General Editor: Robert E. Elliott, Fasken Martineau DuMoulin LLP
VOLUME 25, NUMBER 4
Cited as 25 Nat. B.L. Rev.
SEPTEMBER 2006
• BANKS AND MAREVA ASSET-FREEZING ORDERS •
David A. Crerar*†
Borden Ladner Gervais LLP, Vancouver
Mareva injunctions, otherwise known as asset
freezing orders, are among the most potent civil litigation weapons against fraudsters. Such orders are only
practically effective if served on the third parties such
as banks and other financial institutions that hold the
assets of those fraudsters. The receipt of a Mareva
injunction places those financial institutions in a difficult position, caught between their loyalty to their
enjoined customers and the compulsion of a court
order. This article first examines potential civil and
criminal liabilities faced by financial institutions that
follow or fail to follow a Mareva injunction, as well as
defences to these liabilities. It then considers the
complexities of freezing orders served on foreign financial institutions. It concludes with a review of
practical aspects of a financial institution’s protocols
when served with a Mareva injunction.
• In This Issue •
BANKS AND MAREVA ASSET-FREEZING
ORDERS
David A. Crerar .................................................... 37
L’injonction de type Mareva, par ailleurs connue
sous le nom, d’ordonnance de gel des actifs, s’avère
sur le plan civil une des armes les plus puissantes
contre les fraudeurs. En pratique, une telle ordonnance n’est efficace que si elle est signifiée à des tiers,
tels des banques ou autres institutions financièrs, qui
détiennent des éléments d’actif appartenant au fraudeur. La signification d’une injonction Mareva à une
institution financière place cette dernière dans une
situation délicate, puisqu’elle est alors prise entre son
obligation de loyauté envers son client visé par
l’injonction et le caractère obligatoire de celle-ci.
Cet article traite d’abord de la responsabilité civile et
de la responsabilité criminelle potentielle des institutions financièrs qui se conforment, ou ne se conforment pas, à une injonction Mareva, ainsi que les
moyens de défense opposables en cas de poursuite. Il
énonce ensuite les difficultés que suscitent les ordonnances de saisie signifiées à des institutions financièrs
situées à l’étranger. Finalement, on y examine
les aspects pratiques des protocoles de l’institution
financière lorsqu’une injonction Mareva lui a été
signifiée.
1. INTRODUCTION
The Mareva injunction, or freezing order as it is
now known in England, is the most powerful weapon
in a civil litigator’s arsenal.1 As its description implies, the order freezes some or all of a party’s assets,
usually, and remarkably, well before the trial of the
dispute. A freezing order usually also compels the
National Banking Law Review
September 2006 Volume 25, No. 4
responsibilities and loyalty to their clients whose asdefendant to provide documents and information
sets have been frozen, and may in fact be liable to
about his assets.2 Recognized by England in 1975,3 by
4
them if they freeze their assets. Banks may also face
British Columbia and Manitoba in 1982, and by the
sanctions and liabilities if they fail to comply with the
Supreme Court of Canada in 1985,5 freezing orders
freezing order. The exposure faced by banks for failare now an established fixture on the English and
ure to enforce the order — whether through criminal
Canadian commercial litigation landscape. Although
sanctions such as contempt of court; or civil liability
the courts once limited their reach to the freezing of
in knowing assistance in the wrongful disposal of
assets within the geographic jurisdiction of the issutrust funds — places the modern banker in a very
ing court, Canadian and English courts have conawkward position.
firmed that they have the authority to freeze a defen6
As this article shall later review, a recent decision
dant’s assets worldwide if the case merits.
from the English Court of Appeal (since overturned)
The defendants, whose assets form the subject of
transformed these conceptual tensions and risks into
the freezing orders, tend to be rogues. Indeed, frauduvery significant civil liability: that court found that a
lent conduct on the part of the defendant is usually
claimant may sue a bank that negligently fails to
the main factor in a court granting this remedy, decomply with the freezing order and releases funds to
signed to prevent the dissipation of the defendant’s
its enjoined customer.9 Although the
assets. For this reason, the freezing
order is usually obtained without noHouse of Lords recently reversed that
The usual recipients of
tice to the defendant, in an extraordidecision, and found unanimously that the
freezing orders, and the
nary ex parte application, to prevent
bank owed no duty of care to the claimeffective agents for givthe defendant from swiftly removing or
ant that obtained the freezing order, a
ing the orders practical
dispensing his or her assets. It is usubank must be cautious to ensure that its
force, are strangers to
ally futile and naive to expect such
manner of processing such freezing orthe litigation:
defendants to respect the order and
ders complies with law and does not
non-parties whose ethirestrain themselves from moving or
tempt an allegation or finding of concal and professional
dissipating their assets. Accordingly,
tempt of court.
obligations and governthe claimant will usually serve the
This article will attempt to provide a
ing regulations make
freezing order on those entities that
practical overview for banks and other
them more respectful of
most likely have possession of the denon-party recipients of freezing orders.
a court order.
fendant’s assets. These entities will
We caution that given the scarcity of dioften learn of the freezing order even before the enrect judicial commentary on the duties and options of
joined defendant. The usual recipients of freezing
a bank served with a freezing order, much of the foreorders, and the effective agents for giving the orders
going analysis will be hypothetical. Section 2 exampractical force, are strangers to the litigation:
ines the legal liability faced by banks, caught between
non-parties whose ethical and professional obligathe Scylla of its customer and the Charybdis of the
tions and governing regulations make them more reclaimant and the court itself. Section 3 examines the
spectful of a court order. Usual non-parties holding
complicated position of a bank served with a freezing
such assets and served with freezing orders include
order originating in a foreign jurisdiction. Section 4
accounting and law firms, brokerage and investment
examines practical aspects of a bank’s rights and obhouses, insurance companies, and, most importantly,
ligations upon receipt of a freezing order.
7
financial institutions such as banks and credit unions.
2. LEGAL EXPOSURE OF BANKS
As noted recently by the House of Lords, it is now an
everyday event for banks to receive notice of freezing
(a) BROUGHT BY ENJOINED DEFENDANT-CUSTOMERS
orders.8
The complexity and speed of modern international
AGAINST BANK
commerce poses ample complications for these institutions. A freezing order, sometimes sought by a
(i) Bank’s Liabilities
stranger and issued by a court on the other side of the
globe, imposes further complexity on the banking
Banks face potential liability for improperly freezrelationship. Banks owe contractual and professional
ing a customer’s funds. The predominant causes of
38
National Banking Law Review
September 2006 Volume 25, No. 4
B.M.P. Global reached a similar result. There, the
account holder deposited a cheque to its account at
the Bank of Nova Scotia (“BNS”). BNS later received
notice from the Royal Bank of Canada that the
cheque had been fraudulently altered and that the
funds were proceeds of a fraud. A request was made
for BNS to freeze the funds on account and remit the
residue of the account to the Royal Bank. BNS did so
and was then challenged by its customer. The court
accepted that the customer could not prove entitlement to the proceeds of the cheque, but went on to
find that the process implemented by BNS was in
contravention of its account operating agreement. The
court ordered the return of some $777,000 in chargebacks against the plaintiff’s account, with nominal
amounts for consequential damages caused by the
freeze, defamation, and disclosure of private information about the plaintiff in relation to the dishonoured
cheque.
actions are breach of contract, the torts of conversion
and defamation, and common law and statutory
claims for breach of privacy.
A bank stands in a debtor-creditor relationship with
its account holders. The obligations of the bank are to
account for the funds delivered and owing to the account holder and to repay those funds to the account
holder in accordance with the terms of the relevant
banking agreements, subject only to such laws and
legal obligations as override the terms of the account
holder agreements.
In Canada, it is not unusual for banks to place
holds on funds on account when issues arise as to
the account holder’s entitlement to receipt. This
conduct has spurred litigation defining the rights
of a bank to place a hold on the funds on account
and has prompted amendments to account operating
agreements
to
This conduct has spurred litimore clearly degation
defining the rights of a
fine the rights of
bank
to
place a hold on the
the bank to do so.
funds
on
account and has
In essence, if the
prompted amendments to acbank does not
count
operating agreements to
have the right to
more
clearly define the rights
place a hold on
of
the bank to do so.
the account, the
bank is exposed to
claims by its account holder for conversion and
defamation.10
In two recent cases British Columbia courts have
found banks liable for incorrectly placing a hold on
funds on account: Global Connections Tours and Consolidators Inc. v. National Bank of Canada,11 and
B.M.P. Global Distribution Inc. v. Bank of Nova Scotia.12 In both cases, the bank placed a hold on funds
based on suspicions that the funds originated from
fraud. Neither of these cases arose in the context of a
freezing order, but are here presented as illustrations of
a potential case brought by a customer aggrieved with a
bank freezing its account.
In Global Connections, the bank placed a hold on
merchant credit card deposits made in suspicious circumstances. The account holder was in fact using the
merchant account to clear card purchases for a
non-party involved in lottery ticket sales, in contravention of the stated purpose of the account holder’s
business as a travel agent. The court held that the
bank breached its account operating agreement by
placing a hold on funds and held the bank liable for
conversion.
(ii) Bank’s Defences
Banks may defend an action for liability brought
by an enjoined customer based on four grounds:
(i) the bank’s operating agreement with the customer,
(ii) whether the bank falls under the jurisdiction of
the issuing court, (iii) possible statutory defences, and
(iv) the contents and effect of the freezing order.
First, some banks have protected themselves with
express contractual protections permitting them to
place holds on funds. An operating agreement broadly
permitting the bank to place a hold on an account
would generally protect the bank under Canadian contract law.13 For example, the HSBC Bank Canada
commercial account operating agreement reads:14
HOLD ON FUNDS
You agree that we may, place a “hold” on funds in
your Account(s):
(a) Restricting your right to make a withdrawal
based on any non-cash Instrument until we receive actual payment from the drawee. Any
credit to your Account(s) for any non-cash Instrument before we receive actual payment is
provisional and subject to reversal;
(b) If we become aware of suspicious or possible
fraudulent or unauthorized Account activity that
may cause a loss to you or us;
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National Banking Law Review
September 2006 Volume 25, No. 4
(c) If an issue arises as to who are the proper signing
authorities on your Account(s). You authorize us
to make such inquiries and perform such
searches, at your expense, as we deem necessary,
and we may apply, at your expense, to any court
of competent jurisdiction (a “Court”) seeking directions; or
…
(b) pay all or part of the principal of the deposit and
all or part of the interest thereon to or to the order of
that person.
(2) Paragraph (I)(b) does not apply if, before payment, the money deposited in the bank pursuant to
paragraph (1)(a) is claimed by some other person
…
(b) in any other action or proceeding pursuant to
which an injunction or order made by the court requiring the bank not to make payment of that
money....
(d) If, in our opinion, a potentially legitimate claim
is made by a third party on those funds, and if
not resolved in a reasonable amount of time, we
may apply to Court seeking directions, at your
expense.
Many banks do not have such powers written into
their account operating agreements however and
stand in greater risk of a suit brought for a hold
placed on their accounts.15
Second, where the bank is within the jurisdiction
of the issuing court (e.g., a British Columbia branch
is served with a British Columbia order), the bank
would have no option
but to comply with the
To many jurisdictions
order. Where both the
the order would appear
defendants and the bank
to be an extraordinary
are within the jurisdicoverreach of domestic
tion of the issuing court,
jurisdiction. In these
it is unlikely that a cuscircumstances, a bank
tomer would succeed in
may very well behave
a civil action against a
wholly responsibly in
bank for complying with
the local jurisdiction,
a domestic court order.
yet be punished for its
Where the bank is
own good works in the
outside of the jurisdicforeign jurisdiction in a
tion of the issuing court,
civil suit brought by its
liability to a customer
customer.
subject to a freezing order is a more difficult
question. The freezing order is by no means internationally accepted. To many jurisdictions the order
would appear to be an extraordinary overreach of
domestic jurisdiction. In these circumstances, a bank
may very well behave wholly responsibly in the local
jurisdiction, yet be punished for its own good works
in the foreign jurisdiction in a civil suit brought by its
customer. These issues will be more fully discussed in
Section 3 of this article.
Third, s. 437 of the Bank Act may provide a
defence:16
This section aims to enable banks to accept deposits and payments in the ordinary course of business; it
is not aimed at providing a defence to a civil claim.
Further, it would only apply where the Claimant asserted a propriety right to a specific fund deposited, a
more narrow claim than the usual broad effects of a
freezing order.
Fourth, by one leading English authority the bank
is protected from liability to its customer when it
complies with the order and freezes the defendant
customer’s accounts. Lord Denning explains the
bank’s defence and reassurance in Z Ltd. v. A:17
You may ask: suppose the defendant sued the bank
for dishonouring a cheque, what would be the answer
of the bank? In my opinion the Mareva injunction
makes it unlawful for the bank to honour the cheque:
‘It is plain that a contract to do what it has became illegal to do cannot be legally enforceable:
there cannot be default in not doing what the law
forbids to be done.’
Alternatively, it can be said that the customer has only
authorized the bank to do what it is lawful for the
bank to do, and not that which is unlawful, so that any
prior mandate from the customer is automatically annulled when the bank receives notice of the Mareva
injunction.
