ONTARIO – Interference with a Receiver’s order and right to deal with property of the debtor, being shares in an Ontario company, by filing a criminal complaint in another country challenging the Receiver’s actions and disobeying the order constitutes civil contempt.

Castillo v. Xela Enterprises Ltd. et al.
2022 ONSC 4006 (June 29, 2022)
Ontario Superior Court (Conway J.)

In 2017, the Plaintiff (“Castillo”) obtained an Ontario judgment for $4.25 million against Xela Enterprises Ltd. (“Xela”) and against her brother and father (collectively “Gutierrez”). In July 2019, Castillo obtained a court order appointing a receiver of Xela to enforce the judgment.  There was a long history of litigation between these parties dating back to 2014

The receiver brought this motion for a declaration that the brother be found in in contempt for breaching the Appointment Order. The Appointment Order gave the receiver power to “act at once in respect of the Property” and included broad powers to act in the name of the shareholders of the corporation and to take such court proceedings as may be required.

The Court addressed three issues after reviewing the complicated fact situation summarized below:

1. Did the Ontario Court have jurisdiction over the alleged contempt because the acts took place in Panama and Guatemala?
2. Was the test for criminal contempt met?
3. Was the test for civil contempt met?

Factual Background

Xela was a privately owned Ontario family holding company that oversaw operations of its subsidiaries in Central and South America. One of the subsidiaries was a Panamanian company, known as Gabinvest, that owned 100% of the shares of LISA S.A. (“LISA”), another Panamanian company. LISA owned a one-third interest in Avicola, a group of companies in Guatemala that operated a poultry operation valued at a billion dollars. (paras.7-9)

LISA had a judgment in Panama against Avicola Group for unpaid dividends. LISA transferred its interest in the Avicola litigation to the Gutierrez’ wife and children. The Receiver was investigating the LISA transaction as a reviewable transaction. (para. 10)

On July 19, 2019, the Receiver sent a copy of the Appointment Order and letter about the terms, including the Receiver’s exclusive right to control Xela’s property without interference to Gutierrez.

The Receiver had difficulties obtaining information about Xela. On January 20, 2020, the Receiver exercised its rights in the name of the sole shareholder of Gabinvest to hold a shareholder meeting and replace the existing three directors with Receiver’s three representatives. (para. 19). The former directors were notified of the change.

One of the replaced directors was Harald Hals (“Hals”) who was Gutierrez’ brother-in-law and the President of LISA. Hals alleged that the Gabinvest shareholder’s resolution was illegal and that the three new directors may have committed a crime. On March 24, 2020, the Receiver obtained an Ontario Court Order approving the shareholders resolution. Thereafter the changes to the Gabinvest board of directors were ratified at a further shareholders meeting.

Hals filed a criminal complaint in Panama that the Gabinvest shareholders meeting replacing the former directors with three new directors was improperly held and illegal. The evidence filed in support of Hal’s complaint was a Declaration sworn by Gutierrez. (para 24.)

On February 10, 2021, Justice McEwan issued an Order that Gutierrez was to “forthwith take any and all steps within his control to effect the withdrawal of the criminal complaint and his declaration”. The next day Gutierrez requested in writing that the Panamanian Prosecutor withdraw his declaration. Gutierrez also requested that Hals withdraw the complaint. (para.27)

In August 2021, Hals requested that the Prosecutor’s office interview Gutierrez to determine if he ratified the shareholders meetings called by the Receiver and what was contained in the Declaration filed in Panama. The interview took place at the Panamanian Consulate in Toronto. Gutierrez advised the Public Prosecutor’s representative that the case involved a company that he manages in Canada, that he was not present at the Gabinvest shareholders meeting, and that he was a “judicial hostage” because Justice McEwan’s Orders prevented him from participating in this case. However, Gutierrez did NOT state that he had withdrawn the Declaration. The Public Prosecutor was still investigating the Criminal Complaint. (para.28).

