COURT FILE NO.: 2454/14 DATE: 2016-06-20 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
BUSINESS DEVELOPMENT BANK OF CANADA Applicant – and – CAVALON INC., 2365222 ONTARIO LIMITED, AUTOMETRIC AUTOBODY INC., 2145009 ONTARIO INC. and ROBERT FRANCIS BORTOLON also known as ROBERT BORTOLON Respondents
Benjamin Frydenberg and Sam Rappos, for the Applicant Doug LaFramboise, for the Respondents A.J. Esterbauer for Robyrt Regan, a non-party
HEARD: June 7, 2016
REASONS FOR JUDGMENT
GRAY J.
[1] The plaintiff brings a motion for contempt, allegedly committed by the respondents, particularly Bortolon, and by Bortolon’s former solicitor, Regan. It is alleged that they violated an order of LeMay J. dated March 11, 2015. By that order, Regan was to make available for inspection certain documents, and it is alleged that many of the documents were transmitted to Bortolon so that they could not be inspected.
[2] For the reasons that follow, I find the respondents and Regan guilty of contempt.
Background
[3] The underlying litigation between the applicant and the respondents is somewhat complicated, and it is not necessary to review it in detail for the purposes of this contempt motion.
[4] The applicant loaned $100,000 to the respondent Cavalon Inc., and took as security a General Security Agreement (“GSA”). Cavalon operated under a trade name “Autometric Autobody”.
[5] The applicant alleges that Cavalon made no payments on account of principal towards the loan.
[6] Cavalon operated, among other things, a body shop for the repair and maintenance of vehicles. The applicant alleges that subsequent to obtaining the loan, the business of Cavalon was assumed by a number of other corporate entities incorporated by Bortolon. The respondent 2145009 Ontario Inc. was incorporated by Bortolon, and operated out of the same premises used by Cavalon. Cavalon stopped using the trade name Autometric Autobody and a new corporation, Autometric Autobody Inc. was incorporated by Bortolon. Ultimately, the respondent 2365222 Ontario Limited was incorporated. There are three shareholders of that corporation, of which Bortolon is one.
[7] All of the various corporations operated out of the same premises. The applicant alleges that steps were taken by Bortolon to shuffle assets around so that it would be difficult to know which corporation owned which assets. However, it was essentially the same business, and Bortolon was involved in all of them.
[8] A fire occurred in the premises, and the insurer valued the assets, other than the building, at approximately $98,000. That amount was claimed by 2365222 Ontario Limited., which asserted that it was the owner of the assets, and that they were not subject to the applicant’s GSA. The insurer took steps to pay the money into court, where it remains. The litigation now involves a contest as to whether the applicant is entitled to the money, or 2365222 Ontario Limited.
[9] Robyrt Regan was the solicitor for Bortolon, and had been for a number of years. Ultimately, they had a falling out. Primarily, it was over some unpaid bills rendered by Regan, and one of the disputes was over an antique Cadillac owned by Regan, which he had entrusted to Bortolon. Once the dispute flared up, Bortolon refused to return the Cadillac to Regan.
[10] Bortolon complained to the Law Society about Regan, and Regan, in his defence to the claim, made certain allegations about Bortolon. Among other things, Regan alleged that Bortolon had a habit of trying to defraud creditors by shifting assets around among various corporate entities that he owned or controlled.
[11] In his letter dated July 15, 2013 to the Law Society of Upper Canada, Mr. Regan stated:
In addition to handling Mr. Bortolon’s litigation and business transactions, at his direction, I also incorporated and created the corporate and share structure for three separate corporate entities, one of which, Autometric Autobody Inc., is directly relevant to this complaint. In general, Cavalon Inc. (which was incorporated by Mr. Bortolon before I knew him) acted as the holding company for the real property in which Mr. Bortolon lived and conducted his business from, as a well as his principal business operations. Autometric Autobody Inc. was the operating entity which ran the autobody repair business and the other two companies were created for specific business transactions. However, as time went on, I became aware that Mr. Bortolon would regularly transfer corporate assets to and from his various companies. Mr. Bortolon would not involve me in these transactions, which he did himself, but I assume they were done as a “shell game” for the purpose of “dodging creditors” and artificially inflating/reducing balance sheets to satisfy other third parties. [Emphasis added]
[12] As noted earlier, an order of LeMay J. was obtained that is now said to be the subject of these contempt proceedings. The order is dated March 11, 2015, and was made on consent. The operative parts of the order are as follows:
THIS COURT ORDERS AND DECLARES that the Respondents have waived solicitor-client privilege with respect to their former solicitor-client relationship with Mr. Robyrt Hawyrden Regan (“Regan”) .
