T-123-00

2003 FCT 763

Roxford Enterprises S.A. (Plaintiff)

v.

The Government of the Republic of Cuba, The Ministry of Fishing Industry and Merchant Marine (Ministerio de la Industria Pesquera y Marina Mercante), The Ministry of Transport, Empresa Navegacion Mambisa and Naviera Poseidon, O.E.E. (Defendants (In Personam))

and

The Owners and all others interested in the vessels M/V Calix, M/V Ajana (ex Caribbean Queen), M/V Gabyana (ex Caribbean Princess), M/V Avon, M/V Lotus Islands, M/V Lilac Islands, M/V Agathe Island, M/V West Islands, M/V Odelys (ex Rose Islands), M/V South Islands, M/V East Islands, M/V Tephys, M/VRio Yateras, M/V Anacoana, M/V Guarionex, M/V Dajquiri, M/V Cajio, M/V Minas Del Frio, M/V Gran Piedra and M/V Magnolia Reefer (Defendants (In Rem))

and

National Bank of Cuba, International Air Transport Association, Cubana Tours, A. Nash Travel Inc. (Garnishees)

and

Cubana De Aviacion S.A. (Moving Party)

Indexed as: Roxford Enterprises S.A. v. Cuba (T.D.)

Trial Division, Lafrenière P.--Montréal, December 20, 2001; Toronto, June 19, 2003.

International Law -- Cuba sued for breach of contract for sale of ship -- Default judgment granted -- Unsatisfied judgment -- Plaintiff moving ex parte for seizure, sale of assets of Cubana (Cuban airline) in satisfaction of judgment debt -- Affidavit stating Cubana "organ of Cuba" -- Order granted -- Cubana moving to quash order -- Facts not brought to Court's attention when ex parte order sought -- Outdated version of Cuban Constitution relied on -- Whether Cubana mere reincarnation of predecessor, state-owned airline -- Argued that Cubana state instrumentality in disguise -- Whether transfer of assets to Cubana unconstitutional -- Court having jurisdiction to decide whether Cubana liable for Cuban debts -- Piercing of corporate veil -- Parties relying on case law on sovereign immunity -- Usual question: can state entity claim benefit of sovereign immunity -- Question here unique in Canadian case law: can alleged state entity be liable for state's judgment debt -- American case law resorted to -- Presumption duly created instrumentality of foreign state has independent status -- Presumption not lightly overcome -- Presumption not dislodged by plaintiff herein -- Cubana's employees not civil servants, board having usual powers of corporate board of directors -- While some facts inconsistent with Cubana having independent status, facts to be viewed from perspective of communist regime -- Cubana granted right of usufructo in bona fide surrender of possessory rights -- Cubana not alter ego of Cuba as no compelling evidence of de facto or de jure assimilation -- Previous order set aside.

Practice -- Judgments and Orders -- Enforcement -- Federal Court Rules, 1998, rule 399 motion to set aside ex parte order to show cause with respect to debts owed by garnishees, writ of seizure and sale -- Default judgment against Cuba for breach of contract for sale of ship -- Whether F.C.T.D. having jurisdiction to order third party held liable for Cuban debts -- Whether proper to decide matter in summary procedure, on affidavit evidence -- F.C.A. having held court within jurisdiction to order debtor's property garnished must have power to rule on third parties' ownership claims -- Court has broad jurisdiction over judgment enforcement including whether corporate veil to be pierced.

The plaintiff, Roxford Enterprises S.A., secured a default judgment against defendant, Government of Cuba (Cuba), and Cubana de Aviacion S.A. here moved, under Federal Court Rules, 1998, rule 399, to set aside an order to show cause with respect to debts owed to it by certain garnishees and a writ of seizure and sale of Cubana's assets which had been issued ex parte to satisfy the judgment against Cuba. Cubana asserted that the plaintiff misled the Court by providing outdated information that Cubana was under Government ownership and control and that it could not own property due to constitutional limitations. Its submission was that plaintiff had put before the Court a version of the Cuban Constitution which had been amended years ago. Amendments adopted in 1992 allowed for property ownership by separate enterprises. Cubana submitted that it is not an arm of the Cuban government, but a separate entity entitled to carry on business in Quebec. It is not an "alter ego" of the Cuban government and not liable for its debts. The plaintiff's argument was that Cubana is nothing more than a "sham" so that the corporate veil ought to be pierced. Three issues had to be determined: (1) whether the order should be reviewed? (2) whether the Court had jurisdiction to order that Cubana, a third party, is liable for the debts of Cuba?; and (3) whether the order of seizure and sale against Cubana should be set aside?

