



COURT OF APPEAL FOR ONTARIO

CITATION: Trade Capital Finance Corp. v. Cook, 2017 ONCA 281

DATE: 20170404

DOCKET: C61750

Rouleau, van Rensburg and Miller JJ.A.

BETWEEN

Trade Capital Finance Corp.

Plaintiff (Respondent)

and

Peter Cook also known
    as Peter William Cook, Marc D'Aoust also known as Jean Marc D'Aoust, Thomas Barker
    also known as Thomas Richard Barker (personally and carrying on business as LC
    Exchange, Global Medical and GreenLink Canada Group), Rocky Racca, Bruno Didiomede
    also known as Bruno Diaiomede, Alan Keery also known as Alan John Keery, Chris Bennett
    Jr. also known as Chris Bennett also known as Christopher Bennett (personally
    and carrying on business as CJR Consulting), Todd Cadenhead, Dayawansa Wickramasinghe,
    Bonny Lokuge also known as Don Bonny Lokuge, Virtucall Inc., Virtucall International
    LLC, Debt Resolve­Mortgage Funding Solutions Inc. carrying on business as Debtresolve
    Inc.,
The Cash House Inc.
, 1160376 Ontario Limited
    operating as The Cash House, 2242116 Ontario Inc. carrying on business as Superior
    Medical Services Inc. and Superior Medical Services, Carlo De Maria also known
    as Carlo Vince De Maria also known as Carlo Vincent De Maria also known as Carlo
    Vincenzo De Maria, Matteo Pennacchio, Frank Zito also known as Francesco Zito,
    Simone Sladkowski, Jobec Trade Finance Inc., 1461350 Ontario Inc., 2299430 Ontario
    Inc., WF Canada Ltd., Jobec Investments RT LTD., Green Link Canada Inc.,
    2339989 Ontario Inc., 2252364 Ontario Inc., 2224754 Ontario Ltd., 6980023 Canada
    Inc. operating as Living Benefits and Millwalk Enterprises Inc.

Defendant (
Appellant
)

Andrew Parley and Eli Lederman, for the appellant, The
    Cash House Inc., and the non-parties, Osman Khan and 2454904 Ontario Inc.

Peter W.G. Carey and Christopher R. Lee, for the respondent

Heard: October 26, 2016

On appeal from the orders of Justice Mackenzie of the
    Superior Court of Justice, dated January 21, 2016, and May 24, 2016.

B.W. Miller J.A.:

OVERVIEW

[1]

The respondent, Trade Capital Finance Corp., is in the business of
    purchasing accounts receivable. It alleges that it was defrauded of
    approximately $6,500,000 in a sophisticated scheme in which it unknowingly
    purchased fictitious accounts receivable. It alleges that the majority of its
    lost funds were eventually deposited in bank accounts owned by the appellant,
    The Cash House Inc., a financial services company in the business of making
    payday loans, cashing third party cheques, and providing foreign exchange
    services. Cash House is owned by 2454904 Ontario Inc. (245), which in turn is
    owned by Osman Khan.

[2]

On May 6, 2015, the respondent obtained a Mareva Order freezing the
    assets of named defendants, including Cash House, and ordering financial
    disclosure. Cash House, 245, and Khan (collectively the appellants), were later
    found to be in contempt of the Mareva Order. Khan was eventually sentenced to
    90 days incarceration, and the statement of defence and crossclaim of Cash
    House was struck.

[3]

The appellants now appeal the finding of contempt, the sanction of
    incarceration, and the striking of the statement of defence and crossclaim of
    Cash House.

[4]

For the reasons given below, I would dismiss the appeal.

FACTS AND DECISIONS BELOW

[5]

Trade Capital obtained an
ex parte
Mareva Order on May 6, 2015,
    freezing the assets of Cash House and other defendants, ordering financial
    disclosure, and providing other relief.

