Citation: Carter & Co. v. Gallant Date: PESCTD 11 Docket: GSC Registry: Charlottetown

Transcription

1 Citation: Carter & Co. v. Gallant Date: PESCTD 11 Docket: GSC Registry: Charlottetown PROVINCE OF PRINCE EDWARD ISLAND IN THE SUPREME COURT - TRIAL DIVISION BETWEEN: CARTER & COMPANY LIMITED APPLICANT AND: SHAWNA BAKER-GALLANT AND: RESPONDENT CHRISTOPHER L. GALLANT RESPONDENT Before: The Honourable Mr. Justice J. Armand DesRoches Lisa L. Goulden Solicitor on behalf of the Applicant William F. Dow Solicitor on behalf of the Respondent, Shawna Baker-Gallant Geoffrey D. Connolly Solicitor on behalf of Respondent, Christopher L. Gallant Place and Date of Hearing Place and Date of Decision Charlottetown, Prince Edward Island December 15, 2000 Charlottetown, Prince Edward Island January 31, 2001

2 GSC BETWEEN: CARTER & COMPANY LIMITED APPLICANT AND: AND: SHAWNA BAKER-GALLANT CHRISTOPHER L. GALLANT RESPONDENT RESPONDENT Prince Edward Island Supreme Court - Trial Division Before: DesRoches J. (In Chambers) Date Heard: December 15, 2000 Date of Decision: January 31, 2001 [16 Pages] INJUNCTIONS - General principles - Mareva injunction. The applicant brought an application for the continuation of an interim injunction restraining the respondent from disposing of real estate she owned jointly. The respondent had been employed by the applicant which had commenced an action against her alleging she had misappropriated and converted to her own use more than $103,000. HELD. The application was granted. The Court held a Mareva injunction was an appropriate remedy, the applicant having satisfied the five criteria usually applied to the granting of such relief. Cases Considered: Mareva Compania Naviera S.A. v. Int. Bulkcarriers S.A., [1980] 1 All E.R. 213 (U.K.C.A.); Mills and Mills v. Petrovic et al. (1980), 30 O.R. (2d) 238 (H.C.J.); Chitel et al. v. Rothbart et al. (1983), 39 O.R. (2d) 513, 141 D.L.R. (3d) 268 (C.A.); Lister & Co. v. Stubbs (1890), 45 Ch. D. 1; OSF Industries Ltd. v. Marc Jay Investments Inc. (1978), 20 O.R.

3 - ii - (2d) 566, 88 D.L.R. (3d) 446 (H.C.J.); Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 1 (S.C.C.); Nippon Yusen Kaisha v. Karageorgis et al., [1975] 3 All E.R. 282 (U.K.C.A.); Rasu Maritima S.A. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara et al., [1977] 3 All E.R. 324 (U.K.C.A.); Third Chandris Shipping Corp. et al. v. Unimarine S.A., [1979] 2 All E.R. 972 (U.K.C.A.); Prince Abdul Rahman Bin Turki Al Sudairy v. Abu-Taha et al. [1980] 3 All E.R. 409 (U.K.C.A.); R. v. Consolidated Fastfrate Transport Inc. (1995), 125 D.L.R. (4th) 1(Ont.C.A.); Gateway Village Investments Ltd. v. Sybra Food Services Ltd. (1987), 20 C.P.C. (2d) 149, 12 B.C.L.R. (2d) 234 (B.C.S.C.). Lisa L. Goulden, solicitor for the applicant William F. Dow, solicitor on behalf of the Respondent, Shawna Baker-Gallant Geoffrey D. Connolly, solicitor on behalf of Respondent Christopher L. Gallant

4 DesRoches J.: [1] The applicant seeks an order making permanent an interim injunction granted by the court on October 10, 2000 preserving all the real property of the respondent and her husband located in Greenwich, Prince Edward Island and known municipally as Property No The respondent has not responded to the application but her husband, Christopher L. Gallant, opposes the application and also claims that he and the respondent only hold the land in trust for his father and have no beneficial interest in it. Background [2] The applicant is a former employer of the respondent. By an amended statement of claim filed on July 5, 2000 the applicant seeks general damages and restitution in the amount of $103, from the respondent alleging she fraudulently and/or negligently misappropriated and converted to her own use those funds while she was an employee. The respondent has denied the claim. [3] By deed dated April 14, 1999 John Hubert Gallant, the respondent s father-in-law transferred to the respondent and her husband a parcel of land in Greenwich, Kings County consisting of approximately 48 acres. The respondent and her husband constructed a house on a one acre lot of the parcel however that house and lot have now been sold with the consent of the applicant. The respondent and her husband still are the registered owners of the remaining 47 acres, but claim they have no beneficial interest in the land. [4] The respondent commenced her employment with the applicant on July 17, 1995 as an accounting clerk. As of July, 1997, she was in complete control of all aspects of the applicant s accounting functions with full signing authority. Her full-time employment with the applicant ceased on June 18, 1999 but she continued to provide accounting services on a contractual basis. [5] In the course of a sale of most of the applicant s assets, an audit was conducted by a well-known accounting firm. The audit allegedly revealed evidence to suggest that during the course of her employment and subsequent contractual dealings with the applicant the respondent had misappropriated and/or made unauthorized payments from the applicant in the total amount of $103, The respondent is facing criminal charges as a result of this audit. Claim for Injunction

