Sistem Mühendislik İnşaat Sanayi Ve Ticaret Anomic Sirketi v. Kyrgyz Republic

Sistem Mühendislik İnşaat Sanayi Ve Ticaret Anomic Sirketi v. Kyrgyz Republic Collection Decisions of the Court of Appeal Date 2015-06-19 Neutral citation 2015 ONCA 447 Docket numbers C58711 Judges Hoy, Alexandra; Feldman, Kathryn N.; Lauwers, Peter D. Subject Civil Decision Content COURT OF APPEAL FOR ONTARIO CITATION: Sistem Mühendislik İnşaat Sanayi Ve Ticaret Anomic Sirketi v. Kyrgyz Republic, 2015 ONCA 447 DATE: 20150619 DOCKET: C58711 Hoy A.C.J.O., Feldman and Lauwers JJ.A. BETWEEN Sistem Mühendislik İnşaat Sanayi Ve Ticaret Anomic Sirketi Respondent and Kyrgyz Republic and Kyrgyzaltyn JSC Appellant J. Brian Casey and Matt Saunders, for the appellant George J. Pollack and Steven G. Frankel, for the respondent Heard: October 29, 2014, with further written submissions filed December 12 and 17, 2014 On appeal from the order of Justice J.A. Thorburn of the Superior Court of Justice, dated April 15, 2014, with reasons reported at 2014 ONSC 2407. Feldman J.A.: [1] The appellant, Kyrgyzaltyn JSC, is a Kyrgyz company wholly owned by the Kyrgyz Republic (“the Republic”). The appellant appeals from the order of Thorburn J. (1) declaring that the Republic has an equitable interest in the shares of Centerra Gold Inc., a Canadian mining corporation, that are held by the appellant, and (2) ordering the sheriff to seize the shares under s. 18 of the Execution Act, R.S.O. 1990, c. E.24, to satisfy the international arbitral award that the respondent, Sistem Mühendislik İnşaat Sanayi Ve Ticaret Anonim Sirketi (“Sistem”), obtained against the Republic. [2] The Republic did not appear or take any part in the hearing or the appeal. The first issue that the appellant argued is that the Republic was not properly served with the initiating documents in accordance with s. 9 of the State Immunity Act, R.S.C. 1985, c. S-18 (“SIA”). [3] For the reasons that follow, I would allow the appeal. The Republic was not properly served in accordance with the SIA. Without proper service, the application judge could not make an order declaring the Republic’s interest in the shares and then depriving the Republic of that interest. Facts [4] The facts and procedural history were clearly summarized by the application judge in her reasons. I reproduce them here with the caveat that the application judge stated a number of times that the Republic was served in connection with the proceedings in Ontario. The propriety of that service is the subject of this appeal. [3] In 1992, Sistem entered into a joint venture with a Kyrgyz company to build the Hotel Pinara in Bishkek, the capital of the Republic. The Kyrgyz company went bankrupt and Sistem purchased its interest in the project. Sistem became the sole owner of the project in 1999. In 2005, Sistem was evicted from the Hotel Pinara at gunpoint and the property was expropriated. [4] Sistem commenced arbitration proceedings against the Republic pursuant to a bilateral investment treaty between Turkey and the Republic. An arbitral tribunal was constituted pursuant to the International Center for Settlement of Investment Disputes, an organ of the World Bank. [5] On September 9, 2009, the arbitral tribunal held that the Republic was legally responsible for the illegal expropriation of the Hotel Pinara and was ordered to pay to Sistem $8.5 million US plus interest and costs of over $600,000. The arbitral award is final and binding. [6] Sistem has tried to enforce the award without success. [7] On October 10, 2010 Sistem filed an Application in the Ontario Superior Court for an order recognizing the Award and rendering it enforceable in Ontario. The Republic was served but filed no responding materials. [8] On January 5, 2011 Echlin J. granted an Order recognizing and enforcing the award in Ontario and ordering the Republic to pay Sistem in accordance with the arbitration award. [9] In August 2011, Sistem brought a motion to add Kyrgyzaltyn as a party to this proceeding and to seek declaratory relief to permit the seizure of enough of the Centerra shares to satisfy the award. Both the Republic and Kyrgyzaltyn were served and neither filed responding materials. Cumming J. allowed Sistem’s motion and found that “given the evidentiary record, Sistem has an arguable case that the subject shares in Centerra are properly subject to attachment in satisfaction of the Award.” The Amended Notice of Application was issued and served on both the Republic and Kyrgyzaltyn. [10] In July 2012, Brown J. dismissed Kyrgyzaltyn’s motion to set aside the Recognition Order. He also ordered that if the Republic intended to participate in this proceeding, it would have to file an appearance by September 1, 2012. It did not do so. That time was later extended to March 2013 but the Republic still did not participate. [11] On August 17, 2012, Strathy J. (as he then was) granted an ex parte motion for a Mareva injunction to prevent Kyrgyzaltyn’s disposition