Digests

TMR Energy Ltd. v. State Property Fund of Ukraine

T-60-03

2003 FC 1517, Tabib P.

23/12/03

104 pp.

Motion for determination as to validity of seizure of Antonov cargo aircraft at Goose Bay, Newfoundland, pursuant to Federal Court writ of seizure, sale--Writ issued in execution of order to enforce Swedish arbitral award in favour of applicant, TMR, Cypriot company, against State Property Fund of Ukraine, State organ--Dispute arose out of joint venture to operate oil refinery in Ukraine--Aircraft owned by Ukraine but held by entity under "right of full economic management", legal concept peculiar to former Soviet states-- Issues: (1) Had Federal Court jurisdiction to register arbitral award?--(2) Is Ukraine immune from Federal Court jurisdiction under State Immunity Act?--(3) Who is judgment debtor herein?--(4) Under Ukrainian law, what are respective rights of Ukraine, entity "Antonov"?--(5) Is aircraft immune from execution as military property under State Immunity Act?--In 1991, just before Soviet Union's dissolution, joint venture established between oil refinery (LOR), Swiss company for modernization, operation of refinery at Lisichansk--In 1992, Swiss company transferred interest to TMR which financed upgrade to be repaid by operation of refinery--LOR privatized by State, succeeded by open joint stock company "Linos"--Linos experienced financial difficulties and in 1997 ceased meeting contractual obligations --In 1999, SPF (majority Linos shareholder) declared itself LOR's legal successor so SPF, TMR made new contract--SPF also defaulted--Contract provided for arbitration at Stockholm--Final arbitral award between TMR, SPF ordered latter to pay US$36,711,475, plus interest, costs--Award worth $62,260,697--TMR filed ex parte notice of application to register award under United Nations Foreign Arbitral Awards Convention Act, and Federal Court Rules, 1998, rr. 327, 328--Application granted--Order served on SPF "organ of the State of Ukraine" through Ukraine's Ministry of Justice --High Sheriff of Newfoundland's Supreme Court seized aircraft as "property of the State of Ukraine"--Antonov filed notice of objection, third party interest, arguing State of Ukraine not appropriate judgment debtor--When Sheriff found notices effective, TMR filed motion herein--Antonov, SPF opposed motion; Ukraine, through diplomatic channels, asserted immunity, having distinct property interest, immunity from execution as aircraft military property--Validity of Registration Order not having been directly attacked by appeal, motion to set aside, whether open to Antonov, SPF to challenge validity in execution proceedings-- Long-standing legal principle: collateral attacks on judicial orders not permitted affirmed in Wilson v. R., [1983] 2 S.C.R. 594--That assumes Court had jurisdiction to make order: Volhoffer v. Volhoffer, [1925] 3 D.L.R. 552 (Sask. C.A.)--If not, order a nullity, invalidity may be set up without necessity for appeal--Test for Federal Court jurisdiction established in ITO --International Terminal Operators Ltd. v. Miida Electronics Inc. et al., [1986] 1 S.C.R. 752--SPF, Antonov argue United Nations Foreign Arbitral Awards Convention Act inapplicable to award as involving "property and civil rights", matter outside federal jurisdiction--Federal Court of Appeal having held Act applies only to matters of federal character: Compania Maritima Villa Nova S.A. v. Northern Sales Co. (Villa Nova), [1992] 1 F.C. 550 (C.A.)--Case law supports Parliament's exclusive jurisdiction to recognize, withdraw, regulate sovereign immunity--Whether body of federal law nourishing jurisdiction--Villa Nova case considered-- Award's federal character dictated not by subject-matter of underlying dispute, but by respondent's identity as emanation of foreign sovereign--Foreign arbitral award giving rise to fresh cause of action--Merits of award not reconsidered on recognition, enforcement application--Act meeting part two of ITO test as "detailed statutory framework" from which applicant deriving specific rights and which governs exercise of rights--Furthermore, Act independently provides necessary body of federal law to nourish grant of jurisdiction--Not necessary federal law apply exclusively to dispute to sustain grant of jurisdiction: Bensol Customs Brokers Ltd. v. Air Canada, [1979] 2 F.C. 575 (C.A.)