Commercial Fraud

Commercial fraud has become a modern-day scourge that is increasingly difficult to prevent or even detect. The omnipresence of computers and the new virtual world they have spawned have opened new doors allowing criminals to diversify their fraudulent stratagems and make them harder to protect against. News items now abound concerning identity theft, credit-card cloning, misappropriation of funds, financial and securities scams, thefts of trade secrets, counterfeiting, and hacked and stolen data, to mention only a few.

Businesses that fall victim to commercial fraud will often resort to various investigative methods to determine the extent and scope of the fraud and the identity of the individuals involved. Sometimes they will manage to garner enough information to be able to sue for, among other things, the recovery of some or all of the losses sustained, to the extent possible.

Among the legal remedies available to today’s commercial fraud victims are traditional injunctions and seizures before judgment, both of which are well known to Québec civil-law practitioners. Through an injunction, a business will seek to obtain one or more court orders to compel something to be done or cease being done. Through a seizure before judgment, the business will endeavour to seize one or more items of property, if there is a risk that the recovery of what rightfully belongs to it will otherwise be jeopardized.

However, other remedies, which commercial fraud victims are often unfamiliar with, do exist. In order to accurately gauge the extent of the fraud and to obtain and preserve the evidence necessary for a successful outcome at trial, lawyers have at their disposal two extraordinary remedies that have been termed “legal nuclear weapons” by the courts, namely Anton Piller orders and Mareva injunctions.

The first, the Anton Piller order, is an injunctive order obtained ex parte (i.e. in the absence of the defendant) enjoining the defendant to submit to a search and seizure. The order is aimed at preventing the defendant from secreting or destroying the evidence specified in the injunction. The second, the Mareva injunction, also known as a freezing (or freeze) order in some common law jurisdictions, enjoins the defendant from transferring its assets, wherever they may be found. However, these extraordinary remedies are granted by the courts only if certain very strict conditions are met. In the case of Anton Piller orders, those conditions require solid initial evidence and extremely serious actual (or potential) harm. There must be compelling evidence that the defendant has the evidence being sought in its possession. There must also be indicia of the very real possibility that the defendant might destroy the evidence if served with a subpoena providing it with a time limit for responding.  In the case of a Mareva injunction, in addition to strict compliance with the general criteria for the injunction, it must be shown that the defendant has valuable assets and that, absent the injunction, it would readily divest itself of them or move them beyond the reach of the law.

If and when they are granted, these remedies afford obvious advantages to the party requesting them. They can facilitate obtaining crucial evidence for the lawsuit, and even the seizure of important assets. They can also have a favourable impact on the conduct of the proceedings and on the effectiveness of the final judgment. In some cases these extraordinary remedies will further a speedy settlement of the dispute, when the fraudulent party realizes it has nothing to gain from continuing the legal proceedings.

As orders of this type require compelling, complete and highly specific evidence in order to convince a court to issue them, the initial cost of obtaining one is often quite significant. However, given that their issuance and enforcement often convince defendants to settle without further ado, the ultimate cost may prove to be the same or less than that of a suit which drags on for years.

There is also another remedy, which many lawyers are unaware of, that lies midway between a seizure before judgment, an injunction and an Anton Piller order. This is the “seizure in revendication before judgment with prior judicial authorization”, which is used to seize computer data and other confidential information belonging to the plaintiff and misappropriated by the defendant.

The distinction is that, while it is possible to proceed with a seizure before judgment without judicial authorization in the case of physical movable property belonging to the plaintiff, in the case of information in electronic form stored on the defendant’s computer system, such a seizure is necessarily preceded by a degree of searching. The courts have therefore decided that prior judicial authorization is required in such cases.

Much less intrusive than an Anton Piller order, and a lot less costly, the seizure in revendication with prior judicial authorization is limited to computers and other data-storage devices. Depending on the circumstances and the evidence being sought, this remedy may be very attractive to a business whose rights have been violated. For example, although it may not be possible to prove that fraud has occurred, it is sometimes possible to prove that an employee sent confidential company documents to a personal email address shortly before resigning.  In such a case, the seizure in revendication with prior judicial authorization can prove to be a useful weapon in the Québec civil-law arsenal.

Thus, despite increasing instances of fraud and other financial misfeasance in Québec, we can see that Québec civil law is evolving to provide victims with remedies that are better adapted to their needs.