If someone owes you money and you become involved in a legal dispute in BC, it is possible to seek a prejudgment garnishing order by the authority of the Court Order Enforcement Act for debts owed to you. A prejudgment garnishing order is made by a party claiming a debt (the garnishor) and requires a party (the garnishee) indebted or liable to the party against which you have a claim (the defendant) to pay those funds into Court instead to the benefit of your claim instead of to the defendant. For example, A makes a loan to B and B fails to repay the loan. A may then intercept funds that C is going to pay to B for delivery of a product via a prejudgment garnishing order and require C to pay those funds into court instead.
Prejudgment garnishing orders potentially offer significant benefits to a plaintiff. By obtaining a prejudgment garnishing order, the plaintiff obtains the security of having the amount they are claiming held in stasis with the Court rather than risking the defendant(s) squirreling away or otherwise making those funds difficult to collect. A prejudgment garnishing order is sought and considered by the Court without the participation or, often, the knowledge of the defending party. On the other hand, prejudgment garnishing orders can remove funds from a defendant which might be necessary to operate their business, pursue what they claim to be a valid defence and as such, can impose great hardship on the defendant without the defendant being able to dispute the claims made in support of the order.
As a result, both the legislation and the Courts treat prejudgment garnishing orders as an extraordinary remedy; requiring there to be very specific circumstances before a prejudgment garnishing order will be granted and requiring meticulous compliance with the legislative requirements in order for the order to be granted or stick. The need for meticulous compliance is illustrated in the recent case of Gray Project Management Ltd. v. Disruptive Media Publishers Canada Inc.
In Gray Project, the plaintiff had obtained a prejudgment garnishing order which would require the defendant to pay $144,133.70 in Court for an alleged debt. The defendant sought to set aside the order on four grounds:
- the nature of the claim against the defendant was not sufficiently stated in the affidavit in support of the prejudgment garnishing order;
- the plaintiff did not establish that all or even some of $144,133.70 was a liquidated debt;
- the plaintiff failed to take into account applicable discounts to the amount claimed; and
- that the order was unnecessary and, therefore, not “just in the circumstances”.
As stated in para 19 of Gray Project, the law “…requires the [party applying for a prejudgment garnishing order to] set out the nature of the cause of action, the actual amount of the debt claim or demand, and that it is justly due and owing after making all just discounts.” This information must be provided to the Court and to the party receiving the prejudgment garnishing order.
While it is beyond the scope of this commentary to explore all the fine details of prejudgment garnishing orders, some of the broader requirements can be explored.
Put simply, a claim is liquidated where it is a specific sum which is already ascertained or may be ascertained with a simply calculation (Gray Project at para. 29). The plaintiff’s prejudgment garnishing order in Gray Project was set aside on this part of the test on two grounds. First (para. 33), calculating the debt in question required investigation and, therefore, was not a matter of simple math. Second, (para. 34) not all the documents necessary to calculate the debt claimed were included with the application for the prejudgment garnishing order.
The evidence in support of a prejudgment garnishing order must set out the nature of the claim being made. The order must seek only to intercept funds in satisfaction of funds due and owing at the time the order is sought, not debts which will become owing.
The Court retains statutory discretion to set aside a prejudgment garnishing order (see s. 42 of Gray Project) where all the other grounds for the order may be met. This engages a fact-specific balancing act where the Court may consider, among other things, whether recovery is likely at the end of trial, the hardship that might be wrought in upholding the order and the relative strengths of the claim made at the defence to it.
Even if everything else is in order in an application for a prejudgement garnishing order, the order needs to attach itself to a proper source of funds. The garnishee must be within British Columbia (a branch of a bank doing business in BC would suffice) and neither wages nor any other interest besides contractual interest can be garnished. The garnishing order must only go after those amounts owed to the debtor and not those amounts that are owed to the debtor and someone else. For example, bank accounts are generally the most obvious target of a prejudgment garnishing order, but joint bank accounts are off limits. Further, the account in question must be at the branch actually served with the order.
Given the highly technical nature of prejudgment garnishing orders, plaintiffs wishing to secure their claim with such an order will benefit immensely from the assistance of competent legal counsel. Similarly, if you find yourself subject to a prejudgment garnishing order, there may be a number of grounds upon which competent legal counsel may be able to seek to have the order set aside.
If you’ve become involved in a dispute where you may wish to seek a prejudgment garnishing order, you simply find yourself with a legal claim you are having difficulty resolving, have become the subject of a prejudgment garnishing order or simply wish to defend a claim made against you, please feel free to contact any of our litigation lawyers.