THIS COURT ORDERS THAT Regan shall attend at an examination to be conducted in connection with a summons to witness issued in this proceeding pursuant to rule 39.03 of the Rules of Civil Procedure , at the Offices of Professional Court Reporters in Toronto, Ontario, located at 4950 Yonge Street, 8 th floor, on a date to be determined by counsel for the Applicant, to be held after compliance with paragraph 3 of this Order (the “Regan Examination”) .
THIS COURT ORDERS THAT Regan shall provide access to the Applicant and its lawyers to the documents requested by the Applicant in its lawyers’ letter to Regan dated January 29, 2015 (marked as Exhibit “I” to the Caterina Affidavit”), including the right and ability to obtain photocopies, on or before Tuesday March 31, 2015, with reasonable retrieval and copying costs to be borne by the Applicant.
[13] Paragraph three of the order requires that Regan provide access to documents referred to in a letter to Regan dated January 29, 2015. Since that letter is incorporated by reference into the order, its contents are important. It is lengthy so I will not reproduce it in the body of these reasons, but I attach it to the reasons as Appendix A.
[14] Correspondence ensued between Mr. Regan and counsel for the applicant with respect to the examination of Mr. Regan and the inspection of records in his possession. On March 16, 2015, counsel for the applicant confirmed in an email to Mr. Regan that Mr. Regan’s examination would proceed on May 5, 2015, and noted that Mr. Regan was to provide access to the records by March 31, 2015.
[15] On the same day that that email was sent to Mr. Regan, he sent a letter to counsel for Bortolon. That letter assumes some importance. At the risk of lengthening these reasons unduly, I consider it necessary to reproduce it in full. It reads as follows:
March 16, 2015
PRIVILEGED AND CONFIDENTIAL
Mr. Doug LaFramboise Barrister & Solicitor 77 City Centre Drive, Suite 501 Mississauga, Ontario L5B 1M5
Dear Sir:
Re: Regan ats Bortolon BDC v. Cavalon et al
I write to follow up our recent appearance before the Honourable Mr. Justice LeMay, on March 11, 2015.
As you are aware, His Honour pronounced an Order requiring me to provide access to your clients’ file materials currently in my possession on or before March 31, 2015. You are further aware that I continue to maintain a possessory lien on same in respect of your clients’ unpaid legal accounts.
Earlier today, I was contacted by counsel for BDC who is seeking to schedule a date with he can attend my office and review the file materials.
Without intending to be mischievous, I feel obliged to give you fair warning that there are a number of factual inconsistencies between the statements deposed to in Mr. Bortolon’s affidavit dated September 23, 2014 and the information contained in the various original documents in my possession. The nature of these inconsistencies is likely to be highly prejudicial to your clients. It is also equally likely that these same inconsistencies will come to the attention of BDC’s counsel upon their review of the documents which they are entitled to see and, should any questions be put to me during my examination, I would be obliged to provide a truthful answer.
It goes without saying that if your clients were to settle their outstanding account with me and complete the terms of the settlement entered into in January 2014 (which they are presently in breach of), then your clients would have a right to the return of their file materials (which amount to approximately 18 file boxes, more or less) in priority to the demands for their production by BDC.
If your clients have any interest in retrieving their materials, I would ask you provide me with a confirmation of same on or before the close of business, March 18, 2015 . If I do not hear from you by that time, I will assume your clients have no further interest in their files.
Yours very truly
R.H. (Rob) Regan RHR/leh
[Emphasis added]
[16] Counsel for the applicant attended at Mr. Regan’s office and inspected the documents Mr. Regan had at that time. Mr. Regan’s letter dated March 16, 2015 was among the documents inspected by counsel. Counsel obtained some documents from Mr. Regan, and the examination of Mr. Regan went ahead.
[17] During the examination, Mr. Regan confirmed that some of the documents in his possession had been returned to Mr. Bortolon. Mr. Regan was confronted with his letter dated March 16, 2015. When asked why he had returned documents to Mr. Bortolon, rather than making them available for inspection as required by the order of LeMay J., Mr. Regan said that as far as he was concerned Mr. Bortolon had a claim to the documents that was of a higher order.
