BC Court of Appeal Addresses the Use of Adverse Inferences in Mareva Injunction Applications
In the recent decision of Wu v Ma,[1] the BC Court of Appeal addressed a tool available to plaintiffs seeking a Mareva injunction who are unable to put forward positive evidence that a defendant has assets to restrain: the adverse inference. This decision highlights the unique, flexible approach courts in BC take toward granting Mareva injunctions, an exceptional interlocutory remedy.
Mareva Injunctions in BC
A Mareva injunction is an interlocutory remedy prohibiting a defendant from removing its assets from the jurisdiction or otherwise dealing with or disposing of those assets in a manner that could jeopardize the plaintiff’s ability to collect on a potential judgment. It is often sought and obtained without notice. The defendant may then apply to set aside or vary the injunction once it becomes aware of the order. A Mareva injunction is an exceptional remedy that allows a plaintiff to rest assured the defendant cannot put its assets out of reach, while severely limiting the defendant’s ability to freely deal with its own assets.
Courts in BC have discretion to grant a Mareva injunction where it is just and convenient to do so.[2] A two-part test applies:
- The applicant must establish a strong prima facie case on the merits.
- The balance of convenience must also favour the applicant. Courts will consider a broad range of factors in assessing the balance of convenience between the parties. Factors include whether the respondent has exigible assets within or outside the jurisdiction and whether there is a real risk the respondent may dispose of or dissipate those assets so as to render any judgment nugatory.[3]
Other Canadian jurisdictions take a stricter approach to granting Mareva injunctions in light of the harshness of the remedy; there tends to be greater emphasis on satisfying each element of the relevant test. For example, applicants are generally required to prove that the respondent intends to frustrate a potential judgment such that there is a serious risk of dissipation of assets.[4] By contrast, the approach taken in BC is more flexible and relaxed, with the primary focus being on the overarching question of what is just and equitable.[5] As then Justice McLachlin once put it, “the judge must not allow himself to become the prisoner of a formula.”[6]
Case Background
In 2018, the appellant, Ms. Wu, sued the respondent, Mr. Ma, and his company for damages arising from lost investment funds Ms. Wu paid to Mr. Ma and his company. Ms. Wu’s action succeeded and she was awarded judgment in the amount of approximately $1.26 million. Ms. Wu then commenced a second action against Mr. Ma and others, alleging that the defendants conspired to effect fraudulent conveyances designed to frustrate her ability to collect on the judgment.
In the context of that second action, Ms. Wu sought and obtained a Mareva injunction without notice. Mr. Ma then applied to the BC Supreme Court to set aside the Mareva injunction.
The BC Supreme Court’s Decision
On the application to set aside the Mareva order, the BC Supreme Court considered evidence that Mr. Ma withdrew hundreds of thousands of dollars from his bank accounts shortly after the award of judgment against him. Mr. Ma had previously testified at an examination in aid of execution[7] that he used some of the withdrawals to pay people he described as creditors. He could not remember the full names of those creditors or the exact amounts he gave them, nor did he have any record of those payments. Based on this evidence, the chambers judge found that there was a strong prima facie case that Mr. Ma attempted to put exigible assets out of Ms. Wu’s reach. Nonetheless, the chambers judge set aside the Mareva injunction because there was “no evidence of any significant assets still in Mr. Ma’s hands for the injunction to restrain”, which the chambers judge held was determinative.[8]
The BC Court of Appeal’s Decision
The BC Court of Appeal overturned the chambers judge’s decision. The Court of Appeal held that the chambers judge erred by not realizing it was open to him to draw an adverse inference against Mr. Ma for failing to provide a credible explanation as to why he withdrew large sums of money post-judgment.
