



COURT OF APPEAL FOR ONTARIO

CITATION: Thrive Capital Management Ltd. v. Noble 1324 Queen Inc., 2021 ONCA 722

DATE: 20211015

DOCKET: C69156

Strathy C.J.O., Pepall and Pardu JJ.A.

BETWEEN

Thrive Capital
    Management Ltd., Thrive Uplands Ltd., 
     2699010 Ontario Inc. and 2699011 Ontario Inc.

Plaintiffs (Respondent)

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 (Appellants)

Justin Necpal, Justin H. Nasseri and Joshua Ng, for the
    appellants

Brian N. Radnoff and Joshua Suttner, for the respondents

Heard: September 15, 2021 by video conference

On
    appeal from the judgment of Justice Markus Koehnen of the Superior Court of
    Justice, dated January 21, 2021.

Pardu J.A.:

[1]

The appellants were found in contempt of court for multiple failures to
    disclose their assets and to account for money paid in respect of real estate investments.
    They do not challenge the finding of contempt but say that the motion judge
    erred in granting judgment against them for some $9 million dollars, following
    the sentencing hearing.

Background

[2]

The respondents alleged that the appellants misappropriated $9 million
    dollars of investment funds intended for real estate projects in Brampton and
    Richmond Hill.

[3]

The respondents started an action and quickly obtained a
Mareva
injunction. The motion judge found that the respondents had a strong prima
    facie case that their assets had been misappropriated. The terms attached to
    the
Mareva
injunction required the appellants to produce an accounting
    for the funds, affidavits of assets, and contact information for the recipients
    of all funds and documents related to the real estate projects.

[4]

The matter was adjourned several times in an attempt to persuade the
    appellants to comply, without success. They were found in contempt on June 19,
    2020 and do not challenge that finding.

[5]

Their purported compliance was derisory. As the motion judge noted, the
    appellants:

blatantly ignored even the
    simplest of court orders, have forced the plaintiffs to court on numerous
    occasions to deal with their outright refusals to comply and have wasted scarce
    public resources in doing so. They have treated court orders as meaningless
    scraps of paper that could be used to tie the plaintiffs up in knots rather
    than as mandatory directives that form an essential part of basic social order.

[6]

The flagrant nature of the contempt is demonstrated by the responses to
    the order to disclose their assets.

[7]

Hymans affidavit of assets filed following the April 23, 2020 order
    describes a bank account with $17 in it, shares in a private company he valued
    at $500, and corporate assets of about $1916. A net worth statement he filed
    about two months earlier showed net assets of $15,061,000, including $5 million
    in cash, a Rolls-Royce and a Lamborghini with a total value of $1,564,000, and
    five other cars worth over $2 million. Hyman asked for an interim order
    permitting him to use $40,000 a month for living expenses.

[8]

In a similar vein, Anastasios affidavit of assets disclosed a bank
    account containing $18,517.91 and two Volkswagen Jettas worth about $15,000
    each. He was also discovered to have leased a Porsche 911 and a Rolls-Royce. He
    asked for $20,000 a month for living expenses.

[9]

Their affidavits, purportedly filed to explain where the money went, do
    more to obfuscate than clarify

[10]

The
    motion judges observation, I cannot understate the seriousness of the
    Defendants continued contempt of court, was well founded. On June 19, 2020 he
    found the appellants in contempt for failure to comply with the orders to
    provide an accounting of funds, disclosure, and contact information for
    individuals or entities who received money from the accounts or the appellants.
    In addition, he found Hyman in contempt for failing to close the purchase of
    the Richmond Hill property, breaching the
Mareva
injunction by
    transferring funds, failing to provide information regarding vehicles, and
    breaching the prohibition that the Mercedes Benz and Land Rover were not to be
    driven. After making these findings, the motion judge asked the parties to make
    submissions on whether judgment was a possible sanction for contempt.

[11]

The
    respondents served a motion record seeking judgment against the appellants in
    the form of a r. 60.11 sanction for contempt:
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194.

