Borrelli, in his Capacity as Trustee of the SFC Litigation Trust v. Chan

[Indexed as: SFC Litigation Trust (Trustee of) v. Chan]

Ontario Reports

Ontario Superior Court of Justice,

Divisional Court,

Leitch, Sachs and Pattillo JJ.

March 28, 2017

137 O.R. (3d) 382 | 2017 ONSC 1815

Case Summary

Injunctions — Mareva injunction — Motion judge confirming worldwide Mareva injunction against defendant — Motion judge not erring in holding that Ontario court may grant Mareva injunction where defendant has no assets in this jurisdiction — Evidence before motion judge [page383] establishing prima facie case that appellant had committed fraud and indicating that he had dissipated assets — Motion judge not erring in finding that it was just and equitable to grant Mareva injunction.

B was the chief executive officer of S Corp., a Canadian corporation with assets predominantly located in the People's Republic of China. He brought an action alleging that C had perpetrated a significant fraud on S Corp., its creditors and investors. S Corp. applied under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 for an order approving a plan of compromise and reorganization. The court sanctioned the plan, and B was appointed as trustee of the SFC Litigation Trust, which was assigned all of the litigation rights of S Corp. Pursuant to the plan, substantially all of the assets of S Corp. were transferred to E Ltd. The situs of the trust was in Hong Kong. B brought a motion for a worldwide Mareva injunction against C. The motion was granted. A motion by C to vary, set aside or discharge the injunction was dismissed. C appealed.

Held, the appeal should be dismissed.

Per Leitch J. (Sachs J. concurring): The motion judge did not err in holding that an Ontario court may grant a Mareva injunction where the defendant has no assets in this jurisdiction. The evidence before the motion judge established a prima facie case that C had committed fraud. It also indicated that he had dissipated assets and that the granting of a Mareva injunction in Ontario could be regarded as an important step to similar freezing orders being obtained in respect of C's assets in Hong Kong. The motion judge did not err in finding it just and convenient to issue the Mareva injunction.

The motion judge did not err in holding that undertakings of B and E Ltd. were sufficient to provide security for costs and damages.

Per Pattillo J. (dissenting): The motion judge erred in granting the Mareva injunction given that C had no assets in Ontario. The motion judge also erred in concluding that the undertaking of E Ltd. together with the undertaking of B were sufficient security for C's damages or costs.

Chitel v. Rothbart (1982), 39 O.R. (2d) 513, [1982] O.J. No. 3540, 141 D.L.R. (3d) 268, 30 C.P.C. 205, 69 C.P.R. (2d) 62, 17 A.C.W.S. (2d) 200 (C.A.), apld

R. v. Consolidated Fastfrate Transport Inc. (1995), 24 O.R. (3d) 564, [1995] O.J. No. 1855, 125 D.L.R. (4th) 1, 83 O.A.C. 1, 99 C.C.C. (3d) 143, 40 C.P.C. (3d) 160, 61 C.P.R. (3d) 339, 27 W.C.B. (2d) 528 (C.A.), consd

Other cases referred to

2057552 Ontario Inc. v. Dick, [2015] O.J. No. 2545, 2015 ONSC 3182 (S.C.J.); Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 2, [1985] S.C.J. No. 1, 15 D.L.R. (4th) 161, 56 N.R. 241, [1985] 2 W.W.R. 97, 32 Man. R. (2d) 241, 29 B.L.R. 5, 55 C.B.R. (N.S.) 1, 4 C.P.R. (3d) 145, J.E. 85-192, EYB 1985-150475, 29 A.C.W.S. (2d) 267; Chesapeake and Ohio Ry. Co. v. Ball, [1953] O.R. 843, [1953] O.J. No. 693, [1953] O.W.N. 801 (H.C.J.); Croatian (Toronto) Credit Union Ltd. v. Vinski, [2010] O.J. No. 700, 2010 ONSC 1197 (S.C.J.); Dadourian Group Int. Inc. v. Simms, [2006] 1 W.L.R. 2499, [2006] 3 All E.R. 48, [2006] 2 Lloyd's Rep. 354, [2006] EWCA Civ 399 (C.A.); Derby & Co. v. Weldon (No. 2), [1989] 2 W.L.R. 276, [1989] 1 All E.R. 1002 (C.A.); DiMenza v. Richardson Greenshields of Canada Ltd. (1989), 74 O.R. (2d) 172, [1989] O.J. No. 3231, 43 C.P.C. (2d) 87 (Div. Ct.); Lister & Co. v. Stubbs (1890), 45 Ch. D. 1, [1886-90] All E.R. Rep. 797 (C.A.); Mooney v. Orr, [1994] B.C.J. No. 2652, [1995] 3 W.W.R. 116, 100 B.C.L.R. (2d) 335, 33 C.P.C. (3d) 31, 51 A.C.W.S. (3d) 704 (S.C.); [page384] Penner v. Niagara (Regional Police Services Board), [2013] 2 S.C.R. 125, [2013] S.C.J. No. 19, 2013 SCC 19, 304 O.A.C. 106, 442 N.R. 140, 2013EXP-1164, J.E. 2013-639, EYB 2013-220248, 49 Admin. L.R. (5th) 1, 32 C.P.C. (7th) 223, 356 D.L.R. (4th) 595, 226 A.C.W.S. (3d) 139; R. v. Palmer, [1980] 1 S.C.R. 759, [1979] S.C.J. No. 126, 106 D.L.R. (3d) 212, 30 N.R. 181, 50 C.C.C. (2d) 193, 14 C.R. (3d) 22, 17 C.R. (3d) 34, 4 W.C.B. 171; Sibley & Associates LP v. Ross (2011), 106 O.R. (3d) 494, [2011] O.J. No. 2656, 2011 ONSC 2951, 334 D.L.R. (4th) 645, 203 A.C.W.S. (3d) 831 (S.C.J.); SolarBlue LLC v. Aus, [2013] O.J. No. 5800, 2013 ONSC 7638 (S.C.J.); Telesis Technologies, Inc. v. Sure Controls Systems Inc., [2010] O.J. No. 4875, 2010 ONSC 5288, 195 A.C.W.S. (3d) 241 (S.C.J.); Third Chandris Shipping Corp. v. Unimarine S.A.; The Pythis, [1979] Q.B. 645, [1979] 2 All E.R. 972, [1979] 2 Lloyd's Rep. 184 (C.A.); United States of America v. Yemec (2005), 75 O.R. (3d) 52, [2005] O.J. No. 1165, 196 O.A.C. 163, 12 C.P.C. (6th) 318, 131 C.R.R. (2d) 312, 138 A.C.W.S. (3d) 156 (Div. Ct.)

