Definition: pre-trial injunction restraining D and persons
with control over D’s assets from dealing with their assets in ways that will
be detrimental to P’s interests pending trial.
Available where P has a
strong prima facie case against D and there is a real risk that D would render
themselves judgment-proof, for example, dissipate their assets in order to frustrate
P’s efforts to enforce judgment in his/her favour should P prevail at trial
judgment -proof
May be obtained before commencement of proceeding or
at anytime during the proceedings.
May also be granted after
judgment in aid of execution
Obtained on ex parte
basis, that is, without notice to D
Purpose:
- Protects integrity of civil justice system by
ensuring that courts don’t give hollow judgments
- Prevents D from
removing assets from the jurisdiction of a court, or from disposing of, or
dealing with assets within the jurisdiction in a way that will frustrate
the ends of justice in an action instituted or to be commenced by the P
Origins
of Mareva Injunction
Prior to 1975, the common law position was that a P
was not entitled to demand from the D security in advance of judgment. Thus, a court could not restrain a D in
respect of their assets before trial – referred to as the rule in Lister
v. Stubbs. See exceptions to this rule in Aetna Financial Services
Ltd. v. Feigelman, p. 912-3
The English Court of Appeal was faced with foreign
Ds in shipping cases, who could easily transfer assets out of London to evade
execution. It recognised another exception to the rule in Lister v. Stubbs
to grant an order that freezes D’s assets within the jurisdiction of the court
if there is a risk of evading judgment although P has no proprietary interests
in the asset in question. In effect, a pre-judgment execution.
Injunction named after one of the early shipping
cases - Mareva Compania v. International Bulkcarriers SA (1975).
Injunction was intended to protect the interests of
creditors against non-resident Ds where there was a real risk of removal of
assets from the court’s jurisdiction in order to defeat the P’s claim.
In Mareva Compania v. International Bulkcarriers
SA, the D was a foreign corp. There was evidence that D would move money
deposited to its credit in a London bank before trial unless D was restrained
and this could defeat the P’s claim. The C.A. upheld an ex parte injunction
enjoining the D from disposing of its assets within or moving it outside the
jurisdiction of the court.
Lord Denning ignored the rule in Lister which
he saw as an obstacle to such an injunction and instead relied on the Judicature
Act, s 45 which empowers the court to grant any order they deem just and
convenient in the circumstance as necessary to prevent the D from flouting the
process of the English courts to the detriment of creditors. In BC, such a
jurisdiction is found in the Law and Equity Act, s. 39.
Domestic
Defendants
- Originally
granted only against foreign Ds
- Mareva
injunctions may now be issued against domestic Ds so long as P establishes
substantial risk of dissipation of assets pending trial to his or her
detriment - Aetna
- Not
restricted to assets likely to be removed from a court’s jurisdiction.
Includes assets that may be disposed of within the court’s jurisdiction
- Not
limited to money. May also include goods in the jurisdiction of the court
- Aetna
Adoption
of Mareva Injunction in Canada
·
Canadian courts have jurisdiction to grant Mareva injunctions to restrain the
disposition of assets prior to trial where it is deemed necessary: Aetna
Financial Services
Aetna Financial Services v.
Feigelman (SCC)
Facts:
D, Aetna, is a federally incorporated company doing business in a number of
provinces including Manitoba. P alleged an improper appointment of a receiver
for its business. D was in the process of winding up its operations in
Manitoba. P was concerned that D would transfer its assets out of Manitoba,
which could make it difficult for P to execute a judgment in its favour in
Manitoba. P sought a Mareva injunction to restrain Ds from removing their
assets from Manitoba pending trial.
Held: Court has jurisdiction to
grant a Mareva injunction in a proper case. However, injunction was not
available in this case.
·
Removal of assets from Manitoba posed no risk to P’s interest.
Injunction not available unless there is evidence that D is moving assets in
order to defeat P’s claim.
