A new aspect of risk is emerging for Canadian companies working in foreign lands. It comes from the Ontario Superior Court, which has decided foreign judgements against Canadian companies are enforceable irregardless of the integrity of the foreign judiciary.
Beth Kirkwood, a director of Canadian Shield Resources and the former president CEO of First Nickel, brought the following case to CMJ’s attention.
In 1997, Toronto-based ENERNORTH INDUSTRIES and OAKWELL ENGINEERING of Singapore created a joint venture to build two barge-mounted generating plants in India. When the project ran into trouble, EnerNorth bought out Oakwell by promising to pay US$2.79 million plus royalties once the project was financed and operational. EnerNorth had trouble raising the money to build the plants, and in 2000 it sold out to an Indian company.
Oakwell went to court in Singapore to recover money it felt it was owed from the dissolution of the joint venture. The High Court and later the Court of Appeal awarded Oakwell the disputed amounts plus costs and interest, amounting to US$5.4 million. Because EnerNorth has no assets in Singapore, Oakwell applied to the Ontario Superior Court to enforce the award, and a year ago the Ontario court agreed.
EnerNorth is asking leave to appeal the decision to the Supreme Court of Canada.
Why should Canadian miners be wary? Our court system is enforcing foreign awards without regard to whether the judicial system that made them operates in a fair and transparent manner, as does our system. The result is a lower standard of justice than that enjoyed by businesses operating solely within our country’s borders.
“Country risk is something that until recently has meant Canadians focusing on the host country and its domestic partners while relying on Canada’s courts and constitution to protect Canadian people and assets at home,” said Kirkwood. “Unfortunately Canadian businesses and business people may be focussing on the wrong end of the country risknow it is at home.”
Fore a Canadian mining company working abroad it is no longer enough to create a local subsidiary through which to operate. The EnerNorth case proves that such arrangements can be set aside by a foreign court, and Canadian courts are unsympathetic.
A Canadian company might consider creating an American subsidiary through which to operate in foreign lands. In that way, should a partnership sour, the company would be somewhat protected by the existing U.S. laws.
“Although the facts of the EnerNorth case involved a commercial contract in Singaporewhich might not be of interest to the Canadian mining and prospecting sectorthe effect of this decision should be of grave concern to all in the industry. By virtue of this decision, the Canadian-held assets, both personal and corporate, are potentially at risk to pay virtually any decision of any foreign court,” Kirkwood continued. “For Canadian businesses or business people with activities in places with undemocratic governments and compromised legal systems such as many of the emerging markets, this decision is thus of enormous significance.”