[6]

The Mareva Order provides that all persons with notice are restrained
    from directly or indirectly  (a) selling, removing, dissipating, alienating,
    transferring, assigning, encumbering, or similarly dealing with any assets of
    any of the Mareva Defendants. The Mareva Order further specifies that a
    Defendants assets include any asset which such Defendant has the power,
    directly or indirectly, to dispose of or deal with as if it were the
    Defendants own.

[7]

Cash House moved to set aside or vary the Mareva Order, and in support
    filed two affidavits from Khan. In his first affidavit, sworn May 15, 2015, Khan
    provided a list of the assets of Cash House. In his cross-examination on May
    27, 2015, he revealed the existence of a bank account held by 245 that he had
    used for the operations of Cash House, both before and after the Mareva Order
    had been issued.

[8]

The motion to set aside or vary the Mareva Order was dismissed by
    Ricchetti J. on June 10, 2015. In his endorsement, Ricchetti J. found that the
    respondent had made out a strong
prima facie
case of fraud against Cash
    House, and found that Khan had intentionally used 245s bank account in a
    manner that contravened the Mareva Order. The decision of Ricchetti J. was not
    appealed.

[9]

Through September and October 2015, the respondent sought to schedule an
    examination of Khan as representative of Cash House, as authorized by the
    Mareva Order. After the respondent was unsuccessful in doing so, it unilaterally
    set a date on 7 days notice. Counsel for the appellants advised that neither
    he nor Khan were available on that date. Accordingly, Khan did not attend.

[10]

The respondent then brought a motion, seeking: (i) to have the
    appellants found in contempt of the Mareva Order under rule 60.11 of the Rules
    of Civil Procedure, and (ii) to strike Cash Houses statement of defence and
    crossclaim under rule 60.12 for failure to comply with the Mareva Order.

[11]

On December 4, 2015, McKenzie J. granted an adjournment of the contempt
    motion on terms, which included the requirement that Khan deliver an updated
    list of assets of Cash House, with supporting documents, by December 7, 2015,
    and that Khan attend for examination on December 11, 2015.

[12]

The hearing of the contempt motion continued on January 8, 2016, with
    reasons given on January 21, 2016. Reviewing the steps taken by the appellants
    to comply with their obligations under the Mareva Order and the December 4,
    2015 order, the motion judge noted that they only delivered non-current
    documents relating to the bank accounts of Cash House and no documents for the
    accounts of 245. Although Khan had attended the examination scheduled for
    December 11, 2015, he did not produce the documents that were subject to the
    Mareva Order and further stipulated in the December 4, 2015 order.

[13]

The motion judge found that Cash House and Mr. Khan  intentionally operated
    the business of Cash House on an ongoing basis since the inception of the
    Mareva Order on May 5, 2015 utilizing the bank account(s) of 245. He found the
    appellants to be in contempt (the Contempt Order), and adjourned the motion
    to strike the defence and crossclaim until the sanction hearing. The appellants
    were given two months to purge their contempt before the sanction hearing.

[14]

During that interval, the appellants delivered a sworn statement from Khan
    listing accounts into which any money in which Cash House had a legal or
    beneficial interest had been deposited or withdrawn since May 6, 2015. The
    appellants produced some financial statements, tax returns, and bank
    statements. They also collected approximately 1,000 boxes of documents in a
    storage location, and invited the participation of the respondent to develop a
    plan for the review and inspection of these documents.

[15]

On March 14, 2016, the matter was back before the motion judge for the
    sanction phase hearing, and the hearing of the motion to strike. He released
    his decisions on May 24, 2016. He found the appellants documentary production
    since the Contempt Order to have fallen short of what was ordered, and ordered
    the appellants to forthwith supply the Plaintiff, through counsel, with a
    comprehensive and detailed written inventory of the documents contained in each
    of the approximately 1,000 bankers boxes that the appellants had collected.

