Court File and Parties
COURT FILE NO.: CV-18-00606547-00CL DATE: 20241204 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST
RE: John Citti and Lester Yamashita, Plaintiffs AND: Eric A. Klein, Evan L. Klein, Klein Property Group Inc., Klein Capital Group and KPG Capital LP, Defendants
BEFORE: Peter J. Osborne J.
COUNSEL: R. Bevan Brooksbank and Daphne Chu, for the Plaintiffs Eric A. Klein and Evan L. Klein, self-represented Defendants
HEARD: November 14, 2024
Endorsement
Endorsement
1The Plaintiffs move for an order striking the Defendants’ Amended Statement of Defence and Counterclaim, and for costs.
2The Defendants oppose the relief sought.
3For the reasons that follow, the motion is granted.
Facts
Facts
4The Defendants in this matter are Eric Klein, his brother Evan Klein, and the entities they own and/or control: Klein Property Group Inc., Klein Capital Group and KPG Capital LP. They took investments from the Plaintiffs in purported limited partnerships under promissory notes created by the Kleins. The partnerships were to develop various real estate projects, many in and around Montréal, Québec.
5Eric and Evan Klein appear on this motion as self-represented litigants. A court reporter was present at the hearing.
6The Defendant Eric Klein had previously worked for an entity called Cadman Capital Inc. for approximately 10 months until the fall of 2017. The Plaintiffs were clients of Cadman. The Plaintiffs’ claim is that, using confidential client information that he had misappropriated from Cadman, Eric Klein and his brother Evan Klein targeted clients of Cadman, including the Plaintiffs, to solicit them for investment in their purported promissory notes.
[7] The Plaintiffs allege that the misrepresentations from the Kleins on which they relied included the representations that: a. the Kleins had various real estate projects underway and that the Plaintiffs’ funds were being invested in those projects; b. that the Kleins were partners with reputable developers and lenders in Montréal; and c. that the Kleins had purchased and owned certain property.
8In fact, the Kleins had not begun a single development project, and the Plaintiffs allege that, with the exception of their use of $90,000 of investor funds to purchase a single property described below (in their own name, and not on behalf of investors), the Kleins squandered the balance of the investor funds on themselves.
9The Plaintiffs commenced this proceeding on the basis of the alleged fraudulent misrepresentations to seek to recover the funds they invested in the amount of USD $375,000 (approx. CAD $527,000).
[10] The Plaintiffs were granted a Mareva order in this proceeding on October 10, 2018. In his Endorsement setting out the reasons for granting that order, Penny, J. found: a. that there was strong prima facie evidence of misrepresentation and fraud; b. that the Kleins had promoted their projects on a basis that had been shown, manifestly, to be false; and c. that the Kleins had already sought to “cover their tracks” and “their explanations for some of their misrepresentations involved further dissembling and prevarication”.
11On December 17, 2018, the Defendants (then represented by counsel), consented to a continuation of the Mareva order until trial or further order of the Court. Among the assets covered by the Mareva order was a property located in Trois-Rivieres, Québec purchased by the Defendants outright in their own names using the Plaintiffs’ funds. Title to the Property was taken in the names of the Klein brothers personally (as opposed to the name of any corporate Defendant with which the Plaintiffs had placed their funds).
12The Property generated rental income which the Plaintiffs subsequently consented to being placed in trust by counsel to the Defendants, provided that the rental income funds were not co-mingled and were held for the purposes of the Mareva order.
13Notwithstanding the continuing Mareva order, in February 2019, the Klein brothers placed a $25,000 mortgage on the Property in favour of a Québec lender. They received the mortgage proceeds, subsequently failed to make payments on the mortgage. The mortgagee took possession of the Property in September 2019, when the Klein brothers voluntarily surrendered the Property to that mortgagee and relinquished any claim on the proceeds of the sale of the Property in exchange for a surrender fee of $5000. The mortgagee subsequently sold the Property.
14The Property was the only tangible asset subject to the Mareva order. Of the investor funds of USD $375,000 (approximately CAD $487,500), most of the funds were spent as allowable legal fees and living expenses and, except for a modest balance of a few thousand dollars, the remainder had been used to purchase the property.
