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Commercial Debt Collection in Canada: A Legal Handbook
Toronto: Canada Law Book, 2012
Familiarize yourself with all books of law and, for as long as you are a merchant, familiarize yourself with the Birka code. If you are familiar with the law, you will not be the victim of injustice when dealing with your equals, and you will know how to answer all matters in a lawful manner. *
The above quotation was referred to in David Franklin’s book on International Commercial Debt Collection (2007) and his book on International Commercial Secured Transaction (2010), both with Thomson Reuters.
Whereas the first two books deal with creditors rights in an international perspective, this book deals solely with Canada. Nevertheless, the above quotation also applies. There are ten provinces in Canada and three territories, each with separate rules of procedure. There are two distinct legal regimes, namely the common law and the civil law of Quebec. Furthermore, the non-Canadian reader is presumably not familiar with Canadian law, so the quotation is particularly apt.
As the focus of this present book is on decreasing trade risk by understanding the procedures available for trade creditors, this overview of the Canadian jurisdictions provides a timely and practical guide to enforcing creditor rights.
The analysis by commercial lawyers of various topics and provincial jurisdictions is practical not only for exporters involved in cross border and inter-provincial commerce, but also for attorneys, export insurers and financial institutions, and collections agencies whose clients conduct business in Canada.
In the previous Books on international debt collection, there was the caveat that needs to be repeated, namely that this handbook is intended as merely a guide and a brief non-comprehensive summary of various legal jurisdictions, and all readers are invited to communicate with the various contributors to the book for more detailed information
* Excerpts from the King’s Mirror, The Vikings’ Guide to Good Business. Translated from the original 13th century text by Bernard Scudder. Published by Gudrun 1997. The Birka code is basically a legal code, being the oldest civil law in Scandinavia dealing with trade.
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Debt Collection & Criminal Law in Canada
Victims of crime who suffer a financial loss as a result of criminal conduct have the right to seek financial compensation in the form of court ordered restitution from an offender. Restitution in criminal law is available to victims of crime under sections 738-741.2 of the criminal code.
Restitution occurs when an individual (corporate or otherwise), convicted or discharged of an offence, compensates the victim for the financial damages that they may have incurred. It must be noted that restitution, unlike in the civil system, is a sentence after a finding of guilt.
Types of restitution orders
There are three manners in which restitution may be ordered in Canada:
- Stand-alone orders imposed in addition to another sentence (section 738 of the Criminal Code);
- Ordered as a condition of a probation order (section 732.1(3.1)a) of the Criminal Code); and
- As a condition of a conditional sentence of imprisonment (section 742.3(2)f) of the Criminal Code).
In Canadian criminal law, the courts will only consider restitution in appropriate cases, taking into consideration the fundamental principles of sentencing and the individual facts of a case. Restitution is often considered a right that victims may have in the sentencing process. It may be ordered with respect to:
- The destruction or damage to property. An offender can be ordered to pay to persons whose property was either lost or destroyed the replacement value of the property, provided that the damage, loss or destruction of the property was the result of the commission of the offence or of police intervention while responding to the offence. The amount to be reimbursed to the victim cannot exceed the replacement value of the property at the time the order is made.
- An offender may be ordered to pay monetary damages, including loss of income and support, to a victim who has suffered bodily harm as a result of the commission of a criminal offence or police intervention.
- Monetary damages associated with moving out of a household shared with an offender in cases of bodily harm or its threat. The order would necessarily compensate expenses incurred by a spouse, child or other individual who is a member of the offender’s household, for temporary housing, food, childcare and transportation.
- Ascertainable pecuniary damages as a result of psychological harm caused by an offence.
- Compensation to third parties acting in good faith that incur a loss as a result of criminal conduct (section 739 of the Criminal Code). This section permits the court to order restitution to an individual who has purchased property in good faith and without notice that said property was obtained by the commission of an offence (usually fraud or theft), and where the property has been returned to its lawful owner. This section also gives the court jurisdiction to render a similar order to an individual that has loaned money to an offender on the security of the impugned property provided that the person was acting in good faith and without notice.
