Granting a Mareva injunction in a CCAA proceeding?

Original Traders Energy Ltd., (Re), 2024 ONSC 325
What is the test for a Mareva injunction in a CCAA proceeding?

Overview: In this case, the Court considered a request for a Mareva injunction against one of the three limited partners of the debtor group and two individual shareholders who were alleged to have misappropriated corporate funds for their own personal use. The Court granted the order against two of the three respondents, but refused to grant the order against one of the individual shareholders, finding that the Monitor had not established a strong prima facie case that the funds she received were not legitimate payments for services rendered.

KPMG Inc., in its capacity as the court-appointed Monitor of the Applicants, the OTE Group, sought an interim or interlocutory Mareva Injunction Order against the Mareva Respondents. The OTE Group functions as a wholesale fuel supplier which services mainly First Nations’ petroleum stations and First Nation communities across Ontario. The OTE Group has a partnership structure in which the Mareva Respondents hold a direct or indirect 33% interest. In particular, the corporate Mareva Respondent, 265, is one of three limited partners of the OTE Group. The two individual Mareva Respondents, Page and Cox, are the only shareholders of 265. 

The Monitor’s request was supported by the Applicants. The Monitor presented this motion as a logical extension of an earlier Mareva order that was granted on March 21, 2023 at the request of the Applicants (supported by the Monitor at that time), based on a finding of a strong prima facie case that the Respondents had misappropriated funds from the OTE Group to purchase a yacht and fraudulently prepared and executed documents to do so (the “Yacht Mareva Order”). The Yacht Mareva Order restrained the Respondents from directly or indirectly selling, transferring, encumbering or dealing with a 70-foot yacht.

The request for a broader Mareva Injunction Order was based on further confirmation of concerns previously identified by the Monitor about the alleged fraudulent activities of the Mareva Respondents and their dealings with the assets of the Applicants, including payments made for personal expenditures. The Mareva Respondents opposed this broader Mareva Injunction Order, arguing that the Monitor’s delay and alleged lack of any new evidence since the Yacht Mareva Order was granted suggested that there was not any real risk of dissipation or removal of assets, particularly in light of their willingness to allow more than $13 million in estimated or known net sale proceeds to be frozen pending further court order.

The Court has jurisdiction to grant an interlocutory injunction, including a Mareva injunction, pursuant to section 101 of the Courts of Justice Act, where it appears just or convenient to do so. The factors to be considered in determining whether to grant Mareva relief include whether the moving party has established, among other things, the following:

1. a strong prima facie case;

2. some grounds for believing that there is a serious risk of defendant's assets being removed from the jurisdiction or dissipated or disposed of before the judgment or award is satisfied;

3. proof of irreparable harm if the injunctive relief is not granted;

4. the balance of convenience favours the granting of the relief; and

5. an undertaking as to damages.

The test as to whether a strong prima facie case exists has been expressed by the courts as the question of whether the plaintiff would succeed "if the court had to decide the matter on the merits on the basis of the material before it". A strong case that a defendant has committed fraud against the plaintiff can be important evidence in support of the relief sought. 

Whether there was a strong prima facie case required a separate analysis for each of the Mareva Respondents. The Monitor’s concerns about the conduct of Page (and 265, the company through which he carried out various activities) were substantiated. The evidence disclosed that Page had received distributions far in excess of the other partners. Even if the other partners knew and signed off on some of this because of the informal way they conducted the business and affairs of the OTE Group, it was unlikely that they would have agreed to Page receiving three times as much as them in distributions. Furthermore, the OTE Group’s financial statements for the year ended December 31, 2021 were a complete fabrication. It was entirely implausible that Page was not involved in, or at least aware of, this fraud. Accordingly, the onus for establishing a strong prima facie case in respect of the claims for misrepresentation, fraud, breach of fiduciary duty and unjust enrichment against Page (and 265, where implicated as the beneficiary) was met, in that the Monitor satisfied the Court that it was “almost certain to win” on these claims based on the evidence presented, even though the full extent of the damages was not yet known.

The Monitor’s claims against Cox were for fraud, knowing assistance and knowing receipt. To obtain a Mareva, the Monitor had the burden of establishing a strong prima facie case against her on at least one cause of action. The Monitor was required to establish that Cox had actual knowledge or was reckless or willfully blind to the wrongful conduct to make out a case for knowing assistance. Mere suspicion was not enough. It was not sufficient to simply lump Cox in with Page because she was married to him. Nor was it sufficient to implicate her simply because she was a director and minority shareholder of 265, the company that Page controlled and sometimes carried out impugned transactions through, absent some demonstration of independent tortious conduct on her part.

There was no evidence that Cox had actual knowledge of the activities that Page was engaged in, which formed the basis of the claims against him. The specific transactions that Cox was alleged to have been directly involved in, such as payments to her directly, were explained as salary or other compensation for services she was retained to provide to the OTE Group. The Monitor did not establish a strong prima facie case that these funds were not legitimate payments for services rendered. The Court held that the Monitor could return to court if something was discovered that would warrant a Mareva injunction against Cox. However, Cox was ordered to deliver a statement of her worldwide assets and the Court affirmed that she remained obligated to co-operate with the Monitor if the latter sought information or documents from her.

The Monitor asked the Court to infer from the conduct of the Mareva Respondents that there was a real risk of dissipation of assets. Such an inference may be made when a strong prima facie case of fraud is established. However, this inference is permissive, not mandatory or inevitable. In this case, the seriousness of the strong prima facie case of fraud and misappropriation against Page and 265 gave rise to a legitimate apprehension of immediate risk of dissipation of assets by them that offset any delay. The Court noted that, while the same risk may exist for Cox, her circumstances were one-step removed from the alleged fraud and breaches by Page and, therefore, there was not a strong inference that could be drawn against her.

The requested Mareva Injunction was granted as against Page and 265. The only order made against Cox was for her to provide a statement of her worldwide assets, on account of the acknowledged benefits that she enjoyed from the misconduct of Page (whether knowingly or otherwise), the extent of her jointly owned assets with the other Mareva Respondents and the concession made by her that if an order were not made against her but was made against the others, she would agree that assets she jointly owns with the others can remain subject to the Mareva Injunction Order if made.

Judge: Justice Kimmel

Counsel: Martin Henderson of Aird & Berlis for the OTE Group; Richard Swan, Raj Sahni and Shaan Tolani of Bennett Jones for KPMG as Monitor; Monique Jilesen, Bonnie Greenaway and Jonathan Chen of Lenczner Slaght for Glenn Page and 2658658 Ontario Inc.; Jessica Orkin and Natai Shelsen of Goldblatt Partners for Mandy Cox; Massimo Starnino of Paliare Roland for OTE USA LLC; Edward Park for CRA; Laura Brazil and Steven Groeneveld for the Ontario Minister of Finance