Statutes referred to

Canada Business Corporations Act, R.S.C. 1985, c. C-44

Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36

Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101(1) [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 40.03

Authorities referred to

Sharpe, R.J., Injunctions and Specific Performance, looseleaf (Toronto: Canada Law Book, 2015)

APPEAL from an order confirming a Mareva injunction.

Robert Staley, Derek J. Bell and Jason Berall, for plaintiff/respondent.

Robert Rueter and Malik Martin, for defendant/ appellant.

[1] LEITCH J. (SACHS J. concurring): — This is an appeal from an order of Hainey J. dated January 21, 2016 confirming a worldwide Mareva injunction against the appellant, which was originally granted ex parte on August 28, 2014.

[2] The appellant requests an order setting aside, or varying, the injunction; an order requiring the respondent to provide a proper undertaking for damages if the injunction is not discharged or set aside; an order requiring the respondent to post security for its undertaking or otherwise establish that it has sufficient current assets in Ontario to satisfy the undertaking; and an order requiring the respondent to pay $4 million dollars into court as security for costs of the appellant, or such other amount as this court may determine.

Background Facts

[3] The respondent was the chief executive officer of Sino-Forest Corporation, which was incorporated under the [page385] Canada Business Corporations Act, R.S.C. 1985, c. C-44. Its registered head office was located in Mississauga, Ontario and its executive office was located in Hong Kong. The respondent has brought this action alleging that the appellant has perpetuated a significant fraud on Sino-Forest Corporation, its creditors and investors.

[4] Sino-Forest Corporation was a forest product company with assets predominantly located in the People's Republic of China. It carried out a sale process through the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA"), which ultimately failed.

[5] Sino-Forest Corporation then applied under the CCAA for an order approving a plan of compromise and reorganization. On December 12, 2012, the Superior Court of Justice sanctioned the plan. The respondent was appointed as trustee of the SFC Litigation Trust, which was assigned all of the litigation rights of Sino-Forest Corporation. Pursuant to the plan, substantially all of the assets of Sino-Forest Corporation were transferred to Emerald Plantation Holding Ltd. ("Emerald Plantation"). The accepted situs of the trust is in Hong Kong where the trustee is located.

[6] On August 28, 2014, the respondent brought an ex parte motion for a worldwide injunction against the appellant. The motion judge found that there was "a very strong prima-facie case of fraud on the part of [the appellant]" and granted the injunction.

[7] In April 2015, the appellant brought a motion to vary, set aside or discharge the injunction, arguing that the motion judge had applied the wrong test in granting the injunction. Specifically, the appellant argued that a Mareva injunction could only be granted if a defendant has assets in the jurisdiction, which the appellant did not. The motion judge denied the appellant's motion, holding that the test for a Mareva injunction did not require that a defendant have assets in the jurisdiction.

[8] Rule 40.03 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] requires a party seeking an injunction to undertake to abide by any order concerning damages that the court may make if it ultimately appears that the granting of the order has caused damage to the responding party for which the moving party ought to compensate the responding party, unless the court orders otherwise.

[9] When granting the Mareva injunction on the ex parte motion the motion judge required a personal undertaking from the respondent as to damages. As the appellant notes, the respondent did not give a personal undertaking for more than a year after the injunction was obtained ex parte. [page386]

[10] When confirming the injunction on January 21, 2016, the motion judge ordered that Emerald Plantation must also provide an undertaking as to damages. As he stated, it was not clear on the evidence before him that the respondent had sufficient assets within the jurisdiction to satisfy the appellant's potential damages arising from the Mareva injunction. The motion judge further required Emerald Plantation to provide an undertaking in relation to costs as well as to notify the appellant in the event it experienced a material change in its financial position affecting its undertakings. At that time, Emerald Plantation held assets in excess of US$226 million.

[11] The motion judge found that although there was no evidence that the respondent had assets in the jurisdiction, it need not post security for its undertaking or for the costs of this action and, instead, as the appellant notes, the motion judge accepted an undertaking from a foreign corporate non-party that also has no assets in the jurisdiction. As a consequence, the appellant asserts that the court does not have jurisdiction over this foreign corporate non-party and no ability to enforce its direction.

