The New Brunswick Judgment Enforcement Act: has its time finally come?

• Author: Gleixner, Micheline A.
• Position: 4. NBJEA Administration and Enforcement Initiation 4.2.3 Priority of an Enforcement Charge through 6. Conclusion, p. 315-351 - University of New Brunswick Law Journal Forum: Access to Justice

4.2.3 Priority of an enforcement charge

Contrary to other provinces, there is no need for a substantive reform of the law governing priorities in New Brunswick, since: "when New Brunswick adopted its PPSA, reform of judgment enforcement law was in the air, enabling it to take the next logical step in the evolution of the law governing priority between judgment creditors and secured parties". (142) Although a review of the current law on security interests and their interaction with other interests or encumbrances on the debtor's property may be appropriate given that the PPSA already dates back to 1995, an in-depth analysis of the priority schemes contemplated by the PPSA and the Land Titles Act is beyond the scope of this research project and the authors are not aware of any major issues in need of reform.

The law in New Brunswick currently provides that an enforcement charge created by the registration of a judgment has the same priority in relation to both prior and subsequent interests in the judgment debtor's property charged as a perfected security interest, other than a PMSI, as defined by the PPSA. (143) This rule, which is present in all legislative reforms on judgment enforcement law in the country, should continue to guide the NBJEA's priority scheme.

As a result, unlike other provinces, the NBJEA and the rules for determining priority between an enforcement charge and other interests in the judgment debtor's property can be modeled on the provisions of the province's current objectives of the Creditors' Relief Act and the legislative provisions of the PPSA and the Land Titles Act, thereby easing the implementation of the NBJEA in the province. It is the opinion of the authors that these enactments provide for effective methods of determining priority among encumbrance holders. Given the case with which New Brunswick can streamline all three legislative regimes dealing with security interests and their enforcement, it is recommended that the NBJEA make the priority rules of the PPSA and the Land Titles Act, which are applicable in determining the priority of a perfected security interest, applicable to determining the priority of an enforcement charge created in relation to other security interests except as otherwise provided in the NBJEA. (144)

Notwithstanding the goal of consolidation and simplification, a new judgment enforcement process should have a set of clearly established rules to govern priorities of enforcement charges in a judgment debtor's property. (145) Reference to applicable legislation, such as the PPSA, should be clearly established in the NBJEA, as has been done in the Saskatchewan Act. (146) The importance of this consolidation of rules is further apparent when one considers that the rights of secured and non-secured creditors are subject to the statutory priorities of preferred creditors originating in several legislative enactments. (147) As a result, the determination of priority ranking for judgment creditors in New Brunswick remains an endeavour requiring the reconciliation of several pieces of legislation all enacted for varying purposes.

The authors therefore advance once again the 1976 recommendation that:

any statutory priorities which do exist, like the existing priorities of employees and landlord, be incorporated [... in the judgment enforcement legislation] to show clearly their relationship to the distribution of moneys under the Act, and that the provision be made to ensure that such priorities are not affected by the person entitled to priority delivering [of a Notice of Enforcement.] (148) Such an approach is found in the Saskatchewan Act, which specifically provides that an enforcement charge is subordinate to a landlord's right of distress exercised before the enforcement charge came into existence. (149)

Although the PPSA also establishes the priority of liens (150), of PSMIs (151) and of buyers and lessees of the judgment debtor's property in the ordinary course of business (152), these should be fine-tuned in the NBJEA to provide for enforcement charges. In addition, several interests will need further examination to be adapted to the NBJEA, such as future advances (153), fixtures and growing crops (154) as well as negotiable instruments and chattel paper. (155)

