Mareva Injunctions and Freezing Orders in Estate Litigation

Mareva Injunctions and Freezing Orders in Estate Litigation

A Mareva injunction is a court order that freezes a defendant’s assets, preventing their disposal or transfer outside the court’s jurisdiction while legal proceedings are underway. Similarly, preservation orders can be used to secure and maintain specific property that is the subject of a claim. Because a Mareva injunction grants enforcement rights to the plaintiff before the court has ruled on the case, it is considered an extraordinary remedy that places the defendant at a disadvantage from the outset.

These orders are typically obtained ex parte—without prior notice to the defendant—to prevent them from moving or concealing assets before the court issues its ruling. Once served with the order, the defendant may apply to have it set aside.

The Test for a Mareva Injunction

To obtain a Mareva injunction, the applicant must satisfy three key elements:

1. A strong prima facie case
2. Proof that the defendant has assets within the jurisdiction
3. Evidence of a serious risk that the defendant will remove or dissipate assets before judgment, with the intent of avoiding enforcement

Interlocutory Injunction Requirements

In addition to the Mareva-specific test, the applicant must also meet the standard requirements for interlocutory injunctions established in RJR-MacDonald Inc. v. Canada (Attorney General), [1995] 3 SCR 199:

1. A serious issue to be tried
2. Proof that the applicant will suffer irreparable harm if the injunction is not granted
3. A balance of convenience analysis, which weighs whether granting the injunction would cause less harm to the defendant than denying it would cause to the applicant

Ex Parte Applications and the Duty of Full Disclosure

The duty of full disclosure is critical in ex parte applications. In Chitel et al. v. Rothbart et al., 1982 CanLII 1956 (ON CA), the Court outlined five common law prerequisites—derived from UK case law—for granting Mareva and other ex parte injunctions:

1. The plaintiff must provide full and frank disclosure of all material matters within their knowledge that are relevant to the judge’s decision.
2. The plaintiff must set out particulars of their claim, including the grounds and amount sought, while fairly presenting any known counterarguments.
3. The plaintiff must provide evidence that the defendant has assets within the jurisdiction.
4. The plaintiff must establish a real risk that assets may be removed or dissipated before judgment.
5. The plaintiff must provide an undertaking as to damages.

The term “material fact” includes all information that may influence the judge’s decision, including details about the merits of the main claim and any documents in the applicant’s possession that may favor the defendant. A failure to disclose such documents may result in an adverse inference against the applicant.

The disclosure requirement is also codified in Rule 39.01(6) of the Rules of Civil Procedure, which underscores the heightened obligation to provide a full and fair account of the facts in ex parte motions. Since ex parte applications do not allow for adversarial argument, courts impose stringent requirements to ensure fairness.

Consequences of Failing to Disclose Material Facts

Under Rule 39.01(6), a failure to make full and frank disclosure may result in a Mareva injunction being set aside or denied outright. Case law demonstrates that orders are frequently reversed if the applicant fails to provide a fair account of all relevant information.

In rare cases, where the evidence in support of the injunction is overwhelmingly strong, the court may decline to set aside a Mareva injunction despite minor deficiencies in disclosure (Chitel).

A defendant may also bring a motion to set aside the injunction, forcing the plaintiff to defend the order without introducing new evidence, unless rebutting new evidence presented by the defendant. Defendants can also challenge the injunction on jurisdictional grounds. If a Mareva injunction is dismissed due to non-disclosure or other reasons, courts often order each party to bear its own costs. This is because a Mareva injunction is considered extraordinary relief, akin to execution before judgment.

Varying a Mareva Injunction

Respondents may seek modifications to a Mareva injunction, particularly to access funds for legal fees or living expenses. Ontario courts assess such requests based on the factors outlined in Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business & Technology, 2003 CanLII 12916 (ON SC):

1. Has the defendant demonstrated that they have no assets other than those frozen by the injunction?
2. If so, has the defendant shown that some of the frozen assets are from a source other than the plaintiff and therefore not subject to a proprietary claim?
3. Has the defendant exhausted all non-proprietary assets before seeking access to funds subject to the injunction?
4. If the above conditions are met, the court must then evaluate the balance of convenience to determine whether varying the order is justified.

