When May A Mareva Injunction Be Issued To Enforce An International Commercial Arbitration Award?

In Sociedade-de-Fomento Industrial Private Ltd. v. Pakistan Steel Mills Corp. (Private) Ltd, the British Columbia Court of Appeal recently considered the use of a Mareva injunction to enforce an award of an international commercial arbitration. The court over-turned the lower court’s decision which had denied that remedy based upon alleged material non-disclosure. In doing so, the court’s remarks add further support for the regime of international commercial arbitration. The court also issued a caution about applying the principles relating to domestic pre-trial injunctions when enforcement is sought of a foreign arbitral award since that award is already a judgment which deserves to be respected as such, subject to the limited objections to enforcement found in the provincial International Commercial Arbitration Acts and their adoption of the UNCITRAL Model Law.

Background Facts

The appellant SFI is an Indian company and the respondent PSM is a Pakistani state corporation. SCI commenced an international commercial arbitration claim against PSM claiming damages for breach of a contract for the sale of iron ore. In June 2010, SFI obtained an award in the arbitration in an amount equivalent to Cdn. $8.6 million. PSM failed or refused to pay the award despite repeated demands for payment. SFI learned that PSM owned a load of coal which was to be shipped out of Vancouver. In April 2011, SFI filed a petition in the B.C. Supreme Court seeking payment of the amounts owed under the arbitral award. Before the hearing of its petition, SFI applied for and obtained an ex parte Mareva injunction restraining the use of PSM’s assets in British Columbia, including preventing the vessel from leaving British Columbia or PSM from disposing of assets aboard any vessel in British Columbia without first paying into court security for the award.

PSM alleged that SFI had wrongly obtained the ex parte injunction. It said that SFI had not explained to the judge who issued that injunction why it could not enforce the arbitral award in Pakistan, and indeed had wrongly told that judge that it would have challenges in enforcing that award in Pakistan. PSM effectively took the position that the award should be first enforced in Pakistan and only then should it be enforced in another jurisdiction. Since SFI had not yet obtained the recognition of the arbitral award from the B.C. court when it obtained the injunction, that injunction was in the nature of a Mareva injunction and a material non-disclosures about the enforcement of the award in Pakistan meant that the injunction order should be set aside, PSM argued.

The motions judge hearing the motion to set aside the injunction agreed. She held that the failure of SFI to properly explain why it couldn’t enforce the award in Pakistan amounted to material non-disclosure and she set aside the injunction.

Decision of the B.C. Court of Appeal

In allowing the appeal, the Court of Appeal undertook a detailed analysis of the law relating to international commercial arbitrations to demonstrate that the premises of the motion judge’s decision were incorrect.

First, the court noted that the enforcement of international commercial arbitration awards is not based on comity arising from a connection of the dispute or arbitral award to the regime of enforcement, in this case British Columbia. Rather, it is based upon an enforcement regime arising from an international treaty – the New York Convention. That regime requires the contracting states to enforce international arbitral awards made pursuant to the laws of another contracting state. And that enforcement is without regard to any connection of the dispute to the enforcing state, a connection which is presumed to exist for the purpose of enforcement, both for purposes of final enforcement and any interlocutory steps toward enforcement. The court said:

“The New York Convention and the enabling legislation in British Columbia recognize an international arbitration award on the same basis as if it were a domestic award originating in this province. The language of the legislation is not ambiguous in this regard. A real and substantial connection is presumed to exist. It would be illogical to ignore this presumed jurisdictional connection for interlocutory purposes, but recognize it for final judgment purposes. The statutory scheme anticipates an action to enforce the award. There are only limited grounds on which the defendant could dispute the award in a recognition action per art. V of the New York Convention and s. 36 of the International Commercial Arbitration Act. I reiterate that I do not see how a real and substantial connection could exist for some but not all purposes in pursuing the claim through to judgment and enforcement…..I conclude that the recognition and enforcement proceeding is akin to a domestic proceeding, and that the judge ought to have approached the application on the basis that it was akin to a domestic proceeding.” (emphasis added)


Second, the court said that the decision to issue a Mareva injunction arising from an award of an international commercial arbitration tribunal depends upon the justice and convenience in doing so. The court stated the following principles that should be applied to that decision:

The overarching factor in granting the injunction is whether doing so achieves a balance of justice and convenience between the parties… Depending on the facts of the case important factors may include the merits of the underlying claim, the risk of dissipation of the asset, the balance of convenience and the interests of third parties…In my view, the following factors militated towards a finding that the injunction was properly ordered: first, the merits of SFI’s claim were very strong, approaching certainty given the limited grounds upon which the claim could be defended; second, the assets were about to leave the jurisdiction; third, the debtor had refused to pay the award over the ten months since it had been made; and, finally, damage to the third party could be alleviated, as it was, by SFI’s fortified undertaking…. On the other side of the equation was the presumably significant inconvenience of arresting and detaining a ship with a valuable commodity on board in circumstances where the commodity’s value exceeded the amount of the Final Award. None of these latter factors persuaded the granting judge to decline the injunction application, nor did they factor into chambers judge’s analysis in a decisive way. (emphasis added)

