SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO .: CV-11-9419-00CL
DATE: 20120817

RE: Sistem Mühendislik İnşaat Sanayi Ve Ticaret Anonim Sirketi , Applicant

AND:
Kyrgyz Republic and Kyrgyzaltyn JSC , Respondents

BEFORE: G.R. Strathy J.

COUNSEL:
George Pollack and Steven G. Frankel for the Applicant, Moving Party

No one for the Respondents

HEARD: August 17, 2012

ENDORSEMENT

[ 1 ] The Applicant (Sistem), a Turkish body corporate, moves ex parte for an interim order restraining Kyrgyzaltyn JSC (KJSC) and anyone on its behalf from taking any steps to obtain share certificates in respect of 4,000,000 shares in Centerra Gold Inc. (Centerra) held by KJSC and for certain related relief to restrain dealings in the shares.

[ 2 ] The background to this motion is a matter of record in this court. Reference can be had to previous decisions and orders of Echlin, Cumming and Brown JJ., discussed below.

[ 3 ] Briefly, on September 9, 2009, Sistem obtained an arbitration award (the Award), against the Kyrgyz Republic (the Republic), which the Republic has refused to pay.

[ 4 ] Sistem them commenced an application in this court for the recognition and enforcement of the Award. The Republic did not file materials and did not appear on the hearing. On January 5, 2011, Echlin J. granted an order recognizing and enforcing the Award as if it were an award of this court. The Republic was ordered to pay Sistem an amount in Canadian currency sufficient to purchase US$9,147,470.00, together with interest.

[ 5 ] Efforts were then made to enforce the Award.

[ 6 ] It was determined that KJSC, a body corporate, allegedly wholly-owned by the Republic, was the nominal owner of 77,401,766 shares in Centerra (the Shares).

[ 7 ] Centerra is a publicly-traded Canadian mining company that has extensive operations in Asia and, though subsidiaries, operates the Kumtor gold mine in the Republic, one of the largest gold mines in the world. Centerra’s head office is in Toronto, it is a reporting issuer under the Securities Act , R.S.O. 1990, c. S.5 and its shares are traded over the Toronto Stock Exchange. Sistem sought to enforce the Award through the seizure of some of the Shares.

[ 8 ] Sistem then brought a motion to add KJSC as a party to the application and to amend the notice of application to include the following requests for relief: (a) an order that the Republic is the beneficial owner of the Shares; (b) an order that the sheriff may seize the Shares in order to satisfy the Award.

[ 9 ] Centerra opposed the motion. Neither the Republic nor KJSC filed materials or opposed the motion.

[ 10 ] On September 30, 2011, Cumming J. granted the order sought by Sistem. He held, among other things, that Centerra had no standing to speak on behalf of the Republic or KJSC: see Sistem v. Krygyz Republic, 2011 ONSC 5731 . Cumming J. noted that his disposition of the motion was not a determination that KJSC was a mere nominee on behalf of the Republic – the motion before him was simply procedural, and the determination of the Republic’s interest, if any, in the Shares would be made in due course. Cumming J. ordered that KJSC be added as a party to the application and that the application be amended as requested by Sistem.

[ 11 ] At this point, KJSC responded to the application, filed a notice of appearance, and moved to set aside the order of Echlin J. on the ground of jurisdiction and to stay the proceedings regarding the ownership of the Shares on forum non conveniens grounds. Centerra supported the motion.

[ 12 ] On July 25, 2012, Brown J. dismissed the Republic’s motions: see Sistem v. Kyrgyz Republic , 2012 ONSC 4351 . He ordered that the parties make an appointment before him by September 21, 2012, for the purpose of establishing a plan and timetable for the adjudication of the balance of the application namely, the determination of the ownership of the Shares.

[ 13 ] I have been informed that KJSC intends to appeal the decision of Brown J.

[ 14 ] This brings me to the circumstances giving rise to the present motion.

[ 15 ] On August 14, 2012, Sistem became aware, through news reports from the Republic, that KJSC either has received or will receive share certificates for some 74,551,766 of the total amount of 77,401,766 Shares and that the share certificates in respect of these shares either have been or will soon be sent to the Republic.

[ 16 ] The news reports are brief and somewhat cryptic. The first is from an internet news agency, referred to as “24kg”, based in Bishkek, the capital of Kyrgyzstan. The report is dated August 14, 2012 and stated that KJSC had become a “direct shareholder” of Centerra. It indicated that while the Shares had been formerly kept in a special deposit account with CIBC Mellon, and later with a Canadian law firm, an agreement had been signed with KJSC, following a meeting with the law firm, whereby KJSC would receive 74,551,766 shares. It said that “[T]he shares will be kept in Kyrgyzstan and [KJSC] becomes a direct shareholder.” This report apparently came from the Chairman of the Board of KJSC. It was reported that the Prime Minister of Kyrgyzstan described the event as “historical”.

