Thrive Capital Management et al. v. Michael Hyman et al.,

2021 ONSC 482

COURT FILE NO.: CV-20-00639748-00CL

DATE: 20210121

ONTARIO

SUPERIOR COURT OF JUSTICE

(Commercial List)

BETWEEN:

THRIVE CAPITAL MANAGEMENT LTD., THRIVE UPLANDS LTD., 2699010 ONTARIO INC. and 2699011 ONTARIO INC.

Plaintiffs

– and –

NOBLE 1324 QUEEN INC., MICHAEL HYMAN, GIUSEPPE ANASTASIO, DAVID BOWEN, NOBLE DEVELOPMENTS CORPORATION, HAMPSHIRE AND ASSOCIATES INCORPORATED, LISA SUSAN ANASTASIO, RAJEREE ETWAROO and CON-STRADA CONSTRUCTION GROUP INC.

Defendants

Counsel: Brian N. Radnoff, Nathan I. Lean and Joshua Suttner, for the plaintiffs

Michael Donsky and Alexander Evangelista for the Defendant Michael Hyman and Hampshire and Associates Inc. Justin Necpal for the Defendant Giuseppe Anastasio David Bowen acting on his own behalf

HEARD: November 5, 2020

REASONS FOR JUDGMENT

koehnen j.

1These reasons relate to the appropriate penalty for contempt of court with respect to certain defendants in this action.

2At a hearing on June 19, 2020, I found certain defendants, namely Michael Hyman, Giuseppe Anastasio, Noble 1324 Queen Inc., Noble Developments Corporation and Hampshire and Associates Inc. to be in contempt of my orders dated April 23, 2020, May 19, 2020, June 1, 2020, and June 10, 2020.¹ For ease of reference, I will refer to those defendants collectively in the remainder of these reasons as the Defendants.

3On the original contempt hearing I also found the defendant David Bowen to be in contempt. The plaintiffs do not seek any penalty against Mr. Bowen at this time. He is therefore excluded from any reference to the Defendants in these reasons.

4On this hearing, the plaintiffs ask me to impose penalties on the Defendants for their contempt.

5The plaintiffs allege that the Defendants have defrauded the plaintiffs of $9,000,000. At earlier stages of this proceeding, I granted a Mareva injunction and a string of subsequent orders against the Defendants.

6I granted the earlier orders with a view to: freezing the $9,000,000 or any assets they may have been converted into; allowing the plaintiffs to discover what the Defendants had done with the plaintiffs’ money; and allowing the plaintiffs to determine where that money was now. The Defendants have consistently failed to comply with those orders although they have been given ample time to do so. In earlier endorsements I described the Defendants as playing games, obfuscating and delaying.

7The plaintiffs seek a jail sentence of six months for Messrs. Hyman and Anastasio as well as judgment against the Defendants. The Defendants submit that only a small fine is appropriate because they have now purged their contempt and that whatever contempt there may have been lies at the minor and of the spectrum whereas jail sentences are appropriate only for the most serious of contempt cases.

8Although this is a case in which incarceration is appropriate, in my view, it is more appropriate to grant judgment against the Defendants together with further directions contained later in these reasons.

9To the extent that the Messrs. Hyman and Anastasio commit further contempt by refusing to comply with these additional directions, they can expect a jail sentence as the likely penalty. If they want to avoid jail, they have a very simple way of doing so by complying with court orders.

10If I am wrong in granting judgment against the Defendants, I would sentence Messrs. Hyman and Anastasio to six months incarceration for contempt of court.

A. Have Hyman and Anastasio Purged Their Contempt?

11Messrs. Hyman and Anastasio submit that they have purged their contempt in the four areas capable of being purged, namely:

i. The failure to provide an accounting;

ii. The failure to provide information about automobiles.

iii. The failure to provide contact information; and

iv. The failure to provide disclosure.

12For the reasons set out below, I disagree. The Defendants have not purged their contempt and remain in contempt even now.

i. The Accounting

13The Defendants had been ordered to provide an accounting of what they did with the $9,000,000 the plaintiffs invested with them. The Defendants did disclose that approximately $4 million was paid in respect of two real estate investments that went sour.² The “accounting” for the balance of the plaintiffs’ funds consisted of a list of withdrawals in favour of individual Defendants with descriptions such as:

“$414,000 Mr. Anastasio, Mr. Hyman, partial of covenant payment” (sic)

“$150,045 Mr. Anastasio, interest repayment due to Thrive delays”

“$300,000 Hampshire and Associates”

14In earlier reasons I had explained why this was entirely inadequate and also explained what was required. By way of example, in my endorsement of May 19, 2020, I noted that the Defendants were in breach of an earlier order to provide an accounting. In paragraph 4 of that endorsement, I explained that an accounting included:

“..all backup, supporting documents and records, including but not limited to, copies of any cheques, bank drafts, wire details, e-transfers, bank account details, invoices and any agreements, communications, telephone records, correspondence or documents of any kind in relation to any deposit, withdrawal or payment out of the Accounts. For greater certainty, the accounting shall include detailed, full and complete information about what was done with the money in the Accounts, who the money went to, where it was sent, the account it was deposited into, what it was for and what any recipient did with that money.”