Third, the enforcement of an international commercial arbitration award in one contracting state does not depend upon whether efforts to enforce the award have been made in another contracting state more connected to the party against whom the award was made. The court did say that the efforts to enforce the award may be relevant to a decision by the court to issue an injunction – or might be made relevant by the applicant submitting evidence about those efforts – but enforcement of the award in British Columbia did not necessarily depend upon enforcement first in Pakistan. The court said:

“The availability of enforcement proceedings in Pakistan was not in my view an entirely irrelevant factor. In some cases, but not this one, a strong case might be made out that there was no risk of dissipation because of other available enforcement proceedings. Such considerations may properly be part of the balance of convenience analysis. Where, in my view, the chambers judge erred was in her implicit assumption that there was an onus on the appellant to turn first to Pakistan’s courts because of the parties’ limited association with British Columbia…” (emphasis added)

The B.C. Court of Appeal acknowledged that the availability of enforcement proceedings in Pakistan could be a factor in determining whether a Mareva injuction should be issued. However, the court held that there had been no misrepresentation about the efforts to enforce the arbitral award in Pakistan and that the motion judge had applied the wrong test to that issue:

“[The motion judge] reviewed the appellant’s disclosure through the lens of her erroneous conclusion that the onus was on the appellant to establish it could not enforce the award in Pakistan. As I have already said that is not the test. In any event, the appellant did not say that the award could not be enforced, rather he stated that enforcement would be “challenging” which implies it could have been enforced, but with some difficulty. The analysis should have been directed more to the question of whether considering all the circumstances, it was just and convenient to grant the injunction. The judge’s balance of convenience analysis ought to have taken into account the delay that would accompany enforcement proceedings in Pakistan, as well as the considerable doubt about the enforcement of that part of the award representing interest under Pakistani law…I cannot agree with the chambers judge that the appellant failed to disclose a material fact. The amplified evidence supports the representation that enforcement of the Final Award would be challenging in Pakistan. There is no amplified evidence that materially alters the balance of convenience analysis done by the granting judge.


This decision of the British Columbia Court of Appeal provides a strong endorsement of the enforcement regime relating to international commercial arbitration awards. The New York Convention is all about enforcement of those awards. Virtually the sole purpose of the New York Convention is to provide mechanism for the enforcement of awards in signatory countries. Without that enforcement regime, the Convention is nothing.

The proper place of a Mareva injunction in that enforcement process can be a matter of debate. On the one hand, there is an award already, so that the injunction can be seen as a post-judgment enforcement of the award. On the other hand, the award has not been recognized in the state in which it is now sought to be enforced, in this case British Columbia, so that the Mareva injunction can be seen as pre-judgment enforcement.

The British Columbia Court of Appeal effectively neutralized that debate by holding that the real question is not whether the enforcement is pre or post judgment, but whether it is just and convenient to grant such an injunction. In making that decision, the court pointed to a number of factors that are important from the standpoint of international commercial arbitration.

First, under the International Commercial Arbitration Act of British Columbia (and most Canadian provinces) and the UNCITRAL Model Law, the grounds for refusing to enforce the arbitral award are very limited. So the first question on the injunction motion –is there a strong case on the merits? – has to be answered from that perspective.

Second, the applicant for the injunction does not have to prove that the award can or cannot be enforced in another jurisdiction. While the use and availability of other enforcement remedies may be material to the judge’s decision to grant a Mareva injunction, the applicant does not have to prove that it cannot enforce the award elsewhere. This conclusion shows that the system for the enforcement of international commercial arbitration awards is truly an international system. It is not based upon a presumption that the enforcement of the award is tied to any specific jurisdiction.

See Heintzman and Goldsmith on Canadian Building Contracts, (4th ed.) chapter 10, parts 1 and 2.

Sociedade-de-Fomento Industrial Private Ltd. v. Pakistan Steel Mills Corp. (Private) Ltd, 2014 CarswellBC 1499, 2014 BCCA 205 (B.C.C.A.)

Arbitration – International Commercial Arbitration – Enforcement of Arbitral Awards -Injunctions – Mareva Injunctions

Thomas G. Heintzman O.C., Q.C., FCIArb                                                     June 29, 2014





When Is An Arbitration Award An Enforceable Judgment?

When you enter into an arbitration agreement, do you think about whether the arbitration process results in an enforceable judgment?  You should.

