) could have refused the discharge. Something could have happened which would mean that the debt was still conditional. BANK ACCOUNTS/TERM DEPOSITS/LINE OF CREDIT Line of Credit: not garnishable as it is not a debt due. Bank Accounts and TDs: commonly garnished. o Exception: something conditional about them or held jointly (unless both are JDs). o S. 15 COEA: TD with defined date can be garnished when it matures. A term deposit is a deposit held at a financial institution that has a fixed term. These are generally short-term with maturities ranging anywhere from a month to a few years. When a TD is purchased, the lender understands that the money can only be withdrawn after the term has ended or by giving notice. BEL FRAN INVESTMENT V. PENTUITY 30 Debtor and Creditor Relations Outline Spring 2013 Garnishing order against a TD. As of the date of service of the order, the deposit had not matured. D argued that the account couldn’t be garnished because of a seven-day notice condition. The Court says, the notice is an administrative convenience, not a condition and therefore the account can be garnished. o It was “subject to the bank’s right to notice” – the bank can CHOOSE to exercise. ACCESSING GARNISHED FUNDS Once amount is garnished and paid into court, how does the JC get it? S. 12 COEA – Money is paid out of court by a court order. Notice must be given to the D, unless the judge dispenses with notice (only in special circumsntances). S. 13 COEA – Payment can be made out of court without an order if: o Notice to pay out is given to the JD, and no notice to dispute the payment has been made within 10 days OR o A default judgment was obtained and 3 months have passed. o 13(4) – Can also be made where the D has consented in writing. EXECUTION AGAINST LAND Introduction Historically, there were writs of fieri facias against tangible assets only. Over time, movement to intangible and equitable assets as well. Legislation has history of independent and self-contained enforcement mechanisms for each kind of property (land, shares, personal property, etc.). o This system has been critiqued for being dated and fragmented. “Land” is broadly defined in s. 81 of the COEA. PROCESS FOR EXECUTION AGAINST REAL PROPERT Governed by ss. 82-116 of the COEA. This is a legal remedy, not an equitable one. 1. Register Judgment o S. 86(3) From the moment of its registration, the judgment forms a lien and charge on the land of the JD specified in the application (s. 88): To the extent of his or her beneficial interest in the land. If an owner is registered as a personal representative or trustee, to the extent of the interest of a beneficiary who is a JD, and Subject to the rights of a purchaser who, before the registration of the judgment, has acquired an interest in the land in good faith and for valuable consideration under an instrument not registered at the time of the registration of the judgment. 31 Debtor and Creditor Relations Outline Spring 2013 Registration is governed by s. 88 of the COEA. The JC applies under the Land Title Act to register the judgment against the title to specific land. o S. 89(2) – The registrar must give notice to the owner of the property together with a copy of the certificate of judgment. o S. 90 – Damages can be awarded against the JC if no reasonable cause to register the judgment. o S. 91 – Registration expires after 2 years. “Show Cause” Hearing o S. 92 – Once a JC has registered his judgment, he will bring a motion for the JD to show why land that they have an interest in should not be sold to meet the judgment. o S. 93 – After the s. 92 proceedings, the court must decide if the land or interest in it is liable for satisfaction of the judgment. Registrar’s Hearing o As part of the order under s. 93, an order for a reference to a district registrar must also be made to determine (s. 94): what land is liable, what the priorities are against the judgment, how proceeds should be distributed, etc. o In practice, the Registrar just approves the report that JC’s counsel makes. Confirmation Hearing and Order for Sale o JC has to file a notice seeking the confirmation. o All buyers that will be affected by order for sale must be given notice. o At this stage, a JD is going to raise issues to oppose the sale. Issues: (1) Is the property the D’s home? If so, the court has to ask itself pursuant to s. 96 if it should be deferred, and (2) has the D received sufficient notice? Muntain – Court declined to force him to sell his home. o Once the court confirms the registrar’s report, an order can be made under s. 96(1) directing the property to be sold. Sheriff Advertises and Sells o S. 100 – The sheriff must wait 1 month. During that time, can have property appraised; get a real estate agent. o S. 101(3) – Advertising requirement: can be dispensed with using MLS listings. o S. 104 – Permits the sheriff to postpone the sale if no bidders or the bids are too low. Distribution to Qualifying Creditors o S. 106 – All money minus sheriff’s expenses must be paid to the registrar, and then the registrar pays out. o Mortgages always take priority. The JC may not even get anything by the time the interest has been paid out. o Under the Creditors Assistance Act, all creditors share the proceeds ratably after the mortgages. o 2. 3. 4. 5. 6. New Process 32 Debtor and Creditor Relations Outline Spring 2013 The court can order sale by the JC – makes the sale process more efficient by giving the JC the power to list and sell. Court relies on SCCR 13-15 and COEA s. 96 for this power. PROBLEMS FOR THE CREDITOR EXEMPTIONS Where the property is D’s principal residence, under s. 71.1 it is exempt from a forced sale where the equity doesn’t exceed a prescribed amount (as stated in the regulations under s. 3). Under s. 71.2, the D is entitled to receive an amount equal to the prescribed amount of equity if there is a forced sale. o Court Order Enforcement Regulation s. 3 – exemption amounts $12,000 in Capital Regional District or Greater Vancouver Regional District. $9,000 outside those areas. Discretion to Defer: Found in s. 96(2). THOW (RE) Definition of “principal residence.” Occupancy was not necessary to find that a dwelling is the primary residence, but it is indicative. Context matters, including intent to return. Held: D did not meet onus of showing that the property was his principal residence. INTEREST OF GOOD FAITH PURCHASER Registration of judgment is subject to the rights of purchaser in good faith for valuable consideration under s. 86(3)(c). BMO V. FULTHORP The