Angophora Holdings Limited Respondent - v. -, 2022 ABKB 711

Court of King’s Bench of Alberta Citation: Angophora Holdings Limited v Ovsyankin, 2022 ABKB 711 Date: 20221025 Docket: 2101 04299 Registry: Calgary Between: Angophora Holdings Limited Respondent - and - Andrei Mikhailovich Ovsyankin (also known as Andrey Ovsyankin), Victoria Victorovna Ovsyankina (Also known ss Victoria Ovsyankin) and NOV Management and Supply Ltd. Applicants _______________________________________________________ Reasons for Decision of the Honourable Justice B.E.

Romaine _______________________________________________________ I Introduction [ 1 ] The Applicant Andrei Ovsyankin applies for a stay of Angophora Holdings Limited’s enforcement of a recognition and enforcement order (REO) granted on September 10, 2021 until further order of the Court. Mr. Ovsyankin submits that Angophora’s enforcement of the REO would result in the liquidation of assets located in Alberta and payment of the proceeds of such liquidation to Angophora, which he submits would contravene the prohibitions recently imposed by Canada against Russia and certain of its citizens

and corporations arising from the war in Ukraine. [ 2 ] I find that Mr. Ovsyankin has not met the requirements for a stay, and his application is dismissed. However, the evidence discloses a strong prima facie case that Angophora maybe be controlled by or acting on behalf of a corporation subject to the Russian sanctions. [ 3 ] The sale of the properties in accordance with the REO may proceed. However, in view of this finding of a strong prima facie case, the distribution of proceeds by any Canadian person or entity may risk offending Sections 3 and 5 of the Russian sanctions.

II Relevant Facts [ 4 ] On December 15, 2020, the London Court of International Arbitration granted an award in favour of Angophora against Mr. Ovsyankin. The arbitration award arose from allegations by Angophora that Mr. Ovsyankin had engaged in corporate wrongdoing that materially reduced the value of a Cypriot company, Grooks Global Limited and its subsidiaries in Russia (“the Group”) in which Mr. Ovsyankin’s company, Retemmy Finance Ltd., and Angophora were shareholders. Mr. Ovsyankin had guaranteed Retemmy’s obligations under a Shareholders’ Agreement involving the Group.

Relevant to this application, the arbitration panel found that:

a) Mr. Ovsyankin was at all times (and continues to be) in effective control of the Group;

b) Retemmy, under the control of Mr. Ovsyankin, “repeatedly and systematically” , breached the Shareholders’ Agreement by causing the Group to enter into multiple transactions over several years for which approval of the Board of Directors of the management company of the Group should have been sought, but was not;

c) the wrongful transactions included, in particular, numerous undisclosed interested party transactions with entities owned by parties related to Mr. Ovsyankin, including his wife and son;

d) Mr. Ovsyankin’s misconduct resulted in the Group’s “commercial instability”; and

e) in the circumstances, the arbitration panel concluded that “... giving Retemmy the benefit of the doubt, which is generous in the light of its lack of transparency before and at this arbitration, the diminution in the value of [Angophora’s] shares in Grooks is, we find, USD 43.2M.” [ 5 ] On September 10, 2021, this Court granted the REO with respect to the arbitration award. This order was not appealed. An application to stay the order was refused, and that decision has not been appealed. [ 6 ] Mr. Ovsyankin sought a review of the award in the UK High Court of Justice, but his application was denied.

Leave to appeal from the decision was likewise denied. Thus, Mr. Ovsyankin is a judgment debtor to Angophora in the sum of $59,552,405 CND, plus interest at the rate of 8.1% per annum and costs, and his Alberta assets are subject to seizure and sale under Alberta law. Mr. Ovsyankin has paid Angophora nothing in respect of the award, the judgment debt or its costs, although he has paid a sum in security for costs for this application which was deposited with his counsel. [ 7 ] All avenues of appeal of the award and the REO in Alberta have been exhausted. Mr. Ovsyankin is a Russian citizen, resident in Moscow.

He owns three condominiums in Alberta and is an owner in joint tenancy of three others with his wife, also a Russian citizen. An additional condominium is owned by NOV Management and Supply Ltd., a company owned by Mr. Ovsyankin, which is alleged to hold the property on Mr. Ovsyankin’s behalf. All of the property is subject to a preservation order granted on May 28, 2021. The preservation order, REO and a writ of enforcement are all registered against title to the condominium properties.