15When these events were discovered by the Plaintiffs and brought to the attention of counsel for the Defendants, the Defendants' counsel removed themselves from the record in this proceeding.
16The Defendants commenced a third-party claim against Cadman and its principal.
17The Plaintiffs then moved for an order finding the Kleins in contempt of the Mareva order.
[18] The first phase of the contempt hearing resulted in a finding of contempt and an order of McEwen, J. dated April 23, 2020. In his reasons, McEwen, J.: a. rejected the Defendant's submission that they had committed the contempt innocently; b. held that it “defies belief” that the Klein brothers, who the Court found were both “well experienced in the real estate industry”, did not understand that they had violated the Mareva order and the subsequent order continuing the Mareva order by placing a mortgage on the property, and also by failing to remit rental income; c. found that the Defendants’ version of events was “simply not credible” given the facts; and d. referenced Eric Klein's admission that he and his brother had spent the rental income in the knowledge that the orders prevented them from doing so.
19As a result of the Covid 19 pandemic, the second (penalty) phase of the contempt motion was delayed, and the resulting decision was made some 21 months thereafter. In the interim, the Klein brothers attempted to challenge the Mareva order and take other steps.
20Four days after the hearing of the first phase of the contempt motion, and while the decision was under reserve, the Klein brothers delivered an Amended Statement of Defence. For the first time, they sought to commence a counterclaim against the Applicants (the victims of their fraud) seeking $1,500,000 in damages. Specifically, they sought $1,000,000 for alleged breach of confidence and unlawful conspiracy, and $500,000 in punitive, aggravated and exemplary damages.
[21] The Kleins then attempted several times and in several ways to advance that counterclaim, despite an Endorsement from this Court prohibiting them from doing so pending the outcome of the second phase of the contempt motion. Those attempts included: a. delivering Notices of Examination to the Plaintiffs personally purportedly in connection with the sanction phase of the motion, notwithstanding that neither personal Plaintiffs had delivered an affidavit; b. serving Summonses to Witness on both Plaintiffs (necessitating a motion to quash); and c. purporting to take evidence of third parties out of court without notice to the Plaintiffs, and then seeking to rely on that evidence as part of the responding record. That also resulted in a successful motion to strike by the Plaintiffs.
22Numerous Court attendances, motions and case conferences were required to address these actions of the Kleins.
23The Plaintiffs sought an order for costs in respect of the motion to quash. On January 21, 2021, McEwen, J. awarded the Plaintiffs costs of $15,474.32.
24The penalty phase of the contempt motion was heard on November 17, 2021. The Plaintiffs sought the imposition of a custodial term, and an order striking the Amended Defence and Counterclaim.
25McEwen, J. delivered his decision on January 13, 2022: Citti v. Klein, 2022 ONSC 293. As reflected in that decision, the Plaintiffs did not seek the payment of a fine on the basis that the Kleins, given their self-proclaimed difficult financial circumstances, would be unable to pay a fine. The Kleins submitted that a term of imprisonment would be disproportionate to the acts of contempt.
26In his Reasons for the sanction order, McEwen, J. was clear both about the gravity of striking a pleading, and that such could occur if the costs were not also paid. He determined that a period of incarceration was not appropriate in the circumstances of this case, but with respect to the relief that was ordered, he stated:
17[…] I realize that striking pleadings, which in this case include a counterclaim, is a serious matter. The facts of this case, however, disclose that Messrs. Klein wilfully violated Court Orders, their acts of contempt cannot be cured, they continue to blame others for their actions, and they have failed to take serious steps to enter into a settlement with the Plaintiffs. As a result, they have paid no monies to date both with respect to the funds they retained concerning the Property and the issue of costs.
21In all of the circumstances, it is reasonable to allow Messrs. Klein 60 days to pay the fine of $35,000 and the Costs Award; otherwise, their pleadings ought to be struck. They have acted in contempt of Court Orders, made no attempt to purge their contempt or pay the Costs Order, removed themselves from the jurisdiction and continued to blame others for their misfortune. If they pay the fine and the outstanding Costs Award, they have the right and ability to defend the action and pursue their counterclaim. If they do not, it would be grossly unfair to the Plaintiffs to condemn them to have to pursue their action and defend the counterclaim involving Defendants which have been found in contempt and will not or cannot pay a fine or the outstanding Costs Order. [Emphasis added].
