Canada: Alberta Court Of Appeal Declines To Upset Foreign Arbitral Award

Last Updated: February 23 2012
Most Read Contributor in Canada, September 2016

The editor of this article is Stephen Antle.

A November 2011 decision of the Alberta Court of Appeal is the latest chapter in a longstanding case involving efforts by Pertamina, the Indonesian national oil & gas company, to prevent the enforcement of a Swiss arbitral award in favour of KBC, a Cayman Islands company. In December 2000, the tribunal awarded KBC US$261 million in damages relating to a geothermal electricity project cancelled by the government of Indonesia during the Asian currency crisis.

The unusual aspect of this decision is that Pertamina sought to undermine the award by re-opening KBC's Alberta enforcement proceedings against it. KBC had already fully satisfied the award through the seizure of bank assets in New York and terminated the Alberta proceedings. The only live issue on appeal was whether the procedures used by KBC for ending the Alberta proceedings were deficient. Because nothing the Alberta court could do would restore money or property to Pertamina in Alberta, the enforcement proceedings were academic by the time the appeal was heard.

Pertamina was attempting to gain a favourable ruling in Alberta which it could use to set aside an anti-suit injunction granted by the U.S. Federal Court for the Southern District of New York. This injunction prevented Pertamina from seeking from the Cayman courts a worldwide freezing order (known as a "Mareva Injunction") to prevent other creditors from dealing with KBC's assets, which were by this time subject to liquidation proceedings.

The U.S. court granted the injunction because it viewed Pertamina's efforts as likely an attempt to tie up KBC assets and obstruct and delay the liquidation proceedings. Ultimately Pertamina was seeking to unwind KBC's enforcement proceedings entirely, and recover their seized assets, starting with a challenge to the award in Alberta.

Under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, an international treaty given legislative force in all Canadian jurisdictions, courts may only decline to recognize or enforce a foreign arbitral award on limited procedural and jurisdictional grounds, or if the award is shown to be "contrary to the public policy of the country where enforcement is sought." Pertamina argued that the award was contrary to Alberta public policy because it was obtained by fraud, in that KBC had allegedly failed to disclose to the arbitral tribunal that it had political risk insurance, and that it had withheld from the tribunal documents which cast doubt on the viability of the project.

The Court of Appeal called the appeal "the endless repetition of failed litigation" which tended to "destroy all conflicts of laws rules on jurisdiction and recognition." Similar arguments of fraud had been raised and rejected by U.S. Federal Courts in Texas and New York, and in Hong Kong, and the Alberta Court declined to revisit them. Pertamina also sought to introduce new evidence in Alberta. The court concluded that Pertamina's proper recourse was either to convince the U.S. Federal Court in New York to reconsider the anti-suit injunction or to review the award in the Swiss courts, where the tribunal was constituted and where it could have appealed.

The Court of Appeal dismissed these efforts by Pertamina, calling the "appeal and its underlying motion . . . an attempt to have the tail wag an elderly elephant." It stated the appeal was "vexatious" and "like those . . . usually only encountered among recreational litigants." The court dismissed the appeal and awarded additional costs to KBC as a penalty for Pertamina unsuccessfully claiming fraud.

This decision illustrates that there are limited circumstances in which a disappointed litigant is able to overturn a foreign arbitral award at the enforcement stage. The New York Convention promotes the twin goals of international arbitration, the efficient settlement of disputes and the avoidance of protracted litigation, by requiring a litigant to bring itself within the narrowly defined exceptions if it wants to challenge a foreign arbitral award.

The Alberta Court of Appeal showed a strong willingness to uphold foreign awards and respect the rulings of foreign courts, even though it might have decided the case differently. The Alberta court rejected the efforts of Pertamina to relitigate the earlier proceedings and treated the award as presumptively enforceable. The decision augers well for those considering including an arbitration clause into a commercial agreement, commencing an arbitration, or enforcing an arbitral award.

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