Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20211015 DOCKET: C69156

Strathy C.J.O., Pepall and Pardu JJ.A.

BETWEEN

Thrive Capital Management Ltd., Thrive Uplands Ltd., 2699010 Ontario Inc. and 2699011 Ontario Inc. Plaintiffs (Respondent)

and

Noble 1324 Queen Inc., Michael Hyman, Giuseppe Anastasio, David Bowen, Noble Developments Corporation, Hampshire and Associates Incorporated, Lisa Susan Anastasio, Rajeree Etwaroo and Con-Strada Construction Group Inc. Defendants (Appellants)

Counsel: Justin Necpal, Justin H. Nasseri and Joshua Ng, for the appellants Brian N. Radnoff and Joshua Suttner, for the respondents

Heard: September 15, 2021 by video conference

On appeal from the judgment of Justice Markus Koehnen of the Superior Court of Justice, dated January 21, 2021.

Pardu J.A.:

[1] The appellants were found in contempt of court for multiple failures to disclose their assets and to account for money paid in respect of real estate investments. They do not challenge the finding of contempt but say that the motion judge erred in granting judgment against them for some $9 million dollars, following the sentencing hearing.

Background

[2] The respondents alleged that the appellants misappropriated $9 million dollars of investment funds intended for real estate projects in Brampton and Richmond Hill.

[3] The respondents started an action and quickly obtained a Mareva injunction. The motion judge found that the respondents had a strong prima facie case that their assets had been misappropriated. The terms attached to the Mareva injunction required the appellants to produce an accounting for the funds, affidavits of assets, and contact information for the recipients of all funds and documents related to the real estate projects.

[4] The matter was adjourned several times in an attempt to persuade the appellants to comply, without success. They were found in contempt on June 19, 2020 and do not challenge that finding.

[5] Their purported compliance was derisory. As the motion judge noted, the appellants:

…blatantly ignored even the simplest of court orders, have forced the plaintiffs to court on numerous occasions to deal with their outright refusals to comply and have wasted scarce public resources in doing so. They have treated court orders as meaningless scraps of paper that could be used to tie the plaintiffs up in knots rather than as mandatory directives that form an essential part of basic social order.

[6] The flagrant nature of the contempt is demonstrated by the responses to the order to disclose their assets.

[7] Hyman’s affidavit of assets filed following the April 23, 2020 order describes a bank account with $17 in it, shares in a private company he valued at $500, and corporate assets of about $1916. A net worth statement he filed about two months earlier showed net assets of $15,061,000, including $5 million in cash, a Rolls-Royce and a Lamborghini with a total value of $1,564,000, and five other cars worth over $2 million. Hyman asked for an interim order permitting him to use $40,000 a month for living expenses.

[8] In a similar vein, Anastasio’s affidavit of assets disclosed a bank account containing $18,517.91 and two Volkswagen Jettas worth about $15,000 each. He was also discovered to have leased a Porsche 911 and a Rolls-Royce. He asked for $20,000 a month for living expenses.

[9] Their affidavits, purportedly filed to explain where the money went, do more to obfuscate than clarify.

[10] The motion judge’s observation, “I cannot understate the seriousness of the Defendant’s continued contempt of court,” was well founded. On June 19, 2020 he found the appellants in contempt for failure to comply with the orders to provide an accounting of funds, disclosure, and contact information for individuals or entities who received money from the accounts or the appellants. In addition, he found Hyman in contempt for failing to close the purchase of the Richmond Hill property, breaching the Mareva injunction by transferring funds, failing to provide information regarding vehicles, and breaching the prohibition that the Mercedes Benz and Land Rover were not to be driven. After making these findings, the motion judge asked the parties to make submissions on whether judgment was a possible sanction for contempt.

[11] The respondents served a motion record seeking judgment against the appellants in the form of a r. 60.11 sanction for contempt: Rules of Civil Procedure, R.R.O. 1990, Reg. 194. They did not invoke r. 60.12 in their motion record. The appellants sought an urgent case conference, claiming that they had been taken by surprise by the request for judgment and that this required submissions on the merits of the action.

[12] The motion judge adjourned the sentencing hearing for a month to allow the appellants to prepare arguments on whether judgment in the action could be a sanction for contempt. He directed that the arguments available were that it was possible, that it was not possible, or that it was not possible without adjudicating the merits. He directed: “The point of the sanctions hearing is not, however, to argue the merits. The defendants are able to argue on the sanctions hearing that judgment on the merits is not appropriate without an adjudication on the merits. That does not require them to actually adjudicate the merits.”

[13] The respondents provided the appellants with the case authority upon which they relied to support their claim for judgment, Falcon Lumber Limited. v. 24803375 Ontario Inc., 2019 ONSC 4280, aff’d 2020 ONCA 310, a case dealing with striking pleadings for failure to make documentary disclosure.

[14] The respondents sought judgment against the appellants and 6 months’ incarceration.