[16]

The motion judge found that the appellants had intentionally and
    continually disobeyed orders of the court, and he sentenced Khan to 90 days of
    imprisonment to be served on weekends (the Penalty Order). He further ordered
    that the statement of defence and crossclaim of Cash House be struck, with
    leave to amend should Cash House comply with the ordered disclosure.

[17]

The appellants appeal the Contempt Order, the Penalty Order, and the
    order to strike the statement of defence and crossclaim.

ISSUES

[18]

The appellants argue that the motion judge erred by:

1.       finding
    the Mareva Order to be clear and unambiguous;

2.       failing
    to correctly apply the test for striking a pleading;

3.       providing
    insufficient reasons;

4.       ordering a custodial sentence for the contempt;

5.       failing
    to allow the appellants an opportunity to make submissions before awarding
    costs on a substantial indemnity basis.

ANALYSIS

A.

Is the Mareva Order clear and unambiguous?

[19]

The elements of civil contempt have been recently summarized by this
    court in
2363523 Ontario Inc. v. Nowack
, 2016 ONCA 951, leave to
    appeal to SCC requested, at para. 20:

A party seeking to establish civil contempt must prove that:
    (a) the order alleged to have been breached states clearly and unequivocally
    what should and should not have been done; (b) the party alleged to have
    breached the order had actual knowledge of it; and (c) the party allegedly in
    breach intentionally did the act the order prohibits or intentionally failed to
    do the act the order compels. A judge retains an overriding discretion to
    decline to make a contempt finding where the foregoing factors are met where it
    would be unjust to do so, such as where the alleged contemnor has acted in good
    faith to take reasonable steps to comply with the relevant court order. The
    burden on a party seeking a contempt order is to establish the above elements
    by proof beyond a reasonable doubt [citations omitted.]

[20]

The appellants argue that the motion judge erred by failing to conduct a
    correct analysis to determine whether the Mareva Order was sufficiently clear
    and unambiguous in the circumstances to ground a finding of contempt.

[21]

The appellants position, both before the motion judge and this court,
    is that the Mareva Order is unclear and suffers from multiple ambiguities that must
    be resolved in favour of the appellants. An ambiguity in an order is to be
    resolved in favour of the person said to have breached the order:
G.(N.) c.
    Services aux enfants & adultes de Prescott-Russell
(2006), 82 O.R.
    (3d) 686 (C.A.), at para. 39. The resolution of these ambiguities, the appellants
    argue, ought to have resulted in the dismissal of the contempt motion. The
    ambiguities identified by the appellants can be summarized as follows:

1.       It
    is unclear whether the prohibition of dealing with the assets of Cash House
    prohibits the operation of the Cash Houses business;

2.       It
    is unclear whether the Mareva Order obligated Cash House to include the bank
    account of 245 in a sworn statement describing its worldwide assets; and

3.       It
    is unclear whether Khan, as representative of Cash House, was obligated to
    attend a unilaterally scheduled examination.

[22]

Although this ground of appeal is expressly formulated in terms of
    ambiguity, the argument, in reality, is that the Mareva Order is not
    sufficiently clear or precise for the appellants to understand their
    obligations under that order. Ambiguity, in the sense employed in
G.(N.)
,
    indicates uncertainty as to which of two (or perhaps more) discrete meanings was
    intended by the order. To resolve an ambiguity in favour of the contemnor is to
    choose the meaning that is most favourable to the contemnor. The appellants have
    not identified any ambiguity in this sense, but argue instead that the relevant
    terms of the Mareva Order do not set out the appellants obligations with
    sufficient precision for them to know whether or not they have complied.

[23]

As I explain below, however, the motion judge made no error in finding
    the Mareva Order to be sufficiently clear.

