Sometimes, legal actions turn into an odyssey, first in obtaining a judgment of the court and then in collecting the judgment. The case of Hermanns v. Ingle, a 2020 decision of the Ontario Superior Court of Justice, is not just a case in point, it is an odyssey poster child.
In 1986, the plaintiffs, who operated a horse farm, made a voluntary assignment into bankruptcy. The defendant, through his corporations, was appointed as the receiver-manager of the bankrupt estate. Ultimately, litigation ensued; and, in 1997, a judge found that the defendant had acted for his own benefit to maximize fees and displayed a total lack of comprehension of his duties as a receiver. The judge ordered that the plaintiffs be credited for over $1 million and ordered a reference for an accounting of the money that the defendant had received in his capacity as receiver.
The defendant appealed. In April 2002, the Court of Appeal upheld the judgment of the trial judge and held that the plaintiffs were entitled to trace proceeds through the defendant, specified corporations, and the individuals and corporations controlling those specified corporations.
In December 2002, a Master issued a report in which he determined that the defendant owed the plaintiffs $8 million.
The defendant was examined a number of times as a judgment debtor, but failed to account for money that he received from the receivership. Finally, in March 2011, a second Master ordered the defendant to answer a series of questions asked at the judgment debtor examinations. We do not know the steps that the plaintiffs took to collect on the judgment, but we know that, in February 2019, a third Master ordered the defendant to provide “a documentary accounting and tracing of all funds received, on a best efforts basis.” The same order directed answers to specific questions relating to the disposition of proceeds from the sale of the farm, the sale of several horses, and the receiver fees received.
The defendant’s subsequent answers contained no meaningful information and lacked any details as to expenses incurred or the use of the funds. The defendant asserted that the documentary evidence relevant to complete an accounting was either lost (the dog ate my homework defence) or in the possession of the plaintiffs and further asserted that he had “done his best.”
This did not satisfy the plaintiffs, who brought a further motion to the same Master for further and better answers and, in addition, for leave to examine the defendant’s wife and named relatives of the defendant. These additional people were all non-judgment debtors, but their examinations were requested pursuant to Rule 60.18(6) of the Rules of Civil Procedure.
The Master refused leave to examine the non-parties due to the passage of time and only ordered some, rather than all, of the questions to be answered. The plaintiffs appealed.
The equitable doctrine of laches “requires a claimant in equity to prosecute his claim without undue delay. It does not fix a specific limit, but considers the circumstances of each case. In determining whether there has been delay amounting to laches, the main considerations are (1) acquiescence on the claimant’s part; and (2) any change of position that has occurred on the defendant’s part that arose from reasonable reliance on the claimant’s acceptance of the status quo.”
The Master held that the doctrine of laches applied because the court record did not show that the plaintiffs had taken any steps to collect the judgment for approximately a decade.
The appeal judge, however, noted that a court record only shows steps taken in court. It does not show out-of-court examinations, correspondence with other counsel, attempts to trace funds, or other steps taken to collect the judgment. The judge noted that the record before him showed that these steps had actually taken place; the plaintiff had not simply sat around doing nothing. The judge also noted that the Master turned his mind to the issue of delay, but did not determine whether any alleged delay resulted in a change of position that might have prejudiced the defendant. Accordingly, the judge held that laches did not apply.
Rule 60.18(6) states “Where any difficulty arises concerning the enforcement of an order, the court may, (a) make an order for the examination of any person who the court is satisfied may have knowledge of the matters set out in subrule (2); and (b) make such order for the examination of any other person as is just.”
The Master refused to allow the examination of the non-parties under Rule 60.18(6). He determined that these examinations would be pointless because any cause of action against these non-defendants was so old that it would be proscribed by the Limitations Act, 2002. The judge disagreed for two reasons.
First, the wording of Rule 60.18(6) is very wide; it is not limited to seeking evidence on which to pursue litigation against a non-party. The non-party could give valuable information as to where assets may be hidden.
Second, a cause of action against the non-party is not necessarily proscribed. The limitations period does not start to run until the judgment creditor discovers the cause of action against the non-party, not merely when the cause of action arises.
The key for a judgment creditor to obtain an order under Rule 60.18(6) is to demonstrate that the judgment creditor (i) has exhausted all means available before resorting to a motion to request the order and (ii) is not requesting the examination in order to unduly harass the individual proposed to be examined.
The judge noted that the Master recognized this test, but did not apply it. The judge stated that each of the non-parties to be examined were connected to the farm management or were beneficiaries of a trust relating to it; in short, they were connected with the defendant’s business. The judge summed up the situation as follows:
“After years of getting insufficient information from Ingle, and recent answers that demonstrate further questioning of Ingle, at least at this stage, is unlikely to reveal new facts, this appears to be precisely the type of case in which such examinations should be permitted, and there are grounds to examine each of the non-parties.”
In addition to allowing the appeal regarding examination of the non-parties, the judge ordered the defendant to answer all of the outstanding questions, not just those that the Master had listed. The judge noted that the Master did not say why some questions were relevant and others were not. The Master also did not explain why he ordered those questions to be answered in February 2019, but, in December 2019, refused to order those questions be answered because, he said, too much time had elapsed.
The judge concluded as follows: “Although, like the Master, I am concerned about the passage of time as the action dates back over more than thirty years, the plaintiffs are entitled to continue to pursue the debtors and to exhaust all avenues in order to obtain satisfaction on their judgment.”
And to that, we say “amen.”
Image courtesy of TheDigitalArtist.
Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.