The plaintiff had sued Cuba and others for breach of a contract for the sale of the M/V Calix. Cuba failed to defend the action, so default judgment was obtained. Cubana was not a party to that proceeding. The judgment remains unsatisfied. Plaintiff applied ex parte for the seizure and sale of Cubana's assets, relying on an affidavit to the effect that Cubana was an "organ of Cuba" and, acting upon this uncontradicted evidence, this Court ordered that Cubana's assets be seized and sold and that there be garnishment of amounts owing to Cubana. Upon this motion, plaintiff admitted having relied upon an outdated version of the Cuban Constitution. Cubana denied that it is a mere reincarnation of it's predecessor, the state-owned airline Empressa Consolidata Cubana de Aviacion, which no longer exists. Cubana claimed to be a separate entity under Cuban law, operating independently of the Government and doing business in competition with other carriers. By way of contradiction, the plaintiff put forward the legal opinion of a Cuban native, now practicing law in the U.S.A., that Cubana is indeed an instrument of the state disguised as a private enterprise. In the attorney's affidavit it was noted that the President of the principal shareholder of Cubana, CAC, was a high level officer in the Cuban armed forces and a member of the Council of Ministers, which runs the country. That President and another incorporated Cubana, but the transfer of assets of the state-owned airline by CAC to Cubana contravened the Cuban Constitution since the 1992 constitutional amendments reaffirmed that socialist state property, including the chief means of transportation, remain under state ownership and control. As Cuba's national flag airline and the island's principal carrier, Cubana certainly qualified as a "chief means of transportation".

Held, the motion should be granted.

(1) The affidavits furnished upon this motion by Cubana cast a different light on the untested evidence adduced by the plaintiff at its ex parte motion. The Court which has granted an ex parte order does possess jurisdiction to set it aside where, as here, the party seeking such relief discharges the burden of establishing a prima facie case why the order ought not to have been made.

(2) Cubana's submission was that the Court lacked jurisdiction to determine that it was liable for Cuba's debts. Furthermore, it was inappropriate that these issues be dealt with by way of affidavit evidence at a summary proceeding. That argument has, however, been rejected by the Federal Court of Appeal which stated: a "court which has the jurisdiction to order that the property of a debtor be garnished must necessarily have that of ruling on any objections put forward by third parties claiming to own the garnished property". In a recent case, that Court also held that, in dealing with judgment enforcement issues, the Court has a broad jurisdiction to decide whether the corporate veil should be pierced.

(3) Both sides cited case law on the scope of sovereign immunity but the issue in the case at bar was a narrow one: were Cubana's assets liable to seizure for a debt owed by Cuba in respect of litigation unrelated to its affairs? The question is usually whether a state entity can assert sovereign immunity, but the question here was whether an alleged state entity was liable upon a judgment against the state. As there was no Canadian case law on this point the Court therefore looked to a decision of the United States Supreme Court to the effect that a duly created instrumentality of a foreign state should be presumed to possess independent status unless so extensively controlled as to create a principal and agent relationship, in which case one may be held liable for the other's actions. There is also American authority for the proposition that the presumption of independent status is not to be lightly overcome. Even 100% ownership of an airline by the state of Argentina was held insufficient to overcome the presumption. Under American statute law, execution against the property of one instrumentality to satisfy a judgment against another is not permitted.

The plaintiff failed to dislodge the presumption that Cubana is a separate juridical entity. The facts did not support the conclusion that Cubana was controlled or owned by Cuba. Cubana hires its own employees; they are not civil servants. Its board has all of the usual powers of a corporate board of directors. Although some of the facts were inconsistent with independent status, these were to be viewed from the perspective of a communist regime. While Cuba may indeed be the ultimate owner, the right of usufructo granted to Cubana appeared to constitute a bona fide surrender by CAC of its possessory rights. Under civil law, the right to enjoy a thing, the property in which is vested in another, and to draw from the same all the profit, utility, and advantage which it may produce, is well recognized. The evidence fell short of demonstrating that Cuba exerts a controlling influence over Cubana. It was noteworthy that Cubana's affiants were not cross-examined upon their affidavits. There was compelling evidence of neither a de facto nor de jure assimilation to Cuba of Cubana. The plaintiff failed to establish, on a balance of probabilities, that Cubana was the alter ego or agent of Cuba.

statutes and regulations judicially

considered

Constitution of the Republic of Cuba, 1992, Arts. 15, 17.