They did not invoke r. 60.12 in their motion
    record. The appellants sought an urgent case conference, claiming that they had
    been taken by surprise by the request for judgment and that this required
    submissions on the merits of the action.

[12]

The
    motion judge adjourned the sentencing hearing for a month to allow the
    appellants to prepare arguments on whether judgment in the action could be a
    sanction for contempt. He directed that the arguments available were that it
    was possible, that it was not possible, or that it was not possible without
    adjudicating the merits. He directed: The point of the sanctions hearing is
    not, however, to argue the merits. The defendants are able to argue on the
    sanctions hearing that judgment on the merits is not appropriate without an
    adjudication on the merits. That does not require them to actually adjudicate
    the merits.

[13]

The
    respondents provided the appellants with the case authority upon which they
    relied to support their claim for judgment,
Falcon Lumber Limited. v.
    24803375 Ontario Inc.
, 2019 ONSC 4280,
    affd 2020 ONCA 310,

a case dealing with striking
    pleadings for failure to make documentary disclosure.


[14]

The
    respondents sought judgment against the appellants and 6 months incarceration.

[15]

The
    motion judge concluded that the appellants behaviour was serious enough to
    warrant incarceration, but that judgment was more appropriate. He found that it
    would be inappropriate to allow the appellants to defend the proceeding, while
    at the same time ignoring orders of the court. He found that a fine would not
    be adequate to persuade the appellants to obey the court orders and would
    amount to a licence to steal. The appellants efforts to comply with the orders
    were inadequate and their evidence was not worthy of belief. They continued to
    be in contempt of the orders at the sentencing hearing.

[16]

The
    motion judge was satisfied that the appellants conduct warranted incarceration
    but concluded that incarceration was not the preferable penalty. He concluded
    that it was most appropriate to tailor the remedy to the default by granting
    the respondents judgment. He indicated that he would ordinarily expect a party
    who was accused of a $9 million fraud to explain why they were legitimately
    entitled to the money. In the absence of any explanation some nine months after
    the action had been started, he indicated that he saw no injustice in granting
    judgment against the appellants. Relying on rr. 60.11 and 60.12 as the source
    of his authority, he concluded this 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. He concluded that if he had not granted
    judgment, he would have sentenced the appellants to six months incarceration.

Analysis

[17]

Here
    the motion judge was critical of the appellants failure to explain why they
    were entitled to the money and relied on that failure in deciding that judgment
    was the appropriate remedy. However, he had instructed that the appellants were
    not to address the merits of the action at the sentencing hearing. This
    requires that the judgment be set aside and the matter returned to the Superior
    Court for a new sentencing hearing. In light of the appellants behaviour, it
    is easy to see why he was highly skeptical that there was any defence to the
    action. If the merits were a factor, however, the appellants should have been
    able to address that issue.

[18]

I
    turn now to a consideration of the issues raised by this appeal:

1.

What factors are relevant to determining a sanction for contempt?

2.

Can an opposing party move to strike a defence or bar a defendant from
    participating in the proceeding as a remedy for contempt?

3.

If such a motion is brought, are the merits of the proceeding a factor in
    deciding whether to grant the remedy?

4.

Is judgment directly available as a sanction for contempt?

5.

What are the steps required to attempt to obtain judgment against a
    party in contempt?

[19]

The
    merits of an action may not be particularly relevant in determining what
    punishment is appropriate for contempt of court but are relevant to the issue
    of whether judgment should be granted. The purpose of a penalty for civil
    contempt is two-fold; not only do such penalties enforce the rights of a
    private party, but they also maintain respect for the authority of the courts.
    The factors relevant to the determination of the appropriate sentence for civil
    contempt include:

1.

The proportionality of the sentence to the wrongdoing;

2.

The presence of mitigating factors;

3.

The presence of aggravating factors;

4.

Deterrence and denunciation;

5.

The similarity of sentences in like circumstances; and

6.

The reasonableness of a fine or incarceration.

