Court Confirms Inference of Dissipation in Mareva Motions Based on Fraud

Gilbertson Davis LLPCommercial Litigation, Fraud, Injunction & Specific Performance0 Comments

In the recent case of Electromart (Ontario) Inc. v Fabianiak et al.the Ontario Superior Court considered the level of evidence required to prove that there is a real risk of the dissipation of assets, one of the elements necessary to obtain a Mareva injunction freezing a defendant’s assets.

Normally, a court will not freeze a defendant’s assets just because the plaintiff is concerned that they will not be able to recover any money on their judgment at the end of litigation. However, where the court is convinced that the defendant is improperly dissipating his or her assets to make recovery more difficult or impossible, the court will freeze a defendant’s assets to prevent that from happening.

In addition to proving a strong prima facie case, a moving plaintiff must also show why the freeze is necessary – that is, some reason to believe that assets will be dissipated if the order is not granted. The question that arises is what level of evidence is necessary to be satisfied that the risk is sufficiently real. In Sibley & Associates LP v. Ross, the Court candidly stated that “[i]t is not necessary to show that the defendant has bought an air ticket to Switzerland, has sold his house and has cleared out his bank accounts.” The court noted however, that while a real risk of dissipation must be established in all cases, in cases where fraud is asserted, that risk of dissipation can be established by inference, based on the defendant’s fraudulent conduct.

This distinction was squarely before the court in Electromart. The court had found a strong prima facie case of fraud, but was tasked with determining whether there was a risk of assets being dissipated. The court stated:

I find that in this case there is no direct evidence of such a risk at this time. However, I do infer, given the evidence at this time, that the defendants have conducted themselves in such a manner over the last three years  that has a primary focus of deception and diversion. On the untested evidence to date, I infer that there is a real risk that they will continue to conduct themselves in a manner that would place any of the assets they have out of the reach of the plaintiff.

In essence, the court was satisfied that the defendants’ fraudulent conduct focused on “deception and diversion”, and that this was sufficient evidence to infer that the deception would continue and extend to dissipating assets, even without any direct evidence that this would happen.

While the court in Sibley was careful to note that there was no “exception” to having to prove a real risk of dissipation in cases of fraud, it is arguable that every instance where a strong prima facie case of fraud is found will necessarily include aspects of “deception and diversion”, making an inferred risk of dissipation almost certian in any well-founded fraud case.

If you are involved in fraud litigation, or if you wish to obtain or wish to set aside a Mareva injunctioncontact us for an initial consultation.

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