15On this penalty hearing, Messrs. Hyman and Anastasio assert once again, that they were unable to complete an accounting earlier because they were unable to find an accountant as a result of the Covid pandemic but that they have now complied and provided an accounting to the best of their ability. They say the accounting lacks supporting documentation because they did not deal with things in documentary form but dealt with things verbally. I reject that explanation.

16The complete evidence about the Defendants’ efforts to find an accountant is contained in the affidavit of Alexander Evangelista, one of Mr. Hyman’s lawyers, sworn September 29, 2020. In paragraph four of his affidavit, Mr. Evangelista refers to a meeting that he had with Mr. Hyman and his father, Maurice Hyman. Mr. Evangelista says:

4. During this meeting, Maurice advised me, and I do verily believe that:

(a) he is the father of Hyman and the ex-husband of Sandra Azan, Hyman's mother;

(b) in late April of 2020, Hyman requested urgent assistance from Maurice with fulfilling his obligations under the April 23, 2020 Order;

(c) Following this discussion with Hyman in April 2020, Maurice contacted the following accountants in an attempt to retain them to complete the required Bookkeeping:

(i) Alex Powell of Imperial Accounting in Burlington, Ontario;

(ii) Sam of Alcan Canada and Alcan Alumina Bauxite Jamaica; and

(iii) Sel-Kan Tax Service in Scarborough, Ontario;

(d) the above accountants advised Maurice that they could not assist with preparing the Bookkeeping due to their existing tax season obligations and restrictions imposed by COVID-19;

17This evidence is completely inadequate. It does not demonstrate anything near the effort required to produce an accounting to the court with respect to a $9,000,000 fraud allegation for several reasons.

18First, there was no requirement in the accounting to retain accountants. The object of the accounting was to tell the plaintiffs what happened to their $9,000,000, what the recipients did with that money and where that money was now. Second, the evidence does not come from Maurice Hyman but is hearsay evidence in a solicitor’s affidavit. Third, the information about the accountants is inadequate. There is no information provided for Imperial Accounting or Sel-Kan or their manpower. The accountant identified as “Sam” from Alcan appears to have a full-time job with Alcan does not appear to be in the business of providing services to outside clients. It is untenable that Defendants in a $9,000,000 fraud action who clearly have the means to pay for firms like Fogler Rubinoff do not have the ability to find an accountant, even during the Covid pandemic. I have a high level of confidence that counsel for Messrs. Hyman and Anastasio are aware of more accountants than the three provided by Maurice Hyman. Had the Defendants wanted to retain an accountant they could have done so. Fourth, the explanation of not being able to find an accountant contradicts Mr. Hyman’s evidence of July 12, 2020 in which he stated that accountants had been retained and would be reporting imminently.

19The further accounting that the Defendants provided on this penalty motion is nothing more than a repeat of the wholly inadequate information they provided earlier, although dressed up in a more formal looking format. I have copied and pasted extracts from that “accounting” to demonstrate what I mean:

2019-07-12 8191936841147400000754 Account Withdrawal 192 1079060 CAD $180,000.00 PIN (150,000 RBC Bank draft payable to “Joseph Perruccio”. Inquire with Joe) (30,000 RBC Bank Draft payable to “Celia Losiggio”. Inquire with Joe).

2019-07-12 8191936841147400000754 Draft And Money Orders 63370956 CAD $150,000.00 PIN (150,000 RBC Bank draft payable to “Joseph Perruccio”. Inquire with Joe).

2019-07-12 8191936841147400000754 Draft And Money Orders 63370957 CAD $30,000.00 PIN (30,000 RBC Bank Draft payable to “Celia Losiggio”. Inquire with Joe).

2019-07-12 8191936841147400000754 Account Deposit ANASTASIO, GIUSEPPECAD $70,000.00 PIN payable to Joe. Inquire with Joe.

2019-07-12 8191936841147400000754 Account Withdrawal 192 1079060 CAD $70,000.00 PIN payable to Joe. Inquire with Joe.

2019-07-12 8191936841147400000754 Debit Memo 192 1079060 CAD $250,000.00 PIN payable to “Hampshire” as per Costs to Developer.

2019-07-12 8191936841147400000754 Credit Memo HAMPSHIRE AND ASSOCCIAADTES $250,000.00 PIN payable to “Hampshire” as per Costs to Developer.

20When one strips away the account number and the date, the first five entries simply refer to payments to named individuals. To find out more about those cash payments we are instructed to “inquire with Joe”. “Joe” is not identified. It is not for the Defendant or the court to “inquire with Joe”. That is for the Defendants to do. They have not done so. To the extent that “Joe” refers to the Defendant Giuseppe Anastasio (who goes by the name of Joe), it makes the “accounting” even more contemptible because Mr. Anastasio provided no information about the accounting but instead, relied on the information that Mr. Hyman had provided.

