Non-compliance with court orders is often a challenge in fraud litigation, and often, a plaintiff needs to seek relief in contempt. The law in Alberta has lacked clarity in the burden of proof for contempt, the consideration of a “reasonable excuse” and the appropriate remedy. The Alberta Court of Appeal’s recent decision in Envacon Inc v 829693 Alberta Ltd. considered these important issues.
During the litigation between Envacon Inc. and 829693 Alberta Ltd. (829), the court issued three production orders against 829 for production of financial statements of 829 and related entities. The case management judge found the financial statements had not been produced and 829 was in contempt. As a remedy, the case management judge gave 829 an opportunity to purge its contempt by producing the financial statements, failing which its pleadings would be struck. The court also ordered payment of solicitor and client costs on a full indemnity basis for all proceedings related to obtaining the financial records. 829 appealed.
The Alberta Court of Appeal confirmed the test for contempt, set out by the Supreme Court of Canada in Carey v Laiken:
- the order must state clearly and unequivocally what should be done (or not done);
- the alleged contemnor must have actual notice of the order; and
- the alleged contemnor must have intentionally failed to do the act compelled by the order.
The Court of Appeal held that the first two production orders were not clear and vacated the contempt relating to them. However, the Court of Appeal held that the third production order was clear on its face, and noted 829 had not appealed that order. The court explained that, if a contemnor anticipates non-compliance with a court order, the proper course is to apply to vary, discharge or appeal that order, rather than launch a collateral attack or deliberately disobey it. The court found that 829 had notice of the order, and as such, the first two parts of the Carey v Laiken test were satisfied.
Intentional non-compliance and defence of a reasonable excuse
To meet the third requirement, 829 must have intentionally failed to comply with the order. Although 829 wrote and called the Canada Revenue Agency and the United States Internal Revenue Service requesting the unconsolidated financial statements, the court held that these requests were inadequate and 829 did not use sufficient diligence in attempting to comply with the production order.
The court confirmed that a reasonable excuse remains a consideration for determining whether a person is in contempt. In particular, the decision in Carey v Laiken did not change the law in this regard; rather, this case held that a contumacious (willfully disobedient) intent was not an essential element of contempt.
The Court of Appeal explained that although the test for contempt requires that the alleged contemnor intentionally fail to do the act compelled by the order, that finding will turn on whether the alleged contemnor did enough to bring about the required result, and is distinct from the question of contumacious intent at issue in Carey v Laiken. In other words, it is not the intent to disobey the order that constitutes contempt, but rather, the disobedience itself. That being said, an alleged contemnor who tried diligently to obey an order but failed may avoid a finding of contempt.
Burden of proof
The Court of Appeal also considered the conflicting lines of authorities respecting the burden of the alleged contemnor to establish a reasonable excuse.
One line of authorities suggests the alleged contemnor has an evidential burden to put forward some evidence in support of its excuse, but the persuasive burden to establish that the excuse is not reasonable remains with the party alleging contempt.
A second line of authorities holds that once the party alleging contempt has proven beyond a reasonable doubt that the alleged contemnor has breached a court order of which it had notice, the persuasive burden shifts to the alleged contemnor to prove on a balance of probabilities that it had a reasonable excuse.
The Court of Appeal held that the burden of proof is entirely on the party alleging contempt. Though there is no burden on the alleged contemnor, the court will presume the alleged contemnor acted with knowledge of the facts, unless there is some evidence to the contrary from the alleged contemnor. The alleged contemnor may therefore be compelled by the weight of the evidence establishing contempt to put forward some countervailing evidence, either of reasonable excuse or of compliance with the order. However, this does not alter the burden of proof.
The court noted 829 had presented many inconsistent excuses over the years and its evidence was not credible. Therefore, although the case management judge had applied a different burden of proof, the conclusion that 829 has no reasonable excuse for its failure to comply with the production order was amply supported.
Remedy for contempt
Respecting the appropriate remedy, the Court of Appeal noted the considerations of coercion, punishment, and public interest. In granting the appropriate remedy, the Court of Appeal held that striking 829’s pleadings had a punitive element that exceeded 829’s degree of default in breaching one order. The Court of Appeal therefore set aside the remedy and ordered costs on a solicitor and client basis for all steps taken to secure compliance with the production order.
To properly enforce orders, including through a contempt finding, orders must be clear and the opposite party must have notice of the order. On the matter of intentional failure to comply with the order, the decision in Envacon clarifies that the alleged contemnor is not obliged to provide evidence of a reasonable excuse for failing to comply with an order and the burden of proof remains with the party making the application. In practice, however, this clarification may make little difference, as an alleged contemnor will almost always be compelled by the weight of the evidence against it to provide evidence of reasonable excuse.
On the matter of remedy, the Court of Appeal has indicated it may take more than one non-compliance for the court to impose more serious sanctions, such as striking pleadings or ordering imprisonment. Envacon provides that a court will generally not impose punitive sanctions on a contemnor where he or she has breached only one court order.