CREDITORS’ REMEDIES 443

Rebane (2010) Robert Kiesman

CHAPTER 1: INTRODUCTION

  • CR: How you collect a debt.
  • Every civil judgment that is monetary in nature creates a debt.
  • This course is about collection of unsecured debts/judgments.
  • Secured creditors win over unsecured.
  • Don’t limit yourself – there are other ways to get the money!
  • Underlying policies of CR: (1) We support payment of just debts; (2) There should be some protection for innocent third parties; (3) There should be some equitable distribution when a debtor has multiple creditors.

REGULATION OF THE CREDIT SYSTEM AND EXTRA JUDICIAL DEBT COLLECTION

  • Combination of limit on creditors and rights of debtor.
  • Trying to put some controls on abuses in credit system.
  • How to control granting of credit and protect consumers from themselves?
  • In BC, some legislation puts some restraints…

Regulation of Particular Transactions.

  • Regulating certain types of transactions from which debts arise: Business Practices and Consumer Protection Act.
  • Part 2: Unfair Practices (deceptive acts and unconscionable acts). Applies almost exclusively to consumer transactions: “supply of goods or services or real property by a supplier to a consumer for purposes that primary are personal/family/household.”
  • Section 4 “deceptive act or practice”: oral, written, visual or other representation by supplier that has capability or tendency of deceiving or misleading a consumer. Examples: representation that goods have qualities they do not; prior usage they don’t have; that service is needed if it is not; if someone uses exaggeration/ambiguity about a material fact.
  • Section 4 “unconscionable acts”: Basically undefined, but examples: undue pressure to enter transaction; if supplier takes advantage of incapacity to reasonably protect interest; gross overcharge; no reasonable probability of full payment.
  • If allegation of deceptive/uncon act, burden of proof that it was not committed is supposed to switch to supplier.
  • Remedies:
  • Courts have ability to set aside transaction
  • Damages
  • Penalty/Offense to supplier
  • Complaint process

Control of the Credit Rating System.

  • Part 5: Cost of Consumer Credit: Obligations on creditor to provide you with details of what total cost of credit is. (Provisions not all in force yet).
  • Today you needconsent to collect and retain information.
  • Accuracy concerns.
  • Defamation concerns: If agency hands out wrong information and knows it is wrong.
  • Old Credit Reporting Act: Repealed and largely put in to BPCPA, Part 6 – also substantially updated.
  • Applies to you if you get credit reports and when you get them.
  • Tells what credit information is (basically anything about individual).
  • Section 107: A person must not obtain from agency a report respecting individual without the consent of the individual – these often in credit K.
  • Section 108: Reporting agency cannot knowingly give report unless report is given to certain circumstances – must believe person requesting will use to extend credit OR with respect to collecting a debt (also employment K; government; insurance; law enforcement; court order; written consent of individual).
  • Section 109: Cannot have certain info in credit report: info must be accurate to best knowledge of agency; cannot have info about legal proceeding in which individual is nominal defendant or it is for something other than money; statute-barred; cannot have info on judgment if it was from more than 6 years ago unless part of it remains unpaid and that has been confirmed with creditor in that action; info about bankruptcy more than 6 years after discharged, unless bankrupt more than once; info about race, belief, color, ancestry, political affiliation.
  • Section 110: Comes up when you are denied a loan – if you disagree, can write to agency that explains why info is incorrect or inaccurate – info must be included in any future report it gives to the individual.
  • Private collection agencies mostly help with debt counseling and mediation. They often act as “go between” to stop phone calls, etc.
  • Debtor’s Assistance Act has largely become irrelevant because it was brought in before consumer bankruptcies and Bankruptcy and Insolvency Act.
  • BIA: Consumer Proposals – all creditors obligated to continue in program so long as payments keep coming in.
  • Debt Pooling: One payment to one creditor who divides it up among other creditors.
  • Consolidation Order: Made under DAA – almost never used.

Regulation of Debt Collection.

  • Identify whether the person is unable or unwilling to pay.
  • If unwilling, take these steps:

(1) Demand Letter: Identify who you are; basis of debt owed; time demands; you are not providing legal advice.

(2) If no response, make a phone call and ask why no response.

(3) Check to ensure: You are not trying to collect from wrong person; debt has not been already paid; phone call is not abuse; no threatened harassments or embarrassment; don’t call others and let them know of problem.

