The Long Arm of the Law: International Fraud and Worldwide Mareva Injunctions

Jim Patterson and Denise Bambrough – Borden Ladner Gervais LLP – Fraud Law Group

A rogue convinces a couple to invest their entire retirement savings with him in an offshore investment scheme which promises an excellent return. The investors subsequently learn that the scheme is fraudulent and that the rogue has no intention of returning their money to them, let alone delivering any profit thereon. The investors learn that the money has been sent by the rogue to accounts in his name which are held at various financial institutions located outside of Canada. Is there anything that the investors can do to prevent the further transfer of their money by the rogue? The investors will be happy to know that yes, there is. Canadian lawyers have been successful in obtaining Court Orders granting relief to victims of fraud in scenarios such as this one.

For many years in Ontario, and elsewhere in Canada, it has been possible for a victim of fraud to obtain from the Court a “Mareva injunction”. A Mareva injunction is an Order of the Court which has the effect of freezing a rogue’s assets and preventing the rogue from disposing of or dealing in any manner with his assets pending the final disposition of the victim’s recovery proceedings against the rogue. Such Orders are typically served upon financial institutions and others with control over the rogue’s assets in order to attempt to ensure that the rogue does not circumvent the terms of the Order. It is a contempt of Court for any person notified of an injunction to knowingly assist in or permit a breach of the Order. Mareva injunctions are granted with a view to preserving the status quo, that is, in order to ensure that the subject matter of the recovery litigation (typically, the stolen funds) is not dissipated before trial, thus defeating the purpose of the victim’s legal proceedings against the rogue.

Traditionally, the Mareva Order was only effective within the territorial jurisdiction in which the Order was obtained. However, in appropriate circumstances, Canadian Courts will now grant so-called “worldwide” Mareva injunctions to restrain rogues who are properly subject to the jurisdiction of the Court from transferring or dealing with their “assets ex juris” (assets which are physically located outside of the Court’s jurisdiction) where such an Order is shown to be necessary to prevent the rogue from frustrating an existing or possible future Order of the Court.

The general test for obtaining a Mareva injunction is still that which was set out in the Aetna Financial Services Ltd. v. Feigelman case which was a decision of the Supreme Court of Canada rendered in 1985. The guidelines which are considered by the Court on a Mareva injunction motion are as follows:

  1. The victim must make full and frank disclosure of all matters in his or her knowledge which are material for the Judge to know in relation to the fraud;
  2. The victim must give full particulars of his or her claim against the rogue, stating the ground of the claim and the amount thereof, and fairly stating the points which would be made against the claim by the rogue;
  3. The victim must give some grounds for believing that the rogue has assets here;
  4. The victim must give some grounds for believing that there is a risk of the targeted assets being removed or dissipated before the judgment or award is satisfied or that a Mareva injunction is necessary to prevent a fraud on the Court or the adversary; and
  5. The victim must give an undertaking as to damages, that is, the victim must undertake to be responsible for any damages which the rogue may incur as a result of the Mareva injunction in the event that it is subsequently determined by a Court that the Mareva injunction ought not to have been granted.

Where, for example, a fraudulent investment scheme is perpetrated outside of the Canadian Court’s jurisdiction or where the scheme is one which leaves open to question the location of the monies invested, Canadian Courts have held that a worldwide Mareva injunction is appropriate. A worldwide Mareva Order has the effect of freezing the rogue’s assets wherever they may be situate. Once a worldwide Mareva Order is obtained from, for example, an Ontario Court, it is necessary to move before the Court in the foreign jurisdiction in order to enforce the Order there. The procedure for doing so will, of course, differ from jurisdiction to jurisdiction and it will often be necessary to consult local counsel in that regard. Once the foreign Court orders that the Mareva Order may be enforced there, the Order may be served on financial institutions and others with control over the rogue’s assets in order to freeze them pending the outcome of the Ontario recovery proceedings.

Canadian Courts have held in certain circumstances that an Order that the rogue provide to the victim a sworn affidavit containing the particulars of all of the rogue’s assets should be granted as a necessary adjunct to the Mareva Order. Obtaining such a “disclosure Order” then allows a victim of fraud to take further appropriate steps to freeze the rogue’s assets. Such an affidavit also enables the victim to avoid freezing assets which have a greater value than his or her claim. A Mareva Order should also include an Order requiring any financial institutions served with a copy of the Order to produce to the victim information and documentation regarding the rogue’s accounts with the institution. Such an Order will assist a victim in tracing the stolen funds, often to foreign destinations. Another important adjunct to the Mareva Order, in cases where there is a pending police investigation into the fraudulent activities of the rogue, is an Order for production of any documentation in the possession of the police. This will allow a victim to potentially access sources of information regarding the whereabouts of his or her assets which might not otherwise be available to him or her.

It is of absolutely the utmost importance for a victim to obtain a Mareva Order at the earliest possible opportunity in the context of a victim’s recovery efforts in order for such an Order to be truly effective in preventing the dissipation of a rogue’s assets. Initially, such an Order can be obtained without notice to a rogue, in which case, it remains in force for a maximum period of 10 days, unless a further Order of the Court is obtained. A victim must then move before the Court, on notice to the rogue, to obtain an Order extending the Mareva injunction until the trial or other final disposition of the proceedings.

As fraudulent schemes increasingly involve international dealings, and as the ease with which assets may be transferred abroad increases, the worldwide Mareva Order becomes an increasingly invaluable tool which may be used to assist Canadian victims of international fraud. Whenever a victim suspects that his or her assets have been removed from the jurisdiction, the victim should immediately seek legal advice from a lawyer experienced in dealing with cases involving international fraud in order to ascertain whether the facts of the situation support the granting of a worldwide Mareva Order.

Submitted, December 2001 (Article previously published in Canadian International Lawyer: Revue du droit international)