For his first proposition, Lord Denning cites an
earlier English case, that “there cannot be default in
not doing what the law forbids to be done”.18 One of
the first reported British Columbia decisions eloquently makes the same point, in the direct context of
a suit brought against a party obeying an injunction:
“protection follows obedience to the Order”.19
Lord Denning’s second theory of exoneration —
that through the issuance of the freezing order the
437. (1) A bank may, without the intervention of any
other person,
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September 2006 Volume 25, No. 4
defendant is deemed to instruct the bank to comply —
paper tiger”: failure to comply with a freezing order
has not been tested to the knowledge of the author.20
“…exposes the bank to the risk that its employees
may be imprisoned, the bank fined and its assets
It is certainly a legal fiction, as the defendant in most
sequestrated”.25
cases will in fact desire the exact contrary result. If
sued by a disgruntled enjoined customer for obeying a
That being said, in practical terms it will be very
freezing order, a bank may rely upon Lord Denning’s
difficult to find a bank guilty of contempt of court for
persuasive and respected obiter dicta. But a prudent
failing to adhere to a freezing order, especially folbank, upon receipt of a freezing order over the funds
lowing the 2006 House of Lords decision in Barclays.
of its defendant customer, would be well advised to
The only direct judicial commentary on banks’ expofollow the ingenious suggestion of Professors Vaughn
sure for contempt in its dealings with a freezing order
Black and Edward Babin. They propose a form of
comes from English courts, and provides some relief
freezing order that speaks directly
to banks and other non-parties. As
Given the external and interand appropriately to the defendant
stated recently by the English Court of
nal regulation of established
rather than the non-party financial
Appeal, “banks should not be faced
banks, breach of an order
institutions holding his or her aswith contempt proceedings save in the
through the bank’s release of
sets. The proposed form of order
plainest of cases”.26 The House of
funds to a defendant would
would require the enjoined defenLords in the same case confirms that
not likely arise from collabodant to authorize his or her bank in
not every failure by a bank to comply
ration with the defendant to
writing to cooperate with the order
with the order will lead to a finding of
defeat the order, but rather
to freeze funds and provide inforcontempt. Instead, it must be shown
through negligence.
mation. Such authorization would
that the financial institution, through its
undermine the defendant’s ability to bring a lawsuit
employees, showed an “intention… to interfere with
against the bank at a later date, for compliance with
or impede the administration of justice”.27 Specifi21
the court order. In at least one reported decision, the
cally, contempt will only be found where the financial
institution knowingly seeks to undermine the court
order paralleled this suggestion. In Bank of Crete S.A.
order and deliberately fails to freeze the account and
v. Koskotas, the Court ordered the defendant to write
pays out the sums that ought to have been frozen after
to his Swiss bank, instructing it to release all bank
22
receiving notice of the court order.
documents related to his accounts. A bank faced
Given the external and internal regulation of estabwith an ambiguous order and seeking reassurance
lished banks, breach of an order through the bank’s
might prudently apply to court to obtain such a variarelease of funds to a defendant would not likely arise
tion of the order.
from collaboration with the defendant to defeat the
order, but rather through negligence. And as noted by
(b) BROUGHT BY CLAIMANT AGAINST BANK
Lord Eveleigh of the English Court of Appeal in Z
Ltd., it is unlikely that mere negligence on the part of
(i) Contempt of Court by the Bank
the bank would constitute contempt of court:28
Banks, like all non-parties with knowledge of a
…Carelessness or even recklessness on the part of the
court order, must obey the order. Failure to do so may
banks ought not in my opinion to make them liable
constitute contempt of court: if the bank or any of its
for contempt unless it can be shown that there was
officers knowingly assist in the disposal of the assets
indifference to such a degree that was contumathat ought to be frozen, or if they deliberately act in a
cious… it seems to me to be undesirable that those
way that interferes with the course of justice such as
who are not immediate parties should be in danger of
to frustrate, thwart or subvert the purpose of the
being held in contempt of court unless they can be
shown to have been contumacious.…
order, they may be guilty of contempt of court.23 Although Canadian case authority is scarce, an Ontario
Lord Eveleigh starts with the proposition that a
court has confirmed, in obiter dicta, that a bank honnon-party such as a bank with notice of the terms of
ouring the cheques of a defendant restrained by a
an injunction should only be liable when it knows that
freezing order risks a finding of contempt.24 The
what it is doing is a breach of the terms of the injuncHouse of Lords recently commented that banks
tion.29 It is difficult to determine when a corporate
should not treat the sanction of contempt as a “mere
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September 2006 Volume 25, No. 4
party such as a bank “knows” that it is willingly
Both Baxter and Eveleigh L.J. agree that liability
breaching a court order. Where a bank employee
will not stop with the corporation itself. Officers, diknowingly assists the defendant in breaching the
rectors, or employees who actively aid or abet the
terms of the injunction, the employer bank will be
breach of a court order may also be found personally
responsible on the grounds of vicarious liability.30
in contempt of court; personal contempt may even be
based upon a passive failure on the part of an officer,
Where, however, a bank clerk with no individual nodirector, or employee to take all steps to prevent a
tice of the order pays out a cheque to a defendant afbreach of the court order.35
ter notice of the freezing order has been received elsewhere at the bank, the liability of the bank will turn
In 30 years of freezing orders there do not appear
on the status of the person receiving the notice of the
to be any cases where a non-party bank was found
order, and the relationship between that person and
guilty of contempt for release of funds that ought to
the bank employee releasing the funds. In order to
have been frozen according to the order. The closest
attach contempt to the bank, the claimant will have to
case is Z Bank. There, importantly, the bank itself was
show that the person to whom notice was given authe defendant-respondent in a freezing order applicathorized the payment or, knowing that the payment
tion; it was not simply a non-party served with an
was likely to be made under a general
order.36 In Z Bank, the defendant was a
The court found that
authority derived from him or her, delibBulgarian bank. For five months after
the president of the
erately refrained from taking any steps to
receiving notice of the order, the bank
bank, the bank’s lawprevent it. Lord Eveleigh ventures that
continued to withdraw and deposit from
yer,
and
the
senior
no liability in contempt would lie against
the fund that ought to have been frozen.
manager responsible
the bank based upon mere constructive
The court found that the president of the
for foreign exchange
knowledge of the order. Accordingly,
bank, the bank’s lawyer, and the senior
were all grossly negEveleigh L.J. concludes that “only very
manager responsible for foreign exligent,
leading
to
a
rarely will it be possible to show that a
change were all grossly negligent, leadconclusion that the
bank is in contempt. It is a fundamental
ing to a conclusion that the bank was
bank was guilty of
requirement of an injunction directed to
guilty of contempt.
contempt.
an individual that it shall be certain. This
The punishment meted out by the
is particularly so in the case of a mandacourt in Z Bank differs from the norm in
tory injunction”.31 The House of Lords in Barclays
its special consideration of the role of the disadvantaged claimant in contempt proceedings. Even if the
generally endorsed the comments of Eveleigh L.J.
contempt arises in civil litigation, the focus of a
with respect to freezing orders, and they may safely
contempt proceeding is not on the claimant but the
be considered to represent the law in England and
court: the remedy seeks to protect the reputation and
Wales.32
proper administration of the justice system against
The comments of Eveleigh L.J. in Z Ltd. may not,
those flouting its orders. Accordingly, punishment
however, represent the law in Canada. Baxter, a leadaddresses the wrongdoing of the contumacious
ing Canadian case on contempt, for example, would
party, not the harm suffered by the claimant as a renot be as lenient on a corporation whose ignorant emsult of the breach. The claimant thus suffers double
ployee breached an order. In Baxter, the court held
injury: not only is it deprived of the funds that ought
that a corporation is liable in contempt where its emto have been frozen when the defendant breaches the
ployee, in the course of duty, breaches a court order;
order and removes the assets, but the claimant must
it is no defence for a company to show that its offialso expend its own funds, and possibly distract itcers were unaware of the terms of a court order, or
self from the main lawsuit, in protecting the honour
that they failed to realize that they were in breach of
of the court through contempt proceedings. In perthe order.33 Baxter is consistent with the later English
haps tacit recognition of the harm that the claimant
case of Z Bank v. D1, which imposed vicarious liabilsuffers as a result of the breach, the court in Z Bank
ity on a bank whose employee released funds in conordered that the bank that had breached the freezing
travention of a freezing order. The court found that
order had to ensure that the £1.16 million that would
the bank failed to take adequate steps to withdraw the
have been in the account but for the breach be reauthority of its employees to continue to dispense the
turned to the account. The court ordered that if the
assets in question.34
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September 2006 Volume 25, No. 4
Even though the orders ought not to have been made
in the form in which they were, it does not appear to
us that they were a nullity. The consequence is that
the appellant was obliged to comply with them unless
and until he obtained relief from them. It is not necessary to decide the point now, but we are not persuaded that the Federal Court lacked jurisdiction in
any sense which would deprive its orders of effect. It
had jurisdiction to entertain the application for interlocutory relief and to determine that application judicially. It erred, not because it assumed a power which
it did not have, but because it exercised an existing
power in an impermissible way. It was an erroneous
exercise of its jurisdiction to make the orders which it
did, and not a wrongful assumption of jurisdiction.
The distinction may at times be fine but it is a necessary one and not just a matter of semantics. In the
same way, a court which is given power to determine
the facts upon which its jurisdiction depends may, if it
proceeds upon a wrongful determination, be said in
one sense to exceed its jurisdiction, but its orders will
be valid unless and until corrected on appeal. The position is otherwise where it is apparent on the face of
a purported exercise of jurisdiction that there is no
power or where the court’s jurisdiction depends upon
matters in dispute which cannot be conclusively determined by the court.…
bank failed to do so it would allow the execution of
a writ of sequestration.37
In reaching a conclusion, Justice Colman issued
strong words that might give some hope to parties
seeking to enforce a contempt proceeding against a
breaching bank:38
These principles apply equally to a corporation which
can only act through its officers, servants or agents. If
notice of a Mareva injunction is given to a corporation and such an order can be complied with only if
those officers, servants or agents of the company
whose authority extends to the formation of an intention to remove or deal with that corporation’s assets
which are covered by the Court’s order are prevented
from exercising that authority, it is the duty of the
corporation at once to withdraw the authority of those
officers, servants or agents so to act, and if it fails to
take all possible steps to do so, and such persons intentionally deal with the assets in question, contrary
to the terms of the order, the corporation will be in
contempt. The intention of the officers, servants or
agents in question will be that of the corporation and
their acts of removing or dealing with the corporation’s asset will be the acts of the corporation.
In addition to the genEven though the oreral contempt impediments
ders ought not to have
above, a prosecution for
been made in the form
contempt will be difficult
in which they were, it
as a pre-trial matter. Even
does
not appear to us
though the contempt arises
that they were a nulwithin a civil action, the
lity.
The consequence
contempt proceedings are
is
that
the appellant
quasi-criminal; evidence
was
obliged
to comply
must comply with the stanwith them unless and
dards of a trial, and the
until he obtained recriminal standard of belief from them.
yond reasonable doubt applies. Further, the accused
contemnor has a strong defence if the order said to be
breached is at all ambiguous: the alleged contemnor is
entitled to the most favourable construction of the
order.39 Given the foregoing, it is little wonder that
civil contempt proceedings are rarely brought against
banks or other non-parties.
That being said, even where a party strongly believes that the freezing order suffers from a fatal flaw,
such as lack of jurisdiction by the issuing court, the
order must be obeyed while it exists. This necessity
was confirmed specifically in the context of a freezing order in a High Court of Australia decision:40
The orders made by the Federal Court are effective
until set aside, discharged or stayed. The fact that
they were erroneously made is something to be taken
into account in any proceedings consequent upon
their having been disobeyed. The principle remains,
however, that the order of a competent court must be
obeyed whilst it remains in force.…
In Jackson, the High Court ultimately found the
freezing order to have been improperly granted; it
went beyond preserving assets and required the defendant to pay security into court. The defendant, believing himself to have a strong argument against the
freezing order, refused to do so, and launched an appeal. Notwithstanding his success on appeal in having
the order sot aside, this refusal to comply was condemned in the passage above.
Ontario (Securities Commission) v. Gaudet (No. 2)
provides a useful Canadian caution for banks faced
with a freezing order, although it did not arise in a
freezing order context.41 In the facts leading to the
decision in Gaudet, the Ontario High Court of Justice
had issued an order prohibiting all proceedings
against the Gaudets without leave. The plaintiff,
Lloyds Bank of Canada, claimed $2.9 million against
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National Banking Law Review
September 2006 Volume 25, No. 4
able in negligence to the claimant so deprived of the
fruits of its application.45
the Gaudets, of which $830,000 was claimed based
on a guarantee. Notwithstanding the knowledge of
certain Lloyds officers of the order, they proceeded to
launch a petition in bankruptcy against Mrs. Gaudet
without leave. Lloyds took the position that it was
entitled to proceed with the bankruptcy based on its
view that the prohibition order on proceedings without leave was founded on a provincial statute that
could not affect rights given to creditors under the
Bankruptcy Act, a federal statute, because of the constitutional supremacy of the federal statute.