5 Page: 2 [6] The first issue to be decided is whether the applicant is entitled to an interlocutory injunction in respect of the remaining 47 acres of property. [7] The remedy sought is in the nature of a Mareva injunction which is a pre-judgment remedy intended to freeze assets until judgment is obtained and a writ of execution issued. It is named after the case Mareva Compania Naviera S.A. v. Int. Bulkcarriers S.A., [1980] 1 All E.R. 213 (U.K.C.A.). [8] The applicant relies upon two decisions on the issue of the Mareva injunction; Mills and Mills v. Petrovic et al. (1980), 30 O.R. (2d) 238 (Ont. H.C.J.), and Chitel et al. v. Rothbart et al. (1983), 39 O.R. (2d) 513, 141 D.L.R. (3d) 268 (Ont. C.A.). [9] In Mills the plaintiffs brought an application for an interlocutory injunction restraining the defendants from disposing of a house which the defendants owned jointly. One of the defendants had been employed by the plaintiffs as an accountant and it was alleged this defendant had stolen $100,000 from them. This defendant was facing criminal charges as a result of this allegation. The facts in Mills are remarkably similar to those in the case at bar. [10] In a very brief oral decision Galligan J. (as he then was) granted the application. He stated, in part, at paragraphs 2, 3 and 4: 2 The claim made by the plaintiffs is that while the female defendant was employed by them as an accountant she stole in excess of $100,000 from them. In view of the order that I propose to make, which may be a somewhat novel one, I want to make it clear that the evidence presented to this Court, and it is unchallenged by any contrary evidence, is indeed very strong that the plaintiffs allegations are true. I say that because I do not think that I would make the order that I propose to make upon bare assertions of theft, conversion or fraud. 3 It is the plaintiff s [sic] contention that if they do not obtain an injunction restraining disposition of the defendants house, success at trial would be academic because there would be nothing against which it could be executed. 4 There is no doubt that the law is clear that an interim or interlocutory injunction will not be granted to restrain a defendant from parting with or encumbering his property before a creditor has established his right by judgment. Basically, the Courts will not grant execution before judgment. Counsel have advised me that in the many cases which state that principle, they can find none where the principle was applied in

6 Page: 3 a case in which the claim against the defendant was for theft or fraud. It is my opinion that equity demands that there be an exception to that principle where there is substantial evidence supporting an allegation that the defendant has defrauded or stolen from the plaintiff. This case does not directly fall within the factual situations which were before Steele J. when he decided City of Toronto v. McIntosh (1977), 16 O.R. (2d) 257 (H.C.) and Robert Reiser & Co. v. Nadore Food Processing Equipment Ltd. (1977), 17 O.R. (2d) 717, 25 C.B.R. (N.S.) 162, 81 D.L.R. (3d) 278 (H.C.). However, it does not appear to me to be an unreasonable extension of the principle upon which he acted in those cases to permit equity to give a person who has been defrauded or stolen from by a defendant, some measure of relief that would not be available to a plaintiff in an ordinary action where fraud or theft are not issues. [11] Having said the above, Galligan J. opined that...equity cries out for the relief sought by the plaintiffs..., and he granted the order. [12] Some two years after Mills the Ontario Court of Appeal had an opportunity to comment on the Mareva injunction in Chitel et al. v. Rothbart et al. which was an action for damages and other relief arising out of the alleged conversion of certain securities. [13] The plaintiffs obtained an ex parte Mareva injunction which was continued twice. On application by the plaintiffs to restrain the defendant until trial from disposing of any real or personal property owned by them, Anderson J. at the trial level concluded that due to the divergence in the cases concerning the principles upon which the discretion to order a Mareva injunction should be exercised, the matter should be referred to the Court of Appeal which had yet to speak on such injunctions (see (1982), 36 O.R. (2d) 124). [14] The Ontario Court of Appeal dismissed the plaintiffs application but on the grounds of the failure of the plaintiffs to make full disclosure resulting in an incomplete and misleading picture of the relationship between the parties. The Court went on in obiter to comment on the Mareva injunction. MacKinnon A.C.J.O., who delivered the judgment of the Court, noted the general rule stated in Lister & Co. v. Stubbs (1890), 45 Ch. D. 1, that the Court has no jurisdiction to protect a creditor before he gets judgment but observed there are exceptions to this general rule which recognize that in Ontario Mareva injunctions may be granted if the following criteria are met: (1) The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.

