B.C. – court declines to “look behind” award on challenge to Mareva injunction filed with recognition/enforcement proceedings – #445

In Enrroxs Energy and Mining Group v. Saddad, 2021 BCSC 291, Mr. Justice Alan M. Ross declined to “look behind” an international commercial arbitration award when determining whether an applicant for a Mareva injunction demonstrated a strong prima facie case.   Ross J. also refused to explore contradictory statements allegedly made by the successful arbitral party in the Swiss arbitration and in related UAE litigation involving ownership of equipment acquired with proceeds of a loan.  Ross J. noted that “this issue was raised in the Swiss arbitration case and discussed in the decision. I find that accepting the respondent’s argument on this point would again require me to look behind the arbitration award. Whether [Petitioner’s witness] took inconsistent positions does not affect this proceeding, which seeks enforcement and recognition of the Swiss decision”.  Petitioner also argued that the Mareva injunction sought to prevent disposal/dissipation of assets and not to execute on the award, pending the determination of its recognition and enforcement application.

Having commenced an action in B.C. Supreme Court on November 16, 2020 seeking recognition and enforcement of a January 28, 2020 Swiss arbitration award (“Award”), Petitioner applied for and obtained an ex parte November 23, 2020 “order in the character of a Mareva injunction” which Ross J. referred to as the “Freezing Order”.  That order applied to Respondent’s residential property, assets and property in two (2) businesses, bank accounts and a vehicle.

Respondent promptly applied for orders to discharge or vacate the Freezing Order and stay the B.C. litigation pending Respondent’s pursuit of pending litigation in Dubai. 

(i) Contractual dispute, litigation and arbitration – The parties had entered into three (3) agreements, including a loan agreement (“Loan Agreement”) which included a governing law and jurisdiction clause:

This agreement shall exclusively be governed by and construed in accordance with the substantive laws of Switzerland. Any dispute, controversy or claim arising out of or in relation to this contract, including validity, invalidity, breach or termination thereof, shall be resolved by way of arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Chambers of Commerce in force on the date when the notice of arbitration is submitted in accordance with these rules. There shall be one sole arbiter, and the place of arbitration shall be Geneva”.

The parties’ business relationship “soured” in early 2015, leading to a number of disputes involving a variety of claims and dispute resolution described by Ross J. at paras 11-19.  The disputes and resolutions lead to a mix of results as described by Ross J. in his reasons at various points.

The dispute resolution processes included arbitration in Geneva, Switzerland by which Petitioner sought to enforce repayment of amounts advanced under the Loan Agreement.  That arbitration resulted in the Award which ordered Respondent to pay Petitioner certain amounts expressed in different currencies which Petitioner calculated as $4,850,000.00. In the Award, the arbitrator determined that the Petitioner’s payments were made to companies owned by Respondent for the purchase of equipment and constituted indirect loans to Respondent.

(ii) Discharge or vacating Freezing Order – Respondent did not argue that Petitioner failed in its obligation of full and frank disclosure in obtaining the ex parte Freezing Order.  Respondent argued that the Freezing Order gave Petitioner a way to “monitor the movement or expenditure of capital assets by the respondent during the course of the proceedings between them”.  Respondent also challenged whether it was just and equitable to allow Petitioner to execute against Respondent’s personal assets before proceeding against the equipment which was the subject of the Loan Agreement. 

Petitioner disagreed, arguing that the Freezing Order on prevented disposal or dissipation of the assets not execution.

Respondent and Petitioner each agreed that, on an application to set aside a Mareva injunction obtained ex parte, the second judge should proceed as a hearing de novo but not substitute his or her view for that of the initial judge.

Both parties relied on the reasoning in Goldman, Sachs & Co. v. Sessions et al., 2000 BCCA 326 para. 10 and Ma v. Nutriview Systems Inc., 2011 BCCA 389 and para. 9.  Ross J. observed that an applicant for a Mareva injunction must meet the following two (2) elements: applicant must demonstrate a strong prima facie case or good arguable case; and, the balance of convenience favours granting the order.

