Making Litigation Pay: Identifying and Securing the Debtor’s Assets, and Realizing

on JudgmentsDavid Foulds

Brandon Barnes

June 6, 2012

Overview

• Preserving Assets in Canada before judgment

• International Recovery in the Canadian context

• Offshore preservation and recovery: the Cayman Islands

Goal

• Debunk a few myths about the value of litigation

• Assist in the cost/benefit analysis of litigating to recover assets

Tools for Locating and Preserving Assets

• Mareva Injunctions• Anton Piller Orders• Norwich Orders• Section 437(2) of the Bank Act • Certificates of Pending Litigation• Interim Preservation or Recovery of Property• Summary Judgment Motions• Receivers

Mareva Injunction – Purpose

• Preserve plaintiff’s position – freezes assets up to the value of claimed loss, pending trial

• Often obtained ex parte – no notice to defendant• Can freeze Canadian or worldwide assets• No tracing required• Binds third parties who have notice of the order• Powerful tool, particularly in fraud cases

Mareva Injunction – Requirements

• Strong prima facie case of fraud or other misconduct• A “real risk” that assets will be disposed of or removed

outside the usual and ordinary course of business or living, in order to defeat judgment

• Full and frank disclosure of all material facts in the plaintiff’s knowledge, including facts that assist the defence

• Undertaking as to damages

Mareva Injunction – Additional Considerations

• Only available within framework of an underlying proceeding• Not enough to show that there is a possibility that defendant will become

insolvent or that assets will be removed in the ordinary course of business• Risk of removal / dissipation can be inferred from evidence and is,

arguably, unnecessary where strong prima facie case of fraud is made out• Defendant may be allowed to use assets subject to a Mareva to meet bona

fide expenses (i.e. business, living, legal fees)

Anton Piller Order – Purpose

• The so-called, “civil search warrant” – obtained ex parte• Requires defendant to allow the complainant to enter the

defendant’s property to search for named records, and to inspect and copy them

• May require defendant to turn over the records and other items to the custody of plaintiff through supervising lawyer

• May be joined with Mareva order

Anton Piller Order – Requirements

• Strong prima facie case• Damage caused by defendant’s alleged misconduct, potential

or actual, must be very serious• Convincing evidence that defendant has incriminating

documents or things in its possession• Real possibility that defendant may destroy such material

before discovery process can do its work• Full and frank disclosure of all material facts • Undertaking as to damages

Anton Piller Order – Other Considerations

• Cumbersome and costly to obtain and implement• Extensive procedural protections for defendants, including:

• Scope of order must be drawn as narrowly as possible• Independent outside “supervising” lawyer must be appointed to

manage the process• Strict terms imposed for executing the order and reporting back

to court

Norwich Order – Purpose

• Equitable remedy permitting pre-action discovery of documents from third parties

• Typically used to:• Locate or identify persons responsible for fraud or other

misconduct• Find and preserve evidence of fraud or other misconduct• Determine whether fraud or other misconduct has occurred• Provide evidence necessary to trace and preserve assets

Norwich Order – Requirements

• Valid, bona fide or reasonable claim of fraud or similar misconduct

• Third party from whom information is sought must have been involved in some manner in the acts complained of

• Third party must be only practicable source of the information

• Must be possible to indemnify the third party for the costs of disclosure

• Interests of justice must favour disclosure

Norwich Order – Other Considerations

• Powerful means for gathering information, tracing assets, identifying parties to eventual litigation

• Don’t need a “settled intention” to sue anyone in order to obtain the order

• Norwich orders are remedies of “last resort” -- can’t obtain to improve your knowledge before commencing proceedings, must show that you require information in order to be able to even proceed with a claim

Bank Act section 437(2)• Section 437(2) of the Bank Act restricts Banks’ power to pay out deposits

437. (2) [The Banks authority to pay out deposits] does not apply if, before payment, the money deposited in the bank is claimed by some other person(a) in any action or proceeding to which the bank is a party and in any respect of which service of a write or other process originating that action or proceeding has been made on the bank; or. . .and, in the case of any such claim so made, the money so deposited may be paid to the depositor with the consent of the claimant or to the claimant with the consent of the depositor.