Jurisdiction

Referring to Libman v. The Queen, 1985 CanLII 51 (SCC). (para.35), Justice Conway noted that Canadian courts will exercise jurisdiction over criminal charges and civil and criminal contempt proceedings where there is a “real and substantial link” between the misconduct and Canada.

The court must focus on the underlying activities giving rise to the offence rather than aspects of the alleged offender. R. v. B.(O.) (1997), 1997 CanLII 949 (ON CA) .(para.35) Further Conway referred to Dish Network L.L.C. v. Shava IPTV Network LLC, 2021 ONSC 158, which stands for the proposition that when the offence is contempt, the emphasis may be placed on the court that issued the order. (para.35)

Conway J. found a real and substantial link between Gutierrez’ conduct and Ontario, as the Appointment Order was made in Ontario, Xela is an Ontario company and when Gutierrez signed his Declaration he said he was doing so in his capacity of an officer and director of an Ontario company.( para.36)

Conway J. rejected the argument that if the Ontario court asserted jurisdiction over Gutierrez’ activities in Panama that would go beyond the bounds of international comity. The issue of international comity was not an issue in this case because the issue is not whether the Receiver complied with Panamanian laws when it replaced the directors. Conway J. held that the issue was whether Gutierrez complied with certain terms of the Ontario Appointment Order. In addition, the Appointment Order was made in respect of enforcing an Ontario judgment. (para.40)

Therefore Conway J. held that the Ontario court had a legitimate interest in prosecuting the offence and had jurisdiction to address the Receiver’s motion. (para. 37)

Criminal Contempt

Criminal contempt must be proved beyond a reasonable doubt: R. v. W.(D.), 1991 CanLII 93 (SCC),(para,29) Conway J. held the test for criminal contempt was not met, even though Gutierrez’ testimony was found not to be credible and he knew that the purpose of signing his Declaration was to file a criminal complaint in Panama to challenge the Receiver’s removal and replacement of the board of directors. (paras.33 and 63) The judge noted that the Receiver’s motion record did not set out why Gutierrez’ conduct constituted criminal contempt. (para 63 & 64)

Civil Contempt

Civil contempt must also be proven beyond a reasonable doubt: Carey v. Laiken, 2015 SCC 17, [2015] 2 S.C.R. 79, at paras. 32-35. The three elements to establish civil contempt are as follows:(para.41):

1. The order must be clear and unequivocal.
2. The defendant must have knowledge of the order.
3. The defendant must have intentionally breached the order.

Conway J .referred to Sweda Farms Ltd v. Ontario Egg Producers, 2011 ONSC 3650 which indicates that the court must look at the totality of the evidence. (para.43)

Contempt is an exceptional remedy, which should be applied to maintain the rule of law and the public’s faith in the justice system: L. Morreale Consulting Professional Corp. v. Manieri, 2016 ONSC 7048, at para. 18. (para.44).

Conway J. held that paras. 3 and 9 of the Appointment Order, which gave the Receiver broad enforcement powers were clear and equivocal. (para.55) If the Receiver exercised any of the enumerated powers in paragraph 3, it is entitled to do so without interference from another person. Further, no proceedings can be commenced against the Receiver without consent of the Receiver of leave or the Ontario Court. (para.50)

Finally, Conway J. held that Gutierrez intentionally breached the Appointment Order when he signed the Declaration that was filed with the Prosecutor’s office in Panama. Specifically, Gutierrez signed the Declaration on behalf of Xela contrary to s. 3(h) of the Appointment Order and purported to act on behalf of Xela contrary to the exclusivity granted to the Receiver. Gutierrez interfered with the Receiver’s rights to deal with the shareholdings of Xela contrary to s 3(q) and he was integrally involved in bring criminal proceedings against the Receiver without the Receiver’s consent or leave of the Ontario court contrary to s. 9 of the Appointment Order.

In the result, Justice Conway held that that civil contempt was established beyond a reasonable doubt.