In Republic of India c. CCDM Holdings, 2024 QCCA 1620 the Court was asked to determine three appeals relating to the enforcement of arbitral awards in the context of: (1) both the commerciality exception and waiver in the State Immunity Act; (“SIA”) (2) seizure before judgment in escrow of sums held by the Montreal-headquartered International Air Transport Association (“IATA”) for the benefit of two Indian state entities before the question of their immunity had been decided on the merits; and (3) the temporal scope of provincial legislation passed in response to said seizures at the IATA. The Court concluded that: (1) India had waived immunity under the SIA by becoming a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”) and by agreeing to arbitration under the 1998 India-Mauritius bilateral investment treaty (“India-Mauritius BIT”); (2) the first-instance court had not erred in authorizing ex parte seizure before judgment in advance of the question of immunity being decided on the merits; and (3) the provincial legislation was effective retroactively to the effective date given therein but no further back in time – the seizure of sums held by the IATA prior to this date remained untouched by the legislation.
Background – This case defies a simple summary and spans a multiplicity of proceedings in arbitration, litigation, and administrative proceedings, and it has unfolded in multiple jurisdictions over the course of twenty years. This short summary is based on the facts recorded in the QCCA judgment as the common context (further details can be found in prior posts Court rejects foreign state immunity to award enforcement #710 (found here) and No enforcement of award against alter egos (found here):
- In 2005 Devas Multimedia Services (“Devas”) and Antrix Corporation Limited (“Antrix”), an Indian state-owned company and commercial arm of the Indian Space Research Organization (“ISRO”), signed an agreement (“Contract”). Pursuant to the Contract, Antrix would lease certain broadcast spectrum to Devas and supply two satellites to be ISRO built, launched, and operated. Devas was to pay millions and install equipment to provide wireless internet and other services throughout India. The Contract provided for arbitration under the aegis of the International Court of Arbitration of the International Chamber of Commerce (“ICC”);
- In 2007, India’s military questioned the accessibility of the spectrum for military purposes if it were used commercially. In 2010, India’s Ministry of Defence informed ISRO that its need for spectrum would double between 2017 and 2022, and in July 2010 the Indian Space Commission resolved to terminate the Contract;
- In February 2011 a cabinet committee announced the Contract’s annulment. Shortly thereafter, pursuant to instructions from India’s Department of Space, Antrix terminated the Contract. Devas-Antrix ICC arbitration followed, as did investor-state arbitration pursuant to the India-Mauritius BIT (“ISDS Claim”);
- In 2016, the tribunal hearing the ISDS Claim found India in breach of its treaty obligations, and in October 2020 India was ordered to pay USD $111 million for expropriation of the investment (“BIT Awards”);
- In November 2021, the BIT Awards’ enforcement was sought in Quebec and an application was brought for seizure before judgment of sums owed or held by IATA for the Airport Authority of India (“AAI”), an entity that managed India’s airports and airspace. Steps were also taken to seize sums owed by or held by IATA for Air India (a crown corporation). Both were granted ex parte with the IATA holding millions on behalf of Air India and the AAI;
- In January 2022, the Quebec Superior Court inter alia set aside the seizure order in respect of AAI’s assets holding that AAI was presumptively immune from Quebec’s jurisdiction under the SIA (“Seizure Annulment Judgment”). On appeal in separate proceedings, the seizure order against Air India’s assets was set aside;
- In light of the seizure orders, the Quebec National Assembly tabled and later adopted (on 1 June 2022) a new law: an Act Respecting the International Air Transport Association (“IATA Act”). It specifies that (i) sums held by the IATA for the benefits of foreign states or their organizations are exempt from seizure, and (ii) that the law has effect as of 5 May 2022;
- In September 2022, the Quebec Superior Court again issued a ruling, this time on the scope of the IATA Act. The Superior Court held that the IATA Act made unseizable the amounts paid to the IATA after 5 May 2022 (“IATA Act Judgment”) although it did not issue a judgment (considering itself functus officio) regarding the effect of the legislation on the amounts previously accrued; and
- In December 2022, the Quebec Superior Court issued a third ruling, declaring that India did not benefit from immunity under the SIA due to the application of (1) the commerciality exception, and (2) the waiver exception (“Immunity Judgment”).
The Decisions on the Three Judgments – The Court elected to decide the three appeals in order of: (1) the Immunity Judgment; (2) the Seizure Annulment Judgment; and (3) IATA Act Judgment.
Appeal 1: the Immunity Judgment
The SIA sets out at section 3(1) that, “[e]xcept as provided by this Act, a foreign state is immune from the jurisdiction of any court in Canada” and further sets out at section 4(2) that “a foreign state submits to the jurisdiction of the court where it (a) explicitly submits to the jurisdiction of the court by written agreement or otherwise…”. Finally, the SIA sets out at section 5 that “[a] foreign state is not immune from the jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.”