BMO had a judgment against the former half owner of F’s property; order dated October 21, 2003. On October 24, there was an agreement for purchase and sale for the whole of the property by F. On November 12, BMO registered their judgment. On November 27, the transfer to F was registered. F’s notory didn’t search the title before or after, and registers his title subject to the judgment. Is F’s interest subject to the judgment? Held: JC’s judgment is subject to the F’s interest. S. 83(6)(c) of the COEA says that JC’s judgment is subject to rights of a purchaser who, before the registration of the judgment, has 33 Debtor and Creditor Relations Outline Spring 2013 acquired an interest in the land in good faith and for valuable consideration under instrument not registered at the time of the registration of the judgment. o JC can still go after proceeds that the JD got, but judgment doesn’t attach to the land. JOINT TENANCY Joint tenancies create a problem where the JD doesn’t have full interest. You can only get a judgment in that half. It’s not easy to sell a part interest in prop. CIBC V. MUNTAIN Property was registered as a joint tenancy for Mr. and Mrs. M. There was a judgment against Mr. for his half of the property. The bank kept trying to get an order for sale. The court exercised its discretion under the principal residence section to delay judgment. Then, Mr. died and the property transferred automatically to Mrs. Bank argued that when they registered the judgment, the joint tenancy was severed and therefore it was entitled to its half of the property. Decision: At the time of his death, there was no order for sale. The judgment was registered only on his interest. The bank had not done anything to try to sever the joint tenancy to make it a tenancy in common. The registration of the judgment was a charge on his interest on the property but when he died, his interest disappeared because of the joint tenancy. Order for sale would have severed the JT. PRIORITIES Where there is more than one judgment registered against the property, look to the Creditors Assistance Act (“CAA”). At common law, priorities were decided based on the time the JC’s got their writs. The CAA was put in place to make things fairer. o Example: J1 registered Nov 1, 1980 for 50,000. J2 registered Nov 1, 1990 for 50,000. Property sells for 60,000. The Act would give each 30,000. o Rationale: CAA encourages creditors to give debtors time to pay their debts without requiring them to preserve their rights by starting proceedings. All creditors that can prove their claim (not just post-judgment) will receive a ratable share of the proceeds on the sale. S. 3 – Money collected is distributed ratably to all creditors who have proven their claim to the sheriff. S. 110 of the COEA – Money realized through the sale of land is money levied under execution within the meaning of the CAA. 34 Debtor and Creditor Relations Outline Spring 2013 S. 111 of the COEA – Demonstration of how the Acts interact – money has to be distributed the way it would be under the CAA. The CAA does NOT apply where there is a GO or a foreclosure proceeding. Statutory Priorities in Favour of the Crown Rutherford, Bazett & Co. v. Penticton Pub Ltd: Crown preogatives. At the registrar’s hearing: governments came last, shared in proportion of the amount of the judgments with all creditors. At the confirmation hearing: sale ordered, but then there was a query into how the proceeds should be distributed. Both the federal and provincial Crown argue that they have a right to have their judgments paid out first, then the others can share ratably. Decision: Federal crown has prerogative right to priority payment before other JC’s. o No priority given to BC Crown – BC abandoned their prerogative by passing the CAA (specifically s. 46 which says no priorities). Final Ordering on Priority 1. 2. 3. 4. 5. Sheriff’s costs. Municipal taxes. Cost to JC for the proceedings. Federal judgments in favour of her Majesty the Queen in the right of Canada. Other creditors, including the provincial government, share ratably. EXECUTION AGAINST PERSONAL PROPERTY If judgment hasn’t been paid, first step would be to start a process to enforce judgment against JD’s personal property; next is garnishment; and then finally, execution against land. SCCR and COEA govern the process. S. 47(1) of the COEA: “Writ of execution” includes a writ of seizure and sale. o A writ of execution directs a sheriff to seize a portion of the JD’s property and sell that property such that when sold, it will satisfy the judgment amount. The main issue in seizure and sale is what kind of property can be realized under the process? Just issuing a writ can speed up payment and recovery, without actually having to seize. This writ is more appropriate for certain kinds of property, such as chattels. o Concern over low prices at auctions. o Concern over seizing intangible objects. o Concern over seizing shares. S. 55: All goods, chattels, and effects of a JD are liable to seizures and sale under a writ. S. 58: Empowers Sheriff to seize money and securities for money. 35 Debtor and Creditor Relations Outline Spring 2013 PROCESS FOR SEIZURE AND SALE PROCEDURE FOR OBTAINING A WRIT Procedure set out in SCCR 13-2. (1) An order for payment may be enforced by writ of seizure and sale, using Form 50. (6) A person not a party to the proceeding, who obtains an order, may enforce the writ in the same manner as if the person were a party. (18) Stays in force for a year – subject to renewal (19) before the end of the year by a court application. Once you have been issued a writ, it is given to a sheriff/court bailiff (officer of the court) who will then seize enough goods to satisfy: o The amount owing on the judgment; o The interest of the judgment; o The Sheriff’s costs; o The JC’s costs; and o The cost of execution. In practice, a JC gets a writ, Sheriff gives JD time to get $, usually the JD will pay out. On payout, Sheriff gets fees first, and then JC, anything extra goes back to JD. Thus, at the very least, it is beneficial to file for writ because it pressures the JD to pay. Any goods that are seized are sold at a public auction. SCCR 13-2(22) – JD is liable for the costs of the JC’s execution process IF the JC realizes assets. If the Sheriff/court bailiff can’t locate any assets, the judgment is returned to the JC, who can then proceed with other enforcement steps (garnishment, execution against land). PROCEDURE FOR OBTAINING AN ORDER Procedure set out in Small Claims Rules, Rule 11. (11) A JC can ask the registrar to order a seizure and sale, and under (12) it’s good for a year. No provision for renewal, but you can ask for another one. Under the COEA, by operation of the definition of the writ of execution in s. 47, it includes a Small Claims Court order for seizure and sale. SHERIFFS/BAILIFFS Bailiffs are contracted by the provincial government to provide for enforcement of judgments and there are two kinds: o A bailiff licensed under the BPCPA that repossesses under legislation like the PPSA. o A court bailiff is the kind that seizes for a judgment governed by the COEA, the SCCR, and/or the Small Claims Rules. Though the Act generally refers to sheriffs, it is generally court bailiffs that do this seizure. 