Wednesday, 27 June 2018

Security for Judgment in Alberta

Authors: Peter Major, Q.C. and Jonathan Kikuchi, Summer Student

Commercial litigation is almost invariably expensive and time consuming. No one should embark on commencing a lawsuit for financial damages without some realistic consideration given at the beginning for the recovery of any successful award of damages, interest or costs (“Award”). Usually a court can grant each component of the Award but it does not guarantee that the defendant will have the necessary funds to pay them out nor will it chase down the defendant for payment on the plaintiff’s behalf. However, in limited circumstances, a plaintiff might receive the court’s assistance to secure the payment of some part or all of an Award through an order for Security for Judgment.

Security for Judgment is a seldom-awarded remedy that typically requires a defendant to pay a sum of money into court in advance of or after a judgment has been granted against them. It has traditionally been ordered in situations where:
  • a plaintiff applies before trial to require a defendant to post security for the amount claimed as a condition for defending against the claim; or
  • a respondent on an appeal applies to require an appellant to post security for the judgment granted by the lower court as a condition for proceeding on the appeal.

McLennan Ross was previously successful in obtaining a Security for Judgment Order in WestJet v ELS Marketing Inc., where the Alberta Court of Queen’s Bench ruled that Security for Judgment can be ordered in situations where a litigant seeks to use the court to their advantage yet refuses to comply with that same court’s judgments, and that the court retains a general authority to order Security for Judgment in circumstances where it is fair and just to do so considering all surrounding circumstances. More on this decision can be read here.

In general, courts tend to be hesitant to award Security for Judgment – in Aetna Financial Services v Feigelman, the Supreme Court of Canada described it as an “exceptional” remedy. There are two main reasons why courts are hesitant to award Security for Judgment. First, they do not want to preclude appellants with a lack of financial resources from pursuing an appeal. This is a recognition by the courts that there are appellants that simply do not have the means to put up security to continue litigation following an unfavorable decision, no matter how strong their appeal may be. Secondly, courts do not want to act as a collection agency; instead, the expectation is that judgment creditors will use the comprehensive enforcement scheme set out in the Civil Enforcement Act.

Vaillancourt v Carter
In Vaillancourt v Carter, the Alberta Court of Appeal allowed an application for Security for Judgment in a breach of contract case.  In the 2016 Alberta Court of Queen’s Bench decision, Ms. Vaillancourt claimed that Mr. Carter had promised her 25% ownership of Encott in exchange for her services running a number of Jenny Craig locations, and that he reneged on this agreement once the business grew faster than he anticipated. The Court agreed and rendered a judgment against Mr. Carter in the amount of $1,097,234 plus interest and costs, which, as a general rule, is an immediate obligation to pay.

Mr. Carter appealed the trial decision. An appeal does not operate as a stay of the obligation to pay an Award but in this case Mr. Carter refused to pay the Award or even post some portion of it with the Court. Fearing that she might be further out of pocket for the expense of a successful defence of the appeal, Ms. Vaillancourt proceeded on two routes: First, Ms. Vaillancourt took steps to enforce her judgment by serving a Form 13 – Financial Statement of Debtor on Carter under the Civil Enforcement Act. Form 13 is a written form of examination in aid of execution that requires an enforcement debtor to provide a comprehensive report of their financial position at the request of an enforcement creditor (Michel v Lafrentz). Mr. Carter’s response to the Form 13 was both perfunctory and dishonest. More importantly, it was a clear signal that he had no intention of paying any part of the Award.

Given this response, Ms. Vaillancourt proceeded with a second option and brought an application early in the appeal process for both Security for Judgment and Security for Costs. The purpose of the application was to prevent Mr. Carter from having a free shot at challenging the trial decision and still being able to evade his financial obligations if he were unsuccessful.

The Alberta Court of Appeal allowed both the application for Security for Judgment (for the damages portion of the Award) and the application for Security for Costs (for the appeal) and in doing so admonished Mr. Carter for his conduct in dishonestly filling out a Form 13, remarking that:
A person who swears a statutory declaration does not do so as a formality, but as evidence of their legal obligation to verify the truthfulness of the financial report that person is required to provide to the judgment creditor. Yet, the number of inaccuracies and omissions in Mr. Carter’s sworn evidence suggests that he considered this obligation to be optional.

In reaching its decision, the Court mentioned three notable exceptions to the general rule against granting Security for Judgment:

    1. Where there are no assets in the jurisdiction against which to enforce a judgment and the appeal has little merit;
    2. To preserve assets that would otherwise be destroyed, disposed of, or dissipated prior to the resolution of the dispute;
    3. To encourage respect for the judicial process and avoid abuse of process [citations omitted]

    This decision, much like in WestJet v ELS Marketing Inc., was primarily decided on the third point. The Court suggested that Mr. Carter’s actions could be prosecuted as perjury and that the use of the not-so-subtle name of “Shield Investments Inc.” for a holding company was illustrative of his shielding of millions of dollars in assets, including several residences and multiple luxury vehicles.

    While it may not be available in most situations, a Security for Judgment Order is a remedy that is still available in certain exceptional situations. By affirming WestJet v ELS Marketing Inc. and through the reasons given in Vaillancourt v Carter, the Alberta Court of Appeal has confirmed that the judicial process is not to be abused and deliberate attempts to make oneself “judgment-proof” will not be tolerated. What remains less certain, with the increasing concern of access to justice, is how successful a plaintiff might be seeking a Security for Judgment Order against an appellant of less nefarious character and of significantly lower financial means.

    Having litigated two leading cases in Alberta, our team at McLennan Ross is well-practiced in applications for Security for Judgment. If you would like to discuss whether an application for Security for Judgment is right for your situation, please contact any member of our Commercial Litigation Team.

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