Innovation and Development Partnership / Idp Inc. v. Her Majesty the Queen, [1993] 2 CTC 88

Cullen, J.:—This is an application pursuant to Rule 355 (Federal Court Rules, C.R.C., c. 663) for a contempt of court order in respect of a show cause order requiring the plaintiff to attend before the Federal Court of Canada on May 19,1993 to show cause why it should not be held in contempt for failure to comply with the order of Mr. Justice Noël, dated November 3, 1992. In his order, Mr. Justice Noël directed that:

. . . the plaintiff produce within 10 days hereof a certified true copy of its income tax returns under the hand of its solicitor for the fiscal years ending on July 31 of 1989, 1990 and 1991;

and that:

. . . the plaintiff produce within 30 days hereof all audited or unaudited financial statements for the fiscal years ending on July 31, 1989, 1990 and 1991, including but not limited to its balance sheets, statements of earnings or losses, general ledgers, accounts receivable and accounts payable statements, records and cancelled cheques.

The defendant alleged that the plaintiff disobeyed Mr. Justice Noël's order of November 3, 1992 in the following manner:

1. the plaintiff failed to produce certified true copies of its income tax returns under the hand of its solicitor for the fiscal years ending on July 31, 1989, 1990 and 1991 within 10 days of the date of the order;

2. the plaintiff failed to produce the financial records noted in the order within 30 days of the date of the order;

3. the plaintiff failed to produce at any time its billings or accounts receivable file or billings or fees journal for the fiscal years ending on July 31, of 1989,1990 and 1991;

4. the plaintiff failed to produce at any time a certified copy of its income tax return for the fiscal year ending on July 31, 1989;

5. the plaintiff failed to produce at any time its audited or unaudited financial statements for the fiscal year ending on July 31, 1989; and

6. the plaintiff failed to produce at any time the following financial documents:

(a) draft financial statements for the fiscal year ending July 31, 1991,

(b) adjusting entry statement,

(c) bank reconciliation statement,

(d) accounts receivable statement,

(e) tax credit statement,

(f) fixed assets statement,

(g) accounts payable statement,

(h) capital stock statement,

(i) shareholders' loan statement, and

(j) adjustments statement.

The plaintiff's position was that there has been compliance with Mr. Justice Noël's order, at least to the extent that the plaintiff understood what documents the defendant required. The plaintiff conceded that it was late producing the documents, but maintained that the failure to produce documents was based on uncertainty as to which documents the defendant required. Counsel for the plaintiff attributed, in part, the failure to produce some of the documents to a "breakdown of communication". The plaintiff also argued that the defendant failed to establish contempt beyond a reasonable doubt.

According to the terms of Mr. Justice Noël's order, the plaintiff was required to produce certified copies of its income tax returns for its fiscal years ending on July 31, 1989, 1990 and 1991 on or before November 13,1992 (hardly difficult to understand). After the plaintiff failed to produce the income tax returns, the defendant wrote to the plaintiff's solicitor on two occasions advising of the failure to provide income tax returns. On December 4, 1992 the defendant filed with the Court and served on the plaintiff's solicitor an application for show cause order.

By letter dated December 4, 1992, the plaintiff's solicitor indicated that the purpose of the letter was "to certify that the plaintiff IDP’s tax returns previously supplied to you are true copies of the tax returns filed with Revenue Canada". Although at this point it was unclear exactly which returns had been submitted, the plaintiff did eventually produce income tax returns for the 1990 and 1991 taxation years. The plaintiff admitted that the tax returns were produced late and that there was a failure to comply with the time limit set out in Mr. Justice Noel's order. With respect to [the] tax return for the 1989 taxation year, counsel for the plaintiff attempted to cast some doubt as to the existence of the 1989 tax return. However, in light of the evidence presented, I am not convinced that such a return does not exist.

With respect to the plaintiff's financial records, Mr. Justice Noël's order required the plaintiff to produce financial statements for the fiscal years ending on July 31, 1989, 1990 and 1991 on or before December 3, 1992. Financial statements for the 1990 and 1991 fiscal years were received by the defendant in November 1992. However, no financial statement for the 1989 fiscal year was provided to the defendant.

With respect to financial records, the plaintiff's solicitor, after receiving requests for the financial records, indicated by letter dated December 10, 1992, that financial records would be provided on that day or the day thereafter. By letter dated December 11,1992 the defendant reiterated that the plaintiff had still not complied with Mr. Justice Noël's order. By letter dated January 5, 1993, the defendant advised the Court that the financial records had not been produced despite the letter of December 10,1992. Some financial documents were sent to the defendant on January 11,1993, however, they were returned to the plaintiff at counsel's request for audit purposes. It was not until April 30, 1993 that these financial records were returned to the defendant along with copies of income tax returns for the years ending 1990 and 1991. The defendant noted that, in addition to being four months late, the returns enclosed with the plaintiff's letter of April 4th were not certified by the plaintiff's solicitor as required by Mr. Justice Noël's order.

