336239 Alberta Ltd. Carrying on Business As Dave's Diesel Repair Plaintiff - v. -, 2016 ABQB 174

Court of Queen ’ s Bench of Alberta Citation: 336239 Alberta Ltd. (Dave's Diesel Repair) v Mella, 2016 ABQB 174 Date: 20160323 Docket: 1403 15969 Registry: Edmonton Between: 336239 Alberta Ltd. Carrying on Business As Dave's Diesel Repair Plaintiff - and - Francis Emanuel Mella, Matrix Consulting Ltd., M2 Systems Inc., ABC Corp., and Mella Fitness Consulting Ltd. Defendants _______________________________________________________ Reasons for Decision of the Honourable Madam Justice D.L. Shelley _______________________________________________________ Background [ 1 ] In 2014, the Plaintiff discovered that Mr. Mella had fraudulently misappropriated its funds and had conveyed them to various

other Defendants. After it had commenced this action, the Plaintiff obtained an Attachment Order which, among other things, prohibited Mr. Mella’s household expenditures from exceeding $2,000 per month and required him to maintain and provide, on the Plaintiff’s written request, detailed monthly records of such household expenditures. [ 2 ] The Plaintiff subsequently determined that Mr.

Mella’s household expenditures for November and December 2014 were $10,285.98 and $4,847.39 respectively, which was $11,133.37 in excess of the amount stipulated in the Attachment Order. [ 3 ] On February 4, 2015, the Plaintiff brought an application to hold the Defendants in contempt of the Attachment Order. Both the Plaintiff’s representative and Mr. Mella filed Affidavits in connection with such application. [ 4 ] On February 11, Mr. Mella paid $5,000 into his bank account, which was accessed by the Plaintiff. [ 5 ] On February 19, Justice Manderscheid found Mr. Mella in contempt of Court.

Among other things, he ordered Mr. Mella to purge his contempt by “making full repayment of the monies exceeding the maximum permitted monthly Household Expenditures.” He also provided that, if Mr. Mella failed to do so by February 26, the Defendants would be subject to a fine of $1,000 and an ongoing fine of $200 per day for each day that the contempt remained unpurged. [ 6 ] On February 27, the Plaintiff brought an application for

Summary Judgment. Prior to that application being heard, the Defendants consented to judgment against them in the amount of $2,269,757 (the Judgment) for fraudulent misappropriation of funds. [ 7 ] After the Judgment was entered into, Mr. Mella transferred approximately $100,000 to the Plaintiff. [ 8 ] At Questioning on June 25, Mr. Mella provided the following evidence under oath: 1. On the 8th, he had transferred $1,700 and $1,800 from his account into his wife’s account; and 2. He had transferred these funds to avoid garnishment by the Plaintiff. [ 9 ] On July 29, Mr.

Mella was questioned in Aid of Enforcement and, under oath, provided the following evidence: 1. He owns a rental condominium; 2. Since January 1, 2015, he has directed the condo tenant to pay the monthly rent to his wife; and 3. He instructed such payment to his wife to avoid having the rent garnisheed by the Plaintiff. [ 10 ] At the same Questioning, Mr. Mella provided the names of the Defendant Matrix’s clients, each of whom had previously paid Matrix for internet marketing services.

As a result, the Plaintiff served a Garnishee Summons on each of these clients on August 7. [ 11 ] The Plaintiff discovered that Mr. Mella had sent emails to Matrix’s clients on August 7, advising them that: they would be receiving garnishment documents; no further billings would be made by Matrix; all outstanding invoices would be cancelled; they were to advise the Plaintiff that they had ended their contract with Matrix; and Mr.

Mella would be providing the same services, with the same staff, through another business entity. [ 12 ] Two responses received from Matrix clients to Garnishee Summons have indicated that there were monies owed to Matrix. The other Garnishee responses indicated that no monies were owing. Some of the responses mirror the language used by Mr. Mella in his August 7 email to Matrix’s clients.

The Application [ 13 ] The Plaintiff seeks: 1. a declaration that the Defendants are in contempt of Court pursuant to Rule 10.52; 2. an order directing immediate payment to the Plaintiff in the amount of $6,133.37, to be credited to the amount owing under the Consent Judgment; 3. immediate payment to the Court of $46,000, being the fine owing under the Contempt Order to the date of this Application; 4. a further fine of $10,000; 5. that, if the Defendants fail to pay such amounts as required by the Court, they are to return before the Court to be sentenced to prison until the contempt is purged; and 6.

