ONTARIO – Where a judge holds a defendant in contempt of the court’s orders, judgment against the contemnors for the plaintiff’s claim, without allowing an opportunity to defend the action, is not an appropriate remedy, even where the contempt is flagrant and serious.

CASE #013E
Thrive Capital Management Ltd. v. Noble 1324 Queen Inc.,
2021 ONCA 722 (CanLII)
Strathy C.J.O., Pepall and Pardu JJ.A., Oct 15-21

The Court of Appeal (“ONCA”) allowed an appeal from the final order of Justice Markus Koehnen, who granted judgment for $9 million to the plaintiffs on an unusual basis.

The plaintiffs’ action was for fraud and misappropriation of invested funds. The plaintiffs obtained a Mareva injunction and an order directing the defendants (appellants) to disclose their assets, which the appellants repeatedly failed to do. The appellants blatantly ignored the court’s orders.

The motions judge found the appellants in serious contempt of the court’s orders: “I cannot understate the seriousness of the defendant’s continued contempt of court”.

In fashioning an appropriate penalty for the appellants’ flagrant contempt, Koehnen J. considered the options of 1) a hefty fine, which would be paid the Crown; and 2) a period of incarceration of the appellants’ principals, neither of which he considered suitable in the circumstances. Instead, the motions judge held that the appellants’ should not be permitted to defend the action because to do so would “amount to a licence to steal”.

The Court of Appeal considered whether Koehnen J. was correct in granting judgment directly as a sanction for contempt. To put the question more squarely, is judgment against the contemnors available as a penalty for contempt of court?

Pardu J.A., writing for the Court held that 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. [para. 19]

The factors relevant to an 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.

ONCA held that 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. [para. 21]

The Court then analyzed provisions of the Ontario Rules of Civil Procedure, which do permit consideration of the merits and even the striking of a pleading as a penalty for contempt [paras. 23-33]. Unlike r. 10.53(1)(d)(iii) of the Alberta Rules of Court, AR 124/2010, the Rules of Civil Procedure, and particularly 60.12, does not expressly permit judgment to be entered against the contemnor.  Rule 60.12 does permit the court to make “any order that is just” for failure to comply with the order, and there may be cases where judgment is the appropriate remedy. [para. 32-33].

However, here the appellants were not permitted to make any submission or response to the claim and allegations against them. In the absence of a rule or statute expressly allowing such a penalty for contempt, ONCA set aside the penalty and directed that the matter be remitted to another judge for determination of the penalty for contempt.

Editor’s Note: 

There are two important points to be drawn from the ONCA’s decision:

1. When a court determines the appropriate penalty for contempt, it should do so separately from the merits of the case, having regard to the six factors above; and
2. Judgment against a contemnor is not available as a penalty for contempt before the contemnor has defended the action and the Court has considered the defence. For example, a contemnor may have a limitation period defence to the plaintiff’s action, which the Court should not disregard. However, the sanctions in Rule 60.12 are still available to the Court at a later stage of the action and of course, the Court has jurisdiction to prevent the introduction of evidence when a party has failed to produce relevant documents.