ICC Commercial Crime Service

Foreign States Now Liable in Canada for Terrorism and Improper Commercial Conduct

As the boundaries between state action and commercial markets continue to blur, Canadian statutes and courts are keeping with the times. Recently, in Tracy v. Iran, the Ontario Superior Court issued a ground breaking decision ordering that Iran’s non-diplomatic assets located within Canada be paid to victims of terrorist groups sponsored by the Iranian government. The decision marks the first time that payment has been ordered under Canada’s Justice for Victims of Terrorism Act (JVTA), implemented in 2012.

Justice for Victims of Terrorism Act

The JVTA allows victims of terrorism to sue the perpetrators and supporters of terrorism. Such supporters can include foreign states, provided that the Canadian government has formally listed the state as a supporter of terrorism. This provision of the JVTA provides an exception to Canada’s State Immunity Act, which provides that “a foreign state is immune from the jurisdiction of any court in Canada.” Until the JVTA, the immunity provided by the State Immunity Act covered all formal state actions, including the sponsoring of terrorism.

Soon after the JVTA was passed, Canada placed Iran on its list of state sponsors of terrorism. The Canadian embassy in Tehran was closed and Canada expelled all Iranian diplomats in Canada. The listing also opened the door for claims against Iran in Canada pursuant to the JVTA.

Applying the JVTA

So, just months after the passage of the JVTA, various actions were commenced in Canada by victims of Hamas and Hezbollah terrorist acts or their families, who had been previously awarded damages against Iran by various U.S. courts. The decisions of the U.S. courts – some of which dated back to 2000 and which collectively had awarded millions of dollars in damages – found that Iran had provided persistent support to Hamas and Hezbollah. Issues arose, however, when attempts were made to satisfy the U.S. damages awards by seizing Iranian assets in the U.S.

While the various claimants brought separate actions in Canada seeking to enforce their U.S. judgments and recover against Iran’s non-diplomatic assets in Canada, the actions were ultimately heard together by Ontario’s Superior Court in Tracy. Only such non-diplomatic assets were available for recovery in accordance with the Vienna Convention on Diplomatic Relations and International Law. Iran’s available Canadian assets had an estimated value of $7 million to $8 million and included certain non-diplomatic properties and the contents of various bank accounts.

‘An Unprecedented Victory’ for Victims of Terrorism

When the Ontario Superior Court found in favour of the Tracy claimants on June 9, it ordered that Iran’s non-diplomatic assets be handed over to the claimants, effectively holding Iran financially responsible for the actions of terrorist groups it had sponsored. All of Iran’s arguments – which focused on procedural and legal technicalities – were dismissed, with the Court noting that Iran was “attempting to gain a procedural advantage” and was “gaming the system.” The Tracy decision marks an unprecedented victory for the claimants and opens the door for similar actions in Canada going forward.

‘No Immunity’ for Foreign State Commercial Misconduct

The Court’s decision in Tracy also confirms that the JVTA brings liability for state-sponsored terrorism in line with the Canadian approach to commercial actions seeking compensation for foreign state misconduct. Canada’s State Immunity Act provides an express carve-out from the immunity typically enjoyed by foreign states when it comes to commercial activity: “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.”

While Canadian legal rules regarding jurisdiction and forum remain in play, the above-referenced exception to state immunity for improper commercial activity makes possible Canadian claims directly against foreign states under various circumstances. Foreign court and arbitral awards will also generally be enforced by Canadian courts, provided the Canadian assets against which enforcement is sought are non-diplomatic in nature. With respect to increasingly common foreign arbitral awards, Canadian provinces have adopted the United Nations’ Model Law on International Commercial Arbitration. As a result, under most circumstances, foreign arbitral awards, irrespective of the country in which they were handed down, are recognized as binding and are enforced in Canada.

Testing State Immunity in Commercial Misconduct

The outer limits of the commercial exception to foreign state immunity in Canada are being actively tested before the Ontario Superior Court. In August, the Court will hear arguments in three separate actions, all of which seek to enforce foreign arbitral awards against the Kyrgyz Republic. At issue in these cases is whether the claimants may enforce their arbitral awards against the Republic by seizing certain shares of Centerra Gold Inc., a publicly-traded Canadian mining company whose shares are traded on the Toronto Stock Exchange. The shares in question are nominally held by Kyrgyzaltyn JSC, an enterprise wholly-owned by the Republic. The Superior Court will decide whether the Centerra shares technically held by Kyrgyzaltyn can be treated as owned by the Republic and part of the Republic’s commercial activity, such that the claimants can enforce their foreign arbitral awards against those shares. The Court’s decision is expected to have important implications for the limits of foreign state immunity for commercial activity in Canada.

Recovering Foreign State Assets in Canada

Recent and upcoming decisions by Canadian courts will continue to define the boundaries of the recovery options open to Canadian and international citizens, as well as commercial interests, with claims against foreign states. International actors are well-advised to consider whether foreign state assets for compensating claims may be located in Canada and to seek guidance on their options for recovering those assets as compensation for foreign state misconduct.

Lincoln Caylor of Bennett Jones is recognized as a “leading counsel and commentator in the asset recovery field,” by Chambers Canada 2016, and is listed as a Most Highly Regarded Individual in North America by Who’s Who Legal: Asset Recovery 2015. The sole Toronto member of ICC FraudNet, he is internationally recognized for leading state-of-the-art asset tracing investigations and pursuing asset recovery litigation and enforcement actions in prominent, high-value international financial frauds and other economic crimes

The author would like to thank his colleague Nathan Shaheen, of Bennett Jones for coauthoring this article.





ICC FraudNet is an international network of independent lawyers who are leading civil asset recovery specialists in each country. Recognized by Chambers Global as the world’s leading asset recovery legal network, our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit.