ONTARIO – Mareva Injunction–Anton Piller Order – Sealing Order – An ex parte order for an interlocutory injunction to restrain the disposition of Canadian assets and the destruction of documents was granted in aid of a pending New York action, claiming damages for fraudulent inducement where the defendant had moved to Canada, had assets in Canada, had admitted to fraud and there was evidence of fabrication and destruction of documents. There was a genuine risk that the assets would be moved out of the reach of the Court and that documents would be destroyed if the orders were not made.
Bad Gremlin LLC v. Grusd
2023 ONSC 401 (CanLII), (January 16, 2023)
Superior Court of Justice (E.M. Morgan, J.)
In this ex parte motion, the Plaintiffs sought a Mareva injunction and an Anton Piller order to prevent dissipation of the defendants’ Canadian Ontario assets and to enable seizure of relevant documents to prevent their destruction and disappearance. The underlying action was issued in the US District Court for the Southern District of New York, claiming a restraining order as to disposition of $20.9 million for alleged securities violations, fraudulent inducement, breach of fiduciary duty, and other intentional torts. (paras. 1-2)
Facts and Background
The Defendant Grusd was an American residing in a rented condominium in Toronto. In the Ontario action, the Plaintiffs claimed that the co-defendants were constructive trustees of property and funds misappropriated from the Plaintiffs and transferred to them by Grusd. (para. 3)
Morgan J. noted that Grusd partially confessed to the essential elements of the fraud, including the forgery of share certificates, but that there were still questionable balance sheets and net worth statements and that there was little information about what happened to the $20 million the Plaintiffs advanced to him. The Plaintiff acknowledged that it was still in communication with Grusd but that his responses were vague and incomprehensible. (paras. 4-5)
The Court set out the rather complicated details of Grusd’s alleged fraud. The allegations involved Grusd proposing investments to the Plaintiffs totalling over USD $20 million in two foreign entities, Klarna Bank AB and Stripe Inc., in which Grusd claimed to own a significant block of shares. However, after the Plaintiffs advanced the funds, it was discovered that Grusd did not own any of the shares he claimed. Grusd started making excuses and compounding the fraud with a web of lies. (para. 7)
The Plaintiffs claimed that there was a real and genuine risk that Grusd would move his assets beyond the reach of the US court where the matter is being litigated on its merits and that he would destroy documents and information in his possession that are relevant to the Plaintiffs’ claim. (para. 6)
The Plaintiffs uncovered that Grusd had accounts at the Royal Bank in Canada and that his corporation, SG Canada LLP, owned a condominium in Montreal, which apparently was acquired after he received funds from the Plaintiffs in August 2022. The Plaintiffs admitted that assets of $2.2 million held by Grusd in Czechia were turned over to them. (para. 8)
The Plaintiffs were also concerned that Grusd would destroy documents relevant to the case and they produced some evidence that others may have assisted Grusd in fabricating documents. (paras. 9-11)
Justice Morgan noted that the Plaintiffs were understandably concerned that Grusd moved assets, as well as his own personal residence, out of the US, where the main action in this matter was being litigated, and that all the evidence led to a genuine belief that he would attempt to dispose of relevant documents and digital information, and/or transfer assets or hide them in places beyond the reach of any judgment that the Plaintiffs may obtain in the US litigation.
The Plaintiff’s belief was premised on Grusd having perpetrated a long, factually complex fraud that included a massive misrepresentation of his own net worth of supposedly US $900 million. It also included Grusd having falsified stock certificates and a bank statement, and the fact that Grusd hid his dealings with the Plaintiff’s funds from the Plaintiffs until confronted with the Plaintiff’s discovery of the falsified bank statement. (para. 9)
The Court concluded that, in addition to a Mareva injunction and an Anton Piller order, a sealing order appeared necessary until Grusd was served with the Mareva injunction and the Anton Piller order was executed.
Morgan J. was satisfied that the Plaintiffs had a strong prima facie case and that the defendant would suffer no prejudice if its assets were frozen on an interim basis. On the other hand, if the funds were not preserved by an injunction, the Plaintiffs would suffer irreparable harm that could not be compensated because Grusd would move his assets beyond the reach of both the Ontario Court and the US Court. The motion judge also noted that the Plaintiffs provided an undertaking as to damages. Therefore, the Plaintiffs met all the elements for granting the relief sought. (para. 12)
In support of the order granting the ex parte orders in respect of an action outside Ontario, the Court referred to B.M.W. E. v. Canadian Pacific Ltd., 1996 CanLII 215 (SCC) para. 16, for the proposition that ““[t]he Court has the power to grant interlocutory relief based on a cause of action recognized by English law against a defendant duly served where such relief is ancillary to a final order whether to be granted by the English court or some other court or arbitral body”.
Accordingly, while the underlying cause of action was commenced in the US, Morgan J. held that the Superior Court of Justice has jurisdiction to grant relief whose objective is to preserve assets and evidence in assistance of the US-based proceedings. (para. 13).
As a final point, Morgan J. addressed the applicability of the deemed undertaking in a case brought in aid of foreign court proceedings. Relying on Canadian Derivatives Clearing Corp. v. EFA Software Services Ltd., 2001 ABQB 425, at para 56, the Court held that any information obtained by means of the orders issued in the Ontario case may be used by the Plaintiffs in pursuit of their case in the US, that being the very purpose of the order sought. (para. 16)
This case is interesting because the Mareva injunction was made in aid of litigation in another jurisdiction. As the Mareva injunction and Anton Piller orders are, by their nature, interlocutory orders in an originating proceeding, one wonders what happens to the case after these interlocutory orders are executed. The only clue to this issue in Morgan J.’s reasons is that the Plaintiffs claimed that the two co-defendants held assets for Grusd on constructive trust, which may suggest that the underlying claim in the Ontario proceeding is for a declaration that Grusd’s assets were fraudulently conveyed to the co-defendants but Morgan J. did not address this question.
In para 8, the Court refers to Grusd’s accounts at the Royal Bank but does not specify that these accounts are located in Ontario. The only other asset referred to is a condominium apartment in Quebec. Of course, the decision does not address whether the Ontario orders will be enforceable in Quebec without an order of the Quebec Superior Court. It would not be surprising if an enforcement proceeding in Quebec were necessary.