February 13, 2022

By Brian Babcock

Judgment is not a remedy directly available for contempt of court arising in a civil lawsuit in Ontario. In the process of confirming this principle, the Ontario Court of Appeal provides a clear and useful roadmap for parties, lawyers, and judges in determining the appropriate sanctions for contempt.

In Thrive Capital Management Ltd. v. Noble 1324 Queen Inc., the Ontario Court of Appeal reviewed and overturned a Superior Court judge’s imposition of a judgment as a remedy or sanction against Defendants who on multiple occasions ignored court orders to account for money paid to them by the Plaintiffs for a real estate investment.

The Plaintiffs claim that the Defendants misappropriated $9 million intended for real estate projects. They obtained a court order early in the action (through what is known as a Mareva injunction) for the Defendants to account for the monies, so that any funds still traceable could be protected or frozen until the lawsuit is completed. The Defendant’s responses were described by the Court of Appeal as “derisory”.

The Defendants then ignored further court orders that froze assets. The motions judge stated that the Defendants:

…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.

This finding was not contested at the Court of Appeal, where the only issue was the penalty or sanction to be imposed.

This serious violation clearly called for a significant sanction – not just to punish the Defendants, but also to send a strong message to others that courts will not tolerate blatant disobedience.

The penalty imposed by the motions judge was to strike the Defendant’s statement of defence, and grant a motion for judgment in favour of the Plaintiffs in the amount of $9 million. Now THAT is serious.

As discussed in our recent article on setting aside default judgments, there is a strong preference in our system for disputes to be resolved on their merits. By granting judgment in this way, the merits were never considered.

So the issue before the Court of Appeal was whether the contempt in this case was so serious as to create an exception to the principle of deciding cases on their merits. Courts have on occasion struck out statements of defence in the past.

In their decision the court provides a thorough roadmap on sanctions for contempt.

First they list the factors relevant to determining an appropriate sanction, none of which focus on the merits of the proceeding:

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.

Additional factors in deciding whether to strike a defence because of contempt may 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 party’s attempts to get justice,
• the merits of the defaulting party’s 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,
• 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,
• has the defaulting party’s conduct increased the opposite party’s costs of litigating the action?
• has the default delayed adjudication of the matter on the merits?

Where the contempt is less serious, is likely to be cured, and the defence might have merit, it would be disproportionate to strike the defence, which is usually followed by an undefended motion for judgment.

However the Court of Appeal does not want the sanctions hearing in a contempt motion to become a miniature motion for summary judgment.

They determine that final judgment is not available as a punishment for contempt.

Instead, the sanctions for contempt might unfold over several stages, giving the Defendants ample opportunity to comply, and striking the defence only after persistent failure to comply. Even then, the motion for judgment should be considered separately.

In the Thrive Capital case, the court decides the process was flawed, in particular by the motions judge refusing to allow the Defendant to make submissions as to the merits of their defence. They sent the issue of the sanction back to Superior Court to be decided by a different judge.

Contempt of court is a serious issue. It requires advice and representation by lawyers who are serious about understanding the process and who have credibility with and an understanding of the local judges. In Thunder Bay, this makes the litigation team at Weilers LLP an outstanding choice.