COURT FILE AND PARTIES

COURT FILE NO.: FC-13-043923-00

DATE: 20131024

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Sagar Haghighynia, Applicant

AND:

Orod Darvish, Respondent

BEFORE: The Honourable Mr. Justice C. Nelson

COUNSEL:
Elham Moaveni, Counsel for the Applicant

Samil Chagpar, Counsel for the Respondent

Annalisa Pressaco, Counsel for James J. Walsh

HEARD: September 24, 2013

Endorsement

motion for contempt of court

Endorsement

[1] This motion for contempt of court was brought by the applicant wife, in a family matter, against a person not a party to the case. The motion for contempt is based upon the alleged breach of an order requiring the proceeds of the sale of a business to be held in trust.

Background

[2] On July 30, 2013 the applicant wife, Sagar Haghighynia, (“the applicant”) issued an application requesting a divorce, support, an equalization payment, the freezing of assets and the sale of family property. In addition there was a request that an Iranian marriage contract be enforced.

[3] On the same day, the applicant moved ex-parte (without notice) for the following relief:

1. An order freezing the assets of the respondent Orod Darvish, (“the respondent”).

2. An order that all proceeds of the sale of the business D & D Discount (2222188 Ontario Corporation) closing on July 31, 2013 or as scheduled thereafter be held in trust with the real estate lawyer, until further court order;

3. That the application be accepted without necessary filing of a Financial Statement, until further time or as determined.

[4] The applicant swore an affidavit on July 30, 2013 that claimed that she was an owner of the business and produced documents which indicated that the sale was to take place based on the respondent’s instructions alone. She further indicated that the business was the only asset of value that the parties owned and that the respondent intended “to take the money that is left and potentially leave the country”. She raised a concern that she would be left with the debts of the business. The balance of funds to be paid on closing was $301,127.99.

[5] The applicant’s affidavit stated that “the business lawyer conducting the sale is James Walsh Q.C. at Walsh, McCluskie, Doyle.”

[6] The matter came before me as an urgent ex-parte motion on July 30, 2013. I granted the relief requested and adjourned the motion to August 7, 2013 in order to give the respondent an opportunity to deliver material. The applicant’s notice of motion dated July 30, 2013 is appended to these reasons and marked as Schedule “A”. My July 30, 2013 endorsement is appended to these reasons and marked as Schedule “B”.

[7] On August 7, 2013, the matter came on before another judge who adjourned the motion to August 20, 2013 in order to give the respondent, who by now was represented, further time to file material with the right of reply given to the applicant.

Events after the Freezing Order

[8] On July 30, 2013 immediately after the granting of the order, Ms. Moaveni, the applicant’s lawyer, sent copies of the endorsement, the application, notice of motion and affidavit in support, by facsimile transmission and by e-mail to Mr. Walsh. The copies were sent to Mr. Walsh along with a letter dated July 30, 2013, marked “urgent”.

[9] In the second paragraph of the letter Ms. Moaveni provides an explanation of what occurred in court. In this letter she requests that Mr. Walsh contact her and asks if he will be retained to act for the respondent in the family case.

[10] At 7:00 p.m. that evening, Ms. Moaveni contacted Mr. Walsh by telephone. During that telephone call Mr. Walsh advised that he had received the materials she sent.

[11] On July 31, 2013 the freezing order was issued and entered at the Newmarket court house and then faxed and e-mailed to Mr. Walsh.

[12] On July 31, 2013 a further telephone discussion took place between Ms. Moaveni and Mr. Walsh. During that discussion Ms. Moaveni and Mr. Walsh spoke about exactly which debts should be paid from the proceeds Mr. Walsh had received from the purchaser.

[13] The debts were fairly easily ascertainable in this case because the respondent had sworn an affidavit on July 28, 2013 pursuant to The Bulk Sales Act which appended a form called the “Statement as to the Seller’s Creditor’s”. That statement contained two boxes for the affiant to complete. The first box was there for the vendor to set out a list of all unsecured creditors; the second was to contain a list of all secured creditors. Under the heading “Secured Trade Creditors” the following information was set out:

Name of Creditor

Address

Amount

Nature of Security

Due or becoming due on the date fixed for the completion of sale

BDC

3901 Hwy 7

Suite 600

Vaughan, ON

$55,000.00

Inventory/equipment

accts/other

July 31, 2013

[14] Under the heading “Unsecured Trade Creditors”, no information was set out. Not surprisingly, therefore, Ms. Moaveni agreed that Mr. Walsh could pay the secured creditor. She also states, in an affidavit sworn on the contempt motion, that she further consented to the payment of Mr. Walsh’s legal fees and disbursements.

