Legal Blog

Contempt

We no longer have debtor’s prisons; they were abolished before confederation. We cannot imagine putting people in jail merely because they are unable to pay their debts. However, we can easily imagine some creditors who would love to see their debtors in jail. Can a creditor ever be instrumental in jailing a debtor? Yes, but only if the debtor is guilty of civil contempt, an issue that was front and centre in Greenberg v. Nowack and again in 2363523 Ontario Inc. (“Ontco“) v. Nowack, 2016 decisions of the Ontario Court of Appeal.

Nasty

You will note that both cases involved the same defendant. He seems to be a nasty piece of work. The Greenbergs gave him their life savings to invest on their behalf, never to be returned. When they sued, they and the defendant entered into an agreement for repayment. The defendant defaulted and the Greenbergs obtained a judgment for $3.5 million.

The defendant also cheated Ontco. It obtained a $3 million judgment against him for fraud, conversion, and breach of fiduciary duty.

Criminal charges for fraud were also laid and were ongoing against the defendant.

Attempt

Each creditor attempted to use the available tools to determine where the defendant had secreted his assets – to no avail.

They attempted to examine him as a judgment debtor. They wanted him to make financial disclosure so they could test his assertion that he was penniless. The Greenbergs obtained numerous orders compelling disclosure; the defendant ignored them or devised lame excuses for non-compliance.

He complained that he had given all of his documents to the police and therefore had nothing to provide. Ultimately, he was forced to authorise the Crown to release documents to the Greenbergs, but these documents were inadequate to trace the assets that the defendant had dissipated or hidden.

Both creditors brought motions for civil contempt.

Essence

To prove civil contempt:

1. The order alleged to have been breached must state clearly and unequivocally what should and should not be done;

2. The party alleged to have breached the order must have had actual knowledge of it; and

3. The party allegedly in breach must have intentionally done the act that the order prohibits or intentionally failed to do the act the order compels.

Further:

• Each element of civil contempt must be proven beyond a reasonable doubt.
• A judge has discretion to decline to make a contempt finding, even when the three-part test has been met, if unjust to do so (e.g. the alleged contemnor has acted in good faith to take reasonable steps to comply with the relevant court order).
• It is proper for a court to emphasize the goal of encouraging compliance rather than punishment. Civil contempt is regarded primarily as coercive rather than punitive.
• Although contempt is not available to enforce the payment of a monetary judgment, a breach of a court order requiring financial disclosure in the course of enforcement of a judgment debt can ground a finding of civil contempt.

Greenberg

The Greenbergs ultimately obtained a contempt order against the defendant for non-compliance with prior orders for co-operation. The defendant was sentenced to, and served, a sentence of 15-days for his contempt. That sentence did not excuse the defendant from compliance with the prior orders. The Greenbergs brought another motion for contempt. The motions judge ordered the defendant to provide the financial accounting that the Greenbergs sought and gave him time to comply. After all, the Greenbergs and the court only wanted the information; they did not want punishment for its own sake.

The defendant did not provide an accounting and the motion for contempt came on for hearing. The judge dismissed the motion, finding that the Greenbergs had not met the civil contempt three-part test. He held that the defendant’s attempts to comply, while not perfect, were not flagrant or contumelious (big word – means contemptuous with arrogance). Worse yet, he merely ordered that the defendant complete an Alberta-prescribed form for financial disclosure and vacated all of the previous orders as to financial disclosure.

The Greenbergs appealed.

Ontco

The defendant made the same arguments as he had made in his contempt hearing with the Greenbergs – to no avail. The motions judge found the defendant in contempt and rejected his claim that, because financial documents had formed part of the Crown disclosure for his criminal prosecution, he could not produce the necessary financial documentation. The judge stated that the defendant should have collected the documents within his power, possession, or control and supplied them to the court, under seal if necessary, to get a ruling. Further, the defendant was never prevented from using this information to provide an accounting – even if it referenced documents he was unable to produce.

The judge went on to find that the defendant failed to produce, in a timely manner, any of the ordered documents: income tax returns, bank books, statements of assets and liabilities, and statements of employment and other sources of income. The judge concluded that the orders were “fairly straightforward and explicit.” He found that the defendant did not comply with them, excuses and promises of future compliance were not good enough, and Ontco proved the contempt on the evidence.

At a later sentencing hearing, by which time the defendant had still not purged his contempt, the judge sentenced the defendant to 30 days in prison.

The defendant appealed.

Going Away

The same panel of the Court of Appeal heard both appeals. It dismissed the defendant’s appeal in the Ontco matter: the breached orders were clear and unequivocal, the defendant knew about them, and the defendant gave no reasonable explanation for his non-compliance.

The panel allowed the Greenbergs’ appeal. It noted that the third part of the test for civil contempt had been met.

“The question is not whether the alleged contemnor wilfully and deliberately disobeyed the relevant order. Rather, what is required is an intentional act or omission that breaches the order. ‘The required intention relates to the act itself, not to the disobedience; in other words, the intention to disobey, in the sense of desiring or knowingly choosing to disobey the order, is not an essential element of civil contempt’ … Requiring the alleged contemnor to have intentionally disobeyed a court order would result in too high a threshold.”

Accordingly, the Greenbergs did not need to demonstrate that the defendant intended to disobey the prior orders. They only had to show that he failed to comply with those orders.

The panel also held that the judge had no jurisdiction to discharge the defendant from complying with the prior orders. It was prejudicial to the rights of the Greenbergs without good reason. The panel remitted the contempt matter to another judge.

Upshot

The defendant will cool his heels in jail for a relatively short time and the game will then play on. The creditors have likely spent (well?) over $50,000 attempting to get a deceitful debtor to comply with his disclosure obligations. For them, the magnitude of the judgments justifies the cost. For any creditor with a more modest judgment, the time and cost involved would not be worth the possible gain.

 

Image courtesy of larryfarr.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.