[12] Leave to appeal to this court was granted on the issue of whether the motion judge erred in law (i) in holding that an Ontario court may grant a Mareva injunction where the defendant has no assets in the jurisdiction; and (ii) in holding that the respondent's undertaking as to damages, along with the undertaking from Emerald Plantation, was a sufficient undertaking and that such undertaking was sufficient to provide security for costs.

Issue #1: Did the motion judge err in law in holding that an Ontario court may grant a Mareva injunction where the defendant has no assets in the jurisdiction?

[13] I begin by noting that the motion materials included a motion by the respondents to adduce fresh evidence to establish that the appellant had paid retainers to three law firms in the jurisdiction. As a result, the respondent's factum asserted that there was no factual foundation for the primary ground of appeal and the appeal was moot. However, the court made it clear at the hearing of the appeal that even if the court granted leave to admit this fresh evidence, it did not consider that these payments amounted to the appellant having assets in the jurisdiction. The respondent conceded that because the appellant's only assets in the jurisdiction had been pledged for legal fees, the appeal would be argued on the basis that the appellant had no assets in the jurisdiction. [page387]

[14] In Chitel v. Rothbart (1982), 39 O.R. (2d) 513, [1982] O.J. No. 3540 (C.A.), the Ontario Court of Appeal dealt with a reference directed to them to clarify the jurisprudence as to the availability of a Mareva injunction in Ontario. It is clear from Chitel v. Rothbart that the equitable remedy, or a Mareva injunction, has as its history the English jurisprudence outlined by the Ontario Court of Appeal in Chitel. Immediately prior to considering the English case law, the court observed, at para. 30, the following:

The almost exponential growth of the Mareva injunction and the extension of the grounds for such injunctions, seemingly without regard to long-established principles, has raised questions, and caused critics to describe them (as indeed did the Motions Court Judge in the Court below), as being "tantamount to execution before judgment". That, strictly speaking, is not so. What such orders do is tie up the assets of the defendant, specific or general, pending any judgment adverse to the defendant so that they would then be available for execution in satisfaction of that judgment. It is certainly ordering security before judgment.

[15] The impetus to pursue a Mareva injunction was described by the Supreme Court of Canada in Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 2, [1985] S.C.J. No. 1, at para. 25, as follows:

The overriding consideration qualifying the plaintiff to receive [a Mareva order] is that the defendant threatens to so arrange his assets as to defeat his adversary, should that adversary ultimately prevail and obtain judgment, in any attempt to recover from the defendant on that judgment.

[16] As the Court of Appeal noted in Chitel, at para. 31, the Mareva injunction was "the modern departure" from the "traditional view in England as well as in this province that an interlocutory injunction would not be granted to restrain a defendant from disposing of his assets or removing them from the jurisdiction prior to judgment". The Court of Appeal further noted, at para. 31, that the "modern departure from that view" had "its genesis in a trilogy" of cases from England.

[17] After reviewing the English case law, the court in Chitel set out, at para. 41, the guidelines established by Lord Denning in Third Chandris Shipping Corp. v. Unimarine S.A.; The Pythis, [1979] Q.B. 645, [1979] 2 All E.R. 972 (C.A.), as follows:

(i) The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.

(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.

(iii) The plaintiff should give some ground for believing

that the defendants have assets here. [page388]

(iv) The plaintiff should give some grounds for believing that there is risk of the assets being removed before the judgment or award is satisfied.

(v) The plaintiff must give an undertaking as to damages.

[18] The Court of Appeal observed, in para. 43, that items (i), (ii) and (v) are "standard guidelines in this province in considering whether to grant an interlocutory injunction in the ordinary case".

[19] Further, in Chitel, at para. 55, the court restated that proposition in relation to items (i), (ii) and (v) of Lord Denning's guidelines, noting that "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".

[20] The court then went on to discuss guidelines (iii) and (iv), which, as it described at para. 56, are "unique to the Mareva injunction". With respect to guideline (iii), the court provided the following guidance:

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.

[21] In Chitel, the court made it clear that the court has jurisdiction to grant a Mareva injunction in a proper case. I note parenthetically that the appellant accepted and admitted that courts have jurisdiction to grant worldwide Mareva injunctions. In Chitel, the court cautioned, at para. 61, that "the courts must be careful to ensure that the aenew' Mareva injunction is not used as and does not become a weapon in the hands of plaintiffs to force inequitable settlements from defendants who cannot afford to risk ruin by having an asset or assets completely tied up for a lengthy period of time awaiting trial".

[22] In regard to what must be established in order to obtain a Mareva injunction, it is significant that throughout their reasons in Chitel, the Court of Appeal described the factors to be considered in relation to the issuance of a Mareva injunction as "guidelines". [page389]

[23] It is only in the penultimate paragraph of their reasons [at para. 62] that the court states that it agrees with the view that a plaintiff with a cause of action for fraud should be given assurance of recovery under a judgment and they have "sought to point out the conditions that must be satisfied before a Mareva injunction can be granted".

[24] Since Chitel was decided, Ontario courts have consistently referenced and applied that decision in relation to Mareva injunctions: see 2057552 Ontario Inc. v. Dick, [2015] O.J. No. 2545, 2015 ONSC 3182 (S.C.J.).