[ 17 ] The second report came from an organization called “Emerging Markets Information Service” and summarized a news report on Kyrgyzstan television on August 13, 2012:

Prime Minister Omurbek Babanov meets the chairman of Kyrgyzaltyn state company, Dilger Japarov. Company representatives inform Babanov that from now on Kyrgyzstan’s shares of the Canadian Kumtor gold mine will be kept by the Kyrgyzaltyn company. Formerly the shares were kept by a private Canadian law firm. Video shows the meeting.

[ 18 ] In light of these reports, Sistem is concerned that if the share certificates for the Shares are physically transferred to the Republic they will not be capable of being seized by the Sheriff to satisfy the Award and Sistem’s efforts to enforce the Award will be frustrated.

[ 19 ] Sistem believes that this activity is designed to put the Shares beyond the reach of this court and to avoid the enforcement of the judgment in favour of Sistem.

[ 20 ] According to Centerra’s public disclosures, the remaining 2,850,000 shares that are not being transferred to KJSC are pledged to Centerra, thus any claim against them by Sistem could be subject to Centerra’s security interest.

[ 21 ] Sistem’s evidence is that the shares of Centerra had a market price on August 15, 2012 of $6.67 per share. At this price, the Award could be satisfied by the seizure and sale of less than 2,000,000 shares. There has, however, been considerable volatility in Centerra’s share price, which has had a 52 week high of $23.69. Recent events suggest that there could be further volatility in the share price. In the circumstances, Sistem asks for an order “freezing” 4,000,000 shares.

[ 22 ] The evidence further indicates that Centerra has announced that, in August 30, 2012, it will pay a dividend of $0.04 (four cents) per share to shareholders of record as of August 17, 2012. This will entitle KJSC to a payment of $3,080,000. Sistem asks for an order that such amount be held in trust by Centerra to the credit of this proceeding.

[ 23 ] In considering the relief sought, I have taken into account the following factors:

(a) Sistem already has a judgment of this court against the Republic that it is seeking to enforce.

(b) While the interest of the Republic in the Shares has yet to be determined by this court, there is evidence that KJSC owns the shares and that KJSC is a state agency of the Republic and is owned by the Republic. This provides some evidence to support Sistem’s position that KJSC holds the Shares for the Republic. Justice Cumming found that “given the evidentiary record, Sistem has an arguable case that the subject shares in Centerra are properly subject to attachment in enforcement and satisfaction of the Award.” As well, support for this conclusion can be found in:

(i) the preamble to an agreement between the Republic, KJSC, Centerra and Cameco Corporation to the effect that KJSC “holds shares in Centerra on behalf of the Government”;

(ii) public disclosures by Centerra that refer to the Republic or the government of the Republic and KJSC as a shareholder [1] ;

(iii) statements by the Prime Minister of the Republic to the effect that “we have a 33% stake in Centerra”; and

(iv) expert evidence on the law of the Republic to the effect that the Republic is the true owner of the Shares.

(c) While the evidence is limited concerning efforts to remove the Shares from this jurisdiction, it is consistent with the course of conduct of the respondents in taking every possible measure to avoid payment of the Award.

(d) The coincidence of this action being taken within a few weeks of the order of Brown J. cannot be overlooked.

(e) There is no evidence that the Republic has any other exigible asset in this jurisdiction that could be available to satisfy the Award – if Sistem cannot execute against the Shares, it will likely leave this jurisdiction empty-handed, thereby suffering substantial prejudice. In light of the evidence of the severe limitations of the Republic’s judicial system, there are reasonable grounds to believe that Sistem will be unable to enforce the Award against the Shares if they are removed to the Republic.

(f) There is no evidence, in the limited material available in the circumstances, to suggest that there would be any immediate prejudice to the respondents if 4,000,000 shares were the subject of the interim order requested. The respondents will have the opportunity to move to set aside or vary the order, if so advised.

(g) Sistem has given an undertaking as to damages. While Sistem is a foreign corporation, with no apparent assets in Canada and the undertaking is unsecured, it has a substantial judgment against the Republic and, in the circumstances, I do not propose to order security for the undertaking at this time.

(h) This order will be in effect for a period of ten days and will terminate unless Sistem applies for an extension of the order within that period.

[ 24 ] In the circumstances, recognizing that the relief sought is discretionary, it seems to me that the relief should be granted. I am satisfied that the moving party has made full and frank disclosure and has provided full particulars of the claim, fairly stating the points that could be made against it. There are reasonable grounds to believe that there are assets of the Republic, or assets held for its benefit, in this jurisdiction and that there is a real risk that those assets have been or will be removed from the jurisdiction if the relief is not granted. The moving party has given an undertaking as to damages.

[ 25 ] The balance of convenience favours granting the relief. The damages to Sistem if the relief is not granted are potentially irreparable. There is no reason to believe that freezing a relatively small portion of the total amount of the Shares will cause any serious harm to the respondents.

[ 26 ] Public policy favours the relief as well. There is a public interest in the administration of justice in ensuring that the judgments of this court are respected and satisfied.

[ 27 ] For these reasons, an order will issue in the form signed by me this day.

G.R. Strathy J.

Date: August 17, 2012

[^1]: Counsel has drawn to my attention the evidence of Mr. Herbert of Centerra to the effect that the disclosures are not necessarily indicative of the actual legal ownership of the shares in Centerra.