Court File and Parties
COURT FILE NO.: CV-14-500797 DATE: 20160418 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2363523 Ontario Inc., Plaintiff AND: Steven Nowack, Melissa Frishling, John Doe 1 to 10, Jane Doe 1 to 10 and Doe Corporations 1 to 10, Defendants
BEFORE: S. F. Dunphy, J.
COUNSEL: Norman J. Groot, for the Plaintiffs Steven Nowack, self-represented
HEARD: April 11, 2016
Endorsement – Sentencing Order
1On January 8, 2016 I found the defendant Mr Steven Nowack guilty of contempt of court and delivered brief oral reasons. I required Mr. Nowack to return before me on February 8, 2016 for sentencing. The delay was, in part, to permit Mr. Nowack an opportunity to purge his contempt and thereby mitigate his sentence. Unfortunately, he has not adequately availed himself of that opportunity.
2On February 8, 2016 I adjourned the sentencing hearing until April 11, 2016 on the consent of all parties. Mr. Nowack had delivered a large volume of information to the plaintiff shortly before the hearing and more time was needed to review that information and determine the degree to which Mr. Nowack had purged his contempt.
3The parties returned before me on April 11, 2016 for sentencing submissions. Mr. Nowack, who has been self-represented on some of his appearances before me, was self-represented on April 11, 2016.
4Although the hearing had been scheduled for more than two months, Mr. Nowack filed no material in advance of the hearing. He has been a litigant on multiple occasions and self-represented as well as represented by counsel. Indeed, he has been involved in contempt proceedings on more than one occasion. He knows how the importance of putting his evidence before the court properly and he knows how to do so. Evidently, he prefers to follow his own rules and ambush his opponent. He sought to hand up a significant number of documents during his oral submissions without notice to the plaintiff and without having filed an affidavit. This tactic was quite deliberate.
5The plaintiff strenuously objected. As this was a sentencing hearing, I determined to exercise my discretion and grant Mr. Nowack a maximum of leeway to introduce fresh evidence. However, I required him to give the evidence he proposed to introduce under oath rather than informally by way of submissions. Having reviewed the evidence he tendered, none of it appeared to be of such recent vintage that he could not have put it together in even a brief affidavit to be provided to the plaintiff.
6At the conclusion of a hearing that lasted one day, I adjourned the hearing until this morning (April 18, 2016) to deliver my reasons. These are my reasons.
The Contempt Finding
7On September 16, 2016, judgment was issued against the defendant by Diamond J. (hereafter the “Judgment”). The Judgment ordered Mr. Nowack to pay the plaintiff $3 million plus interest and costs for “fraud, conversion, and breach of fiduciary duty”. Paragraph 6 of the Judgment also contained the following order requiring Mr. Nowack to account for the proceeds of the fraud:
THIS COURT DECLARES that the defendant Steven Nowack, within 30 days of this Order, provide to the Plaintiffs an accounting of any and all financial transactions completed by him using or in any way relating to the Plaintiff’s funds, including producing bank statements, FXCM statements, and transaction documents including copies of wire transfers, cheques or other forms of transaction, from any of his accounts into and from which the Plaintiffs’ funds were deposited ” (emphasis added).
8The Statement of Claim in this case names as defendants Mr. Nowack and a variety of other people and corporations, both identified and to be identified. In each case, a tracing remedy is sought in respect of any funds received from Mr. Nowack that are the proceeds of the fraud alleged.
9Mr. Nowack did not provide the required accounting within thirty days. As shall be seen, he has yet to do so in any meaningful way.
10When Mr. Nowack failed to comply with paragraph 6 of the Judgment, the plaintiff brought a contempt motion that was heard before me on November 26, 2015. In addition to relying upon Mr. Nowack’s non-compliance with paragraph 6 of the Judgment, the plaintiff’s motion relied upon other issues arising from his failure to produce documents and answer undertakings given at an examination on October 9, 2015.
11I delivered a short endorsement that day that I hoped would put an end to the matter. I ordered Mr. Nowack to attend a judgment debtor examination on December 1, 2016 and required him to bring to that examination the documents referenced in paragraph 6 of the Judgment as listed in the Notice of Examination that had been served upon him. I also noted that he had agreed to comply with his October 9, 2009 undertakings and therefore ordered him to do so before the December 1, 2015 examination.
12I concluded by noting that “Mr. Nowack is expected to comply fully and completely with this Order even if he is pursuing other avenues of relief via motions. He is risking grave consequences if he fails to do so”. Mr. Nowack’s main excuse for non-compliance before me was an apparent belief that he was excused from complying by reason of his planned motion to set aside the Judgment. I set him straight on that misapprehension that I now believe to have been little more than one in a series of fabricated excuses. Whether he was sincere in his professed but erroneous belief or not, he has not in fact moved to set aside the Judgment.
13When I made my order of November 26, 2009, Mr. Nowack had been heard extensively and given me no reason to believe that he would be unable to comply with it. To the contrary, he appeared contrite and willing to comply. Things are not always as they appear.
14Despite the leniency shown and the admonitions delivered, Mr. Nowack showed up for his examination on December 1, 2015 almost one hour late and brought not a single document with him. He did not answer any of his undertakings from October 9. A very different individual appeared for examination than had appeared before me.
15He continues to raise new excuses as to why he finds it difficult to comply with my order and paragraph 6 of the Judgment. None of the excuses that he has pleaded before me on January 8, 2016 or at the sentencing hearing of April 11, 2016 were unknown to him on November 26, 2015. Most if not all of them had been unsuccessfully used in prior appearances before other judges in this case or in the Greenberg litigation referred to below (or both).
16Mr. Nowack is long past the point of being able to claim any sincerity in recycling these excuses at this point. The contrast between his contrite but apparently cooperative appearance before me on November 26, 2015 and his defiant non-cooperation on December 1, 2015 could not be more stark.