[25] The appellant asserts that the Chitel criteria are well-known and are firmly-established as the criteria a plaintiff must satisfy to be granted a Mareva injunction from an Ontario court. Failure to satisfy any one of those criteria is an independent ground for setting aside the Mareva order. The appellant's position is that in order to obtain an injunction, there is a substantive requirement that a defendant have assets in the jurisdiction to be subject to the restraining order. The appellants say there must be assets in this jurisdiction to ensure the order of the court is capable of implementation.

[26] I do not accept the appellant's assertion. I recognize that in Chitel the injunction was sought to restrain the dissipation of assets in Ontario. Similarly, in virtually all of the cases referenced by counsel on this appeal, the assets which were at the risk of dissipation existed in Ontario.

[27] However, a court's in personam jurisdiction over a defendant justifying the issuance of a Mareva injunction is not dependant, related to or "tied to" a requirement that a defendant has some assets in the jurisdiction.

[28] Section 101(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides the court with jurisdiction to grant an interlocutory junction or mandatory order "where it appears to a judge of the court to be just or convenient to do so".

[29] A Mareva injunction is an equitable remedy and as such I agree with the respondent's submission that this remedy evolves as facts and circumstances merit.

[30] The availability of the equitable remedy of a Mareva injunction in England has evolved. This evolution was commented on by Sharpe J.A. in Injunctions and Specific Performance, looseleaf (Toronto: Canada Law Book, 2015), where he observed, at para. 2.910, the following:

The strict rule requiring assets in the jurisdiction has now been abandoned and, in special circumstances the English courts will grant Mareva Orders to restrain disposition of assets elsewhere. The basis upon which "world-wide" Mareva Orders are made is that the English courts assert "unlimited [page390] jurisdiction . . . in personam against any person, whether an individual or a corporation, who is, under English procedure, properly made a party to proceedings pending before the English court".

[31] Sharpe J.A. also observed that "orders of this kind have also been made by Canadian courts", referencing, amongst other cases, Mooney v. Orr [[1994] B.C.J. No. 2652, 100 B.C.L.R. (2d) 335 (S.C.)], a case considered by Weiler J.A. in in R. v. Consolidated Fastfrate Transport Inc. (1995), 24 O.R. (3d) 564, [1995] O.J. No. 1855 (C.A.), as set out below.

[32] The English evolution was described in the U.K. Court of Appeal decision in Derby & Co. v. Weldon (No. 2), [1989] 2 W.L.R. 276, [1989] 1 All E.R. 1002 (C.A.), at para. 6, as follows:

It seems to me that the time has come to state unequivocally that in an appropriate case the court has power to grant an interlocutory injunction even on a worldwide basis against any person who is properly before the court, so as to prevent that person by the transfer of his property frustrating a future judgment of the court. The jurisdiction to grant such injunctions is one which the court requires and it seems to me that it is consistent with the wide words of section 37(1) of the Act of 1981.

In matters of this kind it is essential that the court should adapt the guidelines for the exercise of a discretion to meet changing circumstances and new conditions provided always the court does not exceed the jurisdiction which is conferred on it by Parliament or by subordinate legislation.

It remains true of course that the jurisdiction must be exercised with care.

[33] The concept of a Mareva injunction being an evolving remedy was also commented on by Weiler J.A. in Consolidated Fastfrate Transport Inc., at para. 142, as follows:

The practice with respect to the granting of Mareva injunctions is still in the process of evolving. The early Mareva cases involving foreigners were simply concerned with the fact that the assets might be removed from England and that any judgment granted would be unenforceable. However, in Barclay-Johnson v. Yuill, [1980] 3 AII E.R. 190, [1980] 1 W.L.R. 1259 (Ch. D.) and Prince Abdul Ralman bin Turki Al Sudairy v. Abu-Taha, [1980] 3 AII E.R. 409 (C.A.), injunctions were granted against English nationals as opposed to foreigners. In Derby & Co. Ltd. v. Weldon [(No. 1) (1988), [1989] 1 All E.R. 469 (C.A.)] a Mareva injunction was granted on a worldwide basis on the condition that certain undertakings were given by the applicant which would protect the defendant from oppression and misuse of information and protect the position of third parties. Most recently, Mooney v. Orr, B.C.S.C., November 24, 1994 (unreported, Vancouver Registry No. C908539) [now reported [1994] B.C.J. No. 2652, 100 B.C.L.R. (2d) 335, [1995] 3 W.W.R. 116], Huddart J. granted a worldwide Mareva injunction against Mooney, who, prior to entering into business dealings with the Orrs, had so arranged his affairs as to protect any offshore property he might have from execution. Huddart J. cited the decision of the British Columbia Court of Appeal in British Columbia (Attorney General) v. Wale (1986), 9 B.C.L.R. (2d) 333 at p. 346, [1987] 2 W.W.R. 331 (C.A.), where McLachlin J.A. said: [page391]

. . . the judge must not allow himself to become the prisoner of a formula. The fundamental question in each case is whether the granting of an injunction is just and equitable in all the circumstances of the case.

[34] These observations set out above were noted by Weiler J.A. in relation to her finding that in order to obtain a Mareva injunction it is unnecessary to incorporate a requirement that a dissipation or transfer of assets was pursued for an improper purpose.

[35] In relation to Chitel, Weiler J.A. made the following observation, at para. 147:

In commenting as he did on the fourth guideline, I am of the opinion that MacKinnon A.C.J.O. was attempting to encapsulate the essence of the English authorities he had just reviewed and to give guidance as to when the requirements for granting a Mareva injunction would be met. I do not think that in recognizing the availability of the remedy in Ontario he meant to foresee and to foreclose all of the kinds of situations where a Mareva injunction could be granted.

