Part 4 – Unsecured Part 4 – Unsecured CreditorsCreditors

Pre -Judgment Pre -Judgment EnforcementEnforcement

CategoriesCategories

Self-helpSelf-help Pre- or post-judgmentPre- or post-judgment

Legal processLegal process Pre-judgmentPre-judgment

Against person of debtorAgainst person of debtor Against property of debtorAgainst property of debtor

Post-judgmentPost-judgment against person of debtor against person of debtor against personalty against personalty against realtyagainst realty against debtsagainst debts against other types of propertyagainst other types of property

Self-helpSelf-help

Regulated byRegulated by Tort lawTort law Criminal lawCriminal law Collection Agencies ActCollection Agencies Act

Applies to collection agenciesApplies to collection agencies Cost of Credit Disclosure ActCost of Credit Disclosure Act

Applies to lenders themselvesApplies to lenders themselves CCA & CCDA have similar regulations CCA & CCDA have similar regulations

regarding collection practicesregarding collection practices

Self-helpSelf-help

Unsecured creditors have Unsecured creditors have nono self- self-help remedy against the property of help remedy against the property of the debtorthe debtor No ‘real’ rights in the debtor’s propertyNo ‘real’ rights in the debtor’s property

The only self-help remedy is to ask The only self-help remedy is to ask for paymentfor payment

When does asking turn into When does asking turn into harassment?harassment?

Self-HelpSelf-Help Harassment by lender (CCDA Reg s.16) or by Harassment by lender (CCDA Reg s.16) or by

collection agency (CCA Reg s.14) is prohibited. collection agency (CCA Reg s.14) is prohibited. Why?Why?

CCA Reg 14 No collection agency, branch office of a CCA Reg 14 No collection agency, branch office of a collection agency or collector, by himself or while collection agency or collector, by himself or while employed by a collection agency, shall:employed by a collection agency, shall:

(g) use threatening, intimidating or coercive language, (g) use threatening, intimidating or coercive language, cite loss of employment, loss of community ranking or cite loss of employment, loss of community ranking or sufferance of embarrassment or, by the timing of sufferance of embarrassment or, by the timing of personal or phone contacts to irregular hours, intrude personal or phone contacts to irregular hours, intrude upon the privacy of the home and the family of the upon the privacy of the home and the family of the debtor, the regular hours being from nine in the debtor, the regular hours being from nine in the forenoon to nine in the afternoon of the same day.forenoon to nine in the afternoon of the same day.

Self-HelpSelf-Help

Publicization of debt is also prohibited. Why?Publicization of debt is also prohibited. Why? CCA Reg 14 No collection agency, branch CCA Reg 14 No collection agency, branch

office of a collection agency or collector, by office of a collection agency or collector, by himself or while employed by a collection himself or while employed by a collection agency, shall:agency, shall:

(f) conduct enquiries(f) conduct enquiries (i) through persons other than the debtor for the (i) through persons other than the debtor for the

purpose of demanding payment of a debt, orpurpose of demanding payment of a debt, or (ii) at the place of employment of the debtor for (ii) at the place of employment of the debtor for

any purpose in relation to the debtor, except with any purpose in relation to the debtor, except with the debtor's approval; the debtor's approval;

Pre-Judgment Legal Pre-Judgment Legal ProcessProcess

Pre-Judgment Legal Pre-Judgment Legal ProcessProcess

Note: Pre-judgment legal remedies of an Note: Pre-judgment legal remedies of an unsecured debtor are unsecured debtor are extremely limitedextremely limited

Remedies against the person of the debtorRemedies against the person of the debtor Debtor’s prisonDebtor’s prison

obsoleteobsolete Arrest and Examinations ActArrest and Examinations Act

obsolete except in the Maritimesobsolete except in the Maritimes NB Arrest and Examination ActNB Arrest and Examination Act PEI Bailable Proceedings ActPEI Bailable Proceedings Act NS Collection ActNS Collection Act

Note: There is wide jurisdictional variationNote: There is wide jurisdictional variation

Debtor’s PrisonDebtor’s Prison

Originally a pre-judgment remedyOriginally a pre-judgment remedy Common law did not allow for default judgmentCommon law did not allow for default judgment Debtor could avoid judgment simply by avoiding Debtor could avoid judgment simply by avoiding

appearing in court. appearing in court. Attachment of debtor’s goods was developed to Attachment of debtor’s goods was developed to

compel appearance (not as security against the claim)compel appearance (not as security against the claim) Subsequently the law developed to allow defendants to Subsequently the law developed to allow defendants to

be imprisoned in order to insure appearancebe imprisoned in order to insure appearance From here it was a natural step to imprisonment of From here it was a natural step to imprisonment of

judgment debtors as a means of compelling payment. judgment debtors as a means of compelling payment.

