Typically, pursuing fraudsters is an exercise in detective work, forensic analysis and a lot of circumstantial evidence. Rarely does a fraud come with a smoking gun or confession. Parties must cobble together evidence (factual and expert) to persuade the court that a fraud has occurred and where the funds might have gone. This usually requires the use of some hearsay evidence.
In Henenghaixin Corp v Deng, 2022 ABCA 271 [Henenghaixin], the Alberta Court of Appeal (ABCA) sent a clear warning that counsel applying for extraordinary remedies must be careful when relying on hearsay evidence to ground their claims. The Court stated that "[h]earsay evidence should be approached cautiously, particularly in the absence of an explanation as to why key available evidence has not been provided by individuals who have personal knowledge of the relevant facts." In this case, the applicants relied on hearsay evidence without explaining why they were required to do so. The result was that the order was set aside on appeal.
Henenghaixin (H Corp) had obtained an attachment order and Mareva injunction (which froze the Defendant's assets) based exclusively on hearsay evidence, in the form of an affidavit from an individual not employed by H Corp. The Court noted that others at H Corp could potentially have provided better and more complete evidence, but H Corp did not explain why it did not provide evidence from those individuals. Functionally, the manner in which H Corp put forward its evidence prevented the opposing party from cross-examining anyone with direct, firsthand knowledge of the evidence.
The Court explained that because Mareva injunctions and attachment orders are extraordinary remedies, it would be improper to uphold them on appeal without direct evidence from H Corp's directors, officers and employees or, alternately, an explanation as to why that firsthand, direct evidence was unavailable. The ABCA found the evidentiary record to be insufficient and the orders were set aside.
This decision highlights the need to put forward the best possible evidence available on such an application, or else risk that it will be rejected or overturned on appeal. Where hearsay evidence is relied upon, an applicant ought to credibly explain why hearsay evidence is being put forward instead of first-hand, direct evidence.
Judges will hesitate to grant such extraordinary relief where the opposing party is unable to test the evidence through effective cross-examination. Counsel should avoid relying on hearsay evidence as a strategy to shield an available witness from cross-examination.
If you have any questions about evidence regarding applications for Mareva injunctions or attachments orders, please contact the Bennett Jones Commercial Litigation group or any of the authors.