27McEwen, J. then made the following disposition as reflected at paragraph 22 of the decision, and awarded costs:
22Based on the foregoing, this Court orders that the Defendants pay a fine in the amount of $35,000 to the Court and the Plaintiffs’ outstanding costs of $15,474.32 within 60 days, failing which their Amended Statement of Defence and Counterclaim will be struck.
28That disposition is reflected in paragraph 1 of the issued and entered Order dated January 13, 2022. In addition, that Order goes on in paragraph 2 to require the Defendants to pay the costs of the Plaintiffs fixed in the total amount of $85,474.95 within 60 days of May 27, 2022. [1]
29The third-party claim was dismissed on consent. In that consent dismissal order dated January 12, 2023, McEwen, J. ordered the Kleins to pay a third-party costs award in the amount of $51,823.78. That costs award also remains unpaid.
30As noted above, the sanction order is clear on its terms, providing in paragraph 1 that if the fine and the costs were not paid within 60 days, the pleading would be struck. The costs were in fact paid. While the sanction motion was under reserve, unbeknownst to McEwen, J., such that by the date on which the sanction decision was released, the Defendants had in fact remitted the outstanding costs of $15,474.32. Those costs had been paid by the Defendants in the face of a then pending motion for security costs against them brought by the third parties.
31The result of all of the above is that (and leaving aside the unpaid third-party costs award of $51,823.78), the Defendants were ordered to pay the fine of $35,000 and costs of $85,474.95 by July 29, 2024. [2]
32The Defendants did not pay the fine. Instead, approximately three weeks after it was due, on August 19, 2024, the Defendants requested a case conference to seek an extension until November 4, 2024 to pay the fine. They submitted that it was due to be paid on September 4 (which was erroneous), and that they required additional time to raise the funds.
33At a scheduling case conference on September 25, 2024, Penny, J. directed that the Defendants would be permitted to bring a motion to vary the sanction order and scheduled November 14, 2024 as the return date for that motion. The Defendants have not brought any motion to vary.
34As of the date of this motion, the Defendants have not paid any of the fine of $35,000, or the outstanding costs award in favour of the Plaintiffs of $85,474.95 (or the third-party costs award of $51,823.78).
35The Plaintiffs therefore request that the Defendants’ pleading be struck for failure to comply with the sanction order, and further submit that a plain reading of paragraphs 17 and 21 of McEwen J’s reasons for making that Order reflect the clear intention of the Court that if those amounts were not paid within 60 days, the pleading would be struck. [3]
Analysis
36Rule 60.12 gives this Court the discretion, where a party fails to comply with an interlocutory order, and in addition to imposing any other sanction provided by the rules, to stay the party’s proceeding; dismiss the party’s proceeding or strike out the party’s defence; or make such other order as is just.
37The leading authority on the factors to be considered on a motion to strike a defence is Falcon Lumber Limited v. 2480375 Ontario Inc. (GN Mouldings and Doors), 2020 ONCA 310 (“Falcon Lumber”).
38In that case, Brown J.A. agreed that “the scope of the remedy is one within the discretion of the Court, to be determined in the context of that particular case” (at para. 49, citing with approval Wein J. in Newlove v. Moderco Inc., at para. 21). The striking of a pleading is not restricted to “last resort” situations in the sense that it must be preceded by a party breaching a series of earlier orders that compelled better disclosure or production: see Falcon Lumber at para. 57.
[39] The Court in Falcon Lumber held that a number of common-sense factors should be considered when determining whether to strike a pleading. At para. 57, the Court listed those factors: a. whether the party’s failure was deliberate or inadvertent; b. whether the failure is clear and unequivocal; c. whether the defaulting party can provide a reasonable explanation for its default, coupled with a credible commitment to cure the default quickly; d. whether the substance of the default is material or minimal; e. the extent to which the party remains in default at the time of the request to strike out its pleading; and f. the impact of the default on the ability of the court to do justice in the particular case.
40In my view, the factors are satisfied here. The failure to comply with the Order is clear and unequivocal.
