Canada | 01 July 2010

A primary advantage of international commercial arbitration as a means of resolving commercial disputes is the relative ease of enforcement in the many states that have adopted either or both of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) and the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (the Model Law). In particular, international commercial arbitration is favoured because, in many instances, enforcement of awards is thought to be easier and less costly than the enforcement of foreign judgments. Both the Convention and the Model Law have been adopted in all Canadian provinces. Nevertheless, the foregoing assumptions may have to be re-assessed in the Canadian context by the Supreme Court of Canada decision in Yugraneft Corporation v Rexx Management Corporation [2010].

Background

The facts of Yugraneft are straightforward. Yugraneft was the successful claimant (receiving an award of C$952,614.43) in arbitral proceedings against Rexx before the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation. Almost three years after obtaining its award, Yugraneft applied in Alberta, under Alberta’s Arbitration Act for recognition and enforcement of the award. Rexx resisted recognition and enforcement on the basis that the applicable limitation period under Alberta’s Limitations Act was two years. Rexx was successful in first instance before the Alberta Court of Appeal and has now succeeded before the Supreme Court of Canada.

Yugraneft’s position throughout was that a foreign arbitral award should be treated as a domestic court judgment. Hence the limitation period under the Limitations Act would be ten years as opposed to two. Alternatively, the award should have been treated as a foreign court judgment, with the same result. Finally, Yugraneft argued that the Limitations Act was ambiguous as to which limitation period would apply and therefore the longer prescription period shall apply.

In his analysis, Rothstein J, for the unanimous court, acknowledged that the Convention and Model Law both limit the potential for court intervention in arbitration, and provide very limited grounds for resisting recognition and enforcement of arbitral awards. At the same time, while both are silent as to the possible application of time limitations, the Convention provides for recognition and enforcement ‘in accordance with the rules of procedure’ in the state where the award is relied on.

This was taken to mean that domestic law can permit the application of time limits and will apply to characterise limitation legislation because:

  1. the Convention, as a treaty, has to be construed in its context, and in light of its object and purpose, and in a manner that takes into account the fact that it was intended to interact with a variety of legal traditions, including the common law treatment of limitation provisions as procedural as opposed to substantive law (in civil law states, on the other hand, limitation provisions are treated as substantive law);
  2. the practice of over 53 states that have adopted the Convention and Model Law (both civil and common law jurisdictions) have or would likely subject recognition and enforcement to some form of time limitation; and
  3. legal scholars have accepted that the Convention permits the application of local time limitations.

Accordingly, the Convention permitted the application of the time limitations in Yugraneft, and equally permitted the characterisation of Alberta’s limitation legislation as a matter of procedure that could apply to provide a further ground for a court’s refusal to recognise and enforce a foreign arbitral award. In coming to this conclusion, the Supreme Court ruled that it was not relevant that, for purposes of conflicts of law, limitation provisions are viewed as matters of substantive law, and that the Convention, properly read, did not constrain Alberta from imposing a limitation period shorter in time than the longest similar limitation period in Canada.

Having disposed of arguments based on the terms of the Convention, the Supreme Court next grappled with whether and how the Limitations Act, properly construed, applied to the award. In this context, the Supreme Court first noted the intended comprehensive nature of the statute, which applies a single two-year limitation period to all proceedings brought in Alberta to obtain any ‘remedial order’, which is defined as a court judgment or order ‘requiring a defendant to comply with a duty or to pay damages for the violation of a right’, even where that right is grounded in foreign law. In making this finding, the Court noted that the Limitations Act was enacted after adoption of the Model Law and that it was not necessary for the legislature to expressly provide that the statute would apply to international arbitration awards.

The Supreme Court then had to determine whether an order recognising and enforcing an arbitration award was a remedial order based on a ‘judgment or order for the payment of money’ (in which case a ten-year limitation period would apply), a general remedial order (to which a two-year period would apply), or an order subject to no limitation period at all.

The Supreme Court held, for the following reasons, that an international commercial arbitration award is not a judgment or court order because:

  1. it is not defined as such in relevant legislation (as distinct, for example, to British Columbia’s Limitation Act);
  2. it is not part of a state’s judicial system;
  3. it owes its existence to the will of the parties; and
  4. it requires a court application to enforce and hence is not directly enforceable. The Supreme Court also rejected Yugraneft’s argument that the Limitations Act was ambiguous as to which of the two limitation periods applied.

