May 30, 2024
What is a Mareva Injunction? Th Ontario Court of appeal describes this relief in the case of Buduchnist Credit Union Limited v. 2321197 Ontario Inc. at paragraph 45:
Mareva injunctive orders restrain the defendant and others from improperly disposing of or dealing with their assets in order to prevent them from putting the assets beyond the court’s reach. These orders stand as an exception to the general principle that plaintiffs are not entitled to pre-judgment relief to ensure the enforcement of their claim post-judgment. Mareva orders are not intended to place the plaintiff in the position of a secured creditor, prevent legitimate creditors from enforcing debts, or impede the defendant from meeting “legitimate debt payments accruing in the ordinary course. They are granted only where there is a “genuine risk of disappearance of assets”. Although not dependent on the existence of fraud, Mareva orders often restrain the defendant’s dealing with its assets before trial on the basic premise that the defendant “is a rogue bent on flouting the process of the court”.
[citations omitted]
The case deals more specifically with the question of what happens when a defendant or others ignores the order and depletes the assets. At paragraph 46 the Court says:
A Mareva order is a discretionary equitable remedy. Mareva orders are granted as an exceptional remedy to maintain the integrity of the court’s process and prevent the frustration of the course of justice, objectives that transcend the parties’ interests, by preventing defendants and others from disposing of assets and flouting the court’s process.
[citations omitted]
After reviewing the facts of the breach of the order, the court goes on at paragraph 53 and 55:
[53] The court’s broad jurisdiction to craft an appropriate order in response to a breach of a court order arises from its well-established inherent jurisdiction to prevent an abuse of the court’s process. Section 140(5) of the Courts of Justice Act, R.S.O. 1990, c. C.43, gives the court express power to stay or dismiss a proceeding as an abuse of process. The deliberate breach of court orders strikes at the very heart of the administration of justice and can never be tolerated. It is beyond trite to say that a court order must be followed until it is set aside. Self-help remedies will never be tolerated because they undermine the rule of law. In United Nurses of Alberta v. Alberta (Attorney General), 1992 CanLII 99 (SCC), [1992] 1 S.C.R. 901, at p. 931, in the context of civil and criminal contempt, McLachlin J. (as she then was) wrote a strong affirmation of the connection between the rule of law and enforcement of the court’s process, which is apposite here: “The rule of law is at the heart of our society; without it there can be neither peace, nor order nor good government. The rule of law is directly dependent on the ability of the courts to enforce their process and maintain their dignity and respect.”
…
[55] The court’s broad jurisdiction in the face of a breach of a court order includes the power to dismiss or refuse to entertain a proceeding, strike pleadings, or adjourn a party’s request for relief: see, for example, Thrive Capital Management Ltd. v. Noble 1324, 2021 ONCA 722, 463 D.L.R. (4th) 377, at para. 22; Dickie v. Dickie (2006), 2006 CanLII 576 (ON CA), 78 O.R. (3d) 1 (C.A.), Laskin J.A. dissenting, aff’d 2007 SCC 8, [2007] 1 S.C.R. 346, at para. 6; Paul Magder Furs Ltd.; First Majestic Silver Corp. v. Davila Santos, 2015 BCCA 452, 391 D.L.R. (4th) 553, at paras. 19-25; Yao v. Li, 2012 BCCA 315, at para 41. The breadth of the court’s jurisdiction that would allow it to dismiss, refuse to entertain or adjourn proceedings in the face of a breach of an order clearly encompasses the jurisdiction to postpone the enforcement of a creditor’s claim arising solely from a breach of a court order.
In this case, the Credit Union had advanced funds to the accused fraudster in breach of the order, with knowledge of the order. As a secured creditor, the Credit Union stood to sell off assets of the defendant and pay its debt to the Credit Union before the Plaintiff obtained judgment.
The proper remedy was to strip the Credit Union of secured creditor status. The Mareva order was then varied to allow distribution to creditors once the Plaintiff’s action became a judgment. The stripping of secured creditor status means that the two creditors, one being the Plaintiff, will share in the recovery in accordance with the ratio of their losses, rather than the Credit Union being paid in full first. This is fair because the Plaintiff’s claim is what is called a “proprietary claim”- that is, the fraudster would never have had the assets except for the fraud, so true ownership ought to be transferred back to the Plaintiff.
TAKEAWAYS
- A Superior Court judge has broad jurisdiction to enforce a Mareva injunction.
- A Mareva injunction is a powerful tool for creditors.
- Courts will take a breach of a Marva order particularly seriously.
- If you have knowledge of a Mareva order, you must take exceptional care in dealing with the defendants to avoid being in breach of the order.
WHAT WEILERS LLP CAN DO TO HELP YOU
The corporate team at Weilers LLP is experienced in advising lenders in complex situations, including those involving Mareva orders.
If you do end up in a Mareva injunction, the litigation team at Weilers LLP has extensive experience in this area and may be the right lawyers for you.