Ontario court upholds World-Wide Mareva Injunction in Obégi v. Kilani

The recent decision of the Ontario Superior Court of Justice in Obégi v. Kilani, 2011 ONSC 1636 (CanLII) deals with the issue of an Ontario court’s jurisdiction to continue a worldwide Mareva injunction (also known as a “worldwide freezing order”)  in support of foreign proceedings.

The applicant Obégi Chemicals—a United Arab Emirates (“UAE”) company forming part of Obégi Chemicals Group S.A. (“Obégi Chemicals Group”), a large multinational company headquartered in Luxembourg and operating primarily in the Middle East— alleged it was a victim of an elaborate fraud and embezzlement scheme in the total amount of approximately US $15 million, perpetrated and operated by one of the respondents, Kilani with the assistance of Maha and other employees of Obégi Chemicals over a period of three years.  The scheme involved the transfer of Obégi Chemicals’ funds to bank accounts of three other companies controlled by Kilani by way of powers of attorney through Maha and other accomplices.

Confronted  by Obégi Chemicals, Kilani admitted to the fraud and embezzlement, resulting in his making repayment arrangements memorialized in a  settlement agreement signed by Kilani and Obégi Chemicals, whereby Kilani acknowledged his obligations to Obégi Chemicals as a “debt” amounting then to the equivalent of approximately US $13 million.  Pursuant to the  Settlement Agreement, Kilani then provided a series of 19 post-dated cheques payable to Obégi Chemicals and resigned from his employment. The first two cheques were honoured, however it was subsequently discovered that the funds behind at least one of them came from funds wrongfully taken from Obégi Chemicals.  All of the remaining cheques that have become due have been returned “non-sufficient funds”.  After the cheques were dishonoured, Obégi Chemicals filed a criminal complaint against Kilani and initiated civil proceedings in a Dubai court, securing a freezing order against Kilani’s family villa in Dubai. Simultaneously,   Obégi Chemicals learned that Kilani transferred the villa worth approximately US $3.5 million to Zeid with Maha signing for Kilani under power of attorney.   Obégi Chemicals then obtained a new freezing order from the Dubai court preventing the Kilanis from disposing of the villa pending a final ruling in the case.

Meanwhile,  Kilani commenced his own civil claim against Obégi Chemicals in a Dubai court, admitting to the indebtedness under the Settlement Agreement, albeit stating that he had delivered plastic pipes to Obégi Chemicals in satisfaction of around US $4.2 million of that debt and further requesting the court appoint an expert to examine the accounts of Obégi Chemicals and of Kilani and his three companies so as to determine the exact amount of Kilani’s indebtedness.

Subsequently, the  General Prosecutor in Dubai in charge of the  UAE Fraud Proceedings linked Kilani’s Claim to the UAE Fraud Proceedings so that the same court appointed accounting expert could review both sets of claims.  Obégi Chemicals alleges that the Jordanian courts convicted Kilani three times in absentia and Maha once, for issuing cheques with no provision of funds to honour them.  According to the motions judge:

“[29]           Obégi Chemicals says it has applied for the Orders in aid of the foreign proceedings commenced by it in the UAE and Jordan relating to Kilani’s fraud and embezzlement scheme and subsequent actions of the Kilanis.  Obégi Chemicals says it had and continues to have good reason to believe the Kilanis will dissipate their assets that include the funds wrongfully obtained from Obégi Chemicals’ assets, so as to avoid any judgments that may be rendered against them in those proceedings.

[30]           Obégi Chemicals states that even though beginning on December 15, 2010 the Orders were served on five different lawyers and/or law firms that have been or are currently retained by the Kilanis in Dubai, UAE and Amman, Jordan, it was only after the Kilanis were discovered in Nova Scotia a week or so later that they first responded and brought the present motion.”

The court’s analysis correctly focuses on the jurisdictional issue: whether there is a “real and substantial connection” between Ontario and the Kilani defendants on the one hand, and between Ontario and the subject-matter of the world-wide Mareva order, on the other. As Justice Ratushny remarks:

[103]      I think it important to note that the connections to be assessed in determining if jurisdiction can be assumed are not in respect of Obégi Chemicals’ underlying claims in the foreign proceedings, but the connections between Ontario and the Kilanis in respect of the Orders, being the Mareva injunctive relief to preserve assets in Ontario and elsewhere.

After considering and then rejecting applicant counsel’s arguments on presence-based and consent-based jurisdiction ( in the latter instance, on the issue of conduct estoppel), the court then proceeds to canvass the leading conflict of laws authorities, in particular, Van Breda v. Village Resorts Limited and Beals v. Saldhana, 2003 SCC 72 (CanLII), [2003] 3 S.C.R. 416.  The motion judge then addresses the issue of whether an Ontario court can grant injunctive relief without jurisdiction over the underlying cause of action and concludes:

“[78]           In 1996 in BMWE, the Supreme Court of Canada affirmed that courts in Canada have inherent jurisdiction to grant an injunction where there is a justiciable right wherever that right may fall to be determined and that a court in Canada may grant injunctive relief where final relief will be granted in another forum (at paras. 15-17).

[79]           In BMWE the cause of action was a labour dispute governed by the Canada Labour Code, R.S.C. 1985, c. L-2, providing for settlement of disputes by a tribunal established by the Code.  The issue was whether superior courts in British Columbia had jurisdiction to issue interlocutory injunctions in circumstances where there was no cause of action to which the injunction was ancillary (para 4).  In holding that Canadian courts have jurisdiction to grant injunctive relief in those circumstances, the Court adopted (at paras. 13-15) the position of the House of Lords in Channel Tunnel Group Ltd. V. Balfour Beatty Construction Ltd., [1993] 2 W.L.R. 262 which had been applied previously in Canadian courts.

