Civil Contempt Finding Against Litigant For Breaching Receivership Order

• Published date: 11 July 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Gardiner Roberts LLP
• Author: Mr James R.G. Cook

Ontario courts maintain the inherent right to control their own processes and to sanction litigants who fail to abide by court orders. While a finding of contempt is an exceptional order, courts will utilize this power to maintain the rule of law and the public's faith in the justice system.

The decision in Castillo v. Xela Enterprises Ltd., 2022 ONSC 4006 (CanLII), demonstrates how a court will assess a litigant's misconduct for breaching a court order to determine whether contempt has occurred.

The case arose from a dispute involving Xela Enterprises Inc. (Xela), a privately-owned Ontario family holding company overseeing the operations of several subsidiaries in Central and South America.

One of Xela's wholly-owned subsidiaries was a Panamanian company that held an interest in a family-owned group of poultry companies.

The defendant, JG, was the President, a director, and sole common shareholder of Xela. The plaintiff was his sister. Multi-jurisdictional litigation had been ongoing with respect to the poultry companies among the family for over 20 years.

In October 2015, the plaintiff obtained judgment in the Ontario Superior Court of Justice for $4.25 million plus interest against JG, their now-deceased father, and Xela. The defendants were ordered to pay an additional $889,858 in costs.

In 2019, the plaintiff obtained a court order appointing a receiver in connection with her efforts to enforce the judgment. The receiver was appointed over "all of the assets, undertakings and properties" of Xela's business. The receivership order empowered the receiver to exercise any shareholder, partnership, joint venture or other rights which Xela may have. The order stated that any steps taken by the receiver were to be "without interference" from any person.

In the fall of 2019, the receiver was experiencing challenges receiving information with respect to Xela and its historical transactions. The receiver sought to get that information directly from Xela's subsidiaries.

The receiver exercised its rights under the court order and called a shareholders meeting of one of Xela's subsidiaries. At the shareholders meeting, a resolution was passed to remove and replace the subsidiary's current directors with three lawyers from the receiver's Panamanian counsel, the Hatstone Group.

In March 2020, the receiver brought a motion in the Ontario Superior Court of Justice to approve the appointment of the Hatstone Group directors, which was opposed by JG. The court approved...