Legal Blog

Extension (2)

In our September 2007 newsletter, we discussed the tests to extend the time to renew a writ of seizure and sale if the creditor failed to renew the writ as of right within the 6-year period allowed to do so. While most of the basic tests remain the same, the interpretation of them has changed. This change is apparent from the Ontario Court of Appeal’s 2021 decision in Achtem v. Boese.

Preliminary Info

A writ of seizure and sale (a “Writ“) is the primary method by which a creditor can seize the assets of a debtor. Within 6 years after a judgment, a creditor may, as of right, request the court to issue a Writ. The creditor then files the Writ with the sheriff of the geographical area in which the debtor owns or may be assumed to own land. Once filed, the Writ binds the lands that the debtor owns in the sheriff’s jurisdiction and, if the debtor is stupid enough, binds any lands that the debtor subsequently acquires. A Writ is valid for 6 years from the date of its issue. Upon paying a fee, a creditor may renew a Writ by requisition to the sheriff before the Writ’s expiry.

Rules

If a creditor does not obtain a Writ within the required 6-year period or fails to renew a Writ on a timely basis, the creditor may obtain leave of the court to obtain or renew the Writ. The decision whether to grant leave is subject to court-made rules. These rules, set out below, apply equally well to a decision whether to grant leave to issue a notice of garnishment after expiry of the applicable 6-year period.

• The creditor must adduce sufficient evidence explaining the delay so that the court can conclude that the creditor never waived its rights under the judgment or otherwise acquiesced in the non-payment of the judgment.
• Even if the creditor satisfies the first test, the debtor is allowed to demonstrate to the court that, regardless of a non-waiver of rights, it would be inequitable to allow the creditor to enforce the claim. For example, the debtor might be able to show that she relied to her detriment or changed her financial position while relying on a reasonably perceived acquiescence resulting from the delay.

The courts have said “it would be a rare case when a plaintiff could not meet the first test.” After all, how difficult could it be to show that the plaintiff did not waive its rights and did not acquiesce to non-payment of the judgment? Unfortunately, the judges applying these rules have asked for evidence that was more robust than we would have thought necessary. Indeed, the motion judge in Achtem analysed the facts in that case similarly to analyses in previous cases.

Evidence

The creditor obtained a $333,000 judgment in Ontario in 2011. The debtor owned two properties in Brantford, residing in one and renting the other. Her only income was a non-garnishable disability income. The creditor’s lawyer advised the creditor that the values of the two properties were so low that they had no equity in them to seize. Ultimately, realising that, at least at that time, the debtor had no seizable assets, the creditor decided not to have a Writ issued and did nothing after 2012. In 2018, after re-assessing the debtor’s financial situation, the creditor moved for leave to obtain a Writ. The creditor needed leave because 13 months had passed from the date that the creditor could have obtained a Writ as of right.

The motion judge correctly observed that the judgment creditor had a very low evidentiary threshold to obtain leave to issue a Writ, and that denial of leave was a rare result. She then proceeded to deny leave nonetheless. She found that the creditor’s sole explanation – that he did nothing because the debtor’s property had little value, which would make it not worth his while to spend money on enforcement – was an inadequate explanation for the delay and also led to an inference that the creditor was waiving his rights to collect the judgment.

As to the second test, the motion judge accepted the debtor’s evidence that she had changed her financial position; she claimed that she had incurred new debts and financing secured by the properties, did not declare bankruptcy, and renovated her properties. It was enough for the judge to hold that it would be inequitable to grant leave.

The creditor, after seeing his $333,000 judgment become unenforceable, and therefore almost meaningless, appealed.

Explanation & Waiver

The Court of Appeal noted that there was no evidence of waiver other than the delay itself. It held that a 13-month delay, without something more, could not justify an inference that the creditor waived collection of the judgment in the presence of a plausible explanation for the delay. The court noted that the creditor and debtor had never met or communicated other than through their lawyers and that neither the creditor nor his lawyer ever suggested by words or conduct that the creditor was waiving his rights to enforce the judgment.

Contrary to the motion judge’s analysis, the court held that the creditor did provide an explanation for the delay: the debtor had no equity in her properties and therefore it was not worthwhile to enforce the judgment until the equity increased. This, to the court, was a bona fide explanation for the delay and the motion judge had nothing before her to suggest otherwise. The court noted that the motion judge had effectively imposed a much higher threshold for an explanation than was necessary.

We suggest that the court, in coming to this conclusion, recognised reality. Creditors do nothing to enforce judgments not because they are lazy or no longer care about being paid, but because they decide the debtor has no assets to seize that would justify the costs to be incurred in enforcement. Costs of enforcement would become money thrown away, good money after bad. In these situations, smart creditors bide their time until the debtor acquires some assets or garnishable income or property values increase (but, if possible, they do not let the 6-year period expire).

Finally, the court concluded that, on the facts of this case, the creditor had not waived his rights. To find otherwise was contrary to the principles informing motions for leave: no limitation period exists for the enforcement of judgments and it was a rare case where the party seeking leave could not meet the test by sufficiently explaining the delay.

Inequitable

The court also refused to accept that it would be inequitable to grant leave:

• The debtor asserted that she believed that, with the passage of time, the creditor was not enforcing the judgment. This assertion was not reasonable. Absence of communication does not mean waiver.
• Even if the belief were reasonable, the debtor did not rely on it. All the expenses that she said she incurred were necessary for her to continue to earn income while renting out her property. Further, she could not just baldly state that she may have gone bankrupt. She had taken no steps to do so in the 6 years that the Writ could have been issued without leave.

The court allowed the appeal, granted the creditor leave to have the Writ issued, and awarded costs of the appeal against the debtor.

We are in a new regime, with an old test, but one in which it will indeed be a rare case in which leave is not granted.

 

Image courtesy of GeoJango_Maps.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.