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Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
Interim Injunctions to Freeze Assets in Fraud Cases
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Interim Injunctions to Freeze Assets in Fraud Cases

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Presentation by Pamela Pengelley

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  • 1. Mills Injunctions and Chancellors’ Feet Interim Orders to Freeze Assets in the Context of a Civil Action for Fraud
  • 2. Agenda <ul><li>Introduction - John v. Judy </li></ul><ul><li>Quick Historical Background: Common Law Principles &amp; Equitable Discretion </li></ul><ul><li>UK </li></ul><ul><ul><li>Lister v. Stubbs and its Traditional Exceptions </li></ul></ul><ul><ul><li>The “Shady Mariner” Exceptions </li></ul></ul><ul><li>Canada </li></ul><ul><ul><li>Lister v. Stubbs and its Traditional Exceptions </li></ul></ul><ul><ul><li>The Mills Exception </li></ul></ul><ul><ul><li>Competing Principles – Mills and Mareva </li></ul></ul><ul><ul><ul><li>Canadian Pacific Airlines v. Hind (1981) SCJ </li></ul></ul></ul><ul><ul><ul><li>Chitel v. Rothbart (1982) CA </li></ul></ul></ul><ul><ul><ul><li>AG for Ontario v. Stranges (1984) HCJ </li></ul></ul></ul><ul><ul><ul><li>Aetna Financial Services v. Feigelman (1985) SCC </li></ul></ul></ul><ul><ul><ul><li>R v. Consolidated Fastfraste Transport (1995) CA </li></ul></ul></ul><ul><ul><ul><li>663309 Ontario Inc. v. Bauman (2000) SCJ </li></ul></ul></ul><ul><ul><ul><li>SLMsoft.com v. Rampart Securities (2005) Div. Ct. </li></ul></ul></ul><ul><li>4 Competing Views – Should there be a fraud exception? </li></ul><ul><li>What do we tell John? </li></ul>
  • 3. A client, John, comes to see you….
  • 4. Judy’s version of events….
  • 5. Quick digression to the middle ages for some historical perspective…
  • 6. Origins of Common Law <ul><li>Common or “judge-made” law, as opposed to legislation. </li></ul><ul><li>Damages were the only remedy. </li></ul><ul><li>Judges had to abide by strict rules in granting relief, which often led to unfairness. </li></ul>
  • 7. Petitions to the Chancellor, the “Keeper of Royal Justice”
  • 8. Equity &amp; The Chancellor’s Foot <ul><li>‘ T is all one as if they should make the standard for the measure we call a &amp;quot;foot&amp;quot; a Chancellor&apos;s foot; what an uncertain measure would this be! </li></ul><ul><li>One Chancellor has a long foot, another a short foot, a third an indifferent foot. &apos;T is the same thing in the Chancellor&apos;s conscience. </li></ul><ul><li>- John Selden </li></ul>Equity is a roguish thing, for law we have a measure to know what to trust to. Equity is according to the conscience of him who is Chancellor as it is large or narrower so is equity.
  • 9. Judicature Acts, 1873-75 <ul><li>Unified the English Court system by reducing the historically independent courts of common law and equity into one supreme court </li></ul><ul><li>Established for all divisions of the court a uniform system of pleading and procedure </li></ul><ul><li>In cases of conflict between common law and equity, the rules of equity would prevail. </li></ul>
  • 10. Injunctions <ul><li>An equitable remedy. </li></ul><ul><li>A person is ordered to refrain from doing something (prohibitive) or ordered to do something (mandatory). </li></ul><ul><li>Can be temporary (Interlocutory, Interim, Preliminary) or final (Permanent, Perpetual) </li></ul>
  • 11. Judicature Act, 1873 (U.K.) <ul><li>Section 25(8): An injunction may be granted…by an interlocutory order of the court in all cases in which it shall appear to the court to be just or convenient that such an order should be made; and any such order may be made either unconditionally or upon such terms and conditions as the court thinks just. </li></ul>
  • 12. Ontario’s Courts of Justice Act <ul><li>101. (1) In the Superior Court of Justice, an interlocutory injunction…may be granted…where it appears to a judge of the court to be just or convenient to do so. R.S.O. 1990, c. C.43, s. 101 (1) </li></ul>
  • 13. What is “Just and Convenient”? <ul><li>Legal Principles vs. Judicial Discretion </li></ul><ul><li>A court should not grant an injunction simply because it is ‘convenient’ to do so. Rather, injunctions should be granted for the protection of rights or the prevention of injury according to legal principles . Aslatt v. Corp. of Southampton (1880), 16 Ch. D. 143. </li></ul><ul><li>When a statute gives discretion, the courts must not fetter it by rigid rules from which a judge is never at liberty to depart. Considerations may change as public policy changes: this is all part of the evolutionary process. Ward v. James, [1965] 2 All E.R. 76. </li></ul>
  • 14. (Now back to John and Judy) <ul><li>Can a court direct Judy not to deplete her assets before trial in order to ensure that she will be able to pay a potential future judgment? </li></ul>
  • 15. The Common Law Rule <ul><li>Generally, a defendant is not required to provide security before judgment. </li></ul><ul><li>Known as the Rule in Lister v. Stubbs (1890), 45 Ch.D.1. </li></ul>
  • 16. Remember: Lister v. “ Stubbs ” No security before judgment
  • 17. The Exception: <ul><li>To preserve property that is the subject matter the of the litigation and is in danger of being dissipated. </li></ul>
  • 18. But then in 1881… Campbell v. Campbell <ul><li>Plaintiff was seeking alimony from her ex-husband. The ex-husband transferred a house to his brother-in-law. </li></ul><ul><li>The brother-in-law admitted that he had conspired to deal with the land to prevent the plaintiff from recovering alimony. </li></ul><ul><li>The house was not the subject-matter of the litigation! </li></ul>
  • 19. Campbell v. Campbell (1881) <ul><li>“ Where a fraudulent disposal has actually been made of a defendant’s property, the Court will intercept the further alienation of that property and keep it in the hands of the grantee until the plaintiff can obtain a declaration of invalidity with respect to the conveyance and recover judgment for the amount claimed.” </li></ul>
  • 20. Exceptions to <ul><li>To preserve property that is the subject matter the of the litigation and is in danger of being dissipated. </li></ul><ul><li>To preserve property that has been the subject of a fraudulent transfer (even if not the subject matter of the litigation) so as to prevent fraud on the court and the adversary. </li></ul>
  • 21. Then, in 1975...it all changed.
