New Developments in Canadian State Immunity Law Regarding Enforcement of Arbitral Awards
At the end of 2022, the Superior Court of Québec issued its first ever decision on sovereign immunity from enforcement of awards arising from an investor-state arbitration under the India-Mauritius Bilateral Investment Treaty (“BIT”). The decision is a major development in Canadian state immunity law in that it clarifies the scope of (i) the commercial exception; and (ii) the waiver exception to state immunity from proceedings enforcing arbitral awards.
Although enforcement proceedings against foreign states that refuse to honour the result of arbitration can be challenging, this decision confirms Canada’s status as an arbitration-friendly jurisdiction and Canadian courts’ clear commitment to the principle that arbitral awards are binding and shall be enforced.
In Canada, foreign states, as defined in the State Immunity Act (“SIA”), enjoy a presumption of immunity from jurisdiction. This presumption is rebuttable if the claimant establishes that an exception to immunity applies in the legal proceeding against the foreign state.
In CC/Devas (Mauritius) Ltd. c. Republic of India, 2022 QCCS 4785, the Republic of India (“ROI”) had sought to avoid the recognition and enforcement in Québec of arbitral awards exceeding US$111 million rendered against it in favour of Devas Multimedia investors by invoking the principle of state immunity in civil proceedings. The issues before the Superior Court were whether the ROI benefitted from state immunity under the SIA, and specifically: (i) whether the commercial activity exception applied (s. 5 SIA), and (ii) whether the waiver exception applied (s. 4(2) SIA).
The Superior Court dismissed the ROI’s application to dismiss pursuant to the SIA and declared that the ROI was not immune from the jurisdiction of the Superior Court of Québec.
Regarding the commercial nature of the investment treaty arbitration, the Court found that the arbitral award which led to a monetary condemnation against the ROI resulted directly from the latter’s failure to honour its contractual obligations and undertakings under the BIT into which it entered, inter alia, to incite the citizens of Mauritius to make financial and commercial investments in India.
Applying the two-prong test developed by the Supreme Court of Canada in Re Canada Labour Code,  2 SCR 50 and Kuwait Airways Corp. v. Iraq, 2010 SCC 40, the Superior Court concluded that “upon a proper determination of the activity at issue – namely, the ROI’s breaches of a commercial treaty arising from its annulment of a commercial contract without fair and equitable compensation”, the ROI is not immune from the jurisdiction of the Courts. The Court emphasized that the commercial activity exception requires a contextual approach as per Supreme Court precedents. As such, it rejected the ROI’s argument that the dispute narrowly related to a sovereign act because the expropriation of the plaintiffs’ investments was the result of a policy decision taken for national and societal needs. The Court held that “by executing the BIT, the ROI decided and accepted to conduct commercial activities within the meaning of Section 5 of the SIA, to promote investments in India”.
The Court further found that a second exception independently warranted the dismissal of the ROI’s application, finding that the ROI had waived its immunity. The Court agreed with the Devas investors that “states agreeing to international arbitration under bilateral investment treaties necessarily consent to have orders made against them and necessarily waive claims to state immunity, unless, of course, the state specifically reserved its right to raise its jurisdictional immunity at the execution level in the bilateral investment treaty, which is not the case herein.”
Accordingly, the Court found that the ROI’s participation in arbitration proceedings under the BIT amounted to a clear and unequivocal waiver of its jurisdictional immunity in subsequent enforcement proceedings. The Court noted that the ROI’s agreement to arbitrate while being a signatory to the New York Convention “also amounts to a clear and unequivocal submission of the jurisdiction of the courts seized with the resulting enforcement action”.
Notably, the Court concluded that the ROI’s position “interferes with the good functioning of the international arbitration system which allows parties to have reasonable expectations that an arbitration award may be rendered and enforced”.
The Superior Court’s decision confirms that the determination of the commercial character of the activity under the SIA is based on a contextual analysis. In this case, the presence of a BIT aimed at protecting foreign direct investments from expropriation was an important factor. As to the waiver exception, the Superior Court’s decision is in line with Canadian and foreign decisions regarding the consequences of a foreign state agreeing and participating in an international arbitration. The ROI has filed an appeal, such that the Québec Court of Appeal will now address the scope of the exceptions under the SIA.
Philippe Boisvert is Counsel at Borden Ladner Gervais LLP in Montréal. Prior to returning to Canada in 2021, he practiced in the area of international arbitration for eight years at a large international firm in Paris.
Amanda Afeich is an associate at Borden Ladner Gervais in Montréal. Before joining Borden Ladner Gervais LLP, she clerked at the Québec Court of Appeal.