Jeff: Okay. Welcome everyone on this Tuesday morning. We are very excited to have you here today for our first ever virtual Oatmeal Session. Today's discussion promises to be very interesting as my colleagues, Jacqueline, also known as Jay, Sean and Amber take you through how to protect and collect your accounts receivables. At the end of the session you'll be automatically transferred into smaller groups to have some more focused discussions around this topic. If you didn't register for one of the breaker rooms afterwards we'll ask that you, or you're not sure which room you did register, Chantal, actually if you could just advance the slide. Or if you're unsure which room you did sign up for, there was three options; small, medium or large, please feel free to use the chat function to communicate and we'll make sure you end up in the correct room for you. I just want to bring your attention that your microphones have been muted. As excited as we are to hear all your voices, many of us are working from home which means that there is lots of loud dogs or crying babies and whatnot, so we're just trying to eliminate as much as the background noise as possible so that everyone can hear. We do, however, encourage you to turn your cameras, although this is a virtual environment it's always nice to be able to present to friendly faces and so we do encourage you, if you're comfortable, turning on your webcam. That would be wonderful. So without further ado, I'd like to introduce you to our first presenter who will be Sean. He's going to take us through the proactive steps that you can take to limit the risks of bad debt and increase your collection rates. For this that don't know Sean, he's a partner at Gowling and is the head of the advocacy department. A fun fact about Sean, after successfully representing a couple from Kentucky in a land dispute, the happy client arranged for the Kentucky Governor to commission him as a Kentucky Colonel. That is quite the title. Sean?
Sean: Thanks very much, Jeff. It's a great pleasure to virtually see everyone here today. Very different sort of circumstances than we normally see ourselves in these types of Oatmeal presentations. Starting from the very beginning, in this unprecedented climate that we see ourselves in, it is more important than ever that you know your client. That is making sure that you've set up the appropriate paperwork to make sure that you have protected yourself in the event that there's any problems with collections later on. A good practice is often preparing a credit application and that means that you do have to do some due diligence on the client. Starting with making sure that you have the right name of the customer and some common problems we see is that you simply get the name of the customer wrong. You might get the business name of the customer. It may not be an actual corporate name. Sometimes there may be different corporations at play here. May be it's one that they give you is not the one that actually has the financial resources to pay you. Sometimes the business names, and we've seen this before, or the corporation names can be as different as at the end of which could be Sean Inc. or Sean Corp. Believe it or not that can make a big difference when you get into collections later on. So it's very important that you, and if you have your sales teams in the larger companies, make sure that you have properly educated them and trained them that they need to make sure that they have the proper corporate names and use those throughout.
You also need to make sure that you have the correct banking information for that customer. If this is a large debt you may also want to consider a ... of security for that customer. Perhaps you get a mortgage. Perhaps you get a general security agreement. But, again, that general security agreement or mortgage is only as valid as whatever assets there are, and making sure that they are not leveraged to the point where they are useless. For example, it is already mortgaged to hilt. If they buy properties and mortgage to hilt then you may not be able to collect on that mortgage. Similarly, if you haven't done a proper search under the Personal Property Securities Act you may not be able to identify that the assets are already leveraged to other secured parties in priority.
Another consideration is whether you need a guarantee from the principal of the company. This can be very useful but, again, does that principal have assets, have sufficient resources to be able to pay you in the event of the default? It's very important that you fill out the, if you have a guarantee, that you make sure the guarantor fills out the blanks correctly because a lot of times we see customers that they have a guarantee at the bottom of the credit application but say they insert name of guarantor but then, for example, they don't put in the proper for the name of the guarantor, or if they don't say they're securing the debt of, and they don't put in the proper name of the company. These can prove very difficult because later on they try and challenge that guarantee. So it's important to make sure that the guarantee, as well, is vetted by a lawyer and to make sure that there's terms in it such as that you can enforce against the guarantor without first having to enforce against the debtor. These are all little tricks to the trade that you should be looking at when you're first determining whether you are able to claim against them.
Jeff: Wonderful. Thank you, Sean, and a lot of great information there. What about when you've taken these steps but have still been unable to collect and that's when you can call on my friend, Jacqueline. Jay is a partner here at Gowling and has been at Gowling for over 22 years. Each year she is recognized for her corporate commercial litigation expertise in the Canadian Legal Lexpert Dictionary. Most recently she was the recipient of the Coulter A. Osborne Award presented by the Waterloo Law Association. Fun fact about Jay, she's an avid traveler and has lived in Japan and Australia as well as Canada, where she lives now. She has visited 5 out of the 7 continents with her goal to visit all 7. And, Jay?
Jacqueline: Thank you so much, Jeff. Appreciate that. Hopefully everyone can hear me. So yes, Sean had referenced assets. So, the question is does the debtor have any assets? And the questions about what are assets. So, do they have equipment? Do they have willed property? Do they have bank accounts? Anything that you potentially want to attack at a later date. These are things that you may do as part of your due diligence, as Sean referenced, or as you go along. If they have a building you might want to try to find out if they actually own the building as opposed to just rent the building. And Amber's going to talk about some searches that will give you some of the answers to these questions that we've highlighted on this slide. Where are the assets located? Ideally, we're in Ontario, a lot of contractors would be in Ontario. You want the assets to be in Ontario. We're going to talk about jurisdiction later but if they're in different provinces you just want to know ahead of time where are those assets that I potentially might want to deal with in the future. The debt. What is the size of the debt that you are owed versus the assets? Because you've got to think about am I going to go through this entire exercise, spend time, money and energy only to receive less than what the debt might be. So sometimes there's an opportunity cost, a business decision being made. Other claims against the debtor. Again, as I mentioned Amber's going to talk about searches, but the other claims means that if they owe a lot of money to other people and ultimately you get to the end process, there may be a requirement that you share on a pro rated basis. You went through a lot of effort for other debtors. Again, things to consider. Nature of the debtor's business. Is it a cash business? Is it a business that there going to close the doors, a kind of run by the night type thing and then bankruptcy. Is it an option for the debtor? You want to think about not everyone will declare bankruptcy but some people will with the purpose of trying to evade a lot of their creditors. Particularly if things are happening in such a situation where there's just a lot going on, and they owe so many people so much money, they may feel that they have no option. These are all things that you're thinking of as your trying to say before I go down that route, let me try to get some of these questions answered, because it will help you make the better decision in what route you want to pursue. So thank you, Chantal, and Jeff.
