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<xTITLE>Canada – Injunction and Increased Costs Ordered Where Arbitral Award Funds Were Core of Dispute</xTITLE>

Canada – Injunction and Increased Costs Ordered Where Arbitral Award Funds Were Core of Dispute

by Daniel Urbas
August 2020 Daniel Urbas

In awarding costs on a substantial indemnity basis in Ndrive v. Zhou, 2020 ONSC 4568, Mr. Justice John R. McCarthy drew attention to a defendant’s conduct which “unnecessarily extended and complicated” Mareva injunction proceedings in which arbitral award funds were the “core of the dispute between the parties”.  McCarthy J. underlined the importance of Mareva injunctions as a tool in civil litigation “to address the problem posed when a defendant utilizes the time lag between a claim being prosecuted and a plaintiff’s attainment and execution upon a judgment to divest itself of assets which would otherwise be available to satisfy that judgment in whole or in part”.  Also, see notes regarding an arbitrator’s jurisdiction under the Arbitration Act, 1991, SO 1991, c 17 to issue ex parte preservation orders against arbitral parties and an arbitrator’s lack of jurisdiction to issue Mareva injunctions against non-parties.

Plaintiff sought costs on a substantial indemnity basis against defendants Mr. Si Zhou and Aguazion Inc. for a pair of motions Plaintiff brought successfully against them: a Mareva injunction granted May 6, 2020, renewed and extended on May 22, 2020; and, a second motion to v-ary the initial Mareva injunction, granted on June 19, 2020.  McCarthy J. heard both those motions.

In brief reasons, McCarthy J. endorsed the importance of a Mareva injunction in civil litigation.

[5] It is difficult to overstate the importance of a mareva injunction in civil proceedings.  While not all civil actions involve the recovery of money from an opposing party, a great many do.  And while many defendants in civil proceedings are entities for which payment of a judgment is, if not routine, then certainly common place (to wit insurance companies, municipalities, banks and large corporations), there are just as many or more entities for which the payment of a judgment might prove ruinous, or at the very least, quite devastating financially.  For that reason, making oneself “judgment proof” by putting personal or corporate assets beyond the reach of potential judgment creditors has been a feature of the civil litigation landscape for as long as civil judgments have been rendered”.

In his reasons, McCarthy J. referred to certain actions taken by Mr. Zhou to transfer arbitral award funds out of an account into which they had been initially deposited which McCarthy J. wrote “form the core of the dispute between the parties”.  Though his reasons do not offer much more information about the nature of the parties’ dispute over those “arbitral award funds”, when considering the principle of proportionality McCarthy J. did characterize the dispute as “high stakes litigation over a significant sum of money”. In that context, McCarthy J. commented on the mischief which might prompt issuance of a Mareva injunction.

[6] The mareva injunction is a tool designed to address the problem posed when a defendant utilizes the time lag between a claim being prosecuted and a plaintiff’s attainment and execution upon a judgment to divest itself of assets which would otherwise be available to satisfy that judgment in whole or in part.  A preservation of assets order, also known in commercial parlance as a “freezing order”, is thus of great utility.  It is often the only means by which to preserve exigible assets where other forms of security for payment of a judgment such as liens, charges, cautions or guarantees are unavailable”.

In deciding Plaintiff’s application for costs, McCarthy J. had particular knowledge of the procedural history between the parties, having issued the initial orders.  His comments on Mr. Zhou’s conduct lead him to determine that Mr. Zhou had “unnecessarily extended and complicated the procedure”.  In particular, McCarthy J. found that “the second motion would have been unnecessary had Zhou not mislead the Plaintiff in respect of both his assets and his handling of the arbitral award funds”.

McCarthy J. distinguished between the costs owing for the first motion and those for the second.  He accepted that costs for the first would be in the cause and limited to a partial indemnity rate.

In choosing to grant costs on a substantial indemnity for the second motion, McCarthy J. commended Plaintiff’s counsel at para. 12 for their efforts in presenting Plaintiff’s case and “coping” with the “new normal” of remote hearings.