  • 22. The 4 “Shady Mariner” Cases 1975-79 <ul><li>NYK </li></ul><ul><li>Mareva </li></ul><ul><li>Rasu </li></ul><ul><li>Chandris </li></ul>
  • 23. #1 - The NYK Case <ul><li>Nippon Yusen Kaisha v. Karageorgis [1975] 3 All E.R. 282 (C.A), Ex parte </li></ul>
  • 24. The NYK Case <ul><li>“ We are told that an injunction of this kind has never been done before. It has never been the practice of the English Courts to seize assets of a defendant in advance of judgment or to restrain the disposal of them ... It seems to me that the time has come when we should revise our practice .” </li></ul>
  • 25. The NYK Case <ul><li>Is it just and convenient ? </li></ul><ul><li>“ It seems to me that this is just such a case. There is a strong prima facie case that the hire is owing and unpaid. If an injunction is not granted, these moneys may be removed out of the jurisdiction and the ship-owners will have the greatest difficulty in recovering anything.” </li></ul><ul><li>Lord Denning did not mention the common law rule: </li></ul>
  • 26. The NYK Case <ul><li>Ex parte application </li></ul><ul><li>Strong prima facie case on the merits; </li></ul><ul><li>Foreign (Greek) defendants who could not be located; </li></ul><ul><li>Liquid assets in court’s jurisdiction that are easily transferred; </li></ul><ul><li>Plaintiff would have “great difficulty” enforcing judgment if order not granted; </li></ul><ul><li>Just and convenient </li></ul>
  • 27. #2 - The Mareva Case <ul><li>Mareva Compania Naviera SA v. International Bulkcarriers SA , [1975] 2 Lloyd 109 (C.A.) heard one month after NYK (ex parte). </li></ul>
  • 28. Facts:
  • 29. The Mareva Case <ul><li>The motion judge thought NYK case was wrong since Denning didn’t mention Lister v. Stubbs , so sent it up to him to reconsider. </li></ul><ul><li>Lord Denning said: </li></ul><ul><li>“ There is money in a bank in London which stands in the name of these [defendants]. The [defendants] have control of it. They may at any time dispose of it or remove it out of this country. If they do so, the [plaintiffs] may never get their charter hire.” </li></ul><ul><li>“ In face of this danger, I think this court ought to grant an injunction to restrain the [defendants] from disposing of these moneys now in the bank in London until the trial or judgment in this action. If the [defendants] have any grievance about it when they hear of it, they can apply to discharge it.” </li></ul>
  • 30. The Mareva Case <ul><li>1. If appears that the debt is due and owing , and </li></ul><ul><li>2. There is a danger that the debtor may dispose of his assets so as to defeat it before judgment , </li></ul><ul><li>Then the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets. </li></ul><ul><li>(relied on Judicature Act &amp; Halsbursy’s Laws) </li></ul>
  • 31. Mareva Case <ul><li>Ex parte application </li></ul><ul><li>Strong prima facie case on the merits; </li></ul><ul><li>Foreign defendants; </li></ul><ul><li>Liquid assets in court’s jurisdiction that are easily transferred; </li></ul><ul><li>Plaintiff would have “great difficulty” enforcing judgment if order not granted </li></ul><ul><li>Defendant can apply to vary order on short notice. </li></ul><ul><li>Therefore “Just and Convenient” </li></ul>
  • 32. #3 – The Rasu Case <ul><li>Rasu Maritime S.A. v. Pertamina, [1978] Q.B. 644 (C.A.) – on notice. </li></ul>Bruce Rappoport (Swiss Billionaire/Oil Magnate) Indonesian General Ibnu Sutowa (a.k.a. “The General”)
  • 33. The Rasu Case <ul><li>Principles: </li></ul><ul><li>Plaintiff need only show a “good, arguable case”. </li></ul><ul><li>The asset need not be limited to money and could goods, although the jurisdiction should be exercised with particular care. </li></ul><ul><li>Relief should be granted whenever it is just to do so. Precise rules should not be laid down for its exercise. </li></ul><ul><li>Where the injunction might compel the defendant to provide security, it might tilt the scales in favor of issuance of the injunction. (The practice of the European courts was to compel foreign defendants to provide security – as per the Rome Treaty, England should follow suit.) </li></ul>
  • 34. The Rasu Case <ul><li>Relevant Considerations: </li></ul><ul><li>Defendant absent from jurisdiction. </li></ul><ul><li>Defendant may be organizing assets in other jurisdictions to defeat creditors </li></ul><ul><li>Fact of injunction might compel defendant to give security. </li></ul><ul><li>BUT… </li></ul><ul><li>Goods are not being moved to evade legal process. </li></ul><ul><li>Goods are still liable to seizure in Hamburg. </li></ul><ul><li>Lack of certainty over title to the goods. </li></ul><ul><li>Value of the goods vis a vis the total claim – a “drop in the ocean”. </li></ul><ul><li>Seizure and sale of the goods would only realize a faction of their true worth ($390,000) vs. an integral part of a factory being built in Indonesia ($12 million). </li></ul><ul><li>The Court refused to continue the injunction. </li></ul>