Pre-Judgment ArrestPre-Judgment Arrest Arrest and Examinations ActArrest and Examinations Act S.1(2) Where in an action brought or to be S.1(2) Where in an action brought or to be

brought. . .a person by affidavit . . .shows to the brought. . .a person by affidavit . . .shows to the satisfaction of the judge. . .that he has a cause of satisfaction of the judge. . .that he has a cause of action against another person to an amount action against another person to an amount exceeding twenty dollars, and also shows . . .that exceeding twenty dollars, and also shows . . .that there is good cause for believing that the person there is good cause for believing that the person against whom the application is made is about to against whom the application is made is about to quit the Province, the judge or other official may quit the Province, the judge or other official may order that the person against whom the order that the person against whom the application is made be arrested...application is made be arrested... In PEI must also show intent to defraudIn PEI must also show intent to defraud

Pre-Judgment ArrestPre-Judgment Arrest

This remedy is draconian and archaicThis remedy is draconian and archaic Very poorly integrated with the Rules of Court Very poorly integrated with the Rules of Court

regarding examinationregarding examination The arrest under s.1(2) is in aid of examinationThe arrest under s.1(2) is in aid of examination

It is not for failure to pay the debtIt is not for failure to pay the debt The debtor is entitled to be released on The debtor is entitled to be released on

making full disclosuremaking full disclosure The order releasing the debtor would also order the The order releasing the debtor would also order the

sheriff to seize the assetssheriff to seize the assets Difficult to enforce because it is usually too Difficult to enforce because it is usually too

late when application is broughtlate when application is brought

Pre-Judgment Legal Pre-Judgment Legal ProcessProcess

Remedies against the assets of the Remedies against the assets of the debtordebtor Absconding Debtors Act Absconding Debtors Act Mareva InjunctionMareva Injunction Pre-judgment garnishmentPre-judgment garnishment

Absconding Debtors ActAbsconding Debtors Act

If any person indebted. . .If any person indebted. . . [1] depart from or keep concealed within the Province,[1] depart from or keep concealed within the Province, [2] with intent to defraud his or their creditors, [2] with intent to defraud his or their creditors, a creditor may make the affidavit. . .stating the reasons for a creditor may make the affidavit. . .stating the reasons for

their belief to the satisfaction of a judge, their belief to the satisfaction of a judge, whereupon such judge may issue a warrant. . .whereupon such judge may issue a warrant. . . and the warrant on delivery to a sheriff has priority over all and the warrant on delivery to a sheriff has priority over all

other processes not actually executedother processes not actually executed. . Most jurisdictions this remedy is only available after Most jurisdictions this remedy is only available after

an action has been commenced – in NB anytimean action has been commenced – in NB anytime ““indebted” – applies to action for debt, not damagesindebted” – applies to action for debt, not damages Elements [1][2] are difficult to establish and it may Elements [1][2] are difficult to establish and it may

be too late by the time the evidence is availablebe too late by the time the evidence is available

Absconding Debtors ActAbsconding Debtors Act Jurisdictional variation as to the nature of the Jurisdictional variation as to the nature of the

assets assets In some jurisdictions applies only to personal In some jurisdictions applies only to personal

propertyproperty In others personal and realIn others personal and real In others personal, real and debts.In others personal, real and debts.

