Fulsome evidence and disclosure required for Mareva injunctions

In Private Debt Partners Senior Opportunities Fund GP Inc. v Davidson, the Court of King’s Bench of Alberta considered an application to extend an ex parte (without notice) attachment order and Mareva injunction (“Interim Order”) and a cross-application to set aside that Interim Order. The case is notable for two reasons:

• its detailed analysis of the level and type of evidence required to establish a strong prima facie case for fraud in an emergency application for an attachment order or Mareva injunction; and
• its guidance on what constitutes full, fair, and candid disclosure by counsel seeking such relief.

Interim Order

Private Debt Partners Senior Opportunities Fund GP Inc. (PDP) filed a claim against Davidson alleging fraud, and obtained the Interim Order. This relief prevented Davidson from transferring two residential properties that he owned, or dealing with the proceeds of their sale on an interim basis. Upon expiry of the Interim Order, PDP sought to extend the Interim Order until the outcome of the fraud claims against him had been determined, and Davidson cross-applied to set the Interim Order aside.

The Court was critical of the Interim Order in that relief granted therein conflated the terms of the attachment order and Mareva injunction. The Court discouraged this type of an order because it created confusion as to whether the provisions of the Civil Enforcement Act were intended to govern, or whether the principles of the law of equity should apply.

The Court proceeded to apply the strong prima facie case test for a Mareva injunction together with the principles of the law of equity, noting that in the circumstances of the case this approach was largely consistent with the Civil Enforcement Act as well.

The Court further noted that an application to set aside the Interim Order was a hearing de novo, and as such it was a hearing anew without deference to the decisions of the Judge that originally granted the Interim Order.

Ultimately, the Court ordered that the Interim Order must be set aside because there was not a strong prima facie case for fraud that was reasonably likely to succeed at trial.

Evidence required to establish a strong prima facie case for fraud

The case is notable for its analysis of the evidence required to establish a strong prima facie case for fraud. The Court’s key findings in this regard include the following:

• When asserting that Davidson used financial statements to mislead PDP, the Court could not infer that Davidson had actual knowledge of the falsity of such documents, particularly where Davidson did not prepare or control the data input into those statements.
• Even dramatically faulty projections will seldom support a characterization of fraud without significant evidence of concoction. A statement of belief in concoction must be supported in the evidence.
• Suspicion and concerns alone are insufficient to draw inferences of deliberate concoction as evidence for fraud.

Full, fair, and candid disclosure by counsel seeking ex parte injunctive relief

This case is also notable for its directions on appropriate disclosures to be made by counsel for a party applying for attachment orders or injunctive relief. The Court’s key findings in this regard include:

• The judge that granted the Interim Order in emergency chambers declined the offer of PDP’s counsel to go through the background of the alleged financial misrepresentations. The Court noted that this exchange did not discharge the counsel’s duty to provide full, fair, and candid disclosure, including adverse facts and potential defences.
• As an officer of the Court, counsel must also alert the Court to the risks associated with the extraordinary relief sought without notice, including some sense of differing interpretations and possible defences. PDP did include three paragraphs in the written brief presented to the emergency chambers judge referring to some potential factual disputes. At minimum, those needed to be drawn to the specific attention of the emergency Judge.
• The consequences of non-disclosure on application for extraordinary relief are within the discretion of the Court. While PDP’s lack of disclosure at the initial application was not fatal to its subsequent application to extend the Interim Order, the Court did consider it a relevant factor when deciding that the balance of convenience analysis did not favour PDP’s position.

Going forward

Mareva injunctions are an effective tool to prevent the dissipation of assets in cases of fraud. And while Courts will not undertake a trial-level determination of alleged fraud at an application for a Mareva Injunction, the Court in this case held that the evidence must clearly show, on its face, proof beyond mere suspicion or inference of the alleged fraud.

If you have any questions regarding Mareva injunctions in Alberta, or applications to set them aside, please reach out to the authors.