Sunridge Gold Corp. v. Delizia Limited

Sunridge Gold Corp. v. Delizia Limited
Court (s) Database
Federal Court Decisions
Date
2016-04-08
Neutral citation
2016 FC 392
File numbers
T-1157-13
Decision Content
Date: 20160408
Docket: T-1157-13
Citation: 2016 FC 392
Ottawa, Ontario, April 8, 2016
PRESENT: The Honourable Mr. Justice Brown
BETWEEN:
SUNRIDGE GOLD CORP.
Appellant/Garnishee
and
DELIZIA LIMITED
Respondent/Garnishor
and
STATE OF ERITREA
Respondent
JUDGMENT AND REASONS
I. Nature of Matter and Summary of Disposition [1] This is a motion appeal of the decision by Prothonotary Morneau [Prothonotary] dated January 9, 2015, who granted a final garnishment order in favour of the Respondent judgment creditor, Delizia Limited [Delizia] against the garnishee, Sunridge Gold Corporation [Sunridge] in respect of debts allegedly owed by the Appellant Sunridge to the judgment debtor, the State of Eritrea [Eritrea].
[2] By way of background, Delizia obtained an arbitral award against Eritrea. Subsequently, Delizia moved ex parte to register that award in this Court for the purposes of enforcement, which registration was granted on July 17, 2013. Upon further ex parte motion, the Prothonotary granted Delizia a Provisional Order of Garnishment and Show Cause [technically a Garnishee Order to Show Cause, but for consistency with the decision under appeal hereinafter referred to as Sunridge POG] against Sunridge dated July 31, 2013. After a further hearing, this time having heard from Sunridge, the Prothonotary granted Delizia a Final Order of Garnishment [Sunridge FOG] against Sunridge on January 9, 2015, which is the subject of this appeal. Justice Kane stayed the Sunridge FOG pending this appeal by Order dated July 31, 2015.
[3] This appeal was heard together with an appeal brought by another garnishee named by Delizia: Nevsun Resources Ltd. [Nevsun]. Both the Sunridge matter and the Nevsun matter have proceeded in this same Court file, but have been argued separately, and are dealt with separately here and below. Accordingly, this Judgment deals only with the Sunridge matter; the Nevsun appeal is dealt with separately in this Court file.
[4] For the reasons outlined below, this appeal is allowed and the Sunridge POG and FOG are set aside. The appeal respecting various production orders is dismissed.
II. Facts A. Contract between Delizia and Eritrea [5] Delizia, a Cyprus-based company, entered a contract to sell military aircraft equipment to Eritrea in 2003. Eritrea did not pay an amount owing. Pursuant to the terms of their contract, Delizia proceeded to arbitration against Eritrea before the Arbitration Institute of the Stockholm Chamber of Commerce [AISCC]. Although Delizia filed extensive materials with the Arbitration Tribunal, Eritrea did not fully engage with these proceedings and eventually decided not to participate further.
[6] The duly convened arbitral tribunal of the AISCC thereafter awarded Delizia [Arbitral Award] $2,175,775 US on April 18, 2006, with 6% interest accumulating as of January 31, 2005, as well as arbitrator fees with interest accumulating as of April 18, 2006. This award totaled $4,062,428.70 CA as of the date of registration of foreign judgment in this Court.
[7] The validity of the Arbitral Award is not in dispute.
B. Sunridge and the Asmara Mine in Eritrea [8] Sunridge was incorporated in 1983 under the laws of British Columbia; it is a Canadian publicly-traded corporation listed on the TSX Venture Exchange. Sunridge adopted its current name in 2002. Sunridge is in the business of mineral exploration and development. It is engaged in the acquisition, exploration, discovery and development of base and precious metal deposits in East Africa.
[9] Since 2003, Sunridge has focussed on exploration and development of a particular mine in the Asmara region of the State of Eritrea, known as the Asmara Mine. In 2003, Sunridge entered into a joint venture with an Australian company regarding the Asmara Mine. Sunridge subsequently decided to buy out the Australian company’s interests in their joint venture.
[10] In and around 2006, when negotiating to buy out the Australian company’s interests and acquire exclusive title to the necessary Asmara Mine exploration licences, Sunridge was informed of an Eritrean Ministry of Energy and Mines requirement that Sunridge establish an office in Eritrea as a pre-condition to the Ministry approving Sunridge’s acquisition of the exploration licences. Sunridge by this time also understood that Eritrea required local control of mining companies carrying out operations in Eritrean territory.