European Convention on State Immunity and Additional Protocol, 16 May 1972, Eur. T.S. 74.

Federal Court Rules, 1998, SOR/98-106, r. 399.

Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1602 (1994).

State Immunity Act, R.S.C., 1985, c. S-18.

State Immunity Act 1978 (U.K.), 1978, c. 33.

cases judicially considered

applied:

Nedship Bank N.V. v. Zoodotis (The), [1999] F.C.J. No. 581 (T.D.) (QL); Bois de Construction du Nord (1971) Ltée v. Charles Guilbault Inc., [1987] 1 C.T.C. 333 (Eng.); [1986] 2 C.T.C. 227 (Fr.); (1986), 77 N.R. 392 (F.C.A.); Canada (Minister of National Revenue) v. Gadbois, [2003] 1 C.T.C. 353; 2003 DTC 5456; (2002), 298 N.R. 374 (F.C.A.); First Nat.City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611 (1983); Hercaire Intern., Inc. v. Argentina, 821 F.2d 559 (11th Cir. 1987).

referred to:

May and Baker (Canada) Ltd. v. The Oak, [1979] 1 F.C. 401; (1978), 89 D.L.R. (3d) 692; 22 N.R. 214 (C.A.); Becker v. Noel and another, [1971] 2 All E.R. 1248 (C.A.).

authors cited

Brownlie, Ian. Principles of Public International Law, 5th ed. Oxford: Clarendon Press, 1998.

Enclyclopedia of Public International Law, Vol. IV. Amsterdam: North-Holland, 2000.

MOTION under Federal Court Rules, 1998, rule 399 to set aside an ex parte order to show cause with respect to debts owed by garnishees and a writ of seizure and sale. Motion granted.

appearances:

George J. Pollack for plaintiff.

Aaron G. Rodgers for moving party.

Philippe Tremblay for garnishee National Bank of Cuba.

solicitors of record:

Sproule & Pollack, Montréal, for plaintiff.

Spiegel Sohmer, Montréal, for moving party.

Heenan Blaikie LLP, Montréal, for garnishee National Bank of Cuba.

The following are the reasons for order rendered in English by

[1]Lafrenière P.: Cubana de Aviacion S.A. (Cubana) moves pursuant to rule 399 of the Federal Court Rules, 1998 [SOR/98-106] to set aside an order to show cause on debts owed by certain garnishees to Cubana and a writ of seizure and sale of the assets of Cubana, issued ex parte on August 27, 2001, to satisfy a judgment obtained by default against the Government of Cuba (Cuba) by the plaintiff, Roxford Enterprises S.A. (Roxford).

[2]Cubana claims that Roxford misled the Court into issuing the attachment order by providing inaccurate or outdated information showing that Cubana was owned and controlled by the Government of Cuba and, further, that Cubana could not own property because of constitutional limitations. Cubana submits that Roxford's evidence concerning the Cuban Constitution [Constitution of the Republic of Cuba] was inaccurate because the version cited had been amended years earlier. In the older version of the Constitution, the socialist state asserted control of most property in Cuba. However, significant amendments to the Constitution were adopted in 1992, particularly Articles 15 and 17, which now permit property ownership by separate enterprises.

[3]Cubana maintains that it is not an arm of the Cuban government, but a separate entity with a separate juridical personality. It is entitled to carry on business in the province of Quebec, has issued shares that are held by a separate company, Corporation de la Aviacion Cubana S.A. (CAC), and has its own banking facilities and annual financial statements. In short, Cubana submits that it cannot be considered an "alter ego" of the Cuban government such as to be liable for its debts.