[18] According to Mr. Regan, the documents that he had that related to Mr. Bortolon and his businesses amounted to 18 bankers boxes full of documents. In his affidavit, he says he retained some documents, and ultimately shipped 14 bankers’ boxes of documents to Mr. Bortolon. For his part, Mr. Bortolon says he received only five bankers’ boxes worth of documents, and he shipped all of them to the solicitors for the applicant. The applicant’s counsel says he received only five bankers’ boxes of documents, and that they are of marginal relevance.
[19] In his affidavit material, Mr. Regan takes the position that his letter dated March 16, 2105 attracts settlement privilege, and that it was obtained surreptitiously by counsel for the applicant. While he took the position in his affidavit material that the letter should not be before the court, that position was not taken by his counsel on the argument of the motion.
[20] Both Mr. Regan and Mr. Bortolon, in their affidavits, take the position that all relevant documents were produced to counsel for the applicant. Neither Mr. Bortolon nor Mr. Regan comment on the substance of Mr. Regan’s letter dated March 16, 2015. In particular, they do not deny that Mr. Regan said that there were a number of factual inconsistencies between the statements deposed to in Mr. Bortolon’s affidavit dated September 23, 2014 and the information contained in various original documents in Mr. Regan’s possession. Nor do they deny that the nature of those inconsistencies was likely to be highly prejudicial to Mr. Bortolon.
Submissions
[21] Mr. Frydenberg, counsel for the applicant, submits that both Mr. Bortolon and Mr. Regan should be found in contempt of the order of LeMay J.
[22] Mr. Frydenberg submits that Mr. Regan was required to retain all relevant documents in his possession so that they could be inspected by counsel for the applicant. Mr. Regan was present in court when the order was made, and was well aware of its contents. As a solicitor, he would know better than others what his obligations were.
[23] It is no answer to say, as Mr. Regan does, that the interests of his former client were of a higher order than those of the applicant. Whether or not that may be the case in other circumstances, in this case there was a clear order of the court that required those documents to be in Mr. Regan’s possession so that they could be inspected.
[24] Not only was Mr. Regan in clear violation of the order, counsel submits that the transmission of the documents to Mr. Bortolon was bargained as part of a deal, under which Mr. Bortolon was clearly told that the documents were incriminating, and that if Mr. Bortolon implemented the deal, the incriminating documents would be returned to him. Thus, the incriminating documents would not be available for inspection by counsel for the applicant.
[25] Mr. Frydenberg submits that that is exactly what happened. Notwithstanding Mr. Regan’s assertion that he had incriminating documents in his possession, the documents that were ultimately inspected and shipped to the offices of counsel for the applicant were of marginal relevance. It is clear, Mr. Frydenberg submits, that Mr. Bortolon simply removed any incriminating documents from those given to him by Mr. Regan, and shipped the balance to counsel for the applicant.
[26] Counsel submits that it is not possible to know what relevant documents were not made available contrary to the order of LeMay J. However, it is clear that some were not made available, and, in all probability, they were highly prejudicial to Mr. Bortolon.
[27] Mr. Frydenberg does not request an order of a penal nature against either Mr. Regan or Mr. Bortolon. Specifically, he does not request imprisonment or fines. Rather, he requests an order striking the pleadings of the respondents.
[28] Mr. Frydenberg submits that the actions of Mr. Regan and Mr. Bortolon have made it impossible for the applicant to have available to it documents that it requires in order to make its case. It will now be impossible for the applicant to have a fair trial, and it is necessary that a remedial order be made to prevent the respondents from benefitting from their misconduct and which would otherwise stand in the way of the applicant obtaining justice.
[29] Mr. Frydenberg submits that the conduct of Mr. Regan and Mr. Bortolon is an affront to the administration of justice, as well as being conduct that deprives the applicant of a fair proceeding.
[30] Mr. LaFramboise, counsel for the respondents, submits that the contempt motion should be dismissed as against the respondents.
[31] Mr. LaFramboise submits that Mr. Bortolon has made an affidavit in which he denies destroying or hiding any documents. He swears he transmitted to counsel for the applicant all of the documents he received from Mr. Regan, and that those documents were contained in five bankers’ boxes. He submits that those are all of the relevant documents that exist, and he has provided all of them.
[32] Mr. LaFramboise notes that Mr. Bortolon was not cross-examined on his affidavit, and there is no justification in discounting it.
[33] Mr. LaFramboise notes that some of the documents requested relate to 2365222 Ontario Limited, and that corporation was incorporated after Mr. Regan’s retainer was terminated. Thus, there is no reason to believe that Mr. Regan had any documents in his possession that were relevant to that corporation.