17The plaintiff therefore moved to bring its contempt motion back on before me. The motion was heard on January 8, 2016.
18I convicted Mr. Nowack of contempt at that time and delivered brief oral reasons. His breaches of the two orders (paragraph 6 of the Judgment and my own order of November 26, 2015) were clear. He had fully understood his obligations – if not before his attendance before me on November 26, 2015, certainly afterwards.
19There had not even been partial compliance. If December 1 had been an aberration, there were no steps in the intervening weeks to try to undo the damage by producing documents or making disclosure. Instead, at the beginning of the hearing Mr. Nowack handed up to me a sheet of paper purporting to be the sought-after answers to undertakings much as he chose to hand up a variety of documents at his sentencing hearing.
20In each case, the “answer” provided was simply a short, type-written refusal claiming the questions were not relevant. Needless to say, he had not taken that position when I ordered him to answer them on consent less than two months previously. Instead of compliance, he offered defiance.
21There was no serious question of the non-compliance being inadvertent or due to a misunderstanding. I concluded that Mr. Nowack had knowingly and deliberately breached both orders and was in contempt.
22I scheduled a sentencing hearing for February 8, 2016. I did not do so because that was the first available date. I did so for the express purpose of giving Mr. Nowack time to purge his contempt to mitigate his sentence. Mr. Nowack’s appearance in court on this second occasion appeared the model of contrition – again. It was my hope that he would take the opportunity offered to purge his contempt.
23Mr. Nowack appeared before me again on February 8, 2016. I was advised that on the eve of the hearing, Mr. Nowack had delivered an electronic disc containing extensive financial information. I now know that the disc contained information that had been in his possession for several months and was the same data that he had already provided to counsel for another judgment creditor pursuing him in another matter (the Greenberg matter referred to below). The timing – on the eve of his sentencing hearing as opposed to weeks earlier – was calculated.
24It was agreed that the sentencing hearing would be adjourned until April 11, 2016 to permit the plaintiff time to review the information obtained and determine whether there had been an adequate purging of the contempt. At the hearing, Mr. Nowack also delivered a sworn declaration of his assets and income identical to the one that he had been ordered to produce by Perell J. in connection with another contempt motion in the Greenberg proceeding referred to below. That statement purports to indicate that Mr. Nowack owns nothing, has no income of any kind and is essentially penniless.
25Mr. Nowack was again examined by the plaintiff on April 1, 2016. The examination did not go well. Mr. Nowack again refused to answer a large number of questions. Those refusals will be taken up before Master Abrams in due course. I am not seized of those matters and will express no views as to the propriety of the positions he took. I will only comment that his highly defensive posture at that examination makes the task of giving him the benefit of the doubt when considering his efforts to purge his contempt here more challenging. The spirit of openness of an allegedly penniless judgment debtor that might have quelled the justified suspicions of a wounded victim of fraud was entirely lacking. I have reminded Mr. Nowack on multiple occasions that there is no debtor’s prison and that punishment – should it be meted out to him – is for failure to comply with orders not failure to pay the debts that got him into trouble in the first place. The sooner the judgment creditors can be reasonably satisfied in the truth of his declarations of penury, the sooner all parties can begin to heal.
The Litigation Background
26The plaintiff advanced a total of $3 million to Mr. Nowack between February 1, 2013 and March 4, 2013. The funds were supposed to be invested by Mr. Nowack who claimed to be a successful currency trader. On March 8, 2013, the plaintiff learned of a judgment against Mr. Nowack by one prior investor in the Greenberg litigation and demanded the return of their money. Mr. Nowack promised to do so but did not. The litigation was commenced in June, 2013. Mr. Nowack’s accounts were frozen at that time but the funds had by then vanished.
27The Statement of Claim made extensive allegations of fraud against Mr. Nowack. It alleges that Mr. Nowack had been serially defrauding investors, claiming a track record of investing success whereas he had in fact lost the entire investment of a number of investors. Fraudulent trading results are alleged to have been produced to entice victims, including the plaintiff, into the scheme. Funds were alleged to have been taken by Mr. Nowack and used for his own purposes. Claims were made against a variety of John Doe defendants alleging receipt of proceeds of the fraudulent scheme and claiming the right to trace.
28The factual background of the claim is reviewed in some detail in an October 25, 2013 decision of D.M. Brown J. (as he then was) that is reported at 2013 ONSC 7479 and I shall not repeat it at length here. That decision recounts the history of the first four months of the litigation only and was made in connection with an order directing the holding of a hybrid trial to get to the bottom of what had become of the plaintiffs’1 funds.
29Sadly, my review of the decision reveals a pattern of behaviour of Mr. Nowack that appears little changed today. Virtually every issue that D.M. Brown J. was seeking to get to the bottom of then is the subject-matter of the contempt proceedings before me today. The issues and transactions would have been quite fresh in Mr. Nowack’s mind at that time, only a few months after the events. Much water has gone under the bridge since. Whether funds have been dissipated beyond recall is not known.
30Mr. Nowack asserted then, as now, that he had lost all of the plaintiff’s funds through trading. He asserted then as now that he lacked the ability to produce documents due to the execution by the police of a search warrant on October 13, 2013 in connection with the criminal charges pending. In July 2013, D.M. Brown J. had ordered him to “answer all questions relating to the funds provided to him (or any related company or trust) by the plaintiffs, including what happened to every cent of those funds” and to bring to his examination “each and every single piece of paper or piece of data which demonstrates what has happened to every single cent of the plaintiffs’ funds provided to him”. Those questions remain unanswered today.
[31] The evidence before D.M. Brown J. in October 2013 included evidence that: a. Mr. Nowack had not accounted for $630,000 of the plaintiff’s funds since only $2.37 million out of the $3 million advanced to him by the plaintiff had been deposited into the FXCM account where the trading occurred; b. Approximately $2.1 million in trading losses had been identified in the FXCM account over the relevant time; c. Mr. Nowack had not accounted for $192,000 in withdrawals from his trading account at FXCM over the time frame; and d. The FXCM account had no funds in it and had been frozen by the time the litigation was commenced in June, 2013.
