Asset Preservation Orders - Mareva Injunctions

• Author: Jeffrey Berryman
• Pages: 103-138

103

CHA PTER 4

asseT PReseRvaTion

oRdeRs —

maReva

inJuncTions

A. INT RODUCTION

Courts have jealously guarded the granting of interlocutory injunc-

tions as an extr aordinary form of relief. Nowhere is this more evident

than when a plaintiff seeks an order to restrain the disposition of

assets pending trial. A strong current t hroughout Anglo-Canadian law

has been the position that a person’s assets are sacrosanct until she is

declared a judgment debtor. This position could be maintained where

the ability of a person to deal w ith her assets was mea sured in days.

However, today, the computerization and globalization of the f‌inancial

sector means that monetar y assets can be t ransferred insta ntaneously.

In addition, it is now possible for a person to reside in one country, yet

hold most of his assets in other countr ies. One legal response to the

technological advancement of f‌inancial s ervices has been the Mareva

injunction, which seeks to restra in the removal or dissipation of assets

away from the court’s jurisdiction pendi ng a trial of the merits. This

form of remedy is obviously attractive to plainti ffs who not only gain

preliminar y protection of their f‌inal judgment if successful, but can

also signif‌icantly disrupt the defendant’s activitie s and thus gain fur-

ther leverage in any settlement negotiations. Realizing this potential

for abuse, courts have exhibited a par ticularly cautious approach to the

development of Mareva injunctions.

The constant pressures toward global ized trade, the increasing

growth and dependence upon the f‌inancial and service sector in t he

The Law of equiTabLe Re medies104

Western world, and public concern over f‌inancial regulation ha s led

many Commonwealth nations to enact specif‌ic legislation creating

asset preservat ion or freezing orders,1 or to make specif‌ic provision in

court rules of procedure for both asset pres ervation2 and search orders.3

Regrettably, of Canadian provinces, only New Brunswick and Nova

Scotia have followed this course,4 although, interestingly, a number of

provinces have specif‌ically given courts a power to order the interim

preservation of asset s and to prevent dissipation of matrimonial prop-

erty following separat ion or divorce.5

B. HISTOR IC AL DEV ELOPMENT

Prior to the development of the Mareva injunction, the law had developed

several approaches to the preservation of assets pending tr ial. Many of

these approaches surv ive today.

1) Where a plaintiff as serts a proprietary cl aim over a specif‌ic asset,

the ownership of which is in di spute, interlocutory injunctions are

readily granted. The respective codes of civil procedure provide for

an order concerning the interim preservation of property.6

1 See, for example, in t he U.K. the Supreme Court Act1981 (U.K.), 1981, c. 54. See

also Civil Procedure Rules (U.K.), r. 25.1(f), “Freezing injunct ion,” and Chancer y

Practice Dir ectory, 25 CPO-003.

2 For example, al l states in Australia h ave created specif‌ic as set-preservation orders

which have been h armonized across a ll states; see Australi a, Federal Court Rules

2011, Divi sion 7.4; and N.S.W. Uniform Civil Procedure Rules 2005, Part 25, Div-

ision 2, reg. 25.11. Similarly, in New Zeal and see the High Court Rules, r. 32.2.

3 Discusse d in Chapter 5.

4 New Brunsw ick, Rules of Court, N.B. Reg. 82-73, r. 40.03; and Nova Scotia, Civil

Procedure Rules 2008, r. 42.11 (Preservation of A ssets).

5 Ontario, Family Law Act, R.S.O. 1990, c. F.3, s. 12; British Columbia, Fa mily Re-

lations Act, R. S.B.C. 1996, c. 128, s. 67; Manitoba, Family Propert y Act, C.C.S.M.

c. F25, s. 21; Saskatchewan, Family Prope rty Act, S.S. 1997, c. F-6.3, s. 29; New

Brunsw ick, Marital Property Act, S.N.B. 1980, c. M-1.1, s. 11; Nova Scotia, Mat-

rimonial Proper ty Act, R.S.N.S. 1989, c. 275, s. 19; Prince Edward Island, Fa mily

Law Act, R.S.P.E.I. 1988, c. F-2.1, s. 25; and Newfoundla nd and Labrador, Family

Law Act, R.S.N.L. 1990, c. F-2, ss. 16 and 30.

