Often there is a concern that a defendant will dissipate assets or put them out of reach of the court if they become aware of a claim against them. A person who intends to bring a claim wants to make sure that (1) the property that is the subject of the claim is protected until a determination of the claim, and/or (2) the defendant will still have sufficient assets to satisfy the claim.
A Mareva injunction is an order which freezes the defendant’s assets, so that they cannot be disposed of or removed to a place beyond the court’s reach while proceedings are ongoing. Preservation orders are also available to freeze and preserve the property that is the subject of a claim.
A Mareva injunction is an extraordinary remedy, because it provides the plaintiff with enforcement rights and prejudices the defendant before the court has actually determined the merits of the claim.
These orders are usually obtained ex parte, or without notice to the other party. Otherwise, there is the risk that the defendant will removal or deal with the assets after they are served and made aware of the application but before the order is made.
Once the party against whom the order is made is served with the order, they may apply to set it aside.
There is a two-part test for granting a Mareva injunction:
- The existence of a strong prima facie case or a good arguable case. This does not mean that the applicant must demonstrate that they are “bound to succeed” with their claim. The test is satisfied if “either side might win”; and
- Having regard to all relevant factors in the case, whether granting an injunction would be just and convenient (the balance of convenience).
For a restraining order over property at issue in the proceeding, there is a lower threshold for #1: whether there is a substantial question to be tried.
The B.C. Supreme Court in Shakeri-Salah (discussed further below) set out the relevant factors which may be considered on the balance of convenience analysis (which factors are relevant will depend upon the case, and this is not a closed list):
- the residency of the defendant;
- enforcement rights of judgment creditors in the jurisdiction where the defendant’s assets are located;
- evidence showing the existence of assets within British Columbia or outside;
- evidence showing a real risk of the disposal or dissipation of assets to render a judgment nugatory;
- evidence of irreparable harm;
- the strength of the plaintiff’s case;
- the nature of the transaction giving rise to the action;
- the risks inherent in the transaction;
- the amount of the claim;
- the defendant’s assets;
- evidence that the injunction would have a material adverse effect on an innocent third party; and
- the history of the defendant’s conduct.
The B.C. Supreme Court recently considered Mareva injunctions and preservation orders in in the context of estate and trust litigation in Shakeri-Salah v. Estate of Ahmadi-Niri 2022 BCSC 700.
In Shakeri-Salah, the defendants sought to set aside a Merva injunction and freezing order. The plaintiff was the widow of the deceased. She brought an action against her husband’s estate, the trustees of a trust, corporate entities relating to her husband’s business enterprises, her two older sons, and her husband’s personal advisors. The plaintiff alleged that as the deceased’s spouse she was entitled to a share in the assets accumulated through a joint family venture. In the five months prior to his death, the deceased took certain steps to purportedly put assets outside the reach of the plaintiff. He transferred assets into a trust, the beneficiaries of which were his children but not his spouse (the plaintiff). He severed joint tenancies, commenced a family claim seeking a divorce from the plaintiff, and made a will in which the plaintiff was not a beneficiary. All of this was done while the deceased’s health was deteriorating and he had a reduced ability to communicate.
The deceased travelled to Dubai and then Iran, where he died several weeks later. The plaintiff alleged that her sons took their father to these countries to remove him from her and to exercise undue influence over him. The sons said they were helping their father “escape an unhappy marriage”, and did so at his request.
The plaintiff alleged there was an unwritten trust arrangement and unwritten agreement between her and the deceased. She claimed a constructive trust over the assets that her husband amassed during the time that they were married.
The plaintiff applied ex parte and obtained a Mareva injunction and freezing order. The Court ordered that the assets that were the subject of the claim be frozen. There was also an order requiring the sons and the corporate defendants to set out their respective assets.
The defendants applied to set aside the order.
One of the grounds to set aside a Mareva injunction is material non-disclosure by the applicant. If there has been material non-disclosure by the applicant, the court may set aide the order without regard to the merits of the application. The standard is high when a litigant comes to court on an ex parte basis. The applicant must disclose all important aspects of the evidence because the other side is not their to make their case. However, not every omission necessarily results in the order being set aside.
The Court in Shakeri-Salah did not agree that there was material non-disclosure.
If there has not been material non-disclosure, the court proceeds with a new hearing (a “hearing de novo”) on the merits of the application. The applicant must again meet the test for obtaining the injunction.
In Shakeri-Salah, the defendants argued that there was no evidence of dissipation of assets. The plaintiff argued that while there was no evidence of active dissipation, there was evidence of pre-existing intentions and steps taken by the deceased to deprive her of assets that would have been received by her as spouse and joint tenant. The court agreed – the deceased, with the defendants’ knowledge and sometimes with their “loyal support” structured his affairs to remove assets from the plaintiff’s reach. The court relied upon the commencement of family law proceedings, the severance of the joint tenancies, and the will excluding the plaintiff as evidence of the deceased’s intention to put assets out of the reach of the plaintiff.
The Court varied the injunction to remove the sons from the freezing order. “Considerations of fairness and justice” did not support continuing the interlocutory relief against them personally. The order remained in place as against the other defendants, i.e. the trustee and the corporations.
The case also includes an interesting discussion of claims for unjust enrichment brought by one spouse against the other. A spouse who claims unjust enrichment based on a family venture need not have played an active role in a business venture that is alleged to be the product of the family venture. The deceased’s business efforts built the family’s wealth, but the plaintiff made that possible through her role in the family, entitling her to a remedy for a proportionate share of the wealth built.