One of the most powerful pre-judgment remedies available to a plaintiff is a Mareva injunction freezing the defendant’s assets before trial. The Mareva injunction is a powerful tool for levelling the playing field when dealing with those who, left to their own devices, would dissipate their assets in order to frustrate the claims of their creditors. Due to its extraordinary effect, the parties to such an injunction can seek to thaw the freezing order to access funds or assets. As recent case law has shown, the tests to be met differ for defendants and plaintiffs, and a number of factors ought to be considered before a request is made to thaw assets frozen under a Mareva.
In the recent 2015 Superior Court of Justice decision in Jajj v. Jajj [2015] O.J. No. 7064, the respondent moved to vary a Mareva injunction to permit him to access frozen funds to pay for legal fees and living expenses. In the underlying claim, the applicants alleged that the respondent, their son, had misappropriated their assets and those of their corporations. Justice Penny first reviewed the test set out in Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology 2003 CanLII 12916:
- Has the defendant established on the evidence that he has no other assets available to pay his expenses other than those frozen by the injunction?
- If so, has the defendant shown that there are assets caught by the injunction that are from a source other than the plaintiffs?
- Have “non-proprietary” (i.e., assets from a source other than the plaintiffs) been exhausted?
- If yes, the court must balance the competing interests of the plaintiff in not permitting the defendant to use the plaintiffs’ money versus the interests of the defendant in having an opportunity to present a defence. It is relevant in other contexts to consider the strength of the plaintiffs’ case and the extent to which the defendant has put forward a case to rebut the plaintiffs’ claim.
The respondent’s motion floundered on the first hurdle because he had not explained how and why cash in several bank accounts was withdrawn both before and after the Mareva injunction was put into place. Justice Penny found that, “[t]he failure (of the respondent) to explain what became of those funds disentitles him from claiming he needs more money to fund his defence…” This case reinforces the seriousness with which the courts will view a breach of a Mareva injunction.
In another recent 2015 decision of the Ontario Superior Court of Justice (Yan v. Chen, 2015 ONSC 4149), both the plaintiffs and defendants moved to amend a Mareva injunction, with the plaintiffs seeking the release of $1.5 million to enable them to pay their legal costs in their action against the defendants. The gravamen of this case was duelling allegations of fraud between the plaintiffs and defendants, which gave rise to multiple criminal, quasi-criminal, and civil proceedings. Effectively, the plaintiffs alleged that the defendants had stolen $11 million from them. The defendants then alleged that the plaintiffs had run a massive Ponzi scheme in China, and had transferred the funds to them voluntarily as part of a plan to immigrate to Canada and escape prosecution in China.
Justice Pattillo applied the Credit Valley test when assessing the release of funds to the defendants. When it came to the plaintiffs’ motion, however, Justice Pattillo found that, “[d]ifferent considerations apply when the plaintiff with a Mareva injunction seeks to access frozen funds.” One such consideration is the fact that the plaintiff, “[m]ust first establish a proprietary right to the funds in question”. Justice Pattillo noted that even if a proprietary right is found to exist, the court retains discretion to limit access to those funds depending on the circumstances. Factors to be considered include the reason why funds were frozen in the first place; the status of the action; the proposed use of the funds; and any competing claims to the funds.
Justice Pattillo held that the evidence showed the plaintiffs had a proprietary interest in the funds in question, notwithstanding the allegations that the funds originated from criminal activities in their native China. That said, Justice Pattillo did limit the total amount of funds to be released to the plaintiffs given allegations of their involvement in illicit activities which raised credibility concerns. The total amount released was also limited due to the failure of the plaintiffs to follow court directions to set their action down for trial.
The facts of this case are certainly unique, but underscore that Mareva injunctions are intended to preserve the status quo pending final adjudication and our courts will consider the release of funds in order for the parties to continue in the underlying litigation.
