Freezing Assets to Recover from an Evasive Fraudster: The Mareva Injunction

When someone is the victim of a scam, it can be nearly impossible to get their money back. Sometimes, the fraudster spends every penny. In those fraud litigation cases, even if a court orders them to return the funds, the victim will not receive their money because it has already been spent. To make things worse, there are limits on what personal property can be seized from the fraudster. Similarly, the fraudster might transfer the funds to overseas bank accounts, creating further obstacles for their victim(s) in getting their money back.

To avoid these situations, the victim of a scam must act quickly before the fraudster dissipates the money, whether by spending it or moving it to protected foreign bank accounts. Where a victim suspects that such money may be moved for fraudulent ends (such as to avoid paying a court judgment), they can instruct their fraud lawyer to ask the Court to freeze the fraudster’s assets. This is also known as an application for a Mareva injunction, or Mareva order. This injunction orders a party to not move any assets they own or control, regardless of whose name the assets are legally in, to protect the legal claims of the victim. Walker Law has been successful in winning these kinds of complex motions. In Dario v. Pleterski,[1] on behalf of its client, Walker Law received a Mareva Injunction to freeze $30 million in global assets.

A recent case from the Ontario Court of Appeal clarified which assets should be included in a Mareva order and what powers are available to correct breaches of an order. Such a breach is considered an abuse of process. Abuse of process occurs when a party misuses the litigation process in a way that is manifestly unfair to a party to the litigation or would otherwise bring the administration of justice into disrepute.[2]

A Mareva Injunction in Action: Buduchnist Credit Union Limited v. 2321197 Ontario Inc.[3]

In Buduchnist v 2321197, Trade Capital Finance Corp. (“Trade Capital”) was the victim of a scam perpetrated by its president, Peter Cook (“Mr. Cook”). Companies controlled by an individual named Carlo De Maria (“Mr. De Maria”) received payments that Mr. Cook was not authorized to make. Trade Capital then got a Mareva injunction to freeze the assets that Mr. De Maria and his companies owned.

Buduchnist Credit Union (“Buduchnist”) was a mortgage lender for numerous properties that Mr. De Maria and his companies owned. These mortgages defaulted, and Buduchnist sought to collect on its mortgages.

Trade Capital argued in Court that Buduchnist should wait until the lawsuit ended because taking frozen assets was a breach of the Mareva order. One problem was that two companies Mr. De Maria owned weren’t named in the Mareva order. The Court had to decide whether the order included those companies and whether a creditor can collect on a debt when a Mareva order is present.

The Court of Appeal decided that (1) the order included the companies that were not named in the Mareva order, and (2) the creditor could not collect on a debt when a Mareva order is present.

Takeaways from Buduchnist

In reaching this finding, the Court of Appeal clarified some aspects of the law regarding Mareva orders. Key takeaways are as follows:

 

  1. If you are the sole officer, director, and shareholder of a corporation you own and you are under a Mareva order, that company’s assets are also frozen despite it being a separate legal entity; and
  2. When one breaches a Mareva order, the court has “broad jurisdiction” to respond to the abuse of process, including to strip the breaching party (in this case, Buduchnist) of its priority as a secured creditor and to delay enforcement of their claim until determination of the action.

This case reinforces the strength of Mareva injunctions in freezing assets until the determination of the action, even where it may be to the detriment of other valid creditors. Creditors should be careful to ensure there are no Mareva orders when they seek to collect on a debt. Similarly, victims of fraudulent schemes should be aware that this option exists to keep the assets of a defendant fraudster in place to satisfy judgment if such judgment is granted.

[1] 2022 ONSC 4036.

[2] Toronto (City) v. CUPE2003 SCC 63 (CanLII), [2003] 3 S.C.R. 77, at para. 37, citing Canam Enterprises Inc. v. Coles (2000), 2000 CanLII 8514 (ON CA), 51 O.R. (3d) 481 (Ont. C.A.), at para. 55.

[3]Buduchnist Credit Union Limited v. 2321197 Ontario Inc 2024 ONCA 57 (“Buduchnist v 2321197”)

 

Tags: Injunctions, Fraud Litigation, Civil Litigation

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