21The balance of the entries quoted above simply refer to money being paid to one of the Defendants “as per Costs to Developer”. It contains no backup documentation, does not contain any explanation of what the alleged costs were for and, does not explain what the recipient did with the money as required by paragraph 4 of my reasons of May 19, 2020.

22The remainder of the “accounting” is in similar form. I note that at least $3,000,000 is described as payments to Messrs. Hyman and Anastasio or corporations controlled by them.

23The Defendants then purported to purge their contempt by sending the plaintiffs information from the Defendants’ bookkeeping system. Without agreeing that those records comply with an accounting (they do not), material information was cut off from what the plaintiffs received when converting the electronic book keeping record into a PDF document. Mr. Hyman takes the position that this cannot be corrected because of the Covid 19 pandemic. He says the information is located on a server in Jamaica situated in an office that his father runs. According to Mr. Hyman, the information cannot be accessed remotely. Only his father can access the information in person, his father has been unable to return to Jamaica and in any event, Jamaican Covid restrictions do not allow anyone to enter the building in which the server is located.

24That explanation is also not worthy of belief. The information does not come from Maurice Hyman but is, once again, contained in Mr. Evangelista’s affidavit based on hearsay from Maurice Hyman. The affidavit does not explain why the server is not remotely accessible. It does not provide evidence of Covid restrictions that prohibit anyone from entering the building in which the server is located. Although it asserts that Mr. Hyman’s father cannot travel to Jamaica until the first week of November because he is under a physician’s care after eye surgery, it does not contain any evidence to the effect that Mr. Hyman’s father cannot travel and does not describe the nature of the surgery or the care. The affidavit does not contain any information from the physician confirming that Maurice Hyman cannot travel. This is all the more curious because the physician in question is the sister of Mr. Hyman’s lead lawyer, Mr. Donsky.

25The foregoing makes clear that the Defendants have not purged their contempt in respect of the accounting.

26During the penalty hearing, the Defendants argued that there was no explanation about what various payments were for because those explanations related to the merits and I had given directions that the merits should not be addressed. This too is an untenable explanation for their failure to provide an accounting.

27The issue about the merits arose as follows: The sanctions hearing was originally scheduled to be argued on October 6, 2020. On September 30, 2020 I held a case conference at the request of Messrs. Hyman and Anastasio. At that case conference, they said they were surprised by the plaintiffs’ factum on the penalty motion because it requested judgment against them as a sanction for contempt in addition to incarceration. The Defendants claimed that the request for judgment took them by surprise. I had, however, asked during an earlier case conference whether judgment was a possible sanction for contempt and had asked counsel to make submissions on that point during the penalty hearing. The Defendants could hardly be taken by surprise when the plaintiffs dealt with an issue that I had asked the parties to address. During the case conference of September 30, 2020, the Defendants submitted that judgment could not be addressed as a penalty for contempt without a determination of the merits of the action. The dynamic was such that I viewed this submission as an effort by the Defendant to, in effect, defer the penalty hearing to the trial. I explained that whether judgment was available as a sanction for contempt could be addressed as a legal question without addressing the merits of the defence. Even though I did not believe that the Defendants were truly taken by surprise, I nevertheless granted them an adjournment of the penalty hearing from October 6, 2022 to November 5, 2020.

28My directions on September 30, 2020 do not, however, change the nature of an accounting and do not change the specific instructions I gave the Defendants on May 19, 2020 about what the accounting should look like.

29Moreover, whatever their understanding, it did not stop Mr. Hyman from addressing the merits in his affidavit for this hearing. In that affidavit he reiterates a verbal agreement that allowed him to use the plaintiffs’ funds to pay for things like development costs, Tarion warranties and a sales centre. Assuming that is the case, that was the whole point of the earlier court orders, to demonstrate that the plaintiffs’ funds had been spent for legitimate purposes. Spending the plaintiffs’ money with explanations like “inquire with Joe” or “as per developer’s costs” does not meet that test. Even if the Defendants operated informally and were not document intensive, one would expect that there would be some itemized record of the developer’s costs incurred, some documentation to support at least some of those costs. Expenditures on Tarion warranties and a sales centre would certainly have some documentation associated with them. The plaintiffs have produced nothing in that regard.

ii. Information about Automobiles

30Earlier orders had required Messrs. Hyman and Anastasio to provide the vehicle information numbers and location of a number of luxury automobiles they said they owned, including Rolls-Royces, Lamborghinis and Ferraris. The orders also prohibited the Defendants from transferring those automobiles or driving them. Messrs. Hyman and Anastasio now say the automobiles were leased and were returned to various dealerships after the orders were issued. That was done without notice to, let alone permission, of the court.

31The absence of the court’s permission is not a mere technicality. The plaintiffs dispute that the automobiles were returned to the dealerships as Messrs. Hyman and Anastasio assert.

32The Defendants have produced no documents to support of the alleged returns. When the plaintiffs approached the dealerships to confirm the transfers, the dealerships either denied having received the cars back, indicated that the vehicle information numbers provided were for cars that were already in their showroom and had never been sold or leased to the Defendants, or that the cars had never been in the dealer’s possession to begin with.

33Another one of the cars, a Mercedes E 400 was transferred from the name of Hampshire and Associates to Mr. Hyman’s mother after the Mareva injunction was issued, once again without authority of the court.

34Had the defendants sought permission to engage in these transactions, the plaintiffs and the court could have satisfied themselves about their legitimacy, gained insight about the Defendants assets and avoided the evidentiary dispute about this issue. Their failure to seek permission in the face of court orders leads me to draw adverse inferences about the nature of the transactions.

35In the foregoing circumstances, the contempt of the Defendants has not been purged in respect of the automobiles.

iii. Failure to Provide Contact Information

36The orders in respect of which I found the Defendants in contempt required them to provide contact information for all individuals or entities that received funds from the Defendants. While they have provided contact information for some, they continue to refuse to provide information for others.

37Among the individuals in question were Ms. Hyman’s mother, father and siblings. On this penalty motion, counsel explained that Mr. Hyman had not provided contact information for family members because he was concerned that they would be harassed by the plaintiffs. He asked that all communications with members of his family occur through his lawyer.

38That is an astonishing submission after having been found in contempt. There is a clear order requiring him to deliver contact information. His submissions on this hearing are simply a dressed up refusal to comply.

39The Defendants have failed to provide contact information in respect of the following individuals: Ferlisi Construction, Glazepro, Artsyl Technologies, MRG Custom Concrete, Strada Construction, Skystar Holdings Inc./Centra Homes Corp., Sandra Hyman, Maurice Hyman, Justin Hyman, Alan Hyman and Giuseppe Anastasio Jr.

40In the foregoing circumstances, the Defendants have not purged their contempt in respect of contact information.

iv. Disclosure

41The orders at issue also require the Defendants to disclose to the plaintiffs a wide body of documentation. The Defendant say they have done so. The plaintiffs point to particular categories of documents that have not yet been provided. I do not propose to delve into the details of what still needs to be provided given that this is a hearing for sanctions and not a motion for a finding of contempt which has already been made.

42As indicated in reasons to support earlier orders, the Defendants’ failure to produce documentation has been striking. They assert that they do not have documents, however, when the plaintiffs approached third parties for documentation, they readily produced multiple emails with the Defendants which the Defendants could have produced simply by going into their inboxes.

43Counsel for Mr. Hyman suggested that he had purged his contempt and suggested that he had retained a forensic investigator to help with the disclosure. Given my earlier comments about Mr. Hyman’s credibility and reliability, I doubt that. Mr. Bowen addressed the issue of the forensic investigator in a written but unsworn submission to the court and described it at best as hyperbole. According to Mr. Bowen, the full extent of the dealings with the forensic investigator was that Mr. Bowen telephoned an IT service whose representative spoke with Mr. Bowen and Mr. Hyman for 15 minutes on the phone.

44On this hearing, Messrs. Hyman and Anastasio say they cannot produce text messages because one has lost his phone and the other’s phone had a broken screen. Neither has produced any evidence to support those assertions (such as, for example, something as simple as a receipt for a new phone), there is no explanation for why the broken screen could not be repaired, whether they still retain the same phone numbers, whether the texts are retrievable on a new device or whether their phone service provider could or could not retrieve texts.

45In the foregoing circumstances, I can give no weight to the Defendants’ assertion that they no longer have any of the documents the plaintiffs seek and cannot find that the Defendants have purged their contempt in respect of disclosure.

B. Sanctions for Contempt

46Contempt undermines the authority of the court. Serious sanctions are warranted for contempt because contempt is an attack on our fundamental social order. We organize our society based on the rule of law. At its most basic level, that means that we do not allow individuals to resort to violence or coercion to enforce their rights but depend on the courts to enforce rights. That only works if people obey court orders. People who flout court orders put our entire system of social order at risk. If a sufficient number of people simply ignore court orders, people will stop using courts as a peaceful means of resolving disputes and will begin using coercion and violence. In that light, I cannot understate the seriousness of the Defendants’ continued contempt of court.

