Although sanctions laws touch every facet of business, there is little guidance from Canadian regulators concerning the interpretation of legislation that is broadly and vaguely worded. Consequently, it is worthy to note a recent decision, Angophora Holdings Limited v Ovsyankin, 2022 ABKB 711. There, the Alberta Court of King’s Bench (the “Court”) provided guidance on the Special Economic Measures (Russia) Regulations (the “Russia Sanctions”) and the prohibition in section 3 on persons in Canada and Canadians outside Canada from dealing in any property “owned, held or controlled by or on behalf of” a sanctioned person (“dealings prohibition”).

At issue was whether the enforcement of a Recognition and Enforcement Order (“REO”) would violate this dealings prohibition by liquidating assets and paying out the proceeds to Angophora Holdings Limited (“Angophora”), a corporation whose joint venture parent is 50% owned by Gazprombank, a Russian bank sanctioned by Canada.

We summarize key details from the case and discuss the implications below.

Background

In 2012, Retemmy Finance Ltd. (“Retemmy”) entered into a share purchase agreement and shareholders agreement with Angophora regarding their joint ownership of Grooks Global Limited and its subsidiaries in Russia (collectively “Grooks”). Retemmy’s owner, Andrei Ovsyankin (“Ovsyankin”), personally guaranteed Retemmy’s obligations under the shareholders agreement.

In 2018, Angophora commenced arbitration in London, alleging that Ovsyankin had engaged in corporate wrongdoing that reduced the value of Grooks. In December 2020, Angophora was granted an arbitral award and in September 2021, Angophora was granted the REO in Alberta, where Ovsyankin owned property. Ovsyankin’s application to review the arbitral award in the UK was denied, as was leave to appeal. An application to stay the REO was refused.

Ovsyankin then attempted to stay enforcement of the REO by arguing that the liquidation of his assets and paying the proceeds to Angophora would breach the Russia Sanctions. For his application to succeed, Ovsyankin needed to meet the three-part test for injunctive relief established in RJR-MacDonald Inc. v Canada (Attorney General), 1994 1 SCR 311, including that enforcement of the REO would likely offend the Russia Sanctions.

The Decision

Angophora submitted that it did not own or hold the seized property and therefore the Russia Sanctions did not apply. However, the Court noted that control of the seized property rests with Angophora under its REO, subject to the rules in Alberta’s Civil Enforcement Act. Further, in seeking enforcement in Alberta, the Court held that Angophora is “a person in Canada” and was therefore subject to the prohibitions.

The Russia Sanctions do not provide a definition of control. The Court noted that control is a question of fact and concluded that there was a strong prima facie case that Angophora was controlled by or acting on behalf of Gazprombank:

  • Gazprombank advised Angophora in relation to the share purchase agreement to acquire Grooks, the shareholders agreement, and the accompanying guarantee;
  • Grooks’ four subsidiaries in Russia are primarily overseen by Gazprombank advisors;
  • A former Chief Financial Controller of one of Grooks’ subsidiaries was previously an employee of Gazprombank, yet continued to take directions from and reported to Gazprombank, including resigning at the request of and returning to work at Gazprombank;
  • Gazprombank supported Angophora’s application to seek the REO in Alberta and to oppose a stay sought by Ovsyankin; and
  • Angophora’s only witnesses at the arbitration hearing were employees of Gazprombank.

Because Angophora was 50% owned by Gazprombank, the Court also noted that the corporate structure of Angophora would meet the US definition of control, whereby if a sanctioned entity owns 50% or more of another entity, the other entity is also “blocked” (i.e., sanctioned).

Yet the Court found that Ovsyankin did not meet all the conditions for injunctive relief, dismissed the application and concluded that it would not be a breach of the dealings prohibition to liquidate the assets under the REO. The REO was granted before Gazprombank was sanctioned and proceedings under the REO were pursued in good faith.

However, the Court cautioned that before distributing the proceeds, persons in Canada may wish to be satisfied that this would not breach section 5 of the Russia Sanctions, which prohibits persons in Canada from facilitating activities covered under the dealings prohibition.

Implications

This decision highlights factors that courts may consider when assessing control. It likewise reaffirms that the dealings prohibition and the facilitating prohibitions are broad. The Court also confirmed that sanctions laws apply to corporate structures having a sanctioned person, including those with a non-sanctioned joint venture partner, to prevent sanctioned persons from indirectly evading the sanctions.

However, the decision also raises questions. For instance, the Court also concluded that Angophora is "acting on behalf of" Gazprombank without explaining why this is the case. This separate wording in the sanctions law indicates that it is not the same as control. This issue is critical where a company may have sanctioned minority shareholders.

Finally, as Gazprombank controls Angophora who controls the property under the REO, questions remain as to how the Court determined that this property can be liquidated for Angophora without offending the Russia Sanctions but the distribution of the proceeds may cause concern.

Conclusion

In light of the decision, companies must carefully consider “control” against the broad scope of sanctions laws. When considering whether to transact with an entity, it is critical to look throughout the entire corporate chain to determine whether a sanctioned person exercises control, directly or indirectly. This requires a nuanced interpretation in light of the circumstances.

Parties involved in debt enforcement or in claims for damages need to be aware that Courts, in adjudicating such actions, may carefully scrutinize applicable sanctions laws to determine whether or how such laws may be used as a shield against these claims or in any distribution of the proceeds.