[11] After July 15, 2005, Sunridge established a “branch office” in Eritrea known as Sunridge Gold Eritrea [SGE], pursuant to these Eritrean government requirements. It was a true branch office of Sunridge in that it had no legal separate personality distinct from Sunridge itself. That is, Sunridge’s branch office was simply Sunridge carrying on business under a different name [SGE] in Eritrea.
[12] In January 2006, Sunridge completed the purchase, assignment, and transfer of exploration licences relating to the Asmara Mine from the Australian company. The transaction was approved by the Eritrean Ministry of Energy and Mines in 2007.
[13] Eritrea’s Proclamation 68/1995 (A Proclamation to Promote the Development of Mineral Resources), states that Eritrea may acquire a 10% interest in every mining operation such as that proposed by Sunridge, essentially on demand. This Proclamation further provides Eritrea may acquire additional equity by agreement. Also in compliance with Eritrean law for mining projects, a separate entity (such as the Asmara Mining Share Company [AMSCo]) may be incorporated, with ownership by an Eritrean shareholder.
C. Shareholders’ Agreement between Sunridge and ENAMCo (1) Share issuance and ownership [14] Against this regulatory and factual background, in 2012, Sunridge through its branch office in Eritrea (i.e., Sunridge) entered into a Shareholders’ Agreement with Eritrea National Mining Corporation [ENAMCo], an Eritrean state-controlled entity, to establish a joint venture mining company to be named AMSCo to develop the Asmara Mine. ENAMCo is the alter ego of Eritrea.
[15] The Shareholders’ Agreement outlined the rights and obligations of each of the parties in the development of the Asmara Mine. Pursuant to the Shareholders’ Agreement and as allowed by Eritrean law, on July 4, 2012, ENAMCo exercised its option to acquire 40% of the shares of AMSCo, a company to be incorporated in the future. ENAMCo was to obtain a 10% interest in AMSCo free of charge as per Eritrea’s Proclamation, and did so as Eritrea’s alter ego. ENAMCo also agreed to pay Sunridge $18.3 million US for an additional 30% of AMSCo’s shares, which it would acquire after the joint venture company, AMSCo was incorporated. Sunridge was to acquire 60% of the AMSCo shares also out of AMSCo’s treasury and again “on establishment and incorporation” of AMSCo. Sunridge for its part among other things, was to transfer the exploration licences and other of its assets including equipment and mineral data into the joint venture company. AMSCo was to be established sometime after the Shareholders’ Agreement was signed, and was to be incorporated to start production and operation of the Asmara Mine.
[16] It is important to note that the acquisition of shares by both Sunridge’s subsidiary and by ENAMCo would only occur after AMSCo’s incorporation.
[17] AMSCo was incorporated under the laws of Eritrea on October 1, 2014. After its incorporation, AMSCo issued shares from its treasury as follows: 40% to ENAMCo and 60% to a Sunridge subsidiary.
[18] In the result, AMSCo is indirectly owned 60% by Sunridge, and 40% by ENAMCo. Sunridge’s interest in the Asmara mining project and Sunridge’s inter-corporate holdings are summarized in the following chart:
[19] It is standard practice in Eritrea for mining projects to be developed in this manner, i.e., by using an Eritrean company like AMSCo to hold title to all key assets, permits and licences, and for ENAMCo to be a shareholder in that company.
[20] I find it was always Sunridge’s understanding and intention since it acquired the exploration licences in 2006 that the development of the Asmara mining project would be structured in this manner. Sunridge acquired exclusive title to the exploration licences in 2006. Eritrea approved the transfer in April 2007.
(2) Super majority provision in the Shareholders’Agreement [21] The Shareholders’ Agreement between Sunridge and ENAMCo contains super majority provisions requiring that many if not all major decisions be approved by 80% of AMSCo shareholders. Matters requiring 80% shareholder approval include:
i. approval of budgets and business plans;
ii. entering into partnerships or joint ventures with third parties;
iii. spending over $200,000 US;
iv. entering into material contracts; and
v. hiring or firing key executives.
[22] In my view, these super majority provisions gave Eritrea through ENAMCo a very significant and substantial degree of control over most if not all major decisions of AMSCo regarding the Asmara Mine.
(3) Other key details of the Shareholders’ Agreement re: AMSCo [23] Other key details of the relationship between ASMCo and ENAMCo are:
− AMSCo is responsible for securing the necessary licences, approvals and financial investments to develop the Asmara joint venture into a mine;
− All mineral data, equipment and property associated with the Asmara joint venture will be owned by AMSCo;
− All required exploration licences and permits in connection with the Asmara joint venture must be approved by the Minister of Mines for Eritrea and held by AMSCo; and
− Assuming all necessary permits and licences for the Asmara project are granted, any current or future obligations to Eritrea in connection with the Asmara project, including obligations in respect of income taxes, stamp duties, withholding and other taxes, royalties, customs and duties, mining, exploration and business fees are solely the obligations of AMSCo.
(4) Asmara Mine is not yet in production, and is not yet profitable [24] AMSCo is not profitable. AMSCo did not produce income before these proceedings began. Further, AMSCo holds the only potentially income-producing asset of the Sunridge corporate structure, namely the Asmara Mine and related mining licences issued by Eritrea, and other assets.
D. Debts Allegedly Owing or Accruing by Sunridge to Eritrea [25] Delizia claims the right to garnish three types of alleged “debts” allegedly owing or accruing by Sunridge to Eritrea: (1) exploration licence fees; (2) certain taxes withheld from service providers; and (3) the shares AMSCo issued to ENAMCo. I will consider each.
(1) Exploration licence fees [26] Prior to the incorporation of AMSCo, Sunridge through its local branch office SGE, owed the State of Eritrea certain small amounts for exploration licence fees (for 2013 and 2014, totalling $1,694.71 US and $1,857.36 US, respectively). After AMSCo’s incorporation, these exploration licence fees became debts owing and accruing by AMSCo to the State of Eritrea. I have concluded that exploration licence fees are exempt from seizure because they are quintessentially obligations imposed by a sovereign state on those who carry on business within its reach. They are not properly classified as being related to “commercial activity” for the purposes of the State Immunity Act, RSC 1985, c S-18 [SIA].
(2) Withheld taxes [27] While certain payments respecting withheld taxes from service providers were claimed by Delizia, the Prothonotary disallowed them. No appeal was taken and therefore they are not considered further.
(3) Treasury shares issued by AMSCo to ENAMCo [28] AMSCo issued 40% of its shares from treasury to ENAMCo after AMSCo’s incorporation (10% were free and 30% were paid for). A major issue in this appeal is whether these shares constituted a “debt” attachable by the Sunridge POG and FOG as claimed by Delizia. The shares were and could only have been issued after AMSCo was incorporated. In my view, Sunridge could only be liable to Delizia for this share issuance if the Court pierces the corporate veil that presumptively exists between Sunridge and AMSCo. I have concluded that the corporate veil may not be pierced in this case, and therefore the shares cannot be garnished by Delizia.
E. State Immunity Act, RSC 1985, c S-18 [SIA] [29] Following established jurisprudence, I have concluded that both the Sunridge POG and FOG are nullities by reason of the fact that the State of Eritrea was not served with Delizia’s originating documents related to its application for a recognition order that underlies both the POG and the FOG. Such service is a mandatory requirement of the SIA.
F. Production Orders [30] The Sunridge FOG also ordered Sunridge to answer certain questions it objected to. In my view, the objections were well-founded and the questions need not now be answered.
G. History of Legal Proceedings (1) Delizia’s US garnishment proceedings [31] Upon Delizia’s successfully obtaining the Arbitral Award of the AISCC against Eritrea, Delizia filed a Petition to Confirm Arbitration Award in a United States District Court in 2009. This was granted February 5, 2010, by default judgment. However, on March 2, 2012, a United States District Court judge determined that a final garnishment order could not be granted, because Delizia had not established the State of Eritrea was properly served with the default judgment as required under the Foreign Sovereign Immunities Act, 28 USC 97. The US court also expressed concerns as to whether property Delizia sought to attach was precluded from garnishment by the Vienna Convention on Diplomatic Relations.
(2) Delizia’s garnishment proceedings in the Federal Court in Canada (a) Delizia obtains ex parte recognition order [32] Delizia proceeded to institute this garnishment proceeding in the Federal Court. Delizia applied to register the Arbitral Award citing the United Nations Foreign Arbitral Awards Convention Act, RSC 1985, c 16(2nd Supp). It did so by filing an ex parte Notice of Application to register a foreign judgment as defined by Rule 326 of the Federal Courts Rules, SOR/98-106 [the Rules], namely the Arbitral Award. The State of Eritrea was not served with this motion, nor with the Recognition Order. Rule 326 enables parties to enforce garnishment orders against Canadian persons or organizations that have a debt owing or accruing to a judgment creditor.