  • Criminal Code: Sections appropriate for acts done by person engaging in self-help to collect debts:
  • s.346: Do not threaten, accuse, or be violent = extortion.
  • s.372: If with intent to injure or alarm person, you convey call/letter information you know to be false = imprisonment.
  • BPCPA, Part 7: Enacted because BC felt CC was not going far enough.
  • Group of restrictions on anyone collecting debt in BC.
  • Section 114: General prohibition on harassment – manner and frequency.
  • Examples: Using threatening/profane/intimidating/coercive language; excessive pressure; threatening to publish failure to pay
  • Section 115: Collector must not attempt to make payment until collector has notified debtor in writing of: name of creditor; amount of debt; identity and authority of collector; collector must not initiate verbal communication until 5 days after sending written notice.
  • Section 116: You cannot communicate with debtor at their place of employment unless you failed to get them at home OR you do not have home address or telephone number – make only ONE attempt at place of employment.
  • Section 117: You can only contact the debtor unless you are doing it to get contact info for the person because you do not have it.
  • Section 118: Time restrictions: You cannot communicate with them on a statutory holiday, Sunday (except between 1-5), any other day (between 7am-9pm)
  • Section 120: Cannot attempt to collect amount that exceeds debt.
  • If debtor says you must communicate with them in writing  you must!
  • (c) If person tells you they are not the debtor, you cannot continue to communicate with them. If you do not believe them  sue.
  • Section 122: You cannot do any of these on your own behalf unless there is court order to contrary: remove from inside of residence personal property in absence of debtor/spouse/adult resident; if you don’t have writ of seizure and sale and you think you will seize and don’t have security  you can’t take it.
  • Section 123: You cannot supply misleading info (“my client will sue”) if you don’t have instructions.
  • (b) You cannot misrepresent purpose of communication.
  • Remedies for debtors who are victims of improper debt collection found in Part 10.

CBC v. Carlson: Example of damages for harassment/humiliation.

Employee of CBC tried to collect $ from Carlson – Carlson owed debt and was on welfare – Carlson did not owe debt CBC he was trying to collect at time – threatened to sue and harassed him – court said it was breach of Act – awarded nominal damages to Carlson of $1000.

Kindle v. James: Example of damages for tort in collection.

Seizure of car from property of debtor when nobody was home – car was not car of debtor, but car of third party – on way to impound lot, bailiff totals car – P got substantial damages in tort for conversion of vehicle and breach of Act.

Judgments Without Civil Actions.

  • Can obtain judgment without ever having commenced civil action – in very limited circumstances.
  • Without a judgment, all you have is self-help! Exceptions: (1) Certain government agencies in limited circumstances, such as CRA, who can get certificate and register it in Federal Court; (2) CC, ss.738, 742: give criminal judge, after giving conviction, the ability to make compensation order to victim – can be registered in SCBC and then enforced  you are now judgment creditor; (3) Creditor Assistance Act – an attempt to abolish priority among unsecured creditors – but limited to Writs of Seizure and Sale. When you have judgment debtor (JD) and judgment creditor (JC), there are several WSS from JD…judgment will be distributed pro rata. There is ability of creditor who has not obtained judgment to share in the proceeds.
  • Certificate Process: Sections 6-8: Rules for serving application for a certificate on debtor; affidavit of claim  get certificate granted to you. Once you get it, you can share in proceeds, get sheriff to seize more property, and take other enforcement steps, such as garnishment order.
  • You cannot apply for certificate at any time! The first time you can apply for a certificate (s.6), you have to have had WSS and goods are actually seized, and it is 20 days after seizure or 2 days before sale.

CHAPTER 2: PREJUDGMENT REMEDIES

  • What can P do to try to secure payment before judgment?
  • Lister v. Stubbs: P not entitled to injunction to restrain person who was alleged to be a debtor from parting with his property.
  • Despite Lister, in BC, once a creditor has commenced an action (or is about to), there are two remedies available: Pre-Judgment Garnishing Orders and Marevas.
  • Both require creditor to have commenced an action.
  • Both freeze assets until judgment can be obtained.
  • Neither gives P creditor a proprietary interest in affected assets.
  • PJGO and M are different because of type of property you can freeze. PJGO freezes only a debt, while M has little limitation on property court can render subject to it.