32D.M. Brown J. attempted to cut through the issues in dispute by directing a hybrid trial to take place swiftly. Paragraph 6 of the Judgment and my order of November 26, 2015 would have provided answers to these questions if complied with. In the intervening years, Mr. Nowack has steadfastly refused to shed light on these questions despite repeated efforts by the plaintiff to wring answers out of him and despite express orders of the court designed to force him to do just that.
33The hybrid trial directed by D.M. Brown J. ultimately did not take place. Mr. Nowack’s Statement of Defence was struck by order of Master Abrams with leave to file a Fresh as Amended Statement of Defence. When he failed to do so within the 60 days prescribed by Master Abrams, the plaintiff noted him in default and moved for default judgment. Diamond J. issued the Judgment on September 16, 2015 along with a brief endorsement. Mr. Nowack attended the motion for judgment and claimed that he was going to move to set aside the noting in default. Mr. Nowack was given until October 2, 2015 to serve his materials for his motion and execution was stayed on the Judgment. He did not serve any such materials. He has never moved to set aside the Judgment.
34While the Judgment has been signed against Mr. Nowack, the plaintiff’s efforts to identify the John Doe defendants and trace proceeds of the fraud into their hands continue.
35Mr. Nowack continues to this day to resist the obligation of producing “ each and every single piece of paper or piece of data which demonstrates what has happened to every single cent of the plaintiffs’ funds provided to him” and the obligation to account for “what happened to every cent of those funds”. The wording of the orders of D.M. Brown J. from 2013 and Diamond J. from 2015 may be different, but the meaning is the same. The excuses offered up to excuse non-compliance remain the same and are as ineffective now as then.
36As I consider the question of sentencing, foremost in my mind must be the imperative that this has to stop. It is time to throw light on these festering questions. As shall be seen, I do not hold the plaintiff entirely blameless in this affair. There are steps that they could have taken and can still take at modest cost to advance their investigation despite the recalcitrance of Mr. Nowack. This does not excuse Mr. Nowack’s non-compliance, but it does temper my assessment of the harm arising.
The Greenberg Litigation
37Mr. Nowack was sued in separate proceedings by Joseph and Pepi Greenberg. The background to that litigation is described in the endorsement of Morgan J. dated March 27, 2015 where he sentenced Mr. Nowack to 15 days for failure to produce his financial records as ordered and is reported at 2015 ONSC 2015. Further details and background to the Greenberg litigation can also be found in the recent decision of Perell J. released February 1, 2016 reported at 2016 ONSC 808.
38The plaintiffs in that proceeding had given Mr. Nowack their retirement savings – some $4,000,000 - to invest. He allegedly lost all of the funds in trading. A negotiated settlement to the claim followed by which Mr. Nowack agreed to repay $3,552,000 of the funds advanced. Mr. Nowack defaulted on that settlement and a consent judgment was accordingly signed.
39There are some important distinctions between the Greenberg case and the present one. The Greenberg claim was resolved by way of a simple judgment under Minutes of Settlement. There was no claim for a tracing remedy nor any finding of fraud.
40The plaintiffs in that case attempted to obtain information about the use of their funds in the course of the judgment debtor examination process. In that context, a variety of orders had been made requiring Mr. Nowack to make financial disclosure that he had not complied with. Morgan J. found him guilty of contempt and sentenced him to a term of incarceration of 15 days.
41Following his release from custody, the Greenberg plaintiffs continued to pursue Mr. Nowack to obtain the information he had failed to disclose. Perell J. case managed the file. After a number of appearances, Perell J. found that Mr. Nowack had sufficiently purged his contempt of the orders made in that matter. While Mr. Nowack had been ordered to provide an accounting of the plaintiff’s funds in the course of those judgment debtor examinations, Perell J. determined that the sought-after accounting was ultimately not relevant to the judgment debtor process and released him from any further obligation to do so. He was found not guilty of contempt in reasons released on February 1, 2016 but ordered to produce a sworn statement of his assets and income.
The Criminal Proceedings
42Mr. Nowack was charged with criminal fraud in 2013. Those proceedings are entirely separate from these. Mr. Nowack wishes to attribute the zealous pursuit of contempt proceedings by the plaintiff to a desire to exact revenge for the losses that resulted in the Judgment. Whether his suspicions are true or not, the plaintiff’s motives do not enter into my deliberations. The plaintiff has sufficient cause to be irate given the lack of compliance without adding in a superfluous motive of revenge. I am concerned solely with the orders that have been disobeyed and the consequences that should attach to that disobedience. Mr. Nowack sought to enter into an inquiry at his sentencing hearing into the alleged motives of the plaintiff – I did not permit him to do so (with evidence he had deliberately not reduced to affidavit form prior to the hearing) because it was not relevant to the purpose of the hearing.
43Mr. Nowack has been ordered to produce documents relating to his financial affairs in this proceeding. Similar orders had been made in the Greenberg proceeding. He claimed in both cases that he could not do so because the Crown had seized all of his records in connection with the pending charges. He made similar arguments before D.M. Brown J. The argument has never been very successful for him in the civil proceedings, although he attributes it to advice from his criminal counsel who have never appeared in the civil proceedings to justify it.
44Mr. Nowack was jailed for contempt by Morgan J. in March 2015 and sentenced to 15 days in custody. In his contempt ruling, Morgan J. noted that “it was apparent to me that the Defendant has been hiding behind his criminal prosecution, and is using it as an excuse not to produce his own financial records in a way not supported by the decision in Wagg ”. He continues to raise the same arguments before me despite having been quite clearly set straight on the matter by Morgan J.