The final part of the Court’s analysis was devoted to whether Yugraneft’s application was actually time-barred. Under the Limitations Act, Yugraneft was required to commence its application within two years from the date that it first knew:

  1. that the ‘injury’ had occurred;
  2. that the injury was attributable to Rexx’s conduct; and
  3. that the injury warranted the commencement of the application (for this purpose, ‘injury’ was ‘non-performance of the obligation’, which the Supreme Court said was non-payment of the arbitration award).

When did that non-performance first occur? The Court ruled that that was not necessarily the date of the award, as Yugraneft had three months under the Model Law to move in the court of the arbitral seat to have the award set aside under the limited grounds set out in the Model Law or under domestic legislation of the arbitral seat. It was only when the remedy was finally determined (after this period had passed) that the award could be properly described as binding. On that date, the obligation to pay would crystallise and non-payment would be apparent to Yugraneft.

That, however, would not necessarily determine the proper start date of the limitation period, given that the discoverability principle explicit in the Limitations Act required that Yugraneft must have determined (or in the circumstances should have determined) that an application in Alberta was warranted. The Supreme Court wrote on this issue:

‘An arbitral creditor cannot be presumed to know the location of all of the arbitral debtor’s assets. If the arbitral creditor does not know, and would have no reason to know, that the arbitral debtor has assets in a particular jurisdiction, it cannot be expected to know that recognition and enforcement proceedings are warranted in that jurisdiction. Thus, in my view, recognition and enforcement proceedings would only be warranted in Alberta once an arbitral creditor has learned, exercising reasonable diligence, that the arbitral debtor possessed assets in that jurisdiction.’

Unfortunately for Yugraneft, Rexx was based in Alberta and the Supreme Court accepted that it ought to have known immediately that Rexx had Alberta assets.

The Court’s decision in Yugraneft was long-awaited by Canada’s arbitration practitioners. Yugraneft was closely followed as it was pursued through the Alberta courts and several arbitration institutions – including the London Court of International Arbitration – were given status as interveners. Application of this decision in other Canadian provinces will depend on the provisions of provincial limitations statutes, as well as any applicable sections of provincial arbitration statutes.

At this time, Yugraneft will have to be drawn to the attention of arbitral creditors who believe that they may have exigible assets to pursue in Canada, and it may be expected that some efforts will be made to have legislation changed to reflect and respond to the exigencies of international arbitration.

Two Key Lessons from Yugraneft

First, parties to an arbitration agreement should be very particular in identifying the choice of law applicable, and whether it is procedural and substantive, and how they wish that law to be applied.

Secondly, whether in the arbitration context, or in litigation in the courts, the time limits in the Alberta Limitations Act cannot, on public policy grounds, be altered by agreement by the parties to a contract.

Canada | 01 June 2010

On 28 April 2010 the British Columbia (BC) government introduced Bill 17, the Clean Energy Act (the Act), into the legislature for its first reading. The Act provides a foundation to assist the province in achieving its goals of electricity self-sufficiency, job creation and reduced greenhouse gas (GHG) emissions. The Act builds on the work of the Green Energy Advisory Task Force, which was appointed in November 2009 to provide recommendations for a comprehensive clean energy development strategy in BC.

The proposed Act is designed to address three priority areas:

  • ensuring electricity self-sufficiency at low rates;
  • harnessing BC’s clean power potential to create jobs in all regions of the province; and
  • strengthening environmental stewardship and reducing GHG emissions.

The BC government’s 2007 Energy Plan commits the province to electricity self-sufficiency by 2016. The Act facilitates this goal by providing: a new regulatory framework for long-term electricity planning; commitments to renewable electricity generation; streamlined approval processes; and measures to promote electricity efficiency and conservation. It also strengthens protection for ratepayers, with new measures to promote competitive rates and ensure that the benefits from the province’s ‘heritage generation assets’ continue to flow to British Columbians.