36 Debtor and Creditor Relations Outline Spring 2013 PROPERTY SUBJECT TO SEIZURE AND SALE S. 55, subject to the exemptions in ss. 70-79, any good, chattel, or effect of the JD can be seized and sold. S. 56 excludes property that meets the definition of “land.” S. 57 specifically includes a variety of property (leases and licenses). A car is the most common good that is seized. o A Sheriff cannot force entry into your home, he can knock on the door but he CAN just take the car out of your driveway. o Also, it’s not really worth it to seize other household items. S. 58 allows for seizure of money and securities for money. S. 55 does not apply to intangible property. MORTIL V. INTERNATIONAL PHASOR TELECOM Computer seized that had software on it that had a trademark. Was the computer liable for seizure and sale? Decision: Court ordered seizure and sale. The computer itself was tangible property. To help the debtor, the court attached an order that whoever bought it had to enter a non-disclosure agreement. WIRA V. JUBILEE ENTERPRISES Issue was whether a trademark registered to the board game “dare to dream” was subject to an execution order. “Chose in action” can be seized, is a trademark a chose in action? Legislation in Sask. tabled to include IP – presumption that the existing legislation doesn’t cover it then. Comments: Need reform with IP in judgment execution; currently only way is equitable remedy. EXEMPTIONS FROM SEIZURE S. 71 Governed by COEA ss. 70-79. At common law, sheriff could seize and sell anything that belongs to the debtor, except the clothes they were wearing. Legislation has changed to allow debtors to keep necessities and maintain ability to earn a livelihood. (a) Necessary clothing of the D and their dependents; (b) Household furnishings and appliances that are of a value not exceeding a prescribed amount; (c) One MV that is of a value not exceeding a prescribed amount; (d) Tools and other personal property not exceeding value prescribed, that are used by the D to earn income from the D’s occupation; (e) Medical and dental aids that are required by the D and their dependents; 37 Debtor and Creditor Relations Outline Spring 2013 S. 72 S. 73.3 S. 73-78 S. 74 COE Exemptions Regulation s. 2 (f) Any personal property prescribed by the regulations that is of a value not exceeding a prescribed amount. Art exempt from seizure when brought into the province for temp. viewing. Exemption for registered pensions. Set out the procedure for determining the exempt goods. Once assets are seized, the D can choose which they want to keep under the exemptions (within 2 days of seizure). If there is a disagreement, the Sheriff can leave the JD temporarily in possession of it, but have to sign a note saying that the seizure is still in place. Where a car is sold to realize a debt, but its worth more than the judgment, the balance is returned to the D. Allows for the appointment of an appraiser if the JC thinks the JD is trying to cheat and keep more property than the exemption allows. (a) 4,000 for household furnishings and appliances; (b) 5,000 for one MV if D is not a maintenance D; (c) 2,000 for one MV if the D is a maintenance D; (d) 10,000 for tools and other personal property of the D. 38 Debtor and Creditor Relations Outline Spring 2013 EXECUTION AGAINST SHARES MONEY AND SECURITIES FOR MONEY S. 58 of the COEA – Sheriff empowered to seize money and securities for money. Alternative to garnishment when seizing from bank account. This extends the CL – at CL you could only seize tangible personal property. If you give writ of execution, the sheriff will seize any money or bank notes, promissory notes, bonds, etc. that belong to the JD. Can’t use s. 55 to seize money, it’s the addition of s. 58 that allows it. “Must seize and deliver any money or bank notes to the execution credit” AND o Literal interpretation – Sheriff takes money and delivers it directly to the JC. But this conflicts with the CAA if there is more than one creditor. “Must hold any cheques, bills of exchange, notes, bonds, specialties and other securities for money, as security for the amount directed by the writ to be levied.” o This section means that money and bank notes go directly to the JC, while the cheques, bills of exchange etc. are subject to the CAA. o The phrase “levy in execution” brings in the CAA. The property is held by the Sheriff and must be held until maturity. o There is no power in the legislation for selling off any securities for money at a discounted value. o S. 61 of the COEA – On maturity, the sheriff doesn’t have to commence an action unless the execution creditor has agreed to indemnify the sheriff against costs. Must distinguish between a fully paid up vs. not fully paid up insurance policy. o When the policy is not fully paid up, the requirement on the insurance company to pay does not exist; premiums must be fully paid. o It is NOT a security for money. CANADIAN MUTUAL LOAN V. NISBET A fully paid up life insurance policy has been interpreted to fall within the definition of “other security for money” and is therefore seizable. Nisbet gave a security for a mortgage a fully paid out life insurance policy, but the security assignment specifically excluded any payouts on dividends from the life insurance policy. The issue was whether the dividends were seizable under the COEA because it was fully paid up, it’s an unconditional obligation for the payment of the sum that’s insured when he died. Therefore, the dividends were available. As was the policy, but it was already given as security so there was no point. The Sheriff will hold onto the policy until the insured event happens, or it can become a security for the payment of the judgment where the JD can make payments. RRSP’S 39 Debtor and Creditor Relations Outline Spring 2013 This is