[33] The materials and pleadings before the Court made no reference to mandatory service of originating court documents on foreign states as required by section 9 of the SIA.
[34] By Order dated July 17, 2013, the Court granted Delizia its requested ex parte registration order [Recognition Order]. The Recognition Order not only recognizes the Arbitration Award for the purposes of enforcement in this Court, but also says that: “[t]he petitioner Delizia Limited is relieved of the requirement pursuant to Rule 334 and is hereby authorized to execute upon the present judgment without filing any proof of service of the present judgment upon the respondent State of Eritrea.” As noted, the Recognition Order was obtained ex parte and without reference to the mandatory service requirements of the SIA.
(b) No service pursuant to the State Immunity Act [35] Delizia did not serve Eritrea with the Recognition Order by the modalities set out in the SIA. The SIA in section 9(2) sets out service requirements:
9 (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.
9 (2) La signification mentionnée à l’alinéa (1)c) peut se faire par remise personnelle ou par envoi recommandé d’une copie de l’acte introductif d’instance au sous-ministre des Affaires étrangères ou à la personne qu’il désigne; le sous-ministre ou cette personne transmet à son tour cette copie à l’État étranger.
[36] Eritrea was not served under the SIA before or after Delizia applied to obtain the Recognition Order. I point this out because, as discussed later, failure to serve Eritrea rendered both the Sunridge POG and FOG nullities.
(3) Delizia obtains ex parte provisional order of garnishment [Sunridge POG] [37] Having obtained the Recognition Order, Delizia next applied, again ex parte, for a provisional order of garnishment directed against Sunridge. The Prothonotary granted the Sunridge POG on July 31, 2013. This POG did two things. First, its garnishment component ordered “that any debts owing or accruing from the garnishee [i.e., Sunridge] to respondent [i.e., Eritrea] be attached to answer the Judgment” i.e., the Recognition Order. Secondly, the show cause component of the Sunridge POG ordered Sunridge to declare all debts owing or accruing by Sunridge to Eritrea, and ordered Sunridge to “show cause” why Sunridge should not pay to Delizia debts owed by Sunridge to Eritrea [“to say to the Court why it should not be paid to the applicant the debt due from it to the respondent or so much thereof as may be sufficient to satisfy the Judgment” i.e., the Recognition Order].
[38] On the same day, the Prothonotary made a provisional order of garnishment in favour of Delizia against Nevsun; these Reasons only deal with Sunridge. The Nevsun matter is dealt with in separate Reasons in the same Court file.
(4) Delizia obtains final order of garnishment [Sunridge FOG] [39] Delizia served Sunridge with the POG sometime before September 2013. Thereafter Delizia, giving notice to Sunridge for the first time, applied to the Prothonotary for a FOG under Rule 449 to garnish debts owing or accruing by Sunridge to Eritrea and or ENAMCo, Eritrea’s alter ego. Sunridge contested this application. Sunridge asked that both the Recognition Order and the Sunridge POG be set aside for non-compliance with the SIA. Sunridge also asked in its show cause filing that the motion for a FOG be dismissed. Affidavits and exhibits were exchanged and cross-examinations conducted. Sunridge’s position was that it did not owe any garnishable debts to Eritrea, and that the AMSCo-issued shares to ENAMCo were neither the property of Sunridge nor a debt subject to garnishment.
[40] The Prothonotary found in favour of Delizia on January 9, 2015. The Prothonotary also found that the exploration licence fees paid by Sunridge and AMSCo to Eritrea were garnishable. However, the Prothonotary agreed with Sunridge that taxes withheld from various service providers were not debts “owing” or “accruing” within the meaning of subparagraph 449(1)(a)(i) of the Rules.
[41] Most significantly, the Prothonotary found the shares issued out of AMSCo’s treasury to ENAMCo after AMSCo’s incorporation could be garnished by Delizia, because the issuance of treasury shares constituted a sale of assets from Sunridge to ENAMCo as Eritrea’s alter ego.
[42] The resulting Sunridge FOG ordered the attachment of all debts owing and accruing by Sunridge to Eritrea, including those from AMSCo to ENAMCo. It ordered Sunridge to answer the Recognition Order. It declared that Sunridge wrongfully failed to hold and to declare the debts owed to Eritrea as of July 17, 2013; and it ordered Sunridge to pay $4,371,618.47 US (to be perfected) for the benefit of Delizia.