PRE-JUDGMENT GARNISHMENT

  • PJGO is more secure than Mareva because it takes $ and puts it into court.
  • Most cases attempt to set aside PJGO D has right to try to have set aside.
  • D’s challenge PJGO on two grounds: (a) Materials prepared in support of the PJGO (affidavit) are not meticulously compliant; (b) Nature of claim of P against D is not one where you can get PJGO.
  • NEVER, as counsel, swear affidavit – make client do it.
  • To get PJGO, claim must be liquidated claim (capable of arithmetic calculation at time cause of action arose) – eg: If P says he would provide D with 100 copiers at $1000 each, and he provided 50 but was not paid = arithmetic calculation…
  • If someone admits they owe $x (even orally) court will accept!
  • PJGOs are frequently used and are effective.
  • There is obligation to serve D with your materials “forthwith”. Do not serve before.
  • Court Order Enforcement Act, s.3(2): A judge or registrar, on application made without notice; you must be P in an action; must swear an affidavit swearing certain facts (or their solicitor…Rebane – NEVER do this!).
  • Must say action is pending
  • Must say when commenced
  • Describe nature of cause of action: amount of debt; say it is justly due and owing after making all just discounts; say you believe garnishee is indebted or liable; address of garnishee; (see p.665 for precedent)
  • Practice Point: Clients often don’t tell you the “whole story” – be sure you know of all just discounts!

Businex v. Canadian Medical: A liquidated debt is an amount that is already ascertained or capable of being ascertained as a mere matter of arithmetic. If you have claim that is part liquidated and non-liquidated, you can issue claim for liquidated part.

Share price based on book values, etc – in order to come to “fixed amounts” estimates were required.

  • Claim must either be debt or liquidated demand to meet statutory test.
  • LD in nature of debt, specific sum of money due or payable. If it requires investigation beyond mere calculation, it is not a debt, but damages.
  • Held: Estimates not capable of arithmetic calculation.
  • Garnishing order set aside in part only! Part of non-refundable deposit was still to be paid – court allowed GO to stand for liquidated amount – despite liquidated and non-liquidated claims being mixed.
  • What is Liquidated Claim? Clear debt; Services based on hourly rates; Unit price contracts (100 tv’s at $1000 per tv); Outstanding rent
  • Note: Try to get admission if you think it is un-liquidated! You can now try to get amount they’ve admitted to.
  • If you have GO set aside, apply again!

Knowles v. Peter: There must be meticulous observance of requirements of Court Order Enforcement Act.

“Affidavit…is defective in that the cause of action must be sufficient set forth”.

  • Examples: Mis-description of cause of action; failure describe either D or garnishee; failure to sign GO or affidavit; using wrong address for garnishee; failure to say “all just discounts”; failure to say due and owing, etc.
  • Note: Meticulous observance does not go so far as to require technical perfection (Monday Publications); The document, taken as a whole, clearly must inform the reader of its true message (Winroc), and that there is no confusion or uncertainty – that is, the reader is not left to guess what is meant (Cooper).

Pybus v. National Credit: An imperfect PJGO is not void, but voidable, so a TJ has discretion to uphold it.

P served D after 6.5 months – statute required service “at once”.

  • Held: PJGO set aside – unreasonable delay in service.
  • Rebane: A week or two would not be an issue.
  • COEA, s.5(1): Allows D to make another type of application to have PJGO set aside, and funds released to D. Basis is that it is just in all of the circumstances.
  • Rebane: To get to “just” is balancing act – hardship (to D) argument.
  • Note: If judgment granted, 5(1) also gives court authority to grant order to pay in installments.

Redekopp v. Canadian Timber: Some considerations under s.5 that a court will consider in deciding whether or not to set aside PJGO on basis of convenience: Strength of P’s case; hardship to D; necessity (is attachment necessary to secure recovery to P?); other considerations (unjust to deprive D of all capital?) etc.

MAREVA INJUNCTION

  • MI is court declaration that says D cannot part with certain assets.
  • Usually arises in fraud-type cases of when someone trying to move assets from a jurisdiction.
  • You obtain MI pre-trial – right around time you are starting your action.
  • Law and Equity Act, s.39 is the statutory source of discretion for granting MIs.
  • Interlocutory (pre-trial); ex parte (without notice).
  • With ex parte: Required to disclose to court full, frank disclosure of all material facts – whether they assist you or not.
  • Required to make full, frank disclosure of the law, whether it assists you or not.
  • Common procedure: At same time as filing SOC, file Mareva. You may have to book a judge first – some take time.
  • It freezes assets of D or places significant restrictions on his ability to alienate assets. Designed to prevent dispositions before trial.
  • Note: MIs do not create a security interest! Debtor is still owner, and secured creditors have ability to get the assets.