[4]Roxford denies having misrepresented any facts to the Court, but says that, in any event, the alleged errors in evidence were not sufficiently important that the Court would not have issued the order that resulted in the seizure of Cubana's assets and the garnishment of third parties. Roxford submits that the law concerning "piercing the corporate veil" is applicable and argues that Cubana is a "sham", or an alter ego of Cuba. According to Roxford, Cuba is the true owner of Cubana's shares and assets. Therefore, Roxford argues, the property of Cubana should be liable to seizure to satisfy Cuba's debts.

[5]The three issues to be determined on this motion are as follows: first, whether the order dated August 27, 2001 should be reviewed; second, whether it is within the jurisdiction of this Court to order that Cubana, a third party, be treated as liable for the debts of Cuba; and, third, whether the order of seizure and sale issued against Cubana to satisfy the judgment debt of Cuba should be set aside.

Background Facts

[6]On January 26, 2000, Roxford brought an action against a number of defendants, including the Government of Cuba, for breach of a contract of sale. The subject-matter of the contract was the sale of the vessel M/V Calix.

[7]The Government of Cuba did not defend the action, and a default judgment in the amount of $2,371,921.50 was issued against it. The moving party, Cubana, was not named in that action, nor did it take part in the proceedings. The judgment remains unsatisfied to this day.

[8]On August 13, 2001, the plaintiff applied ex parte for an order of seizure and sale of the assets of Cubana in satisfaction of its judgment debt against Cuba. In support of the motion, Roxford filed the affidavit by Alexander Printzios, an authorized representative of the company. Mr. Printzios states in his affidavit that he believes that Cubana is an "organ of Cuba". His belief is based on information gleaned from the Cubana's Web site, certain extracts of the Constitution of the Republic of Cuba and inquiries he made to others, including the International Aviation Trade Association. In light of the uncontradicted evidence adduced by Roxford and the submissions of its counsel, I issued an order on August 27, 2001 providing for the seizure and sale of Cubana's assets, as well as garnishment in the hands of third parties of amounts owing or accruing to Cubana.

[9]Within days of attachment of its assets, Cubana brought a motion to quash the order dated August 27, 2001. Prothonotary Morneau suspended the order on September 11, 2001, pending disposition of this motion. Cubana also appealed the order, but subsequently withdrew the appeal, without prejudice to any of its rights.

Evidence adduced by the parties in the present motion

[10]Cubana filed two affidavits in support of its motion to set aside the order dated August 27, 2001: one by Ivan Lurbe, its general manager, and the other by Francisco Marqués Granda, an in-house counsel. Roxford countered with two further affidavits by Mr. Printzios, an affidavit by one of its solicitors, Jean-Marie Fontaine, and the affidavit of a legal expert, Matias Travieso-Diaz. Only Roxford's affiants were cross-examined.

[11]To rebut Mr. Printzios' claims that Cubana is an agent of Cuba, Mr. Lurbe and Mr. Marqués Granda refer to facts that were not brought to the Court's attention at the time the ex parte order was sought, and that they say establish that Cubana is a separate corporate entity. Mr. Lurbe points to the Articles of Incorporation for Cubana (Corporacion de la Aviacion Cubana), attached as an exhibit to his affidavit, as well as its shareholding, which does not include the Government of Cuba, as proof of the independent existence of Cubana under Cuban law. According to Mr. Lurbe, Cubana is entitled to carry on business in the province of Quebec, which recognizes its separate legal personality. Mr. Lurbe also takes issue with Mr. Printzios' characterization of Cubana as simply a reincarnation, under a different name, of its predecessor, a state-owned airline called Empressa Consolidata Cubana de Aviacion (Empressa). Mr. Lurbe states that Empressa no longer exists.

[12]Mr. Marqués Granda states that Mr. Printzios' relied on an incorrect version of the Constitution of the Republic of Cuba in support of his motion to seize Cubana's assets. (Roxford does not dispute that version of the Cuban Constitution produced was outdated.) Mr. Marqués Granda states that Cuba adopted significant amendments to its Constitution in 1992 to adapt to the commercial reality. Article 15 of the Constitution was amended to allow the transfer of property to natural and legal persons, where the transfer furthers an economic objective and does not affect the political, social or economic foundations of the State. Further, Article 17 was amended to clearly indicate the autonomy of legal persons. The second paragraph of Article 17 provides:

Article 17. . . .

