Appeal Watch: SCC to Hear Appeal of Lawyer’s Contempt in Sabourin & Sun Group v Laiken

On March 20, 2014, the Supreme Court of Canada granted leave to consider the Ontario Court of Appeal’s judgment in Sabourin & Sun Group v Laiken, 2013 ONCA 530. In addition to determining the law in Canada on civil contempt, the SCC’s decision will have significant ramifications on how lawyers across the country handle trust funds and Mareva injunctions in the future.

Canada’s highest court has considered the issue of civil contempt twice before, both times in relation to criminal contempt: United Nurses of Alberta v Alberta (Attorney General), [1992] 1 SCR 901, and Pro Swing v ELTA Golf, [2006] 2 SCR 612. The upcoming Sabourin appeal will provide a welcome opportunity for the Supreme Court to clarify whether a third party with knowledge of a court order – such as a lawyer whose client is subject to a Mareva injunction – must be found to have been deliberately contumacious of the order before he or she can be held in civil contempt.

The Fraud, the Lawsuit, and the Trust Funds

As a self-proclaimed offshore investment consultant, Peter Sabourin convinced Canadian and American investors to move their money into Caribbean tax havens with him. Swayed by Mr. Sabourin’s gift for gab and promises of guaranteed returns above 17 percent, investors signed over tens – sometimes hundreds – of thousands of dollars to his investment services business, Sabourin & Sun Group of Companies. But as the old adage judiciously warns, it was too good to be true; the clients’ funds were deposited into Mr. Sabourin’s general accounts, commingled with other funds, and never actually left Canada.

When investor Judith Laiken flew down to the purported office in the British Virgin Islands and uncovered Mr. Sabourin’s fraud, she sued. Other duped investors commenced lawsuits of their own, and the Ontario Securities Commission launched an investigation (which resulted in an unpaid $29.1 million award to investors in 2010).

On May 4, 2006, the Ontario Superior Court of Justice granted Ms. Laiken’s motion for a Mareva injunction. Pending trial of the lawsuit on its merits, Mr. Sabourin and the co-defendants were enjoined from “disposing of, or otherwise dealing with, any of their assets.” The Mareva order also enjoined “any person … with knowledge of this Order” to “prevent the sale, disposition, withdrawal, dissipation, sale, assignment, dealing with, transfer, conveyance, conversion, encumbrance or diminishment” of the assets, and specifically included money held in trust accounts.

A week later, the Mareva asset freeze was varied on consent by the parties, in order to allow for payment of legal fees, living expenses, and other routine expenses. A further continuation motion was scheduled to be argued on September 14, 2006. On September 21, 2006, Mr. Sabourin sent a cheque for $500,000 with no instructions to his lawyer, Peter Carey. Mr. Carey attempted to contact Mr. Sabourin, but to no avail. In accordance with Law Society of Upper Canada regulations, Mr. Carey deposited the $500,000 into his trust account.

On September 25, 2006, the decision to continue the Mareva injunction was released [Sabourin & Sun Group v Laiken, 2006 CarswellOnt 5787 (Ont Sup Ct)]. Mr. Sabourin subsequently called Mr. Carey, and asked him to use the $500,000 to settle with an unrelated group of creditors; Mr. Carey refused to do so, in light of the Mareva injunction. Mr. Sabourin then instructed his lawyer to use the funds to settle with Ms. Laiken. Upon being notified that they were unable to reach a settlement agreement, Mr. Sabourin demanded the return of the $500,000. After deducting $60,000 for past and future legal fees, Mr. Carey sent back the $440,000 he held in trust.

On November 26, 2007, the merits of Ms. Laiken’s lawsuit were argued at trial. Mr. Carey indicated that he had not received instructions from Mr. Sabourin, and therefore was permitted to withdraw his defence. The trial proceeded uncontested, and Ms. Laiken was successful in obtaining $1.2 million in damages and interest [Sabourin & Sun Group v Laiken, 2007 CanLII 51342 (ON SC)]. However, she was unable to collect more than a fraction of the summary judgment award.

On December 15, 2010, Ms. Laiken sought a finding of contempt against Mr. Carey for returning the $440,000 to Mr. Sabourin, given that the Mareva injunction was in force at the time of the transfer.

The Contempt Proceedings

Ms. Laiken’s motion for contempt against Mr. Carey was heard from September 15 to 19, 2011, based on the affidavit evidence filed by both parties. Mr. Carey did not attend, but was represented by his counsel. On October 12, 2011, the Ontario Superior Court of Justice released its written reasons for finding Mr. Carey in contempt [Laiken v Carey, 2011 ONSC 5892]. However, Roberts J. adjourned the matter and directed the parties to appear before her at a future date, pursuant to Rule 60.11 of the Ontario Rules of Civil Procedure, RRO 1990, Reg 194 – in order to give Mr. Carey the opportunity to personally attend and give viva voce testimony.

