



COURT OF APPEAL FOR ONTARIO

CITATION: Sistem Mühendislik İnşaat Sanayi Ve
    Ticaret Anomic Sirketi
v.
Kyrgyz Republic
, 2015 ONCA 447

DATE: 20150619

DOCKET: C58711

Hoy A.C.J.O., Feldman and Lauwers JJ.A.

BETWEEN

Sistem Mühendislik İnşaat Sanayi Ve
    Ticaret Anomic Sirketi

Respondent

and

Kyrgyz Republic and
Kyrgyzaltyn
    JSC

Appellant

J. Brian Casey and Matt Saunders, for the appellant

George J. Pollack and Steven G. Frankel, for the
    respondent

Heard: October 29, 2014, with further written submissions filed December
    12 and 17, 2014

On appeal from the order of Justice J.A. Thorburn of the Superior
    Court of Justice, dated April 15, 2014, with reasons reported at 2014 ONSC 2407.

Feldman J.A.:

[1]

The appellant, Kyrgyzaltyn JSC, is a Kyrgyz company wholly owned by the
    Kyrgyz Republic (the Republic). The appellant appeals from the order of
    Thorburn J. (1) declaring that the Republic has an equitable interest in the
    shares of Centerra Gold Inc., a Canadian mining corporation, that are held by
    the appellant, and (2) ordering the sheriff to seize the shares under s. 18 of
    the
Execution Act
, R.S.O. 1990, c. E.24, to satisfy the international arbitral
    award that the respondent, Sistem Mühendislik İnşaat Sanayi Ve
    Ticaret Anonim Sirketi (Sistem), obtained against the Republic.

[2]

The Republic did not appear or take any part in the hearing or the
    appeal. The first issue that the appellant argued is that the Republic was not
    properly served with the initiating documents in accordance with s. 9 of the
State
    Immunity Act
,
R.S.C. 1985,
    c. S-18 (SIA).

[3]

For the reasons that follow, I would allow the appeal. The Republic was
    not properly served in accordance with the SIA. Without proper service, the
    application judge could not make an order declaring the Republics interest in
    the shares and then depriving the Republic of that interest.

Facts

[4]

The facts and procedural history were clearly summarized by the
    application judge in her reasons. I reproduce them here with the caveat that the
    application judge stated a number of times that the Republic was served in
    connection with the proceedings in Ontario. The propriety of that service is
    the subject of this appeal.

[3] In 1992, Sistem entered into a joint venture with a Kyrgyz
    company to build the Hotel Pinara in Bishkek, the capital of the Republic. The
    Kyrgyz company went bankrupt and Sistem purchased its interest in the project.
    Sistem became the sole owner of the project in 1999. In 2005, Sistem was
    evicted from the Hotel Pinara at gunpoint and the property was expropriated.

[4] Sistem commenced arbitration proceedings against the
    Republic pursuant to a bilateral investment treaty between Turkey and the
    Republic. An arbitral tribunal was constituted pursuant to the International
    Center for Settlement of Investment Disputes, an organ of the World Bank.

[5] On September 9, 2009, the arbitral tribunal held that the
    Republic was legally responsible for the illegal expropriation of the Hotel
    Pinara and was ordered to pay to Sistem $8.5 million US plus interest and costs
    of over $600,000. The arbitral award is final and binding.

[6] Sistem has tried to enforce the award without success.

[7] On October 10, 2010 Sistem filed an Application in the
    Ontario Superior Court for an order recognizing the Award and rendering it
    enforceable in Ontario. The Republic was served but filed no responding
    materials.

[8] On January 5, 2011 Echlin J. granted an Order recognizing
    and enforcing the award in Ontario and ordering the Republic to pay Sistem in
    accordance with the arbitration award.

[9] In August 2011, Sistem brought a motion to add Kyrgyzaltyn
    as a party to this proceeding and to seek declaratory relief to permit the
    seizure of enough of the Centerra shares to satisfy the award. Both the
    Republic and Kyrgyzaltyn were served and neither filed responding materials.
    Cumming J. allowed Sistems motion and found that given the evidentiary
    record, Sistem has an arguable case that the subject shares in Centerra are
    properly subject to attachment in satisfaction of the Award. The Amended
    Notice of Application was issued and served on both the Republic and
    Kyrgyzaltyn.