41The Defendants do not dispute that neither the fine nor the outstanding costs award has been paid. They do however submit that they failed to understand or appreciate that the costs (in addition to the fine) were required to be paid, failing which their pleading would be struck. They submit that at the time the Order was made they were represented by counsel, and they did not see the language of the actual order until the last few months. They submit that it was only then that they appreciated the consequences of their failure to comply.
42They now request that they be permitted additional time to make the required payments given their financial circumstances.
43I reject the submission for a number of reasons.
44In my view, it is clear that the Defendants were each well aware of their obligations to pay both amounts.
45Evan Klein delivered an affidavit in response to this motion. Eric Klein elected to file no evidence.
46In his affidavit, Evan Klein states that he and his brother paid the outstanding costs award (of $15,474.32) “approximately one week after we received Justice McEwen’s Reasons for decision”. He attaches a copy of the Reasons as an exhibit to his affidavit, demonstrating that he clearly had the Reasons.
47Evan Klein makes extensive references in his affidavit to various steps in this litigation, the overwhelming majority of which are not responsive to the issue on this motion. For example, he details what he describes as an exchange with the Plaintiffs about the possibility of coming to a mutually beneficial resolution plan, beginning around January 2020.
48Evan Klein states that the Defendants retained new counsel (Goldman Hine LLP) to represent him and his brother in the action on February 7, 2022, and that they sent that counsel a retainer fee in the amount of $30,000. One week later, they were served with the Notice of Appeal referred to above.
49Evan Klein then states that in or around August 2023, their lawyer was away on medical leave and did not plan to return, with the result that that firm subsequently brought a motion to be removed from the record, on or around January 25, 2024. The Defendants attempted to retain new counsel over the next month or so, until March 5, 2024, without success. Evan Klein states that, with their lawyer away on medical leave “it took some time to receive the complete case file from [that firm]."
[50] I pause to observe that there is no evidence from or on behalf of those lawyers as to: a. the medical condition of counsel; b. any delay in communications or file transfer as a result thereof; c. any requests for the file and responses thereto (or even any correspondence regarding same); or d. when, exactly, the Defendants ultimately received the file.
51As a preliminary matter, in my view the date on which they received the file is not particularly relevant here. The Defendants were aware of Justice McEwen’s Reasons for Decision effectively when they were released, as acknowledged by Evan Klein in his affidavit, and as was clearly acknowledged by both Kleins in court during the hearing of this motion. That is why they immediately paid the costs award of $15,000.
52In my view, the fact that they were aware of the Reasons for Decision is largely dispositive of the matter given the paragraphs from that decision excerpted above. Justice McEwen’s Reasons were clear that in the absence of the payment of all specified amounts, their pleading should be struck. The Defendants admit that they were aware of the Reasons.
53However, the Kleins submit that, as set out in Evan Klein’s affidavit beginning at paragraph 69, “on or around July 2024, I first discovered a copy of the order from Justice McEwen. That stated that the fine of $35,000 must be paid, otherwise our defence would be struck. Until that time, I was of the understanding that it was only the costs of $15,474 that ought to be paid, which the defendants paid within one week.”
54Evan Klein goes on to state that his counsel was in possession of the order, but he and his brother were not. He says transition of documents was difficult, as their former counsel was hard to reach and did not frequently respond, and that when he (Evan) took over the file, he was only in possession of the endorsement (i.e., the Reasons) “which did not clearly state the terms of the fine.”
55Again, there is no evidence beyond these bald statements as to any difficulty in the transition of documents, counsel being hard to reach, or when Evan Klein took over the file as he admits he did.
56There is no clear statement that the Order was not also in the solicitor’s file. Nor is there any basis for an inference that it would not be in the file. Moreover, Evan Klein does not explain in his affidavit at all the entire chronology of the events surrounding the appeal to the Court of Appeal for Ontario from that Order. The Kleins’ own appeal materials filed make express and repeated references to the Order of McEwen, J.
57Having considered all of the evidence in the record on this motion, I find that the position of the Kleins (as described albeit vaguely in the affidavit of Evan Klein, and in the absence of any evidence from Eric Klein), that they only became aware of the terms of the Order of Justice McEwen in July of this year, to not be credible, just as Justice McEwen earlier found. Moreover, that allegedly recent awareness of the terms of the Order is no answer to the motion in any event, for a number of reasons.