of the Centerra shares or dividends declared on those shares. He found that “there is evidence to support Sistem’s position that Kyrgyzaltyn holds the shares for the Republic” and “there are reasonable grounds to believe that there are assets of the Republic, or assets held for its benefit, in this jurisdiction.” The Mareva injunction was extended by Newbould J. [12] Pursuant to the Mareva injunction, 4,000,000 Centerra shares registered in Kyrgyzaltyn’s name remain frozen and more than $11.2 million in dividend monies are being held in trust to the credit of these proceedings. [5] Centerra is a publicly traded Canadian mining corporation and the sole shareholder of the Kumtor gold mine in the Republic. As part of an agreement entered into by Centerra, Kyrgyzaltyn, and the Republic in April 2009 entitled “Agreement on New Terms”, 43 million shares of Centerra were issued or transferred to Kyrgyzaltyn and registered in its name. In consideration, the Republic expanded the Kumtor mining concession and implemented a more favourable tax regime for one of Centerra’s subsidiaries. [6] The substantive issue before the application judge was whether the Republic has an equitable interest in the Centerra shares – and therefore in the dividends payable on those shares – that could be seized in Ontario under s. 18 of the Execution Act. She concluded that it does and ordered the seizure. This court stayed the order pending the outcome of this appeal: 2014 ONCA 576.[1] The Service Issue [7] The Republic was served in the same manner for all proceedings in Ontario relating to the enforcement of the arbitral award. On this appeal, we are concerned only with the service of the Amended Notice of Application for the proceeding under appeal. [8] The issue of service was raised before the application judge by counsel for Kyrgyzaltyn. She dismissed the issue on two bases: (1) both the Superior Court and the Court of Appeal had already dismissed requests by Kyrgyzaltyn to dismiss the proceedings on that basis; and (2) the Republic had “ample notice of Sistem’s request for relief and the opportunity to respond.” [9] The evidence regarding service comes from the affidavit of a lawyer at the respondent’s law firm outlining the sequence of events leading to service of the initial application to recognize the arbitral award on October 21, 2010, and from an Affidavit of Service regarding the Amended Notice of Application that initiated the within proceeding. [10] The respondent’s counsel intended to serve the Republic in accordance with ss. 9(1) and (2) of the SIA which provide: Service on a Foreign State 9. (1) Service of an originating document on a foreign state, other than on an agency of the foreign state, may be made (a) in any manner agreed on by the state; (b) in accordance with any international Convention to which the state is a party; or (c) in the manner provided in subsection (2). Idem (2) For the purposes of paragraph (1)(c), anyone wishing to serve an originating document on a foreign state may deliver a copy of the document, in person or by registered mail, to the Deputy Minister of Foreign Affairs or a person designated by him for the purpose, who shall transmit it to the foreign state. [11] The respondent’s lawyer first contacted the Canadian Department of Foreign Affairs and International Trade (DFAIT) on September 9, 2010 and was told that the department “could not effect service through diplomatic channels.” However, he did not send a registered letter to DFAIT in order to have the initiating documents served in accordance with s. 9(2) of the SIA. [12] DFAIT referred the lawyer to the Honorary Consul of the Kyrgyz Republic for Canada, Mr. Rodney Irwin. The lawyer called Mr. Irwin but did not reach him and left no message. [13] The lawyer then sought to serve the Republic under s. 9(1)(a) of the SIA and to that end, obtained an opinion from the GRATA Law Firm, located in the Republic. That opinion stated that there was nothing specific in the legislation of the Republic that dealt with service on the Republic of an application to recognize and enforce an international arbitration award. The opinion advised that the procedural provisions of the Republic could therefore be used by analogy. It recommended service on the President. Another option for service was “via diplomatic missions of the Kyrgyz Republic abroad in accordance with the International Agreements.” [14] In follow-up correspondence, the GRATA Law Firm specifically confirmed that the Notice of Application could be served on the Republic at its embassy in Washington D.C., and explained that the relevant International Agreements included the Vienna Convention on Diplomatic Relations, 18 April 1961, 500 U.N.T.S. 95 (entered into force 24 April 1964) (“the Vienna Convention”), to which the Republic is a party. [15] Based on this advice, the Notice of Application, together with a Russian translation, was served by Fed Ex on the Republic at its Washington embassy on October 19, 2010. Another lawyer at the respondent’s law firm subsequently explained the nature of the documents to an embassy representative. [16] According to the Affidavit of Service dated November 25, 2011, the respondent purported to serve the Amended Notice of Application on the Republic in the same way by sending a copy by courier to the Republic’s Washington embassy. Issues [17] There are five issues before the court on this appeal: 1) Was the Amended Notice of Application effectively served on the Republic in accordance with s. 9(1)(a) of the SIA? 2) If not, can service be validated under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194? 