often the only personal asset a JD has. S. 71.3(2) – All property in a registered plan is exempt from any enforcement processes. Note: Tax free savings accounts are not protected by this provision, even though the government touts them as a retirement vehicle. Exemptions S. 71.3(3)(a) – Prohibition against enforcement does not apply to property contributed after or within 12 months before the date on which the debt being enforced came due. o Prevents asset hiding (b) – Prohibition does not apply to property that has been or is being paid out of the plan. o If you’re retired and being paid out, that can be seized. o S. 73.1(4)(a) – Transfer of property from a plan of the plan-holder to another plan of the plan-holder, or to a plan of the plan-holder’s spouse does not count for this section. (c) – Enforcement process in support of a maintenance order under the Family Maintenance Enforcement Act. (d) – An enforcement process initiated against a registered plan before November 1, 2008. EXECUTION AGAINST SECURITIES AND SHARES COEA provisions work with the Securities Transfer Act. o s. 63.1 – The terms relating to securities have the same meanings as the STA. S. 63.1(2) – Securities may be seized by the sheriff in accordance with ss. 47-51 STA Certified Securities – S. 48 STA o Seizure can occur through: Physical seizure of the certificate (s. 48(1)) or By notice of the seizure to the issuer if the certificate is surrendered to the issuer by the JD (s. 48(2)) or if the certificate is held by a secured party (s. 51). o S. 63.1(3) – Seizure by notice takes effect once the issuer has had a reasonable opportunity to act on the notice. Un-Certified Securities – S. 49 STA o Prior to the enactment of this provision, could not be seized because there was nothing tangible. In those circumstances, you had to apply for an equitable receiver who would then instruct the brokerage to sell them. o S. 49 – Seizure occurs only through notice of the seizure by the sheriff to the issuer’s office. Exception: s. 51 – If being held by secured party, serve the notice on them. o S. 63.1(3) – Reasonable opportunity. S. 64.1 COEA – Sheriff is deemed to be the appropriate person under the STA to deal with or dispose of the seized property and the JD is NOT. THE SALE 40 Debtor and Creditor Relations Outline Spring 2013 The Sheriff has a duty to the JD and the JC to get the best price. If on public exchange it’s easy, give instructions to brokerage to sell. If privately held, will be issues with realizing their value, may have restrictions on the share transfers. o The most obvious market is the other shareholders (often family members). Share Transfer Restrictions: o S. 65.1(3) – Rights of Sheriff are restricted by terms of security, restrictions imposed by issuer, or USA. o S. 65.1(4) – Acquisition/redemption rights maintained. o BUT (5) – Sheriff can apply to court for a declaration that the share transfer was put in place to defeat, hinder, etc. and the court can order that the share restriction doesn’t apply. 41 Debtor and Creditor Relations Outline Spring 2013 EQUITABLE EXECUTION An equitable remedy can be applied for in two cases: 1. 2. Legal Impediments - Something preventing you from accessing traditional methods of execution. Where the court deems there to be special circumstances – NEC – where difficult or impossible for JC to realize judgment. o If you’ve made no effort to execute judgment under COEA, then JC may have higher hurdle to say that they have “special circumstances.” Two common equitable remedies: 1. 2. Equitable Receivers (NEC). Charging Orders (Millar; Chima). EQUITABLE RECEIVERS A receiver is a person who complies and sells the assets of a JD, giving the proceeds to the JC. A receiver stands in the place of the JD and can therefore collect debts owing to the JD or commence legal action on his/her behalf. Once a receiver is appointed, the JD can no longer receive assets, and is prohibited from interfering, les the D be found in contempt of court. Once the JC has recovered their money, the receiver files an application with the court to be discharged of their duties, and settles all payment for their services. This is a post-judgment remedy ONLY. o A creditor may not apply to have a receiver appointed until a judgment has been entered against the D. It is not meant to be put over ALL of D’s assets. This is ultra vires the provinces, it begins to resemble bankruptcy receivership. The court has the discretion to appoint a receiver even if the creditor doesn’t apply for one (SCCR Rule 13-2(5)). Authority Law & Equity S. 39 SCCR 10-2 SCCR 13-2(5) (1) An injunction or an order in the nature of mandamus may be granted or a receiver or receiver manager appointed by an interlocutory order of the court in all cases in which it appears to the court to be just or convenient. (2) An order made under (1) may be made either unconditionally or on terms/conditions as the court thinks just. (1) The court may appoint a receiver in any proceeding either unconditionally or on terms, whether or not the appointment of a receiver was included in the relief claimed by the appellant. An order may be enforced by the appointment of a receiver under Rule 10-2. 42 Debtor and Creditor Relations Outline Spring 2013 NEC CORP V. STEINTRON INTERNATIONAL ELECTRONICS LTD Court appoints a receiver based on special circumstances. The creditor, NEC, sought to have an ER appointed to collect monies owed by Steintron. Prior to the application, NEC had received judgment against Steintron and trued to have it registered in ON where they had real property. o The registration was vacated when Steintron appealed the judgment. o Immediately subsequent to this, Steintron sold its ON property to a foreign purchaser. Steintron argued no ER, claiming NEC still had legal execution remedies available. Decision: The equitable receiver was appointed. There were special circumstances; practically very difficult, if not impossible, to obtain fruit of the judgment. The P had tried for a Mareva injunction earlier because the D was disposing of its assets. o The alleged purchase and sale of the property was suspected to be illegitimate. Steintron was unable to produce credible evidence about the sale or the foreign purchaser. CNR v. Croteau – Court can appoint a receiver to receive funds owed from the Crown because you can’t get a garnishment order against the Crown. BMO v. First Canadian Land – An equitable receiver was appointed for a JD’s interest in their mother’s estate, upon evidence that the D was arranging their