Mareva Injunctions: the Nuclear Option in Civil Litigation

“It had been the traditional view in England, as well as in this province, that an interlocutory injunction would not be granted to restrain a defendant from disposing of his assets or removing them from the jurisdiction prior to judgment. However, the modern departure from that view has its genesis in a trilogy of cases […] These cases and those which follow them establish that, in a proper case, a Mareva injunction may be granted as an exception to the general rule.”

– MacKinnon A.C.J.O in Chitel et al. v. Rothbart et al., (1983), 39 O.R. (2d) 513

Introduction

A Mareva injunction is a form of interim or interlocutory injunctive relief which restrains a respondent from removing assets from the jurisdiction or otherwise disposing or dealing with their assets, in order to preserve property against which a plaintiff or applicant can enforce their claim pending disposition at trial.

The Mareva injunction, which takes its name from the 1975 English decision of Mareva Compania Naviera S.A. v. International Bulkcarriers Ltd., is an extraordinary remedy in civil litigation. Also called a “freezing order”, English courts have gone as far as to describe Mareva orders as a “draconian” form of relief. Though its genesis lies in the courts of England, the Mareva order has been a fixture of Canadian law since the 1980s.

While it takes its name from the Mareva decision, the history of the Mareva order begins with Nippon Usen Kaisha v. Karageorgis (1975). In that case, the defendants chartered a number of the plaintiff’s ships but did not pay their charter fee. The plaintiff unsuccessfully attempted to locate the defendants and, believing that the defendants had funds held in London banks and that those funds would be transferred out of the jurisdiction, sought an injunction restraining the defendants from moving any assets outside of the jurisdiction.

The decision in Mareva also concerned a shipowner’s claim against a foreign corporation for hire under a time-charter. In Mareva, the English Court of Appeal upheld an injunction preventing the defendant corporation from removing money deposited to its credit in a London bank.

In most cases, unless an applicant has some legal or equitable interest in a respondent’s property, a court will not restrain the respondent from freely disposing of, transferring, or otherwise dealing with their assets. The underlying rationale for this view in Canadian jurisprudence is that execution cannot be obtained prior to judgment. A Mareva order, however, is the exception to this general rule.

Unlike situations where an applicant asserts a right to specified property that forms the subject matter of the dispute, a Mareva order “freezes” the respondent’s assets pending resolution of the dispute, even if those assets are not in issue.

The Legal Test for a Mareva Order

The rationale underlying interlocutory injunctions such as Mareva orders is to prevent the destruction of the applicant’s rights pending disposition at trial. Due to its exceptional nature—being a remedy obtainable without notice which interferes significantly with a respondent’s right to deal with their property—the bar for obtaining a Mareva order is high.

To obtain a Mareva order, an applicant must:

1. establish a strong prima facie case;make full and frank disclosure of all material matters within their knowledge;

2. give particulars of the claim against the respondent, fairly stating the points that could be made against it by the respondent;

3. show that the respondent has assets in the jurisdiction;

4. show that there is a serious risk of dissipation of those assets;

5. show that irreparable harm will be suffered unless the Mareva order is granted;

6. show that the balance of convenience favours the applicant; and

7. give an undertaking as to damages.

Mareva injunctions are often sought and granted on an ex parte basis, meaning that the court will only hear the applicant’s side of the dispute. Accordingly, courts have emphasized the requirement for the applicant to make full and frank disclosure of all material matters within their knowledge. In the Ontario Court of Appeal’s seminal decision in Chitel et al. v. Rothbart et al., an action concerning conversion of shares in two corporations, the plaintiff’s failure to make full and frank disclosure of her relationship with the defendant and her own history as a knowledgeable stock trader was fatal to her position, and her application for an interlocutory Mareva order was dismissed.

The Court in 2092280 Ontario Inc. v. Voralto Group Inc. [2018] explained that, “[b]ecause of the recognized need to grant Mareva orders on a without notice basis”, there are internal protections built into the Mareva test, including an undertaking by the applicant to indemnify the respondent for damages suffered where assets have been improperly frozen. The potential for harm to the rights of a respondent who has not had the opportunity to put forward their position is further mitigated by the requirements that the applicant must establish a strong prima facie case and that there is a serious risk of dissipation of assets.

Mareva Orders in Cases of Fraud

The purpose of seeking a Mareva order without notice to the respondent is to freeze assets before the respondent becomes aware that such an order is being sought and dissipate their assets before they can be frozen.

Where a claim of fraud is asserted, the risk of dissipation can be inferred from the facts relied on by the applicant to support a strong prima facie case of fraud. Courts have debated whether this establishes a “fraud exception” to the ordinary test for a Mareva order. However, in Sibley & Associates LP v. Ross [2011], Justice Strathy concluded:

Rather than carve out an "exception" for fraud, however, it seems to me that in cases of fraud, as in any case, the Mareva requirement that there be risk of removal or dissipation can be established by inference [...] It should be sufficient to show that all the circumstances, including the circumstances of the fraud itself, demonstrate a serious risk that the defendant will attempt to dissipate assets or put them beyond the reach of the plaintiff.

Justice Strathy added that in some cases, a pattern of prior fraudulent conduct may support a reasonable inference that there is a real risk that such conduct will continue.

While there is therefore no “fraud exception” to the Mareva test, the ability to seek a Mareva order without notice and to draw a negative inference concerning the dissipation of assets where there is a strong prima facie case of fraud makes Mareva orders a powerful and invaluable tool in prosecuting fraud claims.