  • 35. A Problem: <ul><li>Following Rasu, Mareva injunctions became commonplace and summary in nature. </li></ul><ul><li>A plaintiff’s affidavit would simply set out the nature of the claim, state that the defendant was abroad and assert that, if the injunction was refused, a judgment would go unsatisfied. Specific assets were rarely identified. </li></ul><ul><li>Courts would hear approximately 20 applications per month, and almost all were granted. </li></ul><ul><li>Applications to discharge injunctions were very rare. </li></ul>
  • 36. #4 - The Chandris Case <ul><li>Third Chandris Shipping Corp. et al. v. Unimarine S.A., [1979] Q.B. 645 (C.A.). </li></ul><ul><li>At the time the defendant’s bank account was frozen, the account was in overdraft. Defendants sought to lift the injunction since they were precluded from operating their business in the U.K. </li></ul><ul><li>The motion judge expressed concern that the were being too freely given but having regard to court’s practice, refused to lift the injunction (the defendants were free to post security to un-freeze the account or prove other assets were available). The defendant appealed to Lord Denning. </li></ul><ul><li>Denning J. acknowledged, “ As much as I am in favor of the Mareva injunction, it must not be stretched too far lest it be endangered .” </li></ul>
  • 37. The Chandris Case <ul><li>Lord Denning’s Five Guidelines: </li></ul><ul><li>1. The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know </li></ul><ul><li>2. The plaintiff should give particulars of his claim against the defendant, stating the ground of his claim and the amount thereof, and fairly stating the points made against it by the defendant. </li></ul><ul><li>3. The plaintiff should give some grounds for believing that the defendants have assets within the court’s jurisdiction. </li></ul><ul><li>The plaintiff should give some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied. The mere fact that a defendant is abroad is not, by itself, sufficient. Relevant considerations include, for example, corporate structure, financial disclosure, reciprocal enforcement of judgments, country of incorporation. </li></ul><ul><li>5. Plaintiff must give an undertaking as to damages . </li></ul>
  • 38. Supreme Court Act, 1981 (U.K.) <ul><li>Section 37(3): </li></ul><ul><li>The power of the High Court to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with, the assets located within that jurisdiction shall be exercisable in cases where that party is, as well as in cases where he is not, domiciled, resident or present within that jurisdiction. </li></ul>
  • 39. Features of the “Mareva Injunction” <ul><li>Usually obtained ex parte for short duration with continuance sought on notice to defendant. </li></ul><ul><li>An order directed to D to preserve the assets than in rem (against the property itself) and does not affect creditor priorities. </li></ul><ul><li>Court orders only bind those to whom they are addressed. However, it is contempt of court if someone, knowing of the terms of the court order, assists in the breach of that order. </li></ul><ul><li>Commonly served on banks to freeze D’s accounts. </li></ul><ul><li>Does not permit P to take possession of the assets. </li></ul><ul><li>Enforceable by contempt. </li></ul><ul><li>in question. </li></ul><ul><li>In personam (against the person) rather </li></ul>
  • 40. UK Exceptions to Lister v. Stubbs: <ul><li>To preserve property that is the subject matter the of the litigation and is in danger of being dissipated. </li></ul><ul><li>To preserve property that has been the subject of a fraudulent transfer (even if not the subject matter of the litigation) so as to prevent fraud on the court and the adversary. (Campbell) </li></ul><ul><li>To preserve property where there is a risk of the assets being removed before the judgment or award is satisfied as per Denning’s ‘shady mariner’ cases. (Mareva) </li></ul>
  • 41. Meanwhile, back in Canada…
  • 42. Exceptions to Lister v. Stubbs: <ul><li>To preserve property that is the subject matter the of the litigation and is in danger of being dissipated. </li></ul><ul><li>To preserve property that has been the subject of a fraudulent transfer (even if not the subject matter of the litigation) so as to prevent fraud on the court and the adversary. (Campbell) </li></ul>
  • 43. Mills and Mills v. Petrovic (1980) <ul><li>30 O.R. (2d) 238 (H.C.) </li></ul><ul><li>On notice to defendant before Galligan J. </li></ul><ul><li>Facts: Sparse facts were given. Defendant was an accountant who was alleged to have stolen $100k from her employer and was facing criminal charges for theft. An interlocutory injunction was brought to restrain her and her husband from selling their jointly-owned house . (*No indication of whether the proceeds of the fraud were paid into the house.*) </li></ul><ul><ul><li>Strong prima facie case of theft </li></ul></ul><ul><ul><li>House is the defendant’s only asset </li></ul></ul>Former Justice Patrick T. Galligan Q.C. is a founding member of ADR Chambers. He was appointed to the Supreme Court of Ontario in February 1970 and to the Ontario Court of Appeal in February 1989. In December 1995, he retired from the Bench and commenced his practice in Alternative Dispute Resolution.