Respondent raised three (3) arguments that Petitioner had no strong prima facie case.

(i) reason to question the Award – Respondent conceded that he had “attorned” the arbitration and participated in the hearing, represented by counsel.  Respondent still suggested that the Award was “incorrect”, tendering evidence that he had instructed his Swiss counsel to appeal the Award but that they failed to do so.  Ross J. noted that the e-mail exchanges included comment by Respondent’s counsel that Respondent “had no real chance of success on any appeal”.

Aside from the absence and strength of any appeal, Ross J. refused to “look behind” the Awad.

[36] In response, the petitioner argues that I should not look behind the Swiss arbitration award. He further argues that this email from Swiss counsel confirms that [Respondent]’s own lawyers did not see any error in the decision.

[37] I agree with the submissions of the petitioner that it is not for this court to look behind the Swiss arbitration decision. I accept its conclusions”.

(ii) Petitioner provided inconsistent evidence in other proceedings – Respondent claimed that Petitioner had made contradictory statement in the arbitration and in UAE proceedings regarding ownership of the equipment subject to the Loan Agreement.  Respondent claimed that in the arbitration Petitioner asserted Respondent’s interference with Petitioner’s ownership while in the UAE proceedings Petitioner asserted its status as a lender.   Respondent argued that “it was on this basis that the arbitration proceeding resolved in favour of the petitioner”. Ross J. again declined to pursue this line of argument.

[39] However, as noted by the petitioner, this issue was raised in the Swiss arbitration case and discussed in the decision. I find that accepting the respondent’s argument on this point would again require me to look behind the arbitration award. Whether [Petitioner’s witness] took inconsistent positions does not affect this proceeding, which seeks enforcement and recognition of the Swiss decision”.

(iii) another proceeding in Dubai will determine ownership and value of equipment subject to Loan Agreement – Respondent argued that he had initiated proceedings in Dubai Commercial Court on August 30, 2020 (“Dubai Action”) to determine ownership of the equipment purchased with proceeds under the Loan Agreement.  He argued that he should be entitled to set off the value of the equipment against the Award amount, arguing that the value of the claim in the Dubai Action.

[41] [Respondent] submits, in this application, that it will be necessary to resolve his action in Dubai before the parties can determine the net effect of their business arrangement. To that extent, he argues that the Swiss arbitration award does not deal with the entirety of the business relationship. He says that the decision from Switzerland specifically does not deal with the ownership of the equipment in Dubai. In his words, the recognition and enforcement of the Swiss arbitration award is not “right.”

[42] In response to that submission, the petitioner says the Swiss arbitration award sets out in detail the factual and legal basis by which the respondent was found liable to the petitioner. The decision runs 64 pages and addresses all issues. The basis for finding [Respondent]’s liability was under the loan agreement, which, as noted, included the arbitration clause”.

Ross J. referred to an excerpt from the Award in which the arbitrator identified and dismissed the same argument which raised Petitioner.  Despite other mentions in the Award which appeared to support Respondent’s argument, Ross J. looked to the Award and observed that it “does what is says it does”.

Ross J. added that Respondent had had the opportunity to adduce in the arbitration relevant evidence regarding the equipment value but chose not to do so.

[45] The petitioner submits that [Respondent] had the opportunity to provide the evidence of the value of the equipment in the Swiss arbitration proceeding but chose not to do so. That was a strategic decision. [Respondent]’s setoff claim is one which would be covered by the loan agreement and was arbitrable. The Swiss arbitration decision is clear:  [Respondent] chose not to argue that issue. He cannot now use that strategic decision as a shield to this proceeding.

[46]  I also note that in this proceeding, counsel for the petitioner has made his client’s position clear. If [Respondent] pays the amount awarded by the arbitrator, his client will be happy to sign over the equipment to [Respondent]”.

In passing, Ross J. did note that Petitioner had raised a jurisdictional argument in the Dubai Action, submitting that Petitioner’s claims therein as plaintiff must be submitted to arbitration. Petitioner submitted that the Dubai Commercial Court had not yet rendered a decision on the jurisdictional ground but added that the UAE was a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”).