3) Has the issue of service been determined by previous decisions in this proceeding? 4) If there was no effective service, what is the appropriate disposition of this appeal? 5) If there was effective service, did the application judge err by finding that the Republic has a beneficial interest in the Centerra shares that is exigible under s. 18 of the Execution Act? Analysis (a) Issue 1: Was the Amended Notice of Application effectively served on the Republic under s. 9(1)(a) of the SIA? The State Immunity Act [18] Both parties agree that service on a foreign state is governed by ss. 9(1) and (2) of the SIA. The SIA was enacted in Canada in 1982, shortly after similar legislation was enacted in the United States (the Foreign Sovereign Immunities Act of 1976, Pub. L. No. 94-583, 90 Stat. 2891 (“FSIA”)) and in the United Kingdom (the State Immunity Act 1978 (UK), 1978, c. 33 (“UK SIA”)). Its purpose and effect were discussed by the Supreme Court of Canada in the case of Kuwait Airways Corp. v. Iraq, 2010 SCC 40, [2010] 2 S.C.R. 571. [19] Justice Lebel explained that the SIA was enacted as a result of the gradual emergence in the common law of a more restrictive theory of state immunity than had previously been recognized, which reflected the growing diversity of state functions and the effect of state immunity on relations between states and private interests. The purpose of the Act was to “better define the purpose and means of claiming the customary immunity sovereign states are entitled to in their dealings with other members of the international community in contemporary public international law”: at para. 13. [20] Section 3 of the SIA establishes the general principle that foreign states have immunity from the jurisdiction of the Canadian courts, except as provided in the Act. Importantly, under s. 3(2), a court must give effect to that immunity even if the foreign state does not take any step in the proceeding. As Lebel J. put it, “the court must give effect to the immunity on its own initiative if applicable”: at para. 15. Was the Republic properly served under s. 9(1)(a) of the SIA? [21] The respondent submits that by serving the Republic at its embassy in Washington D.C., it effected service in accordance with s. 9(1)(a) of the Act, on the basis that the Republic agreed to be served in that way by signing the Vienna Convention. [22] There is no authority that supports this submission. First, this submission effectively ignores s. 9(1)(b) of the SIA, which specifically allows service “in accordance with any international Convention to which the state is a party”. The respondent does not seek to rely on s. 9(1)(b) on the basis that the service was effected in accordance with the Vienna Convention. [23] There is no provision in the Vienna Convention that deals with service specifically. Article 3 of the Vienna Convention was referred to in the GRATA opinion. However, that article deals with the functions of a diplomatic mission. These functions do not specifically include accepting service of an originating process.[2] [24] If service in accordance with the Vienna Convention cannot be claimed using s. 9(1)(b), it is unclear how that same Convention can be used to find that the Republic agreed to be served at its embassy in Washington. [25] Second, the jurisprudence indicates that service on an embassy is not available as a means of effecting service on a foreign state. The Quebec Superior Court addressed the issue of the propriety of service on an embassy in Cegir Inc. c. Banque Algérienne de Developpement, [1989] R.J.Q. 1965 (Q.C. S.C.). It concluded, at paras. 