[20]

None
    of these factors focuses on the merits of the proceeding:
Boily v. Carleton
    Condominium
, 2014 ONCA 574, 121 O.R. (3d) 670, at paras. 79, 90. A fine
    imposed for contempt is payable to the Crown and not to the opposing party:
SNC-Lavalin
    Profac Inc. v. Sankar
, 2009 ONCA 97, 94 O.R. (3d) 236, at para. 14.

[21]

The
    distinctions between the two distinct roles of a court imposing a sanction for
    contempt on the one hand and granting judgment on the other can be blurred if
    the analysis is not separated.

[22]

There
    can be no doubt, however, that a statement of defence can be struck for
    contempt of court. Courts have denied contemnors the opportunity to deal with a
    claim on the merits. In
iTrade Finance Inc. v. Webworx Inc.
, (2005) 255 D.L.R. (4th) 748 (Ont. S.C.J.),
the
    court found that the defendants failure to comply with court orders was such
    that the remedy of striking its pleadings was appropriate. In
Paul Magder
    Furs Ltd. v. Ontario (Attorney General)
, 6 O.R. (3d) 188 (Ont. C.A.), at
    para. 14, the court observed that it is an abuse of process to assert a right
    to be heard by the court and at the same time refuse to undertake to obey the
    order of the court so long as it remains in force. Section 140(5) of the
Courts
    of Justice Act
, R.S.O. 1990, c. C.43 gives the court express power to stay
    or dismiss a proceeding as an abuse of process. In
Dickie v. Dickie
(2006), 78 O.R.(3d) 1, this court refused to hear a litigant who was abusing
    the processes of the court. By analogy, a court could bar a defendant in
    contempt from filing a statement of defence.

[23]

Rule
    60.12 provides explicitly that where a party fails to comply with an interlocutory
    order, the court may, in addition to any other sanction provided by the rules,
    stay the partys proceeding, dismiss the proceeding, strike out the partys
    defence, or make such other order as is just.

[24]

Both
    rr. 60.11 and 60.12 deal with failures to obey court orders. Rule 60.11 focuses
    on the context of contempt proceedings. Either rule would allow a court to
    strike a statement of defence or bar a litigant from filing a defence.

[25]

In
    determining whether to strike a pleading, even where judgment is not granted
    concurrently, there may be some analysis of the merits of the claims. In
Falcon
    Lumber Limited v. 2480375 Ontario Inc. (GN Mouldings and Doors)
, 2020 ONCA 310,
Brown J.A. discussed the
    factors to be considered when determining whether to strike a partys claim for
    failure to produce documents under r. 30.08(2). This rule expressly permits a
    court to strike out a statement of defence from a party who fails to serve an
    affidavit of documents, produce documents for inspection, or comply with an
    order of the court under rr. 30.02 to 30.11, which deal with the various
    aspects of documentary discovery.

[26]

Brown
    J.A. observed that the exercise of discretion to strike a pleading is not
    limited to a last resort, following multiple failures, but that a court would
    usually want to ensure that a party had a reasonable opportunity to cure the
    default before striking a pleading:
Falcon Lumber Limited
, at para.
    50. Relevant factors would include whether the failure was deliberate or
    inadvertent, whether the failure was clear, whether there was a reasonable
    explanation for the default and a promise to cure it, whether the substance of
    the default was important, whether the default continued, and the impact upon
    the opposite partys attempts to get justice:
Falcon Lumber Limited
,
    at para. 51.

He went on to note that the court could also consider the
    merits of the defaulting partys claim or defence, but that this might only
    play a limited role, as one would expect a party with a strong claim or defence
    to comply promptly with its disclosure obligations:
Falcon Lumber Limited
,
    at para. 52. Finally, he noted that a court must consider whether an order
    striking a pleading would constitute a proportional remedy to ensure that civil
    justice was proportionate, timely, and affordable:
Falcon Lumber Limited
,
    at para. 53.

Has the defaulting partys conduct increased the opposite
    partys costs of litigating the action? Has the default delayed adjudication of
    the matter on the merits?:
Falcon Lumber Limited
, at para. 55.