These enterprises and entities meet their obligations solely with their financial resources, within the limitations established by the law. The State is not responsible for the obligations contracted by the enterprises, entities, or other juridical persons; nor are the latter responsible for those of the former.

[13]Mr. Marqués Granda states that Cubana is a duly incorporated entity, carrying on its own business, with its own employees and its own books of account. He also says that Cubana is a separate legal entity under Cuban law, operating independently of the Government of Cuba, competing with other carriers, undertaking and executing contractual obligations on its own behalf, employing its own employees and doing all things required to run its business.

[14]Mr. Travieso-Diaz, a Cuban-born attorney practising law in the United States of America, was engaged by Roxford to provide a legal opinion regarding certain aspects of Cuban law and their applicability to the status of certain Cuban entities. In preparation for providing his opinion, Mr. Travieso-Diaz examined the motion material filed on behalf of Cubana, as well as Cuba's Constitution, its Civil Code and its law relating to foreign investment.

[15]According to Mr. Travieso-Diaz, Cubana is not a private enterprise but a state instrumentality in disguise. In order to buttress his opinion, Mr. Travieso-Diaz identifies a number of perceived deficiencies in Cubana's evidence, such as the absence of any evidence to explain how the principal shareholder of Cubana, CAC, acquired the state enterprise's assets, the basis upon which the assets were transferred to Cubana, the consideration that was given for the assets, or the economic justification for the transfer of state assets to Cubana.

[16]At paragraphs 8 and 9 of his affidavit, Mr. Travieso-Diaz comments as follows regarding what he considers to be continued state control and ownership of Cubana's business and assets:

8. The President and legal representative of CAC is one Rogelio Acevedo Gonzalez ("Acevedo"). Mr. Acevedo was a military leader in Cuba's Revolution, is a long-time Division General in Cuba's Armed Forces, is a member of Cuba's Council of Ministers that rules the country, and is the President of the Cuban Institute of Civil Aeronautics. . . . The fact that such a government official is the President of CAC strongly suggest that CAC is a direct instrument of the Cuban state, since it is the consistent practice of the Cuban Government, and in particular its Armed Forces Ministry (often referred to by the initials "FAR"), to set up enterprises which are controlled by the state and headed by high ranking members of the military. . . .

9. On September 16, 1996 Mr. Acevedo as President of CAC and one Jose Heriberto Prieto Musa ("Prieto") incorporated a company known as Cubana de Aviacion S.A. ("Cubana S.A."). . . Mr. Prieto contributed one thousand Cuban pesos (approximately C$75.00 at the current exchange rate of C$1=13.4 pesos) and received one share of Cubana S.A. Mr. Acevedo, on behalf of CAC, contributed 185,687,000 pesos (approximately C$13,857,000) and was issued the remaining 185,667 shares of Cubana S.A. The contribution of CAC consisted of the right to use ("usufructo"), for a term of 25 years, Cubana's fixed and moveable assets, including aircraft. (Under Cuban law, conveyance of an usufructo right in property "grants the right to the enjoyment free of charge of assets belonging to others, with the obligation to preserve their form and substance, unless the deed of conveyance or the laws authorize otherwise."

[17]According to Mr. Travieso-Diaz, to the extent that there was transfer of assets of the state-owned airline enterprise by CAC to Cubana, such a transfer was inconsistent with the Cuban Constitution. The 1992 amendments to the Cuban Constitution reaffirm the state's ownership of and control over the country's economic assets that are not subject to foreign investment, particularly at Article 15 which provides in part as follows:

Article 15.     Socialist state property, which is the property of the entire people, comprises:

a) . . .

b) the sugar mills, factories, chief means of transportation and all those enterprises, banks and facilities that have been nationalized. . . . [Emphasis added.]

[18]While enabling the transfer of some state assets to entities that include foreign investors, such transfers are narrowly circumscribed, according to Mr. Travieso-Diaz, and are allowed only where they foster economic development, and must be approved at the highest levels of government. As the country's national flag airline and main carrier of the island, Cubana constitutes a "chief means of transportation" whose ownership must remain with the State absent an exceptional situation in which a change of ownership would foster economic development.