  • 44. The “Mills” Injunction <ul><li>No mention of the Mareva line of cases </li></ul><ul><li>“ Equity demands that there be an exception [to the common law rule of no security before judgment] where there is substantial evidence supporting an allegation that the defendant has stolen from the plaintiff .” </li></ul><ul><li>Equity permits a person who has been defrauded from or stolen from by a defendant to have some measure of relief that would not be available to a plaintiff in an ordinary action where fraud or theft are not issues. </li></ul><ul><li>Does there need to be a connection between the fraud and the asset to be frozen? This is not stated. </li></ul>Alleged FRAUD
  • 45. Canadian Pacific Airlines v. Hind <ul><li>[1981], O.J. No. 2983 (H.C.J.). Heard by Grange J. on notice to Ds. </li></ul><ul><li>Defendant airline station attendant with long criminal record stole a gold bar. He was convicted and thrown in jail. While in prison he received a large inheritance. </li></ul>
  • 46. Canadian Pacific Airlines v. Hind <ul><li>Recognizes that the Mareva injunction has become part of Canadian law but expressed concern that Mareva could lead to abuse. </li></ul><ul><li>There must be a very strong case and a real danger of the disposition of the only assets which will satisfy judgment. </li></ul><ul><li>He refers to Mills. “Perhaps fraud is only an element which will more readily bring about the Mareva injunction.” </li></ul><ul><li>“ I should hope that some day the Court of Appeal will be able to determine whether or not the Mareva is part of our law and if so what are its limits.” </li></ul><ul><li>Grants a Mareva Injunction. There is a risk amounting to almost a certainty that he will attempt to dispose of his assets because of his dishonesty in stealing the gold bar, as well as his long criminal record. </li></ul>
  • 47. Chitel v. Rothbart (1982) <ul><li>[1982] O.J. No. 3540 (C.A.). </li></ul><ul><li>Facts: </li></ul>
  • 48. The Chitel Case – At first instance <ul><li>Galligan J. ( Mills) originally granted an ex parte order restraining the defendant from disposing of his assets. </li></ul><ul><li>An order to continue, on notice, was heard by Anderson J. </li></ul><ul><li>The plaintiff alleged fraud, but there was no evidence that D intended to transfer or dissipate assets or remove them from the jurisdiction as per the Mareva line of cases. Although the possibility existed, they exist in every case. </li></ul><ul><li>Anderson J . felt that Mills was wrongly decided. </li></ul><ul><li>“ I can see no reason why the plaintiff with a cause of action for fraud should be given an assurance of recovery on such a judgment and not if the judgment stemmed from some other cause”. </li></ul><ul><li>Anderson J. referred the matter to the CA for an authoritative statement on the principles by which a judge should exercise discretion when issuing an interloctutory injunction. </li></ul>
  • 49. The Chitel Case – Court of Appeal <ul><li>Factual Findings of the CA: </li></ul><ul><ul><li>Plaintiff did not make full and fair disclosure of all relevant facts required for obtaining an ex parte order and so was disentitled to order; </li></ul></ul><ul><ul><li>Defendant’s wife had a plausible explanation for the transfer of title on the house; </li></ul></ul><ul><ul><li>No evidence that the defendant intended to leave his job, leave the country or dissipate his assets; </li></ul></ul><ul><ul><li>Plaintiff’s counsel was very obstructive during cross-examination on affidavits and acted improperly; </li></ul></ul><ul><ul><li>Plaintiff’s affidavit was clearly deficient and materially misleading in material aspects; </li></ul></ul><ul><ul><li>Plaintiff sought and initially secured ex parte Mareva order without identifying assets to which the order would be directed, but it wasn’t stated whether the plaintiff had knowledge of the defendant’s assets. </li></ul></ul>
  • 50. The Chitel Case – Court of Appeal <ul><li>Plaintiff’s counsel argued that he didn’t need to address the Mareva cases. He relied on Mills and Campbell, arguing that there is an exception to Lister v. Stubbs where there is a strong prima facie case of theft or fraud. </li></ul><ul><li>With respect to Campbell, MacKinnon, J., speaking for the Court, stated (para. 24): </li></ul><ul><li>24. It would be difficult to conceive of a stronger case for intervention of the court than Campbell… I have no reason to doubt that the court would take the same position today if similar facts were to arise, and to hold that such an order was “just and convenient”. In the instant case of course, there is no admitted fraud and certainly no evidence of further intended alienation of any specific property by a co-conspirator in the fraud. </li></ul>
  • 51. The Chitel Case – Court of Appeal <ul><li>25. It may well be that Mills …is a case similar to Campbell. Unhappily, the reported facts were not given in detail but it appears that the female defendant, while employed as the firm’s accountant, was charged with stealing $100,000 from it. It also appears that prior to trial, she and her husband were attempting to sell the house which they jointly owned and one can surmise that it was being alleged that some of the money stolen went into the purchase of the home . [* These facts were not actually stated in the Mills decision *]. Apparently this was their only asset. </li></ul><ul><li>26. The plaintiff there sought to restrain the sale of the house pending the outcome of the action for return of the moneys allegedly stolen. The learned Motions Court judge said that the evidence of theft was very strong but stated that he did not wish to prejudge the issue which was then pending in the criminal courts. However, later in his reasons, he stated “ It does not appear to me to be an unreasonable extension of the principle…to permit equity to give a person who has been defrauded or stolen from by the defendant some measure of relief that would not be available to a plaintiff in an ordinary action where fraud or theft are not issues ”. In this passage he appears to be making a finding for the purposes of the civil action that a theft had been committed . It may be that the facts justified the order made but, in any event, that is not this case. </li></ul>Alleged FRAUD
