In a decision sure to please the international arbitration bar and those who pursue asset recovery in fraud matters alike, our team was recently successful before the highest court in British Columbia. The BC Court of Appeal reinforced the importance of Canada’s international obligations to recognize and enforce arbitral awards and to treat foreign litigants as favourably as British Columbians at all stages of proceedings, including the pursuit of extraordinary relief such as Mareva injunctions. Madam Justice Garson, writing for a unanimous Court that included Madam Justice Levine and Madam Justice Neilson, overturned a decision of Madam Justice Ross, which had declared a Mareva injunction to have been wrongly granted, in part, based on the “limited association” of the parties to British Columbia. In reaffirming the flexible approach to Mareva injunctions taken by British Columbia Courts, the panel explicitly rejected the conclusion of Justice Ross that the appellant had failed to meet the full, frank and fair disclosure obligations of a party seeking an injunction on ex parte basis.
Our client, the appellant, Sociedade de Fomento Industrial Private Limited (“SFI”), an iron ore mining company based in Goa, India, obtained an $8.7 million ICC arbitral award against Pakistan Steel Mills (Private) Limited (“PSM”), an entity wholly-owned by the government of Pakistan. However, after PSM ignored repeated demands for payment, SFI was then faced with the challenge of enforcing the award. Upon learning of PSM’s purchase of coal from Canada, an ex parte Mareva injunction was obtained to freeze the coal once loaded onto a cargo vessel, at which time title would pass to PSM. The coal would provide security for the proceedings seeking to recognize and enforce the Award, but the injunction could be discharged upon the payment of cash security into the BC Court. After the injunction was obtained and 55,000 tonnes of coal was loaded onto the cargo vessel set to embark from Vancouver to Pakistan, a pre-dawn raid led to the seizure of the coal.
Numerous additional court hearings followed, including one in which the security to be posted by the Respondent to discharge the injunction was significantly increased in order to address expenses associated with maintaining the injunction and, ultimately, an Order was made appointing a receiver, to market the coal. Following that Order, thirty days after the coal was seized, the Pakistani government eventually agreed to pay $9.7 million into the BC Court’s bank account, as security for SFI’s claim, in exchange for securing the release of the coal vessel.
A judgment awarding SFI $9 million, plus post-Award interest was granted on December 1, 2011, with payment being made out of the funds that had been paid into court. In mid-2012, the post-Award interest was quantified at approximately $425,000 and the Government of Pakistan was required to post $550,000 in additional security for SFI’s claim to recover additional expenses associated with maintaining the injunction.
However, in the lone ruling against SFI, on July 22, 2013, Justice Ross of the BC Supreme Court held that SFI could have sought enforcement of the Award in Pakistan and that the Mareva injunction was wrongly granted, ordering that there be an inquiry into any damages PSM may have suffered as a result of the injunction. It was that decision which was the subject of the appeal to the BCCA. On June 2, 2014, the appellate court overturned that Order, finding that Justice Ross erred by improperly embarking on a type of forum non conveniens analysis for the Mareva portion of the proceeding and had overlooked the significance of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as “the New York Convention”) that has been incorporated into BC’s domestic laws. The alleged failure to make full, frank and fair disclosure, specifically with respect to the enforceability of the award in Pakistan, was found to have no basis, both because that fact was disclosed and because Justice Ross reviewed SFI’s disclosure “through the lens of her erroneous conclusion that the onus was on the appellant to establish it could not enforce the award in Pakistan”. Justice Ross was held to have erred by making an “implicit assumption that there was an onus on the appellant to turn first to Pakistan’s courts because of the parties’ limited association with British Columbia.” The Court of Appeal held that the expert evidence led before Justice Ross served to amplify the original evidence before the ex parte judge that enforcement in Pakistan would be challenging.
This was the first arbitral award enforcement of its kind in Canada, combining the potency of the Mareva injunction, a popular asset recovery tool, particularly for fraud matters, with the statutory and treaty regime for the enforcement of international arbitral awards. The case also marks the first occasion on which any Canadian Court has considered a challenge to a Mareva injunction after judgment has been granted in the underlying proceeding and the first time a BC Court has considered a matter involving Canada’s obligations under Article III of the New York Convention.
Read the full decision here.