Notices of intention to sell land were served in respect of all of the condominiums, except the one held in the name of NOV Management. Angophora will soon be in a position to direct the sale of those condominiums on the expiry of the mandatory waiting period under the Civil Enforcement Act . While no sale has yet been directed, garnishee proceedings have intercepted payments associated with one or more of the condominiums. [ 8 ] Angophora is wholly owned subsidiary of MIR Capital SICAR (SCA), a Luxembourg investment fund (“MIR”).

The operations of MIR are conducted by MIR Capital Management (SA), a Luxembourg company (“MIR Capital”). Both MIR and MIR Capital are owned equally by two international banks:

a) Intesa Sanpaolo S.p.A (“Intesa”) an Italian bank; and

b) Gazprombank JSC (“Gazprombank”) a bank based in Russia. [ 9 ] MIR is subject to a joint venture agreement that sets out the corporate processes by which it is governed. The objective of the joint venture is to invest in the equity of Russian and Italian corporations. III Positions of the Parties [ 10 ] Angophora submits that, even if the sanctions apply, they do not prevent execution of the award. It notes that the Special Economic Measures (Russia) Regulations, SOR/ 2014-58 (the “ Russian Sanctions ”) apply only to assets “owned, held or controlled by a designated person”.

Angophora, it submits, does not “own, hold or control” assets in Alberta in any meaningful sense and therefore the Russian Sanctions have no application. It is only once the proceeds of the sale of the condominiums are generated through execution of the REO that there can be any possible application of sections 3 and 5 of the Russian Sanctions . [ 11 ] Mr. Ovsyankin says that he not seeking a permanent stay, but only a stay that would remain in place while the Russian

Sanctions are in effect. However, his application also seeks an order striking the writ of enforcement. IV Relevant Legislation [12]

Section 3 and 5 of the Russian Sanctions provide as follows: 3. It is prohibited for any person in Canada and any Canadian outside of Canada to (

a) deal in any property, wherever situated, that is owned, held or controlled by or on behalf of a designated person whose name islisted in Schedule1; (

b) enter into or facilitate, directly or indirectly, any transaction related to a dealing referred to in paragraph (a); (

c) provide any financial or other related services in respect of a dealing refereed to in paragraph (a); . . . (

e) provide any financial or related services to or for the benefit of a designated person listed in

Schedule 1 5. It is prohibited for any person in Canada or any Canadian outside Canada to knowingly do anything that causes, facilitates orassists in, or is intended to cause, facilitate or assist in, any activity prohibited by sections 3 to 3.5. [emphasis added] [13] Angophora is not a “designated person” named in

Schedule 1 of the Regulations, however Gazprombank has been listed inSchedule 1 since February, 2022. [14] Entities are listed under

Schedule 1 of the Russia Sanctions when the Governor in Council is satisfied that there arereasonable grounds to believe the entity is “engaged in activities that directly or indirectly facilitate, support, provide funding for orcontribute to a violation or attempted violation of the sovereignty or territorial integrity of Ukraine or that obstruct the work ofinternational organizations in Ukraine”. V Issues A. Does the application for a stay meet the appropriate tests? B.

If the evidence establishes a strong prima facie case that Angophora is controlled by or acting on behalf of an entity designatedunder the Russian Sanctions, what are the implications for enforcement of the REO? VI Analysis 1. Does the application for a stay meet the appropriate tests? I. Overview [15] I accept that Mr.

Ovsyankin’s application is for an interim stay or interlocutory injunction, despite the additional relief sought.In any event, given my decision, the result in this case would be the same if the test for a permanent stay applied, even though the testdiffers from that applicable to an interim injunction, Bruderheim Community Church v Moravian Church in America (CanadianDistrict), 2020 ABCA 393 at para 24. Mr.

Ovsyankin takes the position that “[w]here the relief sought is a final determination of amatter, the standard to be applied is that the applicant must demonstrate a strong prima facie case”: RJR-MacDonald. [16] The appropriate test for a stay is whether the applicant is able to establish that: (

i) there is a serious issue to be determined; (ii) the applicant will suffer irreparable harm if the stay is not granted; and (iii) the balance of convenience, taking into account the public interest, favours granting the stay. RJR-Macdonald Inc v Canada (Attorney General), (SCC), [1994] 1 S.C.R. 311 at para 40 [17] At the first stage of the test, the Court must assess the merits of the case. Mr. Ovsyankin concedes that he must demonstrate astrong prima facie case. There is no doubt that, on the evidence, a prima facie case exists that Angophora’s enforcement of the REO maybe contrary to the Russian Sanctions.