  • 52. The Chitel Case – Court of Appeal <ul><li>Does the Court of Appeal suggest that Mills is rightly decided or wrongly decided? </li></ul><ul><li>On what basis? </li></ul><ul><li>Is there a fraud exception to the rule in Lister v. Stubbs ? </li></ul>
  • 53. The Chitel Case – Court of Appeal <ul><li>I regard the Lister principle as remaining the rule with “the Mareva doctrine as contemplating a limited exception.” </li></ul><ul><li>The Court must be careful to ensure that the “new” Mareva injunction is not used as and does not become a weapon in the hands of plaintiffs to force inequitable settlements from defendants who cannot afford to risk ruin by having an asset or assets completely tied up for a lengthy period of time awaiting trial. </li></ul>
  • 54. The Chitel Case – Court of Appeal <ul><li>The Court of Appeal adopted Lord Denning’s Five Guidelines: </li></ul><ul><li>Guidelines 1, 2 and 5 are standard considerations for interlocutory injunctions. </li></ul><ul><li>For Mareva injunctions, guidelines 1 and 2 must establish a prima facie case. </li></ul><ul><li>1. The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know </li></ul><ul><li>2. The plaintiff should give particulars of his claim against the defendant, stating the ground of his claim and the amount thereof, and fairly stating the points made against it by the defendant. </li></ul><ul><li>… </li></ul><ul><li>5. Plaintiff must give an undertaking as to damages . </li></ul>
  • 55. The Chitel Case – Court of Appeal <ul><li>Guidelines 3 and 4 are unique to Mareva injunctions. </li></ul><ul><li>3. The plaintiff should give some grounds for believing that the defendants have assets within the court’s jurisdiction. </li></ul><ul><ul><li>Should establish assets with as much precision as possible. It would be unusual and punitive to tie up all assets - the ramifications could be destructive. If no knowledge of D’s assets, that should be stated. </li></ul></ul>
  • 56. The Chitel Case – Court of Appeal <ul><li>4. The plaintiff should give some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied. </li></ul><ul><ul><li>The applicant must persuade the court by his material that the defendant is </li></ul></ul><ul><ul><li>a) removing or there is a real risk that he is about to remove his assets from the jurisdiction to avoid the possibility of a judgment; OR </li></ul></ul><ul><ul><li>b) otherwise dissipating or disposing of his assets, in a manner clearly distinct from his usual or ordinary course of business or living , so as to render the possibility or future tracing of the assets remote, if not impossible, in fact or in law. </li></ul></ul><ul><ul><li>ISSUES: </li></ul></ul><ul><ul><li>If there is a risk that defendant will move his assets from the jurisdiction, do you need to show intent to avoid the possibility of a judgment? </li></ul></ul><ul><ul><li>Is there a different standard with respect to dissipation or disposal of assets within the jurisdiction? </li></ul></ul>
  • 57. The Chitel Case – The Court of Appeal <ul><li>After discussing Mareva Injunctions, the Court of Appeal stated at the second last paragraph that it agreed with Anderson J . that </li></ul><ul><ul><li>“ I can see no reason why the plaintiff with a cause of action for fraud should be given assurance of recovery under such a judgment and not if the judgment stemmed from some other cause .” </li></ul></ul><ul><li>MacKinnon states: “I agree with this view and I have sought to point out the considerations that must be satisfied before a Mareva injunction can be granted. However I do not have the pessimistic view taken by the motions court that all the former criteria for the granting of interlocutory injunctions are not to be disregarded. I do not believe that to be so. The Mareva Injunction is here to stay and properly so, but it is not the rule –it is the exception to the rule.” </li></ul>
  • 58. A.G. for Ontario v. Stranges (1984) <ul><li>[1984] O.J. No. 2661 (H.C.J.) </li></ul><ul><li>Defendants stole from charities, were convicted and awaiting sentencing. The AG sought to freeze their investments until sentencing. </li></ul><ul><li>Galligan J. ( Mills) heard the case. </li></ul>
  • 59. The Stranges Case (1984) <ul><li>Galligan J. noted that the Court of Appeal approved of Campbell as an exception to Lister v. Stubbs. He then went on to say: </li></ul><ul><li>“ In Chitel, reference is also made to a decision of mine in Mills, in which I restrained a defendant against whom I considered to be a strong prima facie case of theft was made out, from disposing of the only asset available to satisfy a possible judgment for recovery of the money alleged to be stolen . Because of the sparsity of the facts recited in my reasons for judgment, the Court of Appeal appears to have avoided saying that on its facts, the case was properly decided .” </li></ul>
  • 60. The Stranges Case (1984) <ul><li>However, as I read the reasons of MacKinnon J., he approved the principle upon which I acted, namely, that equity can provide to a person who has been stolen from or defrauded some measure of relief that would not be available to a plaintiff in an action in which fraud or theft are not involved . </li></ul><ul><li>When a person is stolen from, I do not think equity should be reticent about helping him recover his loss from the thief, nor particularly solicitous to the thief…It seems to me that it is clearly in the public interest that victims of theft, if possible, be quickly and summarily repaid by the thief. It is hard to understand why the indignity of theft must have added to it the hazards and delay of a lengthy civil action. </li></ul><ul><li>Since I have decided the application upon a different exception to the ordinary rule in Lister v. Stubbs, I specifically refrain from passing upon the applicability of the “Mareva” principles to this case. </li></ul>Alleged FRAUD
  • 61. Aetna Financial Services v. Feigelman <ul><li>[1985] S.C.J. No. 1. </li></ul>
  • 62. The Aetna Case (1985) <ul><li>D argued that the Mareva injunction had no place in Canada because provincial legislation filled the gap with statutory remedies: Federal Bankruptcy legislation to protect creditors, examination of judgment debtors, Absconding Debtors Act, Rule 45.01 which preserve subject-matter of proceedings, Fraudulent Conveyances /Preferences Acts, etc. The courts should not “legislate” by adopting sweeping rules of the Mareva line of cases. </li></ul><ul><li>P pointed out that there was no liquidated demand or debt or fraudulent conveyance that would fall within the legislative remedies. The Court agreed that the court’s authority to issue such an injunction would have to be expressly reduced by legislation. </li></ul>
