Why this Decision Matters
With the number of arbitrations of investor-state disputes more than doubling over the last 10 years, a critical question investors will need to grapple with is: will an award be enforceable against a foreign state?1
A recent decision of the Quebec Court of Appeal in Republic of India v CCDM provides useful guidance on questions of recognition and enforceability of arbitral awards arising from investor-state disputes.
The Underlying Facts
In 2005, Devas Multimedia Services ("Devas"), a satellite communication service provider incorporated in India, entered into a commercial agreement with Antrix Corporation Limited ("Antrix"), the commercial arm of the Indian Space Research Organization ("ISRO") under the Department of Space of the Government of India. Under this agreement, Atrix agreed to lease satellite spectrum to Devas for its digital multimedia services.
In 2011, after an initial payment by Devas of USD $40 million, Antrix terminated the agreement citing reasons related to national security. The government of India then expropriated the property of Devas.
The investors and shareholders of Devas2 claimed that the termination was unlawful pursuant to a bilateral investment treaty (the "Treaty"),3 and initiated arbitration proceedings against Antrix at the International Court of Arbitration ("ICC"). The ICC rejected Antrix's defence and awarded Devas damages of USD $562.5 million. In a parallel arbitration held between the investors, shareholders of Devas, and India, the Permanent Court of Arbitration ("PCA") awarded investors and shareholders damages amounting to USD $111 million (together, the "Awards").4
After the Awards were made, India made significant efforts to have them set aside or modified. The investors and shareholders pursued recognition and enforcement measures across multiple jurisdictions, including in Belgium, France, Luxembourg, the Netherlands, and the U.K.5
The award creditors turned to Canada for enforcement. In 2021, they obtained ex parte seizures of funds held by the International Air Transport Association ("IATA"), which belonged to the Airport Authority of India ("AAI"). They further brought an application for the recognition and enforcement of the Awards. You can read our post on the lower court decision here.
India appealed those decisions.
The Court of Appeal's Decision
The following issues were before the Quebec Court of Appeal:
- The extent to which state immunity, as set out under the State Immunity Act ("SIA"), shields states such as India from arbitral award enforcement proceedings;
- Whether the question of state immunity needs to be determined before steps can be taken to obtain pre-judgement seizure of assets;
- The extent to which 'alter-egos' (i.e. entities related to a state's government) can benefit from the doctrine of immunity where the state does not.
Issue 1: No State Immunity
India applied to dismiss the application for recognition and enforcement of the Awards on the basis of State Immunity – namely s. 3(1) of the SIA which provides that Canadian courts do not have jurisdiction over foreign states unless an exception applies.
The Court of Appeal, confirmed the lower court's decision and dismissed India's argument on the basis of the express waiver exception. Section 4(2)(a) of the SIA provides that a foreign state which submits to the jurisdiction of the court, expressly in writing or otherwise, waives the immunity granted by s. 3(1).6 The waiver must be unequivocal, unconditional and certain. The Court of Appeal held that voluntary agreement to an arbitration clause meets this requirement as it necessarily includes the recognition of the process and award.7 While the SIA does not contain an arbitration waiver provision, the Court of Appeal noted Canada does consider an arbitration agreement to be a waiver of immunity. The Court of Appeal further noted that by invoking its immunity, India contravened its obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), which requires contracting states to recognize arbitration agreements.8
The Court of Appeal did not find it necessary to consider the commerciality exception under s. 5 of the SIA, which stipulates there is no immunity from proceedings related to a state's commercial activity. The lower court did rely on this exception in finding that India was not immune, and the Court of Appeal did not disturb this aspect of the lower court's decision.9
Issue 2: Pre-Judgement Seizure Permitted
Devas applied for seizure before judgment by garnishment over funds held by the IATA on behalf of India and the AAI under section 518 of the Quebec Code of civil procedure.10 India was successful before the Quebec Superior Court in narrowing the scope of the first pre-judgment seizure and setting aside the second. The Court of Appeal reversed the decision and preserved the seizures, finding that Pinsonnault J. erred in requiring the parties to first address the issue of immunity before permitting any pre-judgement seizures.11 The Court of Appeal found that the approach of the court below (requiring parties to litigate immunity before obtaining seizures) carried the risk of assets dissipating and no longer being available to satisfy judgment.12
The Court of Appeal also noted that the absence of jurisdiction is only a ground for setting aside a seizure, rather than a requirement to justify granting one.13 In deciding whether to grant a seizure before judgment, the Court is to only consider (i) the existence of a prima facie claim; (ii) the applicant's concern that it would not recover the funds, and (iii) that this fear is based on the debtor's manoeuvres to shield its assets from a possible judgment.14 As the applicants provided sufficient evidence for the above criteria, the seizure should have been granted with the question of immunity to be subsequently addressed.
Issue 3: Immunity for State Actors
The Court of Appeal considered a second ground of appeal arising from the lower court's decision – namely whether the court erred in holding that the AAI was immune from enforcement after concluding India was not immune under the SIA because of its waiver.
The Court of Appeal found that the lower court did not properly distinguish whether AAI had a separate legal personality from India, and whether, as an alter ego, it could maintain its immunity while India itself could not by wavier.15 AAI functioned as the aviation authority of India and was wholly controlled by the Ministry of Civil Aviation in India. In light of this, the Court of Appeal found that the AAI was India's alter ego, meaning that (1) the funds belonged to India, and (2) India's waiver of immunity extended to AAI.16
Of note, in June 2022, the Quebec government passed An Act Respecting the International Air Transport Association, which made sums held by IATA outside Quebec on behalf of third parties to which it provides financial services (in this case, the AAI) to be immune from seizure. The Court of Appeal addressed the application of this legislation and held that it did not affect the seizures prior to the retroactive date.17
Concluding Thoughts
Republic of India v CCDM is an important decision that further considers how a court should approach state immunity as a response by a foreign state, or its alter egos, to enforcement provisions of arbitral awards.
Footnotes
1. UNCTAD: Facts and figures on investor–State dispute settlement cases [website].
2. (CC/DEVAS (Mauritius) Ltd., Devas Employees Mauritius Private Limited and Telcom Devas Mauritius Limited)
3. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶7,14, 16, 23.
4. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶15, 22, 23.
5. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶5, 25-30; See Devas Multimedia America Inc & Ors v Antrix Corporation Ltd & Ors, [2021] EWHC 1944 (Comm) (09 July 2021) where the England and Wales High Court considered an application to join third parties to the application to preserve the award's proper enforcement in light of an Indian National Company Court appointed liquidator taking steps to negate steps taken by the claimant to enforce the arbitral award.
6. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶61.
7. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶72.
8. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶76 and 80; New York Convention [website]
9. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶42, 98; CC/Devas (Mauritius) Ltd. c. Republic of India, 2022 QCCS 4785 ¶65-88.
10. CC/Devas (Mauritius) Ltd. c. Republic of India, 2022 QCCS 7.
11. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶141, 148-149, 152, 156.
12. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶143.
13. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶138.
14. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶145.
15. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶178.
16. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶181-185.
17. Republic of India v. CCDM Holdings, 2024 QCCA 1620 at ¶221.
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