ONTARIO – Mareva/Norwich Orders. In cases where there is a strong prima facie case of fraud, breach of trust or breach of fiduciary duty, non-disclosure on the investment details, and evidence of dissipation of assets, the court will issue an interlocutory Mareva injunction and an interim Norwich order requiring production of documentation from third party financial institutions.

ONTARIO – Business Relationships – Promissory Notes are not conclusive evidence of the nature of the business relationship between the parties.

Bradley J. Grant Investments Inc. v. Nestig Inc. et al
2023 ONSC 4373 (CanLII)
Ontario Superior Court of Justice (Ricchetti J.)

The Plaintiff brought a motion on notice on short notice for Mareva and Norwich orders. The Applicant made advances to the Defendant in 2019. In December 2021, the Plaintiff  agreed to re-advance $51 million to the Defendants, which was to be invested in mortgages or short-term loans. In return, the Plaintiff was promised 10% of the sale proceeds from the sale of Nestig and repayment of the advances in January 2022. The Defendant left the mortgage brokerage business in 2022 and his mortgage broker license expired in March 2022. Nestig’s license was suspended in June 2023. No payments were made to the Plaintiff.

The Plaintiff alleged fraud related to the receipt, transfer and distribution of monies by the Defendants. The Plaintiff’s loans were to mature in January 2022. The funds were not returned to the Plaintiff and information/documentation regarding the investment of the funds was deficient. At the same time, the individual Defendant was disposing of certain assets including the business, real estate, and racehorses and it appeared that he was moving to the USA. In addition, the corporate Defendant was in process of being sold, although the Plaintiff was aware of this fact at the time of his 2021 advances.

The Defendants’ position was that the advances were loans evidenced by promissory notes and Nestig did not have the ability to repay the notes when they came due.

Analysis

To obtain a Mareva injunction the moving party must establish the following:

1. It has a strong prima facie case;
2. There is a serious risk the defendant has or will attempt to move property out of reach or dissipate the assets before judgment to defeat enforcement;
3. The moving party will suffer irreparable harm;
4. The balance of convenience favours granting an interlocutory injunction; and
5. The moving party has given an undertaking as to damages. (para. 33)

The risk of removal or dissipation of assets can be established by inference as set out in

Sibley & Associates v Ross. (para. 35)

Mareva orders are not limited to actions involving and establishing proof of ownership or fraud in every case. (paras. 37 and 38)

To obtain a Norwich Order, the moving party must establish the following:

1. The plaintiff has a bona fide claim or potential claim against the defendant;
2. The party from whom production is sought has a connection to the wrong beyond being a witness. (The classic situation is a financial institution which unknowingly is or was in receipt of or transferring allegedly fraudulent funds);
3. The party from whom production is sought must be the only practical source of the needed information, which can be demonstrated if the defendant has refused to produce the documentation, previously provided false information, or if they are unlikely to provide accurate and complete information; and
4. The interests of justice favour obtaining the documentation. (para. 39)

Ricchetti J. rejected the Defendants’ arguments that the promissory notes defined the business relationship between the parties or that the Plaintiff was a financier of Nestig’s business through loans evidenced by promissory notes. (paras. 40–48)

The Court reviewed emails between the parties to determine the nature of the business relationship. Ricchetti J. found that the emails set out a relationship consistent with a “joint investment” business arrangement between the Plaintiff and the Defendants Mr. and Mrs. Heimbecker, the Trust and Nestig because the Defendant Heimbecker was also funding the mortgage loans, at times in equal amounts to the Plaintiff. (paras. 49–54) In addition, the Defendant Nestig and Mr. Heimbecker made repayment of the Plaintiff’s advances.

Ricchetti J. found that Mr. Heimbecker refused or failed to disclose information or documentation as to the use and underlying investment transactions to the Plaintiff. (paras. 68–74) The judge rejected the Defendants’ arguments that they had no obligation to provide this documentation in the terms of promissory notes. (paras. 76–78)

The judge held that the contemplated sale of Nestig, the intended sale of the Defendant’s farm, the sale of 27 racehorses and Mr. Heimbecker’s admission that he was “”working towards full liquidation so that the balance can be repaid in full” was evidence of dissipation and intended dissipation of assets. (paras. 85–90)

Ricchetti J. granted the interim Mareva order on the basis that the Plaintiff made out a prima facie case of fraud and breach of trust and/or breach of fiduciary duty. The judge found that Mr. Heimbecker’s detailed emails setting out the investment details as a means of inducing the Plaintiff to make the advances into those investments and non-disclosure of the use of the funds was significant evidence, as was the evidence of dissipation of assets and irreparable harm the Plaintiff will face trying to enforce a judgement as a result of the dissipation of assets. (paras.105–113)

Similarly, because the Defendants would not provide documentation about the investments to the Plaintiff, the Court granted an interim Norwich order requiring production of the documentation from various financial institutions.