47The goal in sentencing is to impose a penalty that will be sufficiently serious that it persuades the Defendants to comply³ and persuades the general public that it is preferable to comply with court orders than to ignore them.⁴ As the Court of Appeal explained in Boily:

The purpose of a penalty for civil contempt is to enforce compliance with a court order and to ensure societal respect for the courts […]. The remedy for civil contempt is designed not only to enforce the rights of a private party […] but also to enforce the efficacy of the process of the court itself.⁵

48When considering an appropriate penalty for contempt, the court should consider the following:

(i) the presence of mitigating or aggravating factors;

(ii) the imposition of similar sentences in similar circumstances

(iii) the deterrence and denunciation of future unlawful conduct;

(iv) the proportionality of the penalty to the wrongdoing; and

(v) the reasonableness of incarceration and the availability of other penalties.⁶

i. Mitigating and Aggravating Factors

49The Defendants' Hyman and Anastasio submit that the following are present as mitigating factors on this hearing:

(a) the contemnors' purging or attempts to purge their contempt;

(b) the contemnors' admission of contempt and signs of remorse;

(c) the contemnors' apologetic behaviour;

(d) the contemnors' efforts to mitigate damages on other parties;

(e) whether this is the contemnors' first conviction of contempt;

(f) the contemnors' willingness to comply with orders; and

(g) the availability of the plaintiffs' requested information through other sources.⁷

50While those may be mitigating factors at law, they do not amount to mitigating factors here. As noted earlier, the contemnors have not purged their contempt and have not made legitimate efforts to do so. While this might be the contemnors first conviction for contempt, they have engaged in multiple, consecutive acts of contempt over a prolonged period of time. They have failed to comply with court orders even after being told that they were in breach and after further endorsements spelled out exactly what was required to comply. While Messrs. Hyman and Anastasio purported to apologize at the hearing, the apologies were meaningless, empty words by which they hoped to avoid the adverse consequences of their continued contempt.

51If Messrs. Hyman and Anastasio had even a shred of remorse, they would provide an accounting of the sort I indicated; they would provide an explanation of what they did with the cars that is consistent with objective evidence and they would provide contact information as ordered.

52Aggravating factors include blatantly or intentionally violating a court order, continued defiance, lack of remorse, explanations unworthy of belief, profiting from the breach of the court order, the breach causing harm or prejudice to others, whether the order being breached involved the public interest, and previous convictions.⁸ All but the final two are present here as aggravating factors.

53Messrs. Hyman and Anastasio blatantly and intentionally violated court orders by continuing their contempt after the breaches were explained to them and after they were told what they needed to do to comply. Their contempt continues up to today. There is no remorse because if there were, they could cure the contempt. They have provided a string of implausible explanations based solely on bald allegations and devoid of objective evidence. They have personally profited to the tune of at least $3,000,000 by continuing to hide what they did with the plaintiffs’ funds. The continued breach caused material harm to the plaintiffs because it makes their funds ever more difficult to trace and recover.

ii. Similar Sentences in Similar Circumstances

54There are several examples of courts incarcerating individuals for contempt of the sort of which the Defendants are guilty⁹ as well as cases striking the defences of such individuals.

iii. Deterrence, Proportionality and the Appropriate Penalty

55The Defendants submit that a fine is appropriate. I disagree. A fine would allow the Defendants to have taken $9,000,000 from the plaintiffs and refuse to tell the plaintiffs or the court what they did with the money. In this case, a fine would neither persuade the Defendants or the public to comply with court orders. On the contrary, a fine would encourage contempt of court. It would send the message that you can take several million dollars from someone and avoid court orders that require you to explain what you did with money by paying a relatively small fine. In the circumstances of this case, a fine would be a license fee, probably paid with the plaintiffs’ money, that allows the Defendants to breach court orders. Many descriptions come to mind to describe a result like that, just and fair are not among them.

56The Defendants submit that incarceration during the Covid 19 pandemic is unduly harsh because it represents a serious risk to health. The Defendants have also asserted various medical conditions throughout the course of the proceeding that would make incarceration inappropriate. None of those claims has been backed up with any evidence other than bald assertions of vague heart or blood conditions.

57While I am completely satisfied that the conduct of Messrs. Hyman and Anastasio warrants incarceration, that is not the preferable penalty. In my view it is most desirable to tailor the penalty to the default. In this situation, the tailored remedy is, in my view, to grant the plaintiffs judgment against the Defendants.

58The Defendants cannot have it both ways. They cannot on the one hand say they want to participate in the proceeding by defending it and at the same time ignore orders of the court that are designed to help the parties adjudicate the claim. In those circumstances the Defendant has forfeited its right to explain its story to the court.

59I have a high level of comfort that I am not doing any injustice in granting judgment. One would ordinarily expect that a party who is wrongly accused of a $9,000,000,000 fraud would welcome the chance to explain why there has been a misunderstanding and why the Defendants are legitimately entitled to retain the money they received from the plaintiffs. Complying with the orders would have let them do that. In making this statement I am not changing the ordinary civil burden of proof. I am simply saying that one would expect that a party with a legitimate defence would go out of its way to comply with the injunction. Here, after nine months of being under a court order to explain what they did with the plaintiffs’ money, the defendants produce answers such as “inquire with Joe” or “as per developer’s costs.” In those circumstances, I am quite comfortable that there is no injustice in granting judgment against them.

60Although courts have a bias towards resolving disputes on their merits, that preference is no longer appropriate where parties persistently refuse to comply with court orders.¹⁰ Parties must take the burden with the benefit. If they want the benefit of pursuing a defence, they must accept the burden of complying with the orders of the court in which they seek to advance their defence.