  • 63. The Aetna Case (SCC, 1985) <ul><li>Interlocutory Injunctions are a matter of judicial discretion to be exercised on judicial principles: </li></ul><ul><ul><li>Irreparable Injury to the plaintiff; </li></ul></ul><ul><ul><li>Serious question to be tried ; and </li></ul></ul><ul><ul><li>Balance of convenience favors granting the injunction. </li></ul></ul><ul><ul><ul><li>( Refer also to RJR MacDonald Inc. v. Canada (Attorney General) , [1994] 1 S.C.R. 311). </li></ul></ul></ul><ul><li>The general rule is still Lister v. Stubbs – there is no security before judgment. </li></ul>
  • 64. Canada has 4 “ Obvious ” Exceptions <ul><li>1. To preserve assets that are the subject matter of the litigation ( i.e., Rule 45.01, Rules ); </li></ul><ul><li>2 . To protect the court’s processes/prevent abuse of process; </li></ul><ul><li>3. To prevent fraud on the court and on the adversary (the Court cites Campbell and Mills as examples! ); </li></ul><ul><li>4. Quia timet injunctions….what is this? </li></ul>Alleged FRAUD
  • 65. Just what is the Quia Timet Exception? <ul><li>Quia Timet is Latin for “because he fears”. An injunction to quiet fears of probable future injury to property . </li></ul><ul><ul><li>Permitted under extreme circumstances that include a real or impending threat to remove contested assets from a jurisdiction. </li></ul></ul><ul><ul><li>Authority comes from “Just and Convenient” language </li></ul></ul><ul><ul><li>Reviewed the 1970s shipping cases that gave rise to Mareva </li></ul></ul><ul><ul><li>Reviewed the Canadian case law, and cited Chitel with approval </li></ul></ul><ul><li>The SCC discusses the “ quia timet exception” (which includes Mareva cases) as distinct from the “fraud exception” (which includes the Mills case). </li></ul><ul><li>Does this suggest Mills and Mareva are distinct exceptions to the Rule in Lister v. Stubbs? </li></ul>
  • 66. The Aetna Case (1985) <ul><li>The overriding consideration qualifying the plaintiff to receive such an order as an exception to the Lister rule is that the defendant threatens to so arrange his assets as to defeat his adversary…in any attempt to recover from the defendant on that judgment. </li></ul><ul><li>Unless there is a genuine risk of disappearance of the assets, either inside or outside the jurisdiction, the injunction will not issue. “Jurisdiction” must be considered in a Federal setting. </li></ul><ul><li>The harshness of the Mareva injunction, usually ex parte, is relieved against by allowing the defendant the opportunity to move against the injunction immediately. </li></ul><ul><li>Expressed a concern that plaintiff may, with an apparent claim, without ultimate substance, may, by the Mareva exception to the Lister rule, tie up the assets of the defendant, not for the purpose of the preservation until judgment, but to force, by litigious blackmail, a settlement from a defendant who cannot afford to await the ultimate vindication at trial. </li></ul>
  • 67. The Aetna Case (1985) <ul><li>Chitel ( Court of Appeal) </li></ul><ul><li>Is removing or a real risk that he is about to remove his assets from the jurisdiction to avoid the possibility of a judgment ; OR </li></ul><ul><li>otherwise dissipating or disposing of his assets , in a manner clearly distinct from his usual or ordinary course of business or living, so as to render the possibility or future tracing of the assets remote, if not impossible , in fact or in law. </li></ul><ul><li>Aetna ( SCC) </li></ul><ul><li>Says that the Ontario CA recognized Lister as the general rule and Mareva as a “limited exception” only where there is a real risk that the defendant will remove his assets from the jurisdiction or dissipate those assets “ to avoid the possibility of a judgment”. </li></ul><ul><li>Estey J. seems to qualify both removal outside of the jurisdiction and dissipation as requiring an intent to defeat creditors. </li></ul><ul><li>Q: So just what is the proper test? Is a defendant’s subjective intention/improper purpose necessary ? </li></ul>
  • 68. The Aetna Case (1985) <ul><li>The UK Mareva injunction, as originally conceived, was intended to fend off “depredations of shady mariners operating out of far-away havens on the fringe of legally organized commerce”. </li></ul><ul><li>But in this Case: </li></ul><ul><li>The Manitoba writ can be enforced in Ontario and Quebec; </li></ul><ul><li>A federal company has the right to move assets in and out of provinces in the ordinary course of business; </li></ul><ul><li>Movement of public assets was announced in public pronouncements and P was expressly made aware of their impending transfer; </li></ul><ul><li>D had never previously maintained assets in Manitoba </li></ul><ul><li>D was not insolvent and had no apparent intentions to defeat its obligations; </li></ul><ul><li>D was not a foreigner or non-resident in the federal context; </li></ul><ul><li>There was no breach of law, improper purpose or attempt to defraud – rather, at issue was just a clash of rights; </li></ul><ul><li>This was simply a rightful removal of assets in the ordinary course of business by a resident D in another part of the federal system. </li></ul>
  • 69. R. v. Consolidated Fastfrate Transport <ul><li>[1995] O.J. No. 1855 (C.A.). </li></ul><ul><li>Galligan J., Holden J., and Weiler, J. </li></ul><ul><li>Fastfrate was charged under the Competition Act. The company started winding up its corporate existence. The Crown wanted to freeze Fastfrate’s assets so that they could be used to pay a fine if Fastfrate was convicted. </li></ul><ul><li>Can the Crown obtain a civil injunction for criminal law? Galligan J. says “yes” and cites Stranges with approval. </li></ul><ul><li>Q: Must the Crown demonstrate that assets are being disposed of or removed for an improper purpose? </li></ul>
