5
Execution Prior to Judgment
(The Mareva Injunction)
In this journal, I propose to review the remedy of the Mareva injunction, a remedy which may be utilized by a party on an interlocutory motion brought ex parte to prevent the opposing party from moving assets from the jurisdiction, or beyond the reach of the moving party but within the jurisdiction, either of which may nullify the effect of any judgment obtained by the moving party in the action.
This remedy is also considered to be execution prior to judgment and is only given under the most strict terms and conditions. It amounts to a pre-trial mechanism by which a Plaintiff can move to prevent a Defendant from disposing of or transferring assets in a manner which would be prejudicial to the Plaintiff in the event that the Plaintiff obtains judgment at trial. A Mareva injunction can either prohibit the Defendant from dissipating assets locating within the jurisdiction of the court or from disposing of assets, by attempting to move them outside the jurisdiction of the court.
In so doing, the Mareva injunction deals with whether a Plaintiff will be able to satisfy an eventual judgment.
When examining the origins of the Mareva injunction preference must be accorded to the principle that generally, a party cannot obtain execution prior to judgment.
In the case of Lister and Company v. Stubbs (1886) All E.R. 797 (C.A.) Lord Justice Scotten stated at p.799 as follows:
I know of no case where, because it is highly probable if the action were brought the Plaintiff could have established that there was a debt due to him by the Defendant, the Defendant has been ordered to give security till the debt has been established by the Judgment or decree.
Although the remedy of the Mareva injunction originated in the United Kingdom and exists as a remedy here in Canada, there still exists in this jurisdiction a reluctance to grant execution before judgment, as a fundamental legal principle, which makes the granting of the Mareva injunction more difficult to obtain in Canada than in the UK.
In Ontario, although the general rule as stated in Lister is followed (i.e. that no court has the jurisdiction to protect a creditor before he gets judgment) the leading case of Chitel et al v. Rothbart et al (1983), 39 O.R. (2d) 513 (C.A.) determined that there exists exceptions to this general rule, which form their genesis in s.19(1) of the Judicature Act, (now s.101 of the Court of Justices Act) as follows:
S.101(1) In the Superior Court of Justice, an interlocutory judgment or mandatory order may be granted ...by an interlocutory order, where it appears to a judge of the Court to be just or convenient to do so.
The head note in the Chitel case, supra, states that Mareva injunctions are recognized in Ontario and may be granted if the following criteria are met.
1. The Plaintiff shall make full and frank disclosure of all matters in his knowledge which are material for the judge to know;
2. The Plaintiff should give particulars of his claim against the Defendant stating the ground of his claim and the amount thereof, and fairly stating the points made against it by the Defendant;
3. The Plaintiff should give some ground for believing that the Defendants have assets here;
4. The Plaintiff should give some grounds for believing that there is risk of the assets being removed before the Judgment or award is satisfied;
5. The Plaintiff must give an undertaking as to damages.
The Mareva injunction takes its name from the case of Mareva Compania Naviera SA v. International Bulk Carriers SA (1975) 3 All E.R. 282 (C.A.) wherein Lord Denning determined that where it appears that a debt is due and owing and there is concern that a foreign debtor may remove his assets from the jurisdiction thereby defeating any subsequent judgment, the court has the jurisdiction to grant an interlocutory judgment to prevent the removal of such assets.
Lord Denning states at page 215 of the case as follows:
If it appears that the debt is due and owing and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment a court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him from disposing of those assets.
In Ontario, the Chitel case, supra, confirms the availability of a Mareva injunction in Ontario, but the Court adopts a somewhat narrower test for the granting of each injunctive relief than the Astrong arguable case@ test that is utilized in the United Kingdom.
In the Chitel case, McKinnon, A.J.CO held that an applicant must establish a Astrong prima facie case@ as a precondition to obtaining a Mareva injunction in Ontario.
The Mareva injunction has been dealt with in the Supreme Court of Canada in the Aetna Financial Services Ltd. v. Feigelman et al (1985) 15 D.L.R. (4th) 161 in which Mr. Justice Estey determined the following as the law of Mareva injunctions in Canada.
The gist of the Mareva action is the right to freeze exigible assets when found within the jurisdiction wherever the Defendant may reside, providing, of course, there is a cause between the Plaintiff and the Defendant which is justiciable in the Courts of England. However, unless there is a genuine risk of disappearance of assets, either inside or outside the jurisdiction, the injunction will not issue.
Mr. Justice Estey went on to confirm that the remedy was only to be used in the most obvious of cases and that the rule in Lister was still law in Canada. At p.37 of the Aetna case Estey J. stated as follows:
There still is, as in the days of Lister, a profound unfairness in a rule which sees ones= assets tied up indefinitely pending trial of an action which may not succeed, and even if it does succeed, which may result in an award of far less then the caged assets. The harshness of such an exception to the general rule is even less acceptable where the Defendant is a resident within the jurisdiction of the court and the assets in question are not being disposed of or moved out of the country or put beyond the reach of the courts of the country. This subrule or exception can lead to serious abuse. A Plaintiff with an apparent claim without ultimate substance, may, by the Mareva exception to the Lister rule, tie up the assets of the Defendant, not for the purpose of their preservation until judgment, but to force, by litigious blackmail, a settlement on the Defendant, who, for any one of many reasons, cannot afford to await the ultimate vindication after trial.
It is apparent that Estey J. was acutely concerned with the dangers inherent in the granting of a Mareva injunction which concern may be grounded in the fact that Mareva injunctions are for the most part brought expeditiously on an ex parte basis, and if not grounded well on the facts, could lead to the abuses to which he makes reference.