The issue is whether a strong prima facie case exists. 2. Has the applicant established a strong prima facie case? [18] The prohibitions relevant to this application set out in

Section 3 and 5 of the Russian Sanctions include dealing in any property“owned, held or controlled by or on behalf of a designated person” and include providing any financial or related service to or for thebenefit of a designated person.

[ 19 ] Angophora submits that the seized property is not owned or held by it and therefore,

Section 3 does not apply. [ 20 ] While Mr. Ovsyankin retains legal title to the property until the property is sold under execution, he cannot be said to control it at this stage of proceedings.

Control rests with Angophora under its REO, subject to the rules relating to enforcement set out in the Civil Enforcement Act . [ 21 ] However, Angophora in seeking enforcement in Alberta is “a person in Canada” subject to the prohibitions. [ 22 ] It is, also, arguable that if Angophora is controlled by or acting on behalf of Gazprombank, the efforts of the civil enforcement agency, as agent for the sale, and the Registrar of Land Titles, in transferring title to the seized condominium as a result of the sale, may be in breach of the

Section 3 prohibitions by reason of their role as persons in Canada facilitating, directing or indirectly, Angophora’s dealing with the property. [ 23 ] Once the property has been sold, and Angophora has a right to receive all or part of the proceeds, subject again to the rules relating to distribution under

Part II of the Civil Enforcement Act , the risk of any Canadian person or institution being in breach of the Russian Sanctions by knowingly facilitating, assisting in or, providing any financial or other related service to or for the benefit of a designated person is even more clear. [ 24 ] Therefore, it is necessary to consider whether a strong prima facie case has been established that Angophora is controlled by or on behalf of a designated person, Gazprombank. [ 25 ] Unfortunately, the Russian Sanctions do not provide a definition of control, leaving the issue of whether a non-designated person is controlled by or acting on behalf of a designated person as a factual issue to be determined by the circumstances. [ 26 ] The Russian Sanctions are remedial legislation.

The

Interpretation Act , R.S.S. 1985, c.1-21 provides that such legislation “shall be given ‘such fair, large and liberal construction and

interpretation as best ensues the attainment of its objects’:

Article 12. [ 27 ] The Regulations Impact Analysis Statement published in the Canadian Gazette,

Part II, Vol 156, No. 6, SOR 2022/29 dated March 16, 2022, states that the objectives of the Russian Sanctions are to:

a) demonstrate Canada’s commitment to a policy of non-recognition of Russia’s illegal occupation of Crimea, as well as its ongoing concern with Russia’s violation of Ukraine’s sovereignty and territorial integrity; and

b) align Canada’s actions with those taken by international partners to underscore continued unity with Canada’s allies and partners in responding to Russia’s actions in Ukraine. [ 28 ] It is established law that the words of an enactment “are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intentions of Parliament”: Rizzo v Rizzo Shoes Ltd. (Re), [1998] SCR 22 at para 2. [ 29 ] Sections 3 and 5 of the Russian Sanctions set out a broad set of prohibitions that clearly are designed to prevent Canadian persons or entities from knowingly aiding or facilitating any designated person, or entity controlled by or acting on behalf of a designated person from dealing with property in Canada.

The Russian Sanctions seek to impose an economic cost on Russia, including through entities that are or have engaged in activities that support or contribute to the violation of the sovereignty or territorial integrity of Ukraine: page 734 of the Regulatory Impact Statement. [ 30 ] It is with these objectives in mind, together with the broad language of sections 3 and 5, that this Court must determine whether Mr.

Ovsyankin has established a strong prima facie case that Angophora is controlled by or acting on behalf of Gazprombank. [ 31 ] Other jurisdictions have included regulatory guidance on the question of control. The US guidelines on “blocked persons” provide that such persons are: ... considered to have an interest in the property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest.

Consequently, an entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person. [emphasis added] [ 32 ] Under these guidelines, Angophora would be considered a blocked person: [ 33 ] The European Union has established a “Commission Opinion” on the issue of control, which provides that: EU restrictive measures clearly establish that the freezing of funds and economic resources (‘asset freeze’) covers the assets belonging to, owned, held or controlled by those specifically named in the respective annexes to the EU legal acts.

In particular, Article 2(1) of the Regulation reads: “[a]ll funds and economic resources belonging to, owned, held or controlled by any natural or legal persons, entities or bodies, or natural or legal persons, entities or bodies associated with them, as listed in Annex I, shall be frozen” [emphasis in original] In the Commission’s view, if the designated person is determined to have control over the Entity, it can be presumed that the control extends to all assets nominally owned by the latter. Such assets must be frozen pursuant to Article 2(1) of the Regulation.