[43] The Sunridge FOG also ordered Sunridge to answer certain questions relating to: the name of the bank in Eritrea to process exploration licence renewal cheques, and the method of accounting and classifying for withholding tax payments to Eritrea within the Sunridge financial statements.
[44] Costs were awarded against Sunridge in favour of Delizia.
III. Issues [45] This appeal raises the following issues:
1. What is the standard of review of the Prothonotary’s decision?
2. Should a final order of garnishment issue in this case?
3. Did the Prothonotary err in ordering Sunridge to answer certain questions objected to in cross-examination?
IV. Analysis 1. What is the standard of review of the Prothonotary’s decision? [46] To decide this appeal, the Court first must determine the nature of the appeal and the appropriate standard of review. I agree with Justice Beaudry who, citing well-established jurisprudence, held that where a prothonotary’s decision is determinative of the outcome, that is, if the order is vital to the final issue of the case, or is clearly wrong, the Court must review the decision de novo:
31. The principles that apply when deciding an appeal from a prothonotary’s order were laid down in Canada v Aqua-Gem Investments Ltd [1993] 2 FC 425 [Aqua-Gem], and restated in Merck & Co Inc v Apotex Inc, 2003 FCA 488 [Merck & Co]. The criteria are set out at paragraph 19 of Merck & Co, where Justice Décary, writing on behalf of the Federal Court of Appeal, states as follows: . . . Discretionary orders of prothonotaries ought not be disturbed on appeal to a judge unless: (a) the questions raised in the motion are vital to the final issue of the case, or (b) the orders are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts. …
36. … The Court must therefore conduct an analysis de novo.
[emphasis added]
London Life, Compagnie d’assurance-vie (Re), 2013 CF 93 [London Life] at paras 31 and 36 (upheld at the FCA in London Life Insurance Company v Canada, 2014 FCA 106).
[47] Justice Beaudry in Corporation Steckmar, Re, 2004 FC 1568 [Steckmar] subsequently explained, also in a final order of garnishment case (under the Income Tax Act):
16 In Merck & Co. v. Apotex Inc., [2003] F.C.J. No. 1925 (F.C.A.), at paragraph 19, the Court explained the standard of review applicable to discretionary orders by prothonotaries. This standard had previously been developed in R. v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (Fed. C.A.).
17 It has been held that a judge hearing an appeal from a prothonotary's discretionary order should not intervene except in the following two cases:
(a) the order deals with a question vital to the final issue of the principal matter;
(b) the order is clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or a misapprehension of the facts.
18 The effect of the prothonotary’s order was that the garnishee was directed to pay the sum of $126,666.39. That surely is a question which is vital to the final issue of the principal matter. The Court must redo the analysis de novo in order to exercise its discretion.
[emphasis added]
[48] The appeal at hand deals with a matter vital to the final issue of the principal matter in the case. Indeed the FOG is the only issue in this matter. I therefore conclude this Court must redo the analysis and determine on its own if there are debts owing or accruing by Sunridge to Eritrea and or ENAMCo and decide if a final order of garnishment should issue. I will also consider findings made by the Prothonotary.
[49] Different principles apply to the appeal concerning the production orders which I will deal with later.
2. Did the Prothonotary err in granting the final order of garnishment in this case? (1) There is no debt owing by Sunridge to either Eritrea or ENAMCo; unless the corporate veil is pierced, there is nothing to attach [50] First, it is clear that Delizia may only succeed if it establishes there is a debt owing or accruing by Sunridge as the proposed garnishee, to Eritrea as judgment debtor and or to ENAMCo as Eritrea’s alter ego: see Rule 449. For completeness, I set out the garnishment rule in its entirety, but see in particular subparagraph 449(1)(a)(i) and (ii):
Garnishment
Saisie-arrêt
449 (1) Subject to rules 452 and 456, on the ex parte motion of a judgment creditor, the Court may order
449 (1) Sous réserve des règles 452 et 456, la Cour peut, sur requête ex parte du créancier judiciaire, ordonner :
(a) that
a) que toutes les créances suivantes du débiteur judiciaire dont un tiers lui est redevable soient saisies-arrêtées pour le paiement de la dette constatée par le jugement :
(i) a debt owing or accruing from a person in Canada to a judgment debtor, or
(i) les créances échues ou à échoir dont est redevable un tiers se trouvant au Canada,
(ii) a debt owing or accruing from a person outside Canada to a judgment debtor, where the debt is one for which the person might be sued in Canada by the judgment debtor,
be attached to answer the judgment debt; and
(ii) les créances échues ou à échoir dont est redevable un tiers ne se trouvant pas au Canada et à l’égard desquelles le débiteur judiciaire pourrait intenter une poursuite au Canada;
(b) that the person attend, at a specified time and place, to show cause why the person should not pay to the judgment creditor the debt or any lesser amount sufficient to satisfy the judgment.