Here the Court upheld the Superior Court’s ruling that India was not immune from the Quebec courts’ jurisdiction, and in so doing, expressly (at paragraph 84) aligned Canada with several other major jurisdictions. While India argued that it was an error for the Superior Court to have found that it had waived its immunity within the meaning of the SIA (because section 4(2) requires an explicit waiver) the Court disagreed with India’s conclusion for two main reasons. First, voluntary submission to arbitration (through the India-Mauritius BIT) satisfied the requirement of explicit waiver. The Court further held (at paragraph 72) that submission to arbitration necessarily includes the recognition and enforcement process before domestic courts, as this is essential to secure the effectiveness of international arbitral awards. Second, India’s attempt to invoke state immunity in jurisdictions where it may hold assets runs counter to India’s obligations under both the India-Mauritius BIT and the New York Convention. India, through these treaties, had necessarily submitted to the jurisdiction of domestic courts at the arbitral award recognition and enforcement stage. This necessary implication constituted an express waiver under section 4(2)(a) and satisfied the case law requirements that the waiver be certain, unequivocal, and unconditional.
The Court, having found that waiver exception in section 4(2)(a) of the SIA applies to India, declined to address SIA section 5’s commercial activity exemption but did note inter alia that, being a mixed question, it would have required the lower court be given a high degree of deference.
Appeal 2: the Seizure Annulment Judgment
While various grounds were raised on behalf of AAI and IATA, two of the key arguments raised were that: (1) agencies of foreign states are entitled to a strong presumption of immunity under the SIA, and the lack of specific reference to prejudgment seizure in the SIA does not preclude this. Courts cannot issue such seizure orders without first deciding the merits of the question of immunity, which can only be done ex parte in an emergency situation, and on behalf of the IATA (2) international customary rules also support the idea that prejudgments (including such seizures) are subject to immunity from domestic court jurisdiction. This is a general practice and has opinio juris (i.e. subjective acceptance of the general practice as law by the international community) and is incorporated into Canadian law (citing Nevsun Resources Ltd. v. Araya, 2020 SCC 5, para. 86) in the absence of contrary legislation.
The Court disagreed and held that it was an error for the Superior Court to have determined that a court could not authorize seizure ex parte before the question of immunity from jurisdiction was decided on the merits. Reviewing the jurisprudence of multiple courts, the Court held that when it had decided in New Jersey (Department of the Treasury of the State of), Division of Investment v. Trudel (2009 QCCA 86, at paragraph 22) that the question of immunity needed to be decided “immediately”, it did not mean before the seizure could be ordered. That approach would entail the risk that the assets would no longer be available to the creditor by the time the immunity issue was decided on the merits, thereby making prejudgment seizure useless. It is only at the stage of an application to set aside a seizure that questions of jurisdiction and immunity need to be decided.
Appeal 3: the Judgment on the Application of the IATA Act
The third ruling concerned the possible effects of the (subsequent) IATA Act on the attachment of 24 November 2021. Section 1 of the legislation states that “[d]espite any provision to the contrary, no sum of money held by the International Air Transport Association and required to be paid to a participant in its financial services may be the subject of a seizure in the hands of a third person or of a measure having the same effect.” At section 2 the IATA Act expressly has effect from 5 May 2022 despite being adopted on 1 June 2022. Thus, the appeal raised the question of whether the IATA Act applies both to sums held before 5 May 2022 and to any held after that date.
As a matter of construction of the statute (considering its object and purpose) and applying the Court’s analysis regarding crystallization (distinguishing between crystallization of seizure and crystallization of a claimant’s claim), the Court held that seizure cannot crystallize before the IATA actually held funds belonging to the AAI. As a result and the presumption of non-retroactivity, the IATA Act applies to the sums that the IATA could have held as of 5 May 2022 but without retroactive effect (as the law contains no other transitional provisions). Sums already seized were unaffected by the new legislation.
Contributor’s Notes
This decision of the Quebec Court of Appeal confirmed that India had waived its jurisdictional immunity before the beginning of enforcement proceedings pursuant to SIA section 4(2)(a), and that through the bilateral investment treaty and New York Convention, had done so by necessary implication, with the waiver being unambiguous, certain, and unequivocal. The judgment is somewhat less clear on whether merely being a state party to the New York Convention (and nothing more) would also have been sufficient, although it appears from the language of the judgment that it may well have been. At present there are 172 state parties to the Convention, thereby putting most of the world’s states within that category.
The Court’s judgment also helpfully clarified that ex parte seizures before judgment can be ordered against states’ assets without first requiring a final ruling on immunity pursuant to the SIA. This judgment also means that the door has now been pushed open regarding to the possibility of recovering against the assets of an alter ego of the foreign state in respect of that state’s debts.
These factors together are a further boost to Canada’s image as an arbitration and enforcement-friendly jurisdiction. In circumstances where the ICSID Caseload Statistics indicate (see chart 3 of Issue 2024-4) that cases against states have increased substantially over the years (rising from between zero and four yearly in the 1980s to 57 registered in 2023 and 24 registered in the first half of 2024) it can be reasonably anticipated that this case will become precedent-setting and of increasing use to parties and practitioners alike.