[15] On July 30, 2013 she forwarded a fax to Mr. Walsh specifically confirming the above agreement.

[16] On the very next day, Mr. Walsh and Ms. Moaveni engaged in a further e-mail exchange. The first e-mail is sent by Mr. Walsh to Ms. Moaveni and states as follows:

Elly: Please see attached partial list of trade payables that I must pay from my trust account and your client MUST consent to this, notwithstanding the Court Order. If I do not hear back from you by 10:00 a.m. tomorrow morning, I will be cutting the trust cheque to pay the trade payables. I have seen the original invoices and will get my client to copy and deliver to your office.

[17] A few minutes later Ms. Moaveni answers as follows:

You cannot pay any of these amounts from trust as the proceeds are frozen by court order.

Please do not breach the court order as it is there to protect the assets against depletion. If the debts are true debts, the president [sic] will provide you proper outstanding invoices and confirmation can be easily made.

Shortly after that Mr. Walsh responds:

Sorry I have the invoices and I will have Orod (the respondent) sign a statutory declaration the invoices represent amounts owing to suppliers as of July 31, 2013 and need to be paid from the closing proceeds. I will not agree to my client swearing a false affidavit. The affidavit that there are no cebts[sic] is based on these debts being paid! There is no difference between their business debts and the money owing to BDC and you need to agree they are an exception to the order just as the BDC debt is an exception. If I have to I will scan all the invoices and send all 50 or more to you.

[18] Mr. Walsh’s trust statement with respect to the sale of the respondent’s business is attached to his affidavit. It shows that he received $228,632.94 representing the sale proceeds on July 31, 2013.

[19] On August 2, 2013 Mr. Walsh prepared and disbursed a number of cheques from the sale proceeds which appear, on their face, to be paid to unsecured trade creditors of the business.

[20] On August 6, 2013, the day before the return of the motion, Mr. Walsh dispensed funds to immediate family members of the respondent. He paid the sum of $155,876.83 to the respondent’s mother and the further sum of $40,007.50 to the respondent’s sister.

[21] On August 7, 2013 the day of the return of the motion, Mr. Walsh paid the sum of $10,992.05 to the respondent’s sister as a purported interest payment.

[22] In addition, on August 7, 2013 Mr. Walsh paid the sum of $5,000.00 to Dr. Afrashteh, a dentist.

[23] On August 13, 2013 Mr. Walsh paid the sum of $12,101.14 as a purported partial interest payment to the respondent’s mother.

[24] On August 19, 2013 Mr. Walsh mailed three further cheques to trade creditors of the business in the amounts of $1,500.00, $913.94, and $496.35 respectfully.

The Law of Contempt

[25] Rule 31(1) of the Family Law Rules states as follows:

31. (1) An order, other than a payment order, may be enforced by a contempt motion made in the case in which the order was made, even if another penalty is available. O. Reg. 114/99, r. 31 (1).

[26] Contempt is not defined in the Rules. There have been numerous cases, however, that give the court guidance. Contempt is an enforcement mechanism that is available to the court in circumstances where a breach of its order(s) is egregious and deserves special sanction. That is because the breach, if ignored, brings the administration of justice into disrepute.

[27] In the circumstances of this case, the applicant submits that Mr. Walsh breached the freezing order not only once but several times in the days after it was made, by issuing cheques payable to various individuals and entities after the order was made. It is the applicant’s contention that Mr. Walsh did this knowingly, without first obtaining the approval of the court.

[28] The applicant relies on a number of cases dealing with contempt findings. These cases set out the principles and the three-fold test that a court must follow if a finding of contempt is to be made. The test can be stated as follows:

1. The order which has not been complied with must clearly and unequivocally set forth what must be done or not done;

2. The party or person who disobeys the order must have done so in a deliberate and voluntary manner;

3. The evidence must establish contempt beyond a reasonable doubt. Any doubt must be resolved in favour of the person or the entity alleged to have violated the order.