7 Page: 4 (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 grounds for believing that the defendants have assets here. (4) The plaintiff should give some grounds for believing that there is risk of the assets being removed before the judgment or award it satisfied. (5) The plaintiff must give an undertaking as to damages. [15] Commenting upon these criteria, MacKinnon A.C.J.O. wrote at pp : As I mentioned earlier, items (i), (ii) and (v) of Lord Denning s guidelines are standard considerations for the courts of this province when considering the usual application for an interlocutory injunction. However, when an application for a Mareva injunction is before the court, the material under items (i) and (ii) of the guidelines must be such, as I have already said, as persuades the court that the plaintiff has a strong prima facie case on the merits. Guidelines (iii) and (iv) cover areas that are unique to the Mareva injunction. The material under item (iii), which deals with the assets of the defendant within the jurisdiction, should establish those assets with as much precision as possible so that, if a Mareva injunction is warranted, it is directed towards specific assets or bank accounts. It would be unusual and in a sense punitive to tie up all the assets and income of a defendant who is a citizen and resident within the jurisdiction. Damages, covered by an undertaking as to damages, might be far from compensating for the ramifications and destructive effect of such an order. In the instant case, this was the order sought and initially secured without any attempted identification of assets to which the order would be directed. It may well be that a plaintiff may have no knowledge of any of the defendant s assets or their location, but that was not stated to be the case in the instant application. Turning finally to item (iv) of Lord Denning s guidelines the risk of removal of these assets before judgment once again the material must be persuasive to the court. The applicant must persuade the court by his material that the defendant is removing or there is a real risk that he is about to remove his assets from the jurisdiction to avoid the possibility of a judgment, or that the defendant is otherwise dissipating or disposing of

8 Page: 5 his assets, in a manner clearly distinct from his usual or ordinary course of business or living, so as to render the possibility of future tracing of the assets remote, if not impossible in fact or in law. [16] It is interesting to note that in deciding to refer the matter to the Court of Appeal Anderson J. had expressed some doubt also to the correctness of the decision of Galligan J. in Mills. After quoting the substantive portion of the decision in Mills, Anderson J. stated at p. 128 (36 O.R. (2d)): The sole consideration by which Galligan J. was apparently led to depart from the law as Lerner J. stated it to be, and as Galligan J. acknowledged that it was, is that the cases in which the traditional criteria were established were not cases in which the plaintiff alleged fraud. I have not done the exhaustive research necessary to verify this I am prepared to accept that it is so. With great respect, I can see no reason in law or in equity why a plaintiff asserting such a cause of action should be entitled to relief by way of interlocutory injunction any more than a plaintiff having a cause of action for defamation, assault, trespass or any other cause. In each case, the end result will be a money judgment. I can see no reason why the plaintiff with a cause of action for fraud should be given assurance of recovery under such a judgment and not if the judgment stemmed from some other cause. The criteria developed over the years to guide judges in the exercise of the discretion to grant what must always be a drastic and extraordinary remedy are apparently disregarded. That these have not now become generally irrelevant is confirmed by the judgment of the Divisional Court in Stevenson v. Air Canada et al. (1982), 35 O.R. (2d) 68. See in this connection also Nelson Burns & Co. Ltd. et al. v. Gratham Industries Ltd. et al. (1982), 34 O.R. (2d) 558, 59 C.P.R. (2d) 113. [17] The reference to Lerner J. is to his decision in OSF Industries Ltd. v. Marc Jay Investments Inc. (1978), 20 O.R. (2d) 566, 88 D.L.R. (3d) 446 in which he, acknowledging that the Court had jurisdiction to grant injunctions, held it is not for the court to interfere quia timet and restrain the defendant from dealing with his property until the rights of the litigants are ascertained. There is no question that in Mills Galligan J. created an exception to the general rule that there can be no execution prior to judgment. [18] MacKinnon A.C.J.O. shared Anderson J. s concerns. At p. 534 of the judgment he observed: Mr. Justice Anderson in the instant case said, I can see no reason why the plaintiff with a cause of action for fraud should be given assurance of recovery under such a judgment and not if the judgment stemmed from some other cause [at p. 128 O.R.]. I agree with this view and I have

9 Page: 6 sought to point out the conditions that must be satisfied before a Mareva injunction can be granted. However, I do not have the pessimistic view taken by the Motions Court judge that all the former criteria for the granting of interlocutory injunctions are now to be disregarded. I do not believe that to be so. The Mareva injunction is here and here to stay and properly so, but it is not the rule it is the exception to the rule. [19] On the issue of the Mareva injunction the respondent has invited by attention to a number of decisions which deal with the British Columbia and Newfoundland equivalent to our Rule which authorizes the court to make an interim order for the custody or preservation of any property in question in a proceeding or relevant to an issue in a proceeding. In my view, however, these decisions, as well as Rule 45.01, have no application to the issue in the instant case since the real property against which the Mareva injunction is being sought is not the subject of the proceeding which seeks to recover an amount of money allegedly misappropriated by the respondent. [20] More on point, however, is Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 1 in which the Supreme Court of Canada specifically considered whether or not a Mareva injunction was available in the circumstances of that case. The facts of Aetna are quite different from those of the case at bar, however, in reaching the conclusion that the injunction should not have been granted and allowing the appeal, the Court made a number of helpful comments. [21] The judgment of the Court was delivered by Estey J. who, at pp.10-12, stated: A second and much higher hurdle facing the litigant seeking the exceptional order is the simple proposition that in our jurisprudence, execution cannot be obtained prior to judgment and judgment cannot be recovered before trial. Execution in this sense includes judicial orders impounding assets or otherwise restricting the rights of the defendant without a trial. This was enunciated by Cotton L.J. in Lister & Co. v. Stubbs, [ ] All E.R. 797, at p. 799, as follows: I know of no case where, because it is highly probable if the action were brought the plaintiff could establish that there was a debt due to him by the defendant, the defendant has been ordered to give a security till the debt has been established by the judgment or decree. [22] Estey J. observed that the abhorrence which the common law has felt

10 Page: 7 toward allowing execution before judgment is subject to some obvious exceptions; for the preservation of assets which are the very subject matter in dispute, where the processes of the court must be protected by initiatives taken by the court itself, to prevent fraud both on the court and on the adversary, and to prevent a real or impending threat to remove contested assets from the jurisdiction. [23] The learned justice then referred to a number of cases in England arising in the shipping business, including Mareva Companies Naviera S.A. v. Int. Bulkcarriers S.A., supra, and concluded at p. 25: The gist of the Mareva action is the right to freeze eligible assets when found within the jurisdiction, wherever the defendant may reside, providing, of course, there is a cause between the plaintiff and the defendant which is justiciable in the courts of England. However, unless there is a genuine risk of disappearance of assets, either inside or outside the jurisdiction, the injunction will not issue. This generally summarizes the position in this country, including the Nova Scotia Trial Division in Parmar Fisheries Ltd. v. Parceria Maritima Esperanca L. DA. (1982), 141 D.L.R. (3d) 498; see also Liberty National Bank & Trust Co. v. Atkin (1981), 31 O.R. (2d) 715, 121 D.L.R. (3d) 160, where Montgomery J. of the High Court of Ontario granted a Mareva injunction against a domestic defendant and restrained dealing with assets within the jurisdiction. These general rules are summarized by Lord Denning in Rahman (Prince Abdul) bin Turki al Sudairy v. Abu-Taha, [1980] 1 W.L.R. 1268, at p. 1273; see also A J Bekhor & Co. v. Bilton, [1981] 2 All E.R. 565, and Z Ltd. v. A-Z and AA-LL, [1982] 2 W.L.R The harshness of the Mareva injunction, issued usually exparte, is relieved against or justified in part by the Rules of Practice which allow the defendant, faced by risk of loss, an opportunity to move against the injunction immediately. On the other hand, the Court of Appeal of England seems to have blessed the practice of using this injunction as a means of coercing a vulnerable defendant into providing security in order to head off irreparable loss from the paralysis which follows the issuance of this type of injunction. [24] The learned justice continued at pp : The courts in Canada have given this type of injunction a mixed reception. The earlier decisions in the Ontario courts are reflected in Bradley Bros., supra, where the Court of Appeal continued the principle of Lister, supra. Lerner J., in the High Court of Ontario, in a post-mareva decision, maintained the same position: OSF Industries Ltd. v. Marc-Jay Investments Inc. supra, p By 1981 the High Court appeared to assume

11 Page: 8 that a quia timet jurisdiction was available on a more restricted basis than the Mareva formula provided in the United Kingdom. See Liberty National Bank & Trust Co. v. Atkin, supra; Canadian Pacific Airlines Ltd. v. Hind (1981), 122 D.L.R. (3d) 498, where Grange J., as he then was while raising the question of the existence of the Mareva principle in Ontario, found such dishonesty in the defendant s conduct that it was a certainty that he would dispose of all his assets in order to frustrate the plaintiff; and Quinn v. Marsta Cession Services Ltd. (1981), 34 O.R. (2d) 659, where such an injunction issued on the application of the rules of Third Chandris Shipping Corp., supra. The Court of Appeal of Ontario reviewed the conflicting authorities in Chitel v. Rothbart (1982), 39 O.R. (2d) 513, and although it refused the injunction in the circumstances of that case, it recognized in a detailed and comprehensive review of the authorities that the jurisdiction existed in the court to grant such a remedy in a proper case. The test there established (per MacKinnon A.C.J.O., at pp ) is somewhat narrower than that generally applied by the courts in the United Kingdom: The applicant must persuade the court by his material that the defendant is removing or there is a real risk that he is about to remove his assets from the jurisdiction to avoid the possibility of a judgment, or that the defendant is otherwise dissipating or disposing of his assets, in a manner clearly distinct from his usual or ordinary course of business or living, so as to render the possibility of future tracing of the assets remote, if not impossible in fact or in law. The condition precedent to entitlement to the order is the demonstration by the plaintiff of a strong prima facie case (p. 522) and not merely as stipulated in some of the U.K. authorities, a good arguable case, (per Lord Denning in Rasu, supra, and per Megarry V.C. in Barclay-Johnson v. Yuill, supra.) In summary, the Ontario Court of Appeal recognized Lister as the general rule, and Mareva as a limited exception to it, the exceptional injunction being available only where there is a real risk that the defendant will remove his assets from the jurisdiction or dissipate those assets to avoid the possibility of a judgment.... In other provinces the courts have reached approximately the same result. The New Brunswick Court of Appeal in Humphreys v. Buragalia (1982), 135 D.L.R. (3d) 535, placed the basis for this kind of injunction on the danger that the defendant will abscond or dispose of his assets so as to prevent realization on any ultimate judgment. The earlier view of the Manitoba Court of Queen s Bench was expressed by Hamilton J. in Hawes v. Szewezyk, supra, where he concluded that the Mareva rule was a dangerous innovation and even if technically within the jurisdiction of the court, was one that should not be exercised. The British Columbia

12 Page: 9 Court of Appeal, in Sekisui House Kabushiki Kaisha (Sekisui House Co.) v. Nagashima (1982), 42 B.C.L.R. 1, 33 C.P.C. 42, recognized the general principles developed around this interlocutory injunction in the courts of the United Kingdom. [25] The so-called Mareva line of cases is reviewed by Estey J. in Aetna. Those cases in fact begin with Nippon Yusen Kaisha v. Karageorgis et al., [1975] 3 All E.R. 282 in which Lord Denning M.R., in a judgment of less than one page, swept away a century of precedent with these words at p. 283: It has never been the practice of the English Courts to seize assets of a defendant in advance of judgment, or to restrain the disposal of them. It seems to me that the time has come when we should revise our practice. There is no reason why the High Court or this Court should not make an order such as is asked for here. [26] Shortly after Nippon was decided, the Mareva case came before the English Court of Appeal. Again, it was Lord Denning M.R. who dismissed the authority of Lister & Co. v. Stubbs, and, referring to the wide general power which the Judicature Act, 1873 (U.K.) gave to the Court to grant injunctions to protect a person who has a legal or equitable right, said at p. 215: In my opinion that principle applies to a creditor who has a right to be paid the debt owing to him, even before he has established his right by getting judgment for it. If it appears that the debt is due and owing, and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment, the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets. [27] The decision in Mareva was rendered in 1975 but was not published until [28] In Rasu Maritima S.A. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara et al., [1977] 3 All E.R. 324 the English Court of Appeal confirmed and enlarged the jurisdiction to grant Mareva injunctions. Lord Denning M.R. held that such injunctions could be directed not only against money but against goods as well. [29] Almost one year after Mareva, the issue again came before the English Court of Appeal in Third Chandris Shipping Corp. et al. v. Unimarine S.A., [1979] 2 All E.R It was in this case that Lord Denning M.R. laid