  • 70. The Fastfrate Case (Ont. CA, 1995) <ul><li>Galligan J. (Majority) – Subjective Test: The intended purpose of the defendant is the decisive question. The purpose must be to make an arrangement of its assets with the intent of defeating potential creditors. He bases this on Estey’s restatement of the Chitel test at paras. 25 &amp; 30, Aetna ). </li></ul><ul><li>But he expressly states that he is only commenting on civil injunctions for use in criminal cases, not generally. </li></ul><ul><li>Weiler J. (Concurring in result) – Objective Effect: Refers to Estey’s statement at para. 26 of the general rule about the ‘gist’ of the Mareva that “unless there is a genuine risk of disappearance of assets , either inside our outside the jurisdiction, the injunction will not issue. This generally summarizes the position in our country. </li></ul>
  • 71. The Fastfrate Case (Ont. CA, 1995) <ul><li>Weiler J. explained why improper purpose shouldn’t be necessary: </li></ul><ul><li>The Mareva and the Mills injunctions are separate exceptions to the Lister v. Stubbs rule. </li></ul><ul><li>Just as the quia timet injunction was expanded by the Mareva cases, the fraud exception was expanded by Mills [an allegation of past dishonest conduct in an action may result in an injunction being obtained even where there is no evidence of any intention to deal with the asset enjoined in any improper purpose.] </li></ul><ul><li>The Mareva becomes overly complicated if evidence of improper purpose is required: </li></ul><ul><ul><li>Fraud Exception: No improper/fraudulent purpose is required re assets to be frozen, SO…. </li></ul></ul><ul><ul><li>Mareva Exception: Why should improper/fraudulent purpose must be shown re assets to be frozen? </li></ul></ul><ul><li>The real focus for all exceptions should be on the availability of assets to satisfy a judgment which is likely to be obtained because a strong prima facie case has been made out. </li></ul><ul><li>NOTE: This view was also adopted in B.C. – See Gateway Village Investments Ltd. v. Feigelman, [1985] 1 S.C.R. 2 (B.C.S.C.) as per Southin J. </li></ul>
  • 72. The Fastfrate Case (Ont. CA, 1995) <ul><li>Policy reasons why improper purpose need not be shown: </li></ul><ul><li>1. Broad discretion to grant injunction. Mareva still evolving. Flexibility is required. Improper purpose interferes unduly with court’s discretion. Judge must not become “a prisoner of formula”, but must focus on what is just and equitable. </li></ul><ul><li>2. The evolution of the Mareva cases have focused on the effect of the transfer , not the purpose of the transfer. </li></ul><ul><li>3. In Aetna, Estey J. said that, but for the jurisdiction issue, he would not have overturned – no mention of no improper purpose. </li></ul><ul><li>4. Other cogent evidence can give rise to an inference that a judgment will not be capable of enforcement. </li></ul>
  • 73. 663309 Ontario Inc. v. Bauman <ul><li>[2000] O.J. No. 2674 (S.C.J.) per Cullilty J. </li></ul><ul><li>The P used car dealer hired the D to be his comptroller/accountant. D participated in a scheme to defraud Canada Revenue of G.S.T. tax credits for the benefit of P which, when discovered, caused P to get hit with serious tax penalties. </li></ul><ul><li>No evidence that D received a personal benefit. D said that he said he was acting on instructions of P. </li></ul><ul><li>P sued D for fraud and breach of fiduciary duty. </li></ul><ul><li>The court found a prima facie case that D defrauded Government of Canada, but not P. </li></ul><ul><li>No evidence that D was contemplating removing assets from jurisdiction nor were there grounds for believing it was so. </li></ul>
  • 74. The Bauman Case <ul><li>Cullity J. notes that Mills was decided shortly after the emergence of Mareva injunctions in the UK and before they had a discernable impact in Canada. </li></ul><ul><li>Mills has more affinity with Mareva cases than the fraud cases since ‘risk of dissipation’ was behind the decision. Mills has been dropped into the wrong pigeon hole. </li></ul><ul><li>In Chitel, the CA surmised that Mills involved a case where stolen proceeds were paid into the house – the court quoted Anderson J. that there was no reason why a plaintiff with a cause of action in fraud should be treated differently. Thus, it is implicit that the Mareva test applies to fraud cases as well. </li></ul>Justice M. Cullity’s yearbook photo (1957)
  • 75. But what about… <ul><li>Galligan J. saying in Stranges he believes Chitel approved of Mills; </li></ul><ul><li>Estey J. in Aetna saying citing Mills as a “Fraud Exception”; </li></ul><ul><li>Weiler J.’s concurring opinion in Fastfrate citing Mills with approval. </li></ul><ul><li>BUT THIS NOTWITHSTANDING…. </li></ul>
  • 76. The Bauman Case <ul><li>Cullity J. concludes that Mills does not widen the “fraud exception” beyond its historical foundations to the extent that it would cover any proceedings where fraud is alleged and nothing more than a strong prima facie case is shown. </li></ul><ul><li>Where no allegedly fraudulent disposition has occurred and it is sought to restrain the defendant from disposing of the assets, the requirements for a Mareva order must be satisfied, even where the cause of action is based on fraud. </li></ul><ul><li>Even in cases of fraud, an inference must reasonably be drawn on the facts. “I do not think the relative degrees of moral turpitude that might be attributed to the conduct of the defendant on which the cause of action is based are, by themselves, necessarily relevant considerations. </li></ul>
  • 77. The Bauman Case <ul><li>The Bauman case was appealed to the Divisional Court. </li></ul><ul><li>The Divisional Court did not find error with Cullity J.’s findings on the evidence, but no opinion was voiced on Cullity J.’s findings on the law. [2001] O.J. No. 1213 (Div. Ct.). </li></ul>
  • 78. SLMsoft.com v. Rampart Securities <ul><li>[2005] O.J. No. 4847 (Div. Ct.) per Epstein J. </li></ul><ul><li>D sought leave to appeal an interlocutory order of Ground J. granting a Mareva injunction. </li></ul><ul><li>Asked for the Divisional Court to provide guidance as to the test to be applied in applications for a Mareva injunction when a prima facie case of fraud has been made out. </li></ul>
  • 79. The SLMsoft.com Case <ul><li>There is no confusion regarding the test for a Mareva injunction. </li></ul><ul><li>“ The law in this area is well settled. The proposed appeal does not raise issues that constitute matters of public importance. The issues, as in most motions of this nature, are heavily fact-driven and are thus of importance only to the parties to this litigation. They are not questions of general application.” </li></ul>
  • 80. What do we Make of All This?