[10] In July 2012, Brown J. dismissed Kyrgyzaltyns motion to
    set aside the Recognition Order. He also ordered that if the Republic intended
    to participate in this proceeding, it would have to file an appearance by
    September 1, 2012. It did not do so. That time was later extended to March 2013
    but the Republic still did not participate.

[11] On August 17, 2012, Strathy J. (as he then was) granted an
ex parte
motion for a Mareva injunction to prevent Kyrgyzaltyns
    disposition of the Centerra shares or dividends declared on those shares. He
    found that there is evidence to support Sistems position that Kyrgyzaltyn
    holds the shares for the Republic and there are reasonable grounds to believe
    that there are assets of the Republic, or assets held for its benefit, in this
    jurisdiction. The Mareva injunction was extended by Newbould J.

[12] Pursuant to the Mareva injunction, 4,000,000 Centerra
    shares registered in Kyrgyzaltyns name remain frozen and more than $11.2
    million in dividend monies are being held in trust to the credit of these
    proceedings.

[5]

Centerra is a publicly traded Canadian mining corporation and the sole
    shareholder of the Kumtor gold mine in the Republic. As part of an agreement
    entered into by Centerra,
Kyrgyzaltyn,
and the Republic in April 2009 entitled Agreement
    on New Terms, 43 million shares of Centerra were issued or transferred to
Kyrgyzaltyn
and
    registered in its name. In consideration, the Republic expanded the Kumtor
    mining concession and implemented a more favourable tax regime for one of
    Centerras subsidiaries.

[6]

The substantive issue before the application judge was whether the
    Republic has an equitable interest in the Centerra shares  and therefore in
    the dividends payable on those shares  that could be seized in Ontario under
    s. 18 of the
Execution Act
. She concluded that it does and ordered the
    seizure. This court stayed the order pending the outcome of this appeal: 2014
    ONCA 576.
[1]

The Service Issue

[7]

The Republic was served in the same manner for all proceedings in
    Ontario relating to the enforcement of the arbitral award. On this appeal, we
    are concerned only with the service of the Amended Notice of Application for
    the proceeding under appeal.

[8]

The issue of service was raised before the application judge by counsel
    for
Kyrgyzaltyn
.
    She dismissed the issue on two bases: (1) both the Superior Court and the Court
    of Appeal had already dismissed requests by
Kyrgyzaltyn
to dismiss the
    proceedings on that basis; and (2) the Republic had ample notice of Sistems
    request for relief and the opportunity to respond.

[9]

The evidence regarding service comes from the affidavit of a lawyer at
    the respondents law firm outlining the sequence of events leading to service
    of the initial application to recognize the arbitral award on October 21, 2010,
    and from an Affidavit of Service regarding the Amended Notice of Application
    that initiated the within proceeding.

[10]

The
    respondents counsel intended to serve the Republic in accordance with ss. 9(1)
    and (2) of the
SIA
which
    provide:

Service on a Foreign State

9. (1) Service of an originating document on a
    foreign state, other than on an agency of the foreign state, may be made

(
a
) in any manner agreed on by the state;

(
b
) in accordance with any international
    Convention to which the state is a party; or

(
c
) in the manner provided in subsection
    (2).

Idem

(2) For the purposes of paragraph (1)(
c
),
    anyone wishing to serve an originating document on a foreign state may deliver
    a copy of the document, in person or by registered mail, to the Deputy Minister
    of Foreign Affairs or a person designated by him for the purpose, who shall
    transmit it to the foreign state.

[11]

The
    respondents lawyer first contacted the Canadian Department of Foreign Affairs
    and International Trade (DFAIT) on September 9, 2010 and was told that the
    department could not effect service through diplomatic channels. However, he
    did not send a registered letter to DFAIT in order to have the initiating
    documents served in accordance with s. 9(2) of the SIA.

[12]

DFAIT
    referred the lawyer to the Honorary Consul of the Kyrgyz Republic for Canada,
    Mr. Rodney Irwin. The lawyer called Mr. Irwin but did not reach him and left no
    message.

