This article was first published in the Arbitration Matters Blog, here.
In Angophora Holdings Limited v. Ovsyankin, 2022 ABKB 711, Justice Romaine dismissed an application by an arbitral award debtor to stay enforcement of the award issued in favour of a party indirectly owned and controlled by Russian bank Gazprombank JSC, which is an entity subject to Russian sanctions.
Enforcement of the award could continue, subject to the caveat that, “before distribution of the proceeds, persons in Canada may wish to be satisfied that they are not in breach of the Russian sanctions by further action.” Thus, while the potential application of sanctions was not itself a bar to enforcement of the award, Justice Romaine left the issue of whether specific disbursements of funds or distribution of assets would breach sanctions to be determined on a case-by-case basis by the persons concerned.
Angophora is a wholly owned subsidiary of a Luxembourg investment fund, which in turn is owned equally by Russian bank Gazprombank JSC and Italian bank Intesa Sanpaolo SpA. It is the award creditor in respect of a USD $43.2 million London Court of International Arbitration award issued against Mr. Andrei Ovsyankin and others. Mr. Ovsyankin is a Russian citizen resident in Moscow, but owns some condominium properties in Alberta.
Mr. Ovsyankin’s application to the U.K. High Court of Justice to set aside the award against him was dismissed. The award was recognized and enforced in Alberta, and the recognition and enforcement order was not appealed. An application to stay the order was refused. Thus, Mr. Ovsyankin became a judgment debtor of Angophora in Alberta, and his assets there were subject to seizure and sale under Alberta law.
Mr. Ovsyankin applied for an interim stay of the recognition and enforcement order while the Special Economic Measures (Russia) Regulations, SOR 2014-58 (the “Russian sanctions”) remain in effect. The Russian sanctions prohibit, among other things, any person in Canada and any Canadian outside Canada from “deal[ing] in any property […] that is owned, held or controlled by or on behalf of a designated person”. While Angophora was not itself a “designated person”, its 50% indirect owner, Gazprombank JSC, was listed as a designated person. Mr. Ovsyankin argued that the continued enforcement of the arbitral award against his assets, in favour of Angophora, would breach those sanctions, and that the recognition and enforcement order therefore should be stayed.
Justice Romaine held that the test applicable to whether to grant an interim stay was the three-part test in RJR-Macdonald v Canada (Attorney General),  1 SCR 311: (a) there is a serious issue to be determined (there is a strong prima facie case); (b) the applicant will suffer irreparable harm if the stay is not granted; and (c) the balance of convenience, taking into account the public interest, favours granting the stay.
Justice Romaine first considered whether there was a strong prima facie case that the Russian sanctions applied to Angophora because it was arguable that it was controlled by Russian bank Gazprombank JSC. Since the Russian sanctions imposed by Canada do not include a definition of “control”, she considered the definitions applicable to similar sanctions in the U.S., U.K. and E.U. Applying the various indicia of control identified, she found sufficient evidence of control to conclude that there was a strong prima facie case that Angophora was controlled by Gazprombank JSC because it was a 50% shareholder.
She then considered whether Mr. Ovsyankin would suffer irreparable harm if the stay were not granted. She found that there would be no irreparable harm, since Mr. Ovsyankin’s rights and those of Angophora had already been finally determined. All that could be achieved by a stay would be to further delay enforcement of the arbitral award. In making this finding, she agreed with Angophora that “the Russian Sanctions were not meant to allow debtors to hold off their creditors, and that this application is ‘a transparent act of self-interest in the hope of avoiding execution’”. She also rejected as speculative the argument that irreparable harm would arise if the proceeds were forfeited to the Crown rather than credited to the arbitral award.
Justice Romaine further found that the balance of convenience did not favour granting a stay. While she agreed that it is in the public interest for the Russian sanctions to be enforced, she found that “it would be contrary to the public interest to allow them to be used by a judgment debtor without any further recourse to delay a sale under execution properly authorized by a recognition and enforcement order.”
She ended her analysis by noting that it would not be a breach of the Russian sanctions for the order to be enforced through a sale of the seized properties, but that “before distribution of the proceeds, persons in Canada may wish to be satisfied that they are not in breach of the Russian sanctions by further action. That, of course, is their decision.”
That an award or judgment debtor cannot benefit from sanctions issued against its counterparty seems sensible. Why should the debtor get a windfall because of events entirely extraneous to the parties’ dealings with one another?
Nevertheless, it is clear on the face of the decision that there is a strong prima facie case that the effect of the distribution of proceeds from the sale of the condominium properties to Angophora would breach the Russian sanctions, because Angophora is indirectly controlledby Gazprombank, a designated person subject to sanctions.
The end result of this litigation is a court order that says that liquidation of those proceeds and enforcement of the award (converted into an Alberta judgment) may continue unimpeded, subject only to the caveat that Canadian persons involved should “be satisfied that they are not in breach of the Russian sanctions by further action” and that doing so “is their decision”.
What does this mean, practically speaking? That the Alberta civil enforcement agency may liquidate the condominium properties, but that it should satisfy itself that it would not be infringing the Russian sanctions if it pays out the funds to Angophora? How would it satisfy itself of that, in the face of a court decision that states that there is a strong prima facie case that the creditor is indirectly controlled by a designated person, and thus that paying the funds would indeed likely infringe those sanctions?
In future cases, the courts may wish to provide further guidance to parties and other members of the public as to how funds and properties associated with sanctioned entities must be handled. This is an area plagued with much uncertainty – not only in Canada but in all jurisdictions in which sanctions have been imposed in response to recent geopolitical events – and guidance from regulatory authorities is not always forthcoming on a timely basis. The courts could provide useful guidance in helping parties navigate the sanctions minefield.
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