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Pre-judgment garnishment: A powerful but exacting tool

garnishment

Pre-judgment garnishment is a powerful remedy that allows a creditor to secure their claims by garnishing funds owed to a debtor and holding them in court pending a further order or agreement of the parties. As I have written about previous, this extraordinary remedy requires strict adherence to its requirements. It is crucial to get it right when it comes to pre-judgment garnishment or the efforts will have been wasted.

The recent case of Nisa Holdings Inc. v LMG Mgmt. Ltd., 2020 BCSC 11 (CanLII) is an example of how even small omissions in garnishment materials can result in the garnishment being unsuccessful.

In Nisa the Defendant, a business, was sold and the Plaintiff, the former owner, entered into a contract to provide sales consulting services with compensation to be based on a commissions formula as well as reimbursement for expenses. It was alleged that the Defendant owed the Plaintiff $72,757.01 in commissions and two garnishment orders were sought and granted to secure such funds from the Defendant’s bank account.

As an aside, the garnishing orders did not actually result in any funds being garnished, which was unknown to the parties when the application was brought in the case. The garnishing orders had resulted in Defendant’s line of credit being frozen and there being issues with the Defendant making payroll and debt payments.

The Court in Nisa summarized the law concerning pre-judgment garnishment as follows (citations omitted):

  • “A garnishment order before judgment is an extraordinary remedy and there must be strict but not perfect observance of the legislation…” (para. 18);
  • “A garnishment order before judgment must be in respect of a debt or liquidated claim…” (para. 19);
  • “A liquidated claim is a claim for “a specific sum which has either been ascertained or is capable of being ascertained as a matter of mere calculation”” (para. 20);
  • “A plaintiff must account for all just discounts.” (para. 21);
  • “…full and frank disclosure of matters which are relevant and material to the prescribed content of the affidavit filed in support must be made…” (para. 22;
  • “If a defendant provides evidence which, if accepted, would establish that there is a set-off for a debt or liquidated amount, and the plaintiff’s affidavit in support of the garnishing order has not made an allowance for it, the garnishing order may be set aside…” (para. 23).

The Plaintiff failed to include any accounting for $1,719.17 in overages in cell phone charges that the parties discussed would be clawed back from commissions owing to the Plaintiff. While there was discussions of negotiating with the telecommunications company to reduce the amount of overages, the amount of overages was known and a liquidated amount that was not disclosed in the affidavit materials supporting the application for the garnishment order.

The court did not “read down” the garnishing order to the claimed amount of $72,757.01 less the $1,719.17 in overages; rather, it set aside the garnishing orders in their entirety for failing to make all just discounts.

Nisa Holdings Inc. v LMG Mgmt. Ltd., demonstrates how careful parties need to be when drafting garnishment materials. The Plaintiff failing to disclose that there was a set-off claim which would reduce the alleged debt by less than 2.5% was sufficient for the court to find that there was a failure to disclose all relevant materials and make all just discounts and set aside the garnishment in its entirety. The result being that the Plaintiff who sought the garnishment wasted costs and expenses and was exposed to censure.

It is prudent to seek legal assistance in preparing garnishment materials and to ensure that full and frank disclosure of any potential claims or amounts which would or could reduce the amounts claimed are discussed and disclosed.

By Jeremy Burgess, Pushor Mitchell LLP

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In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.

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