Justice Reid rejected this argument and found that
the action of Lloyds and its officers was deliberate,
not inadvertent, and thus constituted contempt:42
a. Barclays Facts
The claimant, Commissioners of Customs and Excise, sued two companies (Brightstar Systems Ltd.,
and Doveblue Ltd.) for unpaid Value Added Tax. The
claimant successfully obtained freezing orders against
those two defendants. Both defendants held current
accounts at Barclays Bank. At all material times these
accounts were in credit. The two freezing orders specifically prohibited disposal of or dealing with the
defendants’ assets up to a stated amount. These orders
specifically included any
…one could not ignore an order of this court
Lloyds took the position
money in the defendants’
simply because one held the opinion that it was
that it was entitled to proidentified accounts at the
ineffective on constitutional grounds, or on any
ceed with the bankruptcy
bank.
other grounds. The order stood, and must be
based on its view that the
The claimant’s solicitors
obeyed, until it was reversed on appeal, or an
prohibition order on prosent by fax a copy of the orequally effective order was secured to the effect
ceedings without leave
ders to the bank. Within three
that it need not be obeyed. If that were not so,
was founded on a provinhours, however, each of the
any order of the court which on its face was
cial
statute
that
could
not
two defendants withdrew
plainly directed to everyone could be disobeyed
affect rights given to
significant amounts from
by those who held the opinion that they were not
creditors
under
the
Banktheir Barclays accounts:
subject to it. Thus, the mere opinion, which may
ruptcy
Act,
a
federal
statBrightstar withdrew £1.24
be wrong, elevates he who holds it to the level of
ute,
because
of
the
constimillion and Doveblue withthe court, and wipes the order off the record. In
my opinion, it is not only novel, it is fallacious.
tutional supremacy of the
drew £1.06 million. They did
The proper way to establish, or seek to establish,
federal statute.
so by using the bank’s “Faxthat the prohibition was not effective was on an
pay” system, where a cusapplication to this court for leave.
tomer can send direct payment instructions to the
bank’s payment centre instead of to the customer’s
The court concluded that “[w]ilfully ignoring an order
branch. The bank failed to stop the transfers.
of the court is contempt plain and clear”.43 The court
The bank sent two letters to the claimant. The first
ultimately declined to severely punish the bank and
was a standard-form letter issued to freezing order
its officer, however. The court noted that Lloyds had
claimants stating that the bank would abide by the
issued apologies and that the bank’s conduct was not
terms of the order and invoicing the initial costs of
intended to flout the law or demean the court. The
abiding by the order at £150.
court ordered that Lloyds pay costs on a solicitor-andAfter the bank discovered the release of the funds
client scale.
that ought to have been frozen by the freezing order it
wrote a second letter, explaining that the defendant’s
(ii) Negligence by the Bank
substantial withdrawals were caused by “operator
error”.46
The unanimous 2006 House of Lords decision in
Four months later, the claimant obtained default
Barclays relieved banks of significant potential liabiljudgment
against the defendants. The claimant was
ity arising from failure to comply with freezing or44
not able to collect the full amount owing due to the
ders. The Lords decision reversed an unanimous
January withdrawals. The claimant brought suit
Court of Appeal decision that a bank notified of a
against the bank for the funds withdrawn after the
freezing order owed a duty of care to the claimant,
freezing order: £2.3 million plus interest.47
such that the breaching bank might well be found li-
44
National Banking Law Review
September 2006 Volume 25, No. 4
b. Barclays Commercial Court Decision
d. Barclays House of Lords Decision
The parties posed a preliminary issue to the court:
The House of Lords overturned the Court of Apdid the bank owe a duty of care to the claimant? The
peal decision, and held that the Bank did not owe a
trial judge, Colman J., found that no duty of care
duty of care to the Claimant. The decision ultimately
existed.48
turned on whether it was fair and reasonable, on policy grounds, to find sufficient proximity between the
In reasons ultimately endorsed by the highest court
bank and the claimant such as to impose civil liabilof England and Wales, Colman J. declined to impose
ity.51 The Lords concluded that it was not just or reaa duty of care on the bank for three reasons. First,
although it was foreseeable that the bank’s failure to
sonable to impose liability in negligence on the Bank,
freeze the funds would cause harm to the claimant,
where a court would impose no such liability on its
the relationship between the claimabsconding customer. The unfairness of
ant and the bank was not suffisuch liability is especially clear given the
The bank was similar to
ciently proximate. The bank was
very significant liabilities institutions
an adverse party in litigasimilar to an adverse party in litiwould face: in Barclays the potential damtion, and no duty of care
gation, and no duty of care could
ages were several million pounds, but the
could be imposed unless
be imposed unless the bank examount could be much greater in another
the bank expressly or impressly or impliedly assumed recase.52
pliedly assumed responsisponsibility. Second, it was not fair
The Lords also noted that a financial inbility. Second, it was not
or just or necessary to impose a
stitution served with a freezing order is in a
fair or just or necessary
civil duty of care, as there already
position adverse to the claimant, and canto impose a civil duty of
existed a sanction for the breach in
not be expected to owe a duty of care to
care, as there already
the form of civil contempt of court.
that claimant.53 Further, the financial instiexisted a sanction for the
Finally, as the bank’s letters were
tution does not voluntarily assume responbreach in the form of civil
sent two days after the funds had
sibility for carrying out the order: it has no
contempt of court.
been inadvertently released, it
choice but to respect the order, which is
could not be said that the bank had assumed responsithrust upon it.54 The only duty owed by the financial
bility to enforce the order, or that the claimant relied
institution is to the court, to respect and follow the
upon this assumption of responsibility.
court order.55 Accordingly, the only proper sanction
against a financial institution that willingly fails to
c. Barclays Court of Appeal Decision
follow a court order is through contempt of court
proceedings.
The English Court of Appeal overturned Colman J.’s
decision and held the bank did owe a duty of care to
e. Future Canadian Considerations of Barclays
the claimant not to allow the release of the funds. The
court found that there was sufficient proximity. The
There are no Canadian applications of any of the
bank and the claimant were not in an adverse relationdecisions in Barclays. But the existence of this promiship; the bank’s interest is in complying with the court
nent case, albeit adverse to claimants, may well
order. Indeed, once the bank is served with notice of
prompt a Canadian test case. Although the Canadian
a freezing order, the customer’s mandate is revoked
test for whether a duty of care exists in a novel conwith regard to the funds frozen in the customer’s
text differs, the result will likely be the same if a simiaccount.49
lar case were brought in Canada. The Supreme Court
of Canada sets out an analytical framework for deThe Court of Appeal proceeded to apply the Engtermining duty of care in Cooper v. Hobart:
lish test for whether a duty of care was owed in a
given novel situation. The bank conceded foreseeabil(1) Was the harm that occurred the reasonably foreity of harm to the claimant. As set out above, proxseeable consequence of the defendant’s act?
imity was established. Finally, the court concluded
that it was fair, reasonable and just to find that the
(2) Are there reasons, notwithstanding the proximity
bank owed a duty of care to ensure that its customer
between the parties established in the first part of
not flout the freezing order.50
45
National Banking Law Review
September 2006 Volume 25, No. 4
bear the responsibility for the lost funds. To the defendant bank, however, the end result and liability are
usually the same in both causes of action.
In the unlikely event that the financial institution is
or ought to have been aware of the defendant’s breach
of trust, the bank could be liable for knowing assistance of breach of trust. As stated in the leading case
of Citadel General Assurance Co. v. Lloyds Bank
Canada: “the knowledge requirement for this type of
liability is actual knowledge; recklessness or wilful
blindness will also suffice”.57 Constructive knowledge is not sufficient to prove knowing assistance on
the part of a bank or other stranger to the trust, which
is specified to require “knowledge of circumstances
which would indicate the facts to an honest person, or
knowledge of facts which would put an honest person
on inquiry”.58
The more likely exposure for a bank lies in the
category of “knowing receipt” or “knowing receipt
and dealing”. In contrast to “knowing assistance”, a
financial institution may be liable on the basis of constructive knowledge: a bank may be obliged to make
further inquiries into suspicious activities on the part
of its customer. As stated in Citadel:59
this test, that tort liability should not be recognized on these facts?56
The first part of the test was not controversial in the
English case: foreseeability was conceded. With respect to policy grounds negating liability at the second phase of the test, the similar banking systems,
coupled with the importance of proper enforcement of
court orders, would likely prompt a Canadian court to
follow the English precedent of Barclays.
f. Prudent post- Barclays Considerations for Banks
Notwithstanding the ultimate exoneration of the
bank in question, Barclays ought to prompt a wholesale review in each instiOnce the risk of imtution of its notice and
mediate dissipation
communication systems
has
passed, the bank
with respect to court orwill need to scrutinize
ders. Upon receipt of
carefully the order
notice of a freezing oritself,
to ensure that it
der, a prudent bank will
complies
with the oralert all of its branches
der fully while reof the need to freeze the
specting
the rights of
accounts of the defenits
customer
as well
dant; ideally this process
as
possible.
will be accelerated and
facilitated through increased centralization and computerization. Once the
risk of immediate dissipation has passed, the bank
will need to scrutinize carefully the order itself, to
ensure that it complies with the order fully while respecting the rights of its customer as well as possible.
Where the situation is unclear, as unfair as it may
seem to the bank, application to court for directions
serves as the prudent course.
In the banking context of the present case, it is true
that s. 206(1) of the Bank Act, R.S.C., 1985, c. B-1,
negates any duty on the part of a bank to see to the
execution of any trust, whether express, implied or
constructive, to which a deposit is subject. In accordance with this provision, a bank is not under a duty
to regularly monitor the activities of its clients simply
because the funds deposited by those clients are impressed with a statutory trust. Nonetheless, this provision does not render a bank immune from liability as
a constructive trustee or prevent the recognition of a
duty of inquiry on the part of a bank. Indeed, in certain circumstances, a bank’s knowledge of its customer’s affairs will require the bank to make inquiries
as to possible misapplication of trust funds. As discussed earlier, the degree of knowledge required is
constructive knowledge of a possible breach of trust.
It follows that bank which is enriched by the receipt
of trust property and has knowledge of facts that
would put a reasonable person on inquiry is under a
duty to make inquiries of its customer regarding a
possible breach of trust. If the bank fails to make the
appropriate inquiries, it will have constructive knowledge of the breach of trust. In these circumstances,
the bank will be unjustly enriched, and, therefore, required to disgorge the benefit it received at the plaintiff’s expense.
(iii) Knowing Assistance and Knowing Receipt of
Trust Funds by the Bank
A bank’s failure to properly freeze funds also increases its exposure to claims for knowing assistance
of breach of trust, and knowing receipt of trust funds.
Funds subject to a freezing order will often be the
subject of an express or constructive trust that has
been breached by the fraudster defendant. Liability in
“knowing assistance” requires wrongdoing or recklessness on the part of the bank in receiving trust
funds. Liability in “knowing receipt” of trust funds is
morally neutral; the court asks which party should
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National Banking Law Review
September 2006 Volume 25, No. 4
3. EFFECTS ON BANKS INSIDE AND OUTSIDE
THE COURT’S GEOGRAPHICAL JURISDICTION
In Citadel the Court noted the customer’s daily
emptying of its account. Even though the bank did not
know the exact terms of the trust relationship between
the customer and the claimant, this suspicious activity
ought to have prompted the bank to make inquiries to
determine whether the customer’s insurance premiums were being misapplied. Specifically, the bank
should have inquired whether it was appropriate for
the customer to use the insurance premiums to reduce
its bank account overdrafts. The bank received a
benefit when it received these funds from the breaching customer to reduce the overdraft. Ultimately, the
bank was found liable to
The nature of the
Citadel.
customer’s business
Whether or not a given
and whether statubank acted reasonably will
tory requirements
be a fact-specific inquiry.
or industry stanThe bank’s knowledge of
dards indicate that
the customer and the
the funds are likely
length of their relationship
impressed with a
will be key factors. The
trust will also be
nature of the customer’s
factors in determinbusiness and whether
ing whether or not
statutory requirements or
the bank made reaindustry standards indicate
sonable inquiries
that the funds are likely
upon notice of susimpressed with a trust will
picious activities.
also be factors in determining whether or not the
bank made reasonable inquiries upon notice of suspicious activities. Thus in the companion case of Gold
v. Rosenberg, the bank was not liable in knowing receipt; an honest person with knowledge of the facts
concerning the misuse of the estate in question would
not have made further inquiries, as such further inquiries would likely have been futile.60
A freezing order is usually issued to prevent fraud
or suspicious and serious asset dissipation. A financial institution served with a freezing order would,
through this act itself, receive clear notice that it
ought to scrutinize the account and customer in question. If the bank fails to comply with the freezing order and the funds are released to the defendant, it will
be difficult for the bank to claim later that it did not
know of suspicious circumstances. The recovery of
the released funds by the claimant and by the bank
itself will likely prove difficult. At the end of the day,
the claimant may seek to recoup its loss from the financial institution.
Freezing orders served outside of the geographical
jurisdiction of the court issuing the freezing order
raise fundamental questions of the jurisdictional legitimacy of a court’s powers.
Where the enjoined party is already a defendant in
an ongoing lawsuit, the matter is unproblematic: the
defendant is already under the issuing court’s jurisdiction by its participation in the lawsuit.61 It clearly
is obliged to refrain from disposing or transferring its
assets located worldwide; failure to do so will expose
it to contempt charges before the very court issuing
the freezing order.
Whether the issuing court may exercise jurisdiction over a non-party recipient such as a bank is a
more difficult question. In Derby, Lord Donaldson
M.R. recognized the dilemma with respect to international banks:62
Here there is a real problem. Court orders only bind
those to whom they are addressed. However, it is a
serious contempt of court, punishable as such, for
anyone to interfere with or impede the administration
of justice. This occurs if someone, knowing of the
terms of the court order, assists in the breach of that
order by the person to whom it is addressed. All this
is common sense and works well so long as the ‘aider
and abettor’ is wholly within the jurisdiction of the
court or wholly outside it. If he is wholly within the
jurisdiction of the court there is no problem whatsoever. If he is wholly outside the jurisdiction of the
court, he is either not to be regarded as being in contempt or it would involve an excess of jurisdiction to
seek to punish him for that contempt. Unfortunately,
juridical persons, notably banks, operate across frontiers. A foreign bank may have a branch within the jurisdiction and so be subject to the English courts. An
English bank may have branches abroad and be asked
by a defendant to take action at such a branch which
will constitute a breach by the defendant of the
court’s order. Is action by the foreign bank to be
regarded as contempt, although it would not be so
regarded but for the probably irrelevant fact that it
happens to have an English branch? Is action by the
foreign branch of an English bank to be regarded as
contempt, when other banks in the area are free to
comply with the defendant’s instructions?
Thus, if the assets to be frozen are located in the
province issuing the freezing order, it does not matter
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National Banking Law Review
September 2006 Volume 25, No. 4
(a) the Respondent or his officer or agent
appointed by power of attorney;
that the bank is foreign: the bank must comply with
the order and freeze the accounts. If the assets are
located outside of the province issuing the order, the
matter is more complicated. There are three scenarios:
(b) any person who –
(i) is subject to the jurisdiction of this
court;
(1) The defendant’s assets are outside the issuing jurisdiction and are held at a branch of a bank with
headquarters within the jurisdiction;
(ii) has been given written notice of this
order at his residence or place of
business within the jurisdiction of
this court; and
(2) The defendant’s assets are outside the issuing jurisdiction but are held at a branch of a bank that
also has branches within the jurisdiction;
(3) The defendant’s assets are outside the issuing jurisdiction and are held by a bank with no office,
branches, or business within the jurisdiction.
