Part 4 Unsecured Creditors Pre Judgment Enforcement

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Part 4 Unsecured CreditorsPre -Judgment
Enforcement
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Categories

• Self-help
• Pre- or post-judgment
• Legal process
• Pre-judgment
• Against person of debtor
• Against property of debtor
• Post-judgment
• against person of debtor
• against personalty
• against realty
• against debts
• against other types of property

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Self-help

• Regulated by
• Tort law
• Criminal law
• Collection Agencies Act
• Applies to collection agencies
• Cost of Credit Disclosure Act
• Applies to lenders themselves
• CCA CCDA have similar regulations regarding
  collection practices

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Self-help

• Unsecured creditors have no self-help remedy
  against the property of the debtor
• No real rights in the debtors property
• The only self-help remedy is to ask for payment
• When does asking turn into harassment?

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Self-Help

• Harassment by lender (CCDA Reg s.16) or by
  collection agency (CCA Reg s.14) is prohibited.
  Why?
• CCA Reg 14 No collection agency, branch office of
  a collection agency or collector, by himself or
  while employed by a collection agency, shall
• (g) use threatening, intimidating or coercive
  language, cite loss of employment, loss of
  community ranking or sufferance of embarrassment
  or, by the timing of personal or phone contacts
  to irregular hours, intrude upon the privacy of
  the home and the family of the debtor, the
  regular hours being from nine in the forenoon to
  nine in the afternoon of the same day.

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Self-Help

• Publicization of debt is also prohibited. Why?
• CCA Reg 14 No collection agency, branch office of
  a collection agency or collector, by himself or
  while employed by a collection agency, shall
• (f) conduct enquiries
• (i) through persons other than the debtor for the
  purpose of demanding payment of a debt, or
• (ii) at the place of employment of the debtor for
  any purpose in relation to the debtor, except
  with the debtor's approval

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Pre-Judgment Legal Process
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Pre-Judgment Legal Process

• Note Pre-judgment legal remedies of an unsecured
  debtor are extremely limited
• Remedies against the person of the debtor
• Debtors prison
• obsolete
• Arrest and Examinations Act
• obsolete except in the Maritimes
• NB Arrest and Examination Act
• PEI Bailable Proceedings Act
• NS Collection Act
• Note There is wide jurisdictional variation

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Debtors Prison

• Originally a pre-judgment remedy
• Common law did not allow for default judgment
• Debtor could avoid judgment simply by avoiding
  appearing in court.
• Attachment of debtors goods was developed to
  compel appearance (not as security against the
  claim)
• Subsequently the law developed to allow
  defendants to be imprisoned in order to insure
  appearance
• From here it was a natural step to imprisonment
  of judgment debtors as a means of compelling
  payment.

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Pre-Judgment Arrest

• Arrest and Examinations Act
• S.1(2) Where in an action brought or to be
  brought. . .a person by affidavit . . .shows to
  the satisfaction of the judge. . .that he has a
  cause of action against another person to an
  amount exceeding twenty dollars, and also shows .
  . .that there is good cause for believing that
  the person against whom the application is made
  is about to quit the Province, the judge or other
  official may order that the person against whom
  the application is made be arrested...
• In PEI must also show intent to defraud

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Pre-Judgment Arrest

• This remedy is draconian and archaic
• Very poorly integrated with the Rules of Court
  regarding examination
• The arrest under s.1(2) is in aid of examination
• It is not for failure to pay the debt
• The debtor is entitled to be released on making
  full disclosure
• The order releasing the debtor would also order
  the sheriff to seize the assets
• Difficult to enforce because it is usually too
  late when application is brought

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Pre-Judgment Legal Process

• Remedies against the assets of the debtor
• Absconding Debtors Act
• Mareva Injunction
• Pre-judgment garnishment

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Absconding Debtors Act

• If any person indebted. . .
• 1 depart from or keep concealed within the
  Province,
• 2 with intent to defraud his or their
  creditors,
• a creditor may make the affidavit. . .stating the
  reasons for their belief to the satisfaction of a
  judge,
• whereupon such judge may issue a warrant. . .
• and the warrant on delivery to a sheriff has
  priority over all other processes not actually
  executed.
• Most jurisdictions this remedy is only available
  after an action has been commenced in NB
  anytime
• indebted applies to action for debt, not
  damages
• Elements 12 are difficult to establish and it
  may be too late by the time the evidence is
  available

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Absconding Debtors Act

• Jurisdictional variation as to the nature of the
  assets
• In some jurisdictions applies only to personal
  property
• In others personal and real
• In others personal, real and debts.
• Normally, only allows sheriff to hold assets
  until a writ is execution is filed (after
  judgment) and property is sold under order for
  seizure and sale
• but in NB, sheriff can, after very minimal notice
  requirement, call meeting of creditors, publicize
  sale, and then sell goods and distribute proceeds
  to all creditors mini-bankruptcy, and probably
  unconstitutional s.9