[19]After reviewing the known facts leading to the incorporation of Cubana and the alleged transfer of assets, Mr. Travieso-Diaz concludes that Cubana is nothing more than an alter ego of the Cuban government as follows:

In my opinion, the Cuban Government has sought to weave a thin veil to conceal behind an apparent corporate form the continued ownership by the Cuban state of the assets of Cubana, the national airline. For the reasons described above, the corporate veil in this instance is but a fiction intended to place the assets of Cubana beyond the reach of creditors and others asserting claims against the state, even though such assets continue to be state property.

Analysis

A.     Whether the order dated August 27, 2001 should be reviewed

[20]A court making an ex parte order possesses the jurisdiction to set it aside: May and Baker (Canada) Ltd. v. The Oak., [1979] 1 F.C. 401 (C.A.). See also Becker v. Noel and another, [1971] 2 All E.R. 1248 (C.A.). Rule 399 of the Federal Court Rules, 1998 provides, however, that the party seeking to set aside an ex parte order has the burden of establishing that the order should not have been made.

399. (1) On motion, the Court may set aside or vary an order that was made

(a) ex parte; or

(b) in the absence of a party who failed to appear by accident or mistake or by reason of insufficient notice of the proceeding,

if the party against whom the order is made discloses a prima facie case why the order should not have been made.

[21]In Nedship Bank N.V. v. Zoodotis (The), [1999] F.C.J. No. 581(T.D.) (QL), Prothonotary Hargrave stated, at paragraph 2:

An ex parte order may be both granted and, on application, set aside, at the discretion of the Court. To set aside an ex parte order there must have been an error of fact or law. It is for the party seeking to set aside the Order to establish a prima facie case why the order ought not to have been made. However, such an order, setting aside an ex parte order, ought not to be made arbitrarily, particularly where there may be substantial prejudice.

[22]The affidavits produced by Cubana, which include the most recent version of the Cuban Constitution, Cubana's articles of incorporation and fresh evidence regarding Cubana's structure and operations, clearly cast a different light on the untested evidence adduced by Roxford in support of its ex parte motion. Moreover, the Court did not have the benefit of legal submissions concerning the status of instrumentalities of foreign states. For the reasons set out below, I am satisfied the order would not have been made had all the additional facts and legal argument been presented.

B.     Whether it is within the jurisdiction this Court to order that Cubana, a third party, be treated as liable for the debts of Cuba

[23]Cubana submits that in the absence of a body of federal law to nourish jurisdiction, this Court cannot determine that Cubana is liable for the debts of Cuba. Such a determination, it says, would require delving into the complex factual and legal issues of ownership of the assets of Cubana, and its relationship to Cuba. Cubana maintains that decisions of this nature are not within the jurisdiction of this Court. Moreover, it submits that it is inappropriate for the Court to attempt to resolve such issues in a summary procedure, via affidavit evidence.

[24]Similar challenges to this Court's jurisdiction to deal with the merits of objections made in the context of the enforcement of a judgment have been rejected in the past. In Bois de Construction du Nord (1971) Ltée v. Charles Guilbault Inc., [1987] 1 C.T.C. 333 (F.C.A.), Pratte J.A. stated, at page 334:

. . . a court which has the jurisdiction to order that the property of a debtor be garnished must necessarily have that of ruling on any objections put forward by third parties claiming to own the garnished property. Similarly, the power to garnish debts owed to a debtor in my opinion necessarily implies the power to rule on the existence of the debts garnished. Accordingly I believe that in the case of a garnishment of debt the court has the power, if the garnisher objects to the negative declaration of the garnishee, to rule on the existence of the debt garnished.

[25]More recently, the Federal Court of Appeal confirmed that this Court has broad jurisdiction to decide issues which arise in the enforcement of its judgments, including whether the corporate veil should be lifted: Canada (Minister of National Revenue) v. Gadbois, [2003] 1 C.T.C. 353 (F.C.A.) (Gadbois). The Court in Gadbois [at paragraph 29] also concluded that objections to enforcement could adequately be argued on the basis of "documentary evidence in the record, affidavit evidence and cross-examination of affiants".

[26]Cubana has not established that it was in any way prejudiced by having to resort to the usual procedure in connection with motions in the Federal Court. Moreover, leave was never sought to deviate from the general scheme applicable to motions. Consequently, I conclude that this Court has jurisdiction to determine the principal issue in this motion, namely whether Cubana is assimilated to Cuba or a separate juridical personality that is immune from seizure.