Solicitor and Client costs related to this Application and all proceedings in the Action since March 27, 2015, the date of the Judgment. The Issues [ 14 ] The issues to be determined on this Application are: 1. Have the Defendants purged their contempt under Justice Manderscheid’s Order?

2. Did the Defendants’ contempt merge with the Consent Judgment? 3. Does the Defendants’ post-judgment conduct support a finding of contempt? 4. If the Defendants are in contempt, what is the appropriate remedy? Position of the Parties The Plaintiff’s Position [ 15 ] The Plaintiff takes the position that the Defendants have not purged their contempt under Justice Manderscheid’s Order. It takes the position that the evidence provided by Mr. Mella in connection with this Application, challenging the evidence that was before Justice Manderscheid, is identical to the evidence that was before Justice Manderscheid.

Justice Manderscheid rejected that evidence, as well as the argument made by the Defendants before him, and concluded that they were in contempt. Therefore, permitting the Defendants to raise this evidence and this argument again would amount to a collateral attack on Justice Manderscheid’s Order, which was never appealed or varied. [ 16 ] The Plaintiff rejects the suggestion by Mr. Mella that he purged his contempt by the $5,000 payment made on February 11, that argument having been considered and rejected by Justice Manderscheid.

In any event, even if it were accepted as a payment toward the amount owing, the Defendants failed to pay the full amount which was due and therefore remained in contempt. Furthermore, the Defendants did not pay the fine which had been levied by Justice Manderscheid. [ 17 ] The Plaintiff also takes the position that the Defendants’ contempt was not affected by the Judgment. The finding of contempt by Justice Manderscheid created a separate obligation to the Court, which remained unaffected by the entering into of the Judgment.

This separate obligation to the Court continues even after Judgment, and has not been purged in this case. [ 18 ] The Plaintiff submits that the Defendants’ post-judgment conduct “can only be described as deliberately thumbing their nose at Dave’s Diesel, the Court’s judgment and the administration of justice itself.” It argues that the Defendants have taken steps to avoid the enforcement of the Judgment, carrying on as if the Judgment did not exist and instructing third parties to lie to the Plaintiff and to be deceitful in relation to their dealings with the Defendants. Examples of this include: Mr.

Mella’s transferring of funds to his wife to avoid garnishment; directing his tenants to pay their rent to his wife, also to avoid garnishment; and contacting Matrix’s clients to defeat the Plaintiff’s garnishment proceedings. The Plaintiff argues that the only proper response to such conduct is to hold the Defendants in contempt and to sanction them for this contemptuous behaviour. It submits that such conduct requires the Court to exercise its contempt power to not only punish the Defendants for their disregard of the justice system, but also to ensure that they conduct themselves properly in the future.

Defendants’ Position [ 19 ] The Defendants point out that the Application for contempt related to an Attachment Order that was subsequently vacated as part of the Judgment. They take the position that the contempt was purged through the Judgment and the subsequent transfer of exempt assets to the Plaintiff. Furthermore, the Defendants argue that there has been no further contempt by them. [ 20 ] The Defendants point out that the parties disagree in relation to the amount of overspending in December and January.

They argue that Justice Manderscheid did not specify a particular amount owing and therefore the Contempt Order itself is uncertain. [ 21 ] The Defendants point to the contents of an email dated March 20, 2015, which outlined the terms of the settlement proposed between the parties. It included provisions that the Defendants would: enter into the Judgment; transfer RRSPs of approximately $100,000 (including any tax benefits related to them); agree there would be no release; and provide information about funds for mortgage payments.

As part of this settlement, the Attachment Order would be vacated after the Judgment was entered into and all outstanding applications in respect of the Action would be abandoned and adjourned sine die .

This, argues the Defendants, shows that it was an essential term of the agreement to enter into Judgment that the Attachment Order and any ancillary contempt be vacated or purged. [ 22 ] The Defendants take the position that, even if the $5,000 repayment made in February was not sufficient to purge the contempt, the subsequent payment of approximately $100,000 in RRSPs satisfied any remaining obligation under the Contempt Order.

Accordingly, the contempt had been purged. [ 23 ] In relation to the Defendants’ post-judgment conduct, the Defendants argue that none of such conduct engages the application of Rule 10.52(3). They argue that the Plaintiff has not indicated which provision of the Rule has been breached, has not indicated a specific order breached by such conduct, and has not identified any conduct before the Court that would constitute contempt.