Bank Act section 437(2) – Purpose

• Provides an emergency remedy for victims of fraud and others with clear claims to funds on deposit with a bank

• Can freeze funds on deposit on the same day as claim is issued without a court order or undertaking as to damages

• Doesn’t require notice to other side, full and frank disclosure or undertaking as to damages

• “Friendly” litigation with the Bank

Bank Act section 437(2) – Other Considerations

• Can’t rely on 437(2) on its own – must promptly bring appropriate proceedings for court order freezing accounts (eg. Mareva)

• Court will frown upon using 437(2) to unilaterally achieve a de facto Mareva injunction without a court order

• Serious consequences if plaintiff gets it wrong• Consider inviting Bank to interplead funds

Certificate of Pending Litigation – Purpose

• Provides notice to non-parties of a claim to an interest in land

• Unless and until vacated, practically restrains all dealings with land to which it applies

• Ensures that land will still be available when the merits of the claim have been determined

Certificate of Pending Litigation – Requirements

• Underlying proceeding must put an interest in land in question

• Court is called upon to exercise its discretion in equity and look at all relevant matters between parties

• Claimant must make full and frank disclosure of all material matters (CPL is often obtained ex parte)

• Where obtained ex parte, must immediately serve order and supporting materials on affected parties

• Must prosecute claim with reasonable diligence

CPL – Other Considerations

• Not just useful in real estate deals gone wrong – plaintiff can rely on constructive trust to ground a proprietary claim

• Statement of claim must claim an interest in land• No requirement for undertaking as to damages• Often joined with other relief (eg. Mareva injunction)

Interim Preservation of Personal Property – Purpose

• Under Rule 45 of Ontario’s Rules of Civil Procedure, the Court may grant an order to preserve rights to personal property pending litigation.

• Similar power to a Mareva injunction or Anton Piller order but easier to obtain

• Lends itself to circumstances where no fraud or similar wrongdoing

Interim Preservation of Personal Property – Requirements

• The property sought to be preserved must constitute the subject matter of the dispute

• Serious issue to be tried regarding the claim to the property• Balance of convenience favours granting the relief sought• No requirement for undertaking as to damages

Interim Order for Recovery of Personal Property

• Under Rule 44 of Ontario’s Rules of Civil Procedure, the Court may make an interim order granting possession of personal property

• Useful where personal property owned by plaintiff is placed in the hands of defendant on voluntary basis, but its return is improperly refused

• Motion can be brought without notice in appropriate circumstances

Interim Order for Recovery of Personal Property – Requirements

• Plaintiff must establish that it is the owner of the property or entitled to possession of it and that the property was unlawfully taken or detained by the defendant

• Plaintiff must show substantial grounds supporting its claim. This burden is less than would be required on a motion for summary judgment, but plaintiff must show more than a ere possibility of success at trial

• Balance of convenience must favour granting possession of property• Party obtaining order is liable for damages if ultimately found not to be

entitled to property

Summary Judgment Motions

• Notwithstanding the uncertainty created by the recent Court of Appeal decision, the fact is that the threshold for obtaining summary judgment has been lowered

• Judges are getting more comfortable dealing with substantive matters on a summary judgment basis

• Summary judgment motions can be an effective tool for advancing litigation quickly, especially where one or more elements of a claim is not likely to be the subject of serious dispute (eg. unpaid invoice claim met by a defence based on equitable set-off)

Court Appointed Receiver

• Court will appoint a receiver when it concludes it is just or convenient to do so

• Receiver can play a variety of functions, including investigating fraud, managing business and realizing upon assets in order to pay judgment

• Receiver is officer of the Court with ongoing obligations to the Court

• Can be useful (e.g. where multiple victims of fraud by one company) but can also be costly and cumbersome

International Recovery

Why do we care about this?

• Retail fraud (Earl Jones, Norbourg)

• Listed here, assets elsewhere (Sino-Forest, Bre-X)

• Van Breda

• Canadian business climate

Why do we care about this?

• 2009: Merchandise exports to non-U.S. markets in aggregate exceed U.S. export market share (DFAIT)

• Bilateral Investment: 11 treaties signed since NAFTA

• Extractive Sectors