After reiterating the BC test for Mareva injunctions, the Court of Appeal considered the need for a defendant to own exigible assets to which the Mareva order can attach. Interestingly, the Court conceived of this as a mandatory requirement. Unlike other factors in the balance of convenience analysis, which may receive more or less weight depending on the circumstances, the Court noted that the need for a defendant to own assets is “more fundamental”. The core purpose of the relief is to enjoin the prospective wrongful dissipation of assets by freezing those assets. Without assets to freeze, there is no point in granting a Mareva injunction. Nonetheless, the Court maintained that the proper (albeit “unusual”) place in the analysis for this requirement is at the balancing of interests stage.[9]
The Court of Appeal did not read the chambers judge’s reasons as having made a finding that Mr. Ma no longer possessed any assets. Rather, the chambers judge found that there was no evidence Mr. Ma possessed any assets. But in the circumstances, Ms. Wu did all she could: she put forward evidence of the withdrawals and Mr. Ma’s explanation of what he did with the money. However, she was not in a position to show definitively whether Mr. Ma still had the money. Only Mr. Ma knew what he did with the money. Given the relative ability of each party to explain what happened to the funds, coupled with the improbable story Mr. Ma gave about “[u]nexplained transfers to unknown parties”,[10] the Court of Appeal held it was open to the chambers judge to draw an adverse inference against Mr. Ma that he had significant assets to restrain.[11] The adverse inference did not shift the legal burden of proof, which remained with the plaintiff, Ms. Wu. Instead, as a matter of weighing the evidence, an adverse inference is possible in certain situations where a defendant does not adduce sufficient evidence to counter the plaintiff’s suggestion that the defendant possesses exigible assets.[12]
Putting aside this error, the Court of Appeal held that the balance of convenience clearly favoured Ms. Wu. The Court allowed the appeal and restored the initial Mareva order, subject to modification as necessary.[13]
Key Takeaways
Wu contains useful guidance from the BC Court of Appeal on Mareva injunctions. For plaintiffs seeking to obtain or uphold a Mareva order, an adverse inference could prove a useful tool for establishing that a defendant possesses exigible assets to restrain. This is particularly so given the typical relative epistemic positions of the parties, where only the defendant knows and can provide positive evidence of the status of those assets. A plaintiff’s inability to adduce positive evidence of a defendant’s assets is not determinative. The Court of Appeal’s use of an adverse inference in Wu is in line with the flexible approach to Mareva injunctions employed in BC.
On the other hand, the Court of Appeal’s comments on the “fundamental” requirement that the defendant possess exigible assets to restrain suggest less flexibility. Defendants seeking to oppose or set aside a Mareva injunction may want to point to this language in the decision as establishing a necessary precondition for granting a Mareva injunction: it can never be just and equitable to grant such an order if there are no assets to which the injunction can attach. With respect to the adverse inference aspect of the decision, defendants may wish to distinguish Wu on its facts. The Court in Wu found the defendant’s vague and improbable account of what he did with the money was not credible. Where a defendant’s version of events is more believable, an adverse inference may be unwarranted in the circumstances.
Case Information
Wu v. Ma, 2024 BCCA 196
Docket: CA49284
Date of Decision: May 27, 2024
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[1] 2024 BCCA 196 [Wu].
[2] See Law and Equity Act, RSBC 1996, c 253, s 39.
[3] See ICBC v Patko, 2008 BCCA 65 at para 25.
[4] See e.g. Clark et al v Nucare PLC, 2006 MBCA 101 at paras 36–38, 41–42; Secure 2013 Group Inc v Tiger Calcium Services Inc, 2017 ABCA 316 at para 67; Lakhani et al v Gilla Enterprises Inc et al, 2019 ONSC 1727 at para 31.
[5] See Kepis & Pobe Financial Group Inc v Timis Corporation, 2018 BCCA 420 at paras 10–18.
[6] British Columbia (Attorney General) v Wale (1986), 9 BCLR (2d) 333 at 346, 1986 CanLII 171 aff’d [1991] 1 SCR 62, 1991 CanLII 109.
[7] An examination in aid of execution is a procedure for questioning, similar to an examination for discovery, that allows a judgment creditor to question a judgment debtor about the judgment debtor’s assets, income, dealings with its property, and other matters pertinent to the enforcement of the judgment.
[8] Wu v Ma, 2023 BCSC 1390 at para 46.
[10] Wu at para 29, quoting the chambers judge’s reasons, 2023 BCSC 1390 at para 40.
