The decision in SFC Litigation Trust (Trustee of) v. Chan, 2017 ONSC 1815 represents a step toward a more flexible approach when our courts are asked to consider whether a Mareva injunction should be granted. In this case, the appellant, Mr. Chan, the former Chief Executive Officer of Sino-Forest Corporation (“SFC”), appealed an order confirming a Worldwide Mareva injunction that had been granted against him, ex parte.

SFC was a Canadian corporation and had an office in Ontario, a head office in Hong Kong, and assets predominately located in China. It carried out a sale process through the Companies’ Creditors Arrangement Act, R.S.C. 1985 c. C-36 (the “CCAA”), which ultimately failed.  SFC then applied under the CCAA for an order approving a plan of compromise and reorganization, which was subsequently sanctioned.  A Litigation Trust was assigned the litigation rights of SFC.

The respondent, the Litigation Trustee, later brought an action against Mr. Chan alleging that he perpetuated a significant fraud on SFC, its creditors and investors. The Litigation Trustee brought an ex parte motion for a worldwide injunction against Mr. Chan.

In confirming the injunction, the motions judge found the legal test for the injunction did not require the appellant to have assets in the jurisdiction. The appellant was granted leave to appeal on several issues including whether the motions judge erred in law in holding an Ontario court could grant a Mareva injunction when the appellant had no assets in the jurisdiction.

Result

The appellant relied on the 1982 Court of Appeal decision in Chitel v. Rothbart  (1982) 39 O.R. (2d) 513 (ONCA) for the argument that there must be assets in the jurisdictions for a Mareva injunction to be granted, but the Court of Appeal noted that the Chitel decision is only a set guidelines, and a Mareva injunction was an equitable remedy that evolved as the facts and circumstances merited. The Court’s in personam jurisdiction over the appellant, justifying the issuance of a Mareva injunction, was not dependent, related or tied to a requirement that the appellant had assets in the jurisdiction. As a result, the appeal was dismissed.

The Court of Appeal noted that the risk of the removal of assets outside of Canada was, in the ordinary course, more likely to lead to the granting of a Mareva injunction because it was generally more difficult to enforce judgments outside the jurisdiction.  However, worldwide Mareva injunctions are now granted with increasing frequency due to the global economy.  The record before the motions judge included an affidavit from the Litigation Trustee that, based on information obtained from Hong Kong lawyers, granting a Mareva injunction would be an important step to obtaining a similar freezing order there. It was also found to be relevant that the appellant had worked in Ontario, had been sued in this jurisdiction, retained counsel and attorned to Ontario’s jurisdiction.

Take Aways

This decision is a significant development regarding the law of Mareva injunctions.  In addition to the finding that the party at issue need not have assets within Canada for a risk of dissipation to arise, this decision suggests that our courts will not necessarily be constrained going forward by a rigid application of the “guidelines” set out in Chitel.  The guidelines set out in Chitel include:

1. The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.
2. The plaintiff should give particulars of his claim against the defendant, stating the ground of his claim and the amount, thereof, and fairly stating the points made against it by the defendant.
3. The plaintiff should give some ground for believing that the defendants have assets in the jurisdictions.
4. The plaintiff should give some grounds for believing that there is risk of the assets being removed before the judgment or award is satisfied.
5. The plaintiff must give an undertaking as to damages.

This decision represents a further step toward a more flexible approach where our courts are asked to consider whether a Mareva injunction should be granted.