13 Page: 10 down a five-point test for granting a Mareva injunction. This test is the one referred to by MacKinnon A.C.J.O. in Chitel. [30] The last of the line of English case is Prince Abdul Rahman Bin Turki Al Sudairy v. Abu-Taha et al., [1980] 3 All E.R. 409 which further refined the Mareva principle. The headnote reads: The court has jurisdiction to grant a Mareva injunction against a defendant based in England if the circumstances are such that there is a danger of the defendant absconding or of the assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with so that if the plaintiff obtains judgment he may not be able to have it satisfied. [31] At pp Lord Denning stated: At any rate, the circumstances suggest to my mind that there is a risk that, if the plaintiff should get judgment, he may find that before he can issue execution, the defendants may have disposed of their assets. They may have taken them out of the jurisdiction or transferred them to someone here. So the case raises distinctly the question: can a Mareva injunction be granted against a defendant who is resident in this country? [32] After reviewing briefly the development of the Mareva injunction in England, the Master of the Rolls stated at p. 412: So I would hold that a Mareva injunction can be granted against a man even though he is based in this country if the circumstances are such that there is a danger of his absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied. (Emphasis is mine) [33] Mr. Gallant has raised the argument that in order to succeed the applicant must not only establish that the respondent intends to dispose of the asset, but also show that she intends to do so to avoid the applicant s judgment. He has not provided any judicial support for this argument. [34] There is a case which considers this issue. In R. v. Consolidated Fastfrate Transport Inc. (1995), 125 D.L.R. (4th) 1, the Crown sought a Mareva injunction to preserve assets owned by the accused out of which a

14 Page: 11 substantial fine could be paid if the accused was convicted of charges under the Competition Act, R.S.C. 1985, c. C-34. [35] In the context of that case, the Crown contended that a plaintiff could obtain a Mareva injunction if it persuaded the court of either one of two things: a) that the defendant was disposing of assets for the purpose of avoiding the possibility of judgment, or b) that there was a disposing of assets out of the ordinary course of business which would make the possible future tracing of them remote or impossible. [36] As was pointed out by Galligan J.A., (with whom Houlden J.A. concurred), the essential difference between those alternatives is that in the first instance, the plaintiff must show that the purpose of the disposal of the assets is to defeat the plaintiff if it obtains judgment. In the second instance, it would be enough to show only that there would be the effect of the disposal of assets. [37] Galligan J.A. reviewed the decision of the Supreme Court of Canada in Aetna and concluded he was not convinced that it categorically resolves the question. However, he went on to observe that when read in conjunction with the judgment in Chitel, he was inclined to think that the better view is that the determinative question is the purpose for which the arrangement of assets is made (see p. 15). The learned justice found that he did not have to decide the point and held that, whether or not an improper purpose must be shown to obtain a Mareva injunction in ordinary civil proceedings, the Mareva-type injunction can only be issued in aid of the criminal law when the court is persuaded that the accused is arranging its affairs for the improper purpose of preventing its assets from being available to pay a fine should one be imposed. [38] In separate reasons (concurring in the result) Weiler J.A. examined in some detail whether it must be demonstrated that assets are being disposed of, or removed from the jurisdiction, for an improper purpose before a Mareva injunction can be granted. [39] The learned justice reviewed Aetna, and considered whether it stands for the proposition that a transfer of assets must be motivated by an improper purpose. She noted that Southin J. in Gateway Village Investments Ltd. v. Sybra Food Services Ltd. (1987), 20 C.P.C. (2d) 149, 12 B.C.L.R. (2d) 234 rejected the argument that Aetna stands for the proposition that an improper