[13]

The
    lawyer then sought to serve the Republic under s. 9(1)(a) of the SIA and to
    that end, obtained an opinion from the GRATA Law Firm, located in the Republic.
    That opinion stated that there was nothing specific in the legislation of the
    Republic that dealt with service on the Republic of an application to recognize
    and enforce an international arbitration award. The opinion advised that the
    procedural provisions of the Republic could therefore be used by analogy. It
    recommended service on the President. Another option for service was via
    diplomatic missions of the Kyrgyz Republic abroad in accordance with the International
    Agreements.

[14]

In
    follow-up correspondence, the GRATA Law Firm specifically confirmed that the
    Notice of Application could be served on the Republic at its embassy in
    Washington D.C., and explained that the relevant International Agreements
    included the
Vienna Convention on Diplomatic Relations
, 18 April 1961,
    500 U.N.T.S. 95 (entered into force 24 April 1964) (the
Vienna Convention
),
    to which the Republic is a party.

[15]

Based
    on this advice, the Notice of Application, together with a Russian translation,
    was served by Fed Ex on the Republic at its Washington embassy on October 19,
    2010. Another lawyer at the respondents law firm subsequently explained the
    nature of the documents to an embassy representative.

[16]

According
    to the Affidavit of Service dated November 25, 2011, the respondent purported
    to serve the Amended Notice of Application on the Republic in the same way by
    sending a copy by courier to the Republics Washington embassy.

Issues

[17]

There
    are five issues before the court on this appeal:

1)       Was the Amended Notice of Application        effectively
    served on the Republic in accordance       with s. 9(1)(a) of the SIA?

2)       If not, can service be validated under the
Rules of  Civil Procedure, R.R.O. 1990, Reg. 194
?

3)       Has the issue of service been determined by          previous
    decisions in this proceeding?

4)       If there was no effective service, what is the           appropriate
    disposition of this appeal?

5)       If there was effective service, did the application    judge
    err by finding that the Republic has a   beneficial interest in the Centerra
    shares that is          exigible under s. 18 of the
Execution Act
?

Analysis

(a)

Issue 1: Was the Amended Notice of Application effectively served on the
    Republic under s. 9(1)(a) of the SIA?

The State Immunity Act

[18]

Both
    parties agree that service on a foreign state is governed by ss. 9(1) and (2)
    of the
SIA
. The SIA was enacted
    in Canada in 1982, shortly after similar legislation was enacted in the United
    States (the
Foreign Sovereign Immunities Act of 1976
, Pub. L. No.
    94-583, 90 Stat. 2891 (FSIA)) and in the United Kingdom (the
State
    Immunity Act

1978
(UK), 1978, c. 33 (UK SIA)). Its purpose and
    effect were discussed by the Supreme Court of Canada in the case of
Kuwait
    Airways Corp. v. Iraq
, 2010 SCC 40, [2010] 2 S.C.R. 571.

[19]

Justice
    Lebel explained that the SIA was enacted as a result of the gradual emergence in
    the common law of a more restrictive theory of state immunity than had
    previously been recognized, which reflected the growing diversity of state
    functions and the effect of state immunity on relations between states and
    private interests. The purpose of the Act was to better define the purpose and
    means of claiming the customary immunity sovereign states are entitled to in
    their dealings with other members of the international community in
    contemporary public international law: at para. 13.

[20]

Section
    3 of the SIA establishes the general principle that foreign states have
    immunity from the jurisdiction of the Canadian courts, except as provided in
    the Act. Importantly, under s. 3(2), a court must give effect to that immunity
    even if the foreign state does not take any step in the proceeding. As Lebel J.
    put it, the court must give effect to the immunity on its own initiative if
    applicable: at para. 15.

Was the Republic properly served under s. 9(1)(a) of
    the SIA?

[21]

The
    respondent submits that by serving the Republic at its embassy in Washington
    D.C., it effected service in accordance with s. 9(1)(a) of the Act, on the
    basis that the Republic agreed to be served in that way by signing the
Vienna
    Convention
.