Otherwise, designated persons could circumvent the asset freeze imposed on them by continuing to have access to funds or economic resources through the non-designated third parties that they control. [emphasis added] [ 34 ] The approach in the EU is, as in Canada, a factual one relating to whether the designated person in question has defacto control over the entity. [ 35 ] In the UK, control is considered to be established if either of two conditions are met:

a) The sanctioned entity holds, directly or indirectly, more than 50 percent of the shares or voting rights or holds the right to appoint or remove a majority of the board of directors of the entity at issue; or

b) it is reasonable, having regard to all the circumstances, to expect that the sanctioned entity would (if it chose to) be able, in most cases or in significant respects, by whatever means and whether directly or indirectly, to achieve the result that affairs of the entity in question are conducted in accordance with sanctioned entity’s wishes. [ 36 ] While Angophora would not be found to be controlled under the first condition, it may be under the second. [ 37 ] The structural factors that relate to whether Angophora is controlled by Gazprombank include the following:

a) the corporate chain is such that all investment decisions are made by Angophora in coordination with the management board of MIR;

b) the management board of MIR is appointed by the supervising board;

c) the supervising board is made up of one representative nominated by each of Intesa and Gazprombank and one member nominated jointly;

d) the supervising board appoints directors to the management board. The management board currently consists of two directors with a third in the process of being nominated, who have broad powers over the daily management of MIR business;

e) Intesa and Gazprombank were appointed by MIR to be the investment advisors of MIR. They are not entitled to make independent decisions. Gazprombank was primarily involved as investment advisor in respect to the Group investment that led to the arbitration award because both Gazprombank and the Group are headquartered in Russia. [ 38 ] Thus, Gazprombank does not have structural control of Angophora in that it cannot unilaterally act to direct the investments of MIR and/or Angophora. Neither can Intesa: decision making requires a consensus.

The corporate structure provides however that, while each partner cannot undertake action unilaterally, they can block such unilateral action. [ 39 ] As the relationships among Intesa, Gazprombank, MIR and Angophora have been in place for years prior to the coming in force of the Russian Sanctions , it cannot be said that they were structured to avoid the sanctions. [ 40 ] However, Mr. Ovsyankin submits that Angophora should be considered to be functionally and practically controlled by Gazprombank for the following reasons:

a) The test of 50% ownership set out in the US sanction and regulations is met in this case;

b) Angophora and Retemmy, a company controlled by Mr. Ovsyankin, acquired Grooks Global Limited, a key company in the Group, by way of a share purchase agreement in 2012. At the same time, Angophora and Retemmy entered into a shareholders agreement, the breach of which was the subject of the arbitration.

c) Mr. Ovsyankin says that the terms of the Grooks share purchase agreement, the shareholders agreement and an accompanying guarantee were negotiated between Mr. Ovsyankin and personal advisors from Grooks and Retemmy on the one hand and Gazprombank on the other;

d) Grooks Global is the parent company of at least four subsidiaries of the Group incorporated in Russia, and therefore, as Angophora concedes, this investment is primarily overseen by Gazprombank advisors;

e) Victor Mariukov, at one time the Chief financial Controller of one of the Group, Parker Services, stated in a sworn witness statement during the arbitration that, prior to his appointment to Parker Services, he was an employee of Gazprombank, that he was instructed in that position by Gazprombank, that he reported directly to a member of the Management Board of Gazprombank and reported daily to the head of the Gazprombank Corporate finance Department. According to the affidavit, he resigned from Parker Services at the request of his Gazprombank supervisor and then he returned to his main job at Gazprombank;

f) Angophora’s application to seek the REO in Alberta and to oppose a stay sought by Mr. Ovsyankin were supported by the affidavit of the Managing Director of the Corporate Finance Department of Gazprombank; and

g) Angophora’s only witnesses as at the arbitration hearing were employees of Gazprombank. [ 41 ] It is not the function of this Court in deciding whether a stay should be granted to make a final decision with respect to the issue of control. [ 42 ] However, on the evidence before me, the combination of the fact that the corporate structure of Angophora would meet the US definition of control and the factors identified by Mr. Ovsyankin relating to the functional control, I find that Mr.