6 See, in British Columbi a, Supreme Court Rules, B.C. Reg. 168/2009, r. 7-6(4);

Alberta, R ules of Court, Alta. Reg. 124/2010, r. 6.25; Manitoba, Court of Queen’s

Bench Rules, Man. Reg. 553/88, r. 45.01; Ontario, Rules of Civil Procedure, R.R.O.

1990, Reg. 194, r. 45.01; Nova Scotia, Civil Procedure Rules 20 08, r. 42.01; and

Newfoundland and Labrador, Rules of the Supre me Court, 1986, S.N.L. 1986, c.

42, Sch. D, r. 22. In Alberta, now s ee also Civil Enforcement Act, R.S.A. 2 000, c.

C-15, ss. 17 & 18.

Asset Pre servation Orders — Mare va Injunctions 105

2) Where the plaintiff is assert ing a proprietary claim to t race into

specif‌ic property, or that the property is held on a constr uctive

trust, the court w ill grant an interlocutory injunction.7

3) Where a plaintiff i s seeking a remedy of specif‌ic perform ance, the

court will gra nt an injunction or the plaintiff will be able to register

a lis pendens preventing the sale of the property to a third party.8

4) Where a defenda nt has fraudulently conveyed property to a third

party so as to defeat her creditors, an interlocutory injunction can

be granted to restrain any further dealings on the property while

the impugned trans action is being litigated. However, for such a

remedy to be available, the plainti ff must be a creditor and estab-

lish an intent to defraud on the part of the defendant.9

5) The court can gra nt a quia timet injunction, although as we will see

below there are special r ules with respect to granting this ty pe of

injunction that make it practically i neffective in this area.10

The above actions do not accommodate a broad restraint on removal or

dissipation of assets that are not the subject of the dispute, or where

the plaintiff i s not adjudged a creditor. In addition, the claims w ill

normally require notice and should not be made on an ex parte basis.

Nor will the orders allow for the addition of interrogatories and other

sundry procedures which h ave made the Mareva order mor e eff‌icacious.

In 1975 the Mareva injunction was born, taking its na me from

Mareva Compania Naviera S.A. v. International Bulkcarriers S.A., The

Mareva .11 The plaintiff, a shipowner, was making a claim for hire under

a time charter party. The defendant, a foreign corporation, had sub-

chartered the ship to the P resident of India. The sub-charterer paid

freight into the defendant’s bank account in the United Kingdom. The

defendant defaulted on one of the payments of the time charter and

the plaintiff commenced an action against it for breach. However, the

plaintiff was concer ned that the defendant’s assets in the United

Kingdom would disappear once an action was launched and sought an

7 Ruwenzori Enterp rises Ltd. v. Walji, 2004 BCSC 741 at paras. 243 and 249

(B.C.S.C.), aff’d 2006 BCCA 448; and Attor ney General for Hong Kong v. Reid,

[1994] 1 A.C. 324 (P.C.).

8 Discussed in Chapt er 11, Section E.

9 Discussed in 663309 O ntario Ltd. v. Bauman (2000), 190 D.L.R. (4th) 491 (Ont.

S.C.J.), aff’d [2001] O.J. No. 1213 (Div. Ct.); and Sansone v. D’Addario (2006), 26

C.P.C. (6th) 156 (Ont. S.C.J.), but determining t hat the same stringent te st for

Mareva inju nctions must be satisf‌ied where t he action is being brought alleg ing

a fraudulent conveyanc e.

10 Discussed in Chapter 7, Section E.

11 (1975), [1980] 1 All E.R. 213n (C.A.).