45I attach no weight to the excuse at all. Mr. Nowack has been seeking to hide behind that increasingly flimsy excuse for too long for me to attribute any bona fides to his recycling of it before me. He has always been asked only to produce his own documents. If these were seized and then copies returned to him via Crown disclosure, they remain his documents. He must disclose them. This is not news to him.
Status of Efforts to Purge Contempt
46I remain unimpressed with Mr. Nowack’s belated and half-hearted efforts to purge his contempt. In my view, what efforts he has expended have been with a view to maximizing the appearance and minimizing the substance.
47Mr. Nowack was ordered by me – on consent – to answer the undertakings he gave on October 9, 2015 and to do so by December 1, 2015. He did not do so. He had no excuse for not doing so. He had not purged his contempt by the time of the hearing before me that convicted him of contempt on January 8, 2016. His late attempt at “answering” these undertakings with a blanket refusal on the morning of the hearing would better have been kept in his briefcase.
48On the other hand, the plaintiff advises that the contempt has since been purged. That requirement at least has been satisfied and should be taken into account by me for sentencing purposes.
49Mr. Nowack was ordered to produce the financial records associated with the accounts that received the plaintiff’s funds by paragraph 6 of the Judgment. He produced nothing on December 1 as ordered by me. There was not even an attempt at performance. He produced voluminous electronic documents on the eve of his sentencing hearing on February 8, 2016. While production of the records as ordered is a good thing, the impact that partial compliance has is lessened by the admission that he possessed those documents for many months. He managed to produce these electronic documents without the necessity of bringing the Attorney-General into the fray. There was nothing stopping him from having done so on December 1, 2015. There was nothing stopping him from having done so on January 9, 2016 either.
50The electronic documents he did produce were not complete. Transaction records showing where funds were transferred from and to were requested by paragraph 6 of the Judgment as well. None of these have been produced. Mr. Nowack has refused to produce even a list of the documents given to him by the Crown in its disclosure in order to permit the plaintiff to assess whether he has disclosed all of his own relevant documents. Mr. Nowack has produced a written document of consent to allow the plaintiff to seek these transaction records from financial institutions themselves and at their own expense. It is not presently known if the banks or brokers affected will accept that authorization and produce the documents. He was ordered to produce them, not to tell the plaintiff to try and do so if it can.
51Nevertheless, I must find that this partial compliance is a mitigating factor to be taken into account in sentencing.
52The electronic banking records produced show that the plaintiff deposited a total of $3 million into what the plaintiff described as his “business” account at TD Bank between February 1, 2013 and March 4, 2013. By the 21st of March, the account was back to where it had started before the plaintiff’s money was transferred into it – virtually empty. A significant portion of the funds ($2,370,400) were transferred to a brokerage account – FXCM – that the plaintiff maintained. The balance of the funds (approx. $630,000) went to places unknown. D.M. Brown J. pointed out the lack of disclosure on this precise issue in October 2013. Mr. Nowack’s theatrical claim to having just realized that this is what the Judgment required him to produce during the sentencing hearing lacks any sincerity or credibility.
53The number of transactions by which those funds were dissipated – funds that paragraph 6 of the Judgment required Mr. Nowack to account for with transaction records – is quite small. They number about 30, if one excludes bank fees, ATM withdrawals of small amounts of cash and other transactions under $1,000. Copies of cheques and wire transfers can be obtained from financial institutions against payment of a small fee per transaction. Even at $25 per record (the prescribed fee listed on TD Bank’s web site), the cost of retrieval would have been about $750.
54Mr. Nowack has yet to go to his branch to demand these documents. The obligation to do so has been outstanding since September 2015. Instead, on the eve of his final sentencing hearing, he sent a series of blistering emails to TD Bank’s head office legal department demanding that they produce every single record relating to every one of his accounts since 2009. These emails were among the late-breaking documents that Mr. Nowack tendered to me without notice via testimony at the sentencing hearing.
55Despite Mr. Nowack’s claims to surprise and outrage at the lack of instant response to his demands, I find that these were made by him primarily for show and in the expectation of being rejected. He asked for mountains of data instead of the handful he needed. He offered to pay no fees and demanded immediate action. He strategically made his request only days before his final sentencing hearing despite the three month hiatus between his conviction and the sentencing hearing. Unsurprisingly, TD declined to jump at his late request. The documents have yet to be produced.
56I pause here to note that while it was Mr. Nowack’s obligation to obtain these documents (and remains so), the plaintiff is in possession of an authorization enabling it to obtain them. The $750 fee to get the 30 or so documents they would need to examine to find out where $630,000 of their funds went would be quite cheap compared to the costs they have been burning through in not getting the information from Mr. Nowack. There is obduracy being shown on both sides of the courtroom here. The availability of this information to the plaintiff is a mitigating factor.
57Mr. Nowack claims that there are 58,000 pages of records from FXCM that he has produced in response to paragraph 6 of the Judgment. That may be so. However, that too is not what was asked. If the 58,000 pages contain the transaction documents showing money moving into or out of the FXCM accounts - excluding internal transfers between FXCM accounts controlled by him – then he may have purged part of his contempt. But not all of it.
58Mr. Nowack was asked to perform an accounting. That obligation is not discharged by telling the plaintiff to do it instead. The plaintiff is not obliged to find needles in haystacks. Mr. Nowack is the one who moved the money. He has admitted to receiving between $100,000 and $200,000 in funds from the FXCM account during the relevant time frame. If the information before D.M. Brown J. was accurate, the figure would appear to be closer to $200,000. The relevant time frame is relatively small – only about four months. The funds were essentially gone by early June – where is the question.
