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In the course of litigation, a defendant may attempt to sell, hide, transfer or otherwise make it appear that all assets have been depleted, leaving nothing for the plaintiff. To preserve or freeze the defendant’s assets, a plaintiff may seek a Mareva injunction or request that a receiver be appointed to manage the defendant’s financial affairs until the matter is resolved.

Below, we will review both Mareva injunctions and receiverships as useful tools for plaintiffs involved in civil fraud claims where there is a concern a defendant could deplete their assets prior to the resolution of pending litigation.

What is a Mareva Injunction?

A Mareva injunction, so named for a 1975 case out of the UK, allows a court to make an order freezing a defendant’s assets until a decision is reached in a civil claim, often without advance notice to the defendant. The remedy is extreme and can have a significant impact on the defendant while it is in place. As such, a plaintiff has a high bar to clear in order to demonstrate the need for such an order.

In civil fraud cases, a Mareva injunction can become necessary for a plaintiff to protect their interests by preventing a defendant from selling, transferring or otherwise disposing of assets that may form all or part of a plaintiff’s recovery if successful in court.

The Requirements of Obtaining an Order for a Mareva Injunction

In order to obtain an order for a Mareva injunction, a plaintiff must establish the following:

  1. The plaintiff has a strong prima facie case against the defendant, meaning that, on first impression, the case against the defendant appears sound;
  2. The defendant has assets in the jurisdiction over which the court presides;
  3. There is a serious risk that the defendant could or will remove assets or otherwise dispose of property before a judgment is reached in the case;
  4. The plaintiff will suffer irreparable harm if the injunction is not granted; and
  5. The balance of convenience favours granting the injunction as requested, meaning the potential harm to the plaintiff if the injunction is not granted outweighs the potential harm to the defendant if it is.

As part of establishing these factors, a plaintiff is required to give full and frank disclosure of all material matters pertaining to the order and the claim against the defendant. Further, the plaintiff must provide an undertaking with respect to damages.

Mareva Injunctions in Civil Fraud Cases

When applying for a Mareva injunction in a civil fraud case, the application is almost always done on an ex parte basis, meaning that the defendant is not involved. This is done to avoid ‘tipping off’ the defendant of the potential order, enabling them to dispose of assets before an order can be made. This is particularly important in cases of alleged fraud, where a defendant may have purposefully targeted a plaintiff in a plan to defraud them of money or other assets. In the 2018 decision of 2092280 Ontario Inc. v. Voralto Group Inc., the Court explained the importance of an ex parte order for a Mareva injunction in fraud cases specifically:

“The Mareva injunction is an important tool for Plaintiffs to try and recover their losses due to fraud or theft.  A requirement to notify the perpetrators of a fraud in advance of an impending Mareva injunction would significantly water-down an important remedy for protecting innocent victims. … If funds cannot be frozen in advance, a vital arrow in the civil law’s quiver to address serious fraud will be lost. This is a narrow exception to the general rule against prejudgment execution. It is therefore a remedy that is not readily available. However, where evidence discloses a strong prima facie case that Defendants perpetrated a premeditated, substantial fraudulent scheme against innocent victims, the law’s reluctance to allow prejudgment execution must yield to the more important goal of ensuring that the civil justice system provides a just and enforceable remedy against such serious misconduct.”

Another Tool in the Civil Fraud Arsenal: Receiverships

Like a Mareva injunction, appointing a receiver to oversee and manage a defendant’s financial affairs can be used to preserve assets. A court-appointed receiver may be tasked with overseeing all financial and property transactions, which can prevent the disposal of assets, as well as put a stop to ongoing fraudulent behaviour. In some cases, a receiver may even be granted investigative powers to review a defendant’s history with respect to fraud allegations. However, a receiver’s powers will generally be restricted by the court to prevent overreach which may violate the defendant’s rights.

When examining whether to appoint an investigative receiver, a court will consider four factors, originally set out in a 2015 case called Akagi v. Synergy Group (2000) Inc.:

  1. Whether the appointment is necessary to alleviate any risk to the plaintiff’s right to recovery;
  2. Whether the receivership is intended to gather information on the defendant’s state of affairs as it relates to the matter at hand;
  3. Whether the receiver will also have control over the defendant’s financial affairs, as in most cases an investigative receiver will be appointed to conduct an investigation only; and
  4. Whether the receiver’s powers are limited to what is necessary, preventing overreach into the defendant’s affairs.

Receiverships and Mareva injunctions can each be an important means for a civil fraud plaintiff to preserve assets and protect their interests before a court provides a final judgment on the merits of their case. Each remedy requires a plaintiff to demonstrate a number of factors and having an experienced litigation lawyer can be a significant help.

For Unparalleled Legal Guidance on Obtaining Injunctive Relief or Receivership in a Commercial Fraud Claim, Contact Milosevic Fiske LLP 

If you require legal guidance in a civil fraud matter or require injunctive relief or receivership, contact Milosevic Fiske LLP in Toronto. Our highly experienced litigation lawyers help our clients navigate even the most complicated disputes. We excel at guiding clients to a creative, cost-effective solution. Call us at 416-916-1387 or contact us online to learn more about how we can help.