b) que le tiers se présente, aux date, heure et lieu précisés, pour faire valoir les raisons pour lesquelles il ne devrait pas payer au créancier judiciaire la dette dont il est redevable au débiteur judiciaire ou la partie de celle-ci requise pour l’exécution du jugement.
Marginal note: Service of show cause order
Note marginale: Signification
(2) An order to show cause made under subsection (1) shall be served, at least seven days before the time appointed for showing cause,
(2) L’ordonnance rendue en vertu du paragraphe (1) est signifiée, au moins sept jours avant la date fixée pour la comparution du tiers saisi :
(a) on the garnishee personally; and
a) au tiers saisi, par signification à personne;
(b) unless the Court directs otherwise, on the judgment debtor.
b) au débiteur judiciaire, sauf directives contraires de la Cour.
Marginal note: Debts bound as of time of service
Note marginale: Prise d’effet de l’ordonnance
(3) Subject to rule 452, an order under subsection (1) binds the debts attached as of the time of service of the order.
[emphasis added]
(3) Sous réserve de la règle 452, l’ordonnance rendue en vertu du paragraphe (1) grève les créances saisies-arrêtées à compter du moment de sa signification.
[soulignement ajouté]
[51] The Rules require some basis on which to ground a finding that a debt is owing or accruing by Sunridge as garnishee to the judgment debtor Eritrea or to ENAMCo: Champlain Company Limited v The Queen, [1976] 2 FC 481 (FCA).There are no debts owing or accruing by Sunridge to ENAMCo. Except for the exploration licence fees arising before the incorporation of AMSCo, there is no evidence of any debt owing or accruing by Sunridge to Eritrea.
[52] I reach this conclusion for two reasons. First, although the exploitation of the Asmara mining project may yield dividends or profits in the future which may then flow from AMSCo to ENAMCo or Eritrea, Delizia is not in law entitled to attach such payments unless this Court pierces the corporate veil that presumptively exists between Sunridge and AMSCo. I am unable to do so here. Secondly, and in any event, the Recognition Order and subsequent Sunridge POG and FOG are nullities because the mandatory service requirements of the SIA were not complied with in this case. These conclusions require me to allow this appeal and set aside the Sunridge POG and FOG.
[53] However, before considering the issue of piercing the corporate veil and the service requirements of the SIA, I wish to deal with the special case of the exploration licence fees and withholding taxes.
(2) The special case of the licence fees (and taxes): not garnishable [54] It is important to distinguish between debts owed by Sunridge and debts owed by AMSCo to the State of Eritrea. Debts owed by Sunridge to the State of Eritrea only arose or accrued before the incorporation of AMSCo in 2014. The only such debts identified are the exploration licence fees and certain withholding taxes, which in both cases were obligations of Sunridge to the State of Eritrea through its branch office i.e., obligations of Sunridge directly to Eritrea. These are a special case, because there is no issue of piercing the corporate veil when dealing with debts owing or accruing by Sunridge’s branch office to Eritera.
[55] Insofar as the exploration licence fees are concerned, the SIA governs. The issue is whether these payments are related to “commercial activity”. If they are, they may be attached; if not they are immune from execution. In this connection, the starting point is the legislation. Generally, a foreign state is immune from the jurisdiction of any court in Canada; see section 2 which defines commercial activity, and subsection 3(1), which provides the general rule of state immunity of the SIA:
2 In this Act,
2 Les définitions qui suivent s’appliquent à la présente loi.
…
commercial activity means any particular transaction, act or conduct or any regular course of conduct that by reason of its nature is of a commercial character
activité commerciale Toute poursuite normale d’une activité ainsi que tout acte isolé qui revêtent un caractère commercial de par leur nature. (commercial activity)
…
…
State immunity
Immunité de juridiction
3 (1) Except as provided by this Act, a foreign state is immune from the jurisdiction of any court in Canada.