[36] Therefore, I think it is clear that when an equitable remedy is sought the court ought to consider the guidelines set out in Chitel, but ultimately the court must consider what is just or convenient.

[37] Furthermore, I note also that, at para. 154, Weiler J.A. observed that "the threatened removal of assets outside of Canada is more likely to lead to the granting of a Mareva injunction because, generally, it is more difficult to enforce a judgment outside the jurisdiction". These are the very circumstances before the court.

[38] The usual case is that a party seeks a Mareva injunction to prevent assets from leaving the jurisdiction. However, Mareva injunctions have been granted on a worldwide basis with increasing frequency in our global economy. The purpose of the injunction in both circumstances is to ensure that a judgment can be enforced in the exceptional circumstances where the plaintiff, after making the required full and frank disclosure, establishes a strong prima facie case on the merits.

[39] The record before the motion judge included an affidavit of the trustee sworn August 22, 2014 in which he deposed, at para. 322, that, based on information provided by Lipman Koras, his lawyers in Hong Kong, the granting of the Mareva injunction in Ontario would be regarded "as an important step to similar freezing orders being obtained in respect of [the appellants] assets in Hong Kong". He specifically indicated, at para. 322(iii), that,

Broadly speaking, in the event that the SFC Litigation Trust is successful at trial against Chan and a monetary award is made, that award is likely to be capable of being enforced in Hong Kong [page392] at common law assuming the Hong Kong Court has jurisdiction over Chan and Chan has assets in Hong Kong capable of being applied towards the judgment debt. It is anticipated that jurisdiction of the Hong Kong Court over Chan will be established assuming Chan, who is a Hong Kong resident, can be served in Hong Kong, although this is not the exclusive means of establishing jurisdiction. The evidence that Chan has assets in the jurisdiction is set out above.

[40] Further, he deposed, at para. 322(iv), that while there was no specific requirement under Hong Kong law that the Mareva injunction be obtained in Ontario, where the substantive proceedings are taking place is a "prerequisite to an application in Hong Kong",

However, the Hong Kong court has indicated that, unless circumstances are demonstrated to show why this approach would not be appropriate, it is desirable for a worldwide Mareva injunction to be sought from the Court seized with the substantive dispute between the parties as that court is likely to have an excellent "feel" for the case, given it has been pleaded in that court. I am informed by Lipman Karas that this is particularly likely to be the case on the present facts as the Ontario Court has already had extensive dealings with the circumstances relating to SFC's demise and is the Court most familiar with the case.

[41] I note that, as pointed out by appellant's counsel, Sharpe J.A. also outlined that the English Court of Appeal has set out guidelines for when permission would be granted to enforce a worldwide freezing order in another jurisdiction in Dadourian Group Int. Inc. v. Simms, [2006] 1 W.L.R. 2499, [2006] 3 All E.R. 48 (C.A.), at para. 25. I note that these guidelines relate to the enforcement of the order as opposed to the granting of the order itself. The fact that no court in this jurisdiction has discussed guidelines for enforcement does not detract from a conclusion that the order of the motion judge was correctly made.

[42] It is significant that the appellant worked in Ontario. He was the chief executive officer of a company carrying on business in Ontario. The appellant has been sued in this jurisdiction. He has retained counsel and he has attorned to this jurisdiction. As counsel for the respondent notes, the appellant appeared through counsel throughout the CCAA proceeding and is, as they put it, "not a stranger" to this court. He was a litigant by choice in the CCAA proceeding. He is also a defendant in an ongoing class action and is subject to an investigation by the Ontario Securities Commission. The appellant, as chief executive officer, chose to list Sino-Forrest Corporation in the Toronto capital markets. He chose to be a director and officer of that company. The in personam jurisdiction of the court is clear.

[43] It is also significant that the motion judge found a strong prima facie case that the appellant committed fraud and that there was evidence that he dissipated assets. [page393]

[44] These circumstances reflect the "overriding consideration" described in Feigelman, qualifying the respondent to obtain a Mareva injunction.

[45] Considering the Ontario court's in personam jurisdiction, the purpose of a Mareva injunction, and the evolutionary development of this equitable remedy beginning with the guidelines set out by Lord Denning, as outlined by the Ontario Court of Appeal in Chitel, I am satisfied that the motion judge committed no error in law in finding it just and convenient to issue the Mareva injunction.

Issue #2: Did the motion judge err in law in holding that the respondent's proposed undertaking as to damages along with the undertaking from Emerald Plantation was a sufficient undertaking and was sufficient to provide security for costs

[46] The appellant sought leave to adduce two pieces of fresh evidence: a writ of summons filed against the appellant with the Hong Kong court in 2013 and a public notice of the sale of, what the appellant indicates is, a majority of Emerald Plantation's assets on June 7, 2016.

[47] Fresh evidence may be admitted if it meets the four criteria established by the Supreme Court of Canada in R. v. Palmer, [1980] 1 S.C.R. 759, [1979] S.C.J. No. 126, 106 D.L.R. (3d) 212: the evidence was not available at the time the motion was heard, the evidence is relevant in the sense that it bears upon a decisive issue on the motion, it is credible in the sense that it is reasonably capable of belief and if believed it could reasonably, when taken with the other evidence presented on the motion, be expected to have affected the result.