64-66, that service on an embassy violated the SIA and the Vienna Convention. [26] There is also U.S. and U.K. authority holding that such service is not effective under those countries’ state immunity statutes. In 40 D 6262 Realty Corp v. United Arab Emirates, 447 F. Supp. 710 (S.D.N.Y. 1978), the United States District Court (S.D. New York) held that service by mail on the embassy of the United Arab Emirates was not allowed under the FSIA. [27] A similar conclusion was reached by the House of Lords in Kuwait Airways Corp. v. Iraqi Airways Co., [1995] 3 All ER 694 (U.K. H.L.). It held that service on an embassy was not in compliance with s. 12(1) of the UK SIA, which is analogous to ss. 9(1)(c) and 9(2) of the SIA. Lord Goff stated, at p. 704: The delivery of the writ by the Foreign and Commonwealth Office to the Iraqi embassy was at best a request to the Iraqi embassy to forward the writ on behalf of the Foreign and Commonwealth Office to the Iraqi Ministry of Foreign Affairs. On the evidence, that was not done. It follows that the service of the writ on Iraq was never effected in accordance with s 12(1) and that the appeal of KAC on this point must be dismissed. [28] Section 12(6) of the UK SIA is similar to s. 9(1)(a) of the Canadian Act, allowing for service in a manner agreed to by the foreign state. Lord Goff made no suggestion that s. 12(6) could have formed the basis for effective service under the statute. [29] Crescent Oil and Shipping Services Ltd. v. Importang UEE, [1997] 3 All ER 428 (U.K. Q.B., Comm. Ct.), is an example of a case where the court discussed how the “service in a manner agreed to” prong of the UK SIA could be satisfied. In that case, a jurisdiction clause in a commercial agreement between an economic unit of the Republic of Angola (with separate legal identity) and a foreign company provided for service on the Angolan party at the Angolan Embassy in London. The Queen’s Bench judge opined, at pp. 439-440, that had the Angolan Republic been a party to that agreement, service on its embassy would have been permissible under the “agreement” prong of the UK SIA. [30] In this case, I conclude that there is no basis in fact or in law for this court to find that the Republic was served in a manner to which it has agreed in accordance with s. 9(1)(a) of the SIA. A similar conclusion was reached by Low J. of the Ontario Superior Court of Justice in Softrade Inc. v. United Republic of Tanzania, [2004] O.J. No. 2325 (S.C.). There, the statement of claim was served on the Office of the High Commissioner for the United Republic of Tanzania in Ottawa. The court stated, at para. 9: The United Republic of Tanzania is not a party to any international treaty regarding service of court-issued documents, there is no evidence that the United Republic of Tanzania agreed to be served in the manner shown in the affidavits of service of Colin Lalumiere (or in any other fashion) and there is no evidence that a copy of the statement of claim was delivered to the Deputy Minister of Foreign Affairs or his designate for transmission to the foreign state. [31] Although not detailed in the judgment, Tanzania was a member of the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations, 24 April 1963, 596 U.N.T.S. 261 (entered into force 19 March 1967). From the reasons, it appears that Low J. did not view either of these treaties as “regarding service of court-issued documents”. (b) Issue 2: Can service be validated under Rule 16 of the Rules of Civil Procedure? [32] The respondent submits that if service on the Washington embassy of the Republic is not service in a manner agreed on by the Republic under s. 9(1)(a) of the SIA, this court should nonetheless validate service as the Republic is well aware of these proceedings and was served in accordance with the Rules of Civil Procedure. Sistem points to s. 17 of the SIA which provides: Except to the extent required to give effect to this Act, nothing in this Act shall be construed or applied so as to negate or affect any rules of a court, including rules of a court relating to service of a document out of the jurisdiction of the court. [33] The issue of the role and applicability of the Rules of Civil Procedure in respect of service on foreign states has arisen in two cases in Ontario, the Softrade case referred to above and the earlier decision of Tritt v. United States of America (1989), 68 O.R. (2d) 284 (H.C.). [34] In Softrade, the plaintiff argued that service in accordance with s. 9 of the SIA is not mandatory but is an additional method to the Rules of Civil Procedure. Justice Low rejected that argument. She stated that it ignored and contradicted s. 3 of the Act, which provides for foreign state immunity from the jurisdiction of a Canadian court. [35] She also referred to the Tritt decision where Steele J. held that the SIA requires that service on a foreign state be made in accordance with s. 9 and not the Rules of Civil Procedure even where the substantive provisions of the SIA do not apply. In that case, the cause of action against the United States arose prior to the enactment of the SIA. Relying on the decision of the Supreme Court of Canada in Angus v. Sun Alliance Insurance Co., [1988] 2 S.C.R. 256, he held that the immunity provisions of the Act did not apply as substantive aspects of legislation are not retrospective. At common law, the state therefore had complete immunity. [36] As a second ground for setting aside the default judgment against the United States, Steele J. concluded that the defendants had not been properly served. Again citing Sun Alliance, he noted that the procedural provisions of the SIA applied retrospectively even though the substantive immunity provisions did not. Therefore, although the defendants were all immune from suit at common law, any service on them had to be in accordance with s. 9 of the SIA. [37] Justice Steele also addressed the argument that some of the named defendants were acting as an “agency of a foreign state”. Section 9(3)(c) of the SIA allows service on an agency of a foreign state “in accordance with any applicable rules of court”.