April 1, 2015
On April 16, 2015, the Supreme Court released its decision in Carey v. Laiken, 2015 SCC 17. A unanimous court held that a motions judge erred by setting aside an initial finding of contempt of court against a lawyer by allowing the lawyer to re-litigate the contempt finding when the motions judge should have confined the second stage to considering the appropriate penalty.
Mr. Carey, a lawyer, represented Mr. Sabourin in a proceeding against Ms. Laiken. The background to the proceeding between Mr. Sabourin and Ms. Laiken is relevant to the finding of contempt against Mr. Carey.
Ms. Laiken hired Mr. Sabourin to conduct off-shore security trades on her behalf and transferred approximately $885,000 to him. Ms. Laiken’s money was subsequently lost and the business relationship between the parties soured. Mr. Sabourin then sued Ms. Laiken for the deficit in her margin account and Ms. Laiken counterclaimed against Mr. Sabourin, alleging that he had defrauded her.
In the course of the proceeding, Ms. Laiken obtained an ex parte (without notice) Mareva injunction, which froze the assets of Mr. Sabourin and his companies. The injunction broadly prohibited Mr. Sabourin or any person with knowledge of the order from “disposing of, or otherwise dealing with” any of Mr. Sabourin’s assets. The order also directed any person with knowledge of the order to “take immediate steps to prevent the . . . transfer” of the assets, including those held in “trust accounts” in that person’s power, possession or control.
A few months after the initial Mareva injunction order was made, Mr. Sabourin sent Mr. Carey a cheque for $500,000. No instructions accompanied the cheque and Mr. Carey could not reach Mr. Sabourin to obtain instructions. Pursuant to the Law Society of Upper Canada by-law requirements, Mr. Carey deposited the cheque in his trust account and applied some of the funds towards Mr. Sabourin’s outstanding legal fees, since the parties had agreed that the injunction did not prohibit the payment of reasonable legal fees.
Mr. Sabourin eventually instructed Mr. Carey to return the balance of the funds to him. Mr. Carey did so, transferring approximately $440,000 back to Mr. Sabourin. Later, a number of other creditors obtained a obtained judgment against Mr. Sabourin and receivership over his assets and those of his companies. In compliance with a court order, Mr. Carey gave a full accounting of Mr. Sabourin’s funds to the receiver.
Shortly after, Ms. Laiken also obtained a judgment against Mr. Sabourin granting her $1 million in damages and costs. Ms. Laiken subsequently applied to have Mr. Carey found in contempt of court for breaching the Mareva injunction when he returned the monies in his trust account to Mr. Sabourin.
The motions judge found Mr. Carey was in contempt of court by having knowingly and deliberately breached the Mareva injunction. The motions judge ordered the parties to appear before her at a later date, at which time she would take into account further evidence of the parties to determine the appropriate penalty. When the matter resumed, the motions judge set aside her previous finding of contempt. Based on new evidence presented by Mr. Carey, the motions judge doubted whether the terms of the Mareva injunction were completely clear and whether Mr. Carey’s interpretation of it was deliberately and wilfully blind.
Ms. Laiken appealed the motions judge’s ruling. The Court of Appeal allowed the appeal and restored the motion judge’s initial finding of contempt.
Cromwell J., writing for the Court, described the three elements of civil contempt of court, which must be established beyond a reasonable doubt:
- The order alleged to have been breached “must state clearly and unequivocally what should and should not be done”. This ensures that a party will not be found in contempt where an order is unclear. An order may be found to be unclear if, for example, it is missing an essential detail about where, when or to whom it applies; if it incorporates overly broad language; or if external circumstances have obscured its meaning.
- The party alleged to have breached the order must have had actual knowledge of it. It may be possible to infer knowledge in the circumstances, or an alleged contemnor may attract liability on the basis of the wilful blindness doctrine.
- The party allegedly in breach must have intentionally done the act that the order prohibits or intentionally failed to do the act that the order compels.
The Court confirmed that the contempt power is a discretionary one. If courts were to find contempt too easily, “a court’s outrage might be treated as just so much bluster that might ultimately cheapen the role and authority of the very judicial power it seeks to protect”. The Court also stated that the court’s contempt power should be used “cautiously and with great restraint”. It is an enforcement power of last, rather than first, resort.
Civil contempt does not require that the contemnor (the party in contempt) intend to interfere with the administration of justice. As a result, lack of intent to not obey an order of the court is not a defence. All that is required to establish civil contempt is proof beyond a reasonable doubt of an intentional act or omission that is, in fact, in breach of a clear order of which the alleged contemnor has notice. Intent or lack thereof goes to the penalty to be imposed following a finding of contempt, not to the finding of contempt itself.
The Court said that requiring a finding of intent to breach the court order would open the door to mistakes of law providing a defence to an allegation of civil contempt. It could also permit an alleged contemnor to rely on a misinterpretation of a clear order to avoid a contempt finding, which would undermine the authority of court orders. Requiring intent would also make proving the mental element dependent on the nature of the order alleged to have been breached.
The Court accepted that Mr. Carey had not breached the order maliciously or with the intent to interfere with the administration of justice. However, the Court concluded that the law does not require that in order to satisfy the elements of civil contempt.
During the penalty phase of the contempt motion, the motions judge heard and considered Mr. Carey’s evidence that he had believed that his professional obligations required him to comply with his client’s instructions to return the funds and that solicitor-client privilege shielded those communications from disclosure.
The Supreme Court found that the motions judge erred in setting aside the initial finding of contempt, explaining that there are only two exceptions to the general rule that a finding of contempt made at the first hearing is final. First, when a contemnor purges the contempt. For instance, when the contempt proceedings have secured compliance with the court order. Second, contempt proceedings are subject to the principles that allow parties to reopen findings in exceptional circumstances to permit consideration of fresh evidence or new facts that were not before the court at the first hearing. Neither of these exceptions was present and the motions judge erred in exercising her discretion to allow Mr. Carey to re-litigate the initial finding of contempt and then setting that finding aside.
Mr. Carey argued that his compliance with his professional obligations meant he had no option but to transfer the funds back to the client when instructed to do so. However, the Court found that there was no legal or ethical duty compelling the return of the funds and that the duty to guard solicitor-client privilege did not conflict with a lawyer’s duty to comply with a court order. To fulfill both, according to the Court, Mr. Carey should have left the funds in his trust account. Doing so would have respected solicitor-client privilege to maintain the confidentiality of the funds while complying with the Mareva injunction order not deal with or transfer the assets of Mr. Sabourin.
Unfortunately, while this decision clarifies the test for civil contempt generally, the Court provides little guidance on what a lawyer should do if he finds himself in a position of conflict such as Mr. Carey apart from leaving the funds in the trust account. There is a suggestion that he might have sought a variation of the order or direction from the court on an ex parte and in camera basis. How that could be done without breaching solicitor-client privilege is not clear. The Court concluded that it did not need to make any final pronouncements on what Mr. Carey should have done, only on what he should not have done which was to give the money back to the client. This leaves a lawyer in a difficult situation when the lawyer believes his obligations to the client conflict with the obligations under a court order – an issue that the law societies across the country will need to review.
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