By dismissing the appeal in International Air Transport Association v. Instrubel, N.V., 2019 SCC 61, the Supreme Court of Canada has helped to ensure that Canada remains an arbitration-friendly jurisdiction, including with respect to the enforcement of international arbitral awards. The Court did not address the arbitration issues in the case directly, but it upheld the judgment of the Court of Appeal of Québec, which will allow a Dutch company to take steps to enforce two arbitral awards, obtained in 1996 and 2003, against Iraqi entities that have so far refused to pay them.

The Supreme Court of Canada dismissed the appeal from the bench after a hearing on December 11, 2019. At the time, the Chief Justice announced that Justice Côté had dissented from the Court’s otherwise-unanimous opinion, and that her dissenting reasons would follow. Those reasons were released on May 1, 2020.

Instrubel ultimately turned on a question of civil law: Do the Québec courts have jurisdiction to order garnishment in respect of funds held by a Québec-domiciled entity in a Swiss bank account. The majority of the Supreme Court of Canada held that the answer is ‘yes’. It upheld the Court of Appeal of Québec’s determination that the Montréal-based International Air Transport Association (“IATA”) owed a debt to the Iraqi entities against which Instrubel had obtained an arbitral award, and that the arbitral award could be enforced against this debt in the Québec courts, even though the funds earmarked for the Iraqi entities were in an IATA bank account outside the province.

The Chartered Institute of Arbitrators (Canada) Inc. (“CIArb Canada”) intervened to address the arbitral context in which the case arose. It submitted that arbitral awards and foreign judgments are not equivalent, that different principles should apply to the enforcement of the former than to the latter, and that the voluntary nature of arbitration agreements – in light of the broader Canadian arbitration jurisprudence – justifies a liberal approach to enforcing arbitral awards in this country. Though neither the majority nor the dissenting judge in the Supreme Court of Canada commented on the arbitral context specifically, the majority’s disposition of the case was consistent with the approach that CIArb Canada had asked it to endorse.

McCarthy Tétrault represented CIArb Canada in the Supreme Court of Canada, with a team led by Simon V. Potter that included Adam Goldenberg, Sandra Lange, Dominique Paiement, and Chris Puskas.

Background and judicial history

In the 1980s and 1990s, Instrubel, a Dutch company, entered into contracts with various Iraqi entities for the supply of night vision goggles and thermal imaging technology. Instrubel ultimately obtained two arbitral awards from the International Court of Arbitration in connection with the contracts, dated February 6, 1996, and March 12, 2003, worth approximately $32 million in 2003.

After years of unsuccessful enforcement attempts, Instrubel turned to the Superior Court of Québec. In 2013, it sought and obtained a writ of seizure before judgment by garnishment with respect to air navigation charges collected and held on Iraq’s behalf by IATA.

Superior Court of Québec

At first instance, Hamilton J.C.S. (as he then was) agreed with Iraq and IATA that the Québec court lacked jurisdiction to issue the writ, and quashed it. He reasoned that the relationship between IATA and Iraq was not a debtor-creditor relationship, but a relationship between mandator and mandatary – similar to a principal-agent relationship at common law. Since, on this basis, the funds at issue were not IATA’s but Iraq’s, and were held outside of Québec, the Québec courts could not order their garnishment.

In concluding that the Québec courts could not make orders in relation to funds held in a Swiss bank account, Hamilton J.C.S. relied on the principles that govern the enforcement of foreign judgments. He did not acknowledge the differences between foreign judgments and international arbitral awards.

Court of Appeal of Québec

The Court of Appeal allowed the appeal. It concluded that, rather than hold the funds in issue as Iraq’s mandatary, IATA owed a debt to Iraq. Since Québec courts have jurisdiction over the debts of entities domiciled in the province – as IATA is – nothing turned on whether the Québec courts have or should exercise jurisdiction over extraterritorial assets. Writing for a unanimous panel, Schrager J.C.A. noted the importance of facilitating international arbitration by avoiding “unworkable results.”

For more insight on the Court of Appeal of Quebec’s decision in Instrubel, please see our colleagues’ previous blog posts, here and here.

CIArb Canada’s intervention

Before the Supreme Court of Canada, CIArb Canada argued that arbitral awards are not analogous to foreign judgments. Arbitral awards have long been recognized as creating sui generis relationships that justify distinctive judicial frameworks. Unlike a foreign judgment, an arbitral award is grounded in a contractual, voluntary relationship. Conversely, litigants in judicial proceedings may be brought before the court compulsorily, and made subject to procedural and substantive rules to which they have never expressly agreed. This exercise of mandatory jurisdiction gives rise to concern about the legitimacy of the exercise of state power and circumscribes the Court’s enforcement jurisdiction. Similar concerns do not arise in the arbitral context.

CIArb Canada submitted that Canadian courts should take these particular characteristics of arbitral awards into account in enforcing arbitral awards – including when, in order to do so, courts are asked to make orders with extraterritorial effects. Courts have the jurisdiction to make such orders, as the Supreme Court of Canada recently confirmed in Google Inc. v. Equustek Solutions Inc., 2017 SCC 34.

The Supreme Court of Canada’s decision

In brief oral reasons, released on the day of the appeal, the Supreme Court of Canada dismissed Iraq’s and IATA’s appeal “substantially for the reasons of the Court of Appeal save for the matters addressed in obiter”.

In her dissenting reasons, released on May 1, 2020, Justice Côté disagreed that IATA owed a debt to ICAA. Like Hamilton J.C.S., she would have held that IATA was Iraq’s mandatary.

What now?

The Supreme Court of Canada’s disposition of the appeal in Instrubel is consistent with Canadian courts’ broader, favourable approach to the recognition and enforcement of arbitral awards. It would have been troubling, with respect to Canada’s reputation as an arbitration-friendly jurisdiction, if the Court had thwarted Instrubel’s enforcement efforts in this case, or if it had followed Hamilton J.C.S. in applying the principles that govern the enforcement of foreign judgments to the enforcement of arbitral awards.

Unfortunately, the Court did not expressly confirm that the enforcement of arbitral awards should not be equated to the enforcement of foreign judgments. Such confirmation will have to await a future case that is almost certain to arise.

The world economy is transnational. Canada is a trading nation. Enforcing arbitral awards in Canada will inevitably, from time to time, involve assets situated outside of Canada. The important public policy objectives of encouraging dispute resolution through arbitration, and of protecting parties’ private ordering of their affairs, support judicial efforts to enforce arbitral awards, including by making orders with extraterritorial effects.

The Supreme Court of Canada, in dismissing the appeal in Instrubel, endorsed this view in deed but not in word. As parties continue to turn to arbitration to resolve commercial disputes, it may not be long before the Court – and other Canadian courts – have the opportunity to make this endorsement express.