I have no doubt that counsel for the Plaintiff worked assiduously to marshal the evidence, research the law and prepare the extensive materials for presentation to the court in a digestible format, all the while mindful of the looming spectre of asset dissipation and coping with the new normal of electronic filings and remote hearings during the current pandemic. They are to be commended for their efforts”.

McCarthy J. issued an order against “Defendant” to pay $52,415.07 forthwith as costs for the second motion.  At para. 1, Mr. Zhou and Aguazion Inc. were styled as “the defendants” but the reasons referred to Mr. Zhou and the order referred to “Defendant” without clarifying whether he singular meant just Mr. Zhou or the plural ought to have been used to include both Mr. Zhou and Aguazion Inc.

urbitral note – First, For a recent, oft-cited Ontario case stating/applying the requirements for a Mareva injunction, see Sibley & Associates LP v. Ross, 2011 ONSC 2951.

Second, regarding an application to set aside an arbitral award granting a Mareva injunction, see Farah v. Sauvageau Holdings Inc., 2011 ONSC 1819.  In the latter case, the court at paras 50-73 determined that arbitrators have no jurisdiction to grant Mareva injunctions affecting the rights of third parties and at paras 74-85 explored the circumstances in which an arbitrator can proceed ex parte.

Third, McCarthy J.’s comments on Mr. Zhou ‘unnecessarily extending and complicating’ the procedure appear to overlap conclusions which likely supported McCarthy J.’s earlier decisions on the Mareva injunctions.  At para. 7, McCarthy J. observed that “[t]he ability and propensity on the part of Zhou to transfer funds was central to the court’s ultimate decision to grant the mareva order”.

Similar to the conduct which might have justified issuing a Mareva injunction, McCarthy J. drew attention to the manner in which a defendant resists such motions. A defendant can resist a motion but, at a point, that resistance can exceed what is ‘necessary’ and contribute to justifying a higher costs consequence.


Daniel Urbas is an experienced litigator, arbitrator and mediator with over 25 years of dispute resolution experience. He has earned a variety of repeat, annual peer recognitions including “Leading Lawyer” in “Commercial Arbitration” in the 2019 edition of the Lexpert ® / American Lawyer Guide to the Leading 500 Lawyers in Canada, “Most Frequently Recommended” in the 2019 edition of The Canadian Legal Lexpert® Directory for Commercial Arbitration, “Thought Leader” in 2019 edition of Who’s Who Legal – Litigation and AV® Preeminent™ by Martindale-Hubbell®.

Daniel focuses exclusively on serving as an arbitrator and mediator.  As arbitrator, Daniel serves as a sole arbitrator, as chair or as party-nominated member of three (3) member arbitration tribunals. His appointments have been made by individual parties, by the parties jointly on consent, by court orders and by various administering institutions including ICC, CCAC and IATA.

A Fellow of the Chartered Institute of Arbitrators (“CIArb”) based in London, UK, as well as a founding Director of the CIArb’s Canada Branch, Daniel is listed on various rosters including general commercial rosters organized by the ICDR, CIETAC and BCICAC and on more specialized, industry/activity specific rosters such as the Canada Transport Agency’s roster.

Daniel’s dispute resolution experience spans a variety of commercial and civil matters, intellectual property (including anti-piracy and anti-counterfeiting litigation) and information technologies, energy (wind, bio), natural resources (mining, forestry, fishing), shareholder disputes, real estate and lease disputes, product liability, construction, distribution and franchise, Aboriginal law matters including treaty and land claims litigation and dispute resolution of agreements relating to governance and natural resource development on native peoples’ territories.

He handled trial and appellate advocacy, as well as urgent and extraordinary applications. He has appeared before the provincial and federal courts, including the Supreme Court of Canada, as well as before arbitration tribunals and various administrative tribunals. Fluently bilingual in both English and French with degrees in both Common Law and Civil Law, Daniel is an active member of the Barreau du Québec, the Law Society of Ontario and the Law Society of British Columbia.  At his former national law firm, up until June 2017, Daniel served as Regional Leader of the International Trade Litigation and Arbitration group and Regional Leader of the Intellectual Property Litigation group. Formerly, Daniel was also Regional Leader of the Commercial Litigation group and National Leader of the Intellectual Property Litigation group.

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