61Rule 60.11 (5) provides that at the penalty phase of a contempt hearing, the court may, in addition to the enumerated remedies, order the contemnor to “comply with any other order that the judge considers necessary…”

62Rule 60.12 provides:

60.12. Where a party fails to comply with an interlocutory order, the court may, in addition to any other sanction provided by these rules,

(a) stay the party’s proceeding;

(b) dismiss the party’s proceeding or strike out the party’s defence; or

(c) make such other order as is just.

63This is an appropriate case in which to use that power as a sanction for contempt. Here, the Defendants have not yet defended. The appropriate corollary is to deny them the ability to defend and to enter judgment against them.

64In Starland Contracting Inc. v. 1581518 Ontario Ltd. the Divisional Court summarized the principles applicable to the exercise of that discretion as follows:¹¹

(i) The central question is whether to impose the drastic remedy of striking the defence or to grant a lesser remedy.

(ii) A pleading should not be struck for trivial technical breaches but only when continuation of the action is no longer viable and appropriate.” ¹²

(iii) A pleading may be struck to avoid undermining public confidence in the capacity of the justice system to process disputes fairly and efficiently, which would result from a failure by the court to enforce its orders.¹³

65In Falcon Lumber Limited v. 24803375 Ontario Inc., Ricchetti J. struck the Defendants’ pleadings after they refused to produce documents in accordance with the Rules and in breach of numerous court orders.¹⁴ In those circumstances, the Court found that the Defendants did not want an adjudication on the merits and did everything in their power to avoid dealing with the merits of the case.¹⁵

66On appeal, the Court of Appeal set out a number of factors the court should consider when deciding whether to strike out a pleading for non-compliance with disclosure orders: ¹⁶

(i) The remedy is not restricted to “last resort” situations;

(ii) Is the failure deliberate?

(iii) Is the failure clear and unequivocal?

(iv) Does the defaulting party have a reasonable explanation for its failure to comply?

(v) Is the substance of the default material?

(vi) Does the default remain outstanding?

(vii) Does the default affect the ability to do justice in the particular case?

(viii) The merits of the claim or defence (which may play only a limited role)

(ix) The extent to which the defaulting party has increased the non-defaulting party’s costs; and,

(x) The extent to which the default has delayed an adjudication of the case on its merits.

67In this case each of those factors, except the merits of the defence, is capable of a short and direct answer that does not favour the Defendants. However, as Brown J.A. noted at paragraph 57 of Falcon Lumber, one would expect parties with meritorious defences would meet their obligations to the court.

68The Defendants seek to distinguish Falcon Lumber on the basis that it concerned not contempt but an order to strike following the failure to produce an affidavit of documents. If anything, that makes judgment even more appropriate here. Contempt of court is considerably more serious than failing to produce an affidavit of documents.

69The Defendants also submit that the circumstances here are less egregious than in Falcon Lumber because the defaults here occurred over only six months while the defaults in Falcon Lumber occurred over a period of years. In addition, the default here occurred during a period where the Defendants “had no counsel for guidance”. The period in which the Defendants had no counsel was one of approximately two weeks. The Defendants first counsel removed himself from the record after a conflict arose between Messrs. Hyman, Anastasio and Bowen. Even then, the Defendants had ample notice of their first counsel’s intention to remove himself from the record and could have ensured a transition to new counsel without a two week delay.

70In addition, the Defendants point to the Court of Appeal’s language in Falcon Lumber at paragraph 56 to the effect that:

"the principle of proportionality in the context of a motion to strike out a pleading … means that the moment when a court may make the order to strike will come much earlier in a simple claim for a modest amount of money than it will in a complex case where millions are in dispute"

71Although this is a relevant principle to take into account, the Court of Appeal did not suggest in Falcon Lumber that complex cases had to wait a particular period of time before pleadings are struck. Whether it is appropriate to strike a pleading depends on the circumstances of the individual case. It does not turn on a ratio of time to amount claimed. Given the frequency with which the plaintiffs were told they were in breach of orders, the relative simplicity of the orders, the additional explanations I provided to enable the Defendants to come into compliance and their continued contempt, I am satisfied that granting judgment against the Defendants is proportional to the default.

72As a result of the foregoing, the plaintiff shall have judgment against Michael Hyman, Giuseppe Anastasio, Noble 1324 Queen Inc., Noble Developments Corporation and Hampshire and Associates Inc.

73I understand that there may be further refinements of the judgment required that may require a further attendance and further submissions. I will make myself available to do so if that is needed.

74In addition, I direct that the plaintiffs may begin enforcing that judgment by conducting judgment debtor examinations and pursuing tracing remedies even if the Defendants appeal this judgment. This is appropriate because the net effect of a judgment debtor examination or a tracing remedy arising out of it would be the same as having the Defendants comply with the Mareva injunction. Among the relief ordered under the Mareva injunction was a requirement that Messrs. Hyman and Anastasio provide affidavits of assets. I have commented on the complete inadequacy of those affidavits in earlier reasons. If the Defendants succeed on an appeal of this judgment, the appeal would allow them to defend, as a result of which the plaintiffs would continue to have whatever rights they have now, including the right to pursue further remedies under the court orders already issued which would include the right to cross-examine the Defendants on their statements of assets, the accounting and whatever disclosure they have produced.