Aetna v. Feigelman: The requirements for getting a MI are higher than for other injunctions, and unless there is a genuine risk of the removal of assets, the injunction will not be issued.

Ex parte injunction trying to restrain transfer of assets from Manitoba to Ontario/Quebec.

Is MI available?

  • Allowing injunctions: (a) To preserve assets that form basis of dispute; (b) To protect court process before trials; (c) To prevent fraud on court or plaintiff; (d) Where there is real or impending threat to remove contested assets from court’s jurisdiction.
  • Old English Cases: (1) P must have good arguable case; (2) There are assets of D within jurisdiction of the court; (3) D need not be out of jurisdiction itself; (4) There must be real risk that assets of D are about to be removed or disposed of somehow.
  • Rebane: In Canada: (1) Good arguable case portion of test is prima facie case; other 3 parts have been squished down.
  • Held: MI is not necessary – D acting in ordinary course of business.
  • Important fact to decision: Aetna was a federally incorporated company, and under federalism, they should be free to move around assets anywhere in Canada for legitimate business reasons.

Mooney v. Orr #1: BC courts have jurisdiction to issue worldwide MIs as long as debtor is within jurisdiction.

Ex parte application for MI during middle of complex trial – MI intends to restrain alienation of assets D had outside of BC.

Can a MI apply outside a provincial jurisdiction?

  • Starting Point: Court does not have jurisdiction outside of BC.
  • Held: Yes, MI granted and worldwide assets must be disclosed.
  • Reasoning: Realities of modern banking – concept of worldwide injunction in UK and Australia should be recognized in Canada.
  • Jurisdiction exists as in personam remedy – as long as D properly before the court, the BC court should have right to make orders with respect to alienation of assets of that D no matter where assets are located.
  • Practice Point: Try to get orders for 3P holding assets as well.
  • Test for when court will consider granting MI: (1) Need party who is properly subject to jurisdiction of the court; (2) Must show P has strong prima facie case; (3) Show there is real risk of removal or disposition of assets with intent to avoid judgment; (4) Where going for world-wide MI, you must show exist of assets beyond jurisdiction, and disposition or concealment would likely frustrate payment of the judgment.
  • Rebane: Sometimes court requires P to give undertaking as to damages: P has to say he will undertake costs of damages that may flow as result of obtaining MI and not being successful at trial (eg: lost business opportunity).
  • Ensure undertaking as to damages is in affidavit.
  • If on for D, question whether P can give meaningful undertaking as to damages (eg: if they are merely holding company with no assets…no security, etc).
  • How to meet that? Show financial strength of P.

Mooney v. Orr #2: Whether or no a MI is granted depends on the strength of creditor’s case. Case modifies part 1 of test to “strong arguable case”.

Application to set aside MI – two months later, still during trial – goes before trial judge – two arguments made: (1) Material non-disclosure on part of P; (2) Written argument on merits of application.

  • Held: Not material non-disclosure.
  • New Modified Test: (1) Strong prima facie case; (2) Real risk of disposal/dissipation of assets; (3) Nature of transactions going on by D; (4) Risk inherent in transaction you are trying to stop [eg: enforcement rights in jurisdiction where being transferred];
  • Other Factors to Consider: (a) Nature of transaction: local, international; (b) Risks inherent in the transaction; (c) Where does D reside?; (d) History of Ds conduct; (e) Enforcement rights of JCs in jurisdiction where assets located; (f) Amount of claim.
  • Rebane: Real question is again, is there a real risk of disposition?
  • Reasoning: “The ultimate question becomes, is it fair and just that the applicant should have the right to monitor the movement or expenditure of capital assets by the respondent during the course of the proceedings between them?”

Reynolds v. Harmanis: Applicable test should be strong prima facie case rather than more liberal UK “good arguable” case. Must show real risk of disposition or concealment, not just possibility. You must balance convenience and consider impact MI may have on D or any 3Ps who would be impacted. Consider if unfair if effect of MI may be to put D out of business unless security is posted in a significant amount.