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October
9, 1996
+Cite
as 36 I.L.M. 111 (1997)+
Introductory
Note by Douglas H. Forsythe
The
recent amendments to Canada's blocking legislation, the Foreign
Extraterritorial Measures Act (FEMA), came into force on January
1, 1997. The amendments (Bill C-54) were sparked by the need
to react to the U.S. Cuban Liberty and Democratic Solidarity
(LIBERTAD) Act of 1996 (the Helms-Burton Act). In particular,
Canada wanted to provide some protection to Canadians from
lawsuits filed pursuant to Title III of the Helms-Burton Act.
This Title provides a right of action in U.S. courts in respect
of property expropriated in Cuba.
Canada
and most other major partners of the United States have been
strongly critical of the Helms-Burton Act. Canada's concerns
are not just in respect of foreign policy differences on relations
with Cuba, but also concerns over the longer term implications
of the U.S. resorting to this type of legislation to try and
force other nations to act in accordance with U.S. objectives.
This note will address only the FEMA amendments as part of
the Canadian response to the Helms-Burton Act.
It
should be noted that the federal government of Canada can
and does exercise extraterritorial jurisdiction. Accordingly,
Canada does not object to the assertion of extraterritorial
jurisdiction per se. What Canada does oppose is conflict created
by such assertions of jurisdiction. More specifically, Canada
opposes extraterritorial measures that contradict or undermine
the laws or clearly enunciated policies of another state exercising
concurrent jurisdiction, on a territorial basis, over the
same conduct.
Title
III of the Helms-Burton Act represents just the type of U.S.
extra-territorial reach that stretches the internationally
accepted principles of jurisdiction. The reach of the legislation
is justified by the so-called "effects doctrine". It also
suggests that the expropriations that took place in Cuba decades
ago are continuing to have such a serious effect within the
United States so as to justify the rather extraordinary rights
to claim inflated damages given to U.S. claimants.
Before
turning to the amendments themselves, we should review the
enactment of the original FEMA legislation. FEMA was adopted
by Parliament in 1984, taking effect in 1985. The origins
of the legislation lie in battles in the late 1970s and early
1980s over extraterritorial assertion of jurisdiction that
Canada found objectionable. These conflicts included the uranium
cartel litigation, the Bank of Nova Scotia subpoenas case
and the Siberian pipeline embargo.
The
legislation was based on similar blocking laws that were enacted
or then contemplated by others, notably the U.K. Protection
of Trading Interests Act. Canada did have some experience
in blocking legislation; at the provincial level, both Quebec
and Ontario had enacted laws to provide for orders to protect
corporate documents from production in foreign court proceedings.
During the uranium cartel litigation, the federal government
enacted an Order-in-Council to block production of Canadian
court documents in a U.S. court. While the Supreme Court of
Canada upheld the validity of that Order, an impetus behind
the enactment of FEMA was a wish that such a blocking power
should have a sounder legislative footing.
The
FEMA has three blocking provisions. The first (section 5)
authorizes the Attorney General, with the concurrence of the
Minister of Foreign Affairs, to make orders to block compliance
in Canada with an extraterritorial measure of a foreign state.
The extraterritorial measures must adversely affect significant
Canadian trading interests or infringe Canadian sovereignty.
This section is the basis of the current FEMA order (the Foreign
Extraterritorial Measures (United States) Order, 1992, as
amended in 1996). This order forbids compliance by Canadians
with the extraterritorial measures enacted by the United States
to enforce the embargo of Cuba.
The
second blocking provision permits the Attorney General (a)
to order that records in Canada not be produced in a foreign
tribunal (section 3) and (b) to order that the records be
seized for safe-keeping if the Attorney General is not satisfied
that the records are secure from production. As with section
5, the Attorney General must consider that the actions of
the foreign tribunal affect significant Canadian trading interests
or infringe Canadian sovereignty. This is the authority that
would be relied upon if Canada were again to block production
of documents, as was done in the uranium cartel case.
The
third blocking provision, section 8, was amended. It originally
provided that the Attorney General may issue orders forbidding
enforcement of foreign competition law ("antitrust" in the
Act) judgments in Canadian courts. As with the other provisions,
the Attorney General must find that the foreign judgment affects
significant Canadian trading interests or infringes Canadian
sovereignty.
Related
to the third blocking provision is the "clawback" in section
9. It originally provides that if a judgment is blocked by
a section 8 order, the Canadian defendant in the foreign action
had the right to sue in a Canadian court to recover an equivalent
amount in damages against the person who took action in the
foreign tribunal.
The
amendments to FEMA were generally directed at changing the
blocking provisions in section 8 and the clawback provisions
in section 9. Generally, these sections were amended by removing
the restrictions that limited the application of these sections
to competition law or antitrust judgments. The amendments
provide for a Schedule to the Act which will list foreign
laws that the Attorney General, with the concurrence of the
Minister of Foreign Affairs, considers to violate international
law and international comity. The amended section 8 allows
for blocking of judgments made pursuant to such scheduled
legislation. The Helms-Burton Act is named in the schedule
to the Act. In fact, in consideration of the FEMA amendments
bill, Parliament introduced an amendment that provided that
judgments made pursuant to the Helms- Burton Act will be blocked
from enforcement in Canadian courts. There is no need for
an order of the Attorney General. The FEMA amendments also
make the clawback available in respect of scheduled offensive
legislation.
