What should a lawyer do with trust funds when his or her client
is subject to a Mareva injunction? In Sabourin and Sun Group
of Companies v Laiken, the Court of Appeal held that by applying
the money to pay legal fees and returning the balance to his
client, the lawyer had breached a court order and was in contempt
Sabourin was a financial advisor who was subject to a Mareva
injunction obtained by Laiken in May of 2006. The injunction
expressly applied to moneys held in trust and did not provide for
the payment of legal fees or living expenses. Both parties
and the Court subsequently agreed that the Order was overly
restrictive and required variation for routine expenses. The
Court left it to the parties to work out appropriate terms, but no
steps were ever taken to amend the Order.
On September 21, 2006, Sabourin sent his lawyer, Carey, a cheque
for $500,000 without instructions. Carey deposited the money
into trust per Law Society regulations and Sabourin later
instructed him to use the funds to settle with certain third party
creditors. Sabourin had previously informed these creditors
that he had $500,000 for settlement negotiations, but Carey refused
to pay any money to these creditors because he knew that doing so
would violate the Mareva injunction. Sabourin also instructed
Carey to attempt to negotiate a settlement with Laiken, but the
settlement negotiations were unsuccessful.
Sabourin then asked Carey to return the trust funds to
him. Carey deducted $60,000 for past and future legal fees
and returned the balance of the trust funds to Sabourin.
The third party creditors subsequently obtained judgment against
Sabourin and demanded that Carey release the trust funds to satisfy
the judgment. Laiken also obtained judgment against
When Laiken found out that Carey had returned the trust money to
Sabourin, Laiken brought a contempt motion and alleged that Carey
had violated the Mareva injunction by returning the moneys held in
Laiken's affiant did not appear for his scheduled
cross-examination on the motion and Carey decided to have his
lawyer attend at the contempt hearing but not to attend
himself. Carey did, however, file an affidavit that was
considered by the Court. Justice Roberts found Carey in contempt
and adjourned the motion in respect of the sanction to be applied,
finding that "[w]ith respect, the Mareva Order could not be
clearer: it plainly prohibited any and all dealings whatsoever with
any monies belonging to the Sabourin defendants, expressly
including any held in trust for them" (para. 17).
Carey filed a notice of appeal and moved for a stay of the
Order. Justice Sharpe dismissed the stay application on the
grounds that the appeal should not fragment the proceedings before
the Superior Court.
On the return of the motion before Justice Roberts, Carey
testified that he honestly believed he had acted properly in his
handling of the trust funds. He stated that he never intended
to breach the Order and asked that the finding of contempt be set
aside. In support of his position, he filed an affidavit
sworn by Alan Lenczner that stated that Carey's actions were
typical of counsel generally. Carey's main defence was
that keeping the money would have meant sheltering it from
creditors under the veil of solicitor-client privilege.
Justice Roberts explained that she was not satisfied beyond a
reasonable doubt that Carey had intentionally violated the Order or
that his interpretation of it was wilfully blind. Without
ruling on the correctness of Carey's actions, she held that the
finding of contempt should be set aside.
There were four issues on appeal, but the one of greatest
importance to lawyers who hold trust funds from a client subject to
a Mareva injunction relates to the finding of contempt.
Justice Sharpe held that the Motion Judge was wrong to find that
the terms of the Order were unclear to Carey. Carey's own
behaviour, when he refused to settle with the third party
creditors, indicated his understanding. The Court explained
that orders must be respected, even if they are improperly granted
or unduly restrictive. Ultimately, as Sabourin's lawyer,
Carey was to be held to the same standard of compliance with the
Order as his client.
In the result, the appeal was allowed. The finding of
contempt was restored, but the sanction was limited to costs.
The lesson for lawyers: read Mareva injunction orders carefully and
if the Order freezes trust funds, do not use those trust funds for
any purpose until the Order is varied to permit the funds to be
used. If in doubt, seek directions from the court.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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