affairs so as to avoid execution. CHARGING ORDERS A charging order is obtained by a JC and placed on a JD’s property for monies owed. Purpose is to attach funds which are already in court in favour of an existing JC. o Ex. Where the JD is a JC in another action and there is money in court in relation to a settlement, the JC will apply for a charging order against that money. o Ex. Where JD is a JD in another case and money has been paid into court through a pre-judgment garnishment order, the JC can apply for a charging order to go after the garnished funds. Once the judgment in the garnishment action has been settled, the charging order only gives the JC the surplus (Chima). Applicant must demonstrate that fund/property sought to be charged is one in which JD has an interest. Can also get a charging order against funds, if they were in court as security for costs; against a surplus; against any interest pre-judgment; lawyers acting for JC and proceeds of litigation in the lawyer’s trust account. The CAA does not apply to charging orders because they are an equitable remedy. CHIMA V. HAYDUK The JD was also a JD in another action in which funds were garnished. The applicant JC now seeks an equitable order for payment of the surplus. 43 Debtor and Creditor Relations Outline Spring 2013 Decision: It is within the authority of the court to make a charging order absolute unless there are competing interests for the funds. There will be a hearing to solve competing claims. CANADA (MNR) V. MILLAR For reasons unrelated to the CRA, police illegally seized $200k for Millar. CRA wants the money. The court ruled that it couldn’t used as evidence, and then the CRA asked for a charging order. o This case involved an “interpleader procedure” which is when someone is in possession of property but doesn’t have a right to it, and there are competing claims on it. The money is put into court pending determination. Millar argues that the CRA has no right to the money because it was illegally seized. CRA is coming to the court asking for an equitable remedy when they don’t have “clean hands.” Decision: Absolute charging order granted in favour of CRA. o There is a legal hindrance to CRA getting the funds. They are in court and can’t be garnished. o Therefore, and equitable order is allowed. o The “clean hands” argument was dismissed because the police and the CRA are NOT the same entity, even though they are branches of government. 44 Debtor and Creditor Relations Outline Spring 2013 EXECUTION PRIORITIES Generally, a secured creditor will always rank ahead of an unsecured creditor. CAA S. 3 – The proceeds of sale have to be distributed ratably amongst qualifying creditors. o Ratably, not equally – ratably means a % of the total based on the proportion of the claim. S. 2(1) – When sheriff levies $ on execution against property, need to enter notice of levy into book; (2) must be open to the public. S. 3 – One month gap before distributed – All of money collected under s. 2 must be distributed ratably to those who have writs or certificates under CAA within one month. S. 27 – If amount levied is not sufficient, pay out ratably. S. 37 – Distribution of levy only to (a) execution creditor or (b) established a claim under CAA either alone or jointly with another person. S. 38(1) – If money levied is insufficient in full, the sheriff may (a) distribute that $ promptly as directed by this Act, or (b) prepare a list of creditors with amounts due; (2) list must show the amount for each creditor under CAA and the total amount to be distributed; (3) sheriff may deliver or mail each creditor or his solicitor a copy of the list. Note: CAA does not apply to foreclosure, which ranks according to priority of registration of title. MORTGAGES AND JUDGMENTS A problem arises where JC’s get priority over mortgages. Hard to sell a property that is encumbered with a mortgage. The decision in Hankin conflicts with the LTA. LTA does priority based on the date of registration. o If it had followed the LTA, the mortgage would rank ahead of the 8 JC’s. HANKIN FURNITURE V. GILL Execution proceedings against Gill. At the registrar’s hearing, his property was found liable to be sold and the priority amongst his creditors was listed with 3 judgments before a mortgage in favour of RBC, followed by 8 more judgments. RBC brings an application to rearrange priorities and have the mortgage recognized. Another JC opposes the application on the ground that all judgment holders are execution creditors and should share the proceeds of sale ratably. o Cites S. 3 of the CAA – there shall be no priority among creditors by execution. o Argues that the first judgment holder, Hankin, is entitled to sell the property free from encumbrances. 45 Debtor and Creditor Relations Outline Spring 2013 To back this up, argues that at the time of the registration of the first judgment, the legal and equitable estate of the debtor was free and clear of encumbrances, subject only to JC’s under the CAA. o The mortgage even states that it is subject to the first 3 judgments registered prior to the mortgage. The court finds that the statutory provisions (s. 3 CAA) support a finding that JC’s registered prior to mortgages rank ahead, and further, this means that ALL JC’s, even those that might come after, may take priority over the mortgage. o FAMILY MAINTENANCE ENFORCEMENT ACT Holders of family maintenance orders have special rights. When a D doesn’t pay a family maintenance order, the Act will authorize several methods to obtain the property – including seizure. S. 28 – Gives family maintenance orders super priority with respect to amounts owing. o (1) Maintenance order takes priority over any other unsecured judgment debt. o (2) Does not apply to arrears owing for more than one year before the date on which the creditor initiated current proceedings. o (3) Where there is more than one maintenance order, they will rank equally and share ratably, regardless of when issued. o (4) Payments received by the director on behalf of a creditor are not attachable under any other Act. Reitmeir v. Leontowicz – The JD had 3 FM orders, and 3 judgments against him. Priority decision: all 3 FM orders share ratably, and have priority over the other 3 judgments. EMPLOYMENT STANDARDS ACT S. 87(3) – Unpaid salary and wages constitute a lien, charge and secured debt, and have priority over all other claims except a mortgage. Effectively, if there is a forced sale of land, the JC owed wages will get paid first and then the rest of the JC’s. Wage protection in