59Mr. Nowack produced a crude, 1.5 page “accounting” devoid of any references to any documents. It does no more than produce numbers that add up to $3 million without any indication of how the figures were arrived at. He didn’t even start producing this utterly inadequate accounting until two weeks before his sentencing and using data he had in his possession for months. This was a very poor use of his time. The Judgment has already found Mr. Nowack liable in fraud for the full amount of the funds invested with him. Seeking to demonstrate that he in fact lost $3 million in trading and that the plaintiff is liable for such loss under the investment contract he had with them was the thesis he sought to advance in the litigation. He has lost that effort – the Judgment has been signed and is binding upon him.
60While Mr. Nowack claimed that he provided an “accounting” of losing trades with this short document, he admitted that there are no contemporary documents to show that any of these were the “plaintiff’s” trades as opposed to his own trades. While he claims to know the plaintiff’s trades on sight, it appears more likely that he has simply allocated all losing trades to the plaintiff with a view to reverse-engineering the losses he wanted to show. The exercise was irrelevant and certainly not what was required of him. As it turns out, the distinction may be a small one since the evidence suggests that the entire account went to zero at or about this time in any event. There were definitely some trading losses – on whose account is another matter. There was also a lot of money transferred out in a short time frame and that is what Mr. Nowack has been stubbornly refusing to come clean about.
61Mr. Nowack has not purged his contempt. With such flashy displays as his correspondence with TD Bank’s legal department, he has sought to give the appearance of trying. It is a thin veil, to say nothing of being too little and too late.
62In the contempt proceedings before Morgan J. in the Greenberg litigation, a similar sequence of events occurred. Mr. Nowack was ordered to produce financial information. He did not do so. He claimed to be impeded by the seizure of his records and Wagg obligations. He was found guilty of contempt and given an opportunity to purge his contempt. Again, he failed to do so. He was sentenced and asked for a stay to allow him to seek one from the Court of Appeal. In rejecting the request for a stay, Morgan J. made the following comment (at 2015 ONSC 2256, para. 5):
“Mr. Nowack also took the opportunity this morning to advise me that he hopes to be in a position to purge his contempt by April 16, 2015. He says that he is in the process of collecting documents from his bank. While I appreciate Mr. Nowack’s assurances that he is making an effort to collect the documents that he was first ordered to produce a year ago, I find it telling that not a single piece of paper has yet been produced by Mr. Nowack since his having been found in contempt, despite the passage of several more weeks”.
63The comments of Morgan J. could be repeated today with very little amendment required. The documents Mr. Nowack has failed to produce have been the subject of orders made by various judges for years. Paragraph 6 of the Judgment and my own order are merely the latest in a string of orders that have been ignored. While I am punishing Mr. Nowack for his non-compliance with the latest two orders only, the fact that prior orders have been trying to pry the same information out of him since shortly after the funds disappeared is a significant aggravating factor.
64I find that Mr. Nowack has yet to make a serious effort to purge his contempt. His appearances before me have without fail been model acts of contrition and apparent cooperation. His activities outside of the courtroom have been to quite opposite effect.
65I credit not a word of what he has said in court before me with being truthful or sincere. The same excuses and tactics have been attempted by Mr. Nowack before too many judges for me to be lured by the siren song of a very good and convincing salesman. His actions alone are what I can judge and these exhibit continued stonewalling and defiance of orders.
Principles of Sentencing
66Rule 60.11(5) of the Rules of Civil Procedure grants me broad discretion to fashion a remedy for contempt that may include orders that the contemnor:
a. be imprisoned for such period and on such terms as are just; b. be imprisoned if the person fails to comply with a term of the order; c. pay a fine; d. do or refrain from doing an act; e. pay such costs as are just; and f. comply with any other order that the judge considers necessary.
67Myers J. has reviewed the principles of sentencing in very helpful detail in Pronesti v. 1309395 Ontario Ltd., 2015 ONSC 1139. The facts bore a number of similarities to the facts in the present case: assets had gone missing without being accounted for and a stonewalling contemnor had attempted to justify failure to comply with an alleged attempt to set aside the order being ignored. I adopt the comments of Myers J. in that case here and his approach to sentencing that I shall not repeat at length here.
68There are two primary purposes to be served in sentencing, and I must have regard to both in this case.
69Firstly – and usually primarily - the objective of sentencing is to coerce the contemnor to comply with the orders in question. My objective is not to punish Mr. Nowack for the conduct that resulted in Judgment – it is to enforce paragraph 6 of the Judgment and my order of November 26, 2015 alone.
70Time has not necessarily rendered these orders moot. The objective of enforcement has very critical importance in this case given the risk of potentially traceable assets being dissipated before they can be discovered. My primary objective in this case is to secure compliance as soon as possible and as effectively as possible with valid orders that have been made.
71A second objective of sentencing is punishment. Punishment serves to denounce conduct that requires denouncing and thereby deter the contemnor specifically and others more generally who might contemplate breaches of court orders. There can be no toleration of a doctrine of “economic breach” of court orders. No party should ever seek to calculate whether it is “worth it” to breach an order to secure some other objective.
72Our court system and the rule of law itself would not long survive if litigants considered themselves free to disobey court orders at will. If a party has disagreements or issues with an order that has been made, it must nevertheless be complied with unless validly stayed or reversed on appeal in accordance with the rules. There is no self-help after an order has been issued.
73In considering the appropriate sentence in an individual case, I have had regard to the list of factors cited by Shaugnessy J. in Nelson Barbados Group Ltd. v. Cox, 2010 ONSC 569. While not all are equally applicable on the facts of this case, I find the list of factors to be a helpful way of organizing the evidence in this case. The factors, listed at para. 25, are the following:
a. The nature of the contemptuous act; b. Whether the contemnor has admitted his breach; c. Whether the contemnor has tendered a formal apology to the Court; d. Whether the breach was a single act or part of an on-going pattern of conduct in which there were repeated breaches; e. Whether the breach occurred with the full knowledge and understanding of the contemnor such that it was a breach rather than a result of a mistake or misunderstanding; and f. The extent to which the conduct of the contemnor has displayed defiance; g. Whether the order was a private one affecting only the parties or whether some public benefit lays at its root.