C.     Whether the order of seizure and sale issued against Cubana to satisfy the judgment debt of Cuba should be set aside

[27]I am left to consider whether, on a balance of probabilities, the evidence leads to the conclusion that Cubana is liable for Cuba's debts. Although neither party advanced any arguments regarding sovereign immunity, the parties placed considerable reliance on case law concerning the scope of sovereign immunity in support of their respective positions.

[28]As a matter of customary international law, foreign sovereigns are generally entitled to immunity from suit in respect of conduct or property jure imperii: Rudolf Bernhardt (ed.), Encyclopedia of Public International Law (Amsterdam: North-Holland, 2000), Vol. IV, at page 619. In order to clarify parties' rights and responsibilities, many states have enacted legislation governing the extent of sovereign immunity, e.g. in Canada, the State Immunity Act, R.S.C., 1985, c. S-18, in the United States, the Foreign Sovereign Immunities Act of 1976 [28 U.S.C. § 1602 (1994)]. The United Kingdom has enacted the State Immunity Act 1978 [(U.K.), 1978, c. 33], which brings into force the terms of the European Convention on State Immunity and Additional Protocol [16 May 1972, Eur. T.S. 74]: Ian Brownlie, Principles of Public International Law, 5th ed. (Oxford: Clarendon Press, 1998), at pages 340-341.

[29]In the case at bar, the issue is a narrow one: are the assets of Cubana liable to seizure for a debt owed by Cuba in respect of litigation unrelated to Cubana's affairs? A typical sovereign immunity question asks whether a state entity is entitled to the benefit of sovereign immunity in respect of its activities. The question in the present case, as noted by counsel for Cubana, has been "stood on its head", as the issue is whether the alleged state entity should be made liable for the judgment debt of the state. There does not appear to be any Canadian case law addressing the issue.

[30]In First Nat. City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611 (1983) (Bancec), the Supreme Court of the United States set out the principle that duly created instrumentalities of a foreign state are entitled to be accorded a presumption of independent status. However, where a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created, one may be held liable for the actions of the other. This principle strikes me as both logical and sound and should be applied to the present case.

[31]According to the Supreme Court of the United States, an instrumentality of the state is typically established as a separate juridical entity, with the powers to hold and sell property and to sue and be sued. It is primarily responsible for its own finances, and run as a "distinct economic enterprise" (at pages 624).

[32]In Bancec, First National, an American bank, failed to honour a letter of credit issued to Bancec, prompting Bancec to sue in the United States. The Government of Cuba then seized all of First National's assets located in Cuba. First National counterclaimed against Bancec, asserting a right to set off the value of its seized Cuban assets. The Supreme Court of the United States held that the presumption that Bancec was a duly created instrumentality was overcome. Giving effect to the corporate form would run contrary to principles of equity at international law, since, by 1961, Banco had been dismantled and was a "mere arm of the Cuban government" and was "totally dependent on the government for financing and required to remit all of its profits to the government". Thus, any award given to Bancec would accrue automatically to Cuba.

[33]In Hercaire Intern., Inc. v. Argentina, 821 F.2d 559 (11th Cir. 1987), the plaintiff was a Florida corporation that obtained judgment against the state of Argentina for breach of a contract to supply military aircraft parts. Thereafter, the District Court ordered the seizure of an airplane belonging to Aerolineas, Argentina's 100% owned airline. On appeal, the United States Court of Appeals (11th Circuit) held that the District Court had erred in ordering the seizure, since Argentina did not exercise such extensive control over Aerolineas to warrant a finding of principal and agent. The Court noted at page 565 of the decision that the "presumption of independent status is not to be lightly overcome". The 100% ownership of Aerolineas by Argentina was not sufficient to overcome this presumption.

[34]Furthermore, the Court noted that, given that Aerolineas had no connection whatsoever to the underlying transaction, it would be manifestly unfair to permit the seizure. Quoting from Bancec, supra, the Court noted that the Foreign Sovereign Immunities Act of 1976 did not permit execution against the property of one instrumentality to satisfy the judgment against another. The policy reason for this is to encourage foreign jurisdictions to respect, in kind, the juridical divisions between different U.S. corporations and subsidiaries located in foreign states.

