Canada continues as a friendly jurisdiction for enforcement of international arbitration awards
August 2014 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION
It can be a long and difficult road to get to the end of an international arbitration, and unfortunately, although the majority of international arbitral awards are voluntarily complied with, the road may not end there. If you are the successful party and voluntary compliance is not forthcoming, then enforcing the award against the debtor and collecting payment may prove a most difficult task depending on where you must seek enforcement. Canada continues to prove itself as an arbitration-friendly jurisdiction by readily enforcing international arbitral awards with minimal judicial intervention.
Two recent Canadian decisions dealing with the enforcement of arbitral awards in British Columbia demonstrate that Canada is fertile ground for creditors to international arbitral awards seeking to enforce their awards against uncooperative debtors. Canada is generally an enforcement-friendly jurisdiction and its courts are willing to use strong remedies like freezing orders (also known as Mareva injunctions) to assist in having awards satisfied.
If the debtor is extracting or receiving delivery of natural resources in British Columbia, international arbitral award creditors should consider whether the debtor has any assets, or expects to receive a delivery of resources, in Canada. If so, it could be possible to get a freezing order against the debtor’s assets to secure payment of the arbitral award.
The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention) was ratified by Canada in 1986. The New York Convention creates a presumption in favour of recognition and enforcement of foreign arbitral awards in each signatory state, directing courts to recognise international arbitration awards as binding and enforce them in the same way as domestic awards. Barring certain very narrow grounds, the New York Convention creates a presumption in favour of enforcing an award and, as recent Canadian case law demonstrates, there is no need for the winning party to first try to enforce the award in another jurisdiction that might be perceived as having a closer connection to the debtor, the award or the creditor, before applying to enforce it in Canada.
Although it is not one of the express grounds for refusing to enforce an award under the New York Convention, debtors have tried to argue that the award must be enforced in the most convenient place first before it can be enforced in another jurisdiction (known as the principle of forum non conveniens). The availability of this defence could be seen as counter to the very purpose of the New York Convention, which presumes that courts in each signatory state have territorial competence to recognise and enforce foreign arbitral awards. Requiring the successful party to seek enforcement in a jurisdiction where the debtor has fewer assets or where enforcement is more challenging could be counterproductive, as it would delay enforcement, cause companies to incur further costs and possibly give the debtor the opportunity to shelter its assets in other jurisdictions.
In the past, some debtors to international arbitral awards have relied successfully on this defence to resist recognition and enforcement of international arbitral awards in American courts.
Specifically, the forum non conveniens defence has received favour in the United States Court of Appeal for the Second Circuit (see, for example, Monegasque de Reassurances S.A.M. v. NAK Naftogaz of Ukraine, 311 F 3d 488 (2d Cir. 2002) and Figueiredo v. The Republic of Peru, 665 F 3d 384 (2d Cir. 2011)). Despite the presumption in favour of enforcement of international arbitral awards in the New York Convention, the Second Circuit held that district courts retain discretion to refuse enforcement of the arbitral award “where judicial economy, convenience and justice so compel”. Therefore, at least in New York, the presence of a clearly more convenient forum in which to enforce the award is an independent “procedural” ground for refusing enforcement, in addition to those listed in the New York Convention.
Two recent Canadian decisions take a contrasting position to that adopted by the Second Circuit. The first case shows the willingness of a Canadian court to award a freezing order even where the application has to be brought without notice, and there is not yet a final award. The second case demonstrates that Canadian courts consider forum non conveniens an inappropriate defence to enforcement of an award under the New York Convention.
The first case is CE International Resources Holdings LLC v. Yeap, S.A. Minerals Ltd. Partnership, and Tantalum Technology Inc. This arbitration, which took place in New York, was about breaches of contracts for the sale of precious metals. None of the parties were Canadian and the dispute did not occur in Canada, but the alleged debtor did have assets in British Columbia. There was a risk that some of the assets would dissipate while the arbitration was pending, given the nature of the alleged breaches of contract. CE International successfully applied for and received (without notice to the other parties), an interim freezing order to preserve the assets in British Columbia pending the outcome of the arbitration.
When the New York arbitrator issued an interim award granting a worldwide Mareva order, the British Columbia court enforced that award and ordered that the respondents disclose their assets . The respondents failed to do so, and the Court ultimately found that one of the respondents was in contempt of court – ordering him to pay fines and issuing a warrant for his arrest. Once the final arbitral award was issued, that too was enforced by the British Columbia court.
The second case from British Columbia is Sociedade-de-Fomento Industrial v. Pakistan Steel Mills, 2014 BCCA 205. In this case, a Mareva injunction was obtained by an Indian party that had successfully obtained a $9m arbitral award against a government-controlled Pakistani company. The Pakistani company refused to pay the award and the Indian company wanted to avoid the difficulties inherent in enforcing the award in Pakistan against a government-controlled company. The creditor learned that Pakistan was receiving a $16.5m shipment of coal in British Columbia. The Indian company successfully obtained a Mareva injunction over the shipment in British Columbia, which compelled Pakistan to pay an amount equal to the award into court in order to release the coal shipment.
Although the British Columbia Supreme Court set aside the Mareva injunction in part because the Indian company did not first attempt to enforce the award in Pakistan before applying to have it enforced in Canada, the British Columbia Court of Appeal subsequently reinstated the Mareva injunction.
The Court of Appeal commented that forum non conveniens is not available as a defence under the New York Convention. However, the Court did observe that, in the context of the Mareva injunction application, the balance of convenience analysis could properly consider the delay that would be faced by the creditor if it commenced enforcement proceedings in Pakistan. The Court noted that the availability of enforcement proceedings in other jurisdictions could also be a relevant consideration in the balance of convenience analysis.
The Court noted that the New York Convention eliminated “the need for expansive inquiries into whether a proceeding has a real and substantial connection” to the province for the purposes of enforcing an international arbitral award. Under the New York Convention, “a real and substantial connection is presumed to exist”, so the presence of a more convenient forum is not an appropriate ground upon which to refuse recognition and enforcement.
As a consequence of British Columbia’s rejection of forum non conveniens as a defence under the New York Convention, courts in Canada have reaffirmed to successful international arbitration parties that Canada is a friendly jurisdiction to seek enforcement of international arbitral awards if the debtor has assets located here. British Columbia is a resource-rich jurisdiction, and due to the rising number of foreign corporations participating in natural resource industries within the province, Mareva injunctions against debtor-owned assets in British Columbia may be an effective way for creditors to secure payment of their international arbitral awards. Provided there are assets in Canada, a lack of other connections to the jurisdiction may not be a barrier to enforcement.
Sarah K McEachern and Hunter Parsons are associates at Borden Ladner Gervais. Ms McEachern can be contacted on +1 (604) 632 3471 or by email: firstname.lastname@example.org. Mr Parsons can be contacted on +1 (604) 640 4218 or by email: email@example.com.
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Sarah K McEachern and Hunter Parsons
Borden Ladner Gervais