[34] Mr. Esterbauer, counsel for Mr. Regan, submits that the motion as it relates to his client should be dismissed.
[35] Mr. Esterbauer submits that Mr. Regan has sworn an affidavit in which he deposes that he retained in his possession any documents that might be relevant, and those documents were made available to counsel for the applicant. He submits that he shipped 14 bankers’ boxes of documents to Mr. Bortolon, and what Mr. Bortolon did with them is his business.
[36] Mr. Esterbauer notes, as did Mr. LaFramboise, that 2365222 Ontario Limited was incorporated after Mr. Regan’s retainer had been terminated. Thus, there is no reason to believe that Mr. Regan had any documents that were relevant as they relate to that corporation.
[37] Mr. Esterbauer submits that Mr. Regan has deposed, under oath, that he made available all relevant documents in his possession, and there is nothing to suggest that his affidavit should be discounted. Furthermore, he has deposed that he had a number of electronic records, none of which were requested by counsel for the applicant, and if they chose not to request to see them, that is not Mr. Regan’s fault.
Analysis
[38] Certain general principles relating to injunctions and contempt of court orders were discussed by O’Leary J. in Canada Metal Co. Ltd. et al. v. Canadian Broadcasting Corp. et al. (No.2) (1974), , 4 O.R. (2d) 585 (H.C.J.), at p.603. I will paraphrase to some extent those principles as he set them out, as follows:
a) An order must be implicitly observed and every diligence must be exercised to observe it to the letter;
b) A person is obliged to obey not only the letter but also the spirit of the order;
c) Knowledge of the existence of an order is sufficient to obligate persons to obey it; and
d) Persons who are not parties to a proceeding and who are, therefore, not named as being bound by an order still must abide by it if they know the substance or nature of the order.
[39] Justice O’Leary’s decision, holding a number of persons in contempt, was affirmed by the Court of Appeal in Canada Metal Co. Ltd. et al. v. Canadian Broadcasting Corp. et al. (No.2) (1975), , 11 O.R. (2d) 167 (C.A.).
[40] The elements of contempt, which must be established beyond a reasonable doubt, are as follows:
a) The order alleged to have been breached must state clearly and unequivocally what should and should not be done;
b) The party alleged to have breached the order must have had actual knowledge of it; and
c) The party allegedly in breach must have intentionally done the act that the order prohibits or intentionally failed to do the act that the order compels.
[41] These elements are set out and discussed by the Supreme Court of Canada in Carey v. Laiken , 2015 SCC 17 , [2015] 2 S.C.R. 79, at paras. 32-35.
[42] The contempt power is discretionary and courts have consistently discouraged its routine use to obtain compliance with court orders. For example, where an alleged contemnor acted in good faith in taking reasonable steps to comply with the order, the judge entertaining a contempt motion generally retains some discretion to decline to make a finding of contempt: Carey , at paras. 36 and 37 .
[43] The issue before me is whether the elements of contempt have been proven beyond a reasonable doubt. In my view, they have.
[44] There can be no doubt that the order clearly and unequivocally stated what should and should not be done. The documents in question were to be inspected at the office of Mr. Regan. They were not to be inspected at the premises of Mr. Bortolon. In order for the inspection to take place, the documents had to be in the possession of Mr. Regan.
[45] Mr. Regan had actual knowledge of the order. He was present in court when the order was made. He referred to that order in the letter he wrote to counsel for Mr. Bortolon on March 16, 2015. It is not necessary to infer knowledge – the evidence is that Mr. Regan had actual knowledge. Mr. Bortolon, as a party, had actual knowledge of the order. His counsel does not contend otherwise.
[46] There is no question that Mr. Regan intentionally transmitted documents to Mr. Bortolon. That is not disputed. The only dispute is whether he transmitted relevant documents, that ought to have been available for inspection. While he took the position in his affidavit material that his former client had a higher order of interest in the documents, his counsel rightly did not pursue that excuse in argument. It would not have availed him to do so. The order itself is quite clear, and whatever interest Mr. Bortolon had in the documents, the order itself had to be complied with.
[47] As noted, the only issue is whether the documents shipped to Mr. Bortolon included relevant documents. In my view, the inference is inescapable that they did.