[27]

This
    analysis applies with equal force to motions under r. 60.12 to strike a
    statement of defence for failure to comply with an interlocutory order, as well
    as to the sanction of striking pleadings when sought for contempt. Where the
    remedy for contempt sought is an order barring a party from defending or an
    order striking a pleading, some assessment of the merits may be necessary to
    determine whether such an order is a proportionate response to the contempt
    alleged. Where, for example, the contempt is less serious, is likely to be
    cured, and it appears that a party has a defence of substance, it would be
    disproportionate to bar the defendant from participating in the action.

[28]

Where
    a statement of defence is struck, there may well follow an unopposed motion for
    default judgment.

[29]

While
    it may be tempting to collapse the issues of contempt and striking a defence on
    the one hand and a motion for judgment on the other hand into one proceeding,
    this may be false economy.

[30]

It
    can turn motions to strike pleadings for failure to comply with orders, whether
    as a sanction for contempt or pursuant to r. 60.12, into something resembling
    summary judgment motions, thereby shifting the focus from the failure to comply
    to the merits of the action. When granting judgment on the claim, the merits
    must be addressed.

[31]

While
    a judgment on the merits brings an action to an end, a court may subject a
    party in contempt to multiple sanctions hearings in order to compel compliance.

[32]

The
    Ontario
Rules of Civil Procedure
do not explicitly provide that
    judgment may be entered against a party who has failed to comply with a court
    order. Rule 60.12 does allow a court to make any order that is just for failure
    to comply with an order. In contrast, r. 10.53(1)(d)(iii) of the Alberta
Rules
    of Court
, AR 124/2010, says that judgment may be entered as a penalty
    for contempt. Final judgment in the action is not directly available as a
    punishment for contempt of court in Ontario.

[33]

This
    is not to say that in a given case, judgment may not be an appropriate remedy
    against a party who is in contempt or who has failed to comply with an interim
    order. There is no impediment in the Rules barring a party from moving for
    various and alternative relief. For example, a litigant could move under r.
    60.11 for an order imprisoning a party for contempt, for an order striking
    their pleadings under either rr. 60.11 or 60.12, and for default judgment in
    the event the pleadings are struck. If the latter is included, the moving party
    should expect that there will be a more searching inquiry about the merits and
    that the respondent will be given an opportunity to respond to the merits.

[34]

Here,
    there is no doubt that a strong response was required to sanction the
    appellants contempt, but they should not have been barred from making any
    submission as to the merits of any defence when it was clear that the
    respondents were seeking final judgment on their claims. Even if the moving
    party had not sought judgment on the motion but sought only to bar the
    appellants from defending the action because of their contempt and disobedience
    of court orders, some skeletal review of any defence raised may have been required
    to assess whether they should be barred from defending the action.

[35]

Here
    the plaintiffs sought judgment as a sanction for contempt, although judgment is
    not a remedy directly available as a punishment for contempt. As the appellants
    were entirely aware that judgment was sought on the motion, the procedural
    mischaracterization in the motion record might have been forgiven pursuant to r.
    1.04 of the
Rules of Civil Procedure
, had the appellants not been
    barred from addressing the merits at all in their response to the motion.

[36]

I
    would set aside the judgment and remit the matter to another judge of the
    Superior Court to determine the appropriate sanction to be imposed upon the
    appellants for their contempt of the orders of the motion judge. Ordinarily one
    would expect the same judge to make the finding of contempt and impose the
    sanction, however here, given that the motion judge  has expressed his views on
    the appropriate sanction, the better course would be to have a different judge
    decide what should follow the finding of contempt, depending on the relief sought
    and pleaded.

Reasonable apprehension of bias

[37]

I
    would not conclude that an informed person, looking at the matter realistically
    and practically, and having thought the matter through, would think it more
    likely than not that the judge would decide the case unfairly. It is not
    surprising that the motion judge was concerned about the appellants wilful and
    outrageous conduct, which deserved a significant response by the court.

[38]

I
    would direct the parties to make brief written submissions in relation to the
    costs of the appeal and the costs awarded below, due by October 29, 2021.

Released: October 15, 2021 GRS

G. Pardu J.A.

I agree G.R. Strathy C.J.O.

I agree S.E. Pepall
    J.A.