·
As well, there are statutory provisions for the enforcement of Manitoba
judgments in other provinces that can protect P’s interests, thereby making a
Mareva injunction unnecessary
The Federal Element
·
Mareva injunction originated in a unitary system (U.K.). Works
differently in a federal country
·
Reference to jurisdiction in the Canadian context could mean a
provincial and/or federal jurisdiction
·
Given reciprocal agreements for enforcement of judgments across
provinces, mere transfer of assets b/n provinces does not constitute “removal
from jurisdiction” to warrant a Mareva injunction.
Criteria for Obtaining a Mareva Injunction
- Accessibility Threshold: Strong prima facie
case – Aetna
- Degree of Risk: Genuine risk of dissipation of asset to avoid the possibility
of a judgment
·
Mere transfer of assets b/n provinces not sufficient to justify a Mareva
injunction
·
Aetna suggests that availability should depend on the purpose for which
D seeks to move assets – Not available where D is moving assets in the normal
course of its business.
Q. Does Aetna exclude availability of
injunction absent fraudulent intent?
- Some Canadian courts have limited availability of
Mareva injunctions to situations of fraudulent intent – See see
R v. Consolidated Fastfrate Transport Inc. (1995) 125 DLR (4th)
1, 14-15 (Ont. C.A.); Chitel v. Rothbart (1982) 141 DLR (3d) 268
(Ont. C.A.); In Marine Atlantic Inc. v. Blyth (1993) 113 DLR (4th)
501 (FCA) - CB, pp. 928-9
- BC courts have generally
adopted a liberal approach and may grant a Mareva injunction even where
there is no deliberate attempt to frustrate the execution of judgment - Mooney
v. Orr (1994), 100 BCLR (2d) 335 (SC). In Gateway Village Investments
v. Sybra Food Services Ltd. (1987) 12 B.C.L.R. (2d) 234 (SC) CB, p.
928, Southin J. (as she then was) held that Aetna simply meant that
jurisdiction in a federal state is a factor, albeit an important factor to
be considered in deciding whether it is appropriate to grant a Mareva
Injunction.
- Practical Considerations: A
Mareva injunction is very intrusive for Ds, yet it provides Ps
opportunities for obtaining meaningful remedies. Should the injunction be
limited to situations where there is no evidence of fraudulent intent?
- Would your answer be
different where the amount involved is small relative to the D’s net
worth? See Gateway Village Investments v. Sybra Food Services Ltd.
(1987) 12 B.C.L.R. (2d) 234 (SC) CB, p. 928
- P’s obligations:
i.
Full and frank disclosure of facts actually known to P and those that
could have been known upon reasonable enquiry- Third Chandris Shipping
Corp. v. Unimarine SA, [1979] QB 645 (CA), adopted by the SCC in Aetna
– CB, p. 927, n. 2
ii.
P must give particulars and grounds for basis of his or her application
iii.
Undertaking in damages
- Location of Assets: Injunction may be
granted in respect of D’s assets anywhere in the world but courts often
refrain from making orders extraterritorial unless it is absolutely
necessary to protect P’s interests.
Scope of Mareva Injunction
Order is limited to extent
of D’s assets necessary to protect P’s interest in the particular case
Order may be ambulatory –
Could affect D’s current assets and those acquired subsequent to order
Does not extend to property
that D holds in a capacity other than that in which s/he is being sued
Effect of a Mareva
Injunction on Third Parties
·
Injunction may often have repercussions for third parties holding D’s
assets
·
Named third parties required to respect terms of the injunction or risk
contempt proceedings
·
In Z. Ltd. v. A-Z & AA-LL Ltd., the English C.A.
outlined the rights and responsibilities of third parties regarding compliance
with Mareva injunctions.
i.
Indemnity – P to indemnify third parties for cost of compliance
ii.
Third parties to be given precise notice of assets covered by injunction
and to what extent
iii.
Search – P may request third parties to locate D’s assets at P’s expense
iv.
Third Parties Named – P to furnish court with names of third parties to
be served
v.
Maximum Amount – Asset to be held not to exceed value of P’s claim.
vi.