It is beyond dispute that the freezing order was brought to the attention of Mr. Walsh. That is not in issue. Colletta v. Jones Coletta, 2003 2412, [2003] O.J. No. 81 (ONSC); Mendlowitz & Associates Inc. v. Chiang, 2007 12203, 157 A.C.W.S. (3d) 100 (ONSC).

[29] No dispute was raised about the court’s jurisdiction to make the freezing order, and no submissions were made on this point. The court’s jurisdiction is found in S. 12 of the Family Law Act which states as follows:

12. In an application under section 7 or 10, if the court considers it necessary for the protection of the other spouse’s interests under this Part, the court may make an interim or final order,

(a) restraining the depletion of a spouse’s property; and

(b) for the possession, delivering up, safekeeping and preservation of the property.

The Respondent’s Submissions

[30] While the respondent’s counsel concedes that the order made was unequivocal and clear, she submits that the negotiation held between counsel for the applicant and Mr. Walsh muddied the waters in such a way that it made the order equivocal.

[31] Ms. Pressaco specifically draws the court’s attention to the July 30, 2013 letter from Ms. Moaveni to Mr. Walsh wherein she states as follows:

I am the solicitor for Saghar Haghighynia in a matrimonial action that commenced on July 30, 2013.

Please find enclosed a copy of the Application commenced in Court, the Notice of urgent Motion and the supporting Affidavit. The Motion was heard on July 30, 2013, for the purpose of freezing all assets of the Respondent, including the holding of all proceeds of sale in your trust account after the closing of the business, D & D Discount (operating under 2222188 Ontario Corporation), taking place on July 31, 2013.

Please find attached the endorsement of Justice Nelson of the Superior Court of Justice and the Order.

I would appreciate you contacting me to discuss possible resolution of this matter and whether or not you will be retained to deal with the matrimonial issues.

Kindly be reminded that the Motion is returnable on August 7, 2013 at 9:30 a.m. and we are able to resolve financial matters prior to that date, if we are able to discuss the issues with your client, Orod Darvish [sic].

I trust you will conduct yourselves accordingly. Sincerely, Elham Moaveni

[32] Ms. Pressaco points to the comment in the 4th paragraph of that letter that uses the phrase “intention …to freeze the net proceeds.” That, taken together with the various e-mail exchanges indicates, Ms. Pressaco contends, that there was confusion in Mr. Walsh’s mind about exactly what amount should remain frozen.

[33] I cannot agree with this submission.

[34] In the first place, as Ms. Pressaco concedes, the order itself was clear. The fact that negotiation took place after the order was made does not change this fact.

[35] When a court order is made, it is not made for the purpose of enabling parties to negotiate. While I would agree that, in any private dispute, be it in a family matter or otherwise, an order maybe a factor in negotiations, it is always incumbent upon those affected by it to have the order changed through further order, (or by way of a consent order if such is the case). That opportunity was given to counsel in the case by adjourning the matter for a very short time. In any event, if time is of the essence, it is common practice, when an ex-parte order is made to move to change it on an urgent basis if the facts of the case so dictate.

[36] Neither Mr. Walsh nor the respondent’s counsel returned to court to change the order nor to seek clarification of its terms.

[37] I recognize that, after an order is made on an ex-parte basis, parties often engage in negotiations to arrive at an agreement. This no way affects the force and validity of the order unless and until it is changed. The changes required in this case would have been very simple to obtain. I also agree that negotiations, after an order is made, may change the litigation landscape between the parties who might then be prepared to advise the court that technical breaches to an order have been made, but neither side is aggrieved. It is likely then that life would unfold as contemplated by the parties without much legal consequence. Once again, I stress, that the parties’ negotiations, in and of themselves, do not affect the outstanding force and validity of a court order.

[38] Secondly, I do not accept the submission of counsel, that Mr. Walsh was confused in any way about the court order as a result of the negotiation. That the order was clear has been conceded. No argument was made that the order was wrong, even though all proceeds of sale were frozen as opposed to just the net proceeds. Had that position been taken I would have said that even if Mr. Walsh felt the order was wrong, it still had to be obeyed.