Professional and Ethical Considerations for Lawyers

Lawyers handling clients subject to a Mareva injunction must exercise caution, as improperly releasing client funds from a frozen account may result in civil contempt charges. Courts have found that a lawyer’s lack of bad faith or conflicting fiduciary duties does not provide a valid defense (Chitel).

Moreover, such actions constitute professional misconduct. The Law Society first addressed this issue in Law Society of Upper Canada v. Carey, 2017 ONLSTH 25. At that time, no sanction was imposed due to the uncertain state of the law. However, with the legal framework now well-established, lawyers who violate a Mareva order can expect professional discipline.

In the realm of estate litigation, Mareva injunctions serve as a powerful tool to preserve assets when there are concerns about dissipation or mismanagement. This article explores key Ontario cases that illuminate the application of Mareva injunctions in an estates context, providing valuable insights for legal practitioners and trustees alike.

1. Waters Estate v. Henry, 2022 ONSC 5485

This recent case offers a comprehensive overview of Mareva injunctions in estate disputes. The court continued a Mareva injunction against the defendant, reaffirming the test for such orders:

• A strong prima facie case
• Evidence of assets in the jurisdiction
• Serious risk of asset removal or dissipation before judgment
• Irreparable harm to the plaintiff if not granted
• Balance of convenience favoring the injunction

The court found that the plaintiff had established a strong case on several causes of action, and there was clear evidence of attempted asset dissipation by the defendant.

2. Estate of Paul Penna, 2010 ONSC 6993

This case demonstrates the serious consequences of violating a Mareva injunction in an estate matter. The court held contempt proceedings against an estate trustee (Landen) for multiple violations of a Mareva order, including:

• Failing to disclose assets
• Improperly removing cash and securities from frozen accounts
• Disposing of and diminishing the value of frozen assets

This decision underscores the court’s power to freeze an estate trustee’s assets when there are allegations of fraud or mismanagement of estate assets.

3. Pretty v. Clute, 2011 ONSC 262

While not exclusively an estates case, this decision provides important distinctions relevant to estate litigation. The court differentiated between:

• Regular Mareva injunctions to preserve assets for potential judgment
• Injunctions to preserve specific property claimed in the proceeding

This distinction is particularly relevant in estate disputes where there may be claims to specific estate assets.

Key Principles and Takeaways

Mareva injunctions are available in estate litigation but are considered an extraordinary remedy. The test for Mareva injunctions in estate matters follows the general test, requiring a strong prima facie case and risk of asset dissipation.

Courts distinguish between freezing orders for general judgment satisfaction and orders to preserve specific claimed property. Estate trustees who violate Mareva orders may face severe consequences, including contempt proceedings.

The threshold for obtaining a Mareva injunction is high, reflecting its status as an exceptional remedy.

Conclusion

Mareva injunctions serve as a crucial tool in Ontario estate litigation, offering a means to preserve assets when there are serious concerns about dissipation or mismanagement.

However, their application requires careful consideration and strong evidentiary support. Legal practitioners involved in estate disputes should be well-versed in the principles governing Mareva injunctions to effectively utilize or defend against this powerful legal mechanism.

Bobila Walker Law provides experienced legal representation in obtaining and defending against Mareva injunctions, a powerful legal remedy used to freeze assets to prevent dissipation before judgment. The firm’s skilled litigators navigate the complex legal requirements surrounding ex parte relief, interlocutory injunctions, and full and frank disclosure, ensuring that clients meet the high evidentiary threshold necessary to secure or challenge a Mareva injunction.

With a strong focus on estate, business, and civil litigation, Bobila Walker Law has successfully acted for clients in cases involving fraud, asset concealment, and high-stakes commercial disputes, where urgent injunctive relief is required. The firm’s deep understanding of equitable principles, jurisdictional challenges, and disclosure obligations allows them to provide strategic counsel on both obtaining Mareva relief and resisting such orders when improperly granted.

Whether representing plaintiffs seeking to protect assets from dissipation or defendants challenging improperly obtained Mareva orders, Bobila Walker Law delivers strategic, results-driven advocacy tailored to complex financial and litigation matters. Call us at 416-847-1859.