Lawyers practicing creditor-debtor law in Canada will want to take note of a recent decision from the Alberta Court of Queen’s Bench, Talisman Energy Inc. v. Flo-Dynamics Inc, 2015 ABQB 340. The Court held it could order a defendant to an Alberta lawsuit to transfer money located in another country back to Canada, pending trial. The Court ultimately declined to exercise this power, but by finding that it could order such relief, the Court has provided plaintiffs with an important pre-judgment remedy when suing sophisticated debtors, who have assets located in other jurisdictions. At the same time, the Court has indicated that this remedy is onerous, and will only be granted when less intrusive alternatives are not available to preserve assets, pending trial.
The Factual Background
Alleged Breach of Fiduciary Duty
One of the individual defendants in the lawsuit was a former employee of Talisman Energy Inc. (“Talisman”). Talisman alleged that the individual defendant directed valuable contracts to companies, in which he had undisclosed financial interests. Talisman sued the individual defendant for breach of fiduciary duty (amongst other causes of action).[1]
Transferring Money to Austria
Three weeks after being served with Talisman’s Statement of Claim, the individual defendant transferred $4 Million USD out of a corporate defendant’s account, through a number of intermediary accounts, and finally into a bank account in Austria.[2] He jointly held the Austrian account with another defendant. The individual defendant’s only asset of significant value remaining in Canada was a house in Calgary, worth $1.7 million.[3]
The Procedural Background
Talisman applied for a “mareva type” order requiring that the funds be transferred back to Canada and placed in a lawyer’s trust account. In the alternative, Talisman asked the Court to grant a worldwide mareva order, prohibiting any person from dealing with the funds in the Austrian bank account.[4] Pending a full hearing of Talisman’s application, the individual defendant agreed to an Interim Order, pursuant to which he would provide Talisman with 15 days notice before dealing with the funds in the Austrian account.[5]
The Court’s Decision
Despite finding that it had the power to grant an order requiring that the funds be transferred back to Canada, the Court declined to do so, and instead ordered that the funds be placed in a solicitor’s trust fund in Austria. The defendant continued under an obligation to give Talisman notice before withdrawing the funds.[6]
The Test for a Mareva Injunction
A mareva injunction is an “interlocutory order restraining a civil defendant from disposing of or handling assets in a specific way prior to trial.”[7] To obtain a mareva injunction, the plaintiff must show:
- A strong prima facie case, and
- A real risk that the respondent will remove the assets from the jurisdiction, or dissipate them to avoid execution.[8]
The Court was satisfied that both elements of the test had been met.
- Talisman had a strong prima facie case. The individual defendant admitted that one of his companies received significant payments (>$27 million) from Talisman, some of which he approved in the course of his employment at Talisman. He in turn received dividends and other income from that company. He did not disclose his interest in the company to Talisman, in breach of Talisman’s Policy on Business Conduct and Ethics. The Court held that Talisman had established a prima facie case sounding in breach of contract, and breach of fiduciary duty.[9]
- The risk of the defendant dissipating his assets to avoid execution was high. He moved the funds out of Canada shortly after being served with a Statement of Claim. He subsequently concealed the existence of the Austrian account for over a year, and only revealed it when questioned as part of the lawsuit.[10]
The Court’s in personam jurisdiction over the defendant
The Court was also satisfied that the mareva injunction could be used to order a defendant to transfer assets held in another country back to Canada, because the Court had in personam jurisdiction over the defendant.[11]
The Court’s reasons for not granting the mareva injunction
The Court declined to grant the requested order because the risk of the assets being dissipated could be mitigated with a less onerous order. Courts are cautious when granting mareva injunctions, because they are granted before the plaintiff’s claims have been substantiated.[12] The Court cautioned that it would not assist plaintiffs in “paralyzing the activities of any person or firm against whom he makes his claim by freezing assets” so that the plaintiff is guaranteed recovery if its claim succeeds.[13] The Court saw no compelling reason to order the transfer of the funds back to Canada.[14] Neither the fact it would be difficult to enforce a judgment in Austria, nor that the defendant had few other assets in Canada swayed the Court.
What Would it Take to Get the Order?
What more could Talisman have done to convince the Court to exercise its jurisdiction to order the repatriation of the funds? The Court’s reasons point to one possible answer. Talisman had relied on the English case of Derby & Co Ltd v Weldon (No 6).[15] The Court quoted a passage from Derby. One of the English judges, in concurring reasons, had opined “the exercise of authority to transfer assets may be appropriate where the assets are in a country ‘which has no effective system of law...’”[16]
The Alberta Court was concerned with preserving the defendant’s assets, pending the outcome of the trial, as opposed to facilitating enforcement, in the event the plaintiff succeeded at trial. Because Austria’s legal system provided sufficient safeguards to preserve the funds, the Court did not deem it necessary to have them returned to Canada. The result may have been different if the funds had been transferred to a country without a robust legal mechanism for preserving the assets.
[1] Talisman Energy Inc v Flo-Dynamics Systems Inc, 2015 ABQB 340 at para 4 [“Talisman”].
[2] Ibid at para 5.
[3] Ibid at para 13.
[4] Ibid at para 6.
[5] Ibid at paras 2, 7-8.
[6] Ibid at paras 2, 7-8.
[7] Ibid at para 21, citing Aetna Financial Services v Feigelman, [1985] 1 SCR 2 at para 1, 15 DLR (4th) 161 [“Aetna"].
[8] Talisman, ibid at para 23.
[9] Ibid at para 39.
[10] Ibid at paras 40-43.
[11] Ibid at para 25.
[12] Ibid at paras 46-48.
[13] Ibid at para 24, citing Aetna, supra note 7 at 8.
[14] Ibid at paras 48-49.
[15] Derby & Co Ltd v Weldon (No 6), [1990] 3 All ER 263.
[16] Talisman, supra note 1 at para 29, citing Derby & Co Ltd, ibid at 276.