74Finally, I must consider whether incarceration is an appropriate remedy or whether some lesser remedy is sufficient and appropriate. In considering that question, I start with the proposition that incarceration for civil contempt is very much the exception and not the rule. The penalty selected must be proportional to the conduct and appropriate having regard to the principles to be applied.
75I shall accordingly review the evidence before me in the context of each of these factors.
Application of Sentencing Principles
(i) Nature of the act
76My order of November 26, 2015 amplified but did not alter paragraph 6 of the Judgment by specifying certain documents, among others, that should have been produced on December 1, 2015.
77The Judgment has conclusively determined that Mr. Nowack extracted the plaintiff’s funds by means of fraud. The balance of the claim seeks proprietary remedies against assets not yet identified in hands unknown. Paragraph 6 of the Judgment, like the orders of D.M. Brown J. that preceded it, was quite specifically targeted at shedding light on that issue.
78Every penny of the plaintiff’s money received must be accounted for. $630,000 was not transferred to FXCM and remains unaccounted for. By Mr. Nowack’s admission, between $100,000 and $200,000 came into his hands from FXCM and have not been accounted for. If only $2.1 million in trading losses had been identified before D.M. Brown J., there may well be more funds unaccounted for. It has always lain within Mr. Nowack’s power to produce this information since he was first required to do so in 2013. The questions remain unanswered today despite new orders contained in the Judgment and my own order.
79A very large amount of money has slipped between Mr. Nowack’s fingers in a very brief period of time, much of it supplied by the plaintiff. Mr. Nowack has had no visible means of support since 2010. He testified before me that has earned nothing since that time. He has nevertheless maintained a lifestyle that suggests that resources other than charity may be at play.
80The Judgment was intended to shed light on the places where the plaintiff’s money may have gone so as to enable tracing remedies to be asserted in appropriate cases. That is a time-sensitive matter. If there are funds the plaintiff can look to, the passage of time increases the risk that these assets may be permanently dissipated.
81I am left with the suspicion that Mr. Nowack is hiding assets or assisting others to hide them. His protestations to the contrary do not persuade me. Data might.
82His failure to comply with the Judgment may be an instance of stubborn and irrational behaviour or it may be a calculated attempt to buy time to further shield assets from prying eyes. If the latter, Mr. Nowack’s behaviour begins to more closely approximate the behaviour of Mr. Sidhu in G M Textiles v. Sidhu, 2016 ONSC 2055 by deliberately frustrating the purpose of the court order entirely. If the former, he is leading the plaintiff on a wild-goose chase at considerable expense. Either course of action is worthy of punishment.
83Accordingly, I view the defendant’s breaches as both deliberate and quite serious.
(ii) Whether contemnor has admitted breach?
84Mr. Nowack has not admitted his breaches. To the contrary, he has sought to obfuscate and deny at each step. His disingenuous attempts to misread selectively what was asked of him by paragraph 6 of the Judgment – despite three previous appearances before me – was a further example of this approach. Mr. Nowack has never been in any doubt of what he was ordered to do and he has quite deliberately chosen not to do it.
85I do not accept any of his explanations at face value. I would view his lack of acceptance of blame as an aggravating factor in this case, all the more so since he remains non-compliant at this time.
(iii) Formal Apology?
86Having accepted no blame for his breaches, Mr. Nowack’s attempts at a qualified apology for the “trouble” he has caused is not adequate either.
(iv) Pattern of Conduct
87Mr. Nowack’s conduct in relation to the breaches of which he stands convicted is definitely part of a pattern of behaviour. His prior conviction for contempt of court by Morgan J. shows very significant parallels to this case.
88The pattern of conduct that I perceive is one of a party who is engaged in a desperate rearguard battle to prevent any light from being shone upon his financial affairs. Very significant assets have disappeared in connection with a fraud. Mr. Nowack has been ordered to co-operate in showing where they went. He has chosen to resist passively, actively and every other way he can contrive.
89His pattern of conduct is an aggravating factor. He is a repeat offender.
(v) Full knowledge or Misunderstanding?
90Logically, this factor relates more to guilt (that I have already found) than it does to sentencing. A finding of guilt requires that the thing required to be done was clear and that the breach was both knowing and deliberate beyond a reasonable doubt. In finding Mr. Nowack guilty, I have found all of that to be true.
91Mr. Nowack’s protestations of surprise at learning the meaning of paragraph 6 of the Judgement was theatre and not remotely sincere. I cannot consider alleged misunderstanding of his obligations to be a mitigating factor. He knew full well what was required of him and has known if for a long, long time.
(vi) Defiance?
92Mr. Nowack has not shown express defiance. His approach has been to feign surprise and claim ignorance or misunderstanding of his obligations when in court, while steadfastly stonewalling or deflecting when being examined out of court. Such a deceptive approach is, in many ways, more blameworthy than outright defiance which displays at least the virtue of being honest, if unlawful.
(vii) Public or Private Rights
93There is no doubt that the private rights of the plaintiff have been impacted by Mr. Nowack’s actions. He has purchased a considerable span of time with his campaign of resistance. He remains non-compliant, so the prospect of his purchasing still more time must be considered.
94The only public right engaged, however, is that of respect for court orders and the rule of law. That is not an insignificant interest.
(viii) Adequacy of a Fine or Other Remedy?
95It is clear to me that a fine is not an appropriate sanction. Mr. Nowack has a number of judgments outstanding that he has not satisfied. There are costs awards that are similarly not satisfied. He claims to have no assets and no income. He certainly has none that have been discovered so far. A fine in this context would have no impact at all upon modifying his behaviour with a view to coercing him into compliance.
96His situation thus bears some similarity to that confronted by Belobaba J. in Ceridian Canada Ltd. v. Azeezodeen, 2014 ONSC 4162. In that case, the contemnor had deliberately violated a court order and proclaimed that she was judgment proof in any event.