Jeff: Thank you. Thank you very much, Jay. So it sounds like there's a lot of information that one needs to get on the debtor before they really look to proceed and to go through that in a little more detail I'm going to introduce everyone to Amber. For those that don't know Amber, she is an associate with the commercial litigation department, and despite the fact that this is an Oatmeal seminar, her favourite breakfast is anything from the Baker Street Cafe in Ottawa. That's a place I've not had the pleasure to visit but next time I go to Ottawa I'll certainly be sure to stop by.
Amber: Thank you, Jeff, and good morning everyone. Thank you for joining us. I'm going to go through some further information about the debtor that you will want to obtain before you decide whether or not you want to pursue an action. Starting from what Jay had mentioned there are a number of different searches that you'll want to conduct before you make that decision. Some of them are more formal searches and some of them are more informal searches. So starting with the formal ones we have a credit search. If you have the information, and the ability to do so, you're able to run a credit check on the debtor. PPSA searches. That's under the Personal Property and Security Act to see if a business has assets that are encumbered. A bankruptcy search where you are able to see if the debtor has filed for bankruptcy. A PIN search. If you know the address of a property, or find out the address of the property, you can see if there are any encumbrances on that and that goes per property. So if you've got the property address or the property name you can run a PIN search. A writ search is a formal search as well. You can see if anyone else has filed a writ or if a writ has been filed and that also applies to different jurisdictions. For example, if your debtor is a company, and you know that they have offices in various jurisdictions, you can run a writ search per jurisdiction. Writ searches and credit searches, personal property and security searches and bankruptcy searches and PIN searches are all formal. They run about $20.00 to $70.00 per search, depending on which one you're looking at.
Now there are three types of informal searches as well. They can sometimes give you information that you might not otherwise be able to obtain in a formal search and those are web searches, social media searches and word of mouth. With respect to web searches, that can start off with a simple Google although what that also involves is seeing what kind of information is out there about your debtor. There might be information that doesn't necessarily show up in a formal search, but you may be able to see information from forums or what people are saying about the particular debtor, especially if they are a company. On social media searches, this is particularly prevalent for small business, it's important to see if they have social media, the state of their social media. Are they active? Have they not used it for a couple of years? That may give an indication of the status of the business in an up to date way that formal searches may not always and you also may be able to see comments on that as well that may be helpful to you. Finally, there's word of mouth. You know your business best. Nobody knows your industry better than you so if you hear something going around, that's something you can look further into, and it may inform other searches that you'll want to conduct as well. You may obtain information that way from other people and can go from there.
Jeff: Thank you, Amber. So a lot of good information and things that you can get on the debtor. Now, Sean, I'm going to welcome you back. I always feel like this is an interesting question to ask a litigator but is litigation always the best course of action to go next?
Sean: Well, the simple answer is not always. It's, of course, always preferable if you can reach a negotiated resolution with the debtor. A lot of times, most times, when a new client comes in and asks me that they're trying to collect on a debt, my first question to them is why isn't the debtor paying? If the debtor isn't paying because they think you've done something wrong or alleged you've done something wrong, even though it's completely frivolous, that's one thing. But if the debtor is saying well as is common in these circumstances, I'm struggling as a business, I need more time to work on this, there may be a possible negotiation that can play a importance with some type of installment payment, for example. But there's some things to think about there as well. So the first thing we usually start with is a demand letter. That is very common. We send it out. Sometimes it's possible the debtor simply needs a hard nudge, when they see a lawyer and a threat of litigation, perhaps they will move forward. Or at least start to engage in some type of negotiation and often if they are willing to negotiate it starts talking about the idea of we're prepared to pay these amounts in a payment plan. The first consideration is obviously whether the payment plan is right for you. If it's something you're willing to accept. If they're willing to pay $50.00 for the next 100 years that's probably not what you're looking for but if they're prepared to be a bit reasonable about it then we can ... business and we can start talking to them about it.
But there's a few pitfalls with a payment plan that you need to consider. For example, it is a common pitfall, let's say for example, you're willing to take, it's a $100,000.00 debt, you're willing to take $90,000.00. You need to make clear in the payment plan that if they default on that payment then we're back up to claiming for the full amount. Because you don't want to be in a situation where you negotiate, you settle at 90 and then you're stuck having to go and get a pay in default and you're stuck having to go and get a judgment for only $90,000.00 because your deal did not provide for an acceleration of return back to the $100,000.00, in the event of a default. So that's very important to consider. The other thing to consider is, and above all else, you want to make sure that you have a robust default provision in the installment plan. Sometimes in a lot of cases we ask a debtor to sign a consent to judgment. Which means that we hold that in our file. If they follow through on everything fine. We're done. If they fail to do that we use the consent to go to court and get a quick judgment. That's often difficult if it's a self-represented debtor. A lot of times they don't understand that. They think you're trying to pull a fast one on them but sometimes you're able to explain to them exactly what you're trying to do. The other alternative, at the very least, is you say to them in the event they default they agree the debt is owing and that you can go off and get a judgment for the full amount, minus what you've already received if there have been installment payments made there. So it's very important, as I've said, if you're going to put an installment payment into action that you have that default provision in there, so you can go ahead and go and get your judgment in the event of they default on it in the future.