[22]

There
    is no authority that supports this submission. First, this submission
    effectively ignores s. 9(1)(b) of the SIA, which specifically allows service
    in accordance with any international Convention to which the state is a party.
    The respondent does not seek to rely on s. 9(1)(b) on the basis that the
    service was effected in accordance with the
Vienna Convention
.

[23]

There
    is no provision in the
Vienna Convention
that deals with service
    specifically. Article 3 of the
Vienna Convention
was referred to in
    the GRATA opinion. However, that article deals with the functions of a
    diplomatic mission. These functions do not specifically include accepting
    service of an originating process.
[2]

[24]

If
    service in accordance with the
Vienna Convention
cannot be claimed
    using s. 9(1)(b), it is unclear how that same Convention can be used to find
    that the Republic agreed to be served at its embassy in Washington.

[25]

Second,
    the jurisprudence indicates that service on an embassy is not available as a means
    of effecting service on a foreign state. The Quebec Superior Court addressed
    the issue of the propriety of service on an embassy in
Cegir Inc. c. Banque
    Algérienne de Developpement
, [1989] R.J.Q. 1965 (Q.C. S.C.). It concluded,
    at paras. 64-66, that service on an embassy violated the SIA and the
Vienna
    Convention
.

[26]

There
    is also U.S. and U.K. authority holding that such service is not effective
    under those countries state immunity statutes. In
40 D 6262 Realty Corp v.
    United Arab Emirates
, 447 F. Supp. 710 (S.D.N.Y. 1978), the United States
    District Court (S.D. New York) held that service by mail on the embassy of the
    United Arab Emirates was not allowed under the FSIA.

[27]

A
    similar conclusion was reached by the House of Lords in
Kuwait Airways

Corp. v. Iraqi Airways Co.
, [1995] 3 All ER 694 (U.K. H.L.). It held
    that service on an embassy was not in compliance with s. 12(1) of the UK SIA,
    which is analogous to ss. 9(1)(c) and 9(2) of the SIA. Lord Goff stated, at p.
    704:

The delivery of the writ by the Foreign and Commonwealth Office
    to the Iraqi embassy was at best a request to the Iraqi embassy to forward the
    writ on behalf of the Foreign and Commonwealth Office to the Iraqi Ministry of
    Foreign Affairs. On the evidence, that was not done. It follows that the
    service of the writ on Iraq was never effected in accordance with s 12(1) and
    that the appeal of KAC on this point must be dismissed.

[28]

Section
    12(6) of the UK SIA is similar to s. 9(1)(a) of the Canadian Act, allowing for
    service in a manner agreed to by the foreign state. Lord Goff made no
    suggestion that s. 12(6) could have formed the basis for effective service
    under the statute.

[29]

Crescent
    Oil and Shipping Services Ltd. v. Importang UEE
,
[1997] 3
    All ER 428
(U.K. Q.B., Comm. Ct.), is an example of a case where the
    court discussed how the service in a manner agreed to prong of the UK SIA could
    be satisfied. In that case, a jurisdiction clause in a commercial agreement between
    an economic unit of the Republic of Angola (with separate legal identity) and a
    foreign company provided for service on the Angolan party at the Angolan
    Embassy in London. The Queens Bench judge opined, at pp. 439-440, that had the
    Angolan Republic been a party to that agreement, service on its embassy would
    have been permissible under the agreement prong of the UK SIA.

[30]

In
    this case, I conclude that there is no basis in fact or in law for this court
    to find that the Republic was served in a manner to which it has agreed in
    accordance with s. 9(1)(a) of the SIA. A similar conclusion was reached by Low
    J. of the Ontario Superior Court of Justice in
Softrade Inc. v. United
    Republic of Tanzania
, [2004] O.J. No. 2325 (S.C.). There, the statement of
    claim was served on the Office of the High Commissioner for the United Republic
    of Tanzania in Ottawa. The court stated, at para. 9:

The United Republic of Tanzania is not a party to any
    international treaty regarding service of court-issued documents, there is no
    evidence that the United Republic of Tanzania agreed to be served in the manner
    shown in the affidavits of service of Colin Lalumiere (or in any other fashion)
    and there is no evidence that a copy of the statement of claim was delivered to
    the Deputy Minister of Foreign Affairs or his designate for transmission to the
    foreign state.

