Canada allows Ukrainian losses to be compensated against Russian assets

Canada allows Ukrainian losses to be compensated against Russian assets

Canada has made it possible to forfeit frozen Russian assets to compensate for losses caused by Russia`s war against Ukraine. On 23 June, Special Economic Measures Act has been amended accordingly.  

What assets can be forfeited?

Any property within Canada which is owned directly or indirectly by the sanctioned states, individuals, or entities.

More than $950 million of Russian assets have now been frozen and more than $2.3 billion of transactions have been blocked in Canada. Current Canadian sanctions imposed on Russia can be found here

What is the procedure for asset forfeiture?

  1. The minister orders the seizure of frozen assets.
  2. The minister applies to the court for a forfeiture order. The court issues the forfeiture order if (i) the property claimed is the property described in the seizure order, and (ii) it is by the person referred to in that order or is held or controlled, directly or indirectly, by that person.
  3. Further, the asset owners and those who have rights to the assets (e.g. creditors) may object the order within 30 days.  
  4. Based on the forfeiture order, after consultation with the government, the minister decides whether to sell the assets and transfer the proceeds.

For what purposes can the forfeited assets be used?

  • reconstructing of a foreign state affected by a grave breach of international peace and security;
  • restoration of international peace and security;
  • compensation of victims of a grave breach of international peace and security, gross and systematic human rights violations or acts of significant corruption.

Can I enforce a court decision/arbitration award to recover damages caused by the war against the forfeited assets?

The mechanism for transferring confiscated assets is unclear now. One possible option is that the minister may enter into an agreement with an affected state to transfer the assets for the purposes above. However, the law does not directly prohibit transferring assets to victims.

Does it make sense to start litigation/arbitration now or more reasonable to wait until legislation is passed to compensate losses at the expense of frozen Russian assets?

We believe that in the near future other countries will also enact laws allowing such compensation.

First, it is already being actively discussed by the world leaders. The US and UK are now drafting laws on the confiscation of frozen assets to compensate against Russian assets.

Second, the countries are unlikely to hand over millions of frozen Russian assets as compensation for destructions without reasonable legal ground. It is crucial for them to ensure legal transfer procedures. A judicial decision /arbitral award may be a proper legal basis for the transfer of forfeited money as compensation.

Thirdly, there are doubts about quick compensation to businesses through the future national or international compensation mechanism — the priority will be rebuilding houses infrastructure, and state property.

With this in mind to speed up the compensation process, we recommend you to read the article How to recover damages from Russia caused by the war in Ukraine in investment arbitration. Fortior Law considers investment arbitration as the optimal option for businesses to recover actual business losses from Russia.

Write to [email protected] or call one of our lawyers. We will analyse your case, assess your prospects and suggest options for further action.

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