The plaintiff’s burden: frank disclosure and sufficient risk of dissipation in Mareva injunctions

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Publication November 2019

In Voysus Connection Experts Inc. v Shaikh, the defendants (the Shaikhs) were employed by the plaintiff, Voysus Connections Experts Inc. Voysus commenced an action against the Shaikhs alleging fraud, conspiracy, breach of fiduciary duty, breach of trust, unjust enrichment and conversion. Voysus alleged the Shaikhs conspired to defraud Voysus through two fraudulent schemes: the first involved hiring family members, although they performed little or no work, while the second involved misusing Voysus’ gift budget. 

Voysus obtained an ex parte Mareva injunction, restraining the Shaikhs from dissipating the proceeds of the sale of their home. On the application to continue the Mareva injunction, the court refused to grant the application. 

Lack of full and frank disclosure

The court found that Voysus had failed to make full and frank disclosure, as it failed to provide sufficient information about the fraudulent schemes and failed to support many of its allegations with adequate evidence. 

Voysus’ evidence entered through its principal, Habib, was problematic. In the affidavit supporting the application, Habib provided significant detail about Voysus’ policies and made categorical statements about the facts. However, on cross-examination, Habib backtracked significantly from his statements relating to the alleged fraudulent schemes, and responded he had “no idea” when asked basic questions about Voysus. Many of Habib’s statements regarding the alleged fraudulent hiring and paying of employees were baseless and made without proper investigation. 

The court further held that as a plaintiff seeking extraordinary relief, Voysus should not have refused to answer questions on cross-examination, aside from objections based on lawyer-client privilege. The court found that Voysus’ witnesses obscured relevant facts by refusing to answer relevant questions and undertakings.

Insufficient evidence of dissipation of assets

Voysus relied upon the inference of dissipation of assets based upon a strong case of fraud, as described in the leading case of Sibley & Associates LP v Ross. The court distinguished Sibley and found that while Voysus had demonstrated a prima facie case on the alleged fraudulent expenses scheme, the evidence was not so strong that it would give rise to an inference of dissipation.  

The court further found the link between the alleged fraud and the Shaikhs’ purchase of a home was weak. Voysus alleged that because the Shaikhs’ only source of income was from Voysus, the down payment on the property must have come from the alleged fraudulent schemes. However, the evidence of monetary gifts from the Shaikhs’ family and the Shaikhs’ lengthy and otherwise untarnished employment at Voysus countered this assertion.

Finally, the court rejected the argument that the timing of the home sale, approximately two weeks after the Shaikhs were served with the lawsuit, provided sufficient evidence of dissipation. The financial strain of the litigation and the Shaikhs’ recent unemployment provided a reasonable explanation for the timing of the sale. 

Takeaways

Mareva injunctions are an extraordinary relief that require the plaintiff to fully disclose all material matters within its knowledge. A plaintiff must include the evidence helpful and harmful to its case on such an ex parte motion. The deponents to the affidavits in support should have personal and detailed knowledge of the matters sworn to, without overstatements or speculation. 

Without a strong case of fraud, the inference in Sibley will not apply. Plaintiffs must find clear and convincing evidence to support a finding of dissipation, and careful consideration should be given to potential explanations by the defendants.



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