[31]

Although
    not detailed in the judgment, Tanzania was a member of the
Vienna
    Convention on Diplomatic Relations
and the
Vienna Convention on Consular
    Relations
,
24 April 1963, 596 U.N.T.S. 261 (entered into
    force 19 March 1967)
. From the reasons, it appears that Low J. did not
    view either of these treaties as regarding service of court-issued documents.

(b)

Issue 2: Can service be validated under Rule 16 of the
Rules of Civil
    Procedure?

[32]

The
    respondent submits that if service on the Washington embassy of the Republic is
    not service in a manner agreed on by the Republic under s. 9(1)(a) of the SIA,
    this court should nonetheless validate service as the Republic is well aware of
    these proceedings and was served in accordance with the
Rules of Civil
    Procedure
. Sistem points to s. 17 of the SIA which provides:

Except to the extent required to give effect to this
    Act, nothing in this Act shall be construed or applied so as to negate or
    affect any rules of a court, including rules of a court relating to service of
    a document out of the jurisdiction of the court.

[33]

The
    issue of the role and applicability of the
Rules of Civil Procedure
in
    respect of service on foreign states has arisen in two cases in Ontario, the
Softrade
case referred to above and the earlier decision of
Tritt v. United States
    of America
(1989), 68 O.R. (2d) 284 (H.C.).

[34]

In
Softrade
, the plaintiff argued that service in accordance with s. 9 of
    the SIA is not mandatory but is an additional method to the
Rules of Civil
    Procedure
. Justice Low rejected that argument. She stated that it ignored
    and contradicted s. 3 of the Act, which provides for foreign state immunity
    from the jurisdiction of a Canadian court.

[35]

She
    also referred to the
Tritt
decision where Steele J. held that the SIA
    requires that service on a foreign state be made in accordance with s. 9 and
    not the
Rules of Civil Procedure
even where the substantive provisions
    of the SIA do not apply. In that case, the cause of action against the United
    States arose prior to the enactment of the SIA. Relying on the decision of the
    Supreme Court of Canada in
Angus v. Sun Alliance Insurance Co.
, [1988]
    2 S.C.R. 256, he held that the immunity provisions of the Act did not apply as
    substantive aspects of legislation are not retrospective. At common law, the
    state therefore had complete immunity.

[36]

As
    a second ground for setting aside the default judgment against the United
    States, Steele J. concluded that the defendants had not been properly served. Again
    citing
Sun Alliance
, he noted that the procedural provisions of the
    SIA applied retrospectively even though the substantive immunity provisions did
    not. Therefore,

although the defendants were all immune from suit at
    common law, any service on them had to be in accordance with s. 9 of the SIA.

[37]

Justice
    Steele also addressed the argument that some of the named defendants were
    acting as an agency of a foreign state. Section 9(3)(c) of the SIA allows service
    on an agency of a foreign state in accordance with any applicable rules of
    court.
[3]
However, Steele J. held that the defendants were acting for a state and not an
    agency thereof; therefore s. 9(3) of the SIA, which allows for service using the
Rules of Civil Procedure
, did not apply. The plaintiff could not
    resort to the
Rules
as a means of effecting service.

[38]

A
    similar conclusion was reached by the Quebec Superior Court in
Cegir Inc.
,
    where the plaintiff also sought to rely on s. 17 of the SIA. The court rejected
    the submission, finding that the Quebec rules governing civil procedure could
    not be used to circumvent ss. 9(1) and (2) of the SIA. The court explained, at
    paras. 76-79:

[Translated] Cegir claims it did not have to follow the
    requirements of s. 9(2) for the following reasons: ss. 9(1) and 9(2) provide
    the ability to use different methods of service without thereby excluding the
    special procedures set out in the Code of Civil Procedure. Cegir advances a
    textual argument, namely the Acts uses of the words service may be made in
    the English version and signification se fait in the French version of s.
    9(1), and uses the words may deliver in the English version and peut se
    faire in the French version of s. 9(2).