(iii) is able to prevent acts or omissions
outside the jurisdiction of this court
which constitute or assist in a breach
of the terms of this order; and
There is no Canadian guidance on this issue. This
section will examine what considerations might guide
a Canadian court faced with this issue.
(c) any other person, only to the extent that
this order is declared enforceable by or is
enforced by a court in that country or
state.63
(a) THE TERMS OF THE FREEZING ORDER: ENGLISH
PRECEDENTS
The inquiry must
start with the exThe inquiry must start with
press
terms of the
the express terms of the order
order
itself.
Unforitself. Unfortunately, freezing
tunately,
freezing
orders in Canada do not conorders in Canada
tain identical wording with
do not contain
respect to their effects on nonidentical
wording
parties. Most forms of Canawith
respect
to
dian freezing orders find their
their effects on
roots in the English forms. For
non-parties.
this reason, we will first re-
20. Assets located outside England and Wales
Nothing in this order shall, in respect of assets located outside England and Wales, prevent any
third party from complying with –
(1) what it reasonably believes to be its obligations, contractual or otherwise, under the
laws and obligations of the country or state
in which those assets are situated or under
the proper law of any contract between itself
and the Respondent; and
(2) any orders of the courts of that country or
state, provided that reasonable notice of any
application for such an order is given to the
Applicant’s solicitors.64
view the English jurisprudence
and forms of order before considering the state of the
law in Canada.
The standard English freezing order provides the
following two provisos with respect to international
banks and other non-parties affected by the order:
Paragraph 19 is based upon the suggestion of Lord
Donaldson in Derby v. Weldon (No. 2), above.65 For
12 years this proviso, standing alone, served as the
standard freezing order term directed to protection of
non-parties such as banks.
Paragraph 20 of the standard English order is of
more recent creation. In 2001, the English Court of
Appeal concluded that the Derby v. Weldon proviso
did not sufficiently protect foreign non-parties.66 The
court suggested that the language in para. 20, above,
should also be included to provide proper protection,
and to ensure that the extraordinary remedy of the
19. Persons outside England and Wales
(1) Except as provided in paragraph (2) below,
the terms of this order do not affect or concern anyone outside the jurisdiction of this
court.
(2) The terms of this order will affect the following persons in a country or state outside the
jurisdiction of this court –
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National Banking Law Review
freezing order does not overstep its jurisdiction and
thereby offend the courts and governments of other
nations. The proviso allows a bank to stop short of
enforcing the order in its foreign branches if such enforcement would cause the bank to run afoul of laws
or private obligation in that foreign jurisdiction. Examples would be where adherence to the order would
breach the foreign state’s banking secrecy laws or the
bank’s contractual duties to its customer.
In Bank of China, the freezing order had been
served on the Union Bank of Switzerland (“UBS”), a
Swiss bank with whom the defendant had an historic
relationship. UBS had an English subsidiary and English branches. UBS successfully applied to the Court
to vary the freezing order. The bank sought the addition of the above para. 20 and confirmation that it
could comply with contractual and other obligations in countries where the defendant’s assets
might be situated. The Court granted these variation orders.
The Bank of China proviso finds its origins in
the 1993 lower court decision in Baltic Shipping
Co. v. Translink Shipping Ltd.67 There, the nonparty French bank Credit Lyonnais applied to vary
the freezing order. The bank sought to confirm that
the order did not bar its subsidiary in Noumea,
New Caledonia from paying funds to the defendant, its customer. The bank argued that the order
placed it in “double jeopardy”: if the subsidiary paid
out funds in Noumea in breach of the freezing order,
it could be found in contempt of court; if it froze the
funds it could be sued by the defendant-customer for
breach of contract. The court agreed with the bank’s
submission. The court endorsed the insertion of a
proviso, similar to para. 20 above, allowing the bank
to comply with what it reasonably believed to be its
foreign obligations. If the claimant wished to freeze
funds in Noumea, it would have to apply to a
Noumean court to recognize the English order.68
The Baltic Shipping court noted that this proviso
would not render ineffectual a worldwide freezing
order. A bank in possession of the defendant’s assets
abroad cannot simply ignore the order. The bank must
consider whether the order would force it to breach
its foreign legal obligations, or whether both the order
and the foreign legal obligations could be satisfied.
The bank must make this assessment based on reason:
“If the belief is not reasonable then the bank will be at
risk [of contempt proceedings]”.69 A legal opinion
supporting the bank’s decision not to adhere to the
September 2006 Volume 25, No. 4
order will better place the bank against future contempt proceedings. The court suggested that the
claimant itself may wish to provide the bank with a
legal opinion that its compliance with the order would
not breach the bank’s foreign obligations.70
The word “reasonably” in the Bank of China proviso indicates that a court will give the bank some
latitude in assessing what it is obliged to do or not to
do according to the laws of the foreign jurisdiction.
That being said, if the bank misjudges its obligations,
contractual or otherwise, it could expose itself to the
liabilities set out in Section 2 above.
The Court of Appeal in Bank of China conceded
that the Baltic Shipping proviso might not always be
appropriate. The Court provided
The word “reano examples, but if there were
sonably” in the
doubt that the non-party in quesBank of China protion would not adequately or
viso indicates that a
honestly assess its local contraccourt will give the
tual and legal obligations, it
bank some latitude
might be appropriate to leave out
in assessing what it
this proviso, thus requiring interis obliged to do or
national compliance by the nonnot to do according
party. In the case of established
to the laws of the
multinational banks, the standard
foreign jurisdiction.
proviso would always be included in the order.71
(b) THE TERMS OF THE ORDER: CANADA
There is no direct case law in Canada. Neither
Bank of China nor Baltic Shipping has ever been applied or considered by a Canadian court in a reported
decision.
Given different practices by different lawyers
within the different provinces, there is a wide variety
of forms of the freezing order. This confusion is compounded by the fact that there appear to be no official
practice directives or standard-form orders issued by
Canadian courts in the manner of the English courts.
Canadian case law indicates the prevalence of the
Derby v. Weldon proviso. Mooney v. Orr, the first reported Canadian worldwide freezing order, includes a
proviso based upon Derby v. Weldon.72 The order in
MacIver does likewise.73 This continues in precedent
texts relied upon by Canadian lawyers.74
Under the prevalent Canadian Derby v. Weldon
language, a court asks itself whether the served bank
is able to “prevent acts or omissions outside the jurisdiction of this court which assist in the breach of the
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National Banking Law Review
September 2006 Volume 25, No. 4
the contractual terms of the banking agreement beterms” of the order. The question is one of degree.
tween it and the customer, as well as any regulations
Where the bank holds headquarters in the issuing juprescribed by statute.
risdiction, or fully operates within that jurisdiction,
As set out in Section 2, the account operating
that bank might well be considered able to instruct its
agreements of some banks expressly allow the bank
foreign branch holding the defendant’s assets to
to place a hold on the accounts. With respect to duties
freeze those assets. Where the bank merely has a
vis-à-vis the customer, a bank with such a term in its
branch in the issuing jurisdiction, a court may concustomer agreements would find it easier to freeze a
sider that a mere branch would be unable to influence
customer’s funds when served with a freezing order
a foreign branch holding those assets to freeze the
from within or without the jurisdiction than a bank
assets. Where the bank has no presence at all in the
lacking such a term in its agreements.
local jurisdiction, then it would be
Where the bank holds
The standard form terms of agreement
unlikely that the Derby v. Weldon terms
headquarters in the
applicable to commercial bank accounts in
would apply to force compliance with
issuing jurisdiction,
Canada do not, however, all provide banks
the order.
or fully operates
with a contractual right to place a stop orwithin
that
jurisdicder on an account or freeze funds.75 In this
(c) BANK OF CHINA FORM OF ORDER
tion, that bank might
context, the silence of the banking agreewell be considered
The situation is considerably more
ments might paradoxically work in favour
able to instruct its
complicated if the order contains the
of a bank that declined to enforce the order:
foreign
branch
holdBank of China form of order, para. 20
when presented with an order from a foring the defendant’s
above. This proviso allows a recipient
eign jurisdiction, a bank could plead that
assets to freeze those
bank to assess whether the order precompliance with the order would breach its
assets.
vents it from complying with “what it
customer contract and expose it to liability.
reasonably believes to be its obligations, contractual or otherwise, under the laws and
(ii) Public Duties: Laws of the Jurisdiction in which
obligations of the country or state in which those asthe Defendant Holds Assets
sets are situated or under the proper law of any contract between itself and the [defendant]”. As set out
A freezing order may place the bank in a seemingly
above, a bank making such an assessment may one
impossible situation: compliance with the order to
day find its assessment second-guessed by a court in a
freeze assets and disclose information may not only
contempt hearing.
expose it to a hypothetical private law action by its
It should be noted that the Bank of China proviso
defendant-customer, but also cause it to run afoul of
allows the bank to decline to comply with the court
the domestic criminal or regulatory regime. A review
order only if such compliance would likely breach the
of international bank secrecy laws is beyond the
bank’s other obligations. The presumption is that the
scope of this article, but an example will suffice. Artiorder will be obeyed. The proviso does not allow the
cle 47 of the Swiss Banking Act imposes imprisonbank to assess whether or not the jurisdiction in
ment or a fine against bank officers or employees who
which it operates would enforce the order or not, and
divulge confidential information.76 Several other
decline to comply if it believes it unlikely that a local
countries, including Austria, Denmark, Finland,
court would enforce the order.
France, Luxembourg, Mexico, the Netherlands, NorFollowing, this article will examine the two facets
way, Portugal and Sweden, also provide possible
of the bank’s evaluation of its duties: private contraccriminal sanctions for disclosure of confidential banktual obligations and public legal obligations.
ing information.77 Returning to the language of the
Bank of China proviso, reasonable belief by the bank
(i) Private Duties: The Bank’s Contractual Rights
that compliance with the freezing order would expose
and Obligations
it to criminal sanctions might permit the bank to consider the order not binding on it. A legal opinion to
The Bank of China proviso permits a bank to adthis effect would be prudent.
here to what it reasonably understands to be its priIf and when a Canadian court examines this issue,
vate contractual obligations. The bank must examine
a distinction may well be drawn between assets lo50
National Banking Law Review
September 2006 Volume 25, No. 4
One must also consider the judicial trend towards
cated in a foreign country and assets located in a
harmonization and cross-enforcement among CanaCanadian province or territory other than that of the
dian jurisdictions. Over the past 20 years, with the
court issuing the order. This distinction could be
expansion of international commerce, the Supreme
drawn whether the order employs the Derby v. Weldon
Court of Canada has emphasized the importance of
or Bank of China proviso. A bank with offices and
comity among nations. Canadian courts must strive to
branches in all provinces might well be expected to
respect the decisions of foreign courts, at the same
freeze funds located at a branch outside of the provtime the Supreme Court of Canada has encouraged
ince issuing the freezing order. As observed by Prothe mutual recognition of court orders among Canafessors Black and Babin, differing concerns about
dian provinces. Accordingly, in Morguard Investextraterritorial overreach and offence to international
ments Ltd. v. De Savoye82 and Hunt v. T&N, PLC,83
comity ought to apply to banks in Toronto, for exam78
ple, versus banks in Zurich.
the Supreme Court confirmed that subject to minimum standards of order and fairness, it was a constiWith all Canadian banks governed by the federal
tutional imperative that courts of one
Bank Act, laws affecting banks do not
As observed by ProfesCanadian province “give ‘full faith and
differ significantly between provinces
sors
Black
and
Babin,
credit’ to the judgments of the courts of
with respect to adherence to a court ordiffering concerns
sister provinces”.84 In Hunt, the Court
der.79 There is no Canadian criminal
about
extraterritorial
sanction analogous to the Swiss provinoted the “essentially unitary nature of
overreach and offence
sion cited above; the potential for an
the Canadian court system”, prescribed
to
international
comity
irresoluble clash between the freezing
over by the Supreme Court.85 Provinought to apply to banks
order and the laws of the state in which
cial superior courts hold inherent jurisin
Toronto, for example,
the bank operates is minimal. Québec
diction over all matters, unless a differversus banks in Zurich.
freezing orders also extend to Canadian
ent forum is specified; a British
common law jurisdictions. Courts in different provColumbia court is thus able, for example, to consider
inces will generally consider and apply the same legal
the constitutionality of a Québec statute. The Court
tests for freezing orders.80 Thus, as observed by Black
also noted common Canadian citizenship, interprovincial mobility of citizens and the common ecoand Babin, “the Toronto bank that is being affected by
nomic market as unifying factors, prompting legal
a British Columbia injunction is still being affected
rules and systems promoting mutual recognition and
by Canadian, not foreign, law”.81
enforcement of orders throughout Canada.86 AccordWith respect to comity, in an interprovincial context, there is no risk of offence to a foreign nation
ingly, the Supreme Court concluded that:87
through subjecting its citizens to a freezing order that
…I do not think litigation engendered against a corthe jurisdiction itself would never grant. Further, with
porate citizen located in one province by its trading
reference to the language of the Derby v. Weldon proand commercial activities in another province
viso, above, a branch or office in Ontario might reashould necessarily be subject to the same rules as
sonably and realistically be expected to exert some
those applicable to international commerce. In parinfluence to ensure that its branches and offices in
ticular, when a corporate citizen situate in one provBritish Columbia comply with an Ontario-issued
ince chooses to engage in trading and commercial
freezing order.
activities in other provinces, the rules governing
Most importantly, with respect to banks operating
consequential litigation, specifically rules for the
across Canada, these entities already have a presence
recognition and enforcement of judgments, should
within the jurisdiction of the court issuing the freezbe adapted to the specific nature of the Canadian
ing order, in the form of local branches. If the Toronto
federation.…
branch of a national bank holding the defendant’s
In reaching this conclusion, the Court cited its earlier
funds indicates that it will not comply with a British
observations in the context of a freezing order. In
Columbia order, its Vancouver head office may find
Aetna, Justice Estey distinguished between applicaitself on the front line of a future contempt hearing.
tion of a freezing order within Canada and outside of
At a minimum, ignoring a court order does not reflect
Canada’s borders.88 Justice Estey reviewed the transwell on the public and judicial reputation of a naactions in question, across provincial lines, and noted
tional bank before the local court.