15 Page: 12 purpose for the transfer of assets must be shown before the second requirement for the granting of a Mareva injunction is met. Weiler J.A. agreed with this interpretation. [40] Madam Justice Weiler then considered whether the rule in Lister & Co. v. Stubbs restricts the granting of a Mareva injunction to situations where an improper purpose has been shown. She examined the several substantive differences between an execution and a Mareva injunction (see pp ) and concluded at p. 38: Considering the many ways in which a Mareva injunction differs from an execution, and considering also how the fraud exception operates, I have concluded that it is not necessary to inject any improper motive requirement to ensure compliance with Lister & Co. v. Stubbs, supra. To do so would unnecessarily complicate the law. [41] Madam Justice Weiler then turned her attention to certain policy reasons why, in her view, an improper purpose need not be shown. She opined that the broad discretion to grant an injunction is required because the Mareva injunction is still evolving and flexibility is needed to deal with a wide variety of situations. It is her view that requiring that an improper purpose for a transfer of assets be shown is an undue interference with the court s discretion (see pp ). [42] Madam Justice Weiler also concluded that the evolution of the Mareva injunction indicates that the focus is on the effect that a transfer of assets will have on the likelihood of a judgment being enforce (pp ), and finally decided that cogent evidence other than an improper purpose can meet the requirement for granting a Mareva injunction. [43] I agree with Weiler J.A. s conclusions in this respect, and adopt her reasoning. Analysis [44] Although it is recognized that pre-trial attachment of assets or interference with disposition of assets may be difficult to justify, where a plaintiff s prospect of ultimate success is strong, and if the defendant is not restrained the plaintiff s right to a remedy will be lost, an interlocutory

16 Page: 13 injunctive relief may be appropriate. It is clear that Canadian courts are prepared to follow Lord Denning s lead and to grant Mareva injunctions on the basis established in the decisions of the English Court of Appeal cited above. The Ontario Court of Appeal held in Chitel that, although caution should be exercised, such injunctions could be ordered if the plaintiff establishes a strong prima facie case and the criteria established by Lord Denning in Third Chandris are met. The Supreme Court of Canada in Aetna, while cautioning of the potential harshness of such orders, did affirm the jurisdiction to make them. I now will consider each criteria against the facts and circumstances of this case. i) The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know. [45] I am satisfied the applicant has made full and frank disclosure of all relevant matters within its knowledge. In addition to placing before the Court the statement of claim and the audit report supported by the affidavit of the person in charge of the audit, the applicant disclosed other matters by affidavit evidence. The applicant has made significant efforts to recover its lost funds but without success. It became aware on May 31, 2000 that the respondent and her husband had listed their residential property for sale. It was determined the house in question was built during the period in which it is alleged the respondent misappropriated the funds in question. On June 8, 2000 the applicant moved for an order preserving that property and after negotiations, during which it was revealed the mortgagor intended to pursue foreclosure remedies, the applicant agreed to the sale of the house and 1.5 acres provided the remaining property was subject to the preservation order. Both the respondent and her husband agreed, and consented to the order. On October 10, 2000 Jenkins J. dissolved the preservation order and replaced it with an interim injunction. It should be noted that having joined the respondent s husband in the action, the applicant has now discontinued its claim against him. ii) 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. [46] In my opinion the applicant has made out a strong prima facie case against the respondent. Based upon the audit conducted of the applicant s financial records it is alleged the respondent wrote herself unauthorized

17 Page: 14 cheques totalling $24, and also unilaterally increased her rate of pay thereby misappropriating an additional $6, It is also alleged the respondent paid herself for unauthorized hours a total of $5, and also for hours when she was no longer an employee of the applicant in an amount of $4,842. It is alleged as well that the respondent wrote six unauthorized cheques to employees of the applicant totalling $12,513, and used unauthorized petty cash chits in the amount of $2, It is also stated that she made unauthorized payments in the amount of $4, by way of unpaid employee advance chits, and failed to deposit payments received from customers in the total amount of $42, In am not commenting on the truth or otherwise of these allegations, since the matter is before the court, but observing only that these details are set out in the amended statement of claim. The respondent s statement of defence is a simple denial of the allegations in the statement of claim putting the applicant to their strict proof. As earlier noted, the respondent did not respond to the application because of the on-going criminal matter. However, her husband did respond and the respondent merely adopted his position. [47] The respondent s husband has argued that the applicant is not entitled to the injunctive relief sought and relies on the Aetna decision. It is submitted that the applicant has not made full and frank disclosure and has failed to establish that the respondent is attempting to dispose of the asset in order to avoid a potential judgment. As to the first point, I have already concluded the applicant has made full and frank disclosure. As to the second point, it was acknowledged at the hearing by counsel acting for the respondent s husband that it was his client s intention to transfer the land out of his and the respondent s name to members of his family claiming the land is held merely as trustees. I will deal further with this issue later in these reasons. Related to the second point, I stated earlier in these reasons that I adopt the position that an improper purpose for the transfer of assets need not be shown. [48] Based on the information provided at the hearing I am satisfied there is a real risk that any judgment the applicant may ultimately obtain against the respondent would be unsatisfied unless the asset in question is still available. The circumstances here bring into operation the just and convenient assessment. In my view, the least risk of ultimate injustice would lie in the granting of the Mareva injunction sought. iii) The plaintiff should give some grounds for believing that the defendant has assets in the jurisdiction.