Jeff: Thank you, Sean, and we talked about some timelines there. Jay, what about some time constraints around the claim itself? Are there any?
Jacqueline: There are. Thank you, Jeff, and it's something that people should consider. So we talk about 2 years. In Ontario there is the Limitations Act. It governs when you can take certain actions. So right now we're talking about collections and debts. So you have a period of 2 years. Now, it's 2 years from when the debt was first due or when it was incurred. I say to people be very cautious. So suppose you have an invoice and it's delivered December 1st but not due until 30 days after January 1st. You might say, "Jay, I have 2 years from January 1st?" I would say, "Yes, technically but you want to kind of eliminate that argument." So I would say when you're trying to put forward a tick list system or keep track of when things are due I would start with the day of the invoice, for the December 1st aspect of things. So it's 2 years and as I said it's from when the debt first became due. The take away that I really suggest is keep track of your accounts receivables. That's really for two reasons not just with respect to the Limitations Act but also just with respect to it can give you a bit of an indicator. You may have a super great client and they're really good about paying when they get the invoice and then suddenly you notice they're paying 30 days later, then they're paying 45 days later, then they're paying 60 days later, that may just be a bit of a warning flag for consideration as to whether they're having problems with their cash flow. So that's one reason to keep track. The other reason is that as you keep track because you don't want to lose the opportunity to bring a claim. The Limitations Act is punitive in that once the time is gone you're out of luck. I will tell you, we're in Ontario, but some of the people on line, I know that they operate outside of Ontario. So each Province actually does have a limitation period. It can range from 6 years in P.E.I. and Yukon and Northwest Territories. 2 years is like in Alberta and Saskatchewan, Ontario are all similar and New Brunswick as well. Manitoba is back to 6 years. Quebec's an oddity. It's at 3 years. Newfoundland is 6 years and Nova Scotia is 2. So I highlight that, and that was pretty quick, but I highlight it just to say depending again on where you are, and you'll here throughout this seminar we talk about jurisdiction and due diligence, those are things to consider because some places you may have a longer time frame. Other times it's just the 2 years. So Ontario is 2 years.
The other thing we highlight in this slide here is commencing a claim early. Again, you don't want to lose your opportunity so you'd rather be ahead of the game and being proactive about getting a claim out. There's no penalty if you decide to bring a claim in a year and a half. There is a penalty if you don't bring it within that 2 year mark. Then the last part is the acknowledgement. There is a unique situation where you can get, it has to be formal, it has to be written, it has to be clear enough that you can show exactly what the debt is, it has to be a full acknowledgement. I owe you, Sean Sullivan, a $1.50 with respect to this project and then that will actually restart the limitation period again. So there's are things to consider. Be wary because courts are very strict with respect to the formal written acknowledgments. It has to check all the boxes. So I think the better way to do it is keep track of your accounts receivable. Be proactive. Be aware if there's a change in how your clients are paying your bills going forward. Thank you, Jeff.
Jeff: Wonderful. Thank you, Jay. Amber, so Jay touched on jurisdictions a little bit. Can you go a little bit more in depth on the role that they play?
Amber: Yes, absolutely. So Jacqueline has just highlighted that claims can be brought in different jurisdictions and they have different limitation periods. Jurisdiction is often a frequently asked question when it comes to collections matter. Where do you bring a claim? A very simple situation would be if both you and the debtor are located in Ontario, and the contract is located in Ontario, then you would bring a claim in Ontario courts. In many cases that is not the case. We see a lot of situations where, as some of you operate in different Provinces as well, where you are in one Province, perhaps the debtor is another and we even see situations where the actual contract is made in another place. Then there are a number of different considerations as to what jurisdiction you'll want to bring a claim in. The rule for where you can bring a claim is that a claim can be brought in the Province the debtor is domiciled in the Province. If the debtor carries on business in the Province or if a contract connected with the dispute was made in the Province. If I could summarize this, what it means in general, is that you have to have some kind of connection to the Province. So if you are in the Province, and the contract was made in the Province, there's a good case to be made for bringing the claim in the Province. Whereas, if you are trying to bring a claim somewhere there is not a connection, or for example, both the debtor and the contract were made in a different Province and the work was completed in a different Province, for example, you may want to consider whether you want to bring it there instead. There are a number of other considerations as well that we are also happy to touch on once we visit the breakout rooms, following this presentation, especially when it comes to individual situations. As Jacqueline had kindly highlighted there are different limitations periods, but in general, you must be connected to the area in one of these three ways where you want to bring a claim. So the question you'll want to ask yourself is what jurisdiction does it make the most sense to bring this claim in. Often it may be just where you are if you've got enough of a connection.
Jeff: Thank you, Amber. Oh my lord, I just lost my spot for a second. Sorry there. Let's say they decided to proceed with a claim. Sean, what are some of the first steps you should look to take?