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Absconding Debtors Act

• Priorities
• Under the Absconding Debtors Act, order is
  binding against third parties (purchasers of the
  assets) after publication of the order in the
  Royal Gazette
• Not a very effective means of giving notice
• This is cured by the Creditors Relief Act
• S.2.4(1) Notice of claim may be filed in the PPR
• S.2.4(2) No purchaser is bound by the order
  unless a notice of claim is filed
• However, ordinary course rules etc, do not apply

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Mareva Injunction

• If it appears that the debt is due and owing,
  and there is a danger that the debtor may dispose
  of his assets so as to defeat it before judgment,
  the court has jurisdiction in a proper case to
  grant an interlocutory judgment so as to prevent
  him disposing of those assets
• per Lord Denning The Mareva 1980 1 All ER 213
  (CA)
• Common law did not permit pre-judgment
  injunctions of this type before this case

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Mareva Injunction

• Used to prevent debtor from dissipating assets or
  removing them from the jurisdiction before the
  creditors could reduce their claims to judgment
  and execute.
• Often the debtor is not within the jurisdiction.
• The injunction is usually served on third
  parties, normally the debtors bank freeze the
  assets of D which you hold
• Persons having knowledge of the injunction must
  assist in preserving the assets or be guilty of
  contempt of court.

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Stop Here Fall 2008
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Mareva Injunction

• Factors leading Canadian case is Chitel v.
  Rothbart (1982), 39 O.R. (2d) 513 (C.A.)
• 1) Clean hands
• 2) Prima facie case on the merits
• 3) Assets within the jurisdiction no longer a
  strict requirement
• 4) Risk of removal or dissipation
• And
• 5) Undertaking in damages, sometimes with
  requirement of security

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Mareva Injunction

• Also, ordinary factors for granting an
  interlocutory injunction apply RJR MacDonald
  1994 1 S.C.R. 311
• A serious question to be tried
• not as stringent as a prima facie case
• Applicant will suffer irreparable harm if relief
  is not granted
• Ie, it is likely that any judgment will not be
  satisfied
• A very important factor
• Balance of convenience lies in favour of the
  applicant

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Mareva Injunction

• Prima facie case on the merits
• English cases say a good arguable case, but not
  so strong as would entitle you to summary
  judgment
• This issue is not resolved in Aetna
• A less stringent standard has now been adopted in
  interlocutory injunctions generally. It is
  likely, but not entirely clear that that lower
  standard applies in Mareva injunctions.
• A strong case is not sufficient
• All the factors must be satisfied.
• Test is not simply whether you would win at trial
• You cant get injunction/security just because
  you would probably win at trial
• If you want security, get it at the time you sign
  the agreement

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Mareva Injunction

• Do the assets need to be within the jurisdiction?
• Yes, in the original English cases, and this
  requirement is referred to in First Farm, but
  English law has changed and worldwide Mareva
  injunctions are now available.

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Mareva Injunction

• Risk of removal or dissipation (e.g. sale within
  the jurisdiction)
• Jurisdiction
• Hard to get injunction to restrain movement of
  assets within Canada Aetna Financial
• Risk
• Cant simply assert that there is a risk there
  is always a possibility that the assets would be
  removed
• Must provide some reason to convince the court
  that there is an unusual risk

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Mareva Injunction

• Irreparable harm
• Is it likely that any judgment will remain
  unsatisfied if the injunction is not granted?

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Mareva Injunction

• To summarize
• 1) Clean hands
• 2) Prima facie case on the merits/serious
  question to be tried
• 3) It is likely that any judgment would remain
  unsatisfied if the injunction were not granted
• 4) Undertaking in damages, sometimes with
  requirement of security

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Mareva Injunction

• The Mareva injunction should be an exceptional
  remedy
• Chitel v Rothbart The courts must be careful
  to ensure that the "new" Mareva injunction is not
  used as and does not become a weapon in the hands
  of plaintiffs to force inequitable settlements
  from defendants who cannot afford to risk ruin by
  having an asset or assets completely tied up for
  a lengthy period of time awaiting trial.
• I would respectfully adopt what Grange J. said
  in Canadian Pacific Airlines Ltd. v. Hind
• The adoption of the Mareva principle can lead to
  some sorry abuse. I would hate to see a
  defendant's assets tied up merely because he was
  involved in litigation.

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Pre-Judgment Garnishment

• Not permitted in NB
• In those provinces in which it is permitted the
  creditor must have commenced an action and
  generally must swear an affidavit that there is a
  debt accruing due from the garnishee to the
  debtor and pre-judgment must often satisfy a
  judge that there is reason to believe he will be
  prejudiced by failure of the motion. It is
  usually only available for a liquidated debt.