Ross J. accepted that Petitioner had established a strong prima facie case and that “there is a strong legislative and public policy ground for recognizing this type of award”.  Ross J. endorsed Petitioner’s reliance on Sociedade-de-fomento Industrial Private Limited v. Pakistan Steel Mills Corporation (Private) Limited, 2014 BCCA 205 paras 44-47.

Balance of convenience – Ross J. at para. 52 undertook analysis of the balance of convenience and determined that a strong prima facie case favoured Petitioner. Ross J. examined a variety of facts related to the Freezing Order’s impact.  Among others, Ross J. examined a second-ranking mortgage registered against Respondent’s residential property.  That mortgage registered after the date of the Award and in favour of a family member related to Respondent, for an undetermined amount.

[69] Despite the submissions of counsel for the respondent, I am satisfied that the granting of the mortgage to [third party] provides sufficient evidence of the risk of dissipation of assets. Put another way, the granting of the mortgage in favour of [third party] raises sufficient red flags to satisfy the evidentiary burden on the petitioner seeking this injunction regarding dissipation”.

Ross J. concluded that the balance of convenience favoured granting the Freezing Order.

Ross J. saw no reason to discharge or vacate the Freezing Order and also dismissed Respondent’s application to stay the B.C. recognition and enforcement proceedings pending the outcome of the Dubai Action. He adjourned the application to vary the Freezing Order to allow the parties to discuss a possible variation that would provide “the necessary protection and flexibility for each party”.

Ross J. also accepted that Respondent had had little time to prepare its application to stay and granted Respondent leave to reapply.

urbitral notes – First, for more on Mareva injunctions and their recent treatment by the B.C. courts, see Kepis & Pobe Financial Group Inc. v. Timis Corporation, 2018 BCCA 420, cited by Respondent, and Northwestpharmacy.com Inc. v. Yates, 2018 BCSC 41.

Second, Ross J. excerpted the following passages from Sociedade-de-fomento Industrial Private Limited v. Pakistan Steel Mills Corporation (Private) Limited, 2014 BCCA 205.

[44] In my view, the answer lies in the legislation as well as the flexible test set out in Silver Standard and Tracy. The New York Convention and the enabling legislation in British Columbia recognize an international arbitration award on the same basis as if it were a domestic award originating in this province. The language of the legislation is not ambiguous in this regard. A real and substantial connection is presumed to exist. It would be illogical to ignore this presumed jurisdictional connection for interlocutory purposes, but recognize it for final judgment purposes. The statutory scheme anticipates an action to enforce the award. There are only limited grounds on which the defendant could dispute the award in a recognition action per art. V of the New York Convention and s. 36 of the International Commercial Arbitration Act [RSBC 1996, c 233]. I reiterate that I do not see how a real and substantial connection could exist for some but not all purposes in pursuing the claim through to judgment and enforcement.

[45] I conclude that the recognition and enforcement proceeding is akin to a domestic proceeding, and that the judge ought to have approached the application on the basis that it was akin to a domestic proceeding.

[46] This conclusion does not entirely resolve the question that was before the chambers judge. Overlying this statutory scheme is still the court’s equitable jurisdiction to grant, or decline to grant, a Mareva injunction. The overarching factor in granting the injunction is whether doing so achieves a balance of justice and convenience between the parties: Silver Standard at para. 20. Depending on the facts of the case important factors may include the merits of the underlying claim, the risk of dissipation of the asset, the balance of convenience and the interests of third parties.

[47] In my view, the following factors militated towards a finding that the injunction was properly ordered: first, the merits of SFI’s claim were very strong, approaching certainty given the limited grounds upon which the claim could be defended; second, the assets were about to leave the jurisdiction; third, the debtor had refused to pay the award over the ten months since it had been made; and, finally, damage to the third party could be alleviated, as it was, by SFI’s fortified undertaking”.