[3] However, Steele J. held that the defendants were acting for a state and not an agency thereof; therefore s. 9(3) of the SIA, which allows for service using the Rules of Civil Procedure, did not apply. The plaintiff could not resort to the Rules as a means of effecting service. [38] A similar conclusion was reached by the Quebec Superior Court in Cegir Inc., where the plaintiff also sought to rely on s. 17 of the SIA. The court rejected the submission, finding that the Quebec rules governing civil procedure could not be used to circumvent ss. 9(1) and (2) of the SIA. The court explained, at paras. 76-79: [Translated] Cegir claims it did not have to follow the requirements of s. 9(2) for the following reasons: ss. 9(1) and 9(2) provide the ability to use different methods of service without thereby excluding the special procedures set out in the Code of Civil Procedure. Cegir advances a textual argument, namely the Act’s uses of the words “service may be made” in the English version and “signification se fait” in the French version of s. 9(1), and uses the words “may deliver” in the English version and “peut se faire” in the French version of s. 9(2). It is true that s. 17 of the Act stipulates that it does not affect the application of the rules of procedure or practice of the courts, including those relating to service outside the court’s jurisdiction. This general rule, however, only operates to the extent required to give effect to the Act as a whole, as stated in the last part of that section. The objective of the Act is to ensure that the foreign state receives notice of pleadings, within the framework of the immunity which the state enjoys. In this context, the French text accurately reflects the legislative intent and denotes the mandatory nature of the provision. In addition, the legislature would not have limited the application of s. 9(4) to agencies of the foreign state if it wanted to allow the court to prescribe a different mode of service in regards to serving the state itself. The legislature therefore excluded this possibility with respect to the state. Accordingly, the court cannot accept this argument. [39] I agree with the reasoning and outcome of the decisions in Softrade, Tritt, and Cegir. [40] Reading s. 9 as a whole, it is clear that ss. 9(1) and (2) provide the sole methods for service of initiating documents on a foreign state and preclude resort to the Rules of Civil Procedure. Subsection 9(3) allows service on “an agency of a foreign state” using a province’s rules of civil procedure. An agency is defined in s. 2 of the Act as “any legal entity that is an organ of the foreign state but that is separate from the foreign state”. By specifically allowing service on an “agency of a foreign state” using the rules of civil procedure, while specifically excluding an agency of a foreign state from ss. 9(1) and (2), Parliament’s intention to limit the methods of service on foreign states to the three methods in ss. 9(1) and (2) is made fully apparent. There would otherwise be no purpose in differentiating service methods. [41] Section 10 of the Act further supports this interpretation. It provides that default judgment can only be obtained where “service of an originating document has been made on a foreign state in accordance with subsection 9(1), (3) or (4)”.[4] This provision makes it clear that service using the method specified in the relevant section is a prerequisite to proceeding against a foreign state that defaults. [42] Section 17 of the SIA allows the rules of court to continue to apply “except to the extent required to give effect to this Act”. Sections 9(1) and (2) set out the three available methods for service of an initiating proceeding on a foreign state and are part of the scheme governing state immunity under the Act. One purpose of including s. 17 in the SIA may be to make clear that the rules of civil procedure with respect to service out of the jurisdiction apply fully where service is not limited – for example, in the case of service on an agency of a foreign state as permitted under s. 9(3). [43] Section 9(1) states that service “may” be made in accordance with the three prescribed methods. In Bates v. Bates (2000), 49 O.R. (3d) 1 (C.A.), at paras. 