[15] The motion judge concluded that the appellants’ behaviour was serious enough to warrant incarceration, but that judgment was more appropriate. He found that it would be inappropriate to allow the appellants to defend the proceeding, while at the same time ignoring orders of the court. He found that a fine would not be adequate to persuade the appellants to obey the court orders and would amount to a licence to steal. The appellants’ efforts to comply with the orders were inadequate and their evidence was not worthy of belief. They continued to be in contempt of the orders at the sentencing hearing.

[16] The motion judge was satisfied that the appellants’ conduct warranted incarceration but concluded that incarceration was not the preferable penalty. He concluded that it was most appropriate to tailor the remedy to the default by granting the respondents judgment. He indicated that he would ordinarily expect a party who was accused of a $9 million fraud to explain why they were legitimately entitled to the money. In the absence of any explanation some nine months after the action had been started, he indicated that he saw no injustice in granting judgment against the appellants. Relying on rr. 60.11 and 60.12 as the source of his authority, he concluded “this is an appropriate case in which to use that power as a sanction for contempt. Here the defendants have not yet defended. The appropriate corollary is to deny them the ability to defend and to enter judgment against them.” He concluded that if he had not granted judgment, he would have sentenced the appellants to six months’ incarceration.

Analysis

[17] Here the motion judge was critical of the appellants’ failure to explain why they were entitled to the money and relied on that failure in deciding that judgment was the appropriate remedy. However, he had instructed that the appellants were not to address the merits of the action at the sentencing hearing. This requires that the judgment be set aside and the matter returned to the Superior Court for a new sentencing hearing. In light of the appellants’ behaviour, it is easy to see why he was highly skeptical that there was any defence to the action. If the merits were a factor, however, the appellants should have been able to address that issue.

[18] I turn now to a consideration of the issues raised by this appeal:

1. What factors are relevant to determining a sanction for contempt?
2. Can an opposing party move to strike a defence or bar a defendant from participating in the proceeding as a remedy for contempt?
3. If such a motion is brought, are the merits of the proceeding a factor in deciding whether to grant the remedy?
4. Is judgment directly available as a sanction for contempt?
5. What are the steps required to attempt to obtain judgment against a party in contempt?

[19] The merits of an action may not be particularly relevant in determining what punishment is appropriate for contempt of court but are relevant to the issue of whether judgment should be granted. The purpose of a penalty for civil contempt is two-fold; not only do such penalties enforce the rights of a private party, but they also maintain respect for the authority of the courts. The factors relevant to the determination of the appropriate sentence for civil contempt include:

1. The proportionality of the sentence to the wrongdoing;
2. The presence of mitigating factors;
3. The presence of aggravating factors;
4. Deterrence and denunciation;
5. The similarity of sentences in like circumstances; and
6. The reasonableness of a fine or incarceration.

[20] None of these factors focuses on the merits of the proceeding: Boily v. Carleton Condominium, 2014 ONCA 574, 121 O.R. (3d) 670, at paras. 79, 90. A fine imposed for contempt is payable to the Crown and not to the opposing party: SNC-Lavalin Profac Inc. v. Sankar, 2009 ONCA 97, 94 O.R. (3d) 236, at para. 14.

[21] The distinctions between the two distinct roles of a court imposing a sanction for contempt on the one hand and granting judgment on the other can be blurred if the analysis is not separated.

[22] There can be no doubt, however, that a statement of defence can be struck for contempt of court. Courts have denied contemnors the opportunity to deal with a claim on the merits. In iTrade Finance Inc. v. Webworx Inc., (2005) 255 D.L.R. (4th) 748 (Ont. S.C.J.), the court found that the defendant’s failure to comply with court orders was such that the remedy of striking its pleadings was appropriate. In Paul Magder Furs Ltd. v. Ontario (Attorney General), 6 O.R. (3d) 188 (Ont. C.A.), at para. 14, the court observed that “it is an abuse of process to assert a right to be heard by the court and at the same time refuse to undertake to obey the order of the court so long as it remains in force.” Section 140(5) of the Courts of Justice Act, R.S.O. 1990, c. C.43 gives the court express power to stay or dismiss a proceeding as an abuse of process. In Dickie v. Dickie (2006), 78 O.R.(3d) 1, this court refused to hear a litigant who was abusing the processes of the court. By analogy, a court could bar a defendant in contempt from filing a statement of defence.

[23] Rule 60.12 provides explicitly that where a party fails to comply with an interlocutory order, the court may, in addition to any other sanction provided by the rules, stay the party’s proceeding, dismiss the proceeding, strike out the party’s defence, or make such other order as is just.

[24] Both rr. 60.11 and 60.12 deal with failures to obey court orders. Rule 60.11 focuses on the context of contempt proceedings. Either rule would allow a court to strike a statement of defence or bar a litigant from filing a defence.

[25] In determining whether to strike a pleading, even where judgment is not granted concurrently, there may be some analysis of the merits of the claims. In Falcon Lumber Limited v. 2480375 Ontario Inc. (GN Mouldings and Doors), 2020 ONCA 310, Brown J.A. discussed the factors to be considered when determining whether to strike a party’s claim for failure to produce documents under r. 30.08(2). This rule expressly permits a court to strike out a statement of defence from a party who fails to serve an affidavit of documents, produce documents for inspection, or comply with an order of the court under rr. 30.02 to 30.11, which deal with the various aspects of documentary discovery.