With respect to the defendant's third, fourth and fifth allegations, the plaintiff's solicitor delivered to the defendant's offices a package of documents comprised of cancelled cheques, bank statements, a computer printout and some handwritten pages. The defendant noted that the documents did not include:

(a) any billings or accounts receivable file or billings or fees journal for the fiscal years ending July 31,1989,1990 and 1991 ;

(b) certified true copies of income tax returns for the fiscal years ending July 31, 1989 and 1990; and

(c) financial statements for the fiscal year ending on July 31, 1989.

With respect to the defendant's sixth allegation, the evidence from the plaintiff's accountant was that these documents had been in the accountant's possession and had been seen by the accountant. In other words, the financial documents referred to earlier by the defendant existed.

The jurisprudence clearly establishes that the allegation of contempt of court is criminal or at least quasi-criminal and therefore it is necessary that the constituent elements of contempt be proved by the party alleging contempt "beyond a reasonable doubt”: As such, it is for the defendant in this case, to establish contempt "beyond a reasonable doubt”.

As counsel for the plaintiff admitted that there was knowledge of the order, the precondition of knowledge is not at issue in the case before me.

The parties are also in agreement and it is well established that failure to comply with time limits set out in a court order amounts to contempt.

It is also clear that absence of good faith on the part of the alleged contemner is not relevant in the determination of whether or not there was an act of contempt. It is relevant in considering the penalty to be imposed, as a mitigating factor, (see Baxter Travenol Laboratories v. Cutter (Canada) Ltd. (1987), 81 N.R. 220, 14 C.P.R. (3d) 142 (F.C.A.)).

With regards to the failure to obey a court order, I note MacKay, J.'s comment in Dimatt Investments Inc. v. Presidio Clothing Inc. (1-1883-88, order dated March 23, 1993, unreported (F.C.T.D.)) at page 9:

The terms of a court order as expressed are to be followed strictly and failure to do so interferes with the orderly administration of justice and impairs the authority or dignity of the Court.

I am satisfied, that the plaintiff failed to comply with the time limits prescribed by Mr. Justice Noël in his November 3,1992 order. As I noted earlier, the plaintiff admitted that there was failure to comply with the time limits. However, counsel for the plaintiff also argued that compliance was not timely or complete as it was unclear to him exactly what documents the defendant required. After examining the file and viewing the conduct of the parties, I believe this lack of clarity stems not so much from the order itself, which in my view is clear, but from the attitudes of the parties. Even if I were to agree with counsel for the plaintiff regarding the "confusion" relating to the documents required, the plaintiff certainly had other avenues open to it to remedy the confusion, the most obvious being to simply request clarification from the Court of Mr. Justice Noël's order.

In light of the above comments and in keeping with the principle that court orders must be obeyed as a matter of public concern, I am satisfied beyond a reasonable doubt that the plaintiff is guilty of contempt of court. I am also of the opinion that this a proper case for an imposition of a fine.

In terms of a penalty, I note Walsh, J.'s comment in Viking Corp. v. Aquatic Fire Protection Ltd. (1985), 2 C.P.R. (3d) 470 at page 472 (F.C.T.D.) that the nature of the penalty to be imposed if contempt is found as a result of a show cause order is in the discretion of the Court and will depend on many factors, including the severity of the contempt, the degree to which it was deliberate, the damages resulting from it and other factors.

I believe a fine of $2,000 as against the plaintiff corporation IDP Inc. is appropriate in light of the following factors. There has been partial compliance with Mr. Justice Noël's order. On the other hand, there is no doubt that some of the documents specified in Mr. Justice Noël's order have not been produced, such as the income tax return for the 1989 taxation year and the financial statement for the 1989 fiscal year. The plaintiff has admitted that there was contempt in not adhering to the time limits set out in Mr. Justice Noël's order and indicated that the lack of production may have been the result of uncertainty. However, my concern is that if indeed there was “ uncertainty” as to which documents the defendants required and if the plaintiff felt that clarification would not come from the defendant, why did the plaintiff choose not to produce documents instead of simply going to the Court to ask for clarification of the order?

I also note that the plaintiff did not seriously attempt to comply with the order until January 1993, after which he requested the documents from the defendant, only to return them three months later.

In addition to imposing a fine, I shall order that reasonable costs on a solicitor-and-client basis be awarded to the defendant. In making this order as to costs, I am keeping with the normal practice of awarding costs on a solicitor- and-client basis to parties who have successfully prosecuted contempt proceedings, thereby ensuring that the party acting to support compliance with an order of the Court does not bear the costs of proceedings that were necessary to maintain the orderly administration of justice. Costs, however, will not be fixed, as there was no evidence of the costs actually being incurred by the defendant. I would expect that reasonable costs on a solicitor-and-client basis can be agreed upon but in failing agreement, the costs shall be taxed.

Order accordingly.