The Litigator

THE LITIGATOR

Commentary on Law Affecting Business

The Litigator
AGM :: Affleck Greene McMurtry LLP

THE LITIGATOR

Affleck Greene McMurtry LLP
365 Bay Street, Suite 200  ·  Toronto, Canada
416 360 2800  ·  info@agmlawyers.com  ·  www.thelitigator.ca

Injunctions available to enforce foreign arbitral awards, BC court says

Chevron Texaco Equador

The New York Convention allows foreign arbitral awards to be enforced in Canada

The New York Convention permits parties to arbitrations to enforce arbitral awards in any contracting state, including Canada. This means that Canadian courts are not entitled to consider whether the award should first be enforced in any other state, the BC Court of Appeal held recently in Sociedade-de-fomento Industrial Private Limited v. Pakistan Steel Mills Corporation (Private) Limited. This principle also applies to applications for injunctive relief, including Mareva injunctions, as part of the enforcement process. This decision, which is the first time a Canadian court has considered the availability of injunctive relief in aid of proceedings to enforce an international arbitral award, enhances Canada’s status as an “arbitration friendly” jurisdiction.

SFI seizes coal shipment in BC to enforce award

In June 2010, Sociedade-de-fomento Industrial Private Limited (SFI), an Indian mining and export company, obtained judgement against Pakistan Steel Mills Corporation (Private) Limited (PSM) pursuant to an arbitration conducted at the International Chamber of Commerce International Court of Arbitration (ICC). Despite repeated demands for payment, PSM was not forthcoming in paying any portion of the C$8.67 million award to SFI.

In an effort to enforce the award elsewhere, SFI identified overseas assets of PSM in the form of a recently-purchased shipment of coal located on a vessel in British Columbia and valued at USD $16.5 million. SFI succeeded in obtaining a Mareva injunction in the Supreme Court of British Columbia restraining the use of PSM’s assets, including preventing the vessel from leaving the jurisdiction, without first paying into court security in the amount of CDN $9.7 million. When the charterer of the vessel applied to set aside the injunction, SFI agreed to indemnify the charterer and took an assignment of its cause of action for the resulting losses. Ultimately, SFI paid the charterer upwards of US$800,000 for its losses.

Court enforces award but says injunction improperly obtained

After obtaining a judgement from the BC court recognizing and enforcing the award and ordering PSM to pay SFI C$8.9 million, SFI brought an application to recover all of its costs incurred in enforcing the award, including the amounts paid to the charterer.

Despite the fact that SFI was ultimately successful in the action, the chambers judge held that the Mareva injunction was improperly obtained and refused to grant costs to SFI. The judge found that although SFI was entitled to enforce a foreign arbitral award in BC, given the limited association of either party with the jurisdiction, the failure of SFI to adequately disclose its ability to enforce its award in Pakistan was material to the determination made on the original application. Moreover, in the absence of a suggestion of fraud or dissipation of assets and the significant impact of the injunction on an innocent third party, the chambers judge concluded that the balance of convenience favoured PSM and ordered SFI to pay damages suffered by PSM as a result of the injunction.

Foreign conveniens analysis improper in arbitral award enforcement proceedings

Setting aside the order of the court below, the Court of Appeal for British Columbia held that the chambers judge erred in conducting a forums conveniens analysis in favour of enforcement in Pakistan, and in concluding that SFI failed to disclose a material fact on its application for a Mareva injunction.

The Court of Appeal found that the chambers judge overlooked the effect of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the “New York Convention”)which explicitly permits parties to an international arbitration to enforce the award in any contracting state. British Columbia, like all Canadian jurisdictions, has incorporated the New York Convention into its domestic law, requiring provincial courts to recognize and enforce an international arbitration award on the same basis as a domestic award. The Court of Appeal held that because a real and substantial connection to British Columbia is presumed to exist in a proceeding to enforce an arbitral award made outside of the province, the need to conduct any sort of analysis as to whether the judgement should or could have been enforced in another state is obviated. Given that the New York Convention contemplates an action by a petitioner to enforce an arbitral award, it would be illogical to recognize the presumed jurisdictional connection for final judgement purposes but ignore it for interlocutory purposes.

The Court of Appeal further held that while the court retains equitable jurisdiction to grant or refuse a Mareva injunction, the chambers judge erred in assuming that the availability of enforcement proceedings in Pakistan implied an onus on SFI to turn first to Pakistan’s courts because of the parties’ limited association with BC. To hold otherwise would undermine the purpose of the New York Convention and its integration into BC legislation. The fact that the assets were about to leave the jurisdiction, and damage to the innocent third party was alleviated by SFI’s fortified undertaking, weighed in favour of a finding that the injunction was properly ordered. Moreover, the balance of convenience analysis ought properly to have taken into account the delay that would accompany enforcement proceedings in Pakistan, as well as the considerable doubt about the availability of post-award interest under Pakistani law. Upon determining that the evidence supported the representation that enforcement in Pakistan would indeed be difficult, the Court of Appeal declined to find that SFI failed to disclose a material fact that would have altered the balance of convenience analysis on the original injunction application.

Impact

This decision illustrates the permissive nature of the international arbitral award enforcement scheme in BC specifically, and in Canada generally. Requiring courts to recognize a foreign arbitral award as a domestic judgement while depriving an applicant for injunctive relief of the full scope of enforcement remedies available runs contrary to the underlying basis of the New York Convention. In future, we will likely see courts of other provinces follow suit in granting extraordinary injunctive relief to enforce a foreign arbitral award where the merits of the case are strong and where damage to the innocent third party can be alleviated by a fortified undertaking of the applicant.

Daphne Hooper
Affleck Greene McMurtry LLP

Daphne Hooper

Daphne is a former associate of Affleck Greene McMurtry LLP

Contributor's Archive