18 Page: 15 [49] This branch of the test is in contention only to the extent of the submission by the respondent s husband that the property in question is being held by him and the respondent as trustees of John Hubert Gallant and they have no beneficial interest in it. Based on affidavits filed by John Hubert Gallant and by Danny Gallant and Jason Gallant, two sons of John Hubert Gallant (brothers of Christopher L. Gallant the respondent s husband) as well as affidavits of Christopher L. Gallant, James MacAuley and Kevin MacAdam, it is submitted that when the land in question was transferred by John Hubert Gallant to Christopher L. Gallant and the respondent, there was no intention on the part of John Hubert Gallant to make a gift of the entire parcel to the exclusion of the remaining family members. The argument is that it was the family s intention that the land be divided among at least four of the children with all of the children having a right to use it. [50] This intention, if it existed, was not mentioned in the deed conveying the land from John Hubert Gallant to Christopher L. Gallant and Shawna L. Gallant. Indeed quite the opposite appears from the final recital in the deed: AND WHEREAS the said Grantor herein is desirous of conveying the said lands to his son and daughter-in-law, Christopher L. Gallant and Shawna L. Gallant, the Grantees herein named. [51] There is evidence the land was surveyed and the survey plan shows one lot being the property on which the respondent and her husband constructed their house There are three other lots described by broken lines and referred to as Future Lots. The argument that Christopher L. Gallant and Shawna L. Gallant have no beneficial interest in the land is greatly weakened by the fact they mortgaged the entire parcel to the Bank of Montreal on June 2, 1999 some two months after it was conveyed to them. It is submitted on behalf of the respondent s husband that the fact the entire 48 acres was mortgaged by the respondent and her husband does not support the presumption of advancement as this mortgage was placed without the consent or knowledge of John Hubert Gallant or the other family members. It is obvious, however, that such consent was not required. Counsel for the applicant posed the following interesting question: If the Bank of Montreal tried to enforce its security against the entire parcel, would the evidence of an intention to establish a trust be sufficient to oust the Bank s claim and, if not, should it be enough to defeat the application for the injunction? [52] I find I am not required to answer this question. In my opinion the land

19 Page: 16 clearly is in the names of the respondent and her husband and that is sufficient, in my opinion, to satisfy the requirement of the third branch of the test for the granting of a Mareva injunction. The question whether a trust has been created can be left for resolution if and when the applicant obtains a judgment against the respondent and proceeds to execute it against the land in question. iv) The plaintiff should give some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied. [53] As earlier noted, this branch of the Third Chandris test was expanded in the Prince Abdul case where Lord Denning included the danger of the asset being disposed of within the jurisdiction so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied. Counsel for Christopher L. Gallant readily acknowledged that the family wants to transfer the land out of the respondent s and her husband s names so as to satisfy the alleged intention of John Hubert Gallant that it be divided among at least four of his sons. [54] I am satisfied this branch of the test is met. v) The plaintiff must give an undertaking in damages. [55] The applicant has stated it is prepared to give such an undertaking. The undertaking in this case should extend not only to the possibility of the failure of the applicant s claim against the respondent, but also to the possible success of the Gallant family in establishing the alleged trust and defeating an attempt by the applicant to enforce against the land in question any judgment it might obtain. [56] Counsel may agree on the form of the undertaking and whether any bond or security should be provided. If they cannot agree, I may be spoken to about that. Conclusion [57] For all of the above reasons I am of the view that it is just and convenient that the interim injunction granted on October 10, 2000 preserving all the real property located at Greenwich and in the name of the respondent and her husband be continued, and it is so ordered. In doing so I adopt the test laid

20 Page: 17 down by the Master of the Rolls in Third Chandris, and the proposition in Prince Abdul that, if there is a danger of the defendant disposing of assets within the jurisdiction so that if the plaintiff obtains judgment it may not be satisfied, an injunction should issue provided the safeguards in the test are met. [58] The applicant did not seek costs against Christopher L. Gallant who no longer is a party to the action. No costs will be ordered against the respondent who did not respond to the application. [59] The applicant seeks to rescind the order of costs in favour of Christopher L. Gallant in the fixed sum of $500 made by the Court when the interim injunction was ordered. However, Jenkins J. ordered those costs to stand as a credit for Mr. Gallant to be dealt with at the end of the trial of this action on its merits. I would continue that part of the interim order and leave those costs to be dealt with by the trial judge. January 31, 2001 J.