(i)

Dealing with the assets

[24]

The appellants argue that, if the prohibition against dealing with the
    assets of Cash House was intended to prohibit the continued operations of Cash
    House, the Mareva Order needed to say so expressly. It did not, the appellants
    say, and to interpret it in this way would be inconsistent with the purpose of
    a Mareva Order, which is to prevent a party from depleting its assets, and not to
    prevent it from carrying on business in the ordinary course:
Farah v.
    Sauvageau Holdings Inc.
, 2011 ONSC 1819, 11 C.P.C. (7th) 363, at para. 111.

[25]

I am not persuaded by this argument. The salient question for the
    purpose of this appeal is not whether the appellants were operating the
    business of Cash House, but whether they dealt with the assets of Cash House. It
    is not necessary to consider the question of whether the Mareva Order permitted
    the business of Cash House to be operated in some form. The motion judge found
    that the appellants, in the mode in which they continued to carry on the
    business of Cash House, dealt with assets of Cash House  specifically, they
    dealt with funds deposited into the account of 245  and that this was
    expressly prohibited by the Mareva Order. That finding was supported by the
    evidence before the motion judge, particularly the evidence of Khan on
    cross-examination.

[26]

Khan, on cross-examination, admitted that he opened 245s account
    contemporaneous with his purchase of 245 and Cash House, and began using the
    245 account for the operations of Cash House shortly thereafter. After the
    Mareva Order was issued and the accounts of Cash House were frozen, Khan continued
    operation of Cash House through the 245 account, which was used to accept
    deposits belonging to Cash House.

[27]

A review of the 245 account statements provided revealed there were significant
    sums deposited and paid out of that account commencing in March 2015 and
    continuing well after the Mareva Order was issued. It appears that any business
    that Cash House was conducting, including the collection of its receivables,
    was occurring from 245s account. The motion judge made no error in finding
    that the 245 account was directly or indirectly an asset of Cash House. The
    use of this asset constituted a breach of the Mareva Order, and the motion
    judge made no error in so concluding.

(ii)

Disclosure

[28]

On the second issue, paragraph 4 of the Mareva Order required Cash House
    to prepare a sworn statement providing particulars of its worldwide assets whether
    owned directly or indirectly and including any assets held in trust for [Cash
    House].

[29]

The appellants argue that there was no direct evidence in the contempt
    proceedings to establish that Cash House had the power to dispose of or deal
    with 245s account, and that the motion judge erred by not engaging in any
    reasoning to establish that 245s account came within the scope of the Mareva
    Order.

[30]

There is no merit to this submission and it cannot be maintained in
    light of Khans evidence on cross-examination. The evidence is clear that the 245
    account received funds from Cash Houses operations. Its existence therefore
    had to be disclosed. It was not disclosed and the motion judge made no error in
    finding Cash House and Khan thereby breached the Mareva Order.

(iii)

Examination under oath

[31]

On the third issue, Cash House and Khan have attempted to manufacture
    confusion where the Mareva Order is abundantly clear: Cash House must submit
    to examinations under oath within thirty (30) days of the delivery by [Cash
    House] of the aforementioned sworn statements or by such later date as may be
    confirmed by the Plaintiffs counsel of record. The appellants argue that this
    provision is unclear because, effectively, it authorizes the respondent to
    demand the impossible: to schedule an examination unilaterally for a date when
    a party could not appear.

[32]

Again, the motion judge made no error. A Mareva Order does not want for
    clarity simply because it does not concretize every particular of a partys
    obligations. It need not do so. The order was made in the context of a
    self-governing legal profession with settled norms of practice. There can be no
    suggestion here that the appellants, represented by counsel, did not understand
    their obligations. Neither did the respondent depart from settled norms of
    practice and demand the impossible of the appellants. The respondent made reasonable
    attempts to enlist the assistance of the appellants in coming to a mutually
    convenient schedule for an examination. That assistance was not forthcoming. The
    appellants failure to participate is not the product of any defect in the
    Mareva Order or, for that matter, any unreasonable demands made by the
    respondent. The motion judge made no error in refusing to give effect to this
    argument.