Inquiry as to loss
It is important to note that the criminal courts will only intervene and order restitution if the quantum of the loss is readily ascertainable. In R. v. Zelensky,  2 S.C.R. 940, the Supreme Court of Canada made it clear that restitution orders fall under jurisdiction of the criminal courts because they are part of the sentencing process. The Court noted that such orders are only appropriate when the amount of the loss is easily quantifiable. The Supreme Court addressed this issue in R. v. Zelensky when it stated the following at page 963:
Section 653 does not spell out any procedure for resolving a dispute as to quantum; its process is, ex facie, summary but I do not think that it precludes an inquiry by the trial judge to establish the amount of compensation, so long as this can be done expeditiously and without turning the sentencing proceedings into the equivalent of a civil trial or into a reference in a civil proceeding.
The Crown has the onus of demonstrating that the amount claimed relates to the offences for which the accused has been convicted or discharged. With regards to reimbursement for the loss or destruction of property, restitution of any loss is limited to an amount not exceeding the replacement value of the impugned property. Accordingly, the Crown has the evidentiary burden of establishing the actual loss as well as the replacement value. If such evidence is not provided to the court, there is no basis to a restitution order. There seems to be conflicting jurisprudence vis-à-vis the recovery of incidental damages such as legal fees and disbursements.
In the earlier versions of the Criminal Code provisions governing restitution, the person having suffered the loss made the application for a restitution order. However, pursuant to the current provisions of the Criminal Code, an application for restitution is invoked by either the Crown or the by the court on its own motion. Accordingly, the victim has no standing to petition the court to render an order for restitution.
Enforcing a restitution order
Although an order for restitution is made by a criminal court as part of an offender’s sentence, it does have certain similarities to an order made in a civil court. The Criminal Code provides relief under section 741 for creditors of restitution orders that are not complied with. If an offender does not comply with the terms of a restitution order, the victim can file the order in a court of civil jurisdiction and use the enforcement methods available in civil law to collect the monies owed by the offender. For example, bank accounts may be seized, wages may be garnished and liens may be placed on property.
Restitution and civil remedies
In R. v. Zelensky, the Supreme Court emphasized that the restitution provisions in the Criminal Code should not be used as a substitute to civil proceedings under provincial legislation. The Court stated the following at page 962:
I wish to dwell further on the course of proceedings in this case in order to provide some guidance to trial judges on the proper application of s. 653 and in order to make clear that s. 653 is not to be used in terrorem as a substitute for or a reinforcement for civil proceedings. Its validity is based, as I have already said, on its association with the sentencing process, and its administration in particular cases must be limited by that consideration.
The Court left open the question of whether an application for an order of restitution constituted an election against civil proceedings, specifically if a victim is only partially compensated. Parliament seems to have clarified this question by enacting section 742.1, which states that:
A civil remedy for an act or omission is not affected by reason only that an order for restitution under section 738 or 739 has been made in respect of that act or omission.
Accordingly, a restitution order does not operate as res judicata to the institution of civil proceedings for incurred damages. Conversely, a civil judgment awarding damages to a victim does not prohibit a court of criminal jurisdiction to order restitution when sentencing an offender. However the courts should be mindful that double recovery ought to be avoided.
Restitution can be used to accomplish many of the objectives of sentencing in Canada. From a debt collection perspective, its importance rests in the courts ability to compensate victims of crime for the financial losses they have suffered. While civil proceedings can be lengthy and expensive, the cost of redressing financial loss as a result of a criminal offence (in a criminal court) is not borne by the victim. While one should not use the criminal courts as a substitute for civil proceedings it may be wise, in appropriate circumstances, for one to consider criminal proceedings as a means of redressing ones loss through issuance of a restitution order.