[emphasis added]
3 (1) Sauf exceptions prévues dans la présente loi, l’État étranger bénéficie de l’immunité de juridiction devant tout tribunal au Canada.
[soulignement ajouté]
[56] However, the SIA in section 5 removes immunity in any proceedings that relate to any commercial activity of the foreign state:
Commercial activity
Activité commerciale
5 A foreign state is not immune from the jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.
[emphasis added]
5 L’État étranger ne bénéficie pas de l’immunité de juridiction dans les actions qui portent sur ses activités commerciales.
[soulignement ajouté]
[57] Subsection 12(1)(b) reinforces the above and exempts property of a foreign state located in Canada from attachment or execution where the property is used or is intended to be used for a commercial activity:
Execution
Exécution des jugements
12 (1) Subject to subsections (2) and (3), property of a foreign state that is located in Canada is immune from attachment and execution and, in the case of an action in rem, from arrest, detention, seizure and forfeiture except where
12 (1) Sous réserve des paragraphes (2) et (3), les biens de l’État étranger situés au Canada sont insaisissables et ne peuvent, dans le cadre d’une action réelle, faire l’objet de saisie, rétention, mise sous séquestre ou confiscation, sauf dans les cas suivants :
…
…
(b) the property is used or is intended to be used for a commercial activity or, if the foreign state is set out on the list referred to in subsection 6.1(2), is used or is intended to be used by it to support terrorism or engage in terrorist activity [.].
b) les biens sont utilisés ou destinés à être utilisés soit dans le cadre d’une activité commerciale, soit par l’État pour soutenir le terrorisme ou pour se livrer à une activité terroriste si celui-ci est inscrit sur la liste visée au paragraphe 6.1(2) [.].
[58] The SIA establishes a presumptive immunity for foreign states from the jurisdiction of Canadian courts, including immunity from execution. This principle is summarized by the Supreme Court of Canada in Kuwait Airways Corp v Iraq, 2010 SCC 40 [Kuwait Airways] at para 19:
To the extent that a foreign state is found to be entitled to immunity under this Act, the Canadian court simply does not have jurisdiction to consider an application against that state, including an application for recognition and enforcement of a foreign decision. It is only in the case of an exception to the general principle of immunity that the court may rule on the merits of an application against a foreign state.
[59] To determine whether the “commercial activity” exception under the SIA is available, a court must look at the nature of the particular act and the underlying context. In assessing the nature of the activity, courts in the US and the UK have analysed whether the state is acting “in the manner of a private player” within the market. Canadian courts have referenced this approach in their analysis but will also consider the entire context of the circumstances at issue: Kuwait Airways at paras 29-31; Re Canada Labour Code, [1992] 2 SCR 50.
[60] I also accept that the SIA is a codification of the law on state immunity. Again, to quote the Supreme Court of Canada, this time from Kazemi Estate v Islamic Republic of Iran, 2014 SCC 62 at para 42:
In Canada, state immunity from civil suits is codified in the SIA. The purposes of the Act largely mirror the purpose of the doctrine in international law: the upholding of sovereign equality. The “cornerstone” of the Act is found in s. 3 which confirms that foreign states are immune from the jurisdiction of our domestic courts “except as provided by th[e] Act.”
[61] In this connection it is useful to review what the Supreme Court of Canada said in Kuwait Airways:
[28] Both in the United Kingdom and in the United States, state immunity seems to be limited in the modern case law to true sovereign acts, with the exceptions being used to confirm an interpretation that corresponds to the restrictive theory of state immunity that has been developed in public international law.
[29] In the United Kingdom, the courts ask whether the act in question could be performed by a private individual. Lord Goff of Chieveley recommended the use of this test in one of the decisions related to the litigation between KAC and IAC on which the instant case is based. Relying on an earlier opinion of Lord Wilberforce in I Congreso del Partido, [1983] A.C. 244, at pp. 262, 267 and 269, he found that the proper test would be not what the state’s objective is in performing the act, but whether the act could be performed by a private citizen (Kuwait Airways Corp. v. Iraqi Airways Co., [1995] 3 All E.R. 694, at pp. 704‑5). In the United States, the Supreme Court described the sovereign acts protected by state immunity as those performed in the exercise of the powers peculiar to sovereigns:
Under the restrictive, as opposed to the “absolute,” theory of foreign sovereign immunity, a state is immune from the jurisdiction of foreign courts as to its sovereign or public acts (jure imperii), but not as to those that are private or commercial in character (jure gestionis). . . . We explained in Weltover, supra, at 614 (quoting Dunhill, supra, at 704), that a state engages in commercial activity under the restrictive theory where it exercises “‘only those powers that can also be exercised by private citizens,’” as distinct from those “‘powers peculiar to sovereigns.’” Put differently, a foreign state engages in commercial activity for purposes of the restrictive theory only where it acts “in the manner of a private player within” the market. (Saudi Arabia v. Nelson, 507 U.S. 349 (1993), at pp. 359‑60).