58First, as noted above, the fact of the late awareness of the Order as a separate document is irrelevant given that they were clearly aware of the Reasons, as was expressly conceded.
59Second, even if I did accept that evidence, which I do not, Evan Klein states at paragraph 71 of his affidavit that when he received the Order, he immediately wrote to the court requesting a case conference to seek an extension of time for the payment of the fine “so that the defendants could arrange the funds to pay the remainder of the $35,000. I did not want our defence being struck.”
60Evan Klein further states that it has been extremely difficult to obtain enough money to satisfy the fine by the deadline. In any event, it has not been paid.
[61] Evan Klein does not even now seek leave to pay the fine, albeit late. Rather, he states that “the defendants would like to propose the following, which would satisfy the payment of the fine and prevent the striking of their defence”. The proposal, set out at paragraph 75 of his affidavit, is another attempt to renegotiate an Order now made over two years ago, and to do so on terms that are woefully inadequate. Even if any such proposal could or should be accepted in any event, the Defendants now propose that the fine be paid as follows: a. the $35,000 quantum of the fine be reduced by the amount of costs already paid of $15,474, leaving a balance of approximately $20,000; b. the existing Mareva order be varied to allow the Defendants to access an additional $5000 currently frozen by that order; and c. the purported balance of $15,000 be paid in six monthly instalments of $1250 each beginning on January 1, 2025.
62None of this is acceptable to the Plaintiffs, and nor should it be. It is not acceptable to the Court either. Rather, even today, they continue to attempt to negotiate and barter, and propose to offer up an instalment plan and pay the funds over time.
63In addition, I cannot conclude on the evidence (the affidavit of Evan Klein), that the Defendants are impecunious (or even that Evan Klein is impecunious, leaving aside Eric, from whom there is no evidence). They have not sought to vary the sanction order, but rather, simply request even more time to make the payments.
64In further addition, the submission of impecuniosity now advanced is inconsistent with the position advanced by the Kleins on the security for costs motion brought by the third parties.
65In connection with that motion, Eric Klein swore in his affidavit that he had been able to overcome the financial stress that resulted from the Mareva order and contempt proceeding; that he had built a successful blockchain company; and that Evan Klein had established a successful career as a freelance writer and editorial director. That evidence was put forward shortly before the sanction order at issue here was granted and I reject the opposite position now taken, essentially baldly and without evidence, on this motion.
66In any event, impecuniosity, even if established, would not on its own be sufficient to excuse the non-compliance with the order. As observed by Dunphy, J. in Rana v. Unifund Assurance Company, 2016 ONSC 2502, at para. 50, a litigant’s right of access to the courts must be accompanied by the responsibility to abide by the Rules and comply with court orders. Exempting impecunious parties from enforcing costs orders may amount to granting “carte blanche to continue to ignore rules and orders and take unsupportable steps in the action without fear of consequences.”
67Moreover, the quantum of the fine is in addition to, and not substitution for, the costs award, as ordered by Justice McEwen and upheld by the Court of Appeal. That order did not contemplate payment of the funds coming from the very limited amounts already frozen by the existing Mareva order. The Defendants are seeking not just additional time to pay amounts they were ordered to pay long ago, but they are also seeking to use funds already paid in respect of the fine. That is, in effect, double counting and is not acceptable.
68Finally, what the Defendants are actually offering from their own non-frozen funds is only $1250 per month, beginning approximately two months from now and totalling only $15,000 in the aggregate.
69Moreover, the Defendants do not address the balance of Justice McEwen’s order, the obligation to pay the costs outstanding of $35,000, at all. That amount remains owing, as it was ordered over two years ago, and there is no acknowledgement of this amount alone payment or even a proposal for the payment over time.
70I also pause to observe that, as submitted by the Defendants, they are owed $15,000 in costs from the Plaintiffs ($10,000 in respect of the motion of the Plaintiffs to lift the stay while the appeal was pending, and $5000 awarded on the dismissal of the appeal). The Plaintiffs have understandably not paid those amounts in the circumstances set out above, but in any event, they formally acknowledged in argument that they would be prepared to set off those amounts as against the net owing by the Defendants.
71I make this observation given the submission of the Defendants that the Plaintiffs are in the same situation as they are in that there are unpaid costs awards. The situation is not at all analogous: there has been no finding of contempt in respect of the Plaintiffs, which contempt in respect of the Defendants continues.
