It’s Time to Amend the Bank Act So Clients Can Collect on Judgments

Ontario utilizes a “loser pays” legal system in which the losing party is usually ordered by the court to pay a portion of the successful party’s legal fees. As a result, regardless of who wins, someone ends up with a piece of paper requiring the other party to pay money.

Assuming that the losing party does not voluntarily cut a cheque, a bank garnishment ought to be the most straightforward and direct means to collect. I emphasize the word “ought”.

Put simply, once a bank is served with a Notice of Garnishment it is required to seize any funds the debtor holds at the bank and pay those funds (up to the amount owed to the creditor) to the sheriff. Ultimately the sheriff hands the money over to the creditor.

The catch is that in order to garnish the account, the creditor must serve the Notice of Garnishment at the branch where the debt is payable. If the creditor does not know the branch location then they are out of luck.

For example, the debtor may have $1 million dollars in a savings account at TD Canada Trust. However, if the creditor serves the Notice of Garnishment at the main branch, and the debtor’s “branch of account” is actually a different branch just around the corner from the main branch, then the bank is not required to garnish and pay the funds over to the sheriff.

From a practical perspective, this means that if the creditor does not have any banking information for the debtor they have limited options.

The creditor can require the debtor to attend an examination and disclose his/her banking information. However, debtors often fail to show at these examinations and when they do they are often not very forthcoming. The result is more time and money wasted while the creditor returns to court to compel proper answers.

The creditor could also take a shot-gun approach and try to garnish different branches. While this may work in small rural areas, in larger urban centers there can be hundreds of bank branches which makes this approach cost prohibitive.

All of this got me to thinking, why on earth is it necessary to locate a specific bank branch. The answer, it seems, was that this was initially required to make lives easier on the banks!

This case from 1981 discusses why the Bank Act created this requirement. At paragraph 32 the court states

“The subsection was necessary to protect the bank against garnishing orders issued, say, in Victoria when there was an account, say, in Halifax. The bank would be bound, upon receiving each garnishing order, to search the records of every branch in Canada and probably out of Canada, a quite impractical proposition. What need be done now is to search only the branch at which the garnishing order is served. If there is found to be neither property in the possession of the bank belonging to the person garnisheed nor moneys to the credit of that person, the bank need not search further.”

I agree that in 1981 having a bank search the records of every branch in Canada was likely “a quite impractical proposition”. However, over 30 years later one has to think that banks could, from a central location (or any location for that matter), easily search all of their records to see if the debtor has any accounts at any branch across the Province or Canada.

A simple amendment to s. 462 of the Bank Act could radically improve the way that litigants are able to recover sums of money that the courts have awarded to them.

Instead of hunting for specific branches, litigants could easily take a shot-gun approach and serve all of the major banks.

Recovery prospects would increase dramatically. Enforcement costs would be reduced drastically given that litigants would only be paying fees associated with issuing 5 Notices of Garnishment as opposed to 500.

 

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