Ovsyankin has established a strong prima facie case that Angophora is controlled by or acting on behalf of a designated person. [ 43 ] While this decision does not make a final finding on the issue of control, I agree with the European Union Commission’s opinion that, sanctions should not allow a designated person to circumvent an asset freeze by continuing to have access through non- designated parties that they control. The objectives of the Russian Sanctions support such an

interpretation. However, further proceedings and evidence from all interested parties may be necessary to determine the issue in this case. 3. Does the applicant meet the second and third requirements of the test?

[ 44 ] As noted in this analysis, I find that a strong prima facie case exists. However, this is not the usual case where the interim injunction is to stay in place until trial or any further proceeding involving Mr. Ovsyankin. He has exhausted all lines of appeal of the arbitration award and its enforcement in Alberta. His rights and those of Angophora’s interests have been finally determined. Thus, it cannot be said that he would suffer irreparable harm if the stay is not granted.

All he could achieve is a further delay in the enforcement of the arbitration award. [ 45 ] I agree with Angophora that the Russian Sanctions were not meant to allow debtors to hold off their creditors, and that this application is “a transparent act of self-interest in the hope of avoiding execution”. [ 46 ] Mr. Ovsyankin submits that, since it is possible under proclamation of Bill C-19 that the proceeds of enforcement may be seized and forfeited to His Majesty in right of Canada, it is not possible to anticipate how such forfeitures would be treated in international jurisdictions, particularly in Russia.

Thus, he submits, it is possible that forfeited proceeds may not be credited against the arbitration award in other jurisdictions and therefore he may suffer irreparable harm. This speculative argument does not rise to evidence of irreplaceable harm sufficient to satisfy the second requirement of the RJR-MacDonald test. [ 47 ] While it is unnecessary to consider whether the balance of convenience favours granting the stay, I find that, in any event, Mr. Ovsyankin has not established this.

While it is certainly true that it is in the public interest for the Russian Sanctions to be enforced, it would be contrary to the public interest to allow them to be used by a judgment debtor without any further recourse to delay a sale under execution properly authorized by a recognition and enforcement order. [ 48 ] Thus, Mr. Ovsyankin’s application for a stay is dismissed, as is his application to strike the writ of enforcement. This, however, does not end the matter. 4.

If the evidence establishes a strong prima facie case that Angophora is controlled by or acting on behalf of an entity designated under the Russian Sanctions, what are the implications for enforcement of the REO? [ 49 ] As noted previously, the finding of a strong prima facie case may create difficulties for Canadian persons and entities involved in the execution of the REO.

The REO was granted on September 10, 2021, before Gazprombank was added as a designated person to the Russian Sanctions , and therefore, before any Canadian person or entities would have any reason for concern about facilitating or aiding the enforcement process. [ 50 ] The REO recognizes the arbitration award and declares it to be enforceable in Alberta in the same way as an Alberta judgment. It also authorizes the delivery of existing property to a civil enforcement agreement retained by Angophora for the purpose of enforcement of the order.

Given the scope of the REO, and the fact that proceedings under it were pursued in good faith by the civil enforcement agency, in my view, it would not be a breach of the Russian Sanctions for the order to be enforced through the sale of the seized properties, including payment of the costs of enforcement. However, before distribution of the proceeds, persons in Canada may wish to be satisfied that they are not in breach of the Russian Sanctions by further action.

That, of course, is their decision. [ 51 ] While I agree with Angophora that the Russian Sanctions are not intended to be a tool by which judgement auditors are able to avoid their lawful obligation, the Russian Sanctions may have the effect of impeding a litigant’s access to the proceeds of the enforcement process if such litigant is controlled by or acting on behalf of a designated person and the relief sought by such person “causes, facilitates or assists in, or is intended to cause, facilitate or assist in the activities prohibited by

section 3 of the sanctions” [ 52 ] Angophora submits that the imposition of the sanctions regime to a situation where a joint venture between sanctioned and non-sanctioned entities are involved creates a “conundrum”. It does not. The relief granted may have to take into account the interests of the non-sanctioned parties, but the fact that a structure may include such non-sanctioned parties does not mean that the regulations can be avoided if the result would allow a designated entity to evade the sanctions through indirect means, something that the sanctions recognize as a possibility in the language of

section 3(b). VII Conclusion [ 53 ] The application is dismissed. If the parties are unable to agree on costs, they may make written submissions on that issue. Dated at the City of Calgary, Alberta this 25 th day of October, 2022. B.E. Romaine J.C.K.B.A. Appearances:

Timothy St. J. Ellam, KC Jordan Bierkos for the Applicants Matthew R. Lindsay, KC Courtney Kachur for the Respondents