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September 2006 Volume 25, No. 4
order. It is of course open for the bank to challenge
the appropriateness or terms of the order; freezing
orders generally have an express proviso inviting affected parties to return to court for variance. Examples of successful bank intervention are seen in Baltic
Shipping and Bank of China, cited above. A full discussion of possible arguments a bank might raise to
relieve itself of the terms of the order is beyond the
scope of this article. We raise, however, two sources
of law that might prompt a court to relieve a bank’s
compliance with a freezing order: garnishment order
principles, and the limited ability to enforce an injunction outside the issuing borders.
that such transactions within Canada did not raise the
same level of suspicion as would international transactions:89
…The terminology and trappings of Mareva must be
examined in the federal setting. In some ways, ‘jurisdiction’ extends to the national boundaries, or, in any
case, beyond the provincial boundary of Manitoba.
For other purposes, jurisdiction no doubt can be confined to the reach of the writ of the Manitoba
courts.…
These general principles of transprovincial comity
should not be taken too far, however. The constitutional mandate set down in Hunt and Morguard pre(i) Garnishment Orders
supposes that a claimant, upon successfully receiving
a freezing order, will move quickly to register and
A Canadian court considering the issue might look
then enforce the order in other provinces in which the
90
to
judicial treatment of extraterritorial garnishing
defendant holds assets. The same requirement may
orders
for guidance.91 The law on extraterritorial
be expected with regard to an extraprovincial freezing
garnishment is scarce but runs contrary to
order. Nonetheless, the Supreme
extraterritorial application. In the brief oral
Court pronouncements above will
Similarly, if the order
decision of Fox v. Canadian Rocky Mountain
influence a court’s assessment of
lacked a Bank of
Trees
Inc., for example, the British Columbia
whether a bank should have followed
China proviso, it
Court of Appeal set aside as a nullity a Britan extra-provincial order, especially
would be imprudent
ish Columbia prejudgment garnishing order
where that bank has a presence —
for the bank to take
that had been served on an Alberta branch of
through branches — in the jurisdicthe position that the
the Royal Bank of Canada.92
tion of the province issuing the order.
order ought to have
The law may be different in Ontario. Onsuch a proviso, and
tario
Rule 60.08(9) states that, “[a] notice
(d) BANK COMPLIANCE PRUDENT
that based on the
of
garnishment
may be served outside of
COURSE
English case law cited
Ontario
if
the
debtor
would be entitled to sue
in this article it is
the garnishee in Ontario to recover the
Given the lack of binding case
immune from the opdebt”.93
law, unless the order expressly states
eration of the order.
Again, the path might lead back to English
that it need not be complied with by
jurisprudence. The House of Lords recently held that
a bank in another territory, it would be unwise for a
a garnishing order (or as it is now known in England
bank to ignore the order, lest it attract the liability and
and Wales, “a final third-party debt order”) could not
sanctions set out in Section 2 above. Similarly, if the
order lacked a Bank of China proviso, it would be
attach funds located in a foreign branch of a foreign
imprudent for the bank to take the position that the
bank.94
order ought to have such a proviso, and that based on
the English case law cited in this article it is immune
(ii) Limited Ability to Enforce an Injunction Extrafrom the operation of the order. The prudent and lawprovincially
ful course would be to freeze the assets pending confirmation from claimant’s counsel, and ultimately the
An injunction is generally unenforceable outside
court itself, that the funds may be released.
the borders of the issuing jurisdiction. Indeed, under
common law and governing Canadian statutes, regis(e) CHALLENGING THE TERMS OF THE ORDER
tration and enforcement of a foreign order has been
limited to judgments for specific sums of money, but
The above analysis does not challenge the fundadoes not include orders for injunctions, declaratory
mental concept underlying an international freezing
relief, and specific performance.95 If a freezing order
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National Banking Law Review
September 2006 Volume 25, No. 4
before formal delivery of the order.98 The claimant
must diligently provide written form of the order to
the bank thereafter. It is in the claimant’s best interests to do so, to ensure full compliance of the oftencomplicated terms of the order.99
cannot be registered in a foreign jurisdiction, why
should a bank located in a foreign jurisdiction be
bound by its terms?
Again, cautions must accompany this argument.
First, as with the garnishment analogy above, it futilely attempts to relitigate the very existence and validity of worldwide freezing orders. Second, the law
is in a state of flux; the impotence of transborder enforcement of injunctions may soon be rectified by
Canada’s highest court. The Supreme Court has
granted leave to the appeal of Pro Swing Inc. v. ELTA
Golf Inc.96 The claimants in that case sought to enforce an Ohio consent decree barring the defendant
from marketing its golf clubs under the name of
“Rident”. Although the trial and the appeal court
reached different results, both courts agreed that the
time had arrived for judicial re-examination of the
rules governing the recognition and enforcement of
foreign non-monetary judgments (such as injunctions)
in light of the principles set out in Morguard and the
other cases cited above. When the Supreme Court
issues reasons, it may well draw the distinction set
out above, between orders issued within the Canadian
confederation and those from other countries.
(c) SERVICE ON BANK
Section 462(1)(b) of the Bank Act makes an order
or injunction “binding on property belonging to a person and in the possession of a bank, or on money owing to a person by reason of a deposit account in a
bank, only if the document or a notice of it is served
at the branch of the bank that has possession of the
property or that is the branch of account in respect of
the deposit account…”.100 No Canadian court has
considered whether s. 462(1)(b) applies to a freezing
order, although it would appear to apply on its plain
wording.101
That being said, where the order is served on bank
headquarters rather than an individual branch, or
where the defendant holds assets at multiple
branches, some unserved, a
bank declining to comply
Given the impact of
with the order does so at its
freezing orders on
own peril.
non-parties such as
These are notional arbanks, the claimant
guments that a bank could
ought to advise the
make on a variance applicourt of banks and
cation. A financial instituother non-parties that
tion with knowledge of the
are likely to hold the
freezing order would not
defendant’s assets
be prudent to rely upon
and in consequence
this provision and refuse to
might be affected by
freeze funds, for several
the freezing order.
reasons. First, the lack of
judicial consideration in
itself should give the bank pause. Second, even if the
order does not bind property in other branches, the
financial institution might still face liability in knowing receipt or in negligence. Third, the bank might
also expose itself to contempt. In analogy with the
position of Lloyds Bank in Gaudet, above, s. 462 offers a good argument to vary the freezing order with
respect to the bank; it does not provide an excuse for
ignoring a court order in the first instance. Fourth,
this case law does not consider the significant Supreme Court of Canada developments in interprovincial recognition and harmonization of orders set out
above. Fifth, s. 462(1) was drafted in an age when the
4. PRACTICAL GUIDANCE FOR BANKS
SERVED WITH A FREEZING ORDER
This section seeks to provide guidance to banks
and non-party recipients of freezing orders on specific
logistical issues.
(a) ADVISING THE COURT
Given the impact of freezing orders on non-parties
such as banks, the claimant ought to advise the court
of banks and other non-parties that are likely to hold
the defendant’s assets and in consequence might be
affected by the freezing order. This is especially true
if, as is often the case, the freezing order is obtained
without notice.97
(b) FORM OF NOTICE TO BANK
Given the risk of asset dissipation, the claimant
will often move as quickly as possible to advise banks
of the freezing order. The successful claimant may
even provide initial notice by reading the terms of the
order to a bank officer over the telephone. The bank
must comply with the injunction upon notice, even
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National Banking Law Review
branch truly was the organizational unit of a bank,
where individual account records were stored in paper-based files, and where individual transactions
were controlled. The cost and logistics of a branchby-branch search in a pre-computer age were significant.102 In an age of centralized computer transactions
and customer databases, courts will be less sympathetic to a bank releasing funds contrary to an order,
and then seeking to rely upon s. 462 as a defence to
contempt or a claim for civil liability.
(d) PRECISE ACCOUNTS AND INSTRUCTIONS
The order must set out clearly what the bank or
non-party must and must not do.103 If possible, the
claimant must specify in the freezing order itself the
bank accounts of the defendant “with as much precision as is reasonably practicable”.104 Practicality
dictates that with many freezing orders, specific accounts are unknown and cannot be listed. The case
law confirms that in these circumstances, specific
accounts need not be listed. Instead there could be a
reference to all accounts, funds and assets of the defendant held by the financial institution. The more
precisely the claimant is able to identify specific accounts and branches, the less the bank can reasonably
charge for these services.105
(e) REIMBURSEMENT AND INDEMNITY OF THE BANK
The typical proviso compensating the bank for the
cost of carrying out the order reads as follows:106
The Applicant will pay the reasonable costs of anyone
other than the Respondent which have been incurred
as a result of this order… and if the court later finds
that this order has caused such person loss, and decides that such person should be compensated for that
loss, the Applicant will comply with any order the
court may make.
September 2006 Volume 25, No. 4
may seek indemnity from the claimant for the freezing order. Obtaining a freezing order is thus a risky
proposition for the claimant: if the order is later discovered to have been inappropriate, the claimant may
find itself compensating the defendant, as well as all
non-parties served, for damages flowing from the order. One case suggests that failure to compensate the
aggrieved party readily will even constitute contempt
of court as a breach of undertaking.109 The more usual
procedure will be for the affected non-party to apply
to court for a quantification of the damages it suffered
as a result of complying with the order. These damages must be proven on the usual civil balance of
probabilities in the same manner as damages for
breach of contract.110
Even if the proviso to compensate the bank for any
clerical expenses or liabilities incurred is not expressly stated in the freezing order, the claimant
will still be responsible for
those costs.111 The successful
The successful claimclaimant for a freezing order
ant for a freezing orgives an implied promise to
der gives an implied
repay the bank for any expromise to repay the
penses it may have incurred
bank for any expenses
in carrying out the injuncit may have incurred
tion, and to indemnify the
in carrying out the
bank against any liability.
injunction, and to inThe bank may only redemnify the bank
cover reasonable expenses. It
against any liability.
must do all it can to reduce
the cost of a search and compliance.112 The bank may
recover expenses incurred in ensuring compliance
with the order but will not be able to recover costs
incurred in determining the bank’s own position and
protecting itself.113
The court may order that the claimant back up this
undertaking through the posting of security or a
bond.114 The court may also waive the requirement of
an undertaking based, for example, on the claimant’s
impecuniosity.115
The reimbursement proviso works on two levels.
First, it covers the bank’s clerical costs: a successful
claimant must compensate a bank for its time in performing searches, in freezing the accounts in question
and complying with the order.107 Most banks will
send a schedule of fees to the claimant upon receipt
of a freezing order.108
Second, this proviso extends further: if the defendant sues the bank for breach of contract or other action based on the freezing of the accounts, the bank
(f) DOCUMENT AND INFORMATION DISCLOSURE BY
BANK
If the claimant cannot identify the bank account or
other assets with precision, it may request and incorporate in the order that the bank conduct a search so
as to see whether it holds any assets of the enjoined
defendant. As set out above, the claimant will be responsible for the costs of that search.116 These costs
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National Banking Law Review
September 2006 Volume 25, No. 4
may be significant. As described by Lord Kerr in
Z Ltd.:117
The same jurisdictional concerns cited above also
apply to discovery components of freezing orders.
Bankers Trust Co. v. Shapiro did not raise jurisdictional concerns. Depending on whether the Derby v.
Weldon or Bank of China provisos are included in an
order, a bank with branches in the issuing jurisdiction
may be obliged to obtain and produce documents held
at branches or headquarters outside the jurisdiction.
Case law outside the context of the freezing order
indicates that courts should make extraterritorial discovery orders “only in the most exceptional circumstances”, as where crime or fraud seriously threatens
assets.123 One English court found that it would exceed jurisdiction to order the London branch of a nonparty United States bank to produce documents held
in a New York branch.124 Justice Hoffman distinguished between personal jurisdiction over parties
and subject-matter jurisdiction (“to what extent the
court can claim to regulate the conduct of those
persons”):125
…The special position of banks, in particular of the
clearing banks before us, is that they cannot in practice ensure compliance with such an order without instituting what may be a very costly and elaborate
search throughout all their branches in order to see
whether they hold any assets of the particular defendant. If such an order is served on a bank, it is
obliged, as a matter of self-defence for the purpose of
complying with the order, to carry out such a
“The nature of banksearch; and by virtue of
ing business is such
his undertaking the
that if an English
plaintiff will then be licourt invokes its juable to pay their rearisdiction even over
sonable costs.
an English bank in
respect of an account
at a branch abroad,
there is a strong likelihood of conflict with
the bank’s duties to
its customer under the
local law.…”
Absent a specific order,
however, a bank has no
duty to disclose information to the claimant, including whether any or
how much money is
“caught” by the freezing
order.118 Nor is a bank required to provide such information as a precondition
of obtaining a variance of a freezing order.119
The claimant may seek specific terms in the freezing order that the bank disclose information about its
customer. Most freezing orders will include specific
document and information disclosure requirements.
This issue was first explored in Bankers Trust Co. v.