97Issuing a fine to a contemnor without any realistic prospect of the fine being paid would, in these circumstances, amount to no sentence at all. Contempt cannot be responded to with a license to continue with impunity.
98I have considered whether any remedy other than incarceration might be appropriate in light of the sentencing objectives and factors I have outlined. I can see no other remedy that would be effective. Mr. Nowack will obey orders he chooses to obey and disregard the rest. That approach cannot be allowed to persist.
99Mr. Nowack suggests that I might order TD Bank to produce the documents he has demanded of them at no cost. Imposing an order upon a non-party without notice is hardly an adequate remedy for his own contempt.
(ix) Incarceration
100In my view, nothing short of incarceration will secure the objectives of sentencing in this case. This court’s orders may not be flouted with impunity and, in the circumstances of this case, I have unfortunately been drawn to the conclusion that the last resort in matters of civil contempt – incarceration - is the only effective remedy available here.
101If Mr. Nowack is to be incarcerated, what is an appropriate sentence?
102Mr. Nowack was sentenced to 15 days incarceration by Morgan J. in the Greenburg matter. The circumstances faced by Morgan J. in that case have many parallels to this case.
103In my view, the fact that Mr. Nowack has previously been sentenced for contempt in such similar circumstances, a sentence of greater than 15 days is called for. Mr. Nowack has continued to resist disclosure of his financial affairs. It does not appear from his conduct before me that he has learned much from his previous brush with contempt proceedings. A sharper message must be delivered if it is to have an effect.
104The Greenberg case was, if anything, a less compelling one than this. I do not view the findings of Perell J. in the Greenberg matter to be particularly informative of the sentence that ought to be imposed here. Perell J. acquitted Mr. Nowack of contempt on one set of facts – I have convicted him on another. The plaintiffs in the Greenberg case had neither fraud findings nor proprietary remedies – the plaintiff in this case has both. The Judgment contains very specific orders that Mr. Nowack has been resisting since 2013. The provision of a sworn judgment debtor questionnaire cannot discharge the contempt in this case.
105In my view, the range of sentence that I must consider ought to be in the range of 15 days at the low end and 90 days at the high end. This is not – yet – a case similar to G M Textiles v. Sidhu, 2016 ONSC 2055 where the contemnor had effectively frustrated the orders permanently. There is still hope in this case that Mr. Nowack will be brought around to making the disclosure demanded of him.
106Disclosure may reveal assets as yet hidden or it may cause the plaintiff to conclude that it is seeking blood from a stone and to stop sending good money after bad. Either outcome would be preferable to the status quo.
107At a minimum, the evidence suggests that $630,000 of the plaintiff’s funds as deposited into the TD Account have yet to be traced as does perhaps $200,000 or more withdrawn from the FXCM account before it was frozen or lost.
108Mr. Nowack claims to have had virtually no income since 2010 and professes to have not a single asset of value. Hundreds of thousands of dollars came through his hands in only a few months in 2013 – much of which he claims to have spent on “personal expenses”. He claims to be living off of the charity of unidentified friends today. During the years since he has last claimed to have earned any income (2010), Mr. Nowack has been married, has had two children and has purchased – or attempted to purchase – a house in Forest Hill on Dunvegan Avenue. In the past months, he has travelled to Winnipeg to attempt to foster the career of a very young entertainer with whom he claims to have no management contract, he has rented cars on more than one occasion and travelled to Montreal.
109There is much that is unexplained in Mr. Nowack’s financial affairs. Mr. Nowack’s activities suggest access to a level of cash flow inconsistent with the state of abject penury that he claims to be in. In that context, his continued resistance to making the full accounting that he was ordered to make cannot be ascribed simply to innocent misunderstandings of his obligations or an understandably defensive reaction to an aggressive judgment creditor who he perceives as invading his privacy.
110The stonewalling exercise has got to stop. Stonewalling is quite the opposite of compliance. The plaintiff is entitled to know the answers to the questions that court has ordered him to answer.
111In short, I find that Mr. Nowack’s contempt has been both deliberate and continuous. His efforts at purging his contempt have been half-hearted and designed to maximize the appearance of activity while delivering a minimum of substance. I am quite satisfied that Mr. Nowack warrants punishment.
112Deterrence through punishment is another legitimate objective. There is no right to judgment-proof a debtor. Mr. Nowack has frustrated attempts by the plaintiff to secure the accounting of their funds that they were entitled to for more than six months. Whether he has financially benefitted from that delay I cannot now say, but it is important that other debtors minded to undertake a similar campaign of resistance of this sort should know that their efforts will not be rewarded. If the court’s orders can be undermined and flouted with impunity, the court is at risk of becoming perceived as a paper tiger and respect for the rule of law would be considerably eroded. An exemplary sentence is called for on these facts.
113Finally, coercion. The primary object of contempt proceedings is to secure compliance with court orders once made. I have not lost hope that Mr. Nowack can produce the accounting that has been requested of him and will do so.
114In all of the circumstances, I am satisfied that a substantial period of incarceration is called for. I find that a custodial sentence of 30 days is appropriate in all of the circumstances. Upon his release, I order him to perform the accounting described below. If the plaintiff shall have obtained any of the information that Mr. Nowack is directed to obtain in the interim using the authorization they already possess, I am directing Mr. Nowack to appear to be examined on the information obtained thereby. The accounting I am directing will constitute full compliance with paragraph 6 of the Judgment and my order of November 26, 2015.
115This sentence is a serious one but is appropriate in a case such as this to reflect the gravity of the breach. Mr. Nowack has gotten himself into a very great deal of trouble. I am well aware that he faces serious criminal charges. I have not inquired into the merits of those charges and will not do so. I am solely and uniquely concerned with his failure to do what two court orders told him to do.