It is true that s. 17 of the Act stipulates that it does not
    affect the application of the rules of procedure or practice of the courts, including
    those relating to service outside the courts jurisdiction. This general rule,
    however, only operates to the extent required to give

effect to the Act
    as a whole, as stated in the last part of that section.

The objective of the Act is to ensure that the foreign state
    receives notice of pleadings, within the framework of the immunity which the state
    enjoys. In this context, the French text accurately reflects the legislative
    intent and denotes the mandatory nature of the provision. In addition, the
    legislature would not have limited the application of s. 9(4) to agencies of
    the foreign state if it wanted to allow the court to prescribe a different mode
    of service in regards to serving the state itself. The legislature therefore
    excluded this possibility with respect to the state.

Accordingly, the court cannot accept this argument.

[39]

I
    agree with the reasoning and outcome of the decisions in
Softrade
,
Tritt,
and
Cegir
.

[40]

Reading
    s. 9 as a whole, it is clear that ss. 9(1) and (2) provide the sole methods for
    service of initiating documents on a foreign state and preclude resort to the
Rules
    of Civil Procedure
. Subsection 9(3) allows service on an agency of a
    foreign state using a provinces rules of civil procedure. An agency is
    defined in s. 2 of the Act as any legal entity that is an organ of the foreign
    state but that is separate from the foreign state. By specifically allowing
    service on an agency of a foreign state using the rules of civil procedure,
    while specifically excluding an agency of a foreign state from ss. 9(1) and
    (2), Parliaments intention to limit the methods of service on foreign states to
    the three methods in ss. 9(1) and (2) is made fully apparent. There would
    otherwise be no purpose in differentiating service methods.

[41]

Section
    10 of the Act further supports this interpretation. It provides that default
    judgment can only be obtained where service of an originating document has
    been made on a foreign state in accordance with subsection 9(1), (3) or (4).
[4]
This provision makes it clear that service using the method specified in the
    relevant section is a prerequisite to proceeding against a foreign state that
    defaults.

[42]

Section
    17 of the SIA allows the rules of court to continue to apply except to the
    extent required to give effect to this Act. Sections 9(1) and (2) set out the
    three available methods for service of an initiating proceeding on a foreign
    state and are part of the scheme governing state immunity under the Act. One purpose
    of including s. 17 in the SIA may be to make clear that the rules of civil
    procedure with respect to service out of the jurisdiction apply fully where
    service is not limited  for example, in the case of service on an agency of a
    foreign state as permitted under s. 9(3).

[43]

Section
    9(1) states that service may be made in accordance with the three prescribed
    methods. In
Bates v. Bates
(2000), 49 O.R. (3d) 1 (C.A.), at paras. 23-24,
    Laskin J.A. explained that the word may has to be read in context. In s. 9(1),
    the term may is intended to be exhaustive, not permissive, given the context
    and logic of the provision.

[44]

A
    similar analysis was recently conducted by the Federal Court of Appeal in
Reference
    re section 14 of the Agriculture and Agri-Food Administrative Monetary
    Penalties Regulations
, 2012 FCA 130, 433 N.R. 299. There, the court was
    considering whether the word may in s. 14(1) of the
Agriculture and
    Agri-Food Administrative Monetary Penalties Regulations
, SOR/2000-187, was
    permissive or exhaustive. That provision stipulated:

14. (1) A person
may
make a request referred
    to in section 11, 12 or 13 [a request for review] by delivering it by hand or
    by sending it by registered mail, by courier or by electronic means, including
    electronic registered mail and fax, to a recipient and place authorized by the
    Minister. [Emphasis added]

[45]

The
    background to the reference involved a company delivering a request for review to
    the Canadian Agricultural Review Tribunal by regular mail. The applicant
    tribunal sought the courts opinion on whether that delivery method was
    consistent with s. 14(1). The applicant noted that since regular mail was not
    specifically excluded by the Regulations, a fair, large and liberal
    interpretative approach as provided by s. 12 of the
Interpretation Act
,
    R.S.C. 1985, c. I-2, could support a permissive interpretation of the
    provision. On the other hand, in support of an exhaustive interpretation, the
    applicant pointed to the Acts objective of promoting efficiency, which suggested
    a need for adherence to the methods stipulated in the legislation. In holding
    that s. 14(1) did not allow for delivery by regular mail, the Federal Court of
    Appeal held, at para. 22:

In my view, section 14 cannot be construed as authorizing
    regular mail as a means of communicating a request. Subsection 9(2) of the Act
    provides that a person may request a review by the Tribunal in the prescribed
    time and manner. Section 14 of the Regulations simply does not prescribe
    regular mail as a manner of requesting a review by the Tribunal.