--Having concluded legislation constitutionally valid, it follows that third part of ITO test (a law of Canada) satisfied--While State Immunity Act, s. 3(2) imposes on Court duty to raise, give effect to the Act proprio motu, Court unable to agree failure to address issue goes to jurisdiction rationae materiae rendering order a nullity--Court had jurisdiction to determine existence of exceptions in State Immunity Act--Whether Court erred not affecting prima facie validity of order--Collateral attack on Registration Order not permitted--As to jurisdictional immunity of Ukraine, TMR argues SPF is sham to shield State from liability, entitling Court to pierce corporate veil--Fact state entity entered into arbitration agreement providing for arbitration in country signatory to U.N. Convention without reserving jurisdictional immunity right indicates acceptance award subject to enforcement, waiver of immunity--Identity of judgment debtor--No case law supporting argument seizure of property said to be owned by person designated in terms different from strict wording of seizure, sale writ a nullity-- Newfoundland Judgment Enforcement Act, (JEA) s. 77(1) provides seizure valid notwithstanding procedural irregularity --Not unreasonable for sheriff to have effected seizure, given information from TMR's solicitors--Circumstances surrounding issuance of writ of seizure, sale--While TMR initially requested writ to seize State property, issuance of writ administrative process, not involving judicial determination, outcome not binding TMR under res judicata, issue estoppel rules--Court's oral direction for hearing regarding TMR's requisition not rendering Court's direction authorizing writ's issuance judicial determination--Held in Drapeau v. Canada (Minister of National Defence) (1996), 119 F.T.R. 146 (F.C.T.D.), Court directions to Registry not judicial decisions determining rights of parties--As to argument TMR bound by identification of judgment debtor at registration stage, English case Norsk Hydro ASA v. The State Property Fund of Ukraine et al, [2000] EWHC 2120 (Comm.), useful in determining new international law issues but distinguished as dictated by wording of English Arbitration Act, 1996, s. 101, but applicable in stating policy consideration that "the task of the enforcing Court should be as `mechanistic' as possible"--On that principle, inappropriate issue of judgment debtor's identity be raised, let alone determined, at that stage--While Federal Court Rules, 1998 not requiring style of cause include description of parties' status, practice of doing so prevalent in Quebec, Registry accepts such filings--Instant notice of application, filed at Montréal, conformed to accepted practice--Discussion of how use of descriptive can be perceived as part of party's designation explaining apparently contradictory conclusions: while award directed against SPF, registration order properly conformed to award and writ, naming as respondent "SPF an organ of the State of Ukraine", conformed with terms of registration order--Issue estoppel applicable if issue of judgment debtor's identity could, should have been raised at arbitration--But issue estoppel arises only if issue one of substantive, not procedural, right--Parties failing to address issue whether judgment debtor's designation substantive issue--Decision in Regas Limited v. Plotkins, [1961] S.C.R. 566, supports proposition issue procedural-- Award, once recognized, should be given no more, no less deference as to its terms than Court order, judgment-- Judgment debtor's identity can be addressed in enforcement, execution proceedings--Reference to Federal Court decisions determining identity of debtor issues in execution proceedings context--Alter ego test in state immunity cases involves consideration of whether entity performs functions associated with governmental authority, effectiveness of control exercised by state--Alter ego test antedated State Immunity Act--Two characteristics of foreign state agency: (1) organ of foreign state (according to alter ego test); (2) legal entity separate from foreign state--Agencies do not have general immunity--Alter ego test not determinative of whether, for execution purposes, Ukraine should be assimilated to SPF-- While Ukrainian law essential to determining SPF's status as corporate entity, Canadian legal concepts not to be disregarded--Execution proceedings governed by lex fori-- Canadian law used to measure criteria by which Ukrainian law recognizes entity's status as distinct legal entity so Ukrainian legal definition can be ascertained to be relevant to our execution process--Parties must prove content, meaning of foreign law--Evidence reviewed--On all the evidence, concluded that legal, financial provisions under which SPF operates consistent with those of an administrative subdivision of the state--While operating out of distinct budgetary envelope, not distinct legal entity--SPF lacking ability to independently control foreign legal proceedings against it, these being centrally controlled by State-- Designation of body under Ukrainian law as "legal entity" not necessarily endowing body with distinct juridical personality-- Registration Order may be satisfied against State assets--As for ownership of