Civil justice: Where winning doesn't always pay

It is sad to say, but in our civil justice system, winning a judgment doesn't always result in a victory. Thousands of people go to the trouble and expense to sue people and companies and get judgment against them and then discover to their dismay that there is no way that they can get the money that the court has awarded them. In these cases, the holder of a civil court judgment gets nothing more than a piece of worthless paper. The chances of getting a civil fraud judgment satisfied are often slim.

There are several reasons for this. First; after judgment, the defendants file for bankruptcy. Second; they really have no money because they are welfare recipients or living on old age pensions. Third; they are dead beats and no matter how hard you try, you can’t find their bank accounts, their homes are in their spouses’ names and they are self-employed and only get paid in cash.

How can we have confidence in our civil justice system if we don't provide assistance to people to collect the judgments they receive from our courts?

Let me give you an example of the first reason why the plaintiff was unable to collect the court award of $25,000. She was walking about on her property one winter years ago and someone driving a snowmobile while trespassing on her property accidentally struck her with his snowmobile and broke both of her legs. She was hospitalized and later, she had to hire someone to help her with her everyday chores. She was a pensioner.

When she tried to enforce the judgment, she discovered to her horror that he didn’t own any property and that within days after the court awarded her judgment, he filed for bankruptcy. If the accident happened on a public road, she could collect after his bankruptcy was over because until he paid off the debt, he couldn’t be licensed to drive a vehicle on a public road anywhere in Canada. If he got an American licence, it would not be valid in Canada because he still owed the debt which he couldn’t pay until after his bankruptcy was over. Because the accident occurred on private property, she couldn’t benefit from that law. Not only did she not get her judgment, she didn’t get her $5000 legal fees the court awarded her and thus, she had to pay her lawyer’s fees from her savings. She also had to pay $500 to the person who assisted her while she was temporarily disabled.

Incidentally, even if you get a judgment against a company, that company can file for bankruptcy and start up a new company with a new name and at the same time, remain in its same premises. Often the name will be similar with only a minor change. Further, they will have Bell Information refer the old customers to the new business so in effect; the dead beats that ran the old company aren’t really out that much money.

What follows, is an example of the second reason why the plaintiffs don’t get their money after the court awarded them the money. Several years ago, I represented a man who won his case against a defendant for defamation of character. When my client tried to collect the $6,000 from the defendant, (who incidentally was a well known deadbeat) my client was unsuccessful.

The deadbeat was a welfare recipient because of an injury he suffered from years ago. In Ontario, you cannot garnishee welfare payments. This also applies to old age payments and Canada pensions. Not only did this deadbeat not pay other judgments against him, he sued people over nothing and after he lost his cases and was ordered to pay the costs of the defendants he sued, he didn’t even pay the costs as ordered by the court. And to make matters even worse, because he was a welfare recipient, he took advantage of the law that permits welfare recipients and old age pensioners the right to sue without paying the court its fees. Rather than discourage the filing of lawsuits, the system allows deadbeat plaintiffs to sue involving trivial reasons without worrying about the expense.

I should add however that if a defendant who is sued has reason to believe that the plaintiff has very little money to pay the defendant’s legal fees if the plaintiff loses his case, the defendant can ask the court to order that the plaintiff pay into the court, a sum which in the judge’s opinion, will be about the same as to what the defendant’s lawyers fee will be. That often puts a stop to a frivolous suit. However, if the judge feels that the plaintiff’s case has merit, he will not issue that order. To issue such an order is cases like that would in effect deny poor people their right to sue on meritorious cases.

Further, if a defendant can prove that a plaintiff has repeatedly sued defendants and his cases have had no merit, he can ask the court for an order that is passed onto the court office that the plaintiff can no longer sue anyone without first appearing before a superior court judge and satisfying the judge that his case has merit.

Here is an example of the third reason why judgment creditors can’t collect the monies awarded to them. A company called iTrade Finance Inc. was in the export finance business, and it discovered to its horror that it was the target of a 34-year-old fraudster named, Roy Ablacksingh. This commercial deadbeat spearheaded a sophisticated fraud on iTrade starting in 2002 through a company called Webworx in which Ablacksingh was the president. Webworx falsely claimed to be owed millions by the U.S. firm Weyerhaeuser Co. and sought advances on the bogus receivables from i Trade. By the time the fraud was discovered in 2003, iTrade had been defrauded of about $8 million. The fraud was uncovered by forensic accountants and lawyers hired and paid for by iTrade. The company was left as a shell; its only value was as a tax loss. Instead of the business growing, all 18 employees were laid off as a result of the fraud committed against it and it was also out the money it paid the forensic accountants and its lawyers.

In September 2006, iTrade obtained a civil judgment against Ablacksingh and another man requiring them to pay back the $8 million. Obtaining the judgment however was no simple task as Ablacksingh put iTrade through interminable and complex procedural hoops.

Thus far, Ablacksingh has not paid any part of the judgment, although $54,000 was recovered from the other defendant. Unfortunately, that hardly put a dent in the legal and accounting fees of about $2 million incurred in investigating the fraud and taking legal action.

In January 2007, Ablacksingh was sentenced to four and a half years in prison for the fraud. However, he served his sentence at Beaver Creek, which is a federal prison that is not unlike living in a resort. Ablacksingh was granted full parole by the summer of 2008, in spite of an objection filed by the former president of iTrade. This tells you something about Canada’s parole system.