[46]

Section
    10(1) of the SIA has a similar meaning and effect, by limiting the effective
    methods of service to those listed in s. 9 of the SIA.

[47]

In
Sullivan and Driedger on the Construction of Statutes
, 6th ed.
    (Markham: LexisNexis Canada Inc., 2014), at para. 4.67, Ruth Sullivan
    summarized the courts conclusion in
Reference re section 14
: Although
    persons were not obliged to request a review, having decided to do so, they
    were obliged to follow one of the methods set out in the provision. The
    present case is analogous. Given the purpose of the SIA to more clearly define
    the contours of state immunity, individuals who decide to commence an action
    against a state must adhere to the prescribed methods of service outlined in
    the legislation.

[48]

As
    found by the Quebec Superior Court in
Cegir Inc.
, at paras. 76-79 (quoted
    above), the interpretation that the term may in s. 9(1) is not permissive is
    reinforced by the French version of the SIA, which uses the phrase signification
     se fait, meaning service  is made. The Supreme Court recently affirmed that
    generally speaking, the use of the present indicative tense (e.g., se faire,
    as in this case) is not to be read as conferring discretion:
Canada
    (Minister of Citizenship & Immigration) v. Khosa
, 2009 SCC 12, [2009]
    1 S.C.R. 339, at para. 38.

[49]

I
    conclude based on the wording and logic of s. 9, as reinforced by the
    principles of statutory interpretation, that ss. 9(1) and 9(2) are mandatory
    and exhaustive and do not permit service on a foreign state in accordance with
    provincial rules of civil procedure. The court is therefore precluded from
    validating service under Rule 16.

(c)

Issue 3: Has the service issue been decided by previous decisions in
    this proceeding?

[50]

The
    procedural history of this matter was described by the application judge in the
    paragraphs quoted above.

[51]

While
    the issue of service on the Republic has been raised by Kyrgyzaltyn in previous
    proceedings, it was always addressed by the court in the context of Kyrgyzaltyns
    standing to raise the issue, or put another way, the failure of the Republic to
    appear and raise the issue itself.
[5]


[52]

In
    none of the previous proceedings has the court directly considered and ruled on
    the issue of whether service on the Republics Washington embassy was in
    accordance with s. 9(1)(a) of the SIA.
[6]
To the extent that in other decisions involving these parties, courts may have declined
    to address that issue based on Kyrgyzaltyns lack of standing, that position
    was taken
per incuriam
. As a preliminary matter, a court must always
    determine whether service was properly made on an absent named party whose
    interests will be affected by the order sought. The question of standing is
    irrelevant to this issue, as it is the courts role to ensure that the procedural
    rights of a party that does not appear are protected.
[7]

[53]

As
    noted above, s. 3(2) of the SIA specifically requires a court to give effect
    to the immunity conferred on a foreign state by subsection (1) notwithstanding
    that the state has failed to take any step in the proceedings, and the Supreme
    Court of Canada in
Kuwait Airways
reinforced that that meant a court
    must give effect to the immunity of its own volition. A Canadian court must
    also give effect to the procedural provisions of the SIA on its own volition
    when faced with a case involving an action against a state, as these provisions
    are an integral part of the scheme designed to respect state immunity.

[54]

The
    respondent argues that s. 3 of the SIA, which provides for substantive state immunity
    from the jurisdiction of any court in Canada, is distinct from the procedural
    provisions of the SIA. It submits that a court is therefore not obliged to
    consider the
procedural
issue of validity of service on its own
    volition. However, this argument ignores the fact that the only logical way to
    proceed requires a court to address any issue regarding service before it
    engages with the merits of a proceeding, including the underlying question of
    substantive immunity.