Perhaps most significantly, the Act provides for the following:

  • Inclusion of the export of electricity as an objective, thus enabling renewable power producers to work with BC Hydro to actively seek opportunities to sell clean, reliable electricity to other provinces and to the US. New calls for clean power will be issued when export opportunities are secured.
  • Exemption of certain energy projects from ss45-47 and s71 of the Utilities Commission Act (UCA), including projects awarded to energy supply contracts under the Clean Power Call.
  • Consolidation of BC Hydro and the BC Transmission Corporation (BCTC). BCTC was originally created in 2003 in response to calls for increased independence of transmission and the development of regional transmission organisations. However, regional transmission organisations did not develop and the movement towards greater independence for transmission did not advance further. As a result, the government views this as an opportunity to save costs and increase policy alignment through the consolidation of BC Hydro and BCTC.
  • Modernisation of the role of the British Columbia Utilities Commission (BCUC) and alignment of its activities with the provincial government’s energy policy objectives. As noted above, certain energy projects will be exempt from BCUC approval requirements under the UCA. However, BCUC will continue to regulate BC Hydro’s domestic supply and rates. BCUC will also continue to regulate the safety and reliability of the BC Hydro system, handle ratepayer complaints, and regulate operating, management and administrative costs.

OVERVIEW OF THE ACT

The proposed Act is comprised of ten parts and 77 sections. A first reading of the Act is currently underway, so the legislation may be revised before the final Act is passed. Below is an overview of the key provisions of the Act.

BC’s energy objectives

Part 1 of the Act sets out 16 specific energy objectives for the province, including expediting clean energy investments, protecting BC ratepayers, ensuring competitive rates, encouraging conservation, strengthening environmental protection, and aggressively promoting regional job creation and First Nations’ involvement in clean electricity development opportunities.

Prohibited projects

Under Part 2 of the Act, ss10-11 prohibit the development of certain energy projects as set out in Schedule 2. Section 12 of the Act prohibits BC Hydro from acquiring electricity from a proposed facility that is located, in whole or in part, in provincial parks, protected areas and conservancies.

Integrated resource plan

Section 3 of the Act requires BC Hydro to submit to a long-term integrated resource plan that allows for public input and long-term stability for industry. The first plan will consider BC’s electricity needs over the next 30 years and must be submitted within 18 months of the Act coming into force. The plan will be subject to acceptance by the government. Once accepted, BCUC will be required to consider the plan in its future decisions.

Exemption of certain projects from BCUC review

Section 7 of the Act provides for the exemption of certain strategic projects from approval by BCUC (which projects would otherwise have required BCUC approval under the UCA):

  1. Northwest transmission line;
  2. Mica units 5 and 6;
  3. Revelstoke unit 6;
  4. Site C;
  5. Bioenergy call for Power Phase II;
  6. BC Hydro’s integrated power offer;
  7. Clean Power Call (issued on 11 June 2008);
  8. Standing Offer Program;
  9. Feed-in Tariff; and
  10. BC Hydro’s Smart Metering and Smart Grid programs.

Future projects, specifically those for the purpose of supplying export markets, will also be exempt from the BCUC review under s4(1)(b) of the Act. Notwithstanding the exempt projects listed in the Act, BCUC will continue to regulate BC Hydro and provide oversight for future BC Hydro projects and programs.

Standing Offer Program and Feed-in Tariff

Part 4 of the Act contains provisions to create greater flexibility around the Standing Offer Program. In particular, the Act enables re-pricing to reflect the results of recent clean power calls and includes an option to increase the maximum project size above 10 MW. With respect to feed-in tariffs, the Act enables the implementation of a feed-in tariff program to support the development of emerging technologies in renewable power production. The parameters of the feed-in tariff program will be established through regulation.

Energy efficiency and GHG reductions

To promote electricity efficiency and conservation, Part 5 of the Act provides for the installation of smart meters by 2012, and enables initiatives and programs to encourage the reduction of GHGs.

Consolidation of BC Hydro and BCTC

Part 7 provides for the integration of BC Hydro and BCTC into a single entity, with one board of directors and executive director. Furthermore, the Act provides for the transfer of all BCTC assets, liabilities and employees to BC Hydro.

First Nations Clean Energy Business Fund

Part 6 of the Act establishes the First Nations Clean Energy Business Fund, which aims to support revenue-sharing and facilitate further First Nations’ participation in renewable power production.

As noted above, the Act includes the export of electricity as an objective. Currently, BC Hydro does not contract for long-term export power sales. However, under the proposed Act, BC Hydro will be able to aggregate clean and renewable energy, and will offer customers outside BC the opportunity to secure long-term agreements for clean power at competitive prices. To meet these contractual commitments, BC Hydro will issue new clean power calls. Under the new regulatory framework, BC ratepayers will not subsidise export power sales, because the Act explicitly requires BCUC to ensure that any expenditure for exports is not included in domestic rates.