72In any event, the fact of the outstanding costs award in favour of the Defendants, particularly in light of the undertaking to set off, does not alter the fundamental fact that significant amounts remain owing by the Defendants to the Plaintiffs, and that the relevant orders are simply being ignored. To state the obvious, there is no undertaking on the part of the Defendants to purge their contempt by paying the amount owing, even net of the $15,000 in their favour. Instead, they propose the instalment plan and set-off as against the fine, all as described above.
73The Court of Appeal observed in Falcon Lumber, at para. 55, that orders to strike pleadings are one means by which to ensure that the civil justice process delivers justice that is proportionate, timely and affordable.
74In this case, the Plaintiffs are trying, so far in vain, to recover the USD $375,000 they invested in purported real estate projects of the Plaintiffs that never existed. The only tangible Property frozen by the Mareva order has a value that is well short of the amounts invested, of approximately $90,000. Further, the funds actually available are significantly less because of the actions of the Defendants, resulting in the contempt order in the first place: in flagrant disregard of that order, they mortgaged the Property for $25,000 and took those funds for their own uses.
75The default is material and continuing. It is but one of a number of examples of the Defendants simply not complying with court orders, many of which were recognized by McEwen, J. in his Reasons. Their conduct has made and continues to make the delivery of civil justice that is proportionate, timely and affordable, almost impossible in this case. In the circumstances, it is not just and equitable for the Plaintiffs to continue to have to prosecute their claim and defend the counterclaim.
76That was true at the time McEwen, J. made his decision in which he noted that “it would be grossly unfair to the Plaintiffs to condemn them to have to pursue their action and defend the counterclaim involving Defendants which have been found in contempt, and will not or cannot pay a fine or the outstanding Costs Order” (para. 21). That was the case then and is even more so the case today.
77Finally, the Defendants have also failed to pay the award of costs made in connection with the sanction order by the deadline set by McEwen, J. or at all. I am also satisfied that this justifies the pleading being struck pursuant to Rule 57.03(2). In my view, it is not the role of the Court on this motion to revisit the discretion exercised by McEwen, J. who has already ordered those costs to be paid within 60 days of May 27, 2022 (the date on which the costs of the contempt motion were determined).
78In determining whether to strike a claim pursuant to Rule 57.03, the Court must “balance between having claims and defences adjudicated on their merits and ensuring that the administration of justice is not undermined by litigants failing to comply with court orders”: Allen v. Kumar, 2022 ONSC 4223, 87 CPC (8th) 293, at para. 10, citing Garrett v. Oldfield, 2016 ONCA 424 at para. 2, and Hazelton Homes Corporation v. Katebian, 2021 ONSC 1167 at para. 6. The Court in that case identified several principles to guide the Court’s exercise of discretion under Rule 57.03(2):
[11] In Rana v. Unifund Assurance Company, 2016 ONSC 2502, at para. 50, Dunphy J. reviewed various principles guiding the court’s exercise of discretion under subrule 57.03(2) and rule 60.12. Specifically, he identified eight principles, which I summarize as follows: (a) The court must be alive to the possibility that non-compliance with court orders is indicative of its process being abused. Failing to act may deprive the moving party of justice according to law and risks rendering the court “a paper tiger”; (b) A litigant’s right of access to the courts must be accompanied by the responsibility to abide by the Rules and comply with court orders. Exempting impecunious parties from enforcing costs orders may amount to granting “carte blanche” to continue to ignore rules and orders and take unsupportable steps in the action without fear of consequences; (c) Where a party had the opportunity to make submissions about impecuniosity at the prior hearings leading to the costs order(s), subsequently seeking to relieve against payment of those costs constitutes a collateral attack on the prior orders; (d) The court may consider a pattern of unnecessary and unreasonable steps taken in the proceeding, including appealing numerous orders without chance of success or knowing the risk of an adverse costs order; (e) If court orders are cavalierly ignored and if a litigant continuously fails to comply with their obligations as a litigant and then fails to abide by the costs consequences of that behaviour, the court is justified in bringing some finality to the action; (f) Impecuniosity is not a shield for unreasonable conduct of litigation and a dismissal order may be made even if it resolves the matter on procedural rather than substantive grounds; (g) Self-represented litigants, while entitled to some accommodation and assistance to ensure a fair hearing, are not entitled to abuse the system or the party opposite. Failure to enforce orders once made against self-represented parties is unfair to the parties opposite and undermines respect for the court and the civil justice system; and (h) At some point, costs themselves become an inadequate form of compensation for prejudice, especially where the party on whom they are imposed refuses to pay them.