Sean: Thanks, Jeff. So, when you're commencing a claim the first thing you need to do is to have that claim issued in court. That just mainly means that you get a file number, a court file number. It's essential that you be able to do so before, as Jay mentioned about the limitations periods expiration, that has to happen before that would occur. After you have issued the statement of claim, the next step is to serve that claim on the defendants. So that might be a person, it might be a corporation. In the case of a personal defendant, you have to serve them personally, an individual. In the case of a business it has to be on somebody in current control of that business. It can be a challenge locating the debtor, especially if they've moved since the credit applications been filled out, or if the business has ceased operations. At times we've used skip tracers in order to locate debtors. At times where it's been a more involved process we've actually hired an investigator to try and track them down and to locate where they may be. If the debtor cannot be found then you may have to look to the court and use alternatives to processing servicing. You can effect service by servicing on the last known address or by sending it by mail to the last place of residence. You should really look to, as I said, we use law clerks a lot in our office for this. They knows the ins and outs of the rules and service requirements. They use process servers a lot and these can be complicated rules and also be very impactful.
In one case that I had in the last year, actually, just as the COVID pandemic was beginning. So we had a debtor owed a lot of money to a client and was in the process of selling his house and leaving the Province. He was doing his level best to avoid being served with a statement of claim. We were able to serve him by mailing it to his last known address and we were able to get an order from the Court that that was valid service. We then got judgment just before everything shut down last March, as a result of COVID. As you know the courts were basically frozen for a number of months and nothing could be done but we were lucky we were able to get it just before then. The debtor didn't know we had the judgment and proceeded to try and sell his property. We put a, Amber had mentioned about searching for writs, we put a writ of execution in the jurisdiction where he owned the property. That writ of execution showed up. The lawyer who was selling his property did a writ search, as the lawyer's required to do or should be doing, required to do really, on the day of the sale and saw that we had a writ on there. That deal couldn't close without paying us the full amount. So we got the full amount of the owing from the debtor and through that process. But it was pivotal that we had dot all our i's and crossed all our t's in getting that judgment. If the debtor has a lawyer, that lawyer may be able to agree to accept service as well. We should be making sure that this is done in writing. If a document has not been served in a manner authorized by the rules you get an order validating service. If you can show that the document came to the notice of the person served or was served in a manner that would have come to the person's attention but that person's efforts to evade service. Again, we use our clerks who are more knowledgeable about this and can you help you through those types of difficulties. So in other words, and a message for the debtors is, you can run but you can't hide. Chantal, if you can move to the next slide.
So just like when you're preparing a credit application it's important to make sure that the correct name of the debtors is included in the claim. Whenever we're doing a statement of claim we run what's called a corporate profiled report and this tells us the proper name of the corporation. The reason is because if the judgment, in any way does not match the name of the debtor that's on a bank account, there's a question about garnishment which, sorry, I haven't seen but we can answer later no, but when you're trying to garnish, when you're trying to take anything from bank account, if that doesn't match up exactly you're out of luck. You've got to go back and amend your judgment again in order to make sure that's correct. That could be as simple as a comma difference. It could be as simple as, I said, the Inc. or the Corp. on the end of it. So it's very, very important that we have the right name and you have to make sure you have the correct amount in the claim, as well, and how you put that in the claim. A common mistake is to say that you're seeking damages. If you have a what's called a liquidated debt, so you know that you're owed $100,000.00 because you performed services and your services were charged to $100,000.00, that's a liquidated debt. It's easily ascertainable. If you're trying to do a statement of claim and you say I'm claiming damages for the $100,000.00 and they don't defend and you go to court and say, "Hey, court, I want a default judgment against them." the court will say, "Sorry. I can't do it because you're seeking damages." and they will say, "Because you're doing that you need a judge in order to determine damages." So a simple rule of thumb is we say, sum, we are seeking the sum of $100,000.00. Just these little things can be very important. As well, can you expand the matt? You may have a customer who you're thinking, okay, this customer is going out of business. I don't have a guarantee. Do I have any other way of claiming against the principal of the company? The short answer is some times. It depends. Is there, for example, evidence or any kind of suggestion that the owner has pocketed money? May be you can claim some type of fraudulent conveyance or can you allege that you performed services that the owner benefited from? That the principal benefited from, himself or herself. Well then you might be able to suggest that there's been some unjust enrichment. So perhaps you can try and latch a claim onto them especially in the event that they don't defend the claim. Maybe you can get a judgment against them. Is the corporation a sham? Can you show that it's basically just a paper company and you were always, actually always contracting with the individual? That's something else to keep in mind. Have you suffered other damages other than breach of contract? That's an important thing to consider as well.
Now, in terms of the other types of pleadings that you'll see, so you've got a statement of claim they then have 20 days in order to do a statement of defense. They get an extra 10 days if they serve during that time frame before the statement of defense is due. What's called a notice of intent to defend. So, maybe 30 days they have all together. You can then do a reply to anything that is first raised in the statement of defense that was not properly addressed in your statement of claim. They may very well do a counterclaim back at you. This is common when a debtor is trying to slow us down. Perhaps they're trying to allege some frivolous allegation that you've done something wrong. It was a defective product. But as well, before we start the claim, we also want to conduct our due diligence for a client because it's beneficial to them. We want to know was there anything wrong with the services you provided? Was there any wrong with the product that you provided that could conceivably give them some damages because you don't want to be a situation where you're claiming $400,000.00, they're claiming for $400,000.00 and 6 months down the line we all get to the point where we're saying, "Everybody walked away with nothing." That's certainly not something that's beneficial to you. So these are the important things that we want to consider for you. I think that's it for me.
Jeff: Okay. Thank you, Sean. Jay, what options are there really if the debtor does respond?