B.

Striking the Defence and Crossclaim

[33]

The appellants argue that the motion judge erred by failing to apply
    correct legal principles on the motion to strike the statement of defence and
    crossclaim pursuant to rule 60.12. They advance six arguments, all of which I
    would reject.

[34]

First, the appellants argue that the motion judge erred by striking the
    defence and crossclaim at the first instance, and thus using it as a remedy of
    first resort. They rely on this courts decision in
Bell ExpressVu Limited
    Partnership v.
Corkery, 2009 ONCA 85, 94 O.R. (3d) 614, at para. 35, that
    striking out a defence for failure to comply with a courts order is a severe
    remedy that should not generally be imposed as a remedy of first resort. This
    argument is contradicted by the procedural history of the motion: the motion
    judge adjourned the hearing of the motion to strike for two months to provide
    the appellants with time to comply with court orders. He found that they did
    not do so.

[35]

Second, the appellants argue that the motion judge erred by failing to
    consider whether a less extreme remedy would suffice. In fact, after the motion
    judge chronicled the history of the appellants contempt, he specifically
    addressed the need to provide a remedy that is proportionate to the misconduct,
    expressing concern about turning the action into a default proceeding.
    Consequently, he made the order without prejudice to Cash House moving for
    leave to amend after satisfying the court that the contempt has been purged.

[36]

Third, the appellants argue that the motion judge erred in stating that
    the appellants were in contempt of two court orders, the Mareva Order and the
    December 4, 2015 order in aid of the Mareva Order. In fact, the appellants
    argue, they were only in contempt of the first of these orders.

[37]

It is difficult to see how this submission assists the appellants.

[38]

Fourth, the appellants argue that the motion judge misapprehended the
    requirement that he assess the merits of the defence in order to consider
    whether the interests of justice warranted another method of sanction, and
    improperly imposed an evidentiary burden on the appellants to establish the
    legitimacy of the defence.

[39]

The statement of defence and crossclaim, however, amounts to little more
    than a bare denial. In the context of an action where there has been a
    determination that the respondent has adduced a strong
prima facie
case, the motion judge was justified in concluding that the merits of the
    defence were weak and that, in the absence of a full evidentiary record, bald
    assertions would not suffice. There was no misapprehension of the test here,
    and the motion judge placed no burden on the appellants to establish their
    defence. Indeed, as he observed, it was not the courts role to determine the viability
    of either the claims or any defence, but to assess whether striking the
    pleading was an appropriate sanction (para. 22).

[40]

Fifth, the appellants argue that the motion judge considered only the
    goal of sanctioning the appellants, and failed to consider the overarching
    objective that the Rules of Civil Procedure be interpreted so as to secure the
    just determination of each civil proceeding on its merits.

[41]

Again, there is no merit to this submission. Cash House is one among
    many defendants in the same action. Where one defendant among many does not
    comply with its procedural obligations, it hinders and delays the expeditious
    determination of the overall proceeding.

[42]

Finally, the appellants argue that the motion judge failed to give Cash
    House one last chance. Again, I would not give effect to this submission. The
    motion judge found that Cash House has a lengthy history of non-compliance with
    the Mareva Order. It received numerous warnings. The hearing of the motion to
    strike was adjourned for two months after the Contempt Order to allow for
    further time to comply. It did not do so. Even in striking the defence and
    crossclaim, Cash House has been permitted to move for leave to amend after it
    has complied. The motion judge did not err by not providing for further
    indulgence.

C.

Sufficiency of Reasons

[43]

The appellants also appeal on the grounds that the reasons of the motion
    judge on both the Contempt Order and the motion to strike are inadequate, in
    that they do not explain why the motion judge decided the way that he did.