[48] The letter that Mr. Regan wrote to Mr. Bortolon’s counsel on March 16, 2015 speaks for itself. Mr. Regan clearly states that he had documents that are not only relevant, they are “highly prejudicial” to Mr. Bortolon. He says he shipped 14 bankers’ boxes worth of documents to Mr. Bortolon. Five boxes were shipped from Mr. Bortolon to counsel for the applicant. It is not hard to connect the dots.
[49] I do not accept the self-serving affidavit material filed by Mr. Regan and Mr. Bortolon to the effect that all relevant documents have been produced. I also do not accept Mr. Bortolon’s affidavit, in which he swears that he received only five bankers’ boxes of material from Mr. Regan. Not only is it contrary to the affidavits of Mr. Regan and his assistant, it defies common sense. The material in the five bankers’ boxes was only of marginal relevance. It contained nothing that could be said to be highly prejudicial to Mr. Bortolon.
[50] The evidence admits of only one conclusion: Mr. Bortolon and Mr. Regan made a deal under which Mr. Regan’s claim against Mr. Bortolon would be satisfied, in exchange for which the highly prejudicial documents in the possession of Mr. Regan would be given to Mr. Bortolon. While unstated, the clear inference was that Mr. Bortolon would see that none of the incriminating documents would find their way to counsel for the applicant. That is indeed what happened.
[51] At one time, it was not possible to make a finding of contempt if there was any conflict in the affidavit material: see R. v. Jetco Manufacturing Ltd. and Alexander (1987), , 57 O.R. (2d) 776 (C.A.); and R. v. B.E.S.T. Plating Shoppe Ltd. and Siapas (1987), , 59 O.R. (2d) 145 (C.A.). However, since the decision of the Supreme Court of Canada in Hryniak v. Mauldin , 2014 SCC 7 , [2014] 1 S.C.R. 87, I do not think any such hard and fast rule is necessary or appropriate.
[52] In the context of a civil case, a judge can decide a motion for summary judgment on the basis of conflicting affidavit evidence where the judge has confidence that he or she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute: see the reasons of Karakatsanis J. in Hryniak at para. 50 . I see no reason why a case such as this, which is to be decided on the basis of the criminal standard of proof beyond a reasonable doubt, cannot be approached on the same basis. Where, as here, affidavit evidence filed by the alleged contemnors defies common sense, the judge can safely have confidence that findings can be made based on the criminal standard of proof. I have such confidence here.
[53] In this case, none of the parties sought to cross-examine the deponents of any of the affidavits. None of the parties requested that viva voce evidence be heard. In the absence of such requests, it must be assumed that all parties are content that the matter be determined on the basis of the record as it is. This is particularly so, in my view, where none of the responding parties challenges the content of the letter from Mr. Regan dated March 16, 2015. That letter can admit of no doubt as to its meaning.
[54] I am satisfied beyond a reasonable doubt that all of the elements of contempt have been made out.
[55] I find both Mr. Regan and Mr. Bortolon in contempt.
Disposition
[56] I am not prepared, at this point, to impose any penalty, and I am not prepared, at this point, to grant the remedy sought by Mr. Frydenberg.
[57] Ordinarily, in contempt proceedings, a separate hearing is conducted at the penalty phase. I think it is appropriate to do so in this case, for at least two reasons.
[58] First, it is possible that the contemnors may purge their contempt, and they should be given an opportunity to do so before any penalty is imposed. I recognize that in this case it may be next to impossible to satisfy the court that any contempt has been purged. It would be very difficult to establish that all of the relevant documents have been produced. However, the contemnors should be given an opportunity to purge their contempt if they wish to do so, to the extent that they are able to do so.
[59] Second, I am not satisfied that the remedy sought by Mr. Frydenberg is entirely sufficient. I think the conduct of Mr. Regan and Mr. Bortolon is an affront to the administration of justice, and a serious violation of a court order. It is quite possible that the court may impose additional sanctions on the contemnors.
[60] For these reasons, I will convene a further hearing to consider what appropriate sanctions, if any, should be imposed. The hearing will be arranged by the trial coordinator in consultation with counsel.
Gray J.
Released: June 20, 2016
APPENDIX A
COURT FILE NO.: 2454/14 DATE: 2016-06-20 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: BUSINESS DEVELOPMENT BANK OF CANADA Applicant – and – CAVALON INC., 2365222 ONTARIO LIMITED, AUTOMETRIC AUTOBODY INC., 2145009 ONTARIO INC. and ROBERT FRANCIS BORTOLON also known as ROBERT BORTOLON Respondents REASONS FOR JUDGMENT Gray J. Released: June 20, 2016
