In litigation, winning your lawsuit is only part of the battle – at times, the easier part.
Even when a plaintiff wins a lawsuit and is granted judgment against a defendant, the plaintiff must find a way to collect this judgment.
A plaintiff must be aware that when they sue, the defendant they are suing may not have funds to cover the judgment. A defendant with a large judgment debt may even seek the protection of bankruptcy under the Bankruptcy and Insolvency Act. If a judgment debtor is declared bankrupt, a plaintiff’s judgment may no longer be enforceable.
In a recent case, a plaintiff, the Bank of Montreal, faced this issue.
In this case, the defendant had applied for a credit card and a $50,000.00 line of credit, which he refused to make payment towards. Sometime after this, the defendant declared bankruptcy, with over $51,000.00 outstanding on these accounts. In general, bankruptcy would render this debt unpayable, and the Bank would be unable to collect. To address this, the Bank sued him for this money and also requested that the Court declare that the outstanding debt survived the Defendant’s bankruptcy.
The Bank’s request that the debt survive bankruptcy was a special remedy, and the Bank needed a good reason to seek it. The Bank argued that the defendant acted in a fraudulent manner when he obtained the credit card and line of credit, which should remove his bankruptcy protections. Section 178 of the Bankruptcy and Insolvency Act sets out, in part, that an bankruptcy order does not release the bankrupt from debts resulting from obtaining property on the basis of fraudulent misrepresentation.
Proving fraud is notoriously challenging test to meet in civil litigation. To make a finding of civil fraud, the plaintiff must show the following four aspects: (1) a false representation by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether knowledge or recklessness); (3) the false representation caused the plaintiff to act; and (4) the plaintiff’s actions resulted in a loss.
In this case, the Court found that the Bank failed to prove these factors. One specific issue was that the Bank could not prove that the defendant specifically intended to fraudulently mislead the Bank regarding his ability to repay the loan. The Bank noted that the Defendant could have simply been negligent, which does not meet the high threshold required above.
As a result, the Court refused to declare that the defendant’s debt survived his bankruptcy. The Court issued a judgment in favour of the bank for the full amount – and that judgment, essentially, was worthless.
This case illustrates that, even if your claim is a slam-dunk, there are other considerations to make before launching into litigation. Even a plaintiff as sophisticated as the Bank of Montreal can run into issues.As unfair as it may be, the practical reality is that winning a lawsuit is not a guarantee of getting paid.
But it isn’t hopeless. If you have a debt outstanding which you intend to collect through a lawsuit, a lawyer can minimize the risk that you will be left with a judgment you cannot collect. They can also help you locate assets to collect. They can do so by doing their due diligence on a potential defendant, which includes, among other steps:
- searching for any assets of the defendant, including real property and vehicles;
- determining whether the defendant has filed for bankruptcy;
- searching for other outstanding lawsuits against the defendant; and
- determining whether the property the defendant owns is subject to a lien or writ of execution.
By searching for any evidence which suggests that a defendant may not be able to pay a judgment against them, a lawyer can save their client time, frustration, and legal costs. A large part of a lawyer’s job is to advise their client of risk, and then letting the client make the ultimate decision. In many cases, the ability to collect on a judgment is a massive part of that risk assessment.
About the author:
Matthew Cameron is a litigator with a focus on Bankruptcy and Insolvency, Employment, and Construction litigation. Matt completed his articles with Soloway Wright in 2023, and has experience as a student caseworker with Queen’s Legal Aid. Matt has represented clients in civil and administrative matters.
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