Canadian Law Blawg

Getting Paid

By: Marc Huber and Aaron Harnett

Perhaps, the most frustrating part about running your own business is not getting paid for the work you have done.

You’ve sent bills. Calls about your unpaid accounts have been ignored. As a last resort, you can always sue. If the debt is less than $10,000.00, you can represent yourself in Small Claims Court. Despite the aphorism about people representing themselves, Small Claims Court is intended to be a dispute resolution system where lawyers are not needed. While there is a lot of paperwork, starting a lawsuit on your own is not an extraordinarily daunting task. On the other hand, if you are motivated enough, and have the resources, being a professional advocate, a lawyer will do the most effective job of representing your interests in Court.

With or without a lawyer, you should assemble all of the relevant documents relating to the case such as invoices, letters and notes, or recordings, of any telephone calls. A corollary business practice ought to be regularly filing such materials in an organized fashion in case they’re ever needed. It’s also a good idea to spell out the interest rate for unpaid accounts on invoices stating the rates on a monthly and per annum basis. Of course, an even better preventative measure is ordering a credit check on your clients before credit is advanced. New customers should complete a standard credit application disclosing their financial arrangements along with authorizing the disclosure of their financial circumstances through a consumer reporting agency.

If regular credit checks are not economically-viable, self-help options are available. Clearly, it’s much more prudent to undertake steps to mitigate the possibility of being stiffed, than being a regular actor in the court system. You can do your own secured creditor searches through Ontario’s Ministry of Consumer and Commercial Relations. Such a search can reveal that a company’s provincial sales taxes are not being paid; or, an overwhelming amount of other creditors’ debt pledged to assets. You can also obtain searches through law firms, or court, to determine if a new customer has a history of unpaid judgments, or is frequently sued. There are additional public records available that can be searched to provide a cursory snapshot of a new customer’s financial health. Another prudent, defensive strategy is copying all incoming cheques in the event of a subsequent default. Since the hardest part about litigation is collecting, knowing a defendant’s banking arrangements can often be quite useful.

A plaintiff commencing a Small Claims Court claim must pay a $50.00 filing fee to the Small Claims Court when the plaintiff’s Claim is issued. Unlike other courts, evidence is attached to the Claim. The Claim should recite the history of your involvement with the customer. A claim for a debt would seek damages for breach of contract and damages for unjust enrichment. Of course, anyone with a claim for damages (like an injury or wrongful dismissal) can sue in Small Claims Court, too.

Once a claim has been issued, a plaintiff must serve the claim in accordance with the Small Claims Court Rules. Claims can be served by mail. Contemporaneously with serving the claim, you should file an Affidavit Establishing Proper Forum, an additional court form relating to the Court’s jurisdiction to hear the case.

If you do decide to hire a lawyer for a Small Claims Court case, you won’t recover anything near the full amount of your legal fees. In Small Claims Court, there are substantial costs ceilings on the amounts awarded for legal fees. In order to mitigate fees, most lawyers start the process, by sending a demand letter to a potential defendant threatening legal action.

A defendant has 20-days to serve a Statement of Defence after it’s served. Subsequently, a Reply to the allegations contained in the Statement of Defence can be served. After this exchange of pleadings, the Court will schedule a Settlment Conference as an attempt to settle the dispute without further litigation. Quite often, this process is successful.

Depending upon the merits of the defence, a plaintiff also has the right to short-circuit this path (and the ensuing trial), by bringing a motion to strike the defence on the basis that it does not disclose a reasonable defence. This can be an economical and effective tactic. While a trial could easily last longer than a day, such a motion could be heard in a time span of less than two hours-and potentially on the phone. A claim with strong supporting evidence has a much better chance of success on this front – again demonstrating the importance of diligent record keeping.

There have been substantial amendments to the Small Claims Court Rules designed to accelerate the process. For example, certain motions may be made to the Clerk of the Court. Some of these motions include amending a claim or defence, adding/deleting/substituting a party, or setting aside a noting in default. Further, motions and settlement conferences can occur by telephone or video conference, by filing a request with the court.

In an undefended action, a plaintiff has 6-months to note a defendant in default and obtain a default judgment; otherwise, the lawsuit will be dismissed by the court as abandoned. Similarly, in a defended action, a settlement conference must be completed within 150 days of the filing of the first defence. A motion to a Clerk can restore a matter that was dismissed on this basis.

If a defendant has not defended the claim within 20 days after service, the plaintiff must request that the Court note the defendant in default. Subsequently, a default judgment for liquidated damages (such as an unpaid account) can be obtained on an over-the-counter basis from the court. To obtain judgment for unliquidated damages (such as an injury), a motion in writing for an assessment of damages must be filed with the court. If the evidence presented through the motion’s supporting affidavit is not satisfactory, it is possible that the Court will order the filing of additional affidavits; or, schedule an assessment hearing for a trial of damages. At such a hearing, liability is not an issue but the plaintiff must prove the quantum of damages sought in the claim.

Even if a party has a lawyer, parties must appear at Settlement Conferences. While judges can make a substantial amount of procedural orders at Settlement Conferences, such as amending a claim or even dismissing a claim, the primary purpose of a Settlement Conference is to simultaneously encourage settlement of the action and to assist the parties to prepare for trial. At a Settlement Conference, the parties’ lists of witnesses are presented and the Court ensures that proper disclosure of documents has occurred. Judges at Settlement Conferences are often proactive and make recommendations to the parties relating to the lawsuit.

In order to list a lawsuit for trial, a plaintiff must file a trial request form and pay the court another $100.00 filing fee. Generally speaking, it is not uncommon for a lead time of 12-18 months from the time a claim is issued to the date a trial is heard.

In Ontario, a judgment is enforceable for 20-years. As a partial saving grace, post-judgment interest is always calculated on the unpaid debt until it’s paid. Meanwhile, on an annual basis, you can compel a judgment debtor to attend an examination in aid of execution to provide disclosure of their financial affairs and determine their ability to honour the judgment. Writs of seizure and sale can be issued against judgment debtors’ vehicles, some of their personal property and their homes. Yet, at that point, there is a good possibility that most debtors would rather pay the judgment instead of continuing to subject themselves to the process of the Court.