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What Fraud Victims Should Know About Civil Contempt Proceedings

Canadian Fraud Lawyer

At Investigation Counsel PC, we receive inquiries about the procedure involved and the standard of proof required for a Court declare a fraudster in contempt. The issue of contempt has received judicial attention in some recent notable decisions, which has prompted this post.

 

In March and April of this year, the Ontario Superior Court of Justice released a series of judgments in Greenberg v. Nowack, (2015) ONSC 2256 dealing with an alleged fraudster’s refusal to provide financial disclosure to his victim so that the funds could be traced.

 

Then on April 16, 2015, the Supreme Court of Canada released its judgment in Carey v. Laiken, 2015 SCC 17, finding a lawyer in contempt for transferring funds to his alleged fraudster client when a court order existed prohibiting him from doing so.

 

Both of these cases discuss the procedure and the standard of proof involved in civil contempt proceedings. While we normally do not encourage our clients to bring contempt motions because of the cost involved, there sometimes is value in them as a means to motivate recovery and as a form of retribution. The Court’s purposes for contempt declarations are somewhat different, as these cases demonstrate.

 

Contempt by Fraudsters

 

In the case of Greenberg v. Nowack, (2015) ONSC 2256, the alleged fraudster Steven Nowack entered into Minutes of Settlement with the victim Greenberg before explaining his conduct in a statement of defence. The Minutes of Settlement indicated that if Nowack did not comply with a payment plan, the victim Greenberg could move for judgment without notice. Nowack was represented by counsel when entering the Minutes of Settlement.

 

Shortly thereafter Nowack failed to comply with the payment schedule under the Minutes of Settlement and Greenberg moved for judgment. The facts alleged are deemed to be true as Nowack did not defend. Nowack had held himself out as a licensed and successful investment advisor when in fact he was neither. Dr. Greenberg, who had been Nowack’s physician, had provided him with his retirement savings of approximately $3M, and Nowack had lost it all. Nowack refused to account for Dr. Greenberg’s money, implying the scheme was a classic breach of trust.

 

The victim Greenberg then attempted to collect on his judgment. In order to do so, he sought to trace his money. The process started with attempting to examine Nowack. He failed to show up. When, under threat of a court order, Nowack did attend his examination he failed to bring any financial documents with him or to answer questions. Ultimately, after four court appearances wherein Nowack defied court orders to produce the relevant financial documents, the Court declared Nowack in contempt. It would appear that Nowack was determined to not allow Dr. Greenberg to find out what happened to his funds.

 

Obligation to Produce Crown Disclosure

 

One of Nowack’s arguments for failing to produce the financial documents as ordered was because they were given to him as part of Crown Disclosure. Nowack argued that pursuant to the Court’s decision in P(D) v. Wagg (2004), DLR (4th) 501 (Ont. C.A.), he was prohibited from disclosing documents he received from the Crown. Nowack argued that his criminal defence lawyer had possession of them, and that he would not consent to disclosing them.

 

The Court rejected this argument and held that confidentiality of Crown disclosure only prohibited the disclosure of documents he received from the Crown that he would not have received from other sources. As Nowack’s financial documentation was obtained by the Crown through search warrants of Nowack’s residence and/or through production orders, Nowack was required to disclose such relevant records to his victim, Dr. Greenberg. The Court declared Nowack in contempt and ordered him to return a week later for sentencing.

 

Sentencing of Contemnors

 

A week passed and Nowack returned to Court. Nowack had done nothing to purge his contempt. Rather, Nowack attended Court with his former civil defence lawyer who took the witness stand and advised the Court that disclosing the relevant financial documents would breach the civil “implied undertaking rule”, suggesting that disclosure should only be made to the Court in chambers rather than to Dr. Greenberg. The Court rejected this argument as well, finding that the deemed undertaking rule does not mean Nowack is not required to produce relevant documents that he would have been required to produce in the litigation. The Court ordered Nowack to return a week later for sentencing.

 

When Nowack returned to Court, he still had done nothing to purge his contempt. The Court held that Nowack’s flouting of court orders was not only a violation of the victim’s rights, but also an affront to the rule of law, and struck at the very heart of the administration of justice. The Court held that 15 days jail was required to revive the public’s confidence in the justice system, and to send Nowack a message about the need for him to adhere to the law. The Court further ordered Nowack to make the required financial disclosure upon his release from prison, or face further contempt proceedings and incarceration. This case is ongoing.

 

Contempt by Lawyers

 

A similarly disturbing scenario occurred in the case of Carey v. Laiken, 2015 SCC 17. The respondent, Ms. Laiken, had given a fraudster named Sabourin approximately $885,000 to invest. Sabourin said he lost the money, and Ms. Laiken obtained a judgment in fraud as against him.

