Pre-Judgment Garnishment: Full and Frank Disclosure is Required
In my previous article, Prejudgment Garnishing Orders: Getting it Right, I discussed how pre-judgment garnishment is available to a party that is owed a debt so as to intercept funds intended for the party they are claiming against. I also discussed how that remedy is considered extraordinary and requires strict adherence to certain requirements.
The recent case, Opus Consulting Group Ltd. v Ardenton Capital Corporation, 2019 BCSC 1847 (CanLII), focused on the level of disclosure required to support and sustain a pre-judgment garnishment order. In Opus Consulting, the plaintiff claimed $186,200.36 for the provision of computer hardware provided and not paid for. The defendant, for its part, alleged that it followed the payment instructions provided by the plaintiff, but that those instructions were seemingly compromised by a “phishing” scam. The result being that the defendant’s payment was alleged to have been intercepted by a third party and such payments had not been recovered.
The defendant informed the plaintiff that it had made payment per the instructions it received, concerns with the potential phishing scam and the defendant’s position that the issues originated on the plaintiff’s end.
The plaintiff denied responsibility for the improper email instructions, demanded full payment of its invoices and commenced litigation when the defendant refused to effectively make payment twice. In commencing its claim, the plaintiff also sought and obtained a pre-judgment garnishment order for the full amount of its claim, served that on the defendant’s bank and obtained the full amount of its claim from the defendant’s bank to be held in court.
Upon learning of the garnishing order, the defendant applied to set the order aside on the basis that the affidavit in support of the order was incomplete and failed to detail the parties’ respective positions and issues related to the apparent phishing scam.
The court held that the obligations of a party seeking garnishment go beyond the minimum requirements of the forms in support of the application for garnishment and included the obligation to disclose the defendant’s position that it had made payment on the alleged debt. The court found that the defendant’s position was relevant and material to the question of whether the garnished funds were justly due and owing. Further, that the issues concerning the phishing scam raised the question of whether there was any debt at all.
The court found that the plaintiff was aware of the issues concerning the phishing scam before it sought pre-judgment garnishment and failed in its obligations to satisfy the broad duty of disclosure of information which is relevant and material to the contents of the affidavit in support of the garnishment order.
The court set aside the pre-judgment garnishment order for the reasons detailed above as well as on the basis that it would be just in all the circumstances to do so in consideration of the arguable defence that the plaintiff might ultimately be responsible for its compromised email system.
Opus Consulting is illustrative of the need to provide full and frank disclosure of the background leading to a request for a pre-judgment garnishment order. The standard of disclosure is high so as to ensure that pre-judgment garnishment is only ordered in appropriate situations.
Opus Consulting is illustrative of the need for parties to ensure that they properly consider whether pre-judgment garnishment is an appropriate remedy, that they identify proper parties to garnish and that materials prepared in support of pre-judgment garnishment are carefully prepared in order to ensure that the order is granted and sticks if challenged. Competent legal counsel experienced in pre-judgment garnishment can assist in each stage of the process.