Wednesday, 7 March 2012

Mareva Injunctions Against Trust Assets


No Mareva injunctions against trust assets... at least, apparently, without a good reason.

In The Owners, Strata Plan No. VIS3578 v. Canan Investment Group Ltd., 2012 BCSC 339, Madam Justice Wedge confirmed that Mareva injunctions are generally subject to the same rules as registration of judgments under s. 86 of the Court Order Enforcement Act: assets held by a party in trust for someone else are not exigible and are excluded from execution. However, she did appear to leave some room for argument that, in appropriate circumstances, even trust assets could be restrained.

This decision arises in a leaky condo case where the plaintiff strata is suing a cornucopia of developers, contractors and trades.  Plaza 88, against whom a Mareva injunction was sought, was the “nominal” general contractor for the Metropolitan project in Victoria. Although the lawsuit commenced in 2002, naming the developer and Degelder Construction (the “de facto” general contractor), Plaza was not sought to be added as a defendant until 2007, and was not actually added until 2010.  

In 2005, Plaza became involved in a joint venture to build several condo towers in New Westminster. A property owned by Plaza was contributed to the JV and Plaza became a bare trustee for the two JV parties, one of which was a company owned by Mr. Degelder, the principal of Degelder Construction.  Plaza’s property was transferred to the JV as part of Mr. Degelder’s contribution.  As the bare trustee, Plaza agreed to "hold legal title to the property as bare trustee for the sole benefit and account of” the JV parties.  In the application for a Mareva injunction, the Plaintiff argued that remaining units in the New Westminster condo towers were Plaza’s only exigible assets and thus sought an order to keep the net proceeds from sales of these units, up to a maximum amount, in a lawyer's trust account pending disposition of the action.

For the parties, the issue appeared to be whether the Plaintiff needed to establish “a strong prima facie case” or a “good arguable case”.  However, for the court, the crux of the matter was whether the units were Plaza’s exigible assets.  For the following reasons, Wedge J. concluded that they were not:

1) the evidence did not indicate that Plaza “ought to have known”, when the writ was served on Degelder Construction in 2003, that Plaza may also be added to the action, and thus should have refrained from transferring the property to the JV (¶28);

2) although Plaza was a signatory to the JV agreement, by its express terms, Plaza was only a bare trustee, and not a joint venturer (¶34);

3) even if Plaza was a joint venturer, a potentially ambiguous clause dealing with payment of expenses and liabilities from the JV receipts was interpreted as applying only to expenses and liabilities related to the JV (¶33-35):
4.16 Expenses: Expenses incurred in the conduct of the business activities of the Joint Venture payable or paid, and losses, costs, damages, and liabilities incurred by the Joint Venture shall be paid: …
4) reciting well-established common law principles that “the judgment can only attach to the extent that the judgment debtor has a beneficial interest in the property”, Wedge J. concluded that the units held by Plaza as the bare trustee for the JV were not exigible (¶36-43).  In particular, Wedge J. relied on Davidson v. Davidson, [1946] S.C.R. 115 at 117 & 121, Bank of Montreal v. Fulthorp, 2006 BCCA 166, and Joyal v. Joyal (1995), 8 B.C.L.R. (3d) 148 at 156 (S.C.).

The decision does, however, leave unanswered the question of what would have happened if Plaza really ought to have known that it was at risk in this litigation.  Would that have been sufficient to break through the exigibility barrier and bind the trust assets?