Almost immediately thereafter, on November 28, 2011, Mr. Carey sought a stay of the contempt finding against him from the Ontario Court of Appeal. In Sabourin & Sun Group v Laiken, 2011 ONCA 757, Sharpe J.A. (in chambers) ruled that it would be premature to grant a stay at this stage of the proceedings, given Justice Roberts’ adjournment a month earlier.

Over two days in December 2011 and July 2012, the contempt proceedings resumed before Roberts J. in the Superior Court of Justice. Mr. Carey filed further affidavit evidence, and testified on his own behalf. Mr. Carey said that he believed:

• retaining the $500,000 in his trust account would amount to improperly sheltering the money from creditors;
• Ms. Laiken’s claim against his client was weak;
• the May 2006 Mareva injunction as an improper tactical maneuver; and
• the subsequent variations in the Mareva order effectively rendered it null or unclear.

On December 24, 2012, Justice Roberts set aside her earlier finding of contempt, in light of Sharpe J.A.’s comments about Rule 60.11(8) of the Rules of Civil Procedure in the court above, and on the basis of Mr. Carey’s oral evidence. Roberts J. held that there was reasonable doubt as to whether Mr. Carey had deliberately violated the Mareva order or that his interpretation of the Mareva order was wilfully blind. Ms. Laiken appealed.

The Appellate Ruling on Contempt to be Considered by the SCC

The Ontario Court of Appeal in Sabourin & Sun Group v Laiken, 2013 ONCA 530, ultimately reinstated the trial judge’s initial finding of contempt against Mr. Carey.

Justice Sharpe, writing for the unanimous appellate bench, held that Rule 60.11(8) of the Rules of Civil Procedure does not allow for a judge to revisit and reverse an initial contempt finding. In Sharpe J.A.’s view, Justice Roberts had misconstrued his earlier comments on Rule 60.11 when he dismissed Mr. Carey’s November 2011 appeal. Although contempt motions consist of a first phase (where the court determines whether the party is in contempt) and a second phase (where the court determines what the appropriate sanction is to cure the contempt), which must both be completed before the contempt finding can be appealed, a party found in contempt after the first phase cannot re-open the finding at the second phase, barring exceptional circumstances or the party’s compliance with the court order in the interim.

Moreover, Justice Sharpe ruled that the motion judge erred in law when Roberts J. held that because Mr. Carey did not deliberately breach the Mareva injunction, he could not be found in civil contempt:

It is well-established that while the act that contravenes a court order must be intentional to constitute civil contempt, it is not necessary to show that the act was deliberately contumacious. This is not a case of criminal contempt where public defiance of the court’s authority is an essential element […] the intention to disobey, in the sense of desiring or knowingly choosing to disobey the order, is not an essential element of civil contempt. […] [T]o hold that a party could only be found in contempt “if it intentionally and wilfully acted contrary to the requirements of the order” would put the test for civil contempt “too high.” [paras 57-59, citations omitted]

While Justice Sharpe accepted that Mr. Carey did not knowingly choose to disobey the Mareva order, the “lack of contumacious intent is a mitigating factor and not an essential element of civil contempt” [para 62]. It was sufficient that Mr. Carey knew of the injunction and acted to contravene it. However, given that Mr. Carey was not motivated by any deliberate disrespect for the court, and merely erred in his judgment, the unanimous Court of Appeal held that the appropriate sanction would be to order Mr. Carey to pay Ms. Laiken’s costs of the contempt proceedings on a partial indemnity basis – not the $440,000 compensation award sought by Ms. Laiken.

Commentary

Much of the case law in Canada regarding civil contempt of court is fairly settled, and the Ontario Court of Appeal accordingly disposed of the defence arguments raised by Mr. Carey’s testimony.

However, the central issue before the SCC will likely be the novel submission of Mr. Carey’s counsel that his client was a third party to the Mareva injunction, and thus a contumacious intent on Mr. Carey’s part must be proven in order to hold him in civil contempt. According to English case law relied on by Mr. Carey’s counsel, an intention on the part of the third party “to interfere with or impede the administration of justice” is “an essential ingredient…to be established to the criminal standard of proof” [para 63, citing the House of Lords at para 87 of Attorney General v Punch Ltd, (2002) UKHL 50].

Sharpe J.A. distinguished Mr. Carey from this category of third parties with knowledge of the court order, who must be found beyond a reasonable doubt to have acted deliberately to disobey that court order if they are to be held in civil contempt. For Justice Sharpe, Mr. Carey was the solicitor of record to Mr. Sabourin – not a third party bank alleged to have violated a Mareva injunction. As an officer of the court, the Ontario Court of Appeal was of the view that Mr. Carey was “duty-bound to take scrupulous care to ensure respect for court orders […] Carey should be held to the same standard of compliance as his client who was a party” [para 64].

Whether the Supreme Court of Canada agrees with this standard or not, remains to be seen.