The evolving test for wordwide Mareva injunctions or freezing orders

Jim Schmidt
Articles

A Mareva injunction (or “freezing order”, as the relief is now called in England, where it originated) prevents a defendant, in many cases facing allegations of fraud, from dealing with all or some of his or her assets, often until after a judgment is pronounced at trial.

Originally aimed at preventing a defendant from removing assets from within the territorial jurisdiction of the court, a Mareva injunction may also be granted on a “worldwide” basis to prevent the defendant from dealing with his or her assets, wherever those assets are located.

A question recently before the courts in Ontario is whether a plaintiff seeking a worldwide Mareva injunction must show the defendant has assets in, among other places, the jurisdiction of the court asked to grant the injunction.

The answer to that question is no, according to the majority of a panel of the Ontario Divisional Court in Borrelli v. Chan, 2017 ONSC 1815, a case arising from the collapse of Sino-Forest Corporation (“SFC”) in 2011.

SFC was incorporated under the Canada Business Corporations Act, although its assets were said to have been primarily held in the People’s Republic of China and its executive offices were located in Hong Kong.

Mr. Borrelli is the Hong Kong-based trustee of the SFC Litigation Trust which, in proceedings under the Companies’ Creditors Arrangement Act, was assigned certain claims capable of being asserted by SFC against third parties.

In 2014, Mr. Borelli started an action for fraud against Mr. Chan, the former CEO of SFC and also a Hong Kong resident.

In August, 2014, Mr. Borrelli sought and obtained, on an ex parte basis, a worldwide Mareva injunction against Mr. Chan.  Mr. Chan moved unsuccessfully to set aside the injunction, asserting, among other things, that the injunction ought not to have been granted because he did not have any assets in Ontario.

On appeal to the Divisional Court, Mr. Chan argued the governing test for the grant of a Mareva injunction in Ontario is that set out in Chitel v. Rothbart (1982), 141 D.L.R. (3d) 268 (Ont. C.A.), which requires the plaintiff to show some basis for believing the defendant has assets within the jurisdiction.

The Divisional Court, in a 2:1 decision, rejected Mr. Chan’s argument and dismissed the appeal.

The majority noted a Mareva injunction is a remedy that “evolves as facts and circumstances merit” and that, while a court should have regard for the guidelines set out in the Chitel case, the overarching consideration is what is just and convenient.

The majority emphasized there was no question that the court had in personam jurisdiction over Mr. Chan: he had worked in Ontario, been sued there and had indeed attorned to the jurisdiction of the Ontario court.  That was sufficient, the majority concluded, for the court to grant an injunction preventing him from dealing with assets elsewhere in the world: there was no requirement, for the assertion of the in personam jurisdiction underlying the injunction, for Mr. Chan to have assets in Ontario.

The dissenting judge considered Chitel binding authority and concluded the motions judge had erred in granting the injunction because Mr. Chan had no assets in Ontario or in Canada.

The decision in Borrelli accords with what is either expressly or implicitly the law in British Columbia on this issue: see Mooney v. Orr (1994), 100 B.C.L.R. (2d) 335 (S.C.).  It also accords, more broadly, with Equustek Solutions Inc. v. Jack, 2015 BCCA 265 (appeal to the Supreme Court of Canada now pending), which confirms the ability of a court to issue an injunction against a person over whom it has in personam jurisdiction.

Borrelli further endorses a more flexible approach in considering when a Mareva injunction should be granted, following British Columbia decisions emphasizing a court should not become a “prisoner of formula” by following hard and fast rules.