What criteria must be met for a Canadian court to recognize a foreign freezing order?
The Debtors sold their shareholder interest in Pacer, an oilfield construction company. Pacer subsequently brought a claim against them for the return of a substantial portion of the monies paid. An arbitration panel ultimately found in Pacer’s favour, but the Debtors had virtually no assets available for execution.
Pacer subsequently petitioned a Cayman Islands court to adjudge the individual Debtor a bankrupt and applied to the Alberta Court of Queen’s bench to have the corporate Debtor declared bankrupt. The Trustees obtained a Freezing Order in the Cayman Court, prohibiting the Debtor’s wife from dissipating assets in the Cayman Islands and elsewhere up to a value of $20,000,000 (CDN). They then applied to have the Freezing Order recognized pursuant to s. 272 of the Bankruptcy and Insolvency Act.
The Debtor and his wife argued that the power granted under subsection 272(d)(ii) of the BIA does not go so far as to allow the Court to simply recognize a foreign non-monetary order. To do so would allow the Cayman Court to “dictate and control the Canadian enforcement of a non-monetary order against Canadian citizens and their Canadian assets.” They suggested that if the Trustees wish to seek an injunction against the wife to freeze her Canadian assets, they should do so by initiating bankruptcy proceedings in Canada, and then make an application under the fraudulent preference avoidance provisions of the BIA.
Justice Neufeld explained that courts should be mindful of the following three considerations in determining whether to recognize a foreign order:
- the order sought must be directed at fulfilling one or more of the objectives of the BIA;
- where the order sought to be enforced is equitable and injunctive in nature, it must not impose unforeseen obligations in a form unknown to Canadian courts; and
- where the Order sought to be recognized is injunctive in nature, the Court should be satisfied that Canadian requirements for injunctive relief as set out in RJR-MacDonald have been met.
Next, the Court considered whether the Cayman Freezing Order comported with the common law requirements for enforcing foreign non-monetary judgments. In Pro Swing, the Supreme Court of Canada articulated the considerations to be applied:
- Are the terms of the foreign order clear and specific?
- Is the foreign order appropriately limited in scope?
- Is enforcement of the foreign order the least burdensome remedy in Canada?
- Would enforcement of the foreign order expose the Respondent to unforeseen obligations?
- Would third parties be affected?
- Is enforcement consistent with remedies available in domestic Canadian Courts?
Finally, for recognition to be consistent with Canadian remedies, the RJR-MacDonald tripartite tests must be met:
- Has the Applicant established a strong prima facie case?
- Does the balance of convenience favour granting an injunction?
- Will the Applicant suffer irreparable harm if the order is not granted?
Counsel: Kevin Barr and Bradon Willms of Borden Ladner Gervais LLP for the Applicants; Terry Czechowskyj and Curtis Wolff of Miles Davison LLP for the Respondents.
Judge: R.A. Neufeld, J.