s. 36 of the CAA – also protects wages owed by a JD (to a lesser extent), provides that wages and salary of those who are employed by the JD at the time of the levy or within one month of the levy have priority to the extent of 3 months salary or wages over other claims. Use the ESA for more than 3 months wages. DIRECTOR OF EMPLOYMENT STANDARDS V. MACMILLAN BLOEDEL Sherriff has enforced writ of execution and made levy under CAA. After this time, JC delivered writs of execution to Sheriff but no employees had presented claims in accordance with CAA. Sheriff prepared scheme of distribution but did not include unpaid wage claim. Director of Employment Standards had issued order for unpaid wages but did not register under CAA, applies to the Court to be added to scheme of distribution. Chambers judge had refused because the director had not complied with CAA. 46 Debtor and Creditor Relations Outline Spring 2013 Court of Appeal held that the director was entitled to participate. ESA s. 87 prevails over CAA. WORKERS COMPENSATION ACT S. 52 – Provides that any amount that is due by an employer (pay money to WC, they pay basic levies), and the WCA provides that the amount that is due to the Board or where that amount has been assigned, it constitutes a lien in favour of the board over all liens, charges, and mortgages EXCEPT for liens for wages (ESA). WCB V. CANADA What’s their priority with respect to a CAA distribution and what’s the federal Crown priority? On the first issue (rank in terms of the proceeds): o We have the CAA saying everyone needs to share ratably. o WCB saying that notwithstanding any other legislation, they rank ahead. o They’re of equal status, what is the court going to say? o WCB ranks ahead because they’re both legislation at the same level. The WCB was passed later than the CAA so you assume the legislature knows about the other legislation and also s. 52 specifically refers to property and proceeds of property. On the second issue (federal government has been late to get in on this): o First the creditor says they’re out of time. o Court says they can participate because there was an objection to the distribution scheme and the one-month requirement was only there to ensure distribution. o The time limits are there for certainty not necessarily for limiting the list. o The issue here is, does the Crown priority over regular creditors extend to the proceeds of sale? The court says that the funds are un-crystallized until distribution has been determined so the Crown prerogative applies. o Extinguished its right using s. 46 of the CAA and s. 14 of the Interpretation Act. o Priority: (1) WCB, (2) Feds, but leaves open that if the Feds would have argued it, they might have got priority. 47 Debtor and Creditor Relations Outline Spring 2013 EXEMPTIONS AND IMMUNITIES WORKERS COMPENSATION ACT S. 15 – Any sum payable as compensation exempt from executions and garnishment. Cannot be assigned, charged, or attached. EMPLOYMENT AND ASSISTANCE ACT S. 29 – Income assistance, hardship assistance and supplements are exempt from garnishment, attachment, execution or seizure under any Act. Exception – (2) – Prohibition on garnishment or attachment doesn’t apply where the recipient has entered into a repayment agreement with respect to monies provided while they were waiting to receive it. CPP AND OLD AGE SECURITY ACT S. 65(1) and (1.1) CPP – Benefits under the Act can’t be assigned, charged, attached, seized or executed. Exception – (2) – Prohibition on garnishment or attachment doesn’t apply where the recipient has entered into a repayment agreement with respect to monies provided while they were waiting to receive it. o Ex. Can retire at 60; if on income assistance, there’s a lot of pressure to do that. o There is a lag time between when you apply for CPP pension and when it’s actually approved. o The province will agree to support you during that period, but then must repay the amount when it’s received. It’s deducted directly from your CPP. o This is to prevent double payment – otherwise person would get both income assistance and CPP for the same month. PENSIONS BENEFITS STANDARDS ACT This existed a lot earlier than the exemption under the COEA for pension plans. S. 63(1) – Benefits and money transferred can’t be assigned, charged etc. they are exempt from execution and seizure. Exemption – (3) – This doesn’t apply to additional voluntary contributions (as it would allow people to protect their assets this way). INSURANCE ACT This is for life insurance. Must have contingency tied to life of insured that triggers a payment to listed beneficiary. 48 Debtor and Creditor Relations Outline Spring 2013 Provides for two exemptions where they will not be available to creditors. S. 54(1) – applies after death – where a beneficiary is designated, from the moment you die, that money does not form part of your estate – goes straight to the beneficiary. Therefore, that money cannot be subject to claims of creditors. S. 54(2) – applies prior to death – if you have designated your spouse, child, grandchild, or parents as beneficiaries, any interest in that insurance is protected. o This section used to be very important prior to the COEA to protect private pensions because insurance companies created RRSP savings products that qualified as life insurances but they paid annuities on death and as long as the payment was to designate parties under this provision, protected from execution proceedings in a way that pensions were not. o Critique: This makes no allowance for non-nuclear family forms. EXAMPLES 1. 