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Mareva Injunction issued for Failed Residential Home Sale Closing

On March 30, 2020, Justice Bail of the Ontario Superior Court of Justice issued his reasons to support continuing a freezing (Mareva) injunction against two properties owned by would-be buyers of a home owner. This is an unusual application of a Mareva injunction.

The plaintiffs / moving parties were Leeroy Christian-Philip and Anusha Kanagasabai (collectively “Christian”). The defendants were Varathaajan Rajalingam and Kosalai Annalingam. On a motion without notice, Christian obtained an interim Mareva injunction restraining the Defendants from dissipating, transferring or encumbering their assets. On a motion with notice to continue the injunction, the Defendants asked that the Mareva injunction be dissolved.

What happend?

On April 4, 2017, Christian the Defendants entered into an agreement of purchase and sale for a property in Pickering. The purchase price was $2.5M. The closing date was July 26, 2017. On July 24, 2017, the Defendants asked for an extension to close. Christian denied the request.

On January 22, 2018, the Defendants commenced an action against Christian.  The Defendants alleged that Christian made misrepresentations to them that they relied upon when they signed the agreement of purchase and sale. On February 2, 2018, Christian sued the Defendants alleging breach of contract for their failure to pay the sale price on the closing date.

On January 27, 2020, Christian brought a motion for a Mareva (asset freeze) injunction against and without notice to the Defendants. The Court granted the order. The asset freeze order froze the bank accounts of the Defendants and was registered against the title to two properties owned by the defendant Rajalingam. The freeze order on the bank accounts caused automatic debits to be dishonoured and put into jeopardy the closing of a sale of a restaurant.

The three-part test

On February 6, 2020, Christian brought a motion to extend the injunction. The Court reduced the scope of the property that the freeze order applied to but otherwise continued it. The Court referred to the three-part test of (1) whether the plaintiff has a serious question to be tried, (2) whether the plaintiff will suffer irreparable harm if the injunction is not granted, and (3) the balance of convenience. The Court also referred to the additional factors relevant to an asset freezing injunction being (1) whether the plaintiff has a strong prima facie case, (2) whether the defendant has assets in the jurisdiction, and (3) whether there is a serious risk the defendant will dissipate assets or remove property from the jurisdiction before judgment.

The Court held that strength on one of the part of the test could compensate for weaknesses in the evidence to support other parts of the test – and that a holistic approach should be taken when considering whether an asset freezing order is appropriate.

With respect to the strong prima facie case part of the test, it applied to Christian’s allegation of breach of contract. The Court held that the defendants’ allegations of misrepresentations were not credible because the contract contained an “entire agreement” clause and the alleged misrepresentations were merely negotiations before the contract was signed. In other words, Christian was not required to prove fraud – he was simply required to prove he had a strong case of breach of contract in order to obtain an asset freezing order as against the Defendants.

The location of assets

The location of assets in the jurisdiction was a simple matter. With respect to Christian proving that there was a risk of the defendants dissipating their assets before trial to avoid the consequences of a judgment, the Court held the test could be made through inferences drawn from the evidence presented (as opposed to direct evidence). So for example, evidence of prior fraudulent conduct was relevant that further fraudulent conduct would occur. In March 2010, Rajalingam was convicted of defrauding CIBC, RBC, TD and Sears Financial of a total of $13,041, and received a one-year conditional sentence. The Court held that these convictions were entered over ten years ago and therefore had no bearing on the decision.

Christian led evidence that the Defendants had sold four properties after they failed to close on Christian’s Pickering property, and they transferred a restaurant for nominal value. The Court held that in most circumstances this would not amount to sufficient evidence to support the risk of dissipation test, but in this case the Defendants did not deny that those transfers were conducted for the purpose of putting assets out of the reach of the plaintiffs. This factor, and that irreparable harm could be inferred by the fact that the Defendants would not have assets to recover from, were sufficient for the Court to find that Christian had proven what was required for a general asset freezing (Mareva) order.

The two assets the Defendants had at the time of the motion were their marital home and a rental property. The Court held that since they did not intend to sell these properties, a continuation of the Mareva injunction would not be an inconvenience for them. On this basis, Justice Bail ordered the continuation of the freeze order to trial.

The decision was reported as Christian-Philip v. Rajalingam, 2020 ONSC 1925, and is available here. Counsel for the plaintiff was Gerald Matlofsky. Counsel for the Defendants was Stephanie Turnham of Devry Smith Frank LLP.