Normal living expenses – Order to specify amount permitted for D to use
for normal living expenses
vii.
Joint Account – Order may cover assets held in a joint account if court
deems it necessary to protect P’s interests
viii.
Return Day – Order may specify date that D or affected third party may
return to court to be heard
ix.
Undertakings – P to give damages undertakings to D and affected third
parties
x.
Discovery – D to be given opportunity to prove that s/he has sufficient
assets to satisfy judgment and specify the same. Failure to disclose reinforces
perception that D is evading judgment.
Creditors
A Mareva injunction does
not affect the right of D’s creditors – Aetna
Requisite elements for a Mareva
injunction
The risk assessment process requires due regard to the
requisite elements for a Mareva injunction as settled by the Court.
In Third Chandris Shipping Corp. v.
Unimarine S.A. [1979] Q.B. 645 at 668, Lord Denning outlined the requisite
elements that the plaintiff must address in an application for a Mareva
injunction. In the case of the Commissioner as plaintiff, the following are
considered relevant:
Prima-facie cause of action
(i)
In the first instance, the Commissioner must establish
a prima-facie cause of action against the defendant. A prima-facie case is one
that has a serious possibility of ultimate success as opposed to a speculative
case. Therefore the Commissioner must demonstrate a good arguable case against
the defendant. The cause of action is the non-payment of the debt by the date
that it was due to be paid.
(ii)
Although it is an advantage to have commenced legal
recovery proceedings before embarking on a Mareva injunction, it is not an
essential prerequisite. It will not always be possible to commence legal action
because the assessed amounts due to the Commissioner may not be payable at the
point in time when action to obtain a Mareva injunction is commenced (that is,
payable at a future date).
(iii)
If legal action has not
commenced, the plaintiff must establish a claim against the defendant. The
Courts would appear to be satisfied that the Commissioner has a sufficiently
strong case where notices of assessment have issued. Production in Court of
notices of assessment, by virtue of section 177(1) of the Income Tax Assessment Act 1936 is deemed
to be conclusive evidence of the making of the assessments. (Commissioner of
Taxation v. Rosenthal (1984) 16 ATR 159) and (DFC of T v. Sharp &
Anor; Ex parte DFC of T 88 ATC 4572). Where legal action has not commenced, it is to
be expected that the court will require an undertaking that proceedings for
recovery be commenced within a fixed time.
Disclosure to the Court
(i)
In an ex-parte application, it is important for the
applicant to adequately bring to the court's attention all material matters, to
avoid injustice to the defendant. Such matters should include any assumption
made in the absence of sufficient evidence or suspicion of a particular course
of conduct by the defendant, which may not be fully substantiated.
(ii)
Hearsay evidence is admissible as
long as the source of information is explicitly stated.
Assets within the jurisdiction
(i)
The Commissioner must provide evidence of the
existence of assets owned by the defendant within the jurisdiction. The nature
of the assets, their location and their approximate value should be identified
with as much detail as possible.
(ii)
It is however, not a fatal obstacle that the applicant
for a Mareva injunction has little or no knowledge of the financial
circumstances of the party against whom the injunction is sought, nor that with
more diligence something more might have been discovered: Commercial reality
often requires an application for this relief to be brought quickly and without
notice before detailed enquiries can be made, otherwise its very purpose could
be frustrated.
(iii)
The case of McKay Pty Ltd v. McKay [1982] 1 NSW
LR 264 established the principle that a defendant is required to make an
affidavit of discovery of assets in aid of a Mareva Injunction.
(iv)
In the event, however, that the plaintiff can identify
the defendant's assets with sufficient particularity to enable the court to
make an effective order, no discovery will be required. However, discovery
should be sought where the precise form and whereabouts of a defendant's assets
are in doubt, or where distribution of assets among a number of defendants is
unclear. Without the aid of discovery, it may be impossible to enforce the order
or to oblige third parties to comply with it. A defendant is obliged to
disclose all assets including those in which he has only a contingent interest,
when making his affidavit of discovery.
