The defendant was jailed for asset stripping and failing to meet discovery obligations under a Mareva Order. The Ontario Court of Appeal upheld the motion judge’s sanctions including a 90-day prison sentence and an order striking out the statement of defence and cross-claim.
The plaintiffs, Trade Capital Finance Corp., were in the business of purchasing accounts receivable. They allege that they were sold fictitious accounts and defrauded for around $6,500,000 by the defendants, The Cash House Inc., 2454904 Ontario Inc. and Mr. Osman Kahn. Shortly after the plaintiffs initiated a lawsuit, they successfully obtained a Mareva Order preventing the defendants 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 required that the defendants provide bank statements to the plaintiffs and make Mr. Kahn available for an examination for discovery pursuant to the Rules of Civil Procedure.
The motion judge found that Mr. Kahn “did not produce the documents that were subject to the Mareva Order…” and further that “Cash House and Mr. Kahn 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 [Ontario].” Despite having found the defendants in contempt, the motion judge scheduled the sanction hearing to occur two (2) months later to provide the defendants with ample time to “purge” or rectify their contempt. When Mr. Kahn returned to court for the sanction hearing, the motion judge found that his documentary productions had again fallen short and demanded that Mr. Kahn “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.” Further, the motion judge struck the defendants’ statement of claim and sentenced Mr. Kahn to 90 days imprisonment to be served on weekends. The Defendants appealed the motion judge’s ruling on the following grounds:
- the Mareva Order was unclear and ambiguous;
- the motion judge failed to correctly apply the test for striking a pleading;
- the motion judge provided insufficient reasons for his judgment;
- the motion judge awarded costs on a substantial indemnity basis without providing the defendants with an opportunity to make submissions;
- the motion judge ordered a custodial sentence which is disproportionate to the violation in this instance.
The appeal was dismissed on every ground. The Court of Appeal found the Mareva Order sufficiently clear in setting out the defendants’ obligations, and specifically, that they not “deal with the assets of Cash House.” Given the repeated and ongoing failure by the defendants to fix or “purge” their contempt, the Ontario Court of Appeal found that it was not inappropriate for the motion judge to strike the statement of defence and cross-claim, especially since the motion judge did so on a without prejudice basis, allowing the defendants to file either or both the statement of defence and cross-claim once they purged their contempt. Coupled with the motion judge’s finding that the plaintiffs made out a strong prima facie case of fraud, the Court of Appeal had no problem finding that the sanctions imposed by the motion judge did not result in any miscarriage of justice.
In litigation, it’s important to keep your eye on the ball. Enforcement of judgments and orders is sometimes as important as winning the case itself. If you cannot translate a court order into results in a fast and effective manner, then what was the point of commencing litigation and going to trial? Sometimes enforcement entails taking precautions before litigation is complete.
A Mareva Injunction can be a good way of preventing a party to litigation from hiding assets or moving them to foreign jurisdictions. While they vary drastically, a standard Mareva Injunction works to freeze the assets of a defendant to ensure that a plaintiff will not be deprived of a remedy if they are successful at trial. Courts are weary of making such orders, however, because they prejudice a party often at an early stage of litigation and long before any actual fault is found. Further, courts worry that Mareva Injunctions can be used as a tool of litigation-blackmail because they can cost companies a considerable amount of money by halting their business activities. This is why establishing the need for a Mareva Order typically requires the moving party to establish a strong prima facie case—meaning that a court must find that the moving party has a strong likelihood of succeeding at trial. Especially given that Mareva Injunctions are often sought on an ex-parte basis, or without the input of the party who is subject to the Mareva Order, the likelihood that a miscarriage of justice occurs is higher than usual.
See: Trade Capital Finance Corp. v. Cook, 2017 ONCA 281