23-24, Laskin J.A. explained that the word “may” has to be read in context. In s. 9(1), the term “may” is intended to be exhaustive, not permissive, given the context and logic of the provision. [44] A similar analysis was recently conducted by the Federal Court of Appeal in Reference re section 14 of the Agriculture and Agri-Food Administrative Monetary Penalties Regulations, 2012 FCA 130, 433 N.R. 299. There, the court was considering whether the word “may” in s. 14(1) of the Agriculture and Agri-Food Administrative Monetary Penalties Regulations, SOR/2000-187, was permissive or exhaustive. That provision stipulated: 14. (1) A person may make a request referred to in section 11, 12 or 13 [a request for review] by delivering it by hand or by sending it by registered mail, by courier or by electronic means, including electronic registered mail and fax, to a recipient and place authorized by the Minister. [Emphasis added] [45] The background to the reference involved a company delivering a request for review to the Canadian Agricultural Review Tribunal by regular mail. The applicant tribunal sought the court’s opinion on whether that delivery method was consistent with s. 14(1). The applicant noted that since “regular mail” was not specifically excluded by the Regulations, a “fair, large and liberal” interpretative approach as provided by s. 12 of the Interpretation Act, R.S.C. 1985, c. I-2, could support a permissive interpretation of the provision. On the other hand, in support of an exhaustive interpretation, the applicant pointed to the Act’s objective of promoting efficiency, which suggested a need for adherence to the methods stipulated in the legislation. In holding that s. 14(1) did not allow for delivery by regular mail, the Federal Court of Appeal held, at para. 22: In my view, section 14 cannot be construed as authorizing regular mail as a means of communicating a request. Subsection 9(2) of the Act provides that a person may request a review by the Tribunal “in the prescribed time and manner”. Section 14 of the Regulations simply does not prescribe regular mail as a manner of requesting a review by the Tribunal. [46] Section 10(1) of the SIA has a similar meaning and effect, by limiting the effective methods of service to those listed in s. 9 of the SIA. [47] In Sullivan and Driedger on the Construction of Statutes, 6th ed. (Markham: LexisNexis Canada Inc., 2014), at para. 4.67, Ruth Sullivan summarized the court’s conclusion in Reference re section 14: “Although persons were not obliged to request a review, having decided to do so, they were obliged to follow one of the methods set out in the provision.” The present case is analogous. Given the purpose of the SIA to more clearly define the contours of state immunity, individuals who decide to commence an action against a state must adhere to the prescribed methods of service outlined in the legislation. [48] As found by the Quebec Superior Court in Cegir Inc., at paras. 76-79 (quoted above), the interpretation that the term “may” in s. 9(1) is not permissive is reinforced by the French version of the SIA, which uses the phrase “signification … se fait”, meaning “service … is made”. The Supreme Court recently affirmed that generally speaking, the use of the present indicative tense (e.g., “se faire”, as in this case) is not to be read as conferring discretion: Canada (Minister of Citizenship & Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339, at para. 38. [49] I conclude based on the wording and logic of s. 9, as reinforced by the principles of statutory interpretation, that ss. 9(1) and 9(2) are mandatory and exhaustive and do not permit service on a foreign state in accordance with provincial rules of civil procedure. The court is therefore precluded from validating service under Rule 16. (c) Issue 3: Has the service issue been decided by previous decisions in this proceeding? [50] The procedural history of this matter was described by the application judge in the paragraphs quoted above. [51] While the issue of service on the Republic has been raised by Kyrgyzaltyn in previous proceedings, it was always addressed by the court in the context of Kyrgyzaltyn’s standing to raise the issue, or put another way, the failure of the Republic to appear and raise the issue itself.[5] [52] In none of the previous proceedings has the court directly considered and ruled on the issue of whether service on the Republic’s Washington embassy was in accordance with s. 9(1)(a) of the SIA.[6] To the extent that in other decisions involving these parties, courts may have declined to address that issue based on Kyrgyzaltyn’s lack of standing, that position was taken per incuriam. As a preliminary matter, a court must always determine whether service was properly made on an absent named party whose interests will be affected by the order sought. The question of standing is irrelevant to this issue, as it is the court’s role to ensure that the procedural rights of a party that does not appear are protected.