2. Life insurance policy that designates your uncle as a beneficiary and you die. Are those monies subject to execution? No – the event has occurred (death) so (1) kicks in to protect the funds. If you’re still alive, in debt, and have a life insurance policy for a charity beneficiary – is it subject to rights of creditors? Yes – designated beneficiary isn’t any of those listed in section. a. BUT all the other provisions would have to attach; has to be fully paid up, wait for maturity. CROWN PROCEEDINGS Provincial – Crown Proceedings Act s. 13(6) – The provincial crown is exempt from execution or attachment proceedings for enforcing payment by the government. Federal – Crown Liability and Proceedings Act s. 29 – No execution shall issue on a judgment against the Crown. CYBULSKI V. BERTRAND Judgment against Canada Post leased vehicles. CP asks for stay of execution for 9 days (granted), pays judgment within 13 days and applies order setting aside the seizure and sale. Held: Crown’s exemption extends to leased property by the nature of s. 29. Discussion on Crown Immunity: The rule applies to any property in the Crown’s possession; in this situation it was leased. o Policy: Anything that the Crown is using, essential to operation, etc. could cause intolerable interruptions in that public service. o Whatever the Crown is doing is important and essential; don’t want to have the judgment enforcement process hinder the work. The court here felt that the P was engaged in “sharp practice.” The P was liable for all costs as the court found the enforcement of the writ completely unnecessary – she would have had 49 Debtor and Creditor Relations Outline Spring 2013 to wait 40 days anyways before any sale could have happened. She got paid within 13 days, that’s pretty good by all standards. INDIAN ACT Applies to “Indians” – someone who is registered or entitled to be registered under the Indian Act. S. 89 – Provides that real or personal property of a status Indian or band situated on reserve are not subject to charge, pledge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian or band. o Why might this be a problem? Makes it difficult to access credit because you can’t give land as security unless the credit grantor is an Indian band or a status Indian. o Interest that is charged for mortgages is usually a lot more than unsecured avenues can provide for. o Royal Commission identified these sections of the Act as being problematic. It makes credit more expensive and on default, it makes it more difficult for JC’s to get what they are owed because they can’t seize and sell. S. 90(1) – Deems personal property to be “situated on reserve” IF: o (a) Purchased by government with Indian moneys or moneys appropriated by Parliament for use or benefit of Indians or bands. (So if it is off reserve assets, may be deemed to be “situated on reserve” if purchased by government with Indian money), or o (b) Given to Indians or to a band under a treaty or agreement between a band and government. If there is a bank account off reserve land and the money in it falls within s. 91(a) or (b) then it is deemed to be on the reserve so a creditor wouldn’t be able to garnish it. Prior to the Godslake case, in BC, there had been a number of cases where bands were given money to provide services for education or housing and that money was deposited in banks that were off reserve and the courts accepted a number of arguments with respect to those funds to deny the creditors from attaching against them. (1) That they maintain their character as treaty funds; or (2) the agreement between the feds and the band was that they would be used for these purposes so if we allowed creditors to access them they would violate that agreement. GODS LAKE FIRST NATIONS V. MCDIARMID LUMBER Gods Lake is given a bunch of money under a Comprehensive Funding Agreement with the federal government to provide services on the reserve. McDiarmid Lumber contracts with them to supply construction services related to building (things like schools and teachers homes) and related materials. GD did not pay debt. MD proceeds against the band. 50 Debtor and Creditor Relations Outline Spring 2013 GL has money in bank account in Winnipeg (CFA). MD applies to garnish the money in that bank account. Band files motion to set aside the GO, arguing that the property falls within s. 90(1)(b) and is deemed to be on the reserve. Court of Appeal holds that s. 90 does not apply because CFA is not a treaty or an agreement within the meaning of s. 90. SCC Decision: Agreed with the CA. o They gave “on reserve” plain and ordinary meaning, and the connecting factors test doesn’t apply here, it is only for s. 87. o Deeming provision in s. 90 doesn’t apply because an agreement must be ancillary to, or flesh out, the treaty. GL couldn’t show that the CFA was pursuant to treaty obligations. o McLachlin also gives commentary on credit regimes and practices. Band economic development and self-governance would be served by this interpretation, as it is consistent with self-sufficiency and increased opportunity to use assets as collateral. Dissent: Wants s. 90 construed broadly so that “agreement” would mean something different than treaty. o Wants to create a social welfare exception; use the funds for the purpose for which they were given. o Binnie also has a problem with: The CFA was for housing, social services, etc. The K with ML was to build schools, housing for teachers etc. The government is either going to have to pay the additional funds, or they’re not and the band will be short the amount they earmarked for these services. Critique: While it opens more assets for security, if you’re a JC, you have to do a case-by-case analysis of anything offered as collateral to determine if it is protected by these sections or not. o Depending on the content of a treaty in a particular area, funds for the same purpose of a band in Ontario and a band in MB, the funds protected from creditors in Ontario but not creditors in MB, because of what the treaty holds. Raises an important discrepancy issue: IF the GL had a bank on reserve, the issue wouldn’t have arisen. 51 Debtor and Creditor Relations Outline Spring 2013 FRAUDULENT CONVEYANCES S. 1 FCA – Essentially provides that dispositions of property is void and of no effect if made to delay, defraud or hinder creditors. S. 2 FCA – Exempts dispositions of property where there has been good consideration, good faith, and the transferee has no notice of collusion or fraud. o Why? If there has been good consideration, there’s presumably still a remedy for the creditor against the consideration. If there’s a disposition, no good consideration, intent to delay, hinder, or defraud, may be possible to use the Act to set aside the disposition. Two general issues: o What is a disposition of property? o What is intent? Burden of Proof S. 1 – Falls on the P to prove disposition and intent. S. 2 – Falls on the D to prove there was good consideration and good faith. DISPOSITION OF PROPERTY Property: Any beneficial interest in any form of real or personal property. Property that is not subject to execution does not fall into the scope of the Act. Disposition: At issue in Re Sykes (1998 BCCA). Sykes transferred funds from non-exempt RRSP (prior to COEA protections) to an exempt annuity insurance plan with simultaneous designation of his wife as the beneficiary. o S. 54(2) Insurance Act says that life insurance plans are exempt with certain beneficiaries, such as spouses. o He makes the transfer on May 1, 1990, and then on June 22 he assigns into bankruptcy. o The BIA incorporates by reference all provincial exemptions, so if the transfer was valid, those funds would be exempt from his creditors in terms of bankruptcy proceedings. Issue: Was this a disposition for the purposes of FCA? Creditor argues that the transfer and designation of the wife constitutes a fraudulent conveyance. Decision: o Court looks to s. 29 of the Interpretation Act which defines dispose as including assign, transfer, etc. so this transfer constitutes a disposition of property. o Court finds that the transfer and designation of wife constituted a disposition. o Changing the beneficiary of a life insurance policy constitutes a disposition. o Further, it was the main intent of the transfer to hinder, delay, or defraud. At the time, Revenue Canada was actively pursuing the debt. o Those were the badges of fraud that allowed the court to infer intent to hinder/delay. 