Now his defunct company been left on its own in its quest to get its $8 million judgment satisfied. As to collecting the court award, the owner of the now defunct company has no real chance to get any of the money. The fraudster has no known assets.

Admittedly the iTrade case is not the norm. But there's no reason why the system shouldn't make it easier for judgment creditors like iTrade to collect, without having to incur huge legal fees.

The trouble in the enforcement of judgments in 2008 is remarkably similar to the enforcement of judgments a hundred years ago. There's simply no court or government office that assists in the collection of judgments. There are no central registries where you can register a judgment and get a lien on all of the judgment debtor's assets if you can’t fine them.

It's too easy for judgment debtors to arrange their affairs so that they have no assets in their name. It's also too easy for assets to be hidden from judgment creditors. One thing the deadbeats can’t successfully do is to turn their assets over to someone else after being sued and expect that those assets won’t end up in the plaintiff’s hands. The court will treat the transfer of ownership of the assets as null and void and then permit the plaintiff to seize the assets from the party to whom they were transferred.

Trying to find the judgment debtor's assets can turn into a game, where you first have to find him to serve him with legal documents to compel him to attend and answer questions under oath. Such a procedure is called an ‘examination’. Refusal to attend or to answer questions truthfully leads to motions and more legal fees. Of course, it can also lead to the nearest jail if the judge is satisfied that the judgment debtor is avoiding service or is lying under oath with respect to his assets.

You end up bringing contempt motions against the judgment debtor at considerable expense. You could actually spend more money trying to collect on a judgment than you did in getting the judgment. At some point, many of the judgment creditors finally give up and the judgment debtor walks away grinning.

Unfortunately we don’t have debtor’s prisons anymore so there is no real way that anyone who obtains a judgment against a deadbeat whose assets are non existent or hidden. I might add however that years ago when I got a judgment for one of my clients, I attended a judgment debtor’s examination in which the debtor had previously promised the court at a previous examination that he had four thousand dollars in the bank and would pay it within a few days. During the second examination held a month later, the judge told him that he would give him two hours to get the money and come back to the court with a certified cheque for four thousand dollars payable to my client. If he didn’t, the judge would issue a committal order for ten days in prison. The debtor returned an hour later with the certified cheque.

A judgment debtor will have a very hard time getting credit since his name and the unpaid judgment will be listed with credit bureaus across the country. This means he can’t borrow money to buy a car, can’t get a mortgage to buy a house, and he won’t be getting any new credit cards also. He may get these goodies after he has paid the monies awarded to him by the court plus the accrued interest. Some judgment creditors get their money this way but few of them are that successful.

In the United States, where each side typically pays its own costs, decisions about whether to proceed or settle are made in light of anticipated expenses. In a system (such as in Canada and England) where the loser pays not only its own legal fees but also the legal fees of the winning side, a party with a strong case has less incentive to compromise because costs are shifted to the other side. The defendant can no longer cut losses by convincing the plaintiff to weigh the costs of proceeding and accept a discounted settlement.

In practice, then, life is not as simple as loser-pays policy advocates would like to believe. England has had a loser-pays system for centuries. While there have been some changes recently, overall the system's results have varied according to the litigants' wealth and the source of funding for lawsuits. For example, before the changes, English law prohibited a successful defendant from recovering its costs if the plaintiff was receiving legal assistance from the government. A litigant who had legal insurance under a homeowner's or auto policy or even, in effect, through union membership, could expect the insurer to cover the risks of losing. Generally, loser-pays policy makes little difference to people who have few resources and therefore little to lose

Under Alaska's rules, losers have to pay a portion of the winning side's costs. A study of the rules found that rather than reducing litigation, they often increased the amount of settlements, because the expenses at stake increased the value of a winning case. Litigation did not decrease, in part because so many Alaskan plaintiffs were poor. They were not dissuaded from suing by loser-pays rules, because they could not in any event pay a victorious defendant's costs.

Despite the failure of loser pays to achieve the desired results, the system attracts a lot of support from critics of litigation. One reason is that it appeals to people on an intuitive level: Why should someone who has been injured bear the cost of seeking redress, and why should someone who is wrongly accused of having caused injury bear the cost of securing vindication?

There are certainly many defendants who feel that they have been unfairly sued, but that does not mean the suits were frivolous. Lawyers paid through a contingency fee are unlikely to take a case that has little merit, because they do not want to waste their time or money. Research shows that at least half, and probably more, of the potential cases brought to contingency-fee lawyers are declined by the lawyers because the claims are frivolous.

And how would a successful judgment creditor collect his money in a case involving multiple defendants? A surprisingly high number of lawsuits involve finger-pointing among defendants. There may be no doubt that a plaintiff was injured due to one or more parties' negligence, but it may be unclear to which degree each of the of defendants is responsible, or what share of responsibility each defendant should assume. Who should bear the costs of litigation among defendants? What happens when some defendants are exonerated and others held liable? Should the successful defendants' costs be paid by the plaintiff or another defendant?
Often the court will assign the court award based on the liability of each defendant. One defendant may have to pay ten percent whereas another defendant may have to pay forty percent and the remaining defendant to pay the remaining fifty percent.

Surely, the courts should be assisting litigants who have gone through the time and expense of obtaining a court judgment. When a court judgment or order is ignored, civil society is weakened and there are innocent victims.

Alas, I can’t think of a way in which successful litigants can collect their awards from dead beats and bankrupts.