Green Energy Advisory Task Force report

On the same day the Act was introduced, the report of the Green Energy Advisory Task Force was also released and contains several recommendations for implementing BC’s clean energy strategy.

The Green Energy Advisory Task Force was established in November 2009 to provide input on BC’s clean energy strategy. The task force was composed of four advisory groups, each focused on the following areas:

  • procurement and regulatory reform;
  • carbon pricing, trading and export market development;
  • community engagement and First Nations partnerships; and
  • resource development.

Each group prepared a report based on their individual mandates.

The Act builds on numerous recommendations from the task force, including:

  • confirming BC’s commitment to the Heritage Contract (as provided for under the BC Hydro Public Power Legacy and Heritage Contract Act) to ensure BC ratepayers continue to receive the benefits of BC’s low-cost electricity assets;
  • moving forward critical infrastructure projects, such as Site C and the Mica and Revelstoke upgrades;
  • increasing BC’s clean energy supply to meet domestic and future export demand;
  • aligning the implementation of policy between BC Hydro and BCUC, and reviewing the need for a separate transmission corporation;
  • encouraging initiatives to reduce GHG emissions and improve energy efficiency; and
  • creating a First Nations Clean Energy Business Fund to support revenue-sharing opportunities and to increase First Nations’ participation in clean energy resource development.

Paving the Way to BC’s

Clean Energy Future

By streamlining regulations around renewable power projects, the BC government is seeking to encourage renewable energy investments in the province. The Act also creates a new model to secure long-term export power agreements, which signals the provincial government’s intent to actively seek out opportunities in export markets. With a clear export policy objective in place and exemptions from BCUC approvals for certain projects, including those projects in the Clean Power Call, the government appears to be paving the way for independent power producers to play a greater role in BC’s clean energy future.

Canada | 01 May 2010

On 4 March 2010, the federal government announced its budget for 2010 (Budget 2010). Several of the measures proposed by the government relate to international trade and investment. Included in the budget are commitments to:

  • eliminate a large number of custom tariffs on manufactured goods;
  • continue the negotiation of international trade and investment agreements;
  • enhance border efficiency; and
  • fund specific industries to strengthen their position in the international market.

In addition, the Speech from the Throne (Throne Speech), which outlines the government’s agenda for the coming year and was issued the day before Budget 2010, made several references to international trade and investment-related matters. Not all of these issues were mentioned in Budget 2010, but they nevertheless indicate policy directions that the government will take.

Tariff Reduction for Manufacturers

In Budget 2010 the government commits to eliminating remaining customs tariffs on machinery, equipment and goods imported for further manufacturing in Canada. This commitment is expected to reduce both cost and paperwork for manufacturers. 1,160 such tariffs had been eliminated by 5 March 2010 and a further 381 will gradually be eliminated by 1 January 2015. The government claims that this elimination will cause Canada to become a ‘tariff-free zone for manufacturers’ and will liberalise $5bn (€3.69bn) of imports. [The currency in this article is in Canadian dollars unless otherwise stated.] Moreover, the government expects that these tariff eliminations will save Canadian manufacturers $300m (€221.26m) annually in duty and will create 12,000 jobs.

Industry-Specific Measures

In Budget 2010 the government has pledged $7.2m (€5.26m) to Fisheries and Oceans Canada to support the new Catch Certification Office, which, similar to a pre-existing program in the EU, will issue export permits to Canadian exporters to certify to international buyers that fish and seafood products have been legally harvested in Canada.

Budget 2010 pledges $75m (€54.8m) over the next three years to the cattle processing industry to facilitate the purchase of new, cost-effective equipment for use in cattle processing plants. More than half of that amount is to fund the development and commercialisation of technologies for the removal of specific risk materials, and the subsequent use and handling of those materials.

The Throne Speech commits the government to assisting the forestry industry in developing new markets and to continuing to support the supply management (the management of price through production and import controls) of poultry and dairy products.

Foreign ownership restrictions on Canadian satellites are to be removed. The government believes this will contribute to a competitive Canadian marketplace and will encourage foreign investment. The government claims that the removal of barriers to foreign ownership will allow Canadian business to establish ‘strategic global relationships’ and, consequently, to participate more fully in foreign markets. In the Throne Speech the government suggests that foreign ownership restrictions in the uranium industry would also be reduced. However, no further detail is provided in Budget 2010.

Finally, Budget 2010 will provide $8m (€5.84m) over two years to the International Science and Technology Partnerships Program. This program is to fund research and development projects jointly undertaken by Canada, with such partners as China, India and Brazil.