Normally, only allows sheriff to hold assets until Normally, only allows sheriff to hold assets until a writ is execution is filed (after judgment) and a writ is execution is filed (after judgment) and property is sold under order for seizure and saleproperty is sold under order for seizure and sale

but in NB, sheriff can, after very minimal notice requirement, but in NB, sheriff can, after very minimal notice requirement, call meeting of creditors, publicize sale, and then sell goods call meeting of creditors, publicize sale, and then sell goods and distribute proceeds to all creditors – mini-bankruptcy, and distribute proceeds to all creditors – mini-bankruptcy, and probably unconstitutional: s.9and probably unconstitutional: s.9

Absconding Debtors ActAbsconding Debtors Act

PrioritiesPriorities Under the Absconding Debtors Act, order is Under the Absconding Debtors Act, order is

binding against third parties (purchasers of binding against third parties (purchasers of the assets) after publication of the order in the assets) after publication of the order in the Royal Gazettethe Royal Gazette

Not a very effective means of giving noticeNot a very effective means of giving notice This is cured by the Creditors Relief ActThis is cured by the Creditors Relief Act

S.2.4(1) Notice of claim may be filed in the PPRS.2.4(1) Notice of claim may be filed in the PPR S.2.4(2) No purchaser is bound by the order S.2.4(2) No purchaser is bound by the order

unless a notice of claim is filedunless a notice of claim is filed However, ordinary course rules etc, do not applyHowever, ordinary course rules etc, do not apply

Mareva InjunctionMareva Injunction

““If it appears that the debt is due and If it appears that the debt is due and owing, and there is a danger that the owing, and there is a danger that the debtor may dispose of his assets so as to debtor may dispose of his assets so as to defeat it before judgment, the court has defeat it before judgment, the court has jurisdiction in a proper case to grant an jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him interlocutory judgment so as to prevent him disposing of those assets” disposing of those assets”

per Lord Denning per Lord Denning The MarevaThe Mareva [1980] 1 All ER 213 [1980] 1 All ER 213 (CA) (CA)

Common law did not permit pre-judgment Common law did not permit pre-judgment injunctions of this type before this caseinjunctions of this type before this case

Mareva InjunctionMareva Injunction

Used to prevent debtor from dissipating assets Used to prevent debtor from dissipating assets or removing them from the jurisdiction before or removing them from the jurisdiction before the creditors could reduce their claims to the creditors could reduce their claims to judgment and execute. judgment and execute.

Often the debtor is not within the jurisdiction. Often the debtor is not within the jurisdiction. The injunction is usually served on third The injunction is usually served on third

parties, normally the debtor’s bank: “freeze parties, normally the debtor’s bank: “freeze the assets of D which you hold” the assets of D which you hold” Persons having knowledge of the injunction Persons having knowledge of the injunction

must assist in preserving the assets or be must assist in preserving the assets or be guilty of contempt of court.guilty of contempt of court.

Stop Here Fall 2008

Mareva InjunctionMareva Injunction

Factors: leading Canadian case is Factors: leading Canadian case is Chitel v. Chitel v. RothbartRothbart (1982), 39 O.R. (2d) 513 (C.A.) (1982), 39 O.R. (2d) 513 (C.A.) 1) Clean hands1) Clean hands 2) Prima facie case on the merits2) Prima facie case on the merits 3) Assets within the jurisdiction – no longer a 3) Assets within the jurisdiction – no longer a

strict requirementstrict requirement 4) Risk of removal or dissipation4) Risk of removal or dissipation AndAnd 5) Undertaking in damages, sometimes with 5) Undertaking in damages, sometimes with

requirement of securityrequirement of security

Mareva InjunctionMareva Injunction

Also, ordinary factors for granting an Also, ordinary factors for granting an interlocutory injunction apply: RJR interlocutory injunction apply: RJR MacDonald [1994] 1 S.C.R. 311MacDonald [1994] 1 S.C.R. 311 A serious question to be triedA serious question to be tried

not as stringent as a prima facie casenot as stringent as a prima facie case Applicant will suffer irreparable harm if relief is Applicant will suffer irreparable harm if relief is

not grantednot granted Ie, it is likely that any judgment will not be satisfiedIe, it is likely that any judgment will not be satisfied A very important factorA very important factor

Balance of convenience lies in favour of the Balance of convenience lies in favour of the applicantapplicant

Mareva InjunctionMareva Injunction Prima facie case on the meritsPrima facie case on the merits

English cases say a good arguable case, but not so strong English cases say a good arguable case, but not so strong as would entitle you to summary judgment as would entitle you to summary judgment

This issue is not resolved in This issue is not resolved in AetnaAetna A less stringent standard has now been adopted in interlocutory A less stringent standard has now been adopted in interlocutory

injunctions generally. It is likely, but not entirely clear that that injunctions generally. It is likely, but not entirely clear that that lower standard applies in Mareva injunctions.lower standard applies in Mareva injunctions.