They argue that, even if some of the conduct was inappropriate, in the absence of a Court Order it would not amount to contempt. [ 24 ] The Defendants argue that the Plaintiff has not met its burden of proving, beyond a reasonable doubt, that there has been any further contempt as a result of post-judgment conduct. While they acknowledge that Mr.

Mella “is not an exemplary litigant,” they argue that he has taken reasonable steps to comply with Orders and has “cooperated in very difficult circumstances.” They argue that, while some of transfers referred to by the Plaintiff may be improper, in the absence of a Court Order, they are not contempt of Court. They further argue that, even if there is some improper post-judgment conduct, the desired objective of a finding of civil contempt is coercion rather than punishment and the Court must use the most limited power it has available when considering whether to exercise the remedy of contempt.

Applicable Legislation and Authorities Relied on by the Parties [ 25 ] Rule 10.52(3) provides, in part, that a judge may declare a person to be in civil contempt if, the person, without reasonable excuse, (

i) does not comply with an order, other than an order to pay money, that has been served in accordance with the rules for service of commencement documents or of which the person has actual knowledge, (ii) is before the Court and engages in conduct that warrants a declaration of civil contempt of Court, (iii) does not comply with an order served on the person, or an order of which the person has actual knowledge, to appear before the Court to show cause why the person should not be declared to be in civil contempt of Court, ... [The remaining subsections do not apply in this case and therefore are not reproduced.] [ 26 ] In Chustoff Estate v Ruskin Estate , 2014 ABQB 341 , Miller J observed that “contempt of court can take many forms and the power to deal with contemptuous conduct varies.

Civil contempt of court occurs when there is a breach of the Rules of Court , disobedience of a Court order or other misconduct in a private matter causing a private injury or wrong.” [ 27 ] In Korea Data Systems Co. v Chiang , 2007 CarswellOnt 2187 , the Court concluded that a party found to have been in contempt has the onus of establishing on a balance of probabilities that it has purged its contempt.

In that particular case, the Court observed that the circumstances of the case put in issue “the capacity of the court to enforce its orders where a judgment debtor with substantial financial means decides to avoid his obligations.” It went on to observe that “contempt proceedings are in large measure about ensuring the effectiveness of the court’s process.” It also observed that “ultimately a function of the Court was to ensure that disputes can be resolved quickly, efficiently and effectively,” and that the actions of the judgment debtors in Korea Data Systems challenged those objectives.

The Court observed that the plaintiffs had “devoted enormous time and resources to track the Chiangs’ efforts to hide their money.” Further, if the Plaintiffs were “unable to obtain an effective remedy, it would undermine the rule of law and send a terrible message to litigants and the public.” The Court concluded that “a contempt hearing is often a last resort for a litigant, but in the face of shameless dishonesty and intransigent refusals to obey the rule of law, it is, regrettably, the only remedy that remains.” [ 28 ] The Manitoba Court of Queen’s Bench was of a similar view in Todosichuk v Daviduik , 2006 MBQB 6 .

In that case, the judge accepted “for the purposes of this proceeding that Ms. Todosichuk was and is impecunious and that accordingly she could not be expected to forthwith pay the money into Court. But she did have the property and ordinarily that property could have been seized by the residuary beneficiaries and eventually sold so that the order for the payment of the money could have been satisfied.” The judge was of the view that “it behooved her not to convey the property away for no consideration but rather to preserve it for the benefit of the estate...

By conveying the property to her son, she deliberately put this asset beyond the reach of the estate and deliberately frustrated the normal execution processes of the court.” It was clear to Jewers J that Ms. Todosichuk was “attempting to play fast and loose with the judicial system” and accordingly he found her to be in contempt. [ 29 ] In the British Columbia Supreme Court decision in the Canadian Imperial Bank of Commerce v Sayani , 1996 BCJ 1277 , the plaintiff had obtained judgment against the defendant.

Just before judgment was obtained, during an adjournment of the trial, the defendant transferred money to her brother. After the judgment was obtained, the plaintiff attempted to execute against the funds given to the brother. It obtained an order requiring the defendant to pay money into trust. The defendant made no such payment. An order was then made for the defendant to appear to show cause why she should not be found in contempt. Although the defendant provided several explanations for the transfer to her brother, she was found in contempt for her attempts to frustrate the course of justice.