It would be my view that if a Mareva injunction were brought on notice (which might defeat the very point of the motion) perhaps many of the concerns of Mr. Justice Estey would be laid to rest. In any event, any ex parte Mareva injunction which is granted, can only be continued if notice is given to the other party and the motion is fully argued.
Motions for Mareva injunctions which are brought in circumstances where the assets are not going to be transferred out of the jurisdiction but may be moved within the jurisdiction beyond the reach of the Plaintiff in the action in my view should be brought on notice. In such circumstances the remedy need not be considered as drastic because there is notice and the assets are not leaving either the province or country.
The distinction in my mind between Mareva injunctions and the granting of an interim receiver may be the requirement of the moving party to provide an undertaking with respect to damages unless otherwise ordered by the Court, as is the case of a Mareva injunction.
Rule 40.03 of the Rules of Civil Procedure, specifically requires the provision of an undertaking as to damages, regarding injunctions in general, whereas no similar subrule is found with respect to the appointment of an interim receiver under Rule 41. However, I suspect that the provision of the undertaking is as important to the granting of an interim receiver as to the granting of a Mareva injunction.
Given that the obtaining of an ex parte Mareva injunction may not be difficult initially, consideration should be given to what steps can be taken to set aside a Mareva injunction once notice of the Order has been served on the Defendant.
Because the motion is usually brought ex parte the Plaintiff is obliged to meet the strict requirements of full and frank disclosure. A Defendant will in turn always be given the opportunity to respond to the granting of an ex parte injunction by application to the court to have it set aside. The rationale for the requirement of full disclosure was outlined by Sharpe J. in United States of America v. Freedland (1996) O.J. No. 4399 (Ont.Gen.Div.) wherein he stated as follows:
It is a well established principle of our law that a party who seeks the extraordinary relief of an ex parte injunction must make full and frank disclosure of the case. The rationale for this rule is obvious. The judge hearing an ex parte motion and the absent party are literally at the mercy of the party seeking injunctive relief. The ordinary checks and balances of the adversarial system are not operative. The opposing party is deprived of the opportunity to challenge the factual and legal contentions advanced by the moving party in support of the injunction. The situation is rife with the danger that an injustice will be done to the absent party. As a British Columbia judge noted recently:
There is no situation more fraught with potential injustice and abuse of the courts= powers than an application for ex parte injunction. (Watson v. Slavic August 23, 1996, para.10)
That being the case, it is asserted that the application to set aside a Mareva injunction should if possible be brought before the Judge that made the original order.
This overarching duty of full and frank disclosure is addressed by McKinnon A.C.J.O. in the Chitel case, p.519 as follows:
There is no necessity for any authority to state the obvious, that the Plaintiff must, in securing an ex parte interim injunction, make full and frank disclosure of relevant facts, including facts which may explain the Defendant=s position if known to the Plaintiff. If there is less than this full and accurate disclosure in a material way, or if there is a misleading of the court on material facts in the original application , the Court will not exercise its discretion in favour of the Plaintiff to continue the injunction.
An interesting issue in the context of these injunctions, which also arises in the context of the appointment of interim receivers, is the situation where the Plaintiff believes that the Defendant has assets within the jurisdiction but is unable to provide sufficient evidence to the court as to the location of the assets or as to their dissipation in order to obtain the appropriate injunctive relief.
One remedy to overcome this problem would be to utilize the right to an examination in aid of the injunction or discovery in aid of an injunction, both of which may serve the purpose of a judgment-debtor examination requiring the Defendant to disclose the nature, location and value of his financial assets, so that the court can make the appropriate ruling requested.
In the case of Sekisui House Kabushiki Kaisha v. Nagashimi (1982) 42 B.C.L.R. 1 (C.A.) the Court held that a Mareva injunction would be of little value if the Plaintiff did not know the quality or whereabouts of the assets which belonged to the Defendant. To that end, the court ordered the Defendant to deliver an Affidavit listing his assets and their location at the time of the injunction. In the case of Mooney v. Orr (1994) 100 B.C.L.R. (2d) 335 (B.C.S.C.) The court stated as follows:
The circumstances of each situation will determine whether justice requires an injunction and a listing of assets or the transfer of assets to a receiver, not to enhance the claimants= rights, but to ensure that those reasonable people who pay for the administration of justice are not affronted by the impotence of the Court in the face of those who choose to order their affairs so as to keep all of their options for themselves. (p.352)
Further to the remedy of discovery in aid of injunction, the court in the case of First Choice Capital Fund Ltd. v. First Canadian Capital Corporation, (1997) 9 W.W.R. 177 (Queen=s Bench) stated as follows, at pp. 193-4:
There is now ample legal precedence which establishes that a court in appropriate circumstances may order a respondent to make discovery of assets in aid of injunctive relief. Such an order is usually made as collateral relief to a Mareva type of injunction. The purpose of such an order is to provide a mechanism to ensure that the injunctive relief that has been ordered will achieve its objective. Discovery of assets is a tool to monitor the effectiveness of the injunction to ensure compliance with it. It is not to be used to punish the respondent but to determine the present whereabouts of its property for the purpose of enforcing the injunction.
Therefore, it appears that there may be developing in Canada a gradual lifting of the court=s reluctance to grant the Mareva injunction given that the Courts are prepared in certain circumstances to order the Defendant to disclose his activities or assets so it can be ascertained whether or not the injunction relief should be granted.
This technique or strategy in turn solves two problems that are inherent in motions that involve execution prior to judgment.