Canada faces $100-million forfeiture ‘test case’ as Russian airline sues over grounded plane
The Hill Times | 11 September 2024
Canada faces $100-million forfeiture ‘test case’ as Russian airline sues over grounded plane
BY NEIL MOSS
The federal government is being sued over the grounding of a Russian cargo aircraft, providing Canada with its first major test on the operation of its new sanction forfeiture regime.
More than two years ago, as part of the 2022 federal budget, the Liberal government changed its sanctions law, giving itself power to not only seize assets, but also repurpose them.
Since the change was enacted in June 2022, the government has only seized two assets from associates tied to the Russian government: $26-million from a company owned by Russian oligarch Roman Abramovich, and a Russian plane that has been grounded at Toronto’s Pearson Airport since the onset of Russia’s invasion of Ukraine in February 2022.
Volga-Dnepr, the firm that owns the Antonov An-124 aircraft, is now seeking $100-million in damages from Canada in international arbitration, according to a Wall Street Journal report.
Carleton University professor Fen Osler Hampson, president of the World Refugee and Migration Council, said the two seizures represent the “first two test cases” of the new regime.
The council was an early voice pushing for Canada to enact a forfeiture change to its sanction regime. Council member and Independent Senator Ratna Omidvar (Ontario) tabled a Senate bill to do just that before it was dropped from the Red Chamber’s Order Paper after the Liberals announced they would forward the initiative in the 2022 budget.
Hampson said that based on his conversations, the arbitration over the seized plane is up in the air.
“This could end up either way in the courts,” he said. “It’s not a slam dunk.”
While a speedy resolution is desired, there is an acknowledgement that testing out the new mechanism will take time, Hampson said.
“[As] the legislation was drafted there was also recognition that you can’t confiscate assets willy nilly. You have to use due process or you’re going to be just as bad as [Russian President Vladimir] Putin,” he said. “The wheels of justice in Canada move very slowly, and those who are supportive of this recognize that having legislation in place doesn’t mean it will be a slam dunk.”
The 2022 change to the Special Economic Measures Act allows Canada to seize and repurpose assets when a “grave breach” of international peace has taken place, or there have been “gross and systemic” human rights violations, or “significant corruption.” According to the amended legislation, proceeds from the seized assets can go towards reconstruction of the state that has been victimized by the breach of international security, to the “restoration” of international peace, or to compensate the victims.
In August 2023, Volga-Dnepr filed a motion of intent to initiate the dispute with Canada under a 1989 treaty that Ottawa penned with the then-Soviet Union, which included a investor-state dispute settlement (ISDS) system. An ISDS system allows for companies to sue foreign governments when regulatory changes impact their business operations.
Hampson described the seizures of the airliner and Abramovich’s holdings as symbolic due to the relatively limited Russian-connected assets that are held in Canada.
“There’s actually not a lot that’s here in Canada, so this is important symbolism to show that we, too, have skin in the game,” he said. “As a test case it’s important because if both cases get thrown out or the confiscation is denied by the courts, I think it will make this government or any future government very wary of going after the assets of a foreign national and engaging in confiscatory behaviour.”
Former Liberal justice minister Allan Rock, a World Refugee Council special adviser, told The Hill Times that it isn’t a surprise that the owners of the seized assets are taking legal action.
“It’s entirely natural that they want to adjudicate it in front of a court, but we’re confident that the Canadian legislation—and the steps taken pursuant to the legislation—will be upheld as valid,” he said.
Rock said Canada has a right to seize private assets, noting it is a process overseen through judicial supervision.
“So let them arbitrate, let them litigate, let them delay as long as they want. We think we’re going to prevail in the final analysis,” he said.
The former Chrétien-era cabinet minister said he is confident that even if an arbitrator doesn’t rule in Canada’s favour, the courts will.
“I think at the end of the day what Canada has done will be upheld, whether it’s by an arbitrator or a court to which we appeal from an adverse finding by the arbitrator,” he said. “We think we should win before the arbitrator. We believe we will win before a court.”
Rock said the fact that there have only been the two seizures shows the limited Russian-tied holdings in the country, but it’s important for Canada to send a message.
“Whether or not we end up with a lot of Russian assets seized in Canada, the signal we sent, the example we set, the leadership we showed is meaningful, and will have an impact internationally,” he said.
He said disappointment has grown as there has been a lack of willingness by some of Canada’s G7 allies to seize $300-billion in Russian state assets held in Western banks.
“We were disappointed that the G7 didn’t have the political will to do that,” he said.
Instead the G7 agreed to use the interest on the frozen $300-billion in assets to back loans for Ukraine.
In February 2023, Elisabeth Braw, a resident fellow at the American Enterprise Institute, warned the Senate Foreign Affairs Committee that repurposing seized assets was a “dangerous path to take.”
“We freeze [assets] to steer the foreign policy and other conduct of that country. If we then take those frozen assets and simply seize them, that means that we are seizing assets of people without proving any crime on their behalf or any crime involving those assets,” she said.
“That’s an extremely dangerous path to take because it would mean that we’re saying the rule of law—of which we are so proud in our liberal democracies—doesn’t apply to everybody, doesn’t apply to geopolitical adversaries, and we would choose to suspend the rule of law for certain people when it suits us and when it suits our foreign policy,” Braw added. “It would remove the moral high ground that we have worked for so long to establish for ourselves.”
She remarked that it would also put western firms operating globally in a potentially difficult position as their assets could subsequently be frozen by a foreign government.
Global Affairs Canada senior official Alexandre Lévêque told the Senate committee in 2022—shortly after the change was made to allow for the forfeiture of assets—that that system will require “care, due diligence, and a whole-of-government approach.”
As Canada tests the murky waters over the viability of repurposing assets of individuals connected to the Russian government, global attention has turned to the feasibility of freezing Russian state assets.
In May, the United States gave itself powers to seize Russian state assets, and put them towards Ukraine. The idea has yet to be unanimously adopted by other western allies over concerns of unintended consequences.
In Canada, Omidvar is once again leading a push to drag Canada to the front of the line. Last October, she introduced Bill S-278 for the purpose of disposing foreign state assets.
When she introduced the bill, she said the principals of her current legislative effort and her previous one are the same.
“They are, first, that this is an illegal war that Russia has waged, and, therefore, Russia must be held accountable. Second, Russia must pay for the misery and damage it has wilfully wrought. Third, Russia must pay now and not at some vague point in the future,” she said.
Omidvar said that Canada has a “unique opportunity” that is “low risk, yet high impact” as only a small amount of Russian state assets are located within Canadian borders.
Since the State Immunity Act grants foreign governments amnesty from any action in Canadian courts, Omidvar’s bill proposes a workaround by having a cabinet order seize a government’s assets that are located on Canadian soil.
Independent Senators Stan Kutcher (Nova Scotia) and Donna Dasko (Ontario) both indicated they would support the bill.
“Is it not reasonable to ask that Russia—the aggressor in this conflict—pay? And why should it not start paying now?” questioned Kutcher.
“The bill before us,” Dasko said, “aims to make Russia accountable and to pay for its crimes and its destruction.”
“It is clear that the destruction brought by Russia in Ukraine has been massive. The humanitarian losses, including deaths, injuries and displacements, will deeply affect the physical and mental health of the Ukrainian people for years to come,” she added.
Bill S-278 currently is in second reading in the Upper Chamber.