The
thrust of these amendments is to provide tools to Canadians
to protect themselves from Helms-Burton litigation in respect
of property interests that they might have in Canada. It is
hoped that the existence of the blocking legislation will
discourage the initiation of lawsuits both by ensuring that
judgments cannot be enforced against assets in Canada and
providing for a clawback of damages and costs. The provision
in the amended Act to schedule new foreign trade laws that
are objectionable will provide the Canadian Government with
flexibility to react in the unfortunate event that more legislation,
perhaps on the model of Title III of the Helms- Burton Act,
is enacted.
Review
of Major Amendments to FEMA
Section
2.1 is new. It allows the Attorney General, acting with the
concurrence of the Minister of Foreign Affairs, to amend the
schedule to the Act to list foreign trade laws or provisions
of such laws which, in his or her opinion, are repugnant to
international law or international comity. The Attorney General
may, with the same concurrence, remove items from the list
when he or she deems it appropriate to do so.
The
amendment to subsection 3.(1) expands the powers of the Attorney
General to prohibit or restrict the disclosure of records
to foreign tribunals. The new words allow the Attorney General
to prevent such disclosure when the foreign tribunal is exercising
jurisdiction or powers relating to the enforcement of legislation
listed in the schedule to the Act.
The
amendments in subsection 7.(1) increase the penalties available
under the Act in respect of breaches of orders made under
sections 3 and 5, in such a manner as to contribute to discouraging
compliance with objectionable foreign measures. The amendment
is not directly related to addressing the Helms-Burton Act.
Rather, an increase in the fines was thought necessary to
balance the penalties available in other jurisdictions to
enforce foreign extraterritorial measures that Canada wants
to block. For example, breaches of the United States regulations
imposing the Cuban embargo are punishable by fines of up to
USD 1 million.
Subsection
7.(4) is new. It lists factors to be taken into account by
a court in determining the sentence for a breach of an order
made under sections 3 or 5 of the Act. The list is not exclusive:
judges may consider other factors as well. The listed factors
were selected from judicial precedents. They are: 1. the degree
of premeditation in the commission of the offense; 2. the
size, scale and nature of the offender's operations; and 3.
whether any economic benefits have, directly or indirectly,
accrued to the offender as a result of having committed the
offence.
Section
7.1 is new. It provides that any attempt to enforce in Canada
any judgment, order or decree given under the Helms-Burton
Act will be blocked. There will be no need for a specific
Attorney General's order (as provided for in subsection 8(1.1),
below). This blocking of all Helms-Burton judgments will permit
Canadian companies that do not have assets in the United States
to ignore any proceedings based on the Helms-Burton Act that
may be launched against them in the U.S., as they will know
that no such judgments will be enforced in Canada.
Subsection
8.(1.1) is new. It allows the Attorney General, by order,
to prevent, in whole or in part, the recognition and enforcement
in Canada of judgments given under scheduled legislation which
adversely affect significant interests in Canada.
Section
8.1 is new. It provides that the Attorney General has the
authority to issue, upon application by a Canadian or a person
carrying on business in Canada, a special recovery order in
cases where a judgment is given under the Helms-Burton Act.
Such a special recovery order may be issued in respect of
a judgment under scheduled legislation or an antitrust (competition)
law when such a judgment has been fully satisfied outside
Canada and therefore no order can usefully be issued to prevent
its recognition and enforcement in Canada.
Subsection
9.(1) has been extended to allow for a right to recover in
whole or in part in Canadian courts any sums of money paid
in satisfaction of a judgment given under scheduled legislation
as well as antitrust (competition) laws. The right to recover
now extends to expenses incurred in the proceedings in the
foreign jurisdiction and in the recovery proceedings in Canada
and any consequential loss or damage suffered by reason of
the enforcement of the foreign judgment. The rule on expenses
and consequential damages is new. It also applies in respect
of antitrust (law) judgments that are extraterritorial or
otherwise offensive to Canadian sovereignty.
Subsection
9.(1.1) is new. It has been added to allow persons in Canada
to recover expenses incurred in defending foreign litigation
taken under scheduled legislation or an offensive antitrust
law, even when that litigation is still in progress.
Subsection
9.(2) has been amended to provide that a recovery judgment
rendered in Canada, including one for expenses in respect
of foreign litigation still in progress, can also be executed
on the property of a person who owns or controls, or is a
member of a group that controls, the person who obtained the
impugned foreign judgment or is seeking such a judgment.
The
schedule is new. It lists all the provisions of the United
States Cuban Liberty and Democratic Solidarity (LIBERTAD)
Act of 1996 (the Helms-Burton Act) as a foreign trade law
for the purposes of the amended Act.
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