[30] Thus, in both U.S. and English law, the characterization of acts for purposes of the application of state immunity is based on an analysis that focusses on their nature. It is therefore not sufficient to ask whether the act in question was the result of a state decision and whether it was performed to protect a state interest or attain a public policy objective. If that were the case, all acts of a state or even of a state‑controlled organization would be considered sovereign acts. This would be inconsistent with the restrictive theory of state immunity in contemporary public international law and would have the effect of eviscerating the exceptions applicable to acts of private management, such as the commercial activity exception.
[31] In Canadian law, La Forest J. recommended in Re Canada Labour Code that this analytical approach be adopted to resolve the issues related to the application of the SIA. But he also made it clear that the Canadian commercial activity exception requires a court to consider the entire context, which includes not only the nature of the act, but also its purpose:
It seems to me that a contextual approach is the only reasonable basis of applying the doctrine of restrictive immunity. The alternative is to attempt the impossible — an antiseptic distillation of a “once‑and‑for‑all” characterization of the activity in question, entirely divorced from its purpose. It is true that purpose should not predominate, as this approach would convert virtually every act by commercial agents of the state into an act jure imperii. However, the converse is also true. Rigid adherence to the “nature” of an act to the exclusion of purpose would render innumerable government activities jure gestionis. [p. 73]
[62] Applying these principles, I conclude that exploration licence fees are not properly categorized as payments related to “commercial activity”. Instead, their nature and purposes are quintessentially the imposition of regulatory obligations imposed by a sovereign state on those who carry on business within the reach of that sovereign state, here Eritrea. In imposing such obligations, the State of Eritrea was not acting “in the manner of a private player” within the market. It is acting as only a sovereign may act in regulating activities on the territory it controls and doing so through the issuance of permits entailing both government control of private conduct. Primarily and in particular, Eritrea imposes a licence requirement for the purpose of asserting national control over businesses in general and over mining activities in particular where they are carried out within its territory. The licence fees are but a part of the manner in which that state control is asserted but are in my view inextricably bound up with the licences themselves. While small in quantum, such fees also raise taxes for use by the national government.
[63] These licence fees therefore serve the legitimate important and commonplace purpose of allowing in this case, the State of Eritrea to exert sovereign control over mining assets and mining activity within its territory. These payments lack the nature and purpose and legal quality required of “commercial activity” such as to be the subject of a final order of garnishment. They are therefore exempt from seizure by virtue of subsection 12(1) of the SIA, and are not covered by the exclusions for “commercial activity”.
[64] I need not discuss the withholding taxes because no appeal was taken from the Prothonotary’s refusal to allow them to be garnished.
[65] From the foregoing I conclude that the sums owed by Sunridge’s branch office to Eritrea before AMSCo was incorporated are not subject to garnishment.
[66] I also conclude that exploration licence fees owed by AMSCo to Eritrea arising after AMSCo was incorporated are not garnishable, and do so for two reasons. First, the licence fees are not related to “commercial activity” as just discussed. In addition, even if they were, they could not be garnished because the corporate veil may not be pierced between AMSCo and Eritrea as discussed below.
(3) Are the shares issued by AMSCo to ENAMCo garnishable? [67] This is a central issue in this appeal. The starting point of this analysis is the fact that the shares were issued after AMSCo’s incorporation. Before AMSCo’s incorporation, no shares could be issued because no company was in existence to issue shares. It is trite that only a company may issue company shares.
[68] There were no debts owing by Sunridge to either Eritrea or ENAMCo after AMSCo was incorporated. Therefore, the only manner by which Delizia may succeed in attaching the issuance of shares of AMSCo to ENAMCo is for this Court to pierce the corporate veil that presumptively exists between Sunridge and AMSCo. However, t