It is further recommended that the NBJEA follow--albeit with a few modifications (156)--the guiding principle of collective enforcement, leading to the proportional sharing among judgment creditors. This principle is expressed by the statutory rule that nothing in the relevant part of the NBJEA dealing with priorities creates a priority between or among enforcement charges. (157) As a result, subject to certain allowed costs and preferences, the balance of a distributable fund is distributed among all eligible claims on a pro rata basis. A lack of priority between judgment creditors is a just and equitable approach to distribution given the economic and physical realities faced by judgment creditors in completing the judgment enforcement process. Departure from a sharing system does not appear to be warranted and the sharing system offers many benefits: (158)

a) Because delay in initiating enforcement proceedings is less likely to prejudice the priority of creditors' claims under a system of pro rata distribution, creditors may be encouraged to extend additional time to debtors for the payment of their debts.

b) Pro rata distribution may reduce the incentive of creditors to petition a debtor into bankruptcy as a means of attaining a pro rata sharing of a debtor's assets. Because of the high up-front costs that creditors must incur to petition a debtor into bankruptcy, this is not an economically viable option for creditors with relatively small claims to attain pro rata distribution.

c) Having been a hallmark of creditors' relief legislation in Canada for one hundred years, pro rata distribution has been reaffirmed in the enactment of modern judgment enforcement legislation.

While it may be appropriate to reward secured creditors for their initiative in registering a security, this concept of reward does not correspond with the varying realities faced by judgment creditors in completing the judgment enforcement process. Some judgment creditors may face years of litigation to obtain a minimal award while other judgment creditors may easily obtain a default judgment on issues of complex law simply due to the fact that the defendant did not have the material and physical resources to defend the claim. It is thus inappropriate to assign priorities between these two sets of encumbrance holders based on time alone.

The NBJEA will therefore need to address the priority relationships among interests in seized property, in particular between enforcement charges and security interests. Under current judgment enforcement law, as well as the recommended rule for the NBJEA, the priority of intervening secured creditors is preserved notwithstanding the absence of priority among enforcement charges. As explained by the ULCC: "if a security interest in property is registered after the creation of an enforcement charge and a subsequent enforcement charge is created after the registration of the security interest, the security interest is not subordinate to the second enforcement charge merely because it is subordinate to the first enforcement charge". (159) Nonetheless, an interest in property that is subordinate to an enforcement charge is subordinate only to the extent of the amount recoverable under the judgment to which the enforcement charge relates at the time enforcement proceedings are taken against the property. (160)

4.2.4 Initiation of the enforcement process--Notice of Enforcement

Although the current scheme of support and maintenance orders provides for automatic enforcement procedures as soon as the order or agreement takes effect, the same policy reasons do not apply to the enforcement of civil judgments. In fact, there is an overwhelming consensus that the initiation of an enforcement procedure should require some positive step by judgment creditors. According to section 40 of the Uniform Act, a "judgment creditor who wishes to initiate an enforcement proceeding must deliver an enforcement instruction to an enforcement officer" and "identify the enforcement proceedings that the enforcement officer is requested to undertake". Similarly, the Saskatchewan Act further requires "a description of property known or believed by the judgment creditor to be property of the judgment debtor, and the location of that property" along with a registry search and specified serial numbers of any goods to be seized. (161) Under these enforcement systems, the enforcement officer is not required to implement any enforcement measures unless the sheriff has received proper enforcement instruction according to these acts. (162) In addition, an enforcement officer is authorized to refrain from taking an enforcement proceeding until he or she receives a satisfactory undertaking or security for the payment of the enforcement officer's fees and estimated expenses relating to the enforcement proceeding, unless the court orders otherwise. (163)

Notwithstanding the creditor-driven approach of the Uniform Act, an enforcement officer may decline to undertake an enforcement proceeding should the enforcement instruction be contrary to the Actor a court order, or if it cannot be undertaken in good faith and in a commercially reasonable manner. (164) In the Saskatchewan Act, a sheriff may refuse to proceed as instructed if the requested measure is not commercially "reasonable or practicable", is "not permitted by law" or if all of the requirements of the Act have not been met. (165) As commented by Cuming: "[t]o use a method of enforcement involving high costs that produces little or nothing to be applied to the judgment would be to act in a commercially unreasonable manner". (166)

The enforcement officer is therefore...