 

During the ongoing litigation, Sabourin gave $500,000 to his civil defence lawyer’s law firm in trust. Sabourin attempted to have his civil defence counsel Carey use some of this money to pay some other creditors, and to pay for his legal fees. Carey refused to use the money to pay some other creditors on the basis that the money was subject a freeze order in Laiken’s fraud litigation.

 

Sabourin then asked Carey to return the money to him. Notwithstanding that the freeze order was still in place, Carey did so. Ms. Laiken then brought a motion for a declaration of contempt against the fraudster’s solicitor Mr. Carey.

 

Stages of Civil Contempt Proceedings

 

The Supreme Court of Canada used the Carey case to address some issues specific to civil contempt proceedings. The Court held that typically contempt proceedings have two stages. The first stage is to find liability – which, as in Nowack, may require a series of Court attendances. The second stage is to impose a penalty, which is often reduced if the contemnor purges his or her contempt (i.e., does what he is ordered to do). In the Carey case, Carey attempted to use the sentencing phase to lead new evidence and reverse the finding of contempt. The Court held that such conduct is improper, that contempt findings should not set aside previous contempt declarations, and that the purging of contempt or the submission of new facts is only relevant to what sentence should be imposed for the contempt.

 

The Test for Civil Contempt

 

The Supreme Court of Canada in Carey also set out what must be proven for a court to declare civil contempt. The three part test is:

  1. the order alleged to have been breached must be clear and unequivocal about what should be or should not be done;
  2. the person alleged to have breached the order must have actual knowledge of it; and
  3. the person who allegedly breached the order must have done so intentionally.

 

It is this third part of the test which was primarily at issue in the Carey case. The Court held that as officers of the Court, lawyers are duty bound to take scrupulous care to ensure respect for court orders, and that lawyers are held to the same standard of compliance as their clients.

 

Standard of Proof of Intent

 

The Supreme Court of Canada used the Carey case to clarify the standard of proof required in civil contempt cases. The Court held that while civil contempt proceedings are quasi-criminal in nature, the intent required for a declaration of civil contempt is not the same as in criminal law.

 

The Court held that the civil standard of intent is that of intending to do the prohibited act. In other words, it did not matter that Carey did not intend to breach the Court’s order, as would be the criminal standard. What mattered was that Carey intended and did return the fraudster’s money when there was a court order that he was aware of not to do so. Whatever mistake of law Mr. Carey was under (even as a lawyer) was not relevant to his intent for the purposes of a civil contempt proceeding.

 

So what should have Carey done when his client asked for his money returned from the law firm’s trust account? The Court held that Carey had a number of options. Carey could have sought from the Court a variation of the freeze order, or direction from the Court on an ex parte basis. Carey also could have sought an independent legal opinion from his peers. Carey did none of these things. The Court held that it was crystal clear that Carey was not under any ethical or legal duty to return to the fraudster money that the Court had ordered frozen during the litigation.

 

Purpose of Contempt Proceedings

 

The Supreme Court of Canada used the Carey case to emphasize the purpose of contempt findings. The Court held that first and foremost, contempt orders are to declare that a person has acted in defiance of a court order. This is important as the rule of law is directly dependent on the ability of the courts to enforce their process and maintain their dignity and respect.

 

The Court further held that unlike criminal contempt orders which are to punish, civil contempt orders are intended to be coercive; that is to pressure the contemnor to do what is ordered (such as Nowack), or not do what is ordered (such as Carey). The reality is that civil contempt sentences such as Nowack’s 15 days in jail do appear to be punishment as he has not yet purged his contempt by responding to what the Court characterizes as “coercion”. If nothing else, the possibility of civil contempt declarations and sentences generally encourage most people involved in the civil justice system to comply with the Court’s rules and orders.

 

Inquiries

 

At Investigation Counsel, we investigate and litigate fraud recovery cases. While civil contempt proceedings rarely result in the immediate return of a fraud victim’s funds and cost fraud victims money, such motions are sometimes necessary to bring an action to a successful conclusion. If you discover you are a victim of fraud, contact us to have your case assessed and a strategy for recovery mapped out before contacting police or alerting the fraudster.

 

Norman Groot, LLB, CFE, CFI – April 21, 2015

www.investigationcounsel.com

Disclaimer

 

 

 

 

 

 

 

Norman Groot

About Norman Groot

Based on my police experience and my experience thereafter as a litigator, I have joined forces with other lawyers with police experience and created the law firm Investigation Counsel Professional Corporation.

2 Responses to "What Fraud Victims Should Know About Civil Contempt Proceedings"

  • Vince Saragosa
    May 4, 2015 - 10:36 am

    Very informative article. Thank you for posting!

  • Norman Groot
    Norman Groot
    May 5, 2015 - 6:24 pm

    Thank you for the positive input.

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