The award that you receive at the end of the arbitration process isn’t a judgment and can’t be immediately enforced as a judgment.  That is what the U.K. Court of Appeal recently held in Mobile Telesystems Finance SA v Nomihold Securities Inc.

Nomihold obtained an arbitration award in London, U.K. which Mobile Telesystems (MTSF) did not appeal or otherwise challenge.  Without notifying MTFS, Nomihold then applied to the English court to enforce the award, and was granted an order enforcing the award, subject to MTFS’ right to bring a motion to set aside that order (the “initial order”).  In effect, Nomihold was granted a provisional judgment, but subject to it being set aside.  MTFS in fact brought such a motion, seeking to set aside the initial order.

The Freezing Order:  A Mareva Injunction

The initial order also contained an order freezing MTFS’ assets pending the disposition of  MTFS’s motion to set aside the order.  Consistent with the normal practice, the freezing order stated that it did not apply to transactions carried on by MTFS in the ordinary course of business. The freezing order that the court granted Nomihold was in the nature of what the English courts call a Mareva injunction.

A Mareva injunction may be issued by a court before judgment to restrain a defendant from dissipating its assets. However, a Mareva injunction is an extraordinary remedy and only granted when there is some real fear that the defendant is about to purposefully denude itself of assets to avoid paying any judgment which the plaintiff might obtain.

Previously, MTFS had issued $400 million in Notes which required it to make half yearly interest payments to the noteholders.  If the “ordinary course” exception was removed, then MTFS could not make those interest payments and would be in default to the noteholders.

After the initial order, a further order was granted removing the “ordinary course” exception. MTFS appealed the order removing the “ordinary course” exception.  In deciding whether the “ordinary course” exception was properly removed, the Court of Appeal was obliged to consider the effect of the arbitration award, and in particular whether it was a “judgment.”

Was The Arbitral Award A Judgment Or Not?

If the arbitral award was not a judgment, and if a judgment would only come into being after the motion to set aside the initial order was determined, then that initial order was in the nature of a pre-judgment order which, according to the usual practice, should not interfere with the defendant carrying on its normal business.

If, however, the arbitration award was effectively a judgment, then the initial order was more like an order enforcing a judgment, in which case the plaintiff was entitled to use the court’s enforcement process to execute upon the judgment, and the defendant was no longer entitled to delay payment of the claim of Nomihold.

The Arbitral Award Was Not A Judgment

The Court of Appeal held that the arbitration award was not a judgment and that therefore the lower court judge was wrong to treat that award or the initial order as a judgment and remove the “ordinary course” exception on that basis.  The Court of Appeal said:

“The circumstance that Nomihold has in its favour an unchallenged award does not in my view mean that MTSF should for all purposes be treated as a judgment debtor.  If there is a judgment of the court…it is not presently enforceable……[F]or present purposes the touchstone is enforcement or perhaps the availability of enforcement….[W]hilst the freezing order can be said to be granted in aid of execution it cannot currently be said to be a remedy designed to effect execution, since execution is unavailable.  In any event that is not the nature of a freezing order. It remains a freezing order designed to prevent the dissipation of assets with the object or effect of denying Nomihold satisfaction of its contractual claim.”

The Court of Appeal also stated that, whether or not an arbitration award should be treated as a judgment for other purposes, it should not permit the party holding that award to use that award to prevent other creditors of the respondent from being paid in the ordinary course, until the award was fully converted into a judgment of the court:

“Thus both as a matter of principle and on authority it seems to me that a freezing order granted in aid of enforcement of an arbitration award ought ordinarily to contain an ordinary course of business exception. There is no basis upon which one contractual claimant should be able to prevent the satisfaction of the claims of others in a similar position. I am not satisfied that the circumstance that Nomihold is also in the sense described a judgment creditor should lead to any different conclusion.”

This decision demonstrates the difference between a judgment in a court action and an arbitral award.  The award is only enforceable as a judgment once it has been rendered into a judgment of the court.  Until then, the judgment execution process of the court is not available to the claimant.  While the court may still grant extra-ordinary injunctive relief to protect the claimant from the respondent hiding or dissipating its assets, the court will likely look at the issue in the context of a pre-judgment proceeding, not the execution of a judgment.

In most cases, obtaining a court order to enforce the arbitral award may be a simple matter.  Indeed, the modern domestic and international commercial arbitration statutes severely limit the grounds to resist the conversion of an arbitral award into a court judgment.  But in some cases, there may be costs and timing issues in obtaining the court judgment which may be crucial.

The present case reminds us that an arbitral award is not a court judgment and we should consider this distinction when deciding whether to enter into an arbitration agreement.

Arbitration – Enforcing the Award – Freezing Orders – Mareva Injunction

Mobile Telesystems Finance SA v Nomihold Securities Inc.