Friday, June 11, 2010

THE INEFFECTUAL SAFEGUARD ORDER

In commercial lease disputes, the Court is often called upon to issue safeguard orders to protect the rights of the parties in the interim period until the case can be heard and decided after a trial, which can often entail a delay of months if not years.
The safeguard order is similar to an interlocutory injunction. For example, the Court may order the tenant to continue to pay the rent to the landlord or deposit the rent at the office of the court until the case is decided. Without a safeguard order, a tenant in bad faith would be tempted to complain that the landlord is breach of its obligations pursuant to the lease and unilaterally withhold the rent. A landlord might not be able to survive the months or years it could take until the tenant’s complaints are decided by the Court. In the meantime, the landlord has to meet its expenses such as salaries, real estate taxes, insurance, maintenance, repairs, and mortgage payments.
In one recent case the landlord made an application for a safeguard order according to the following terms: (a) that the tenant be ordered to pay the rent monthly; (b) that in default to pay the rent, the tenant would be foreclosed from contesting the landlord’s claim, and the landlord would thereupon be authorized to obtain judgment by default. *
The Court granted the landlord’s application in part only and ordered the tenant to pay the rent for the current month and for subsequent months until a final judgment is rendered after trial. The tenant was ordered to pay one-half of the rent on the first and fifteenth of each month and the Court reserved all of the rights of the landlord for unpaid rent for the previous three months.
When the tenant failed to pay the rent, the landlord issued a Writ of Execution to forcibly execute the safeguard order by seizing the property of the tenant in order to sell it at a judicial sale.
The tenant contested the seizure and applied to the Court to have the seizure declared illegal. It argued that a safeguard order is not the equivalent of a monetary condemnation since it did not condemn the tenant to pay a specific sum of money and therefore, a Writ of Execution is not the appropriate remedy when a safeguard order is infringed.
The Court agreed with the tenant. The Court reasoned that the Judge who issued the safeguard order did not grant all of the conclusions that were asked for i.e. he did not consider it appropriate that the case proceed by default in the event that the tenant did not respect the safeguard order. By allowing the landlord to get a default judgment, the landlord would then have clearly been legally entitled to forcibly execute the judgment, which it could not do in the case of a safeguard order. The Court added that to allow forcible execution by seizure of property on the basis of the safeguard order as drafted, would be to confer on the safeguard order the character of a final judgment terminating the litigation.
The Court also reasoned that it is the essence of compulsory execution of movable property that it be sold at justice in order to pay the claim of the creditor, in principal, interest and costs. The Court reasoned that in the circumstances of the present case, since the arrears are accumulating and increasing from month to month, a safeguard order is not susceptible of execution by seizure and sale of movable property as it would be to collect a specific sum.
As a consequence of the Court’s decision, it appears that the safeguard order was illusory and ineffectual, notwithstanding the prima facie intention of the Court that issued the order and the landlord that applied for it. Although it seems quite clear that the Court that issued the order intended that the tenant pay the rent on a monthly basis during the interim period until trial, and that the monthly rent would no doubt be a liquidated amount, i.e. an amount that would be simple to calculate based on the express terms of the Lease, an order to pay such an amount is not significantly different from any other monetary condemnation. While one can understand the Court’s reasoning where the order to pay amounts that cannot be clearly calculated would not be executable since the calculation of the amount would be subject to interpretation or the discretion of the creditor, one cannot say the same about an order to pay the monthly rent.
As a result of the Court’s decision, the remedy of the safeguard order was completely ineffectual and the tenant was presumably able to remain in the leased premises while the landlord had to assume the ongoing expenses. Objectively, the result is extremely unjust.
In family cases, it is quite common for the Court to order interim or provisional spousal and/or child support on a periodic basis and such judgments are subject to compulsory execution by seizure and sale of property. It is submitted that to create an exception in the circumstances of this case where there is a safeguard order and the amount is objectively determinable, is to undermine the authority of the Court and the sound administration of justice. More particularly, as a result of the Court’s decision, a clear court order has been breached by the tenant and the innocent party, the landlord, finds itself the victim of the breach without any practical remedy. Moreover, the landlords prejudice increases each month that the rent is not paid.
Having said that, it is arguable that the landlord should apply for a new safeguard order to order the tenant to pay a specific amount, namely the amount of arrears of rent that are clearly due at the present time, either to the landlord directly or to Court failing which, the landlord should be entitled to seize and sell the property of the tenant and that the landlord would be authorized to apply for default judgment which, in light of the present decision, would appear to require that an express condition be included in the safeguard order.
* Les Tours 1200 Ouest Inc. vs. 9162-9600 Qu├ębec Inc., 2010 QCCS 1213