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A Fraud Victim’s Motions to Freeze Their Money

Canadian Fraud Lawyer

Fraud victims often ask us if they can obtain an order to freeze the funds or property in the possession of a suspected fraudster pending the resolution of their action due to their concern that the fraudster possesses their money and to ensure the fraudster has not dissipated their money on lawyers, lifestyle or other property prior to their obtaining judgment. Such orders are available from the Courts. Orders to freeze funds or property prior to judgment are known in law as Mareva injunctions.

 

In Sibley & Associates LP v. Ross, 2011 CarswellOnt 4671, 2011 ONSC 2951, at para. 11, an Ontario Court set out the five part test that a fraud victim must meet to satisfy whether he, she or it should qualify for being granted a Mareva injunction. They include:

 

(a)   the fraud victim must make full and frank disclosure of all material matters within his or her knowledge;

 

(b)   the fraud victim must give particulars of the claim against the defendant, stating the grounds of the claim and the amount thereof, and the points that could be fairly made against him or her by the defendant;

 

(c)    the fraud victim must give grounds for believing that the defendant has assets in the jurisdiction;

 

(d)   the fraud victim must give grounds for believing that there is a real risk of the assets being removed out of the jurisdiction, or disposed of within the jurisdiction or otherwise dealt with so that the fraud victim will be unable to satisfy a judgment awarded to him or her; and

 

(e)   the fraud victim must give an undertaking as to damages.

 

The risk of asset flight or dissipation can reasonably be inferred from the material facts supporting a strong prima facie demonstration of fraud having been committed. In 663309 Ontario Inc. v. Bauman, 2000 CANLII 22640 (ON S.C.), at para. 41, an Ontario Court considered the effect of strong allegations of fraudulent misappropriation of assets in the context of a Mareva injunction as follows:

 

In principle, there is no reason why the existence of a sufficient risk of disposition should not be inferred from the evidence of the material facts on which the plaintiff’s cause of action is based. I agree that this is particularly likely to be the case where, as in Mills, a strong prima facie case of fraudulent misappropriation is established on the material before the Court. Even in such a case, the question must still, in my opinion, be whether such an inference can reasonably be drawn from the facts.

 

 

With respect to the plaintiff’s burden of providing evidence of asset flight risk or dissipation in the context of a strong prima facie case of fraud, the Sibley Court concluded in part:

 

[62] From Chitel v. Rothbart to the present day, the law has sought to draw a fair balance between leaving the plaintiff with a “paper judgment” and the entitlement of the defendant to deal with his or her property until judgment has issued after a trial. In my respectful view, a plaintiff with a strong prima facie case of fraud should be in no more favoured position than, say, a plaintiff with a claim for libel, battery or spousal support. On the other hand, there may be circumstances of a particular fraud that give rise to a reasonable inference that the perpetrator will attempt to perfect the deception by making it impossible for the plaintiff to trace or recover the embezzled property. To this extent, it seems to me that cases of fraud may merit the special treatment they have received in the case law.

 

[63] Rather than carve out an “exception” for fraud, however, it seems to me that in cases of fraud, as in any case, the Mareva requirementthat there be risk of removal or dissipation can be established by inference, as opposed to direct evidence, and that inference can arise from the circumstances of the fraud itself, taken in the context of all the surrounding circumstances. It is not necessary to show that the defendant has bought an air ticket to Switzerland, has sold his house and has cleared out his bank accounts. 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.

 

World Wide Effect

A Mareva injunction may be sought with “worldwide effect” in order to protect against asset dissipation in foreign jurisdictions and to preserve the integrity of Canadian Court judgments. By way of example, the British Columbia Supreme Court in Mooney v. Orr[1994] B.C.J. No. 2322, at para. 13, has stated:

 

As with any Mareva injunction, it is trite law that the applicants must, after making full disclosure of all relevant and material facts in their knowledge, satisfy the Chambers judge that they have a “strong prima facie case” (see Aetna Financial Services, supra, at 118) and that there is a “real risk” of removal or dissipation of his assets to avoid judgment. (Aetna, supra, at 119; Sekisui House Co. Ltd. v. Nagashima et al. (1982) 42 B.C.L.R. 1 (B.C.C.A.) at 6; Sharpe, Injunctions and Specific Performance (2nd ed., 1993) at 2.870.) Where an applicant seeks to enjoin the transfer of assets worldwide, one grafts onto these conditions the further requirement that there exist assets ex juris the disposition or concealment of which would be likely to frustrate any judgment obtained against the defendant.  And, although it is not necessary to prove that the defendant does not have assets in the jurisdiction, the less the value of those assets, the more likely the Court is to grant relief with extra-territorial effect.

 

Asset Disclosure Orders

In addition to having extra-territorial effect, a Mareva injunction may be coupled with an ancillary disclosure order. It is often the case that a motion for a freezing order or a Mareva injunction is “…made on incomplete information about the nature, extent, location and value of the assets and funds which the defendant may have.”  Such orders are intended to prevent injustice to the plaintiff and his assets. Thus, “[a]ncillary orders may be made in re-enforcement of the freezing order by requiring full disclosure of the nature, location and value of assets and funds and the dealings with them.” See Innovative Marketing Inc. v. D’Souza,2007 CarswellOnt 1131, at para. 16.

 

Inquiries

Mareva Injunctions are not appropriate in every fraud case. Sometimes they take a significant amount of investment by way of evidence gathering and legal process and accordingly are cost prohibitive.  Even if an injunction is obtained, a fraud victim may be faced with litigation costs and delays in defending motions by a fraudster to have it set aside. Whatever the concerns, fraud victims should at least discuss whether motions for Mareva injunctions are appropriate for their case.  For further information, contact us at www.investigationcounsel.com.

 

Disclaimer

Norman Groot

About Norman Groot

Based on my police experience and my experience thereafter as a litigator, I have joined forces with other lawyers with police experience and created the law firm Investigation Counsel Professional Corporation.

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