116Mr. Nowack may feel that this plaintiff bears a grudge and is on an unreasoned vendetta against him. He has certainly expressed that sentiment to me. If that is true – and I do not by any means conclude that it is – the blame for that lies in large measure at his feet. The plaintiff has spent a very considerable amount of time and money to unearth assets they believe he has hidden. They have had good reason to do so. His behaviour has caused them to suspect that this is exactly what he has done.
117Should it be the case that Mr. Nowack is as penniless as he claims to be and he is not trying to shield assets they might legitimately claim, the sooner he does what has been asked of him by shining a light in those dark corners, the sooner they will be led to accept their loss and move on. He is aggravating their pain and their loss with his stubborn resistance. I am urging Mr. Nowack to give this very serious thought and reflection.
118I trust that the cycle of contempt applications stops here. An end to the forensic investigation needs to happen and soon. The plaintiff has the tools it needs to determine if there is fire behind the smoke. If Mr. Nowack is hiding assets, the documents I have ordered produced – and which the plaintiff will have equal ability to obtain – will answer the question or put the plaintiff on track to do so quite swiftly. If he is not hiding assets, it will be time the plaintiff allowed the criminal justice system to attend to punishment and resign themselves to the remedies they do have as judgment creditor.
119I am going to remain seized of any further applications to enforce this order only. I am doing so because I expect progress from both the plaintiff and the defendant. The plaintiff has the ability to make progress on its forensic investigation. I do not expect to hear that the TD Bank documents have not been obtained at another hearing where either side can now get them and easily. The provision of information legitimately sought to pursue possible tracing remedies is the sole object of my orders and will inform any future orders I may make.
(x) Request for a stay
120Mr. Nowack requested that I grant a stay of my order to permit him to make an appeal to the Court of Appeal. He made this request at the opening of his submissions in the sentencing hearing before I had heard argument or made a ruling. He provided me with case authorities to review, including the decision of Belobaba J. in Ceridian Canada Ltd. v. Azeezodeen previously cited.
121Mr. Nowack was convicted of contempt more than three months ago. To the extent that he has made any efforts at purging his contempt, he has done so only at the 11th hour and beyond. There remains much for him to do.
122In my view, a custodial sentence is needed to turn Mr. Nowack from his obstructive course and secure compliance with the orders he has thus far defied. This is not his first conviction for contempt nor even his first sentencing hearing before me. I will not exercise my discretion to defer the beginning of his period of custody. The process of behaviour modification must begin without further delay.
123There are facilities available to him to make a sentencing appeal or seek a stay while in custody. I decline to grant a stay.
Disposition
124I am therefore ordering that Mr. Nowack be incarcerated immediately for a period of thirty days. I have signed a warrant of committal to that effect.
125I further order that Mr. Nowack shall deliver a full and complete accounting of the following matters within 45 days of his release:
a. The source of all deposits and the destination of all funds withdrawn from his TD account #5224792 between February 1, 2013 and March 21, 2013, excluding transactions under $1,000 subject to the following terms: i. Copies of cheques, debit memo, wire transfer instructions and the like in respect of each such deposit or withdrawal from the account shall be provided if available and ordered forthwith if not in order to confirm the identity of the sender and recipient of funds and Mr. Nowack is to pay the full cost of retrieving such documents; ii. The full name and address of each recipient of the funds so withdrawn shall be provided; iii. Where the destination of a withdrawal was another account at a financial institution of any kind over which Mr Nowack had signing authority, similar information is to be provided with regard to that account (identifying deposits and withdrawals until that account reaches less than $1,000.00 in net end of day balance); and b. The source of all deposits and the destination of all withdrawals (in each case excluding transactions under $1,000) from any FXCM account from February 1, 2013 until the first date after March 4, 2013 that the FXCM accounts collectively show a net value below $1,000 subject to the following terms: i. Internal transfers as between FXCM accounts need not be separately analyzed further providing that the source of all external deposits into and withdrawals from the FXCM accounts are identified and explained as required by this order; ii. The full name and address of each recipient of the funds so withdrawn is to be provided; iii. Copies of cheques, debit memos, wire transfer instructions and the like in respect of each inbound or outbound transfer of funds over $1,000 in the described time frame shall be provided if available and ordered forthwith if not in order to confirm the identity of the sender and recipient of funds and Mr. Nowack is to pay the full cost of retrieving such documents; and iv. Where the destination of a withdrawal was another account at a financial institution of any kind over which Mr Nowack had signing authority, similar information is to be provided with regard to that account (identifying deposits and withdrawals until that account reaches less than $1,000.00 in net end of day balance).
126I further order Mr. Nowack to produce a complete list of all documents he has received by reason of Crown disclosure in his criminal proceedings. If his criminal counsel believe there is a legitimate Wagg issue to be resolved in relation to disclosure of the list, the list may be delivered to me under seal within thirty days of his release from custody to be dealt by further order. Otherwise, it is to be delivered to the plaintiff within the same thirty days of his release.
127I order that production of the information required of him as listed above shall be considered to purge Mr. Nowack of contempt of paragraph 6 of the Judgment and my order of November 26, 2015.
128Once the transaction records have been produced from either TD or FXCM, I further order Mr. Nowack to be examined and to answer all proper questions relating to the identity of any person who has received funds transferred out of the TD account or the FXCM account as the case may be or out of any other accounts over which Mr. Nowack had or has signing authority and into which funds have been transferred from the TD Account or the FXCM account as the case may be.
129For greater certainty, I order that the plaintiff is authorized in the name of Mr. Nowack to request any transaction records from TD Bank or FXCM relating to the accounts of Mr. Nowack for the period from February 1, 2013 until June 30, 2013 without further order.
130I shall approve any draft order prepared by the plaintiff arising from this endorsement myself and dispense the plaintiff with seeking approval of the defendant as to form. A committal order is being signed along with this endorsement – the only additional order required is in respect of the accounting and the matters above.
S. F. Dunphy, J.
Date: April 18, 2016