[48] The writ of summons does not meet the Palmer test. It is only relevant to the issue of jurisdiction and whether a court in Ontario was the proper forum to issue a Mareva injunction. Given the scope of the appeal established by Pattillo J. in granting leave to appeal, the writ of summons is not relevant to the appeal. As noted above, the appellant has attorned to this jurisdiction.

[49] In relation to the notice of sale, I find that it does meet the Palmer test. The sale did not occur until June 7, 2016. Evidence of the sale is credible and uncontradicted. The sale of assets is relevant to whether Emerald Plantation's undertaking is sufficient to provide security for costs and damages.

[50] However, although I am prepared to admit the notice of sale as fresh evidence on the appeal, I observe that the sufficiency of the undertaking as to damages ordered by the motion judge is a question of fact and was in the discretion of the motion [page394] judge. Similarly, the motion judge's finding that Emerald Plantations' undertaking as to damages was sufficient to secure the appellants' cost in the action reflects a discretionary exercise of judgment. The appellant has not established any palpable and overriding error of fact or error in principle by the motion judge justifying a reversal of those decisions.

[51] Courts have accepted undertakings from non-residents with foreign assets (see SolarBlue LLC v. Aus, [2013] O.J. No. 5800, 2013 ONSC 7638 (S.C.J.), at para. 22; Telesis Technologies, Inc. v. Sure Controls Systems Inc., [2010] O.J. No. 4875, 2010 ONSC 5288 (S.C.J.), at paras. 61-67) and the appellant has pointed to no legal or statutory authority which indicates that doing so constitutes an error in principle.

[52] As noted above, as part of its undertaking, Emerald Plantation was obliged to notify the appellant if it experienced a material change in its financial position affecting its undertaking. If the appellant contends that Emerald Plantation has not complied with of the order of the motion judge, such an issue can be brought before the motion judge for his consideration.

Conclusion

[53] For the reasons given, I would dismiss the appeal. I decline to set aside or vary the Mareva injunction or grant the relief sought by the appellant.

Costs

[54] At the conclusion of the hearing of the appeal, counsel advised that they had agreed that the successful party be awarded all inclusive costs of $60,000. The respondent was successful on the appeal and is therefore awarded costs in the amount agreed upon by counsel.

[55] PATTILLO J. (dissenting): -- I have reviewed the reasons of my colleague and with great respect, while I agree with her disposition of the appellant's motion to adduce fresh evidence on the appeal, I am unable to agree with her reasons dismissing the appeal. In my view, the learned motion judge erred in granting the Mareva injunction given that the appellant had no assets in the jurisdiction. I am further of the view that the motion judge erred in concluding that the undertaking of Emerald Plantation Holding Ltd. ("Emerald Plantation") together with the undertaking of Cosimo Borrelli personally was sufficient security for the appellant's damages or costs. Accordingly, I would allow the appeal and set aside the Mareva injunction. [page395]

[56] Except as otherwise set out herein, I agree with the background facts as set out at paras. 3 to12 of Madame Justice Leitch's reasons.

Mareva Injunctions

[57] A Mareva injunction operates to freeze the defendant's eligible assets until judgment. It is an extraordinary remedy which can and often does result in extremely harsh consequences.

[58] The Mareva injunction had its genesis in the courts of England between 1975 and 1980. It was developed, as Estey J. said in Aetna Financial Services Ltd. v. Feigelman, [1985] 1 S.C.R. 2, [1985] S.C.J. No. 1, at para. 41, "to fend off the depredations of shady mariners operating out of far-away havens, usually on the fringe of legally organized commerce". It is an exception to the rule in Lister & Co. v. Stubbs (1890), 45 Ch. D. 1, [1886-90] All E.R. Rep. 797 (C.A.) that the court will not grant an injunction to enable execution before judgment.

[59] The purpose of the Mareva injunction is to pre-empt any action by the defendant to remove his or her assets from the jurisdiction and therefore negate any judgment given by the court in the action.

[60] The leading case in Ontario in respect of the granting of Mareva injunctions is the Court of Appeal's decision in Chitel v. Rothbart (1982), 39 O.R. (2d) 513, [1982] O.J. No. 3540 (C.A.). In Chitel, after reviewing the English authority that gave rise to the Mareva, MacKinnon A.C.J.O., writing on behalf of the court, adopted what Lord Denning M.R. referred to as "guidelines" in Third Chandris Shipping Corp. v. Unimarine S.A.; The Pythis, [1979] Q.B. 645, [1979] 2 All E.R. 972, [1979] 2 Lloyd's Rep. 184 (C.A.), at pp. 894-95 Q.B., with some notable changes. Those "guidelines" provide that the moving party must establish

(1) a strong prima facie case;

(2) that the defendant has assets in the jurisdiction;

(3) that there is a real risk that the defendant will remove his assets from the jurisdiction or dissipate those assets to avoid judgment;

(4) that the moving party will suffer irreparable harm if the injunction is not granted;

(5) that the balance of convenience favours granting the injunction; and

(6) the moving party must give an undertaking as to damages. [page396]

[61] Since Chitel, the courts of Ontario have followed the requirements set down in Chitel for granting Mareva injunctions. See, for example, DiMenza v. Richardson Greenshields of Canada Ltd. (1989), 74 O.R. (2d) 172, [1989] O.J. No. 3231 (Div. Ct.); United States of America v. Yemec (2005), 75 O.R. (3d) 52, [2005] O.J. No. 1165 (Div. Ct.); Croatian (Toronto) Credit Union Ltd. v. Vinski, [2010] O.J. No. 700, 2010 ONSC 1197 (S.C.J.); Sibley & Associates LP v. Ross (2011), 2011 ONSC 2951, 106 O.R. (3d) 494, [2011] O.J. No. 2656 (S.C.J.); 2057552 Ontario Inc. v. Dick, [2015] O.J. No. 2545, 2015 ONSC 3182 (S.C.J.).

