Québec Court of Appeal overturns decision allowing the enforcement of an arbitration award against a subsidiary of the debtor
Air India appealed a judgment of the Québec Superior Court granting, in part, its motion to quash an order allowing the Respondents, CC/Devas (Mauritius) / Devas Multimedia Services, to seize funds in the hands of the International Air Transport Association ("IATA") that were owed on behalf of the Republic of India. The issue was whether the assets of a state-owned corporation, which was not the debtor under the arbitration award, could be seized before judgment.
The Respondents argued that property belonging to a state-owned company could be seized based on an alter ego theory, namely that Air India was the alter ego of the Republic of India. They advanced this alter ego theory, despite the state owned company not being on award debtor. According to Air India, the motion judge lacked the authority to lift the corporate veil and disregard its separate legal personality solely because the Republic of India was its alter ego. Article 317 of the Civil Code of Québec lists three circumstances that would authorize such lifting of the corporate veil:
- Dissembling fraud,
- Abuse of right; or
- Contravention of a rule of public order.
The Respondents acknowledged that their application did not establish any of the three circumstances listed in Article 317. Instead, they argued that foreign arbitral awards ought to be enforceable against the property of a government-owned corporation when it is the alter ego of the state against which the order was made.
The Court of Appeal of Québec granted Air India's appeal, finding the Respondents failed to satisfy any of the veil-piercing conditions defined in Article 317. As a result, the Court could not authorize the Respondents to seize Air India's property in satisfaction of its debt. The Court concluded that Article 317 applies to foreign arbitral awards rendered against a foreign state. In reaching its conclusion, the Court held that the alter ego test had no application to this case because India did not use Air India as an instrument to dissemble fraud, abuse rights or contravene a rule of public order.
The enforcement of awards (and judgments) against foreign states can be very difficult due to issues of sovereign immunity. Whilst the Canadian courts generally favour enforcing foreign arbitral awards, in Air India the Court confirmed that arbitral awards against foreign states do not – in and of themselves - provide a right to pierce the corporate veil to seize assets held by state-owned corporations. Moreover, it is important for parties to consider the effect of provincial or territorial rules and laws on the enforceability of arbitral awards, in particular against entities who are not parties to the arbitration and against whom no award is made.