[35]In the case at bar, I find that Roxford has not dislodged the presumption that Cubana is a separate juridical entity. The facts do not support the conclusion that Cubana's business, income, undertaking and assets are controlled or even "owned" by Cuba. Such a conclusion would entail an assimilation of the corporation to Cuba. Cubana's articles of incorporation allow the corporation to carry on its own business. It hires its own employees, who are not civil servants, it has its own banking facilities and prepares annual financial statements. Moreover, Cubana appears to possess all of the powers of a company incorporated under Cuban law with the full knowledge and blessing of the Cuban government. Pursuant to its articles of incorporation, the board has all of the usual powers of a board of directors of a corporation. All of the foregoing is inconsistent with Cubana being an agent of Cuba in respect of its business and assets.

[36]There are, however, a number of factors that are somewhat inconsistent with an independent status. These include the matter of ownership of Cubana's assets and ultimate control of the company. These factors must however be weighed and given their proper importance when viewed from the perspective of a communist regime. It is clear from the evidence produced by the parties that CAC retains ownership of the corporate assets and that Cuba may be the ultimate owner. However the right of usufructo granted to Cubana over the assets appears to a bona fide surrender by CAC of its possessory rights for an extended period of time. Under the civil law, the right to enjoy a thing, the property in which is vested in another, and to draw from the same all the profit, utility, and advantage which it may produce, is well recognized. In my view, the factors establishing effective control by Cubana of its business and assets support the conclusion that it is an independent corporation, and not an agent of Cuba in respect of its business.

[37]As noted in Hercaire, supra, it is not sufficient to show that the state owns 100% of the shares. Roxford's evidence concerning Cubana's connection with the Cuban Institute of Civil Aeronautics, its share and asset ownership, and affiliation with parent company CAC falls short of demonstrating that Cuba exerts a controlling influence over Cubana. Similarly, media and official references to "state ownership" of Cubana are not determinative of the issue, particularly since the information is mostly hearsay and therefore carries little weight.

[38]It bears repeating that Cubana's affiants were not cross-examined on their affidavits. Cubana has produced its articles of incorporation and by-laws, which show that the company is controlled by a board of directors and the annual meeting of shareholders. The onus was on Roxford to show that Cuba exerts a controlling influence over the Cubana's operations, but it has failed to do so. Roxford's own expert acknowledges that Cubana is a state instrumentality that is an operational entity. In addition, Mr. Travieso-Diaz testified that the CAC is likely undergoing a process of "perfectionamiento", which entails "functioning as accountable organizations that show profits, control personnel, and expenses".

[39]The Hercaire judgment is also relevant in that the United States Court of Appeal was loathe to order seizure against assets that had no connection to the underlying transaction. In the case at bar, Cubana had no connection to the breach of contract between Roxford and the state of Cuba. Although the Foreign Sovereign Immunities Act of 1976 has no application in Canada, it represents one version of customary international law. The policy reasons behind the rule that assets unrelated to litigation ought not to be seized is relevant to the Canadian context, given that Canada has an interest in having the status of its corporations respected abroad. Considering that Cubana had no apparent connection with the contract dispute between the plaintiffs and Cuba, it would be unfair to allow its assets to be seized.

[40]To find that Cubana is assimilated to Cuba so that its separate identity merged with Cuba and became an alter ego of the state in carrying on the business for which it was created is a somewhat far-reaching conclusion. Based on the evidence before me, I conclude that one of the purposes of the corporation is to permit it to carry out its purposes independently of the Government. To conclude that in its activities, business and use of its assets it is an alter ego of Cuba would require both compelling evidence of a de facto assimilation of it, or of its business and property, to Cuba and a clear legal basis of a de jure assimilation to Cuba. Neither has been satisfactorily established, in my view.

[41]In conclusion, Roxford has failed to establish, on the balance of probabilities, that Cubana is the alter ego or agent of Cuba. The order dated August 27, 2001 must therefore be set aside.

[42]Cubana's motion was heard together with another motion brought against Adecon Ship Management Inc. seeking the same relief and based on similar facts. My conclusions apply equally to the second motion. The Registry is therefore directed to place a copy of these reasons in Court File No. T-267-00. The parties shall submit, either jointly or separately and by July 8, 2003, draft orders for both Court files to give effect to these reasons, as well as their written submissions on costs, not to exceed two pages in length.