[62] In Aetna, the Supreme Court considered the question of whether a Mareva injunction was available in a federal setting. In considering the issue, the court canvassed how the courts of Canada have dealt with the Mareva injunction. In so doing, the court referred to the Court of Appeal's decision in Chitel and the test it established. Estey J. summarized the Chitel decision as follows, at para. 30: "In summary, the Ontario Court of Appeal recognized Lister as the general rule, and Mareva as a aelimited 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 aeto avoid the possibility of a judgment . . .'".

[63] Section 101(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides, in part, that in the Superior Court of Justice, an interlocutory injunction may be granted where it appears to a judge of the court to be "just or convenient to do so".

[64] As noted by McRurer C.J.H.C. in Chesapeake & Ohio Ry. Co. v. Ball, [1953] O.R. 843, [1953] O.J. No. 693 (H.C.J.), at p. 854 O.R., the granting of an interlocutory injunction is a matter of judicial discretion, "but it is a discretion to be exercised on judicial principles".

[65] Whether the requirements for the issuance of a Mareva injunction as set out in Chitel are referred to as "guidelines", "rules", "criteria", "requirements" or a "test", they represent the judicial principles upon which the court shall exercise its discretion to issue a Mareva injunction.

[66] In the present case, there is no issue that the appellant had no assets in Ontario or in Canada. In such circumstances, the respondent was unable to meet the requirement in Chitel that the appellant had assets in the jurisdiction. Accordingly, the motion judge erred in granting the Mareva in this case with the result that it should be set aside. In my view, Chitel remains the law of Ontario and it does not lie in this court to hold otherwise. [page397]

[67] In Penner v. Niagara (Regional Police Services Board), [2013] 2 S.C.R. 125, [2013] S.C.J. No. 19, 2013 SCC 19, at para. 27, the Supreme Court stated that one of the grounds for setting aside a discretionary decision of a lower court is if that court misdirected itself. In my view, in failing to follow the requirements set out in Chitel, the motion judge misdirected himself.

[68] Unlike my colleagues, I do not consider the issue in this case to be one of jurisdiction. There is no issue that the appellant attorned to the jurisdiction of the court. Rather, I view the issue as an error by the motion judge in the exercise of his discretion.

[69] Whether a Mareva injunction should be expanded to encompass assets outside the jurisdiction in the absence of assets in the jurisdiction in circumstances such as here where the defendant is not a resident of the jurisdiction raises policy issues that I do not need to get into.

[70] I need only say that I do not disagree with the comments of Weiler J.A. in R. v. Consolidated Fastfrate Transport Inc. (1995), 24 O.R. (3d) 564, [1995] O.J. No. 1855, 83 O.A.C. 1 (C.A.), at para. 145, that in recognizing the availability of the Mareva injunction in Ontario, Chitel does not foreclose all situations where a Mareva can be granted. I am of the view, however, that if the requirements for a Mareva as set out in Chitel are to change, it is the Court of Appeal and not this court that must change them.

The Undertaking

[71] As noted, the Mareva injunction is a harsh remedy, particularly given that it is most often granted on an ex parte basis. As stated by Estey J. in Aetna, at para. 43: "There is still, as in the days of Lister, a profound unfairness in a rule which sees one's assets tied up indefinitely pending trial of an action which may not succeed, and even if it does succeed, which may result in an award of far less than the caged assets." For that reason, the courts have put in place various safeguards to prevent abuse and injustice. One such safeguard which was set out by Lord Denning in the Third Chandris Shipping Corp. and adopted in Chitel is the requirement that the moving party must provide an undertaking as to damages.

[72] In his brief endorsement granting the ex parte Mareva injunction on August 28, 2014, the motion judge made no mention of an undertaking. In fairness, however, in the last paragraph of his endorsement, the motion judge ordered that a Mareva injunction shall issue on the terms of the attached order. The August 28, 2014 order (the "order") provides in part, in the second preamble, "and on noting the undertaking of the Plaintiff [page398] to abide by any Order this Court may make concerning damages arising from the granting and enforcement of this Order".

[73] Cosimo Borrelli, the trustee of the SFC Litigation Trust (the "trustee") and the plaintiff in the action, filed two affidavits in support of the Mareva motion. The first affidavit, sworn August 22, 2014, was filed in support of the initial ex parte order. The second affidavit, sworn June 6, 2015, supplements the first affidavit and was filed in response to the appellant's motion to set aside or vary the Mareva injunction.

[74] The trustee's first affidavit contains 330 paragraphs and is 111 pages in length. The last two paragraphs deal with the undertaking, and are as follows:

329. I understand that unless relieved of the obligation by this Court, the SFC Litigation Trust must provide an undertaking to abide by any order concerning damages that the Court may make if it ultimately appears that the granting of the order it seeks has caused damage to Chan for which the SFC Litigation Trust ought to compensate Chan. On behalf of the SFC Litigation Trust, I am prepared to provide that undertaking if it is required.