Shapira, where the disclosure order was sought separately from the freezing order granted earlier.120 The
claimant demonstrated prima facie fraud on the part
of the defendants and gave undertakings to pay expenses. Lord Denning ordered the bank to provide
“full information” concerning its customer. This information included the numbers of the accounts, the
amount of money in the accounts, the destination of
money withdrawn from the accounts over the past six
months, and full documentation relating to the accounts and the transactions out of them. It included
copies of all correspondence, all debit vouchers,
transfer applications and orders, and internal bank
memoranda relating to the account.121 It was not necessary that the defendants be served before the disclosed order was served on the bank; given the nature
of the alleged fraud, the court was not confident that
the defendants could be realistically served.122
…The need to exercise the court’s jurisdiction with
due regard to sovereignty of others is particularly important in the case of banks.… If every country where
a bank happened to carry on business asserted a right
to require that bank to produce documents relating to
accounts kept in any other such country, banks would
be in the unhappy position of being forced to submit
to whichever sovereign was able to apply the greatest
pressure.…
The nature of banking business is such that if an English court invokes its jurisdiction even over an English bank in respect of an account at a branch abroad,
there is a strong likelihood of conflict with the bank’s
duties to its customer under the local law.…
This case law could dilute a claimant’s ability to obtain or a court’s willingness to order extraterritorial
document disclosure.
(g) LIVING AND LEGAL EXPENSES
Most freezing orders permit the defendant reasonable living and legal expenses, usually to a set amount
per month.126 Such orders vex banks, which cannot
monitor such accounts on a daily basis and which
cannot discern whether a given withdrawal is for living expenses or for impermissible other purposes.
Courts confirm that the bank is not to be put in a position of scrutinizing the defendant’s use of the
funds.127 Ideally, the order will expressly provide for
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National Banking Law Review
September 2006 Volume 25, No. 4
knows that the defendant is likely to dispose of
the proceeds in breach of the order.132
the opening of a separate account, into which the
monthly allowance can be deposited, and to which the
defendant has direct access, without involving the
bank in every transaction. Counsel may be able to put
such an arrangement in place without variance of the
order. The wording of the order may, however, make
it necessary for one of the parties or, alternatively, the
bank to apply to vary the order to that effect.
•
Credit Cards: Freezing orders do not apply to
charges incurred on a credit card before the order.
The bank is obliged to honour all credit cards issued to and used by the defendant, except when
the cards have been used fraudulently or wrongly.
The bank can debit the amount against the customer’s account.133
Courts will usually expressly limit the effect of a
freezing order and provide an opportunity for the defendant or affected non-parties such as banks to seek
variance.128 Although banks may and do apply for
variance of freezing orders, a
Although banks
bank might properly expect its
may
and do apply
enjoined customer to do so, in
for
variance of
the same manner as a defendant
freezing orders, a
applies to set aside or vary a garbank might propnishing order.
erly expect its
enjoined
customer
(i) TREATMENT OF SPECIFIC
to do so, in the
ACCOUNTS AND ASSETS
same manner as a
defendant applies
Generally, the course of cauto set aside or
tion will be to freeze all forms of
vary a garnishing
assets held by the financial instiorder.
tution for the defendant. Courts
•
Letters of Credit and Bank Guarantees: The order
does not prevent payment under a letter of credit
or under a bank guarantee but it may apply to the
proceeds as and when received by or for the defendant.134 Given the resulting harm to a banker’s
commercial reputation, an ex parte injunction to
restrain payment of an irrevocable letter of credit,
purchase bond, or guarantee should be allowed
only in the rare case where there is clear proof
that the bank knows that any demand for payment
made will clearly be fraudulent.135
•
Transactions before Freezing Order: The bank
should honour transactions the defendant had
made prior to the freezing order. Funds owed by
the defendant for a previously granted overdraft
facility,136 or impressed with a charge created by
a debenture, are not frozen.137
have provided guidance on specific assets:
•
Funds of Other Persons: Funds or property
owned by other persons paid to the bank as security or collateral for the defendant’s benefit are
not caught by a freezing order.138
•
Joint Accounts: A joint account is not bound by
an order directed only against the defendant’s assets.139 If it is thought that the defendant may
have moneys in a joint account that ought to be
frozen, it should be so stated clearly in the order.
Such an order is not unusual.140 Where another
person asserts an interest in a frozen account, the
person may be required do more than merely assert this claim; the court (and presumably a bank)
will scrutinize closely such a claim.141
•
Loans: The defendant may not defeat the purpose
of the freezing order by taking out loans.142 Nor
may the defendant secure such loans with assets
encumbered by the order. The defendant or bank
(h) APPLICATION TO VARY ORDER
•
Accounts: The bank must not allow any drawings
to be made on accounts, either by cheques drawn
before or after the freezing order.129
•
Property: The bank may not release any other
physical property that it holds for the defendant.
Jewellery, stamps, share certificates, and the like
held in a safety deposit box, for example, should
not be released.130
•
Cheques: The bank must not honour any cheques
issued to the defendant before or after the bank’s
receipt of the freezing order.131 But if a non-party
has issued a cheque to the enjoined defendant (for
payment of a debt, for example), it seems that the
defendant may present the cheque for payment
and retain the proceeds, unless the non-party
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September 2006 Volume 25, No. 4
should seek specific dispensation from the court
for such a course.
*
(j) THE BANK’S CONTRACTUAL RIGHTS
†
A bank may exercise any right to a set-off with respect to the enjoined defendant’s fund, even if this
set-off eventually draws the funds below the claimed
amount.143 The bank may also meet any liabilities that
it may incur on a confirmed letter of credit opened at
the request of the defendant before notification of the
order, and to debit the defendant accordingly.144
1
2
5. CONCLUSION
As it reaches its 30th birthday, the freezing order
remains one of the most powerful and controversial
weapons of civil litigation. It has been called “one of
the most imaginative, important, and, on the whole,
most beneficent [innovations] of modern times”.145
Commensurate with their utility to commercial litigants are the difficulties these orders pose to nonparties such as banks. As stated by Lloyd J. in
Oceanica, “[b]anks and other third parties are sufficiently harassed by applications for Mareva injunctions as it is”.146
Even with the ultimately favourable outcome (at
least with respect to jurisprudence in England and
Wales), the recent spectre of Barclays moves the concern from inconvenience into a new realm of significant financial liability for banks. It is thus even more
crucial that banks and other non-parties act appropriately when served with a freezing order. But as canvassed above, case law offers little direct guidance to
non-parties served with a freezing order. Given this
murkiness, compliance with such orders is inconsistent, especially with respect to orders emanating from
a foreign jurisdiction. It is hopeful that the above review, in places speculative out of necessity, assists in
the assessment by non-parties of their legal and business response when served with a freezing order. Taking appropriate action in response to such an order
could prevent a Canadian bank from creating a new
Canadian Barclays-like precedent.
3
4
5
6
[Editor’s note: David Crerar is an associate at the
law firm Borden Ladner Gervais LLP. He practises in
the areas of civil and commercial litigation, media
law and defamation, class actions, injunctions, shareholder disputes, and banking and fraud litigation.]
57
The author would like to thank D. Ross McGowan, Geoff
Thompson, and Robert Dawkins of Borden Ladner Gervais LLP for their helpful comments, and Arpal Dosanjh,
Articled Student, for his assistance in this article.
An earlier version of this paper was published originally in Banking and Finance Law Review 21.2
(February 2006). Reprinted with thanks and acknowledgements.
For brevity and consistency, this article will generally
use the phrase “freezing order” (although this is British
usage; “Mareva injunction” remains the predominant
Canadian term).
For the sake of economy, this article will generally refer to the applicant-claimant seeking or obtaining an injunction as the “claimant” and the party whose assets
are frozen as the “defendant”. Of course, in some
cases, a defendant will apply for a freezing injunction
against the plaintiff – as was the case in Mooney v. Orr,
infra, n. 6.
Nippon Yusen Kaisha v. Karageorgis, [1975] 3 All E.R.
282, [1975] 1 W.L.R. 1093, [1975] 2 Lloyd’s Rep. 137
(Eng. C.A.) Mareva Compania Naviera S.A. v. International Bulkcarriers S.A. (1975), [1980] 1 All E.R. 213,
[1975] 2 Lloyd’s Rep. 509 (Eng. C.A.).
Sekisui House Kabushiki Kaisha v. Nagashima, [1982]
B.C.J. No. 1491 (QL), 1982 CarswellBC 360, 42
B.C.L.R. 1, 33 C.P.C. 42 (C.A.); Feigelman v. Aetna
Financial Services Ltd., [1982] M.J. No. 107 (QL),
1982 CarswellMan 136, [1983] 2 W.W.R. 97, 36
C.P.C. 20, 143 D.L.R. (3d) 715, 19 Man. R. (2d) 295
(C.A.).
Feigelman v. Aetna Financial Services Ltd., [1985]
S.C.J. No. 1 (QL), 1985 CarswellMan 19, 1985
CarswellMan 379, [1985] 1 S.C.R. 2, 15 D.L.R. (4th)
161, [1985] 2 W.W.R. 97, 56 N.R. 241, 32 Man. R.
(2d) 241, 29 B.L.R. 5, 55 C.B.R. (N.S.) 1, 4 C.P.R.
(3d) 145 [Aetna].
See, for example, Silver Standard Resources Inc. v.
Joint Stock Co. Geolog, [1998] B.C.J. No. 2887 at
para. 23 (QL), 1998 CarswellBC 2725, 168 D.L.R.
(4th) 309, 115 B.C.A.C. 262, 189 W.A.C. 262, 59
B.C.L.R. (3d) 196, [1999] 7 W.W.R. 289 (C.A.) [Silver
Standard]; Mooney v. Orr, [1994] B.C.J. No. 2322
(QL), 1994 CarswellBC 488, 98 B.C.L.R. (2d) 318,
[1995] 1 W.W.R. 517, 33 C.P.C. (3d) 13 (B.C. S.C. [In
Chambers]); additional reasons at, [1994] B.C.J. No.
2652 (QL), 1994 CarswellBC 26, 33 C.P.C. (3d) 31,
[1995] 3 W.W.R. 116, 100 B.C.L.R. (2d) 335 (S.C.);
Hamza v. Hamza, [1997] A.J. No. 836 (QL), 1997
CarswellAlta 723, 29 R.F.L. (4th) 460, [1997] 9
W.W.R. 592, (sub nom International Assn. of Science
& Technology for Development v. Hamza) 200 A.R.
342, (sub nom International Assn. of Science & Technology for Development v. Hamza) 146 W.A.C. 342,
53 Alta L.R. (3d) 80 (C.A.); Community Assn. of South
Indian Lake Inc. v. MacIver, [1995] M.J. No. 443
National Banking Law Review
7
8
9
10
11
12
13
September 2006 Volume 25, No. 4
14
(QL), 1995 CarswellMan 217, [1996] 1 W.W.R. 168,
42 C.P.C. (3d) 104 (Man. C.A.) [MacIver]; Burgoyne
Holdings Inc. v. Magda, [1997] O.J. No. 3680 at para.
3 (QL), 1997 CarswellOnt 3481, 15 C.P.C. (4th) 39, 38
O.T.C. 161 (Gen. Div.); Pharma-Investment Ltd. v.
Clark, [1997] O.J. No. 1334 at para. 18 (QL), 1997
Carswell Ont 902, 29 O.T.C. 112 (Gen. Div.) [only assets in Canada and U.S.].
For the sake of brevity and consistency, this article
will generally use “bank” as a generic term for
“non-party in possession of the enjoined defendant’s
assets”. The principles discussed will generally apply to any non-party served with a freezing order.
This article will use the term “non-party” to avoid
confusion with the term “third party”, used in many
jurisdictions to denote an entity that becomes an actual party to the litigation when named by the initial
defendant.
Her Majesty’s Commissioners of Customs and Excise v.
Barclays Bank plc, [2006] UKHL 28 at para.13 [“Barclays (H.L.)”]. The decision may be read at
<http://www.publications.parliament.uk/pa/ld200506/ld
judgmt/jd060621/custom-1.htm>.
Her Majesty’s Commissioners of Customs and Excise v.
Barclays Bank Plc, [2005] 1 Lloyd’s L.R. 165, 2004
EWCA Civ. 1555 (Eng. C.A.) [“Barclays (C.A.)”]; appeal allowed: Barclays (H.L.), ibid.
See, for example, Smith v. Commonwealth Trust Co.,
[1969] B.C.J. No. 144 (QL), 1969 CarswelIBC 237, 72
W.W.R. 201, 10 D.L.R. (3d) 181 at 187-89 (S.C.).
Global Connections Tours and Consolidators Inc. v.
National Bank of Canada, [1997] B.C.J. No. 2686
(QL), (November 28, 1997), Doc. Vancouver C972690
(S.C.). See also Benjamin v. Toronto-Dominion Bank,
[2006] O.J. No. 1253 (QL), 23 E.T.R. (3d) 149
(S.C.J.), where the Court issued an injunction requiring
the bank to unfreeze the funds of a client of the plaintiff solicitor. The Court found that the bank’s Business
Banking and Services Agreement was insufficient to
permit the bank to withhold the funds, as the bank received payment on the forged cheque in question, but
itself failed to confirm the veracity of the signature: see
paras. 13, 35-39.
B.M.P. Global Distribution Inc. v. Bank of Nova Scotia, [2005] B.C.J. No. 1662 at paras. 306, 423, 425,
428, and 429 (QL), 2005 CarswellBC 1826, 2005
BCSC 1091, 8 B.L.R. (4th) 247 (S.C.). See also related
decision B.M.P. Global Distribution Inc. v. Bank of
Nova Scotia, [2002] B.C.J. No. 2450 (QL), 2002
CarswellBC 2601, 2002 BCSC 1508, 8 B.C.L.R. (4th)
184 (S.C. [In Chambers]); rev’d on procedural, rather
than substantive grounds, [2003] B.C.J. No. 2383
(QL), 2003 CarswellBC 2548, 19 B.C.L.R. (4th) 347,
187 B.C.A.C. 280, 307 W.A.C. 280, 39 C.P.C. (5th)
201, 2003 BCCA 534 (C.A.) [BMP].