[26] Brown J.A. observed that the exercise of discretion to strike a pleading is not limited to a last resort, following multiple failures, but that a court would usually want to ensure that a party had a reasonable opportunity to cure the default before striking a pleading: Falcon Lumber Limited, at para. 50. Relevant factors would include whether the failure was deliberate or inadvertent, whether the failure was clear, whether there was a reasonable explanation for the default and a promise to cure it, whether the substance of the default was important, whether the default continued, and the impact upon the opposite party’s attempts to get justice: Falcon Lumber Limited, at para. 51. He went on to note that the court could also consider the merits of the defaulting party’s claim or defence, but that this might only play a limited role, as one would expect a party with a strong claim or defence to comply promptly with its disclosure obligations: Falcon Lumber Limited, at para. 52. Finally, he noted that a court must consider whether an order striking a pleading would constitute a proportional remedy to ensure that civil justice was proportionate, timely, and affordable: Falcon Lumber Limited, at para. 53. Has the defaulting party’s conduct increased the opposite party’s costs of litigating the action? Has the default delayed adjudication of the matter on the merits?: Falcon Lumber Limited, at para. 55.

[27] This analysis applies with equal force to motions under r. 60.12 to strike a statement of defence for failure to comply with an interlocutory order, as well as to the sanction of striking pleadings when sought for contempt. Where the remedy for contempt sought is an order barring a party from defending or an order striking a pleading, some assessment of the merits may be necessary to determine whether such an order is a proportionate response to the contempt alleged. Where, for example, the contempt is less serious, is likely to be cured, and it appears that a party has a defence of substance, it would be disproportionate to bar the defendant from participating in the action.

[28] Where a statement of defence is struck, there may well follow an unopposed motion for default judgment.

[29] While it may be tempting to collapse the issues of contempt and striking a defence on the one hand and a motion for judgment on the other hand into one proceeding, this may be false economy.

[30] It can turn motions to strike pleadings for failure to comply with orders, whether as a sanction for contempt or pursuant to r. 60.12, into something resembling summary judgment motions, thereby shifting the focus from the failure to comply to the merits of the action. When granting judgment on the claim, the merits must be addressed.

[31] While a judgment on the merits brings an action to an end, a court may subject a party in contempt to multiple sanctions hearings in order to compel compliance.

[32] The Ontario Rules of Civil Procedure do not explicitly provide that judgment may be entered against a party who has failed to comply with a court order. Rule 60.12 does allow a court to make any order that is just for failure to comply with an order. In contrast, r. 10.53(1)(d)(iii) of the Alberta Rules of Court, AR 124/2010, says that “judgment may be entered” as a penalty for contempt. Final judgment in the action is not directly available as a punishment for contempt of court in Ontario.

[33] This is not to say that in a given case, judgment may not be an appropriate remedy against a party who is in contempt or who has failed to comply with an interim order. There is no impediment in the Rules barring a party from moving for various and alternative relief. For example, a litigant could move under r. 60.11 for an order imprisoning a party for contempt, for an order striking their pleadings under either rr. 60.11 or 60.12, and for default judgment in the event the pleadings are struck. If the latter is included, the moving party should expect that there will be a more searching inquiry about the merits and that the respondent will be given an opportunity to respond to the merits.

[34] Here, there is no doubt that a strong response was required to sanction the appellants’ contempt, but they should not have been barred from making any submission as to the merits of any defence when it was clear that the respondents were seeking final judgment on their claims. Even if the moving party had not sought judgment on the motion but sought only to bar the appellants from defending the action because of their contempt and disobedience of court orders, some skeletal review of any defence raised may have been required to assess whether they should be barred from defending the action.

[35] Here the plaintiffs sought judgment as a sanction for contempt, although judgment is not a remedy directly available as a punishment for contempt. As the appellants were entirely aware that judgment was sought on the motion, the procedural mischaracterization in the motion record might have been forgiven pursuant to r. 1.04 of the Rules of Civil Procedure, had the appellants not been barred from addressing the merits at all in their response to the motion.

[36] I would set aside the judgment and remit the matter to another judge of the Superior Court to determine the appropriate sanction to be imposed upon the appellants for their contempt of the orders of the motion judge. Ordinarily one would expect the same judge to make the finding of contempt and impose the sanction, however here, given that the motion judge has expressed his views on the appropriate sanction, the better course would be to have a different judge decide what should follow the finding of contempt, depending on the relief sought and pleaded.

Reasonable apprehension of bias

[37] I would not conclude that an informed person, looking at the matter realistically and practically, and having thought the matter through, would think it more likely than not that the judge would decide the case unfairly. It is not surprising that the motion judge was concerned about the appellants’ wilful and outrageous conduct, which deserved a significant response by the court.

[38] I would direct the parties to make brief written submissions in relation to the costs of the appeal and the costs awarded below, due by October 29, 2021.

Released: October 15, 2021 “GRS” “G. Pardu J.A.” “I agree G.R. Strathy C.J.O.” “I agree S.E. Pepall J.A.”