A Roadmap To Litigation And Debt Collection In Ontario

Understanding the basics

Before diving into the specific steps of litigation and debt collection, it's crucial to grasp the fundamental principles that govern these processes in Ontario.

How are court proceedings started? Generally, across Canada, a civil claim is a lawsuit between two parties who have a disagreement about a legal matter (e.g. over outstanding invoices). "Claim" means a civil action to remedy an injury, loss or damage that occurred as a result of an act or omission. A civil claim can be started by an action or an application where the judge makes a decision.

Where are proceedings commenced? The first step is to determine court the action should be commenced in. Claims of $35,000 CAD or less must be initiated in your local Small Claims Court, while claims exceeding $35,000 CAD are initiated in the Ontario Superior Court of Justice.

Steps to commencing a civil action in Ontario

1. Start your claim: The plaintiff will issue a statement of claim (served in person) on the defendant within six months of being issued. Once the Defendant is personally served, he or she must serve the Plaintiff with a statement of defence within 20 to 30 days.

2. Defend your claim: If you are being sued, you will have been served with a statement of claim. You must prepare a statement of defence, complete an affidavit of service for each party served, and file your statement of defence and proof of service with the court.

3. Reply: If there are any allegations against the Plaintiff raised in the defence, the Plaintiff may serve and file a reply.

4. Mandatory mediation: Mediation is one way for the parties to try and reach a mutual settlement. In a mediation, a neutral third party will help the parties look for a possible resolution to the matter. In some locations, parties must attend a mandatory mediation session 180 days after the first statement of defence is served.

5. Discovery:

1. Affidavit of Documents: Parties exchange relevant evidence, including the Affidavit of Documents (AOD), which comprises a list of pertinent documents relating to the case.
2. Examination for Discovery: This involves lawyers for each party posing questions to one another before an examiner, with the testimony transcribed. Ordering transcripts may be necessary, incurring costs ranging from $1,000 to $3,000 CAD.

6. Addressing undertakings and motions: Individuals being examined may need time to provide information or documents requested. In such cases, they can agree to provide the answer or documents after the examination, this is known as an "undertaking."

7. Trial preparation: After completing the above steps, any party involved can set the matter down for trial, prompting the court to schedule a pre-trial conference within 120 days.

8. Pre-trial conference: Attendance at a pre-trial conference is mandatory for all parties, allowing for discussions on potential settlements, issue simplification and estimated trial duration. Unless otherwise ordered by the court, the conference must be scheduled within 180 days of the matter being set down for trial.

9. The trial: A trial may be presided over by a judge alone or a judge and jury, depending on the request. During the trial, evidence is presented through witness testimonies and the submission of documents or objects as exhibits.

10. Enforcement: Winning a case doesn't guarantee payment, as debtors may be unable or unwilling to pay. Enforcement involves taking legal steps such as garnishment or seizure and sale of assets. Assessing the debtor's financial situation may be necessary to determine the most effective enforcement method.

What are the limitation periods to commence a claim in Ontario?

All jurisdictions in Canada have limitation periods that restrict when a legal proceeding may be commenced. In Ontario, there is a two-year limitation period for debt collections. This period starts when the incident giving rise to the claim is discovered or should have been discovered with reasonable diligence.

It's important to note that limitation periods can vary by province.

What constitutes acknowledgement of debt?

Acknowledgment of debt in writing of a claim extends the limitation period and essentially 're-starts the clock' on the limitation period.

Acknowledgment of debt can occur through:

• Written acknowledgement signed by the debtor
• Debtor making a partial payment and acknowledging the remaining debt in writing
• Any admission of the debt during communication with the creditor

What does it mean for an exporter when a buyer/debtor company in Ontario is under CCAA or bankruptcy protection?

a) Insolvent companies

The Companies' Creditors Arrangement Act, R.S.C., 1985, c. C-36 ("CCAA"), is federal legislation that allows insolvent corporate debtors with debts in excess of $5 million CAD to restructure their business and financial affairs. During a CCAA proceeding the debtor remains in possession of its property and assets and continues to operate its business.

During the restructuring process all proceedings against the insolvent company are stayed.

b) Bankrupt companies

Bankruptcy is a formal insolvency proceeding that provides a single collective forum for the realization of bankrupt's assets, determination of creditor's claims, and the distribution of a bankrupt's assets.

Recent developments in case law

Below, we cover recent case law related to the enforcement of a Chinese court or arbitral award in Ontario, recognizing foreign judgment, as an example.

Xiamen International Trade Group Co., Ltd. v. LinkGlobal Food Inc., 2023 ONSC 6491

This case, represented by Gowling WLG, sheds light on crucial aspects of international arbitration and enforcement of arbitral awards in Ontario. Key points from the case include:

• The applicant, a buyer conducting business in China, engaged in a contractual agreement with the respondent seller based in Ontario in 2020. The contract involved the purchase of protective masks totaling $532,224 and included an arbitration clause.
• Subsequently, the applicant pursued recognition and enforcement of the arbitration judgment, which was granted. The award was enforced in accordance with the Model Law, wherein foreign arbitral awards are enforceable under the International Commercial Arbitration Act in Ontario.
• The Model Law places constraints on national courts' interference with international arbitration proceedings, emphasizing a narrow interpretation of grounds for refusing recognition or enforcement. Despite the absence of witness testimony, the commission's decision-making process was deemed valid.
• The seller's eleventh-hour application for adjournment was deemed unwarranted. While the seller could disagree with the arbitration outcome, they were not entitled to re-litigate the case during the application to enforce the award. Moreover, there was no evidence suggesting objections to the commission's procedures or deviations from regular rules and procedures.