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GARNISHMENT - Property that may be attached - Order - Appeal

Tuesday, October 17, 2017 @ 8:57 AM  

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Appeal by Delizia Limited, from a judgment setting aside provisional and final garnishing orders. The appellant sold military aircraft equipment to the State of Eritrea in 2003 and did not receive full payment. In 2006, the appellant obtained an arbitration award of $2.1 million. In 2013, the amount owed was increased to $4.1 million to reflect arbitral fees and interest. The 2013 award was registered as a judgment in a recognition order following an ex parte proceeding. Thereafter, the appellant obtained a provisional garnishment order providing for attachment of any debts owed by the respondent, Sunridge Gold Corp. (Sunridge), to Eritrea. Sunridge, a Canadian company, was involved in a joint venture mining project in Eritrea, in which Eritrea, through a state-owned company, exercised its legal right to acquire a significant equity interest. In 2015, a final order was issued by a Prothonotary on the basis Sunridge owed certain licence exploration fees to Eritrea. The Prothonotary also found that the issuance of shares was effectively a sale valued at $4.3 million that should have attached in the appellant's favour. On appeal, a de novo hearing resulted in a finding that the licence exploration fees were exempt from seizure, and that finding a debt was owed by Sunridge directly to Eritrea arising from the share issuance would involve an impermissible piercing of the corporate veil. The garnishment orders were set aside and ruled nullities. Delizia appealed.

HELD: Appeal dismissed. The Federal Court did not err in conducting a de novo hearing, as it effectively resulted in reviewing the questions of law underlying the Prothonotary's decision on a standard of correctness. No error arose with respect to questions of fact, as the issue of piercing the corporate veil was not determined by the Prothonotary. The Federal Court did not err in concluding no debts owed or accrued from Sunridge to Eritrea capable of garnishment. Any transfer from Sunridge to the Eritrean state company arising from the share transfer did not, of itself, create a debt obligation capable of attachment under the provisional garnishment order. Rather, the obligation was in the nature of creating an equity interest in the project acquired by Eritrea. It was not necessary to determine whether the corporate veil should be pierced in relation to the share issuance.

Sunridge Gold Corp. v. Delizia Ltd., [2017] F.C.J. No. 908, Federal Court of Appeal, W.W. Webb, D.G. Near and J.M. Woods JJ.A., September 15, 2017. TLD-October162017004