Commercial Law, Prof. Siebrasse	Part 4

Part 4 – Unsecured Creditors
Pre -Judgment Enforcement

1.	Categories
a.	Self-help
i.	Pre- or post-judgment
b.	Legal process
i.	Pre-judgment
(1)	Against person of debtor
(2)	Against property of debtor
ii.	Post-judgment
(1)	against person of debtor 
(2)	against personalty 
(3)	against realty
(4)	against debts
(5)	against other types of property

2.	Self-help
a.	Regulated by
i.	Tort law
ii.	Criminal law
iii.	Collection Agencies Act
(1)	Applies to collection agencies
iv.	Cost of Credit Disclosure Act
(1)	Applies to lenders themselves
(2)	CCA & CCDA have similar regulations regarding collection practices

3.	Self-help
a.	Unsecured creditors have no self-help remedy against the property of the debtor
i.	No ‘real’ rights in the debtor’s property
b.	The only self-help remedy is to ask for payment
c.	When does asking turn into harassment?

4.	Self-Help
a.	Harassment by lender (CCDA Reg s.16) or by collection agency (CCA Reg s.14) is prohibited.  Why?
b.	CCA Reg 14 No collection agency, branch office of a collection agency or collector, by himself or while employed by a collection agency, shall:
c.	(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.

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

6.	Pre-Judgment Legal Process

7.	Pre-Judgment Legal Process
a.	Note: Pre-judgment legal remedies of an unsecured debtor are extremely limited
b.	Remedies against the person of the debtor
i.	Debtor’s prison
(1)	obsolete
ii.	Arrest and Examinations Act
(1)	obsolete except in the Maritimes
(a)	NB Arrest and Examination Act
(b)	PEI Bailable Proceedings Act
(c)	NS Collection Act
c.	Note: There is wide jurisdictional variation

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

9.	Pre-Judgment Arrest
a.	Arrest and Examinations Act
b.	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...
i.	In PEI must also show intent to defraud

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

11.	Pre-Judgment Legal Process
a.	Remedies against the assets of the debtor
i.	Absconding Debtors Act 
ii.	Mareva Injunction
iii.	Pre-judgment garnishment

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

13.	Absconding Debtors Act
a.	Jurisdictional variation as to the nature of the assets 
i.	In some jurisdictions applies only to personal property
ii.	In others personal and real
iii.	In others personal, real and debts.
b.	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
(1)	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

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

15.	Mareva Injunction
a.	“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) at 215
b.	Common law did not permit pre-judgment injunctions of this type before this case

16.	Mareva Injunction
a.	Used to prevent debtor from dissipating assets or removing them from the jurisdiction before the creditors could reduce their claims to judgment and execute.  
b.	Often the debtor is not within the jurisdiction. 
c.	The injunction is usually served on third parties, normally the debtor’s bank:  “freeze the assets of D which you hold”  
i.	Persons having knowledge of the injunction must assist in preserving the assets or be guilty of contempt of court.

17.	Mareva Injunction

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

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

19.	Mareva Injunction
a.	Prima facie case on the merits
i.	English cases say a good arguable case, but not so strong as would entitle you to summary judgment 
(1)	This issue is not resolved in Aetna
(2)	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.
ii.	A strong case is not sufficient 
(1)	All the factors must be satisfied.
iii.	Test is not simply whether you would win at trial
iv.	You can’t get injunction/security just because you would probably win at trial
v.	If you want security, get it at the time you sign the agreement

20.	Mareva Injunction

a.	Do the assets need to be within the jurisdiction?
i.	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.

21.	Mareva Injunction
a.	Risk of removal or dissipation (e.g. sale within the jurisdiction)
i.	“Jurisdiction”
(1)	Hard to get injunction to restrain movement of assets within Canada: Aetna Financial
ii.	“Risk”
(1)	Can’t simply assert that there is a risk – there is always a possibility that the assets would be removed
(2)	Must provide some reason to convince the court that there is an unusual risk

22.	Mareva Injunction
a.	Irreparable harm
i.	Is it likely that any judgment will remain unsatisfied if the injunction is not granted?

23.	Mareva Injunction

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

24.	Mareva Injunction

a.	The Mareva injunction should be an exceptional remedy
b.	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.	“I would respectfully adopt what Grange J. said in Canadian Pacific Airlines Ltd. v. Hind: 
(1)	“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.”

25.	Pre-Judgment Garnishment
a.	Not permitted in NB
b.	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.