UPDATED: Only parties with standing may challenge enforcement and execution of a foreign arbitral award, Ontario court rules

English: Administrative divisions of Kyrgyz Re...

English: Administrative divisions of Kyrgyz Republic (Photo credit: Wikipedia)

The Ontario decision in Sistem Mühendislik İnşaat Sanayi Ve Ticaret Anonim Sirketi v. Kyrgyz Republic2012 ONSC 4351 (CanLII) [“Kyrgyz Republic”] confirms that only parties with standing may challenge enforcement and execution of a foreign arbitral award in Ontario.

In  Kyrgyz Republic, Sistem Mühendislik İnşaat Sanayi Ve Ticaret Anonim Sirketi (“Sistem”), a Turkish company, invested in a hotel in the city of Bishkek, in the Kyrgyz Republic (the “Republic”), ultimately becoming sole owner and operator.  Sistem was evicted from the hotel, “literally at gunpoint” during a revolution in the Republic.

Sistem sought to enforce an arbitral award made  to the International Centre for Settlement of Investment Disputes (ICSID) where it had successfully claimed compensation from the Republic for the loss of its investment in a hotel.  The Republic defended the claim before the international arbitration tribunal, but the applicant, Sistem succeeded on its claim, obtaining an award against the Republic of U.S. $8.5 million, together with interest and costs, which the Republic did not pay. Sistem then commenced an application against the Republic under the International Commercial Arbitration Act and the State Immunity Act seeking recognition and enforcement of the Award, to which the Republic failed to respond.   By order dated January 5, 2011, Echlin J. recognized and enforced the Award and ordered the Republic to pay Sistem an amount in Canadian currency sufficient to purchase US$9,147,470, which covered all elements of the Award  (the “Judgment”).

Sistem then sought to enforce the homologated Judgment under Rule 60 of the Rules of Civil Procedure.  relating to an Ontario-based, Canadian Business Corporations Act company, Centerra Gold Inc., wholly-owned subsidiaries of which operate the Kumtor Mine in the Republic. Sistem sought (i) to seize shares in Centerra registered in the name of Kyrgyzaltyn JSC (“Kyrgyzaltyn”), a joint stock company incorporated under the laws of the Republic which is wholly-owned by the Republic as a beneficial owner of those shares (the “Disputed Shares”) and (ii) to garnish amounts it alleged Centerra owed the Republic, of which Kyrgyzaltyn owns 33% of the issued and outstanding shares of Centerra. Kyrgyzaltyn claimed ownership over the Disputed Shares in Centerra which Sistem was attempting to seize.

Kyrgyzaltyn responded by moving under Rule 38.11 to set aside the Judgment of Echlin J. on the basis that it was a “party affected” by that recognition and enforcement Judgment and this Court lacked jurisdiction to recognize and enforce the Award against the Republic.  Kyrgyzaltyn also moved for an order staying the proceedings regarding ownership of the Disputed Shares on the grounds of forum non conveniens.

The motion judge held that both Kyrgyzaltyn and Centerra lacked standing to challenge the seizure or garnishment, stating:

[33]           In sum, Rule 60 creates means by which a person who claims an interest in an asset against which execution is sought to assert and determine its interest in the asset, but the rule does not permit one who was not party to the judgment sought to be enforced to move to set it  aside in order to protect its interests in an asset subject to the execution process.  The policy behind that approach is obvious and sound.  While the law enables a person to defend its interests in an asset, it may only do so to the extent necessary to protect that interest.  To permit a claimant to an asset to go further and seek to interfere in the prior judicial determination of the rights between a judgment creditor and judgment debtor would exceed what was necessary to protect the claimant’s interest in the asset and would result in no end of mischief as strangers to the dispute between the judgment creditor and judgment debtor officiously intermeddled in the matter.

[34]           As a matter of policy, and as a matter of the interpretation of Rules 38.11 and 60, in my view it is not open to a person claiming a proprietary interest in an asset against which a judgment creditor seeks execution to seek to set aside the judgment against the judgment debtor.  Its involvement in the execution process to defend its proprietary interests in an asset sought to be seized does not make it a “party or other person who is affected by a judgment” or, in the words of theIvandaeva Total Image Salon case, a person whose rights are directly affected by a judgment in respect to its proprietary or economic interests.  Accordingly, Kyrgyzaltyn is not a “person affected” by the Judgment.  It is entitled to defend any proprietary interest it enjoys in the Disputed Shares, but the law does not permit it to go so far as to attack the Judgment to protect its interest.

The motion judge adds,

[42]           Although the Republic would be a party affected by such a determination [a declaration on the ownership over the Disputed Shares], and although I have no doubt that the Republic was aware of both the Initial Application and motion to amend the application, the Republic has elected not to participate in these proceedings.  That would seem to suggest that the Republic supports the ownership claim to the Disputed Shares advanced by Kyrgyzaltyn, the result being that the lis in the ownership determination proceeding primarily lies between Sistem and Kyrgyzaltyn.

With respect to forum non conveniens, the motion judge prefaces his analysis by noting:

[46]           I need not determine whether the doctrine of forum non conveniens applies to the recognition and enforcement in Ontario of international arbitral awards because I conclude that even if the doctrine did apply, Kyrgyzaltyn has not demonstrated on the evidence that the Republic is a clearly more appropriate forum in which to dispose fairly and efficiently of the litigation.

Applying the governing principles under forum non conveniens analysis recently re-stated by the Supreme Court of Canada in Club Resorts Ltd. v. Van Breda 2012 SCC 17 (CanLII), 2012 SCC 17, the motion judge held that Kyrgyzaltyn failed to demonstrate that the Republic was a clearly more appropriate forum than Ontario. Notably, on the issue of loss of juridical advantage, the court concludes:

“in the present case my analysis of the factors other than juridical advantage indicated that Kyrgyzaltyn had not demonstrated that the Republic clearly was the more appropriate forum to adjudicate the question of the exigibility of the Disputed Shares to satisfy the Judgment.  Accordingly, I need not make any specific finding about whether the case could be suitably tried in the Republic’s courts for the interests of all the parties and for the ends of justice.  However, the evidence concerning the past corruption of the Republic’s courts and the present uncertainties surrounding the independence of its judicial system certainly do not operate to point to the Republic as the clearly more appropriate forum in which to litigate the ownership of the Disputed Shares.”


On August 17, 2012, Sistem brought an ex parte motion for relief in the nature of a Mareva injunction. See Sistem v. Krygyz Republic2012 ONSC 4751 (CanLII), 2012 ONSC 4751 (CanLII). On August 17, 2012, Strathy J. granted the order, on the proviso that it would expire in 10 days unless Sistem applied to extend it.  Sistem then successfully applied before Newbould J. to extend Strathy J.’s order for a further 90 days. See Sistem v. Krygyz Republic, 2012 ONSC 4983 (CanLII).

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