Lexpert Magazine

LEXPERT MAGAZINE | SEPTEMBER 2017 33 | RECENT LITIGATION OF IMPORTANCE | BIG SUITS ENTES V. KYRGYZ REPUBLIC AND SISTEM V. KYRGYZ REPUBLIC DECISION DATE: JUNE 15, 2017 On June 15, 2017, the Supreme Court of Canada brought to an end six years of liti- gation that saw four applicants fail in their efforts to seize US$165 million in Ontario- based assets from a company wholly owned by the Central Asian state of Kyrgyzstan. e Supreme Court dismissed applications by two of the original four applicants, Turk- ish companies Entes Industrial Plants Con- struction & Erection Contracting Co. Inc., and Sistem Mühendislik Insaat Sanayi Ve Ticaret Anonim Sirketi (Sistem), which hold arbitral awards against Kyrgyzstan and were seeking leave to appeal a December 29, 2016 decision of the Court of Appeal for Ontario. Ontario's appellate court had, in turn, dis- missed appeals from a July 11, 2016 decision of Justice Barbara Conway of the Ontario Superior Court of Justice. Justice Conway had dismissed the four applications that were heard together in June 2016, ruling in favour of Kyrgyzaltyn JSC (KJSC), a company that specializes in the development of gold de- posits in Kyrgyzstan, and declaring that its assets could not be seized in satisfaction of arbitral awards against its owner, Kyrgyzstan. e unanimous decision had upheld Justice Conway's refusal to declare that the Republic had an ownership interest in KJSC's shares of Centerra Gold, Inc., an Ontario public com- pany that operates the Kumtor Gold Mine in Kyrgyzstan. KJSC's shares in Centerra had been targeted by four separate parties that then held arbitral awards against Kyrgyzstan. e first of the four applicants, Sistem, enjoyed early success against KJSC before Ontario's courts, first in getting KJSC's assets frozen and then obtaining a judg- ment allowing for the assets to be seized. e latter three applicants — Canadian com- pany Stans Energy Corp., Latvian oligarch Valērijs Belokoņs, and Entes — sought to build on that success. At first these claimants all enjoyed similar early successes, obtaining matching Mareva injunctions and freezing tens of millions of dollars' worth of KJSC's shares in Centerra, while KJSC appealed the Sistem judgment. e tide began to turn in June 2015, when the first of the Mareva injunctions was set aside aer the Ontario Divisional Court overturned a decision of Justice Frank Newbould because the appli- cant, Stans, had failed to make full and frank disclosure on the original ex parte motion for the Mareva, and because the arbitral award that Stans obtained from a Russian tribunal had since been set aside by Russian courts. Later that month the Court of Appeal for Ontario set aside a judgment rendered by Justice Julie orburn in favour of Sistem and ordered a fresh hearing on the merits, as Sistem had failed to properly serve Kyrgyz- stan in accordance with the State Immunity Act. Next, the Mareva obtained by Belokoņs was set aside in September, 2015 aer Jus- tice Wendy Matheson concluded that "the substratum for the [injunction] ha[d] been significantly compromised due to the recent appeal decisions" in Stans and Sistem. Short- ly aer, Justice Matheson struck an affidavit filed by Kyrgyzstan, setting out evidence that indicated Belokoņs had been engaged in money laundering and other suspect trans- actions through the Kyrgyz bank at the cen- tre of his claim. Justice Conway's decision wove together New York contract law, Kyrgyz corporate law and Ontario procedural law. Justice Rus- sell Juriansz, writing for the Court of Appeal, described her interpretation of a contract called the Agreement on New Terms (ANT) as "thorough and persuasive," and concluded that the appellants' case lacked "a solid con- ceptual underpinning." Only Entes and Sistem remained as appel- lants by the time leave to appeal was sought at the Supreme Court of Canada; Stans had not joined the appeal to Ontario's Court of Appeal, and Belokoņs did not seek leave to appeal to the Supreme Court aer his award was set aside by the Court of Appeal of Paris due to the money-laundering concerns that Justice Matheson had declined to consider. e applicants had argued that the ANT between Centerra, KJSC, Cameco Corpora- tion (another shareholder), and Kyrgyzstan established Kyrgyzstan's ownership interest in the Centerra shares. In the alternative, the parties argued that the shares were being held by KJSC on either an express trust or a resulting trust for Kyrgyzstan. Ultimately, none of the four applicants were able to dem- onstrate that Kyrgyzstan owned any interest in the shares, either by contract or trust. e applicants had relied on a recital in the ANT that described KJSC as holding the shares "on behalf of " Kyrgyzstan as evidence that the state has an ownership interest in the shares. Justice Conway observed that the re- citals simply reflected the fact that the state was the sole shareholder in KJSC, and held that the operative clauses of the ANT did not demonstrate that the Republic had any ownership interest in the shares. Justice Con- way considered both the recitals and opera- tive clauses and concluded that the contract was unambiguous: KJSC owns the Centerra shares in its own right. ese cases serve as important reminders of limitations on the enforcement of inter- national arbitral awards and the extraordin- ary relief of the Mareva injunction. Matthew Latella and Christina Doria of Baker & McKenzie LLP acted for Kyrg yzaltyn. George Pollack and Steven Frankel of Davies Ward Phillips & Vineberg LLP represented Sistem Mühendislik. Robert Wisner and Stephen Brown- Okruhlik of McMillan LLP acted for Entes. Robb Heintzman and Chloe Snider of Dentons Canada LLP represented Valērijs Belokoņs. Lincoln Caylor, Ranjan Agarwal and Mat- thew Kronby of Bennett Jones LLP acted for Stans Energy before the Mareva set-aside; John Terry, Myriam Seers and Vitali Berdi- tchevski of Torys LLP acted aerwards. Aaron Rubinoff, Joël Dubois and John Siwiec of Perley-Robertson, Hill & Mc- Dougall LLP represented Kyrgyzstan. A LOOK AT THE CONCLUSION OF A CASE IN WHICH FOUR PARTIES HAD ATTEMPTED TO SEIZE ASSETS FROM KYRGYZALTYN JSC, A GOLD MINING COMPANY OWNED BY THE STATE OF KYRGYZSTAN, TO SATISFY THE PARTIES' ARBITRAL AWARDS AGAINST THE STATE. THE SUPREME COURT OF CANADA DISMISSED APPEALS OF THE REMAINING TWO OF THE ORIGINAL FOUR APPLICANTS

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