  • 81. To Date, No One Authoritative View: <ul><li>There are 4 Competing Views in the Case Law…. </li></ul>
  • 82. 1. There is a Mills Injunction <ul><li>Mills and Mareva are separate and distinct exceptions to the rule in Lister v Stubbs. If a prima facie case of fraud is shown, plaintiff does NOT have a show a risk of dissipation of assets. </li></ul><ul><ul><li>Bonfield Construction Co. (1983) Ltd. v. Kar, [1997] O.J. No. 1464 (Gen. Div.) per Grossi J. </li></ul></ul><ul><ul><li>ICBC v. Leland, [1999] B.C.J. No. 2073 (B.C.S.C.) per Clancy J. </li></ul></ul><ul><ul><li>Brown v. Brewin, [2003] O.J. No. 3905 (S.C.J.) per Dawson J. </li></ul></ul><ul><ul><li>Voketel Inc. v. More, [2006] O.J. No. 4781 (S.C.J.) per Brown J. </li></ul></ul><ul><ul><li>State Farm v. Brijlal et al., [2007] O.J. No. 2439 (S.C.J.) per Brown J. </li></ul></ul>
  • 83. 2. There is a Mills Injunction, but… <ul><li>The assets to be frozen must in some way be a product of, or traceable to, the fraud. </li></ul><ul><ul><li>Durrani v. Augier, [1995] O.J. No. 3496 (Gen. Div.) per Lane J. </li></ul></ul><ul><ul><li>Milford Realty Inc. v. Lee, [1998] O.J. No. 2034 (Gen. Div.) per Lane J. </li></ul></ul><ul><ul><li>Transmaris Farms Ltd. v. Sieber, [1999] O.J. No. 300 (Gen. Div.) per Blair J. </li></ul></ul><ul><ul><li>Don Bodkin Leasing Ltd. v. Dwyer, [2001] O.J. No. 1581 (Ont. S.C.J.), per Kealey J. </li></ul></ul><ul><ul><li>L.A. v. J.B., [2002] O.J. No. 4157 (S.C.J.) per Lane J. </li></ul></ul>
  • 84. 3. No Mills Injunction <ul><li>The plaintiff must either show a fraudulent conveyance ( Campbell ) or meet the Mareva test. The obligation to demonstrate a real risk of dissipation of assets is required even when an action is based on fraud. </li></ul><ul><ul><li>663309 Ontario Inc. v. Bauman, [2000] O.J. no. 2647 (S.C.J.) per Cullity J. </li></ul></ul><ul><ul><li>The United States of America et al. v. Yemec et al., [2003] O.J. No. 3863 (S.C.J.) per Gans J. </li></ul></ul><ul><ul><li>Sansone v. D’Addario, [2006] O.J. No. 1434 (S.C.J.) per Mesbur J. </li></ul></ul><ul><ul><li>Gateway Internet Solutions Inc. v. Gonsalves, [2007] O.J. No. 2114 (S.C.J.) per Lederer J. </li></ul></ul><ul><ul><li>Popack v. Lipszye, [2008] O.J. No. 3380 (S.C.J.) per Pollack J. </li></ul></ul><ul><ul><li>Croatian (Toronto) Credit Union Ltd. v. Vinski, [2010] O.J. No. 700 (S.C.J.) per Cameron J. </li></ul></ul>
  • 85. 4. Subspecies of Mareva <ul><li>The test for a Mareva injunction is subject to a “fraud exception” in which a prima facie case of fraud will create an inference of a real risk of dissipation of assets. </li></ul><ul><ul><li>Nippon Express Canada Ltd. v. Provan, [2002] O.J. No. 2643 (S.C.J.) per Blair J . </li></ul></ul><ul><ul><li>Manufacturer’s Life Insurance Co. v. Suggett , [1992] O.J. No. 2600 (Gen. Div.) per Philp J . </li></ul></ul><ul><ul><li>SLMsoft Inc. v. Rampart Securities, [2004] O.J. No. 3290 (Gen. Div.) per Ground J. </li></ul></ul>
  • 86. What do we tell John? <ul><li>Is the law on Mills Injunctions a “Chancellor’s Foot”? </li></ul><ul><li>Should a plaintiff with a strong cause of action in fraud be given extra protection? </li></ul><ul><ul><li>A judgment in fraud is treated differently than other judgments - it cannot be discharged by bankruptcy. </li></ul></ul><ul><ul><li>A defrauded plaintiff is not a voluntary (contractual) creditor, and unlike most tort claimants, is the victim of D’s intentional criminal act. </li></ul></ul><ul><ul><li>Unlike most judgments in tort, a judgment in fraud will not be satisfied by D’s insurance owing to policy exclusions. </li></ul></ul><ul><ul><li>Should these considerations justify special treatment? </li></ul></ul>

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