Inference Of Dissipation Not Automatic When Considering Suitability Of Mareva Injunction

Introduction

In fraud claims, plaintiffs are often concerned that defendants will dissipate assets beyond the court's reach. While the Mareva injunction, which freezes assets, is a useful (and, sometimes, essential) tool, the legal bar remains exceptionally high. Although plaintiffs need not prove that a defendant is actively dissipating assets to secure a Mareva, courts will not infer a risk of dissipation automatically. As the recent decision in Hao Chen et al. v. Masih Moazen-Safaei, 2025 ONSC 3098 (CanLII) explains, it is not enough to show a strong prima case of fraud. Courts must employ a contextual analysis, considering the nature and circumstances of the alleged fraud, before dissipation can be inferred.

Background

The plaintiffs, Hao Chen and Michael Wu, and the defendant, Masih Moazen-Safaei ("Masih"), created a cryptocurrency mining start-up called Atlas Cloud Mining Company ("ACM"). In 2024, the plaintiffs brought an action alleging the fraudulent misappropriation of their over 12-million-dollar investment into ACM.

On June 5, 2024, the plaintiffs obtained ex-parte Mareva injunctions and preservation orders against six defendants, including Farhad, Masih's friend and the COO of ACM. The court held that the plaintiffs made out a strong prima facie case for fraudulent misrepresentation.

On May 26, 2025, the defendants brought a motion before the Ontario Superior Court of Justice to set aside the Mareva and preservation orders (the "Motion Decision").

Superior Court of Justice's Decision

In considering the motion, the Ontario Superior Court of Justice focused on the following three factors of the test for Mareva orders:

1) establishing a strong prima facie case;

2) the risk of dissipation or removal of assets; and

3) the balance of convenience.

First, the court held that the facts proved a strong prima facie case of fraud against all the defendants. For Farhad, in particular, the court held that he and Masih represented to the plaintiffs that: (i) ACM purchased and acquired 1,500 cryptocurrency mining machines ("Miners") and corresponding HVAC equipment; and (ii) Masih had contributed an equal amount of investment funds into the company as the plaintiffs.¹ Both of these representations were found to be false. ACM had not acquired 1,500 Miners and corresponding HVAC equipment, and Masih had not matched the value of the plaintiffs' investments. Instead, evidence showed that the plaintiffs' investment funds flowed into accounts controlled by Masih and other corporate defendants.

Second, the court confirmed that plaintiffs are not required to prove that a defendant is actively dissipating assets to secure a Mareva. Instead, the court followed a line of caselaw that holds that "proof of the risk of removal or dissipation of assets may be inferred from the surrounding circumstances of the responding parties' misconduct."²

In this case, the lack of clarity regarding the flow of funds, and, in particular, the movement of money through various cryptocurrency accounts, increased the likelihood that assets may be easily dissipated.³ Ultimately, the court found that the evidence supported the conclusion that the dissipation of assets by Masih and the other corporate defendants posed a serious risk.⁴

In considering Farhad's involvement in the fraud, the court clarified the instances in which the inference of the risk of dissipation of assets may be drawn. Significantly, such an inference is not drawn "automatically" upon a finding of a strong prima case of fraud. Rather, courts must consider "the nature of the fraud" and all the surrounding circumstances, "including the circumstances of the fraud itself."⁵

Here, while Farhad made deliberate or recklessly false statements, there was insufficient evidence to establish his involvement in the processing of investment payments or in the movement of money into third-party accounts. In acknowledging that "the court must be vigilant to ensure that a Mareva continues only where it is truly appropriate and warranted", the court assessed the totality of Farhad's involvement in the fraud and ultimately declined to infer the risk of him dissipating his assets prior to judgement.⁶

Third, the court assessed the balance of convenience between the parties⁷, concluding that because of the strong prima facie case of fraud and the high risk of the dissipation of assets before judgement for all defendants other than Farhad, the balance weighed strongly in favor of the plaintiffs.⁸ Ultimately, the Court dismissed the motion to set aside the orders, with the exception that the Mareva injunction not continue as against Farhad.

Key Takeaways

The Motion Decision clears up the law surrounding Mareva orders and offers useful clarity and guidance for how courts will infer the risk of the dissipation of assets.

First, the bar for granting Mareva orders in fraud-related cases remains high. Mareva orders are highly restrictive injunctions that freeze a defendant's assets until judgement. Courts should consider this against the circumstances of the alleged fraud to ensure that Marevas are only upheld in the most appropriate of cases.⁹

Second, in cases of fraud, plaintiffs are not required to show that defendants are actively dissipating their assets. Instead, establishing a strong prima facie case of fraud can serve as proof of the serious risk that assets may be removed.¹⁰

Third, while a strong prima facie case of fraud may be sufficient to infer the dissipation of assets, the nature of the fraud must also be considered.¹¹ Mere participation in an alleged fraud, where there is no evidence that a defendant is likely to dissipate their assets, may reduce the likelihood that a Mareva order will be granted (or upheld).

Footnotes

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^{1. Hao Chen et al v Masih Moazen-Safaei, 2025 ONSC 3098 ("Motion Decision"), para 67.}

^{2. Motion Decision, para 73.}

^{3. Motion Decision, para 75.}

^{4. Motion Decision, para 74.}

^{5. Motion Decision, para 77.}

^{6. Motion Decision, para 77.}

^{7. Motion Decision, para 79.}

^{8. Motion Decision, para 79.}

^{9. Motion Decision, para 77.}

^{10. Motion Decision, para 73.}

^{11. Motion Decision, paras 76-77.}

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