330. Given the lack of transparency with respect to the location of billions of dollars in assets, the Litigation Trust's ability to provide an undertaking as to damages is somewhat constrained. However, the Litigation Trust currently holds several choses in action in Hong Kong and Ontario against a number of third parties and outstanding litigation in Ontario against a number of other third parties. The Litigation Trust also holds assets in Canada by way of accounts receivables in relation to the settlement of certain litigation.

[75] It is clear from the last sentence, in para. 329, above, that, despite the preamble in the order, the trustee was not providing an undertaking as to damages, unless required. I do not blame the motion judge for the disconnect, given the volume of material before him and the urgency of the situation. It was up to counsel to point out that no undertaking was offered unless required by the court.

[76] Following the order, it is clear that the trustee considered no undertaking was required because no undertaking was provided. It was not until February 23, 2015, some six months after the order, that the trustee provided an undertaking and then only because the appellant's counsel raised the issue before the motion judge at an appearance on January 30, 2015 and the motion judge indicates that he intended that the undertaking be provided. Even then, the undertaking provided was by the litigation trust and signed by the trustee. The appellant objected to the form of the undertaking and took the position that it should come from the trustee personally.

[77] The appellant's motion to vary the Mareva injunction was commenced on April 24, 2015 and included requests for orders [page399] that the trustee provide a proper undertaking for damages; that the trustee post security for his undertaking; and requiring the trustee to post security for costs.

[78] The trustee's second affidavit, which is 99 pages long and contains 311 paragraphs, makes no mention of the undertaking.

[79] On the return of the motion, the respondent attached as Schedule "D" to its factum a letter from Emerald Plantation dated August 12, 2015 signed on its behalf by James Dubow, its chief executive officer. The letter provides, among other things, that if the Ontario court was not prepared to accept the adequacy of the trustee's undertaking, Emerald Plantation agreed "to provide a similar undertaking in damages to the Court in respect of the Mareva injunction in support of the Trustee's claim against the Defendant". The letter further states that "if necessary", Emerald Plantation will undertake to pay any costs orders made against the trustee in the action.

[80] The letter sets out that Emerald Plantation was a newly incorporated entity owned by certain creditors of Sino-Forest Corporation ("SFC") which, pursuant a plan of compromise and reorganization under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 and the Canada Business Corporations Act, R.S.C. 1985, c. C-44 involving SFC, received substantially all SFC's assets and business. The letter also refers to consolidated financial statements of Emerald Plantation which indicated it had net assets of US$348,681,000 as at December 31, 2013. Mr. Dubow further confirmed that Emerald Plantation's net assets as at December 31, 2014 were US$226 million.

[81] In his January 21, 2016 reasons for decision confirming the Mareva, the motion judge directed (para. 64) that the trustee provide his personal undertaking as to damages. However, because it was not clear on the evidence that the trustee had sufficient assets within the jurisdiction to satisfy the appellant's potential damages arising from the Mareva injunction, the motion judge further ordered that Emerald Plantation must also provide an undertaking as to damages on "essentially the same terms as the draft undertaking as to damages attached as Appendix D to the plaintiff's factum".

[82] In addition, based on the undertaking in the Dubow letter to pay costs, the motion judge stated he was satisfied that the undertaking as to damages by Emerald Plantation was sufficient to protect the appellant with respect to his costs (para. 65).

[83] In my view, the determination of the sufficiency of an undertaking as to damages is discretionary and, accordingly, can only be set aside if the motion judge misdirected himself or where the decision is so clearly wrong that it amounts to an [page400] injustice or gives no or insufficient weight to relevant considerations: Penner, at para. 27.

[84] In my view, having determined that the trustee's personal undertaking was insufficient, the motion judge was clearly wrong on the basis of the evidence and more particularly the lack of evidence in holding that Emerald Plantation's undertaking was sufficient. Emerald Plantation was not a party to the action. It had filed no affidavit and was not subject to cross-examination concerning the undertaking. Emerald Plantation is a foreign entity and there was no evidence that it had sufficient assets within the jurisdiction, let alone any assets, to satisfy any potential damages the appellant might suffer. The concern the motion judge expressed with respect to adequacy of the trustee's personal undertaking was also present in respect of Emerald Plantation's undertaking.

[85] Given the potential damages that can arise from a Mareva improperly issued, the undertaking to abide by any order of the court concerning those damages must be meaningful and have substance. The motion judge was aware that in order for the trustee's undertaking to be acceptable, there had to be evidence of assets in the jurisdiction to support the undertaking. To permit Emerald Plantation's undertaking in the absence of any evidence of assets in the jurisdiction or any posted security was clearly wrong in my view. Further, it creates an injustice in that the undertakings of both the trustee and Emerald Plantation have no substance given the absence of either assets in the jurisdiction or posted security. In such circumstances, the undertakings are unenforceable by the court and therefore of no protection to the appellant.

[86] For the same reasons, I am of the view that the motion judge's decision that the undertaking of Emerald Plantation was sufficient to cover the appellant's request for security for costs was also clearly wrong.

[87] As a result, I would also allow the appeal in respect of the issue of the adequacy of the undertakings. If the issue of the undertakings was the only issue before us, I would remit the question of the undertaking back to the motion judge for reconsideration. Such an order is not necessary, however, given that I have concluded that the motion judge erred in granting the Mareva.

[88] For the above reasons, therefore, I would allow the appeal, set the Mareva injunction aside and refer the matter back to the motion judge for a determination of the damages suffered by the appellant, if any.

Appeal dismissed.

End of Document