See, for example, ibid., at para. 26.
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
58
HSBC Bank Canada, Commercial Account Operating
Agreement, Art. 14 (current to April 2005).
See, for example, RBC Royal Bank, Business Services
Agreement; TD Canada Trust, Financial Services
Terms; Bank of Montreal, Incorporated Company Certificate and Agreement (current to April 2005).
S.C. 1991, c. 46.
[1982] Q.B. 558, [1982] 1 All E.R. 556 at 563, [1982]
1 Lloyd’s Rep. 240 (Eng. C.A.) [citations omitted].
Denny, Mott & Dickson Ltd. v. James B. Fraser & Co.,
[1944] A.C. 265, [1944] 1 All E.R. 678 (Scotland
H.L.).
British Columbia (Attorney General) v. Canadian Pacific Railway, [1889] B.C.J. No. 3 (QL), [1889] 1
B.C.R. 350 at 358-59, 362 (S.C.). The defendant had
contracted to extend the railway from Port Moody to
Coal Harbour, Vancouver Property Owners along the
proposed line successfully obtained an injunction
against the defendant. The Supreme Court of Canada
eventually set aside the injunction. Nonetheless, the defendant’s construction was delayed by five months. The
province sued to enforce contractually agreed damages
of $250,000 for delay. The Court found that no action
could lie where the defendant’s breach arose from
proper compliance with a court order, even one incorrectly granted.
Although it was endorsed recently by the English Court
of Appeal in Barclays (C.A.) supra, n. 8, at para. 26.
Vaughn Black & Edward Babin, “Mareva Injunctions
in Canada: Territorial Aspects” (1997) 28 Can. Bus.
L.J. 430 at 461-62.
Bank of Crete S A. v. Koskotas, [1991] 2 Lloyd’s L.R.
587 (C.A.).
Z Ltd. supra, n. 17 at 563 [All E.R.]; Derby & Co. v.
Weldon (No. 2) (1988), [1989] 1 All E.R. 1002 at 1011
(Eng. C.A.) [Derby]; Barclays (H.L.), supra, n. 8, at
paras. 29, 57. This is confirmed by the standard English order in England and Wales, Civil Procedure Rules
1998, Part 25, Practice Directive, Art. 6.1, para. 16
[“CPR”]: “It is a contempt of court for any person notified of this order knowingly to assist in or permit a
breach of this order. Any person doing so may be imprisoned, fined or have their assets seized.” For the
leading case, see R. v. Gray, [1900] 2 Q.B. 36 (Eng.
Q.B.) at 40.
Toronto Dominion Bank v. Bank of Nova Scotia (April
4, 1996), Doc. Toronto 95-CQ-62394 at para. 19 (Ont.
Gen. Div.).
Barclays (H.L.), supra, n. 8, at paras.11, 13.
Barclays (C.A.) supra, n. 9, at para. 34.
Barclays (H.L.), supra, n. 8, at para. 29. See also paras.
63-64.
Z Ltd., supra, n. 17, at 570 [All E.R.].
Ibid., at 568.
Ibid., at 569. This passage was endorsed in the Canadian Federal Court decision of Baxter Travenol Labo-
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37
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ratories of Canada Ltd. v. Cutter (Canada) Ltd., 1984
CarswellNat 32, 1984 CarswellNat 667, 46 C.P.C. 193,
3 C.I.P.R. 87, 1 C.P.R. (3d) 433, 14 D.L.R. (4th) 641,
[1986] 1 F.C. 497 (T.D.); varied on other grounds,
[1987] F.C.J. No. 205 (QL), 1987 CarswellNat 628,
1987 CarswellNat 847, 13 C.I.P.R. 41, 81 N.R. 220, 14
C.P.R. (3d) 449, [1987] 2 F.C. 557 (C.A ). Note that
Baxter Travenol concerned the contempt of a party in
the litigation, the defendant, rather than a non-party
such as in the present circumstances under consideration. While the principle that a party interfering with
the proper administration of justice through breach of
an order should lead to a finding of contempt equally
against parties and non-parties, one could expect
greater leniency in the case of a non-party that cannot
be expected to be as aware of an order against it, and
whose breach, perhaps inadvertent, cannot be considered as flagrantly contumacious.
Z Ltd., supra, n. 16, at 570 [All E.R.]. Lord Eveleigh’s
judgment was one of three judgments in Z Ltd. Neither
Lord Denning nor Lord Kerr expressly endorsed Lord
Eveleigh’s obiter dicta comments on the contempt
faced by banks.
Barclays (H.L.), supra, n. 8, at paras. 11, 29.
Baxter Travenol (Fed. T.D.), supra, n. 30, at 649
[D.L.R.].
Z Bank v. D1 (1993), [1994] 1 Lloyd’s Rep. 656 (Eng.
Q.B.) [Z Bank]. This case was cited in Capital Estate
Planning Corp. v. Lynch, [2004] A.J. No. 1114 at para.
33 (QL), 2004 CarswellAlta 1277, 366 A.R. 39, 2004
ABQB 727, 1 C.P.C. (6th) 231 (Q.B.). Confusingly, the
enjoined parties in English cases are often given “Z”
pseudonyms to protect them from the potential harm to
their professional reputations caused by the seriousness
of allegations leading to the issuance of freezing
orders.
See, for example, Telus Mobility v. T.W.U., [2002]
F.C.J. No. 872 at paras. 14-16 (QL), 2002 CarswellNat
1356, 2002 FCT 656, 220 F.T.R. 291 (T.D.); Peel Financial Holdings Ltd. v Western Delta Lands Partnership, [2003] B.C.J. No. 2392 at paras. 44-46 (QL),
2003 CarswellBC 2554, 2003 BCCA 551, 21 B.C.L.R.
(4th) 340, 188 B.C.A.C. 58, 308 W.A.C. 58, 42 C.P.C.
(5th) 1 (C.A.) [In Chambers]).
Z Bank, supra, n. 34.
Ibid., at 668 [Lloyd’s Rep.].
Ibid., at 661 [Lloyd’s Rep.].
Peel Financial Holdings Ltd. supra, n. 35, at para. 18.
Jackson v. Sterling Industries Limited (1987), 162
C.L.R. 612 at 619-20 (H.C.A.), Wilson and Dawson
JJ., obiter dicta [Jackson; citations omitted]. For a Canadian authority that an order is to be obeyed upon
pronouncement, under pain of contempt of court, see
Baxter Travenol Laboratories of Canada Ltd v. Cutter
(Canada) Ltd., [1983] S.C.J. No. 78 (QL), 1983
CarswellNat 98, 1983 CarswellNat 526, 36 C.P.C. 305,
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42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
59
1 C.I.P.R. 46, [1983] R.D.J. 481, 2 D.L.R. (4th) 621,
50 N.R. 1, 75 C.P.R. (2d) 1, [1983] 2 S.C.R. 388 (not
concerning a freezing order).
[1988] O.J. No. 1349 (QL), 1988 CarswellOnt 165, 70
C.B.R. (N.S.) 181, 65 O.R. (2d) 424 (H.C.) [Gaudet].
Ibid., at 426 [O.R.].
Ibid.
Barclays (H.L.), supra, n. 8
Barclays (C.A.), supra, n. 9, at para. 55.
In the case of Doveblue, the contents of these two letters were combined in a single letter.
Her Majesty’s Commissioners of Customs and Excise v.
Barclays Bank Plc, HQ02X00158 (Comm. Ct.) (Particulars of Claim). The author is indebted to Daniel
Stilitz, co-counsel for the claimant, who kindly provided a copy of this pleading.
Her Majesty’s Commissioners of Customs and Excise v.
Barclays Bank Plc, 2004 EWHC 122 (Comm. Ct.).
Barclays (C.A.) supra, n. 9, at para. 26 citing Z Ltd,
supra, n. 17, at 563 [All E.R.].
Ibid., at para.31.
Barclays (H.L.), supra, n. 8, at para.15.
Ibid., at para. 23.
Ibid., at paras.18, 47, 106.
Ibid., at paras. 14, 34, 40.
Ibid., at para. 17.
[2001] S.C.J. No. 76 (QL),REJB 2001-26862, 2001
CarswellBC 2502, 2001 Carswell 2503, 2001 SCC 79,
[2002] 1 W.W.R. 221, 206 D.L.R. (4th) 193, 96
B.C.L.R. (3d) 36, (sub nom. Cooper v. Registrar of
Mortgage Brokers (B.C.)) 277 N.R. 113, 8 C.C.L.T.
(3d) 26, (sub nom. Cooper v. Registrar of Mortgage
Brokers (B.C.)) 160 B.C.A.C. 268, (sub nom. Cooper v.
Registrar of Mortgage Brokers (B.C.)) 261 W.A.C.
268, [2001] 3 S.C.R. at para. 30.
[1997] S.C.J. No. 92 at para. 22 (QL), 1997 CarswellAlta 823, 1997 CarswellAlta 824, 152 D.L.R. (4th)
411, 206 A.R. 321, 156 W.A.C. 321, 19 E.T.R. (2d) 93,
35 B.L.R. (2d) 153, 47 C.C.L.I. (2d) 153, [1997] 3
S.C.R. 805, 219 N.R. 323, [1999] 4 W.W.R. 135, 66
Alta. L.R. (3d) 241 [Citadel].
Ibid.
Ibid., at para. 52. The plaintiff Citadel was the underwriter of insurance policies issued by Drive-On, customer of Lloyds Bank. Drive-On collected insurance
premiums. These premiums were to be remitted on a
monthly basis to Citadel and were impressed with a
trust. Drive-On encountered financial difficulties and
was unable to remit $633,622 to Citadel. Citadel
brought action against the Bank for the outstanding insurance premiums.
[1997] S.C.J. No. 93 at para. 76 (QL), 1997 CarswellOnt 3273, 1997 CarswellOnt 3274, 219 N.R. 93, 35
O.R. (3d) 736, 152 D.L.R. (4th) 385, 19 E.T.R. (2d) 1,
104 O.A.C. 1, 35 B.L.R. (2d) 212, [1997] 3 S.C.R.
767.
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2(b)(iii): “…is able to prevent acts or omissions outside
the jurisdiction of this court …”. The British Columbia
Court Forms annotation reiterates the phrase “is able to
prevent acts or omissions outside the jurisdiction of this
court…”.
Although not wholly unproblematic: freezing orders
are often obtained at the commencement of an action
and served along with the writ or other originating
process. In that circumstance where the defendant has
not yet submitted to the court’s jurisdiction, the issuing
court will consider whether a sufficient real and substantial connection exists between the defendant and
the issuing jurisdiction, or the defendant and the cause
of action.
Derby supra, n. 23, at 1011-12.
CPR supra, n. 23, Part 25, Practice Directive, Art. 6.1,
para. 19. This article will refer to paragraph 19 as the
“Derby v. Weldon proviso”.
Ibid., Part 25, Practice Directive, Art. 6.1, para. 20.
This article will refer to paragraph 20 as the “Bank of
China proviso”.
Derby supra, n. 23 at 1013. See also ibid., at 1020.
Bank of China v. NBM LLC, [2002] 1 All E.R. 717,
2003 EWCA 1933. This conclusion followed academic
criticism that the Derby v. Weldon proviso placed international banks based in the issuing jurisdiction in an
impossible bind, caught between the laws of the issuing
jurisdiction and the jurisdictions in which they operate.
See, for example, A. Malek and C. Lewis, “Worldwide
Mareva Injunctions: The Position of International
Banks” (1990) L.M.C. L.Q. 88.
[1995] 1 Lloyd’s L.R. 673 (Q.B.) [Baltic Shipping].
Ibid., at 679.
Ibid.
Ibid.
For a criticism of the Baltic Shipping proviso, see
Black & Babin, supra, n. 21, at 461, 466-67. To allow
the foreign bank to ignore the order whenever it constituted a breach of its customer contract with the defendant, “would render the order ineffective against most
non-parties outside the United Kingdom.”
Mooney v. Orr, supra, n. 6, at paras. 8, 25. The first
Canadian worldwide freezing order appears to be the
oral judgment of Oppal J. (later J.A.) in British Columbia v. Shah, [1991] B.C.J. No. 3994 (QL), (January 4,
1991). Doc. Victoria 892488 (S.C.).
MacIver supra, n. 6.
In British Columbia, for example, a much used collection
of precedents includes a proviso modelled on Derby v.
Weldon, citing Mooney v. Orr: Frederick M. Irvine, ed.,
McLachlin & Taylor: British Columbia Court Forms, 2nd
ed., looseleaf (Markham, Ont.: Butterworths, 2005), at
15F6. The suggested form omits clause 3 of the Derby v.
Weldon proviso, limiting the extra-jurisdictional power of
the order where a local branch can prevent noncompliance with the order outside the jurisdiction. As
noted by Black & Babin, supra, n. 21, at 457, note 75,
Mooney v. Orr, at para. 25 purports to use the modified
Babanaft proviso of Derby v. Weldon. The Court quotes
the Derby v. Weldon proviso in full at para. 8. The quoted
order at para. 2, however, omits the important clause
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83
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The Ontario precedent text of R.J. Rolls, Q.C., Williston and Rolls Court Forms, 2nd ed., looseleaf (Markham, Ont.: Butterworths, 1987-2005), at 33-L-6 uses a
somewhat circular order: “…the provisions of this Order shall not have any effect in any jurisdiction outside
of Ontario unless and until it is declared enforceable or
is enforceable by a court of competent jurisdiction in
that jurisdiction”.
See, for example, n. 14-15 and accompanying text.
Loifiderale sur les banques et les caisses d’épargne, du
8 novembre 1934 SR 952.0; online: Embassy of Switzerland in Washington, DC <http://www.eda.admin.ch/
washington_emb/e/home/legaff/Fact/confid.html> (accessed June 3, 2005). In Comaplex Resources International Ltd. v. Schaffhauser Kantonalbank, [1990] O.J.