Jacqueline: Okay. Well thank you, Jeff. What I'm going to do is I'm just going to take a step backwards because we had a, in one of the chat sessions they were asking about the Real Property Limitations Act and the Limitations Act and leases, so I'm just going to highlight for a second. I just spoke of the Limitations Act. There are other Acts that have limitations within those particular Acts. One of them is the Real Property Limitations Act and so there is a distinction. So when the court decided to revamp the Limitations Act, because it used to be 6 years, they moved it down to 2 years, they were saying, okay, they looked at it and said, "Well, there's a 10 year Limitations Act actually under the Real Property Limitations Act that applies." So the question is, if you have to differentiate, is it an action like under contractor tort, it'd be the 2 years, or is it an action involving the land, in which case there's a potential for 10 years. The question also made reference to a lease so I'm hoping this is addressing it. There could be situations where you almost have like a rolling debt doings. So you have a lease and so when I speak of the 2 years, if the lease is continued to be breached and there's no termination of the lease and you continue to move forward, then you can continue to seek the lease payments from that 2 year timeframe. So, again, my example being that I owe you rent December 1st. I don't pay you. I owe you rent January, February, March. I don't pay you and then you decide two April's from now that you want to sue me. If the lease and rental payments continue then you can do it from that later on 2 year timeframe. You'd be out of luck for the December, January, February, March because you'd be outside the 2 year period. But the lease payments would have continued to accrue so you would have the opportunity to capture those payments within the 2 year period. The same thing might apply. We have lots of situations where people come to us and they say, "Hey, I have a bunch of invoices because I continued to invoice going forward." So there's like 10 invoices. We look at that and say, "You know what? These 3 are outside the 2 year timeframe but these 7, of the 10, are within the 2 year timeframe so we can still pursue those balance of those invoices, even though the first 3 are outside. So I'm hoping that I answered that question. That was a great question and, if not, we can always try to deal with it more in the actual chat.
Okay. So back to the slide. These are technical things and so I'm going to highlight over them but they're the real dive down ones where they're pretty significant opportunities. So the caution and the certificate of pending litigation. A caution is something that you can register on title. It's a limited timeframe of 60 days. It's under the Land Title Act. There's different sections or different reasons for registering a caution but effectively it's to say to someone, "Hey. Notice I have some sort of right in this particular land." And similar to how Sean highlighted it, if you were to do something called a title search then the caution would show up on the title and the world at large would know that there's something happening with this property. Because you can do it with some ease, it often gives you the opportunity to then move forward to the certificate of pending litigation. Certificate of pending litigation is actually governed by the Ontario Rules and Civil Procedure and I have my little book to show everybody. You can see that we have a lot of rules we have to follow. It's pretty significant that way but you have to bring an actual order to the court. You have to explain why you'd be entitled to it because what you're doing is you are binding that land, effectively for the time of your litigation, which is significant because it means that it's unlikely they could finance, they won't be able to sell. The sanctions are significant so the court wants to know that you really have some sort of connection to the land. The court also has significant sanctions that if you bring the motion without notice, which means you don't have to serve the owner of the property, you better make sure you tell them everything. Like don't hide anything because otherwise the court will look at you in a very negative fashion and there could be significant cost consequences.
The next three things are called preservation orders and we've had some kind of fun things happen with some of those aspect of things. So you have a Mareva Injunction, you have Anton Piller Order and Norwich Pharmacal. So we had a recent situation so I'm going to talk sort of about the last one first. So the Norwich Pharmacal is an order, so you have to go to court, and it's to try to get documents. Disclosure documents so you can gather information. So it's like an equitable remedy that the court will grant. It's usually to get information about persons and information that way. It's pretty intrusive so there's very strict requirements that the court does require for seeking. In our situation there had been some fraud perpetrated. We were able to go and figure out, potentially, who the potential financial institutions were. As a result with the financial institutions information we were then able to get the documents from the financial institutions. With that information we were able to go back to get an Anton Piller Order, which is effectively kind of like a freezing of sorts and then injunctions are also pretty significant. So these preservation orders, all things again, governed under the Rules where you can go to the court and say, "Listen. I think someone is stealing money. I think that the money's going to leave the bank account. I think that they're taking furniture. They're doing things like in the dark of the night." That type of thing. You have to go to the court and explain, and have some pretty significant foundation for it, to say, "I want to on a without notice basis basically stop someone from doing something or have them give me information that would otherwise be confidential." So, we can drill down it later if people want because they're pretty significant, but those are things that people can consider. It's not something you want to do for $5,000.00. It's much more significant and there has to be with a sense of urgency that maybe their assets are being transferred out of the jurisdiction and there's no way that you're going to be able to get your hands on those assets unless you take these crazy steps.
An appointment of a receiver is more with the whole bankruptcy aspect of things or your concerned that somehow the company is no longer treating their assets properly. They're making crazy decisions. They can't pay their debts. They may have to apply for bankruptcy. They may have to make a CCAA application. So you might want to appoint someone to kind of go in, step into the shoes and then manage the property. Again, these are for bigger type debts. Other ones that I've highlighted on this slide for you to consider. Lien the debtor's property. Some people here are in the construction industry, so you'd be aware of the new Construction Act that came into effect in a three tier process, but basically you can lien the debtor's property if you're providing an improvement and you follow the Construction Act requirements which have, again, limitations as to when you actually have to register a lien and when you have to then preserve and then perfect the lien. There is another thing to is if you happen to be in repairs there's something called the Repair and Storage Lien Act which means that if you happen to repair a truck, for example, and they don't pay you for the repair, then you can lien the truck effectively until you get paid for your repair. The other two that I've highlighted, those Acts and Conveyance Acts and even with bankruptcy is you can take kind of a retrospective approach. You can look at, if you're tracing funds and you see all this and you're like, "Oh my gosh! So and so transferred something to his niece." or "So and so transferred and paid ABC Company." and it's done within a certain timeframe. The preference, as you can imagine, is because you're preferring one creditor over the other and a fraudulent one is more of, "I have a house and I'm going to sell it to you for a dollar." Clearly, it's not a third party arms length. You're not paying true consideration, etcetera, so you can potentially attack in a retrospective manner those transfers. So this is a pretty heavy slide but there's a lot of things that you could potentially do with the court's help. But you don't undertake those lightly.