[55]

Where
    a foreign state does not appear in a proceeding commenced against it, the first
    step a court must take is to determine, based on the affidavit material
    provided by the initiating party, that service has been properly effected in
    accordance with s. 9(1) or (2) of the SIA. Only if service appears to be proper
    does the court proceed to consider whether the state has substantive immunity
    under the SIA.

(d)

Issue 4: If there was no effective service, what is the appropriate
    disposition of this appeal?

[56]

As
    the Republic was not served with the Amended Notice of Application in
    accordance with ss. 9(1) or (2) of the SIA, I conclude that the decision below
    must be set aside.

[57]

I
    have come to this conclusion despite the fact that the Republic has had actual
    notice of these proceedings. In
Stans Energy Corp. v. Kyrgyz Republic
,
    2014 ONSC 6195, reversed on other grounds, 2015 ONSC 3236 (Div. Ct.), Newbould
    J. referred to the Republics active involvement in negotiating with Sistem to
    lift the Mareva injunction that was in place as a result of the current
    proceeding. He observed, at para. 37:

Recently Centerra has announced that
it, the Republic and
    Kyrgyzaltyn have entered into an agreement
under which Kyrgyzaltyn would
    exchange its shares in Centerra for a 50 per cent interest in a joint venture
    company that would own the Kumtor Project. On February 6, 2014, Centerra
    announced that the Republic's Parliament had adopted a resolution supporting
    the restructuring.
The Republic has agreed to pay in excess of US$11 million
    in escrow to Sistem in exchange for a lifting of the injunction obtained by
    Sistem
, which would be required in order for the restructuring to proceed. [Emphasis
    added.]

[58]

However,
    despite the Republics actual notice of the proceedings and its involvement in
    negotiations, this court is constrained by the clear provisions in the SIA,
    which in this case have not been satisfied.

Result

[59]

I
    would allow the appeal and set aside the judgment of Thorburn J. with costs to
    the appellant fixed at $40,000 inclusive of disbursements and HST.

[60]

A
    new hearing may be held following service of the Amended Notice of Application
    on the Republic in accordance with s. 9(1) or (2) of the SIA.

Released: AH June 19, 2015

K. Feldman J.A.

I agree. Alexandra
    Hoy A.C.J.O.

I agree. P. Lauwers
    J.A.





[1]

Since then, other escrow arrangements were made by order of
    Newbould J. dated October 22, 2014.



[2]
The argument that service on an embassy is equivalent to service on a foreign
    state has been rejected in several cases, which I discuss in more detail below:
    See
Kuwait Airways

Corp. v. Iraqi Airways Co. and others
, [1995]
    3 All ER 694 (U.K. H.L.);
40 D 6262 Realty Corp v. United Arab Emirates
,
    447 F. Supp. 710 (S.D.N.Y. 1978);
Cegir Inc. c. Banque algerienne de
    developpement
, [1989] R.J.Q. 1965 (Q.C. S.C.).



[3]

9(3) Service of an originating document on an agency of a
    foreign state may be made


(
a
) in any manner agreed on by the agency;


(
b
) in accordance with any international Convention
    applicable to the agency; or


(
c
) in accordance with any applicable rules of court.



[4]
Section 9(1), by virtue of s. 9(1)(c), includes service under s. 9(2).
    Subsections (3) and (4) apply only to agencies of a foreign state. The
    definition of foreign state in s. 2 of the SIA includes an agency of a
    foreign state.



[5]
No previous court cited the Supreme Court of Canadas decision in
Kuwait
    Airways
, referred to at paras. 18-20 above and para. 53 below, nor was this
    court referred to that decision. Counsel were given the opportunity to address
    it following the oral appeal in subsequent written submissions.



[6]
Based on his finding that the Republic had notice of the motion, Cumming J. validated
    service in his formal order dated September 30, 2011.



[7]
See
Royal Trust Corp. of Canada v. Dunn
(1991), 6 O.R. (3d) 468, at p.
    469 (Ont. Gen. Div.), where Borins J. explained that where service was
    improper, a default judgment can normally be set aside as of right, regardless
    of whether there was any defence on the merits.