[39] Ms. Moaeveni’s letter dated July 30, 2013 and the e-mail contact between the parties made it crystal clear that only the secured creditor, BDC, was to have been paid, along with Mr. Walsh’s fees and disbursements. The term “net proceeds” of sale, as used by Ms. Moeveni, was also clear in that it referred to the balance after payment of BDC and legal costs.

[40] Ms. Moaveni was correct in taking this position and using this language in view of the affidavit (sworn on July 28, 2013) by the respondent in which he stated there were no other creditors, secured or otherwise.

[41] Ms. Pressaco, in her submissions, suggested it was “industry” practice not to fill in the space in the required affidavit in The Bulk Sales Act until a later date. If this is the practice, it seems to me that it is sloppy practice that should not be condoned. The affidavit is a sworn statement, the omission of creditors is a serious matter. Ms. Moeveni was entitled to rely on the information contained in the sworn affidavit.

[42] The respondent also submits that the agreement of purchase compelled him to release funds to individuals and entities other than the secured creditor because the agreement of purchase and sale obligated the vendor to comply with The Bulk Sales Act. I find that there is nothing in this private contract or in The Bulk Sales Act that would exempt the respondent from complying with a court order.

[43] Mr. Walsh, in his affidavit sworn on August 22, 2013, does say that he neglected to obtain a list of trade creditors from the respondent. Had he done so, the correct approach, in face of the position Ms. Moaveni was taking, would have been to move in court to change (vary) the order once he had been presented with the information. It is quite likely that, had Mr. Walsh conducted his affairs appropriately, a court order could easily have been obtained in order to pay legitimate trade creditors. If the matter had been returned to court, the applicant would have been given a fair opportunity to give evidence about the validity of various debts.

[44] Finally, the respondent takes the position that the sale itself could not be concluded until all the unsecured creditors were paid. That I find is incorrect, as the sale had been concluded once Mr. Walsh received the proceeds, subject, of course, to some of the proceeds being held in escrow until proper debts could be determined.

[45] This brings me to the amounts paid to the respondent’s mother and sister. According to the materials filed, the total paid to the respondent’s relatives amounted to $206,876.38; these payments comprised a significant portion of the proceeds of sale. They were paid out not only in breach of the freezing order but in the context of a family law dispute where it was possible and even, likely, that the debts or the amount of the debts would be called into question.

[46] In requesting proof of these inter-family debts Mr. Walsh basically took the word of the respondent, his mother and sister that the original debts and interest accrued were valid. The applicant disputes the validity of the debts. Had Mr. Walsh returned the matter to court to seek a change in the order to allow payment out, the court, and the parties, would have had an opportunity to examine the validity of the debts and make a proper decision. That opportunity was pre-empted by Mr. Walsh’s actions.

[47] It is interesting to note that the evidence accepted by Mr. Walsh was a statutory declaration allegedly sworn by the respondent on February 25, 2010 and an affidavit attesting to the validity of the loans sworn on August 6, 2013, long after the alleged transaction itself and after the freezing order was made.

[48] While bank statements allegedly tracing the funds was also produced this information, in the context of this family dispute, required testing. It should be noted that Mr. Walsh also paid the account of a dentist in the amount of $5,000.00. The legitimacy of these alleged debts should have been placed before the court. It should not have been up to Mr. Walsh to decide on their legitimacy in the face of the freezing order.

[49] Freezing orders made on an urgent without notice basis are common in family law matters. That they are very important orders, made to keep a level playing field, is stating the obvious. It is highly unusual when a lawyer, who is an officer of the court, takes it upon himself to disobey, knowingly, such an order. This action must not be condoned.

[50] It is beyond dispute that Mr. Walsh knew about the order. It is beyond dispute that he was told by the applicant’s counsel not to disobey the order. The finding of contempt is made as the evidence establishes the contempt beyond a reasonable doubt. Therefore, I must find Mr. Walsh in contempt of the court order of July 30, 2013.

[51] Order to go accordingly.

[52] The next step in the contempt matter is the penalty phase. All counsel should arrange a date for the hearing with the Trial Co-ordinator.

Nelson J.

Date: October 24, 2013