75As a result, allowing the plaintiffs to conduct judgment debtor examinations now does not prejudice the Defendants in any way.

76Finally, in light of the Defendants’ lengthy history of obstruction, including obstruction in out-of-court examinations, I order the Defendants to answer all questions arising on any examinations to enforce the judgment. If the Defendants object to a question they will nevertheless have to answer it but may raise issues about the use of that information on a subsequent motion. In addition, I invite the plaintiffs to conduct such examinations at a time when I am available to sit in on them. While I do not propose to sit in on the entire examination, I will make myself available to deal with any issues immediately as they arise. I do this in the hope that the availability of an immediate adjudication of any issue will lead parties to act responsibly and, in the end result, make my involvement unnecessary.

77To the extent that Messrs. Hyman and Anastasio commit further contempt by refusing to provide information on those examinations, they can expect a further finding of contempt. The penalty for any further failure to provide truthful, relevant information will likely be a jail sentence. This is consistent with an approach that imposes staged remedies of increasing severity. The history of this litigation, the past breaches of court orders, past contempt and the remedy on this hearing will all be relevant considerations in determining how long a jail sentence will be appropriate for further refusals to provide information. To leave no doubt about the matter, that history will, if jail is appropriate, lead to a longer, not shorter incarceration. If Messrs. Hyman and Anastasio want to avoid the risk of jail, during a pandemic or otherwise, they have a very simple way of doing so by complying with the orders of which they are in contempt and by complying with related information requests on future examinations.

78The current prohibitions preventing Messrs. Hyman and Anastasio from leaving the jurisdiction will remain in effect until further order of this court. The restriction on Mr. Bowen leaving the jurisdiction is lifted. Counsel in possession of Mr. Bowen’s passport may return it to him.

79If I am wrong in granting judgment against the Defendants, I would sentence Messrs. Hyman and Anastasio to six months incarceration for contempt of court. The magnitude of the fraud allegations, the extent of the breaches, and the repeated, deliberate nature of the breaches call for a sentence at the high end of the spectrum. If anything, it strikes me that six months incarceration would be on the light side.

C. Costs

80The plaintiffs seek substantial indemnity costs on the contempt motion of $36,011.97 including HST and disbursements. They seek an additional substantial indemnity cost award for the penalty hearing of $48,816.31 including HST and disbursements.

81Mr. Hyman submits that costs should not necessarily be on a substantial indemnity scale particularly where the contemnor "is suitably contrite, has attempted to purge his or her contempt, and has taken steps to minimize costs incurred by the other party, and the contempt itself is towards the lower end of the 'flagrant and wilful' scale."¹⁷

82In addition, Mr. Hyman submits that liability for costs should be divided equally between himself, Mr. Anastasio and Mr. Bowen. Following upon that, he submits that Mr. Bowen should pay the first $16,608 of any cost award before it is split three ways because, while the three were represented by the same counsel, Messrs. Hyman and Anastasio paid the full cost awards issued against the Defendants which included Mr. Bowen.

83Mr. Anastasio concedes that substantial indemnity costs are appropriate but takes issue with the amount of time that plaintiffs’ counsel spent on the matter.

84I do not accept the Defendants’ submissions and order the Defendants to pay the plaintiffs’ costs on a substantial indemnity basis which I fix at of $36,011.97 for the contempt motion and $48,816.31 for the penalty motion. The Defendants are jointly and severally liable for the costs award.

85As indicated earlier in these reasons I reject the notion that Messrs. Hyman and Anastasio are suitably contrite.

86It is not appropriate to hold Mr. Bowen liable for costs. It is clear that Mr. Bowen played a minor role in the piece. It appears that he received approximately $33,000 of the plaintiffs’ $9,000,000. He appears to have been a contract employee working very much under the direction of Messrs. Hyman and Anastasio rather than being any sort of mastermind. He has demonstrated genuine contrition for his role in what occurred. He has explained that he was assured that this was all a misunderstanding that Mr. Hyman would quickly correct. He has begun cooperating with the plaintiffs and providing whatever information he can.

87I am not inclined to reduce the plaintiffs’ costs request. This has become an unnecessarily complex and costly proceeding. That is due solely to the conduct of Messrs. Hyman and Anastasio. Their constant duplicity has raised costs substantially. They have produced multiple “accountings” that have forced the plaintiffs to compare the latest “accounting” with earlier accountings only to demonstrate that there was nothing materially new in the later accountings and that they were just as inadequate as the earlier ones. They claim to return cars to dealerships forcing the plaintiffs to incur the cost of verifying this. The efforts at verification then suggest that Messrs. Hyman and Anastasio were not being truthful. At every step of the way, Messrs. Hyman and Anastasio have tried to delay, obfuscate and create needless complications. That necessarily increases the plaintiffs’ costs.