(v)
Some Australian decisions
indicate that a Mareva injunction may be granted to restrain a person from
dealing with assets wherever they are located, and regardless of whether they
have ever been within the jurisdiction. In DFC of T v. Hickey & Anor
96 ATC 4892, the Supreme Court of WA ruled that a Mareva
injunction can apply to assets outside the territorial jurisdiction of the
court (in this case New Zealand). However, this is not settled law and there
appears to be some judicial conflict on the question of jurisdiction (FC of
T v. Karageorge & Ors 96 ATC 5114), (National Australia Bank Ltd v. Dessau
& Ors [1988] VR 521) and (Brereton & Ors v. Milstein
& Ors [1988] VR 508). Generally, the Commissioner will apply for an
injunction covering assets in Australia and overseas.
Grounds for believing that there is a
real risk of dissipation
(i)
The Commissioner must provide some grounds for
believing that there is a risk of the assets being moved from the jurisdiction
or otherwise dealt with so that there is a danger that the Plaintiff if he
recovers judgment, will not be able to satisfy it. A fear held by the
Commissioner that the assets are likely to be improperly dealt with is not
sufficient to seek a Mareva injunction.
(ii)
Evidence must be provided that the risk has
materialised or will probably do so. It must be shown that the defendant may be
organising his/her affairs and assets so that any judgment obtained will be
frustrated.
(iii)
It may be difficult to establish a clear case of real
risk, but evidence as to the previous conduct of the defendant may hold
significant weight in such matters. Situations may arise where evidence
relevant to the cause of action itself is also relevant to the question of risk
of dissipation of assets.
(iv)
The same factors that go toward establishing a
prima-facie cause of action may in certain cases be used to establish the
question of risk of dissipation. This is particularly so in cases in which the
prima-facie cause of action against the defendant involved evidence of gross
dishonesty.
(v)
The case of Patterson v. BRT Engineering (Aust) Ltd
(1989) 18 NSWLR 319 involved a claim by the plaintiff that the defendant had
fraudulently misappropriated a large sum of money from a company in his
control. It was held by the court that the nature of the scheme in which the
defendant appeared to have engaged was such that it was 'reasonable to infer'
that he was not the sort of person who would, unless restrained, preserve his
assets intact so that they might be available to his judgment creditor. The
evidence used to bring on the action was also held to be relevant in
establishing the question of the risk of asset dissipation.
(vi)
The court was also prepared to find a real risk of
dissipation of assets by the defendant based on evidence of earlier dishonest
conduct in the unreported decision of DFC of T v. Robertson Supreme
Court of Western Australia on 21 January 2000. The court granted an extension
of a Mareva injunction despite the fact that there was no direct evidence of
intention to avoid the debts or of any preparations to dissipate assets. The
court was prepared to find a real risk of dissipation of assets by the
defendant based on evidence of earlier dishonest conduct.
(vii)
The compliance model clearly links compliant attitudes
to the severity of collection strategies, therefore a decision to seek a Mareva
injunction should be closely linked to the framework of the compliance model.
(viii)
To enable the judge to evaluate an application, the
Commissioner's affidavit should disclose the inquiries which have been made
about the defendant and its business and the results of those inquiries. The
affidavit should also include details of any statements or inferences from the
defendant indicating an intention to move assets as well as any threats made by
the defendant. Financial statements, such as balance sheets may also be used to
support the application.
(ix)
The strength of the evidence
contained within the affidavit presented to the Court will be the deciding
factor in whether the Mareva injunction is granted.
Undertaking as to damages
(i)
A Mareva injunction may have serious consequences on a
defendant's business, which may lead to substantial claims being made against
the Commissioner in the event that it is found that the injunction was
unjustified. The Commissioner would ordinarily be required to give an
undertaking as to damages, which may be supported, by a bond or other security.
(ii)
In this regard, the Commissioner
must ensure that the injunction is not too wide; catching unnecessarily assets
of which he was unaware, or extending to assets greater in value than are
necessary to meet the claim.
