Garnishees made jointly and severally liable for entire judgment debt

In Vaillancourt v. Carter, the Alberta Court of Queen’s Bench allowed a judgment creditor’s application¹ under the province’s civil enforcement statute to make certain entities who were served with garnishee notices jointly and severally responsible for the judgment debt. The case involved three entities – a corporation, a partnership, and a trust – created by the judgment debtor to hold the debtor’s exigible assets and cash.  

The garnisheed entities took the position that their assets were not available to satisfy the judgment, even though the garnishees were effectively shell entities established for the purpose of avoiding judgment by holding cash and assets received from the judgment debtor while simultaneously funding and supporting the judgment debtor’s lifestyle. 

Background

The plaintiff (Vaillancourt) had judgment against the defendant (Carter); her efforts to collect on that judgment were stymied, including by Carter’s misleading statutory declaration and refusal to disclose information and records to aid Vaillancourt’s enforcement. Ultimately, Carter assigned himself into bankruptcy and represented to his trustee in bankruptcy that he owned virtually no assets and could not pay his debts, including Vaillancourt’s judgment.  

The court reviewed some of this history, and characterized Carter’s actions as an attempt to “judgment proof” himself through the strategic use of a corporation, a partnership, and a trust. However, based on the ongoing support these three entities offered Carter, including funding his lifestyle both directly and indirectly, Vaillancourt issued garnishee summonses to the garnishees, pursuant to section 78 of the Alberta Civil Enforcement Act (CEA). 

The garnishees did not respond to the garnishee notices within the statutory deadline; when they finally did respond, they denied, without grounds, that they owed any obligation to Carter and refused to pay any funds into court. 

Vaillancourt applied, pursuant to s. 84(1)(b) of the CEA, to enforce the judgment directly against the garnishees for failing to comply with their duties under the CEA. 

Garnishees argue an “obligation” is a “debt” and they aren’t debtors

The garnishees argued the term “obligation” in Part 8 of the CEA has a narrow meaning, and simply means a “debt.” They argued their payments and services to Carter were not for a debt owing, and as a result, they had no obligation that could be subject to a garnishee summons. 

The court rejected this argument, reasoning that the word “obligation” has a broader meaning under the CEA as a “legal or equitable duty to pay.”  If the legislature had intended for “obligation” to simply mean “debt,” it would have said so.

The court was satisfied that the garnishees each had current and future obligations to Carter, as those terms are defined in the CEA. The court noted that bank deposit accounts are garnishable under the CEA, and found that Carter’s use of the garnishees’ cash and assets was similar to a bank account: the garnishees held the assets, but made them available to Carter (both directly and indirectly) when they were needed to fund his lifestyle.  On that basis, the court found the garnishees to have both past and present “obligations” to Carter within the meaning of the CEA. 

Garnishees were merely the debtor in disguise 

The court found that the garnishees were shells designed to shield Carter from his debts. Carter had transferred his personal assets – including his primary residence – to the garnishees in a series of transactions that pre-dated the issuance of the summonses. The court noted there was “no apparent purpose for these transactions other than to thwart the authority of court judgments and evade payment of just debts.”²  

In the time since the garnishee summonses were served, the garnishees made significant payments and provided substantial benefits to Carter. Hundreds of thousands of dollars had flowed, directly and indirectly, through the garnishees to Carter, including for paying personal income taxes, legal fees, child support, and credit cards. Carter paid no rent or other consideration for using a home and luxury vehicles the garnishees owned. 

Subsequent to Carter’s assignment into bankruptcy, payments on his behalf began to be recorded in the garnishees’ accounting records as payments to his sons; however, the nature of the payments did not change. The court found that these payments accrued to Carter’s benefit; the suggestion that the garnishees had made gratuitous payments to him was “ludicrous.”

Court orders garnishees to pay judgment in full

As Carter was treating the garnishees as a personal bank account, the court reasoned that “so too will the law treat them like a bank account, subject to the CEA and the authority of a garnishee summons.” The court held that the garnishees had obligations to Carter, and that these were garnishable.  Therefore, the garnishees violated the CEA when they falsely declared they had no obligations to Carter and failed to pay monies into court. 

The court held that a remedy under s. 84(1)(b) of the CEA “must be proportionate.”  In this case, it was “entirely proportionate” to grant judgment against each of the garnishees, jointly and severally, for the full amount of the judgment in these circumstances.  The court held that there was “no basis to treat [the garnishees] differently than the judgment debtor himself.”

Takeaways

This decision confirms that where a judgment debtor transfers assets into shell entities designed for the purpose of judgment-proofing him or herself, but continues to receive benefits and payments from those entities, a judgment creditor will have the right to serve garnishee notices and enforce against the benefits received by the judgment debtor. 

Where the garnishees fail to comply with the provisions of the CEA, the court is prepared, where that remedy is “proportionate,” to make the garnishees jointly and severally responsible for the entire judgment amount.  In this case, the garnishees were “nothing more than shell entities” and the court found the remedy of joint and several liability under s. 84(1) of the CEA to be “entirely proportionate.”

This may provide additional remedies and recourse to judgment creditors who are confronted with debtors whose exigible assets are evidently not sufficient to support their lifestyles.