Canada: (Don’t) Let It Go: B.C. Court Sets Test For Freezing Assets In International Arbitration

A judgment released on June 2, 2014 by the British Columbia Court of Appeal has important implications for international arbitration in British Columbia and granting orders freezing defendants' assets (commonly referred to as Mareva injunctions). The Court of Appeal re-affirmed the court's more relaxed approach to granting and upholding Mareva injunctions in British Columbia, particularly in support of international arbitration. The decision confirms that in considering whether to grant an injunction, the court may consider the relative ease or difficulty of enforcement abroad, and may suggest that a court need only find "some difficulty" in enforcement abroad as part of the grounds to order a Mareva injunction.

BACKGROUND

Sociedade-de-Fomento Industrial Private Limited (SFI), an Indian mining company, obtained an arbitral award from a tribunal constituted under the International Chamber of Commerce's Rules of Arbitration against Pakistan Steel Mills Corporation (Private) Limited (PSM) for C$8.6 million (Final Award). PSM did not satisfy judgment right away. SFI eventually received information that PSM was about to ship coal from Vancouver. SFI obtained a short notice Mareva injunction restraining any use of PSM's assets from the Supreme Court of British Columbia, which included preventing the ship from leaving the province or disposing of any assets on the ship without paying into court C$9 million. It obtained this injunction primarily on the basis of its allegation that there was a risk the assets would leave the jurisdiction and that it would have difficulty enforcing the Final Award in Pakistan.

The charter company responsible for the ship carrying PSM's coal suffered significant losses as a result of the injunction. The charterer agreed with SFI not to pursue an application to set aside the injunction in return for receiving an indemnity from SFI for such losses. It also agreed to assign its cause of action to SFI.

PSM paid funds into court as security, resulting in the discharge of the injunction. Eventually, the B.C. Supreme Court recognized the Final Award and ordered PSM to pay nearly C$9 million, which was satisfied from the security paid into court. The ship sailed from Vancouver. However, throughout proceedings, SFI incurred various costs in enforcing the award, including significant funds paid to the charterer. SFI applied to the court to have PSM pay those costs.

Before the B.C. Supreme Court, PSM rejected SFI's entitlement of the costs of enforcement. It argued that SFI improperly obtained the Mareva injunction and that it suffered damage as a result. The Supreme Court agreed, holding that in its application for a Mareva injunction, in which counsel for PSM was not present, SFI did not make full and frank disclosure of the fact that the Final Award could have been enforced in Pakistan. The court concluded that the Mareva injunction should not have been ordered because of non-disclosure of the enforceability of the arbitral award in Pakistan (or elsewhere) as well as the parties' "limited association" to British Columbia.

B.C. COURT OF APPEAL

On appeal, the B.C. Court of Appeal made extensive references to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"). The New York Convention, the court emphasized, was made law in British Columbia pursuant to various legislation, making foreign arbitral awards open to recognition and enforcement as if judgments of B.C. courts. Moreover, other B.C. legislation had provided the court with presumptive jurisdiction to enforce arbitral awards. On this basis, the court held that the judge erred in failing to consider the effect of these rules of recognition and enforcement, and in considering the parties' connection to British Columbia in whether a Mareva injunction was properly ordered. The court conceded that the availability of enforcement proceedings in Pakistan was not an entirely irrelevant factor and in some cases (but not this one) there may be a case that there was no risk of dissipation of assets because of the availability of enforcement proceedings elsewhere. The 2012 B.C. Supreme Court decision in Blue Horizon Energy Inc. v. Ko Yo Development Co. Ltd. was cited as an example where it was appropriate to consider the difficulties in enforcing arbitral judgments. Where the lower court erred was in its implicit assumption that there is a requirement on a party to turn first to Pakistan's courts because of the parties' "limited association" with British Columbia.

The Court of Appeal held that the judge erred in her conclusion that SFI had failed to disclose the fact that the Final Award could have been enforced in Pakistan. The court viewed the reasoning of the chambers judge as impliedly suggesting that SFI had to demonstrate it could not enforce its award in Pakistan at all. The court noted that SFI was consistent in maintaining that the Final Award could have been enforced, though not without difficulty, and had produced some evidence that enforcement in Pakistan would be seriously delayed and put into doubt whether the full award could be enforced. In short, the evidence did not alter the original balance of convenience analysis done by the original court that granted the Mareva injunction.

The decision of the Court of Appeal re-affirms a line of unique B.C. case law that provides for a more relaxed approach to a Mareva injunction. This approach, unlike other jurisdictions, does not require evidence of a fraudulent intent on the part of defendants to dissipate assets, and instead requires an overall assessment of the relative fairness of granting or refusing the injunction. The decision of the Court of Appeal makes crystal clear that the relative links of the parties to British Columbia should not be a factor in this overall assessment to award a Mareva injunction. The court has jurisdiction to enforce arbitral awards pursuant to provincial legislation and no suggestion of the parties' "limited association" to the province will decide the issue of using interlocutory means to enforce such an award.

At the same time, the decision provides support for the idea that in some circumstances the relative ease or difficulty of enforcing an award or judgment abroad could be an important factor on whether to issue or dissolve the injunction. One possible outcome from this case is that in applying for an order restraining another party's assets as a step to enforce a judgment, a party need only demonstrate, among other things, some difficulty in enforcement abroad – that is, inconvenience, delay, and some expense or loss, but not necessarily a complete or serious restriction on enforcement.

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