[44]

I would not give effect to this ground of appeal. With respect to the Contempt
    Order, the reasons, when read in conjunction with the written record that was
    before the court (including the endorsement of Ricchetti J., dated June 10,
    2015), disclose all that is needed to be known for the purposes of appellate
    review, and for the purposes of enabling the appellants to understand their
    obligations. Reasons are given in context and must be understood in that
    context:
R. v. R.E.M.
, 2008 SCC 51, [2008] 3 S.C.R. 3. The motion
    judge set out in detail the submissions of the appellants and the respondent. He
    accepted the arguments of the respondent as rationally superior to the
    arguments of the appellants and defeating those arguments. It was not necessary,
    in this context, that he do anything more than this.

[45]

Similarly, with respect to the motion to strike the appellants
    statement of defence and crossclaim, I do not accept the appellants argument that
    the reasons given by the motion judge are inadequate. None of the five defects
    that the appellants allege have any merit, and I do not propose to address each
    individually. One example is sufficient to illustrate their tenor: the
    appellants ask how the motions judge could have concluded that the merits of the
    defence are weak. No one who has read the record, including the statement of defence
    and crossclaim and the endorsement of Ricchetti J., could be left with any
    doubt about the basis of the motion judges conclusion.

D.

Contempt Sanction  error in ordering a custodial sentence

[46]

The appellants argue that ordering a 90 day custodial sentence is
    grossly disproportionate for what it describes as a first instance of
    non-compliance. They further argue that they made massive efforts to comply
    with the extensive production obligations imposed.

[47]

The motion judge did not view the appellants conduct as either a first
    instance of non-compliance or as an imperfect but well-intentioned attempt to
    comply with an onerous production obligation. He found that the appellants breached
    the Mareva Order continuously, even after the endorsement of Ricchetti J.,
    service with the contempt motion, and after being found in contempt.

[48]

The motion judge was not impressed with the production efforts of the
    appellants. The appellants production obligations under the Mareva Order were
    not satisfied, in the view of the motion judge, by simply dumping 1,000 boxes
    of documents on the respondent. These are not the records of an unsophisticated
    enterprise, but of a financial services corporation. The motion judge made no
    error, in my view, in requiring the appellants to provide a comprehensive and
    detailed written inventory of the documents contained in the 1,000 boxes.

[49]

It is important to note that the appellants made no proposal whatsoever
    as to how they would proceed to satisfy their obligations, and merely invited
    the respondent to consult with them. The motion judge found this to be insufficient.
    What the appellants describe as a mammoth task is hardly novel or
    unprecedented. At a minimum, the appellants ought to have put before the motion
    judge a plan from which it could have argued for an extension of time before
    the penalty hearing. It did little more than argue that the task was a large
    one, and that the respondent had not provided any assistance. The motion judge
    was accordingly unimpressed.

[50]

The motion judge made no error in principle: he did not, as the
    appellants argue, overemphasize punishment, or lose sight of the purpose of
    contempt sanctions, namely to secure compliance. To the contrary, the
    intermittent nature of the custodial sentence was expressly intended to
    facilitate compliance with disclosure obligations.

Costs appeal

[51]

The motion judge imposed an award of costs against the appellants on a
    full indemnity basis. The appellants appeal on the basis that they did not have
    an opportunity to make submissions on costs, and that this constituted a breach
    of natural justice. They ask this court to set aside the costs order.

[52]

As the respondents note, however, the costs award was imposed as a sanction
    for contempt, pursuant to rule 60.11(e). The quantum of the costs remains to be
    assessed. This penalty was available to the motion judge under rule 60.11(e).
    The requirement that costs be assessed provides the appellants with an
    opportunity to make submissions on quantum. I would not give effect to this
    ground of appeal.

DISPOSITION

[53]

I would dismiss the appeal. I would award the respondent costs in the
    amount of $15,000 inclusive of disbursements and HST.

Released: PR APR 4 04

B.W. Miller J.A.

I agree. Paul
    Rouleau J.A.

I agree. K. van Rensburg J.A.