[80]           In 2007 in Transat, the Supreme Court of Canada affirmed that an injunction may be granted in Canada against a defendant that is not within the territorial jurisdiction of a Canadian court in relation to a dispute that arose outside of Canada.  The Court held that a court of competent jurisdiction has the power to issue an injunction with purely extraterritorial effects (at para. 6).

With respect to the new Van Breda test for jurisdiction simpliciter, Ratushny, J. notes:

[98]           Obégi Chemicals turns to rule 17.02, subsections (a) (real or personal property in Ontario), (i) (injunction) and (p) (person ordinarily resident or carrying on business in Ontario), as support for the finding that a real and substantial connection for the purposes of assuming jurisdiction against the Kilanis shall be presumed to exist.  The onus then rests on the Kilanis to satisfy the Court that the real and substantial connection test is not met.

[99]           I agree that the connections of subsections 17.02(a) and (i) are present so that a real and substantial connection is presumed to exist between Ontario and the Kilanis.  For reasons already stated in respect of consent-based jurisdiction, I have concluded that the connection under subsection 17.02(p) of a person ordinarily resident or carrying on business in Ontario does not exist.

[100]      In respect of subsection 17.02(a), the personal property present in Ontario is the BMO Account.  There is evidence that this bank account is much more than an incidental account with a few hundred dollars in it.  Part of the new evidence is that there have been substantial transfers of money from certain Swiss bank accounts owned by the Kilanis and by one of their other sons, into the BMO Account even as late as December 23, 2010.

[101]      In respect of subsection 17.02(i), the Orders do constitute a worldwide Mareva injunction in aid of foreign proceedings to preserve assets in Ontario and elsewhere, in addition to imposing disclosure obligations and other relief including the freezing of assets, namely the BMO Account, in Ontario.

[102]      The existence of rule 17.02 connections is not, of course, the end of the assessment of all connections.

[104]      I find that even though the Kilanis have only the BMO Account in Ontario, their reliance on and activity with this bank account is a significant connection to Ontario.  Obégi Chemicals turns, in addition, to Beals and Van Breda as referred to above, to argue that the Kilanis “can reasonably be brought within the embrace” of Ontario law because they have by their past and present conduct as detailed before, participated in significant activities in Ontario.  Obégi Chemicals says that it is these circumstances that in their entirety form a real and substantial connection to Ontario.

[105]      I have concluded that while these circumstances in their entirety can serve to connect the Kilanis to Ontario, to characterize them as “real and substantial” could risk being regarded as a distortion of that test, as referred to by Sharpe J.A. in Van Breda at para. 100, and thereby do it a disservice.”

In a decidedly novel approach,  Ratushny, J. then transposes “access to justice” as a consideration for assuming jurisdiction over the respondents:

[106]      I find, however, that there is a need to “ensure access to justice” (Van Breda, at para. 100) arising out of all of the circumstances as referred to before between Obégi Chemicals and the Kilanis.  Considerations of order and fairness enter this part of the jurisdictional analysis, namely at the “real and substantial connection” test phase (Van Breda, at paras. 93-101, referring to Hunt, as quoted above), just as they guide the later analysis if jurisdiction can be assumed, of forum non conveniens (Momentous, at paras 36-38).

[107]      My reasons for concluding there is a need to ensure access to justice are encompassed in the….evidence that has lead me to conclude the Kilanis are a flight risk….

….

[117]      I conclude on the evidence before me, therefore, that it is reasonable to infer the Kilanis are sheltering themselves in Canada so as to avoid enforcement in respect of the foreign proceedings.  In all of these circumstances I find that the existence of the BMO Account, together with the rationales of order and fairness in the context of the requested Mareva injunction relief in aid of foreign proceedings under the Orders, are able to constitute a real and substantial connection to allow this Court to assume jurisdiction over the Kilanis.

The court then adopts an equally unorthodox application of the Van Breda “forum of necessity” exception thusly:

[118]      In the event this conclusion could be said to amount to a distortion of that test because of an inadequate connection to Ontario as cautioned against in Van Breda, I also conclude that these particular circumstances warrant invoking the necessity doctrine.  As noted in Van Breda (at para. 100 and referred to above), despite the lack of a real and substantial connection, this Court has the residual discretion to assume jurisdiction as the forum of necessity for the Orders so as to ensure that Obégi Chemicals has access to justice in Ontario.  I agree that the circumstances justifying an exception should be rare but that this is one of those cases.

[119]      It can fairly be remarked that Obégi Chemicals may be reasonably able to return to the jurisdictions of the UAE and Jordan to seek relief similar to the Orders.  That may be the case; I do not know.  However, the issue at the present time is whether this Court can assume jurisdiction over the Kilanis who have chosen to come to Canada and I have determined that jurisdiction can be assumed, based on connections I assess as being real and substantial.  I have also determined that an alternate characterization of the assumption of jurisdiction by this Court in all of the circumstances is as a forum of necessity.

[120]      I conclude, therefore, that jurisdiction can be assumed over the Kilanis on these grounds and I proceed to determine whether it should be assumed.”

The court also concludes that the Kilanis failed to demonstrate that Ontario was forum non conveniens.

Finally,  I doubt that Justice Sharpe had a “flight risk” or “absconding debtor” in mind when fashioning the “forum of necessity” exception to the Rule 17.02 rebuttable presumptions, but it does demonstrate creative and effective advocacy on the part of Obégi Chemicals’ counsel.

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