Jeff: Thank you, Jay. Jay, sorry, are you doing the next slide as well?
Jacqueline: I am, Jeff, thank you. I got so excited. I got all these things that was happening with the court.
Jeff: It's an exciting topic.
Jacqueline: It is exhausting. Yeah, I know. So now I'm going to try to take it down a level and get into the more mundane things that we do. Sean was talking about claims and there's a whole process, like a spectrum, of what you're doing when you have litigation. So he talked about the kind of pleading stage which is your story going on. The next stage is called a discovery stage and this is, again, if the debtor responds and it is laid out in the Rules whether you do simplified or Superior Court so the rules are that you have to get together a document ... It's called an affidavit of documents. You have to have a person that will swear to it that these are all the documents and there's sanctions, again under the Rules, if you don't actually provide all the documents. So what they're trying to avoid is someone having a bonfire or throwing things out that aren't favourable to them. That type of thing. So the expectation and requirement is that you have to provide everything that's relevant. So the test is relevancy. So Schedule "A" is everything that's relevant that you do not mind producing. Schedule "B" is everything that's relevant but you have a reason for not producing. It is a solicitor/client privilege. You've hired an expert so right now it is under your expert privilege. There is litigation privilege. It was only prepared because you were contemplating litigation. So the Rules do a like, a bit of a carve out is, it's relevant but you don't have to share it with the other side just yet. Or maybe never. There's rules as to when you might actually shift it from the B side of the column to the A side of the column. Schedule "C" is sometimes people do change computer systems. There is a flood. There is a legitimate fire and so Schedule "C" gives you the opportunity to say, "I had these documents but for whatever reason we've moved, we changed computer system, we don't have them anymore." so you're being full disclosure. You're not hiding it from everybody. Then Schedule "D" is just in the simplified procedure, so we have small claims, simplified regular procedure, simplified procedure because it's a little bit more of a shortcut. It lists people that would have knowledge about it. So, Jeff Collins knows all about how to be the best business manager at Gowlings so he's going to be listed because he has some sort of information to add later on, if necessary, if we get to trial. So that's the Affidavit of Documents. So what's the take away? The take away is nowadays with electronic and paper is keep track of your documents. Have some sort of process where if you do get into litigation you have something called a litigation hold. So you don't have someone inadvertently delete a bunch of documents. So have some sort of process in place that everybody knows that once we're at this stage you don't touch it or hyphen it off or separate it. That type of thing because you need to be able to produce those documents.
Okay, that's the document part of discovery. Here's the super fun part. Examinations. So this is where a person, on behalf of your company if you're a company, or if you're an individual, you yourself, will be put forward to ask questions under oath. So I get to ask the other side. The other side's counsel gets to ask you. It's at an official examiner's office, and when I say 'at', that could be virtual now. You are either asked to swear or to affirm to the truth of it and they will ask you all the questions with respect to the situation at hand. So collections, they can talk about did you deliver the services? When did you deliver the invoices? What was the response? Those types of things so you would actually go through, if you get to that stage, those are the discovery aspect of things. Also if I could, Chantal, have you go to the next slide.
Just talking about the spectrum before. So, pleadings, discovery, pre-trial. So pre-trial is an excellent opportunity where you do a pre-trial conference memorandum. It synthesizes the parties perspectives, their stories, the pros, the cons. You go before a judge and the judge says, "I'm not the judge that's going to hear the trial. But let me give you some feedback." You have a good, a bad, an ugly case. You have strengths, you have weaknesses. So you put in your arguments of law. You put in your factual sides. Both sides do it, and it's without prejudice, and the judge would say, "Okay. Here's where I think things will land." It is an excellent opportunity to try and get things resolved at that time without the additional cost of moving to a trial. I've seen so many pre-trial judges get really engaged what's going on. They sometimes bring the clients back. They talk to counsel and they say, "You know what? Here's what you're fighting about. Do you really want to go onto the next stage?" Many of our jurisdictions depending within Ontario and the rest of Canada, some of the pre-trials are mandatory and some of them are voluntary. But if someone does come to you and say, "You know what? I recommend a pre-trial." I would seriously give consideration to a pre-trial. Then the last point, before we finish our spectrum, is the trial. That is where a judge, who is not the pre-trial judge, will hear all the evidence. That's where you put forward, it could be a day, it could be 3 weeks depending on the situation, and you call all your evidence and I get the chance to cross-examine all your witnesses. They put forward their evidence. You get a chance to cross-examine all their witnesses. You get a chance to put forward your facts as well as all your legal arguments. That is your trial.
Jeff: Thank you, Jay, and thank you for sticking around for those last two slides. Amber, what about settling and could that be an option?