Hall J found that “This conduct was calculated and designed to interfere with the undue administration of justice in this country. ... Her real purpose was to make sure these funds were put beyond the reach of any power of execution. People are entitled to order their affairs to protect themselves from personal liability for debt and to enhance their economic interests but transparent ruses of the sort disclosed here are to be discouraged.” Analysis A. Have the Defendants purged their contempt under Justice Manderscheid’s Order? Did it merge with the Consent Judgment? [ 30 ] Mr.

Mella argues that his payments of approximately $100,000 and the earlier $5,000 payment more than satisfied the obligation to repay the excess monies. He submits that the context of the Consent Judgment suggests that he paid these funds in exchange for vacating the Attachment Order and an agreement that all outstanding applications would be abandoned and adjourned. [ 31 ] In my opinion, the payments to the Plaintiff could not reasonably have been intended to purge the contempt, but were payments toward the $2.2 million Consent Judgement.

First, the $5,000 payment was made on February 11, 2015, before Justice Manderscheid had found Mr. Mella in contempt. Justice Manderscheid rejected Mr. Mella’s assertion that the $5,000 was to repay the over-spending. Mr. Mella continues to assert that the $5,000 was repayment of the over-expenditure, based on his calculations, despite the contrary finding by Justice Manderscheid. To decide otherwise would be a collateral attack on a decision that was not appealed. [ 32 ] Secondly, the $100,000 payment was part of the agreement to obtain the Consent Judgment.

There is nothing in the terms of the Agreement that suggests that the payment would be applied to the credit of the overage that formed the basis of the Contempt Order. [ 33 ] The fact that the Agreement included a provision to vacate the Attachment Order does not expunge the contempt that had already been found for breach of that Order. As noted by the Plaintiff, the obligation is one owed to the Court, and the evidence does not

establish a connection between the payment and the contempt.

Had the parties intended that some portion be to the credit of the overage,it would have been expressly included in the Agreement leading to the Consent Judgment or be contained in the Consent Judgment itself.As the obligation to repay those funds is an obligation to the Court, the fact that the parties have entered into a Consent Judgment andagreed to vacate the Attachment Order does not end that obligation. [34] In SNC-Lavalin Profac Inc. v Sankar, 2009 ONCA 97, the Ontario Court of Appeal held that contempt of court is separatefrom the civil action in which it arises (at paras 14-17): “Contempt of court for breach of a court order is an offence against the authority of the court and the administration of justice.” AsCumming J. said in Sussex Group Ltd. v 3933938 Canada Inc. (c.o.b.

Global Export Consulting), [2003] O.J. No. 2952, (Ont.S.C.), at para 13: “It does not have, and must not appear to have, the function of a civil action in tort or for breach ofcontract.” [35] Generally, contempt fines are payable, not to the other litigant, but to the Clerk of the Court or Provincial Treasurer, as theyare fines akin to Rule 10.49 of the Alberta Rules of Court or a regulatory offence.

This is consistent with the public policy of ensuringthat Court orders be obeyed and that contempt interferes with the administration of justice. [36] The BC Supreme Court followed the reasoning in SNC-Lavalin in Kamloops (City) v 678254 BC Ltd, 2011 BCSC 1231,concluding that public policy requires that fines be payable to the Crown and not one of the litigants. [37] There are some Alberta decisions that order payment of the fines for contempt to someone other than the Clerk of the Court.In Alberta Treasury Branches v Chocolaterie Bernard Callebaut Partnerships., 2012 ABQB 245, Romaine J ordered that the contemptfines be set off from corporate dividends payable to the contemnor, but refused to set off the damages portion of the contempt fine forthe benefit of the unsecured creditors of the estate.

She noted, at para 33: “I would have no hesitation applying the rule by way of set-off had the debt owed by Mr. Callebaut been an ordinary debt, the issue iscoloured by the fact that the debt arises from a contempt order, a sanctioned levied by the Court for conduct in breach of court orders.As I indicated at the hearing when I levied the Damages fine, contempt is not only a serious issue for the parties who are differentlyaffected by the conduct of the party in contempt, but also for the Court and the administration of justice generally.” [38] In MEL(

P) v BJL, 2013 ABQB 227, Germaine J. found that a mother who obstructed a father’s access to the child was incontempt, and ordered her to pay the contempt fine to the father.

