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.

Implications

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.

Anton Piller Orders - What Not To Do

Author: Ainslie Fowler and Peter Major, Q.C.

Plaintiffs sometimes determine that the rules and remedies afforded to them to acquire or preserve evidence and assets in the regular course of litigation are inadequate. In certain instances, Plaintiffs can overcome the hurdles that delay these standard remedies through Anton Piller Orders, Mareva Injunctions or Attachment Orders. An Anton Piller Order is a form of civil search warrant that displaces the normal rules on discovery of records. It enables the Applicant to attend at the premises of the Defendant, without notice, and take possession of the records of the Defendant. Mareva Injunctions are court orders temporarily freezing a defendant's assets pending the final resolution from the Court. It is granted pursuant to the court's equitable jurisdiction to grant injunctive relief pursuant to Section 13(2) of the Judicature Act. An Attachment Order is made pursuant to the Civil Enforcement Act, Part 3 and is an order permitting a party to obtain pre-judgment relief where there are reasonable grounds for believing that a defendant is dealing, or is likely to deal, with its exigible property other than for the purpose of meeting its reasonable and ordinary business and living expenses.

Each of these remedies are considered extraordinary because they permit the Court to restrict or impede a defendant's use of certain assets before the Court has rendered a final determination of the issues in dispute. Invariably, applications for these remedies commence with an ex-parte Application supported by Affidavit evidence. Since the Court only hears from one party in that application, it is imperative that the evidence be precise and there is complete candor from the applicant about all of the relevant facts that the Court must consider before granting such remedies.

Recently, the Court of Appeal of Alberta in Secure 2013 Group Inc. v. Tiger Calcium Services Inc., 2017 ABCA 316 confirmed the need for strict compliance with the criteria for each remedy. In that case, Plaintiff’s counsel applied for Anton Piller Orders against the Defendants as well as against the offices of the Defendant’s lawyers and accountants. The Plaintiff’s counsel also applied for Mareva/Attachment Orders.

In a wide and comprehensive overview of what not to do, the Court set aside each of the Anton Piller Orders and Mareva Injunctions excluding one, which remains subject to a pending application to set it aside.

The Anton Piller Orders were set aside against the accounting and law firms for being far too broad based on multiple inadequacies, including the failure to advise the Court that the Orders were against third party accounting and law firms, misstatements going well beyond the Affidavit evidence, failing to properly identify that the accounting and law firms actually possess incriminating evidence or that there was a real possibility that records in their possession would be destroyed, that there was no explanation why alternative remedies were not suitable or that notice was not given to the Defendants about the documents being seized from these third parties. This case sets a high bar for obtaining a third party Anton Piller Order, and confirms that "searching the registered office of a defendant (often a law firm) or its accountant is generally 'unwarranted'."

The Anton Piller Order was also set aside against the Defendants on the grounds that the representations before the Court were far too broad in the circumstances. Most notably, there was an unlimited number of people ordered to produce the records with no mechanism to address confidentiality or commercially sensitive non-privileged information and the Order was granted for a remarkable period of 60 days rather than the customary 10-14 days.

The Mareva/Attachment Orders were likewise set aside. The Court found it was improper to have similar and unlimited financial caps with respect to any of the parties. There was a failure to specify a return date to afford the Defendant an opportunity to oppose the Order and the limits imposed on the individuals for living expenses and legal expenses was unreasonably low.

The Court of Appeal reminds us that extraordinary care and attention to detail is required to properly secure these remedies, and there is much to be lost if a commensurate level of analysis is not an overarching concern to the applicant in this process.

If you or your company have any questions regarding any of the extraordinary remedies raised in this blog please do not hesitate to contact Ainslie Fowler and Peter Major, Q.C. in the commercial litigation practice group.