[7] [53] As noted above, s. 3(2) of the SIA specifically requires a court to “give effect to the immunity conferred on a foreign state by subsection (1) notwithstanding that the state has failed to take any step in the proceedings”, and the Supreme Court of Canada in Kuwait Airways reinforced that that meant a court must give effect to the immunity “of its own volition”. A Canadian court must also give effect to the procedural provisions of the SIA on its own volition when faced with a case involving an action against a state, as these provisions are an integral part of the scheme designed to respect state immunity. [54] The respondent argues that s. 3 of the SIA, which provides for substantive state immunity from the jurisdiction of any court in Canada, is distinct from the procedural provisions of the SIA. It submits that a court is therefore not obliged to consider the procedural issue of validity of service on its own volition. However, this argument ignores the fact that the only logical way to proceed requires a court to address any issue regarding service before it engages with the merits of a proceeding, including the underlying question of substantive immunity. [55] Where a foreign state does not appear in a proceeding commenced against it, the first step a court must take is to determine, based on the affidavit material provided by the initiating party, that service has been properly effected in accordance with s. 9(1) or (2) of the SIA. Only if service appears to be proper does the court proceed to consider whether the state has substantive immunity under the SIA. (d) Issue 4: If there was no effective service, what is the appropriate disposition of this appeal? [56] As the Republic was not served with the Amended Notice of Application in accordance with ss. 9(1) or (2) of the SIA, I conclude that the decision below must be set aside. [57] I have come to this conclusion despite the fact that the Republic has had actual notice of these proceedings. In Stans Energy Corp. v. Kyrgyz Republic, 2014 ONSC 6195, reversed on other grounds, 2015 ONSC 3236 (Div. Ct.), Newbould J. referred to the Republic’s active involvement in negotiating with Sistem to lift the Mareva injunction that was in place as a result of the current proceeding. He observed, at para. 37: Recently Centerra has announced that it, the Republic and Kyrgyzaltyn have entered into an agreement under which Kyrgyzaltyn would exchange its shares in Centerra for a 50 per cent interest in a joint venture company that would own the Kumtor Project. On February 6, 2014, Centerra announced that the Republic's Parliament had adopted a resolution supporting the restructuring. The Republic has agreed to pay in excess of US$11 million in escrow to Sistem in exchange for a lifting of the injunction obtained by Sistem, which would be required in order for the restructuring to proceed. [Emphasis added.] [58] However, despite the Republic’s actual notice of the proceedings and its involvement in negotiations, this court is constrained by the clear provisions in the SIA, which in this case have not been satisfied. Result [59] I would allow the appeal and set aside the judgment of Thorburn J. with costs to the appellant fixed at $40,000 inclusive of disbursements and HST. [60] A new hearing may be held following service of the Amended Notice of Application on the Republic in accordance with s. 9(1) or (2) of the SIA. Released: “AH” June 19, 2015 “K. Feldman J.A.” “I agree. Alexandra Hoy A.C.J.O.” “I agree. P. Lauwers J.A.” [1] Since then, other escrow arrangements were made by order of Newbould J. dated October 22, 2014. [2] The argument that service on an embassy is equivalent to service on a foreign state has been rejected in several cases, which I discuss in more detail below: See Kuwait Airways Corp. v. Iraqi Airways Co. and others, [1995] 3 All ER 694 (U.K. H.L.); 40 D 6262 Realty Corp v. United Arab Emirates, 447 F. Supp. 710 (S.D.N.Y. 1978); Cegir Inc. c. Banque algerienne de developpement, [1989] R.J.Q. 1965 (Q.C. S.C.). [3] 9(3) Service of an originating document on an agency of a foreign state may be made (a) in any manner agreed on by the agency; (b) in accordance with any international Convention applicable to the agency; or (c) in accordance with any applicable rules of court. [4] Section 9(1), by virtue of s. 9(1)(c), includes service under s. 9(2). Subsections (3) and (4) apply only to agencies of a foreign state. The definition of “foreign state” in s. 2 of the SIA includes an agency of a foreign state. [5] No previous court cited the Supreme Court of Canada’s decision in Kuwait Airways, referred to at paras. 18-20 above and para. 53 below, nor was this court referred to that decision. Counsel were given the opportunity to address it following the oral appeal in subsequent written submissions. [6] Based on his finding that the Republic had notice of the motion, Cumming J. validated service in his formal order dated September 30, 2011. [7] See Royal Trust Corp. of Canada v. Dunn (1991), 6 O.R. (3d) 468, at p. 469 (Ont. Gen. Div.), where Borins J. explained that where service was improper, a default judgment can normally be set aside as of right, regardless of whether there was any defence on the merits.