Amber: Absolutely, Jeff. So at any point offers to settle can be made. Sean had already touched on a number of considerations when it comes to offers to settle and when it's worth it. When you may want to accept an amount that might be less than it was completely owed in consideration for getting money now. But at any stage either party can make an offer to settle. So that sometimes may come from the debtor themselves, especially if, for example, they're having difficulty with their cashflow and they say, "Will you take $15,000.00 in consideration of this whole debt?" It also may be something that you want to offer the debtor as an incentive for them to pay. So $20,000.00 is owed and you say "Okay." and if you pay $15,000.00, or on a payment plan as Sean had kindly highlighted earlier, then we will take that as full consideration for the complete $20,000.00 that's owed. As Sean noted too, you do want to indicate that if they do not take that offer at the moment or if they default on that payment plan, for example, then they would still owe the whole amount. But regardless, either party can make an offer to settle at any time. Sean had also highlighted demand letters. So this can happen at any stage. It does often start off with a demand letter. You would start a demand letter by saying you owe, let's say $20,000.00 again, and then if they do not pay that at that time, then they would also start to incur legal costs, and you would bring an action which would include those legal costs but you can always start a demand letter by saying you owe $20,000.00. If you will accept $18,000.00 but we'll only accept it for this week, for example. So at any stage either party can do that although way up until trial. Most offers expire on or about 5 minutes following the start of trial. So you've got, typically unless you indicate otherwise, you've got until trial to accept it. Keep in mind that the longer you go into the litigation the less consideration there may be, in terms of what you will accept to settle, as your legal costs will be mounting. But at the same time there may be more incentive for them to settle because a trial would be expensive, typically, and time consuming for both parties. When you're deciding on whether or not you want to make an offer to settle, and what kind of offer to settle you want to make, you'll want to consider costs to date and chance of recovery. During a demand letter, for example, you may want to accept, I'm going to use the example of $15,000.00 on your full $20.000.00 that's owed again, because you would recover all of that money. At that stage you are paying for, perhaps the demand letter from your lawyer, but other than that you haven't particularly gotten into an extensive amount of legal costs. But if you're at the pre-trial stage, and you've already gone through discoveries, you would want to accept a higher amount that includes some legal costs or make an offer for that. So you always want to keep that balance in consideration and think about, practically, what you have spent so far to try to recover this money.
That brings me to chance of recovery as well. That's something that you would want to take into consideration. If the company is solvent and you know that there is money there, based on the searches that you conducted earlier or information obtained at various stages of litigation, then you would want to take that into consideration as well. Perhaps you do not necessarily want to make a lowball offer just to resolve the matter because you know that you will be able to ultimately recover what you believe is owed. You've got a good case for that. Whereas if you're not sure about the chance of recovery, for example if it's a company that you've been hearing through the grapevine may be insolvent very quickly, and they are making an offer to settle and it is less than what you might normally accept, you would want to take that into consideration as well because money now is worth more than money later and you know you've got that. You've got that certainty.
Finally, that brings me to the incentive of parties to settle litigation. I had touched on that very briefly already but nobody wants to incur the costs of a trial. Nobody wants to spend more money on recovering the money that's owed to them than what is actually owed. So you'll want to think about that as well. Would it be reasonable to take a small claims court matter all the way to trial? If it's only $10,000.00 that is owed, possibly not. That's when you would want to consider making an offer to settle and what amount that would be.
Jeff: Wonderful. Thank you, Amber, and there was a lot of conversation there about costs. Sean, could you actually go into who is responsible for covering the legal costs?
Sean: Sure. Just before I get to the costs there was a question about writs. Let me just quickly try and cover that. Writs of execution cover, once registered and registered properly, I'll get into that in a second, cover and encompass and latch onto any real property that is located within the jurisdiction that the writ is executed. The jurisdiction, unfortunately in Ontario, is split into numerous jurisdictions. Normally surrounding a municipality or region. For example, if you had a debtor who had a property in Toronto, but you register your writ in Waterloo, it's not going to show up and it's not going to attach automatically to that property that's in Toronto. That's the first thing. Writs can be registered electronically. That's what we do. But it is important to be very precise with them because if you get anything wrong, again, if you get anything wrong with the name of your debtor it's not going to show up. There's also, and I think they're correcting this or in the process of correcting this with the land registry where you register these with the registry system, where you could have a spot where you say debtor and where you'd see defendant. The defendant in your statement of claim may be Joe Schmoe, operating as this company, but if you put in, and that might be your defendant, but if you put in that precise name into the debtor portion and the debtor, Joe Schmoe sells a property, it may not show up on the writ. We often, as a safety mechanism for ourselves, is a day after the registration of the writ we will often search to make sure the writ has been properly registered and properly shows up so that we don't have that problem. But it's very important to make sure you've done it properly that way. The other thing about writs is they're only good for 6 years. So, they expire after 6 years. So you've got to make sure to be on top of that as well. Nothing is going to happen. It doesn't automatically force somebody to sell any property and the writ will just sit there and do nothing until they try and do something with their property. But it is at least a passive way which you can try and monitor and keep an eye on what's happening with the debtor. Maybe down the line, we've had this before, years down the line all of a sudden there's a sale of the property and the client who thought that the debt was never going to be paid, suddenly money's pouring in, into our trust account to be paid out to the client. It does happen. But you should be very, very careful when you're registering writs.
On to cost though. You're asking about costs and who pays them. Well, usually the loser pays. That's the way our system works. Costs are awarded to meet three fundamental purposes. First, to indemnify successful litigant for the costs of the litigation. Second, is to encourage settlement. So Amber has already talked to you about offers to settle. If you have an offer to settle, which is in the proper format under the Rules and is served properly and is available until trial, and you get there and let's say you're offer was I'll take $50,000.00 and you get a judgment for $60,000.00, the courts going to say, "You, defendant, should have taken that offer. I'm going to give costs on a higher percentage, a higher basis, to the successful plaintiff than I would have otherwise if there hadn't been that offer to settle." It's also discouraged in sanction inappropriate behaviour by the litigants. This is more difficult to prove but in circumstances where you have aggravated damages, or punitive damages, where there's been egregious behaviour by the litigants throughout the litigation by the losing party that has run up the costs and shouldn't be deserving of further court sanction. Generally speaking there are three scales of costs level. There is the full indemnity which is 100%. That's extremely rare. I tell clients don't expect to get 100% of your legal costs paid. There is substantial indemnity which, again, it varies. You have to remember that as you see here the judge has broad discretion here. But it can be anywhere between 75 and close to 100% of your costs. That's what's called substantial indemnity. Finally, partial indemnity. Anywhere between 50 to 75% of your costs. As a rule of thumb, I will tell clients when they come in the door to expect partial indemnity, recovery of partial indemnity costs. So 50% of your costs. Hope for more. We will always try and argue for more but you should work under the assumption when you're pursuing litigation that you're only going to get 50%. That, I think, is a good expectation to have going through and be surprised and happy when we're able to prove miracle workers and get you more.