aircraft, Antonov, although wholly State owned, possesses distinct juridical personality, can own property, sue and be sued in own name--Aircraft's seizure valid--Necessity for determining whether, under Ukrainian law, State had right to sell aircraft since sheriff may sell only what debtor could--If yes, must then consider whether sale subject to charges, equities in favour of Antonov --Applicable conflict of law rules not in dispute--Reference to work by James G. McLeod on The Conflict of Laws, 1983--Ukrainian law must be applied to determine respective rights of Antonov, State but not as to unseizability, execution, enforcement-- Ukrainian ownership legislation indicating aircraft owned by State--As aircraft a means of production, Antonov unable to sell it without State approval--Transition of Ukrainian economy to market economy and legal system's acceptance of private enterprise, ownership having overtaken legislative framework--Considering magnitude of task of transforming Soviet legal system to market-based system, speed with which done, understandable result appears chaotic, conflicting-- Perhaps necessary to recognize non-existence of logical solution to legal conundrum--Moratorium, procedural statute, recognizes status of state-owned property held by state enterprises inadequately recognized, protected under current Ukrainian judgment enforcement legislation--Hard to conceive how liability system based on damages awards, sale of debtor's assets can fit in with right of full economic management, Soviet concept whereby property was entrusted to cooperative, not for its benefit, but for resource utilization to benefit entire society--Court not persuaded Ukrainian law prohibits forced execution of State's obligations against aircraft--Aircraft is subject to seizure, sale as State property-- Protection of Antonov's rights in judicial sale--Question of enforcement procedure to which laws of Newfoundland apply: Federal Courts Act, s. 56(3)--Under JEA, interest resulting from dismemberment of ownership rights acquired prior to registration of notice of judgment not subordinate thereto-- Impossible to sell aircraft subject to right of full economic management--Laws of Newfoundland not recognizing dismemberments of ownership rights as rights in rem--Mere fact of sale to third party would terminate Antonov's right of economic management as that can exist only between State, enterprise owned thereby--That circumstance does not, however, place aircraft out of reach of Court's execution process--While Ukrainian legal system now recognizes private ownership, ownership under right of full economic management remains a valid mode of ownership in Ukraine-- If State chooses to send into the world a valuable asset subject to mode of ownership exclusive to that State, Ukraine and Antonov run risk their respective rights will stand or fall together--International trend to recognize security interests, rights created under foreign law, but recognition of such rights cannot put valuable commercial property found in Canada out of reach of legitimate creditors under Federal Court judgment --Aircraft to be sold as State property, without encumbrance from any rights of Antonov--Ukraine argued that, although aircraft used for commercial purposes by Antonov, it is immune from execution as military property under State Immunity Act, s. 12--Antonov does not operate under army or Ministry of Defence--Purely commercial operation (transportation of military equipment pursuant to charter with Italian Defence Ministry)--Aircraft built as military transport aircraft, belonged to Armed Forces of U.S.S.R. but later renovated for civil purposes at cost of US$5 million-- Transportation not part of military operation or exercise-- Moreover, at time of seizure, military cargo had been discharged and charter terminated--Not established that property earmarked for use in military activity--Could not be said fact that airfield controlled take-off placed aircraft under control of Canadian military authority--At time of seizure, plane under Antonov's control--Evidence did not establish aircraft military in nature--Met none of requirements of Act, s. 12(3), not immune from execution--State Immunity Act, R.S.C., 1985, c. S-18, ss. 3(2), 12, 13--United Nations Foreign Arbitral Awards Convention Act, R.S.C., 1985 (2nd Suppl.), c. 16--Federal Court Rules, 1998, SOR/98-106, rr. 327, 328--Arbitration Act, 1996, (U.K.), 1996, c. 23, s. 101--Civil Code of the Ukrainian SSR--Temporary Regulations on the State Property Fund of Ukraine--Law of Ukraine on Imposition of Moratorium on Forced Alienation of Property--Civil Code of Quebec, arts. 1119, 1120, 1123, 1125, 1135, 1136, 1162, 1167--Federal Courts Act, R.S.C., 1985, C. F-7, s. 56(3)--Newfoundland Judgment Enforcement Act, SNL 1996, c. J-1.1, s. 77(1).