In Berube v Wingrowich, 2003 ABQB 805, Veit J. ordered that thecontempt fine be paid to the other party in the dispute. [39] Other Alberta decisions have held that contempt finds are payable to the Court, not to the litigants: Empson v Findlay, 2012ABQB 757, at para 21; Arrow-West Equipment Ltd. v GDT Trading Ltd., 2006 ABQB 762, at para 60; McDonald Estate (Re), 2013ABQB 602, at para 34; and Michelle v Lafrentz, 1998 ABCA 231, at para 42. [40] Justice Mandersheid’s order did not specify to whom the fine was to be paid.

It seems to be that, in the absence of a cleardirection from the Justice making the contempt order, the assumption should be that such fines are payable to the Clerk of the Court.Therefore, the payment did not purge the contempt. [41] I conclude that there was a continuing failure to abide by the terms of the initial Attachment Order and the subsequentContempt Order and that the contempt did not merge with the Consent Judgment. [42] Having failed to repay the $11,133.37, which was overspent contrary to the Attachment Order, Mr. Mella remains in contemptof the Court’s order.

Having failed to pay the overage by February 26, 2015, also means that the penalty provision of the ContemptOrder came into effect. The question then arises as to whether the fines continued to accrue under the Contempt Order, once theAttachment Order was vacated. [43] I conclude that vacating the Attachment Order did not change Justice Manderscheid’s finding that Mr. Mella was in contemptof Court. The finding of contempt continues, whether or not the Attachment Order continues. I conclude that Mr.

Mella continues to be incontempt and liable for both the $1,000 fine and the daily fine provided for in Justice Manderscheid’s Order. B. Does the Defendants’ post-judgment conduct support a finding of contempt? [44] Since the Consent Judgment was obtained, it is clear that the Defendants have taken steps to avoid the Plaintiff’s efforts toenforce it. Mr. Mella admitted as much during his Questioning on June 25 and July 29, 2015. He has clearly transferred funds anddirected payments otherwise owing to the Defendants to his wife in order to thwart the Plaintiff’s attempts to garnishee funds.

Inaddition, one or more of the Defendants have taken steps to impede the Plaintiff’s attempts to garnish accounts receivable owed to one ofthe Defendants. [45] In the face of this, I reject the Defendants’ argument that the Defendants have taken reasonable steps to comply with ordersand have cooperated. Applying the rationale adopted by the Courts in Chustoff Estate, Korea Data Systems, Todosichuk and Sayani inparticular, it is clear that the Defendants’ conduct after agreeing to the Consent Judgment has been designed to avoid enforcement of thatJudgment.

As such, it constitutes contempt of the Judgment and “was conduct calculated and designed to interfere with the dueadministration of justice” (17 of Sayani). C. If the Defendants are in contempt, what is the appropriate remedy? [46] Given the Defendants’ ongoing and repeated history of contempt, I have no difficulty in:

1. declaring that they are in continuing contempt of Justice Manderscheid’s Order; 2. declaring that their post-Consent Judgment conduct constitutes a further contempt of Court; 3. ordering the immediate payment to the Plaintiff of the sum of $6,133.37 (the amount requested, although the amount may arguably be $11,133.37), to be credited to the amount owing under the Consent Judgment; 4. ordering immediate payment to the Court of $46,000, being the fine owing under Justice Manderscheid’s Contempt Order to the date this Application was made; 5. ordering the immediate payment to the Court of an additional fine of $10,000; and 6.

Solicitor and Client costs in favour of the Plaintiff, in relation to all proceedings taken by the Plaintiff in this action, from March 27, 2015, to and including all costs related to this Application. [ 47 ] If the amounts ordered herein are not paid within 3 months of the date of these Reasons for Decision, Mr. Mella is to attend before the Court in person, to show cause why he ought not to be imprisoned pending purging of the contempt. For the purposes of clarity, if the full amount ordered pursuant to these Reasons for Decision is not paid on or before the 24 th day of June, 2016, Mr.

Mella is to attend at Court on the 24 th day of June, 2016, without the need for any further service upon him. Heard on the 28 th day of September, 2015, with written submissions received on October 9 th , October 23 rd and October 27 th , 2015. Dated at the City of Edmonton, Alberta this 23 rd day of March, 2016. D.L. Shelley J.C.Q.B.A. Appearances: Walter J Pavlic, Q.C. and Sharon Au MacPherson Leslie & Tyerman LLP for the Plaintiff Slader E Oviatt Oviatt Law for the Defendants