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Collecting money owed can often be a challenging process, especially in the context of contentious family disputes. One such tool available to judgment creditors is garnishment, the legal mechanism that provides a portion of a judgment debtor’s wages or funds withheld to the creditor instead. In a recent case before the Ontario Court of Appeal, the Court considered the operation of garnishment in the context of a former spouse attempting to collect what she was owed from the sale of their home.
Garnishment as Prescribed in the Rules
Under the Rules of Civil Procedure, garnishment is available to judgment creditors to enforce a payment or recovery of money. There is a specific process involved in garnishing and funds or wages. The credit must first obtain a notice of garnishment from the registrar and then serve it on the garnishee as named in the notice. The garnishee is then liable to pay the sheriff of any relevant jurisdiction the amount in the notice within ten days after the service of the notices. However, suppose the garnishee wishes to dispute the garnishment and pay less than what is provided in the notice. In that case, the garnishee must serve a garnishee statement identifying the reasons for the dispute. The creditor is entitled to bring the matter to a garnishment hearing if the garnishee does not comply with the above; they could obtain an order against it.
The case of Benzacar v. Terk involved considerations of whether a garnishee statement was correctly completed. If not, the garnishee could be liable for the entire debt by law.
Wife Issued Notice of Garnishment Due to Husband’s Failure to Pay
The underlying case was between a former husband and wife, Mr. Terk and Ms. Benzacar. In 2011, Mr. Terk was found liable in the Quebec Superior Court to pay a sum of money that represented the remaining share of the proceeds of the sale of their home. Mr. Terk failed to pay Ms. Benzacar as required by this order. Ms. Benzacar subsequently had the order entered in Ontario as a step to enforce the Quebec order, which Mr. Terk also failed to honour.
Ms. Benzacar had notices of garnishment issued and served on two corporations with which Mr. Terk was associated: 604402 NB Ltd. and 4106971 Canada Inc. Both corporations filed garnishee statements using the form prescribed under the Rules. Mr. Terk signed both garnishee statements, as he was the representative at the time. Crucially, the corporations left several paragraphs blank on the forms; the only paragraph filled out in both garnishee statements was the paragraph in which the garnishee states that they owe no money to the creditor.
The reasoning provided by 604402 NB Ltd. was that “[t]he Company is insolvent and its bank has called in its loans. No alternate sources of funding have been found. The debtor is not taking a salary.” The reasoning provided by 4106971 Canada Inc. was that “4106971 Canada Inc. is a shell corporation with no assets, activity or employees.”
Motion Judge for Judgment in Garnishment Hearing
Ms. Benzacar moved for an order declaring that both corporations are liable to pay the Quebec order and to garnish 60% of Mr. Terk’s wages and other payments made to Mr. Terk through a third corporation, Ego Capital Corp.
The motion judge found for Ms. Benzacar, allowing her to garnish 40% of Mr. Terk’s wages and that 40% of the management fees paid by 604402 NB Ltd. to Ego Capital Corp were to be paid to the sheriff.
However, the motion judge rejected Ms. Benzacar’s submissions that the garnishee statements were incomplete because several paragraphs remained unfilled. As such, the motion judge ruled that the companies were not liable for the entire debt owed to her.
Court Finds that Garnishee Statements Incorrectly Completed
Ms. Benzacar appealed the motion judge’s findings concerning the corporations’ garnishee statements. The Court ultimately found that the motion judge erred when she
“failed to assess 604’s statement against the facts that she had found and in light of the clear message it conveyed as a whole.” The evidence in the proceedings indicated that 604402 NB Ltd. was indebted to Mr. Terk. The Court also noted that the purpose of the first paragraph of a garnishee statement is to indicate that the garnishee has or will owe money to the debtor and any future debts that will be owed to Mr. Terk. The fact that the first paragraph remained incomplete does not reflect that 604402 NB Ltd. owed Mr. Terk a salary and management fee. The statement provided by the corporation was “materially false,”
As such, the Court concluded that the garnishee statement was effectively not a statement at all.
The Court ordered 604402 NB Ltd. to pay the sheriff the amount of the entire debt, less any amounts it has paid to date to the sheriff under the garnishment notice.
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