There are ways to increase your chances of getting elevated costs. Which I mentioned Amber's already pointed out the offer to settle which we noted. As I said it's difficult to predict what the courts are going to do. They have broad discretion. That said, if the defendant, a losing party, is challenging the legal costs then they better be prepared to put forward their legal costs and show that it is substantially less. The courts will often have little tolerance for a defendant who's going to say, "Oh. Well they're asking for so much. I don't know why they're asking for this amount." The courts will say, "How much did you spend?" Make them put forth their bill of costs and it shows that they spent the same amount or ... the same amount the courts going to say "Well, sauce for the goose." What are you going to do? So, that's very important but at the end of the day it's the judge's decision as to how much the legal costs will be.
Jeff: Thank you, Sean, and just keeping a quick eye on time. We do have a couple more slides before we break out into our sessions and I'll ask for the remaining slides, just to cover them a little bit high level and we can get into details during the discussions. So, Jay, if the debtor doesn't respond what actions can be taken?
Jacqueline: So, you can actually note the debtor in default. What means is under your statement of claim it says to them you have so many days to respond. If they fail to respond you can go to the court. There's proper paperwork and you basically say they didn't respond within the time frame. We want to note them in default. That's step one. Default does not mean that you automatically get a judgment. You can then obtain a default judgment. So the court clerk can actually sign a default judgment if it's liquidated damages. Liquidated damages are things that are readily identifiable. Easy to quantify and that type of thing. If you want to get non-liquidated damages, say there's conversion, fraud, etcetera, and you have to explain why you're entitled to it. So you have to bring a motion, with evidence, before the court to say here's why I need default judgment. Just so you know, just because they don't defend, doesn't mean that you automatically get that. But it is a step in the right direction. Back to you, Jeff.
Jeff: Thank you and so once we get that judgment, Amber, can you talk a little bit about how we collect?
Amber: Absolutely. So I'm not going to go into detail about the items that we've already covered. I'm starting off with writs of seizure, and we've already heard a little bit about that, but that is one option that you can collect and relieve the writ on, and then when the property is sold then you will hopefully obtain some of the money back from that. I'm also going to just briefly mention chasing money, as Jacqueline had kindly highlighted that, possible claims against third parties, fraudulent conveyances, assignments and preferences. Those would be items when we are talking about a significant amount of money because they do cost additional and take considerable time and effort. The other two points are garnishments. Somebody in our chat had highlighted that garnishments are a good option as well. If you've got access to the debtor's bank account information, or bank funds, you're able to take garnishments there. Wages, salaries or fees if you know where they work or your able to obtain that information or money under contract is something that could be garnished as well. Last but not least, we have the option of a judgment debtor examination. You would want to conduct a cost benefit analysis on that as well because, in brief, what a judgment debtor examination is is you would have the debtor in a room, required to bring all of their financial information with them. Essentially it's tax returns for the last 3 years, bank statements, credit card statements that you can put together an entire picture of their finances and you are able to obtain information that you might not otherwise already have. Such as bank accounts. With the judgment debtor examination you always have the possibility that they don't show up for that examination. They can, if they continue not to do that, be held in contempt of court. But it does take some preparation and it does involve booking that space, or in the case of small claims court, in the court where they're required to attend. So, again, that's something that you would want to consider depending on how much money is at issue.
Jeff: Great. Thank you, Amber. That was wonderful. Sean, I'm going to call you up once again just to go over, at a very high level, and kind of sum up the presentation as a whole.
Sean: Thanks, Jeff. It's been great presenting for everyone today. I hope you found it interesting and informative. Just to sum up, often the key to success in collections is to consider three main things which you've heard about today. The first is conducting the appropriate due diligence, at the beginning of the relationship, to make sure this is a relationship that makes sense for you and that this is a customer that makes sense if you're going to extend them some type of credit. The second is in the event to watch carefully your customers. Especially in circumstances like we're dealing with today, with COVID. It can be a sad situation and very unfortunate but companies can take a turn for the worse at a moments notice. You need to keep an eye on your customers and respond swiftly when there is a default because it could, if you leave it too long ... limitations periods, you could end up leading into even bankruptcy situations. Finally, choose your battles correctly. If there's no money, I mean sometimes there's no money there, you can't take blood from a stone. It may simply be that the better option is to know when to hold and to know when to fold them. You need to cut your losses. However, where there is money within reach, be ready to have the determination and staying power because a lot of debtors, it's a war of attrition, they will look to run and to try and evade and you have to have the fortitude in order to pursue this. Have a good understanding of the system and that will help your decision whether or not to litigate. Understand the nature of the debt which will then help you to choose the right road to take to recover that debt. Thank you.
Jeff: Thank you, Sean, and although the presentation is over the conversation definitely is not. Through the magic of Zoom we are all now automatically transfer you to some smaller groups and to carry on the discussion. Each one will be moderated by either Sean, Jay or Amber. So I hope you enjoy those. Thank you.