Mareva injunctions – i.e. pre-judgment asset freezing orders – are a most valuable remedy in cross border litigation but are sadly mainly unavailable and unenforceable in the U.S. That may soon change. Last month, the American Bar Association House of Delegates approved last month the Uniform Law Commission’s Asset-Freezing OrdersAct (the “Act”), legislation that would enable American courts to issue orders similar to Mareva injunctions in specific circumstances, and to enforce such orders from foreign courts.
The Existing U.S. Law Regarding Pre-judgment Attachment Orders and Recognition of Foreign Orders
At present, federal courts in the U.S. lack jurisdiction to issue in-personam freezing orders prior to judgment, even in circumstances where the defendant is likely to, or has already begun, to dissipate assets so as to defeat a judgment -- see the U.S. Supreme Court decision in Grupo Mexicano de Dessarolo v. Alliance Bond Fund Inc. 527 U.S. 308 (1999). Before judgment, federal courts have power only to issue in rem orders prohibiting the transfers of specific assets. The facts in Grupo show the need for an in-personam remedy: the defendant’s assets were all outside the U.S., so an in-rem remedy was of no use. An in-personam remedy is needed also in cases where the assets cannot be identified. The trial court in Grupo had found there would be irreparable harm if the order was not granted. Some state courts have interpreted Grupo to mean they too lack jurisdiction. By and large, U.S. courts do not enforce foreign injunctions or other foreign non-monetary judgments.
The Act’s Provisions for Issuance of Asset-Freezing Orders
The requirements in the Act for such orders are similar to those under Canadian and British law, and include:
a.) a substantial likelihood that the moving party will prevail on the merits of the action;
b.) a substantial likelihood that the defendant ‘s assets will be dissipated and the judgment will be defeated, if the order is not granted; and
c.) a balancing of convenience.
The Act specifies this additional requirement: that the order not be adverse to the public interest. Unlike in Ontario, there is no need to show fraud.
The Act’s Provisions for Recognition of Foreign Asset-Freezing Orders
The Act requires courts to recognize asset-freezing orders from courts outside the U.S., subject to some exceptions. Courts may not recognize such orders if the issuing court lacked jurisdiction (grounds for personal jurisdiction are codified in the Act), or if they are issued under a judicial system that does not provide impartial tribunals or due process of law. Courts need not recognize such orders in a variety of certain circumstances, including some that are similar to the defences in Canadian law to enforcement of a foreign judgment, e.g. the order was obtained by fraud, or is contrary to public policy, or conflicts with another order, or the proceeding in the issuing court was contrary to a forum selection agreement or arbitration agreement. These provisions are similar to those found in the older, Uniform Foreign-Country Money Judgments Recognition Act. The burden is on the party resisting recognition to show there are grounds for non-recognition. The act does not apply to actions against an individual for a consumer debt or in family/domestic relations cases. An order that is recognized is entitled to “full faith and credit” in the same manner as a judgment.
The Uniform Asset-Freezing Orders Act has been introduced in two Legislatures so far, those of Colorado and North Dakota.
If the Uniform Asset-Freezing Orders Act is enacted in many states, Canadian-issued Mareva injunctions will be more readily available and substantially more useful than before, in cases involving American assets. Canadian courts are often reluctant to even issue an order that cannot be enforced; the Act eliminates this concern.
Canadian legislatures would do well to consider enacting the Act, so as to codify the law, and to make clear that fraud is not a prerequisite for a Mareva injunction. As well, the Act provides protection for non-parties, such as banks, that may be affected by the order. They may need protection insofar as they may have competing obligations, to their client or others, under foreign law, and an injunction may require speedy action.