Legal Blog

Undertakings

A creditor has a judgment. It does not know of any assets that it can seize or any wages to garnish. What can it do? It can examine the debtor in aid of execution and ask questions dealing with past and present assets, income, and expenses. However, sometimes, and indeed often, the debtor is not co-operative. The debtor ignores the notice of the examination and the creditor is forced to bring a motion to obtain an order compelling the debtor to attend. When the debtor does attend, the debtor brings nothing with him and cannot or will not answer the questions posed. Accordingly, the debtor gives a whole raft of undertakings (e.g. I undertake to obtain and provide you with specified documents or provide you with answers to various questions).

What happens when, gasp, the debtor refuses or neglects to answer the undertakings or pretends to answer, but really does not? The creditor has to bring another motion to the court, something that was done in Veillette v. Piazza Family Trust, an Ontario 2012 Superior Court of Justice decision.

Background

Creditors had a judgment against the debtors for $500,000. They also brought an action against the relatives of the debtors alleging fraudulent transfers of money and property.

The creditors examined the judgment debtors in aid of execution. They were seeking to determine what assets the debtors had and, more importantly, what happened to the assets that the creditors alleged were fraudulently transferred. The debtors gave many undertakings, but, somehow, neglected to honour those undertakings. The creditors therefore brought a motion to obtain an order forcing the debtors to comply with the undertakings.

Ten days before the return date of the motion, the debtors sent a signed direction to the creditors authorising financial institutions to release to the creditors any statements or documents relating to the debtors. However, the debtors specified that the creditors had to bear the cost that the institutions might charge to produce the documents and statements.

Battle

Since the debtors did not provide all of the answers to the undertakings, the creditors had to proceed with the motion regardless. The judge ordered that the debtor answer all undertakings. The debtors took no issue with that order; they knew that they had to comply with their undertakings.

The individual debtor provided an affidavit crying poverty; he simply could not afford to pay for the institutions’ documents, which, he thought, might cost $1,500. Unfortunately, his claim of financial woe was somewhat undermined by the following admissions in his judgment debtor examination:

1. He received about $200,000 in 2005 that he “possibly spent on his family.”

2. He paid as much as $125,000 from the sale of an asset to his ill mother as a gift for raising him.

3. Some of the proceeds of sale of another property went into the bank account of one of the corporate debtors and was then transferred to his bank account.

The judge stated, “With this historical access to larger sums of money, it is insufficient to simply state that one is unemployed and has no money.” The judge went further:

“The general rule that costs awarded in an action are paid at the end of litigation is consistent with the practice that initially parties are required to bear their own cost of organizing productions, preparing an affidavit of documents and making them available for inspection. In cases involving the costs of production before trial, … the court has a residual discretion to depart from that rule where fairness and justice so require. The non-application of the general rule is at times altered if its application would financially prevent a party from presenting their case in the action. That is an important distinction in the case of an execution examination where judicial determination of the merits of the parties has already been determined in which case, departure from the general rule should be less frequent.”

Not surprisingly, the judge held that the debtors’ evidence did not impress him sufficiently to make an exception in this case to the rule that the party supplying the documents must pay the cost to do so.