Border Efficiency

The efficiency and security of the Canadian border receives attention from the government in Budget 2010. Among the infrastructure projects to which the government commits funds, the Windsor-Detroit international crossing, a critical gateway to Canada for US trade, will receive $10m (€7.31m) over the next three years.

In addition, Budget 2010 commits $87m (€63.56m) over the next two years to more general border efficiency endeavours, such as the upgrade of vehicle and cargo scanning equipment, and the upgrade of information systems used in border service operation. To maximize the flow of goods across the border to the US, while protecting national security against the threat of terrorism, the government also commits to more effective co-ordination of the Partners in Protection and NEXUS programs with US authorities, and to ensuring that fees ‘more closely reflect costs’. To a similar purpose, Budget 2010 will provide $37.9m (€27.69m) over the next two years to develop a ‘comprehensive air cargo security program’ in conjunction with Canada’s major trading partners.

International Agreements

Budget 2010 contains some limited discussion of Canada’s ongoing negotiation of international trade and investment agreements. While it stresses Canada’s intention to push forward in the Doha round of World Trade Organisation negotiations, in the Throne Speech the government expresses disappointment with the results of those negotiations. As a consequence, the government has committed to pursuing bilateral free trade agreements, such as the Comprehensive Economic and Trade Agreement, which is currently being negotiated with the EU, and exploratory talks with India, as well as implementing recently concluded agreements with Colombia, Panama and Jordan. Similarly, the Throne Speech commits to implementing free trade agreements that have been completed with Peru and the European Free Trade Association.

The Throne Speech further suggests that the government will continue to build on the procurement agreement recently completed with the US, giving Canadian suppliers access to US state and local government procurements, though no further mention is made of this in Budget 2010. The government also announced an investment of $8m per year on an ongoing basis towards the environmental restoration of the Great Lakes, pursuant to Canada’s obligations under the Canada and US Great Lakes Water Quality Agreement.

Conclusion

Budget 2010 and the Throne Speech propose several changes to laws affecting international trade and investment, such as the elimination of tariffs on importation of machinery for manufacturing in Canada and focused bilateral free trade agreements with key markets. As details of the implementation of these government priorities emerge, it would be prudent to keep a critical and close watch on how the government proposes to act on its international trade and investment agenda, and what laws and regulations it intends to put in place to breathe life into its plan. Given the high cost and beneficial impact of these policies, strategic intervention during the policy and legal implementation of the priorities may be warranted.

Canada | 01 April 2010

Any company conducting business abroad is exposed to the potential application of anti-corruption legislation. In fact, in a recent survey of business executives, 63% of respondents indicated they had encountered some form of actual or attempted corruption. Increasingly, authorities have devoted significant resources to the enforcement of anti-corruption measures. This enhanced enforcement trend is reflected in the significant penalties that have been imposed on several companies over the past several years, including fines in the millions of dollars in addition to significant reputational and business losses. [Continue Reading]

Canada | 01 March 2010

In a unanimous decision released on 21 January 2010, the Supreme Court of Canada clarified the discretion of a federal responsible authority (RA) to make decisions regarding the scoping of projects for purposes of the federal environmental assessment (EA) process. In MiningWatch Canada v Canada (Fisheries and Oceans) [2010], the court overturned a Federal Court of Appeal decision that granted RAs discretion to scope a project to determine the type of EA process or ‘track’ that will apply. The track determines the level of the intensity of the EA review.

[Continue Reading]

Canada | 29 December 2009

The Ontario government recently announced several new regulations and programs to give effect to some of the major components of the Green Energy and Green Economy Act 2009 (the 2009 Act). The 2009 Act is designed to provide a legal framework for the establishment of an attractive investment climate for green power developers, generate certainty in the market, and make Ontario a leader in renewable energy and energy conservation in North America. As of 24 September 2009, the following key features of the 2009 Act have been implemented:

  • Canada’s first feed-in electricity tariff program began accepting applications as of 1 October 2009;
  • the new Renewable Energy Approval (REA) required for renewable energy projects is now available;
  • the province has announced several incentive programs to help with the costs relating to developing a renewable energy project in Ontario;
  • the Renewable Energy Facilitation Office (REFO) has been established; and
  • a C$2.3bn program for major upgrades to Ontario’s electricity transmission grid is underway.

[Continue Reading]