No. 318 (QL), 1990 CarswellOnt 355, 42 C.P.C. (2d)
230 at 247 (Master) the court, in the context of a discovery order, considered expert evidence as to whether
Swiss authorities would enforce Article 47 against a
bank officer providing such information in response to a
Canadian order for disclosure of documents by the defendant Swiss Bank. The Court concluded that foreign
laws prohibiting disclosure were not a valid reason in
themselves to refuse production. The Court set out considerations for it to balance, including whether a vital rational interest was at stake, the importance of the documents, and the good faith of the party resisting
disclosure at 244-45 [C.P.C.].
Embassy of Switzerland in Washington, D.C., ibid.
Black & Babin, supra, n. 21, at 464.
Supra, n. 16.
Although British Columbia courts are arguably more free
to embark upon a holistic consideration to issue a freezing
order when an overarching consideration of justice dictates: see Silver Standard, supra, n. 6, at paras. 19-23.
Black & Babin supra, n. 21, at 465.
[1990] S.C.J. No. 135 (QL), REJB 1990-67027, 1990
CarswellBC 283, 1990 CarswellBC 767, 46 C.P.C.
(2d) 1, 15 R.P.R. (2d) 1, 76 D.L.R. (4th) 256, 122 N.R.
81, [1991] 2 W.W.R. 217, 52 B.C.L.R. (2d) 160,
[1990] 3 S.C.R. 1077.
[1993] S.C.J. No. 125 (QL), REJB 1993-68597, 1993
CarswellBC 1271, 1993 CarswellBC 294, [1994] 1
W.W.R. 129, 21 C.P.C. (3d) 269, (sub nom Hunt v. Lac
d’Amiante du Québec Ltée) 37 B.C.A.C. 161, (sub nom
Hunt v. Lac d’Amiante du Québec Ltée) 60 W.A.C.
161, 109 D.L.R. (4th) 16, 85 B.C.L.R. (2d) 1, (sub nom
Hunt v. Lac d’Amiante du Québec Ltée) 161 N.R. 81,
[1993] 4 S.C.R. 289.
Ibid., at 324 [S.C.R.].
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Ibid., at 314 [S.C.R.].
Ibid., at 322, 330 [S.C.R.].
Ibid., at 323-24 [S.C.R.].
Aetna, supra, n. 5, at 34-35.
Ibid., at 35 [S.C.R.].
The description of this potentially cumbersome process
serves in itself as a contrary argument. The freezing order injunction is often only effective if it is brought
quickly, without notice to the defendant. By the time
the injunction is registered in the foreign jurisdiction,
the funds may well be dissipated.
Such case law is not wholly analogous: in contrast to
freezing orders, garnishment, especially post-judgment
garnishment, is an in rem process directly attaching
funds; it may confer priorities on the claimant. In contrast, the freezing order acts in personam and is not a
form of attachment. As described in Mercedes-Benz
AG v. Leiduck, [1996] A.C. 284 at 300 (P.C.): the injunction “takes effect in personam; it is not an attachment; it gives the claimant no proprietary right on the
assets seized; and no advantage over other creditors of
the defendant”.
95
96
In Technaflow Inc. v. Minti Sales Ltd., [1991] A.J. No.
569 (QL), 1991 CarswellAlta 101, 48 C.P.C. (2d) 190,
121 A.R. 144, [1991] 5 W.W.R. 692, 81 Alta L.R. (2d)
38 (Master), Master Funduk similarly declined to issue
an order for service ex juris of a post-judgment garnishment order. In Cheron Holdings Ltd. v. Biotech
Holdings Inc., [1998] B.C.J. No. 1844 at para. 3 (QL),
(July 24, 1998), Doc. Kamloops 26176 (S.C.), Blair J.
set aside attempted extraterritorial garnishing orders,
noting the express requirement in the governing statute
that the garnishee be within the jurisdiction of the
court: see Court Order Enforcement Act, R.S.B.C.
1996, c. 78, s. 3(1)(e).
[1990] B.C.J. No. 566 (QL), (March 2, 1990), Doc.
Vancouver CA010801 (C.A.) [Fox]. The case has
never been applied. Fox arguably turns on whether the
claim itself allowed for service outside of British Columbia without leave of the Court; the Court concluded
that leave was required. It also turns on detrimental reliance: the plaintiff had advised the Alberta branch that
it would commence parallel proceedings in Alberta, but
failed to ever do so.
In a parallel to s. 462 of the Bank Act, the Ontario
Rules of Civil Procedure, Rule 60.08(10) requires service on the branch at which the debt is payable if the
garnishee is a financial institution. There appears to be
no reported case law examining this provision.
Société Eram Shipping Co. v. Hong Kong and Shanghai Banking Corp., 2003 UKHL 30. Lord Hoffman
emphasized that expert evidence before the court indicated that local Hong Kong law would not deduct the
amount garnished from the sum owed by the bank to
the judgment creditor, thus possibly requiring the bank
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100
101
102
103
61
to pay the sum twice: see para. 60. The Lords also relied considerably on the Baltic Shipping, supra, n. 67.
See, for example, Court Order Enforcement Act, supra,
n. 91, Part II; Ingenium Technologies Corp. v.
McGraw-Hill Cos., [2005] B.C.J. No. 705 at paras.
26-29 (QL), 2005 CarswellBC 729, 2005 BCSC
465 (S.C.).
Pro Swing Inc. v. ELTA Golf Inc., [2003] O.J. No. 5434
(QL), 2003 CarswellOnt 5360, 30 C.P.R. (4th) 165, 68
O.R. (3d) 443 (S.C.J.); rev’d on other grounds (2004),
[2004] O.J. No. 2801 (QL), 2004 CarswellOnt 2685,
71 O.R. (3d) 566 (Ont. C.A.); appeal heard and reserved (December 15, 2005), Doc. 30529 (S.C.C.). A
British Columbia case, Uniforêt Pâte Port-Cartier Inc.
v. Zerotech Technologies Inc., [1998] B.C.J. No. 192
(QL), [1998] 9 W.W.R. 688 (S.C. [In Chambers]) also
confirmed that Canadian courts should give “full faith
and credit” to final and conclusive non-monetary
judgments issued by other provinces. Note that this
case would in itself not allow trans-provincial enforcement of freezing orders, which are granted on an
interim basis, and are expressly subject to later
variance by the issuing court. See also the Court’s
comments towards enforcement of such orders, in Underwriters, Lloyd’s v. Cominco Ltd., [2006] B.C.J. No.
1917 (QL), 2006 BCSC 1276 at paras. 204-207.
Z Ltd. supra, n. 17, at 564-65 [All E.R.].
Ibid., at 562-63 [All E.R.]. See also Robert J. Sharpe,
Injunctions and Specific Performance, looseleaf
(Aurora, Ont.: Canada Law Book Inc., 2004), at
2.1050.
Steven Gee, Q.C., Mareva Injunctions and Anton Piller
Relief, 4th ed. (London: Sweet & Maxwell, 1998), at
311.
A parallel section is found in s. 448(1) of the federal
Trust and Loan Companies Act, S.C. 1991, c. 45.
There is scant Canadian jurisprudence on this section
of the Act, but courts have been content to accept it at
face value: see Bank of Nova Scotia v. Mitchell, [1981]
B.C.J. No. 654 (QL), 1981 CarswellBC 204, [1981] 5
W.W.R. 149 at 157, 30 B.C.L.R. 213 (C.A.) and Banque nationale du Canada c. Planchers Mercier Inc.,
[1992] A.Q. No. 1006 (QL), 1992 CarswellQue 257,
49 Q.A.C. 73, [1992] R.D.J. 614 (C.A.).
As stated by Kerr L.J. in Z Ltd. supra, n. 17, at 573
[All E.R.]: “The special position of banks, in particular of the clearing banks before us, is that they cannot
in practice ensure compliance with such an order
without instituting what may be a very costly and
elaborate search throughout all their branches in
order to see whether they held any assets of the particular defendant. If such an order is served on a
bank, it is obliged, as a matter of self-defence for the
purpose of complying with the order, to carry out
such a search; …”.
Ibid., at 564 [All E.R.].
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Searose v. Seatrain (UK) Ltd., [1981] 1 All E.R. 806
(Q.B.) at 808 [Searose]; Z Ltd., supra, n. 17, at 564,
574 [All E.R.].
Searose ibid., at 807.
CPR supra, n. 23, Part 25, Practice Directive, Art. 6.1,
Schedule B, para. 7.
Z Ltd., supra, n. 17, at 564 [All E.R.].
Barclays (C.A.), supra, n. 8 sets out a standard form
letter in the same way as damages for breach of contract: paras. 10, 15. But note, however, that the injunction takes effect immediately. As explained earlier in
this article in the discussion of Barclays, the bank cannot claim that it was under no obligation to take any
steps to enforce an order until and unless the applicant
provided the fees for the bank’s costs.
Guinness Peat Aviation (Belgium) N.V. v. Hispania
Lineas Aereas SA (1991), [1992] 1 Lloyd’s L.R. 190
(Q.B. (Comm. Ct.)).
Village Gate Resorts Ltd. v. Moore, [1999] B.C.J. No.
2499 (QL), 1999 CarswellBC 2391, 71 B.C.L.R. (3d)
1, 1999 BCCA 626 at para. 12; Yukong Line Ltd. v.
Rendsburg Investments Corp., [2000] E.W.J. No. 6987
at para. 35 (C.A.) (QL).
Z Ltd. supra, n. 17, at 564 [All E.R.].
Ibid., at 566 [All E.R.].
Republic Insurance Co. v. Gatoil International Inc.
(July 5, 1985) (Q.B.), cited in Malek & Lewis, supra,
n. 66, at 15, 96-97.
Z Ltd., supra, n. 17, at 566 [All E.R.].
Allen v. Jambo Holdings Ltd. (1979), [1980] 1 W.L.R.
1252, 124 Sol. Jo. 742, [1980] 2 All E.R. 502 at 505
(Eng. C.A.); Siska Indian Band v. British Columbia
(Minister of Forests), [1999] B.C.J. No. 2354 at para.
49 (QL), (October 22, 1999), Doc. Vancouver
A981672, A992665 (S.C.).
Z Ltd. supra, n. 17, at 564 [All E.R.].
Ibid., at 573 [All E.R.].
Gee, supra, n. 99, at 312.
Oceanica Castelana Armadora S.A. v. Mineralimportexport, [1983] 1 W.L.R. 1294 at 1301 (Q.B.) [Oceanica].
Bankers Trust Co. v. Shapira, [1980] 3 All E.R. 353,
[1980] 1 W.L.R. 1274 (Eng. C.A.).
Ibid., at 358-59 [All E.R.].
Ibid., at 358 [All E.R.].
London and Country Securities Ltd. (In Liquidation) v.
Caplan (May 26, 1978), unreported, cited in
Mackinnon v. Donaldson, Lufkin and Jenrette Securities Corp., [1986] 1 Ch. 482 at 498 [Mackinnon].
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
62
Ibid., at 493. This case appears never to have been applied in Canada.
Ibid., at 494, 496.
Hickman v. Kaiser, [1996] B.C.J. No. 2514 at para. 25
(QL), 1996 CarswellBC 2659, 28 B.C.L.R. (3d) 195
(S.C.) [In Chambers]; Green v. Jernigan, [2003] B.C.J.
No. 1609 at para. 15 (QL), 2003 CarswellBC 1714, 18
B.C.L.R. (4th) 366, 2003 BCSC 1097 (S.C.); Harbin
Ding Culture & Education Consultancy Service Co. v.
Newman, [2004] B.C.J. No. 132 at para. 53 (QL), 2004
CarswellBC 157, 2004 BCSC 107, 24 B.C.L.R. (4th)
325 (S.C.).
Z Ltd. supra, n. 17, at 565 [All E.R.]; Her Majesty’s
Advocate v. W.M.M., [2005] CSOH 130 at para. 17.
Ibid.
Ibid., at 563 [All E.R.].
Ibid. But see also at 576, Kerr L.J., with respect to
“maximum amount” freezing orders.
Ibid., at 563.
Gee supra, n. 99, at 310.
Z Ltd., supra, n. 17, at 563, 576-77.
Ibid., at 563.
Bolvinter Oil S.A. v. Chase Manhattan Bank N.A.
(1983), [1984] 1 W.L.R. 392 at 393 (C.A.) (not a freezing order case). See also Z Ltd., supra, n. 17, at 576
[All E.R.].
Lewis & Peat (Produce) Ltd. v. Almatu Properties Ltd.
(1992), [1993] 2 Bank. L.R. 45 (C.A.).
Cretanor Maritime Co. v. Irish Management Ltd.,
[1978] 1 W.L.R. 966 at 975, 977, 978, [1978] 3 All
E.R. 164, [1978] 1 Lloyd’s Rep. 425 (Eng. C.A.).
See, for example, Oceanica supra, n. 119, at 1299. The
Court ordered the release of funds paid by a state government bank as security for the defendant’s guarantees.
Z Ltd. supra, n. 17, at 565, 576 [All E.R.].
They are included in the English standard order: CPR,
supra, n. 23, Part 25, Practice Directive, Art. 6.1, para. 6.
SCF Finance Co. v. Masri, [1985] 2 All E.R. 747,
[1985] 1 W.L.R. 876 at 884 (Eng. C.A.).
Gee, supra, n. 99, at 311.
Oceanica, supra, n. 119 at 1300.
Z Ltd., supra, n. 17 at 563 [All E.R.]. This right is confirmed in the standard English order: see CPR, supra,
n. 23, Part 25, Practice Directive, Art. 6.1, para. 17.
Deutsche
Schachtbau-Und
Tiefbohr-Gesellschaft
M.B.H. v. Shell International Petroleum Co. Ltd.,
[1990] 1 A.C. 295 at 317 (H.L.).
Oceanica supra, n. 119, at 1299.
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