52 Debtor and Creditor Relations Outline Spring 2013 o Once the Court meets s. 1, it becomes a question of whether s. 2 can save the disposition? Sykes didn’t pay for it, knew about the debt being pursued. INTENT If you’re the C, you just have to prove using badges of fraud the inference that the D intended to delay, hinder, or defraud. Do not have to prove a dishonest intent, just the intent to move the property out of the creditors reach. S. 2 prevents s. 1 from voiding the transfer if it was for good consideration, lawfully transferred and no notice of knowledge, collusion or fraud. o In order for this section to void the transaction, the transferee has to have actively colluded in the fraudulent conveyance. You do not come within the ambit of the Act if you give good consideration and know that it is fraudulent, as long as you’re not active involved in the fraud. High threshold for court to set aside a transaction for good consideration. There is a 6 year limitation date on bringing an action under the FCA. BADGES OF FRAUD Can rely on circumstantial evidence to prove intent. Secrecy about the transaction. o Fail to register the conveyance. Continuing to live in the property even though transferred. If you convey all of your property to someone else, looks fraudulent. Transferring it to a relative. Transferring it without consideration or without adequate consideration. Substantially reduces what is available to creditors. Conveyance effectively defeats creditors. RE ROMANOWICH In August, R directs a transfer from his RRSP to his public service pension plan. The effect is that of moving an asset to be exempt from execution. o He tells the court that he did this because he got a letter in July 1998 saying that the can purchase additional months that relate to previous service; one time offer so that pension will be purchased over longer period when you retire. In November 1998, he voluntarily declares bankruptcy. o When you declare, you have to say if you have made any dispositions in the last year. Decision: Court replies on Sykes to say that the transfer was a disposition of property. 53 Debtor and Creditor Relations Outline Spring 2013 The next step is intent: was it made to delay, defraud, or hinder creditors? To determine this, must look to the badges of fraud. In this case, they found that they were all present. o Most significant: secrecy, if there was secrecy about the transaction. o Continuing to use the property. Common is where the spouse transfer it to their other spouse and they both continue to live there. o He’s deep in debt at the time of the transfer. o He essentially transferred it to himself. o It defeats the creditors – this is the main point. The transaction is set aside as a fraudulent conveyance. ABAKHAN & ASSOCIATES V. BRAYDON INVESTMENTS Botham: directing mind of the plaintiff corporation (BHL). BHL is approached to invest in JW Auto. They become a general partner of JW and therefore is liable for JW’s debts in this transcation. Based on professional advice, Botham incorporations Braydon Investments. Through a series of share transactions, he transfers BHL assets to Braydon (19 million dollars worth). There is no good consideration for that transfer. None of them had taken any steps to realize their debts but they had several creditors. JW investment opportunity fails, BHL and JW are assigned into bankruptcy and BHL’s trustee (Abokhan) is seeking to set aside this transfer of the 19 million dollars to Braydon as a fraudulent conveyance. Conceded that there was no “dishonest intent” on part of Botham in the transactions; he was just trying to protect his assets and to get a tax benefit. TJ found that there was sufficient intent to defraud the creditors and the transaction was voided. Go to the Court of Appeal and they agree with the TJ. You need some kind of “fraudulent or dishonest intent” said the appellant. o Court says that it’s not necessary to have a mala fides intent. The only intent that you need is intent to put your assets out of reach of creditors; it doesn’t need to be “dishonest.” Even if it were carried out with other objectives (tax advantages), then it would still be opening yourself up to a fraudulent conveyance action. The Court also says that the use of the words “delay, defraud or hinder” creditors ‘and others’ includes future creditors (they don’t need to have commenced an action at the time of the conveyance). PROFESSIONAL OBLIGATIONS PROFESSIONAL CONDUCT HANDBOOK 54 Debtor and Creditor Relations Outline Spring 2013 Chapter 4, Rule 6: A lawyer must not engage in any activity that the lawyer knows or ought to know assists in or encourages any dishonesty, crime or fraud, including a fraudulent conveyance. LAW SOCIETY BC – DISCIPLINE DIGEST Prudent to ask questions if it appears the client is in financial distress or if it appears that they are entering into risky business. If client approaches with request/suggestion for fraudulent transaction, safest thing a lawyer can do is advise client that the proposed transaction is fraudulent and advise against it and refuse to act on it. Almost any other or further advice lawyer gives creates the risk of criminal or professional impropriety. Do not assist client in hiding assets. Footnote: Suggests two circumstances where the duty to make further inquiries would arise: o Client asks to use lawyers trust account without requiring substantial legal services. o Where client proposes unrealistic returns on their investment to third parties who have placed money in trust with the lawyer or have been invited to do so. 55
