Quebec Court of Appeal Clarifies Path for Enforcement Against Foreign State: India’s Immunity Rejected and IATA Seizure Reinstated

Quebec Court of Appeal Clarifies Path for Enforcement Against Foreign State: India’s Immunity Rejected and IATA Seizure Reinstated
Authors:
Pierre-Jérôme Bouchard
Investment Manager, Legal Counsel - Canada
Laura Scheim
Associate Investment Manager and Legal Counsel - Canada

A significant recent judgment in Quebec regarding the validity of state-related asset seizures offers a fresh perspective from the province's highest court on the application of international arbitration principles within Canada's legal framework, further solidifying the country’s reputation as an enforcement-friendly jurisdiction. The judgment, which thoroughly examines various procedural and substantive issues such as sovereign immunity and reviews precedents set by previous rulings, could have broad implications for all matters related to enforcement of foreign arbitral awards against sovereign states on Canadian soil.

Efforts to Enforce in Quebec

In November 2021, Devas’ investors initiated proceedings to enforce the Treaty Awards in Quebec and successfully seized US$37.5 million from the Airport Authority of India (AAI) held by the International Air Transport Association (IATA).

Adding complication, in June 2022, Quebec passed the IATA Act, which provides that funds held by IATA outside of Québec for third parties cannot be seized.  

First Instance Decision

The Quebec Superior Court issued three separate rulings which would become issues on appeal:

  1. In January 2022, the Superior Court quashed the seizure, ruling that AAI, as an agency of India, was presumptively immune from Quebec's jurisdiction under the State Immunity Act (SIA), but did not rule on AAI’s state immunity claim.
  2. In September 2022, the Superior Court ruled that the IATA Act made the AAI Seizure inoperative for any funds collected after the law's entry into force (but did not consider its effect on amounts accrued prior).
  3. In December 2022, the Superior Court further ruled that India was not immune from Quebec jurisdiction, applying both the waiver and commercial activity exceptions.

Appeals

The Quebec Court of Appeal’s recent decision dealt with all three appeals.

On the first question, the Court of Appeal reinstated the US$37.5 million seizure of funds from AAI held by Montreal-based IATA, reversing the Superior Court's decision. It ruled that Quebec courts could authorize ex parte pre-judgment attachments against sovereign assets, as forcing parties into lengthy debates on immunity at that stage would undermine the purpose of conservatory measures.

On the second question, the Court of Appeal also reversed the Superior Court and held that the newly enacted IATA Act, which came into force after the AAI Seizure, did not affect the US$37.5 million already seized by IATA. The Court ruled that the IATA Act could not retroactively apply to sums collected before its enactment, ensuring that the Devas investors' seizure was unaffected by the new legislation.

On the third question of state immunity, the Court of Appeal upheld the Superior Court's ruling. Aligning with international jurisprudence, the Court confirmed that a state’s agreement to arbitrate expressly waives its immunity in subsequent related enforcement proceedings, even without a specific arbitration exception in the State Immunity Act. The Court also determined that AAI, despite being incorporated as a separate entity, was effectively an inseparable organ of India due to its sovereign functions and the extensive control India exercised over it, meaning the seizure could be used to satisfy India's debt.

Key Takeaways

The Quebec Court of Appeal set important and positive precedents for the enforcement of foreign arbitral awards against sovereign states in Canada, solidifying its place as an enforcement-friendly jurisdiction. The decision clarifies that ex parte seizures before judgment can be authorized against sovereign assets, without requiring a final ruling on state immunity, thus facilitating conservatory measures. It also paves the way for creditors to execute against a state's alter ego, a major step toward securing recoveries and justice for litigants after a costly investor-state arbitration.