Ontario Court of Appeal Restores Contempt Finding Against Solicitor Who Breached Mareva Order

Here’s an interesting decision of the Court of Appeal for Ontario dealing with a solictor’s breach of what is commonly regarded as a “nuclear weapon” in the trial lawyer’s arsenal: the Mareva injunction order. In this case, the solicitor was unable to avoid the fallout from the blast radius.

Briefly, in Sabourin and Sun Group of Companies v. Laiken, 2013 ONCA 530 (Ont. C.A.), the respondent, Peter Carey, a solicitor, represented Peter Sabourin, a financial advisor who was subject to a Mareva injunction obtained by the appellant, Judith Laiken.  Sabourin sent Carey a cheque for $500,000 without instructions. Carey then deposited the cheque in his trust account. Sabourin later instructed Carey to use the funds to settle with an unrelated group of creditors represented by Bill Brown. Carey refused to follow Sabourin’s instructions which would violate the Mareva injunction.  Sabourin then instructed Carey to attempt to settle with Laiken. Carey’s settlement efforts failed. When Carey advised Sabourin that it was not possible to settle Laiken’s claim, Sabourin then instructed Carey to return the funds to him. Carey deducted $60,000 for his legal fees and returned the remaining funds to his client. 

 In early 2007, Sabourin called Carey to inform him that because of proceedings before the Ontario Securities Commission, he intended to terminate Carey’s retainer and retain new counsel, which did not occur and Carey remained the counsel of record on the Laiken matter.

Unsurprisingly, Sabourin went out of business and disappeared.  In October 2007, Brown obtained judgment against Sabourin and his companies and obtained a receiving order via equitable execution. The receiver demanded payment from Carey of the $500,000 trust money, to which Carey responded that he had paid it  back to his former client, Sabourin.  On October 27, 2009, Laiken sued Carey alleging, inter alia, negligence in relation to his return of the $440,000 to Sabourin in breach of the Mareva order.  In November 2007, the Sabourin – Laiken action went to trial: Carey appeared and advised that he had no instructions and was permitted to withdraw.  In the uncontested trial,  Laiken was awarded judgment against Sabourin for $820,000 plus interest and costs of almost $300,000 and  Sabourin’s claim against Laiken was dismissed.  Laiken’s evidence was accepted by the trial judge that she had lost her entire net worth as a result of Sabourin’s fraudulent conduct.

The appellant, Laikin, then brought a motion for contempt against Carey for his breach of the terms of the Mareva injunction arising from his return of the client’s funds from his trust account.  After considering the affidavit evidence, the motion judge found Carey in contempt and adjourned the matter pursuant to rule 60.11 (5) and (8) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.  On return of the contempt motion, the motion judge heard Carey’s testimony that he honestly believed that he was acting properly in returning the money to Sabourin and that he did not intend to breach the Mareva order . The motion judge found that based on Carey’s oral evidence, she was not satisfied beyond a reasonable doubt that Carey had deliberately violated the Mareva order or that he was wilfully blind to the terms of the Mareva order.

Justice Sharpe disagreed, allowed the appeal and restored the finding of contempt. However, as Sharpe J.A.  concluded that Carey’s actions were prompted by an error of judgment and not a deliberate violation of the Mareva order, he limited the sanction to the payment of costs of the appeal and the motion on a partial indemnity basis.

Justice Sharpe held:

[53] The basic premise of a Mareva order is that the defendant is a rogue bent on flouting the process of the court. That is said to justify the exceptional and drastic measure of freezing the defendant’s assets before trial and before judgment. A finding that Sabourin was a rogue bent on flouting the court’s process was implicit in the grant of the Mareva order and Carey was bound to act accordingly. If that is the starting point, it is difficult to see how Carey could reasonably have thought that returning the money to Sabourin would render it subject to execution while retaining it in the trust account would shelter it from execution. It was much more likely that the money would have been available for execution had Carey held the money in his trust account rather than returning it to his client who then behaved in precisely the manner the Mareva order predicted: he disappeared without a trace taking all of his assets with him.

[54] Carey asserts that it would have been wrong for him to have left the money in his trust account because that would shelter it from creditors under the protection of solicitor-client privilege. This ignores the fact that Carey knew that Sabourin had revealed to Bill Brown who represented several third party creditors the fact that there was $500,000 sitting in his lawyer’s trust account. Not surprisingly, the receiver Brown had appointed used that information in an attempt to recover the funds, only to find that they had been returned to Sabourin. As Sabourin had already disclosed to third party creditors that Carey held $500,000 in trust to be used to pay or settle creditors’ claims, it was virtually inevitable that at some point, his creditors, likely including Laiken, would come after the money had it remained in Carey’s trust account. I have difficulty accepting Carey’s assertion that there was no way that Laiken or her counsel could learn that he had his client’s money in his trust account in the face of his evidence that his client had already disclosed that fact, albeit to another creditor. I note here that whether Laiken would have gained from an execution brought by other creditors is a contentious issue upon which I express no view. The point remains, however, that as was predicable from Sabourin’s conduct and, as events proved, had Carey retained the money in his trust account, he would not have sheltered it from execution.

[55] In my view, Carey committed an act that violated both the letter and the spirit of the Mareva order.

[56] The motion judge was not satisfied beyond a reasonable doubt that Carey’s belief that he was entitled to return the money to his client amounted to a deliberate or willfully blind breach of the Mareva order. I accept that finding and now turn to consider the legal issue that arises: was the motion judge correct in finding that it follows from her finding that Carey was not in contempt?

[62] Carey knew of the order and he violated it. He did not desire or knowingly choose to disobey the order, but the lack of contumacious intent is a mitigating factor and not an essential element of civil contempt.

[63] In his capable submission on behalf of Carey, Mr. Schindler cites English authority dealing with contempt allegations against third parties who have acted contrary to an order made against a different party. It has been held that 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”: Attorney General v. Punch Ltd., [2003] 1 A.C. 1046, at para. 87. This principle has been applied to banks alleged to have violated Mareva injunctions as third parties with knowledge of the order: see Z. Ltd. v. A-Z and AA-LL, [1982] 2 W.L.R. 288 (C.A.), at p. 305: “Carelessness or even recklessness on the part of the banks ought not in my opinion to make them liable for contempt unless it can be shown that there was indifference to such a degree that was contumacious.”

[64] I am not persuaded that as the solicitor acting for Sabourin in relation to the Mareva order, Carey falls into the same category as the third parties discussed in those cases who were strangers to the litigation bound to respect the court order simply because they had knowledge of it. As the solicitor of record and as an officer of the court, Carey must be held to a higher standard. The solicitor-client bond creates a community of interest between Carey and Sabourin that is plainly distinguishable from the situation of a stranger to the litigation who is apprised of the court order. As an officer of the court, a solicitor of record is duty-bound to take scrupulous care to ensure respect for court orders. In my view, as the solicitor of record in the case, Carey should be held to the same standard of compliance as his client who was a party.

[65] I conclude, accordingly, that the motion judge erred in law in finding that because Carey did not deliberately breach the Mareva order, he could not be found in contempt.

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