79In my view, a consideration of these factors militates strongly in favour of striking the pleading of the Defendants here, recognizing as I do the strong preference of our courts to determine matters on their merits. When all of the circumstances of this case and the chronology of events as set out above is taken into account, I cannot conclude anything other than it would be unfair and inequitable to allow the Defendants to continue their behaviour, while effectively compelling the Plaintiffs to continue to have to prosecute their claim in an attempt to recover their investments and defend the counterclaim. This is just as Dunphy, J. found, and as McEwen J. found.
80The starting point for all of this was the Defendants’ brazen decision to simply ignore the Mareva order, encumber the only significant Property that the order froze, take the funds, and then argue that they did not appreciate the effect of the order.
81The Court found them to be in contempt, and now they argue, yet again, that notwithstanding they had by their own admission the Reasons clearly compelling them to satisfy the costs awards or their pleading would be struck, and notwithstanding their appeal to the Court of Appeal from the Order they now allege they did not see until a few months ago, they did not appreciate the effect of the Reasons and the Order. The Defendants had the opportunity to make submissions about impecuniosity, and in response to the motion for security for costs, did the opposite. Finally, even now, the Defendants do not offer to purge their contempt and comply with the Order, but instead elect to try to renegotiate it.
82As noted in the excerpt above, such a result is unfair to the parties opposite and undermines respect for the court in the civil justice system.
[83] The observations of Ricchetti, J. in his disposition of the motion in Falcon Lumber Limited v. 24803375 Ontario Inc., 2019 ONSC 4280, at para. 5, aff’d 2020 ONCA 310, at first instance (and obviously prior to the decision of the Court of Appeal referred to above), are in my view equally applicable to the present case: To permit the Defendants to conduct themselves in this manner, without judicial intervention by the striking of their pleadings, despite the severity of such an order, would encourage other defendants to undertake similar conduct thereby bringing the administration of justice into disrepute and the end of compliance with the Rules of Civil Procedure.
Result and Disposition
Result and Disposition
84For all of these reasons, the Amended Statement of Defence and Counterclaim of the Defendants is struck.
85The Plaintiffs have been successful on the motion. They are presumptively entitled to their costs.
86The Plaintiffs have submitted a Costs Outline reflecting partial indemnity costs of $23,262.18 and substantial indemnity costs of $34,723.77. All amounts are inclusive of fees, disbursements and HST.
87Pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43, costs are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.
88Rule 57.01 provides that in exercising its discretion under s. 131, the court may consider, in addition to the result in the proceeding (and any offer to settle or contribute), the factors set out in that Rule.
89The overarching objective is to fix an amount that is fair, reasonable, proportionate and within the reasonable expectations of the parties in the circumstances: Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.), at paras. 24-26.
90In my view, there is no basis here to award costs on an elevated scale, and they should be awarded on a partial indemnity basis. Taking into account the factors set out in Rule 57 and considering them in the particular circumstances of this case, in my view an appropriate award of costs is $15,000 inclusive of fees, disbursements and HST.
91Rule 57.03 provides that, on the hearing of a contested motion, unless the court is satisfied that a different order would be more just, the court shall fix the costs of the motion and order them to be paid within 30 days.
92Accordingly, that amount is payable by the Defendants to the Plaintiffs within 30 days.
93Order to go in accordance with this Endorsement.
Osborne J.
1The Plaintiffs then appealed the order to the Court of Appeal seeking a custodial sentence. The Court of Appeal dismissed the appeal on July 4, 2024: 2024 ONCA 529.
2That fine was payable within 60 days as ordered by McEwen J. Adjusting for the delay caused by the appeal (which cannot be counted against the Defendants), the 60 days is calculated as being the 35 days between the January 13, 2022 sanction decision and the date of the Notice of Appeal, to which is added the balance of 25 days after the date of the Appeal Decision.