A strong case is not sufficientA strong case is not sufficient All the factors must be satisfied.All the factors must be satisfied.

Test is not simply whether you would win at trialTest is not simply whether you would win at trial You can’t get injunction/security just because you would You can’t get injunction/security just because you would

probably win at trialprobably win at trial If you want security, get it at the time you sign the If you want security, get it at the time you sign the

agreementagreement

Mareva InjunctionMareva Injunction

Do the assets need to be within the Do the assets need to be within the jurisdiction?jurisdiction? Yes, in the original English cases, and Yes, in the original English cases, and

this requirement is referred to in First this requirement is referred to in First Farm, but English law has changed and Farm, but English law has changed and worldwide Mareva injunctions are now worldwide Mareva injunctions are now available.available.

Mareva InjunctionMareva Injunction

Risk of removal or dissipation (e.g. Risk of removal or dissipation (e.g. sale within the jurisdiction)sale within the jurisdiction) ““Jurisdiction”Jurisdiction”

Hard to get injunction to restrain movement Hard to get injunction to restrain movement of assets within Canada: of assets within Canada: Aetna FinancialAetna Financial

““Risk”Risk” Can’t simply assert that there is a risk – there Can’t simply assert that there is a risk – there

is always a possibility that the assets would is always a possibility that the assets would be removedbe removed

Must provide some reason to convince the Must provide some reason to convince the court that there is an unusual riskcourt that there is an unusual risk

Mareva InjunctionMareva Injunction

Irreparable harmIrreparable harm Is it likely that any judgment will Is it likely that any judgment will

remain unsatisfied if the injunction is remain unsatisfied if the injunction is not granted?not granted?

Mareva InjunctionMareva Injunction

To summarizeTo summarize 1) Clean hands1) Clean hands 2) Prima facie case on the 2) Prima facie case on the

merits/serious question to be triedmerits/serious question to be tried 3) It is likely that any judgment would 3) It is likely that any judgment would

remain unsatisfied if the injunction remain unsatisfied if the injunction were not grantedwere not granted

4) Undertaking in damages, sometimes 4) Undertaking in damages, sometimes with requirement of securitywith requirement of security

Mareva InjunctionMareva Injunction The Mareva injunction should be an exceptional remedyThe Mareva injunction should be an exceptional remedy Chitel v Rothbart: Chitel v Rothbart: “The courts must be careful to “The courts must be careful to

ensure that the "new" Mareva injunction is not used as ensure that the "new" Mareva injunction is not used as and does not become a weapon in the hands of plaintiffs and does not become a weapon in the hands of plaintiffs to force inequitable settlements from defendants who to force inequitable settlements from defendants who cannot afford to risk ruin by having an asset or assets cannot afford to risk ruin by having an asset or assets completely tied up for a lengthy period of time awaiting completely tied up for a lengthy period of time awaiting trial.”trial.” ““I would respectfully adopt what Grange J. said in I would respectfully adopt what Grange J. said in

Canadian Pacific Airlines Ltd. v. Hind: Canadian Pacific Airlines Ltd. v. Hind: ““The adoption of the Mareva principle can lead to The adoption of the Mareva principle can lead to

some sorry abuse. I would hate to see a some sorry abuse. I would hate to see a defendant's assets tied up merely because he was defendant's assets tied up merely because he was involved in litigation.”involved in litigation.”

Pre-Judgment Pre-Judgment GarnishmentGarnishment

Not permitted in NBNot permitted in NB In those provinces in which it is permitted In those provinces in which it is permitted

the creditor must have commenced an the creditor must have commenced an action and generally must swear an action and generally must swear an affidavit that there is a debt accruing due affidavit that there is a debt accruing due from the garnishee to the debtor and pre-from the garnishee to the debtor and pre-judgment must often satisfy a judge that judgment must often satisfy a judge that there is reason to believe he will be there is reason to believe he will be prejudiced by failure of the motion. It is prejudiced by failure of the motion. It is usually only available for a liquidated debt. usually only available for a liquidated debt.