88Even then, the plaintiffs’ costs are reasonable. Mr. Anastasio’s counsel fairly prepared a costs outline for the penalty hearing. His actual costs come to $42,510.60. The plaintiffs’ costs, although higher, are within that ballpark. It is notable, however, that Mr. Anastasio took very much a secondary role in the proceeding. The plaintiffs on the other hand had to prove their case and follow up on countless pieces of misinformation to set the record straight.

89Mr. Hyman’s counsel has not produced a costs outline.

90In Astley v. Verdun, the court noted:

There ought to be something approaching a complete indemnity to the successful party in such motions since to do otherwise would involve some cost or punishment to the successful party arising solely out of the conduct of the other party in violating the court order.¹⁸

91An award of substantial indemnity costs is appropriate where a party has engaged in a flagrant and intentional breach of or utter disregard for court orders.¹⁹

92The flagrant, contemptuous conduct of the Defendants has forced the plaintiffs to prepare lengthy motion records and factums that dispel the falsehoods and misimpressions with which the Defendants filled their materials. It would be entirely inequitable to allow the Defendants to run up the plaintiffs’ costs and then deny them recovery.

93Consistent with the practice of the Commercial List, I will remain seized of this matter.

Koehnen J.

Released: January 21, 2021

2021 ONSC 482

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

THRIVE CAPITAL MANAGEMENT LTD., THRIVE UPLANDS LTD., 2699010 ONTARIO INC. and 2699011 ONTARIO INC.

Plaintiffs

– and –

NOBLE 1324 QUEEN INC., MICHAEL HYMAN, GIUSEPPE ANASTASIO, DAVID BOWEN, NOBLE DEVELOPMENTS CORPORATION, HAMPSHIRE AND ASSOCIATES INCORPORATED, LISA SUSAN ANASTASIO, RAJEREE ETWAROO and CON-STRADA CONSTRUCTION GROUP INC.

Defendants

Footnotes

1. 1I released reasons for the contempt decision on August 21, 2020 indexed at 2020 ONSC 4921. These reasons should be read together with the contempt reasons.
2. 2That is not to say that those funds were lost because of a legitimate risks of doing business. The circumstances of those investments and losses are discussed in earlier reasons.
3. 3The Law Society of Upper Canada v. Hatzitrifonos 2018 ONSC 3719 at para. 8
4. 4Astley v. Verdun, 2013 ONSC 6734, at para. 19, aff’d 2014 ONCA 668. Boroni et al. v. Polidoro, 2018 ONSC 6631 at para. 44; Pronesti v. 1309395 Ontario Ltd., 2015 ONSC 1139 at para. 34, citing Chiang (Trustee of) v. Chiang, 2009 ONCA 3 at para. 11
5. 5Boily v. Carleton Condominium Corp. 145, 2014 ONCA 574 at para. 79. See also Business Development Bank of Canada v. Cavalon Inc., 2017 ONCA 663
6. 6Boily at para. 90; Regional Municipality of York v. Schmidt 2008 63236 (ON SC) at para. 11; Chiang, at para. 88; Astley at paras. 41-43; affirmed: 2014 ONCA 668.
7. 7Devathasan v. Ablacksingh 2018 ONSC 7557 at para. 24; Keenan v. Keenan 2015 ONSC 574 at para. 14.
8. 8Mohammad v. Anwar at para. 55; Chiang at para. 88
9. 9See for example: Sussex Group v. Sylvester 2002 27188 (ONSC), Milligan v. Lech 2004 4792 (ONSC) affirmed that 2006 39457 (ON CA)
10. 10London Eco-Roof Manufacturing Inc. v. South River Developments Ltd., 2019 ONSC 1183 at paras. 24-25.
11. 11Starland Contracting Inc. v. 1581518 Ontario Ltd., 2009 30499 (Ont. S.C.J. (Div. Ct.)
12. 12Starland at para. 28.
13. 131196158 Ontario Inc. v. 6274013 Canada Ltd., 2012 ONCA 544 at para. 19; Atlas Copco Canada Inc. v. Dirk Johannes Plate, 2020 ONSC 17 at para. 33
14. 14Falcon Lumber Limited v. 24803375 Ontario Inc., 2019 ONSC 4280, paras. 86-97, aff’d 2020 ONCA 310. See also Kohlsmith v. Sterling Mutuals Inc. 2014 ONSC 4696
15. 15Falcon at para. 88, aff’d 2020 ONCA 310
16. 16Falcon Lumber (Appeal), at para. 57.
17. 17Astley v. Verdun, 2013 ONSC 6734 at para. 56, aff’d 2014 ONCA 668 (CA).
18. 18Astley at para. 52, aff’d 2014 ONCA 668 (CA)
19. 19SNC-Lavalin Profac Inc. v. Sankar et al., 2009 ONCA 97, at para. 19; Assaly v. Assaly 2019 ONSC 4349, at para. 7.