Russian firm escalates dispute with Canada over seized cargo plane

Volga-Dnepr Airlines served notice Monday of its intent to initiate a formal dispute with the Canadian government over Ottawa's seizure of an Antonov-124 cargo plane that's been parked at Pearson airport ever since Russia launched its full-scale invasion ofUkraine 18 months ago.

A spokesperson for Global Affairs Canada toldCBC News the federalgovernment received a letter from the airlines group Mondayformally notifying Canada of itsdispute.

"The Government of Canada is assessing the letter. We will continue to defend the interests of Canadians," the spokesperson wrote in a brief email, confirming a report thatappeared on the Air Cargo News site which cited a Russian reportbythe Interfax news agency.

Volga-Dnepr's letter referenced article 9 of a 1989bilateral investment agreementbetween the Russian Federation (stillthe USSR then) and Canada. At the time, then-prime minister Brian Mulroney and then-Soviet president Mikhail Gorbachev were taking early steps towarda new economicrelationship that would enable trade and protect the rights of corporations acting abroad.

The treaty includes Investor-State Dispute Settlement (ISDS) provisions, which enablea Russian corporation that feels it was unjustly harmed by the actions of the Canadian government to sue for damages.

It's not clear what kind of compensation Volga-Dneprmight seek from Ottawa.

"If the dispute is not resolved within six months of Canada's receipt of the notification, Volga-Dnepr Airlines will formally initiate arbitration proceedings," the company said in a media statement. "Volga-Dnepr remains open to negotiations with Canadian representatives to resolve the issue and return the aircraft."

Russia accusesCanada of 'theft'

During a visit to Kyiv in June, Prime Minister Justin Trudeau told reporters the Canadian government would use powers enabled by Parliament in 2022 budget legislation to seize the plane, with the intention of eventually handing it over to the Ukrainian government for its use.

Because the plane has been parked on the tarmac for so long, it's expected to need significant servicing to make it airworthy again. Heavy cargo plane manufacturer Antonov Airlinesis based in Kyivand could theoretically return it to service for its new owner once Canada's asset seizure and transfer process iscomplete.

Canada's seizure ofthe plane has been neither swift nor simple.

The federal government must initiate a Federal Courtproceeding and offer due process to the owner(s) of any assets it moves to seize. This process has yet to unfoldwhich is why those driving past Toronto's airport have seen thismassive plane parked for months.

The plane had beencontracted by the Canadian government to fly in a shipment of COVID-19 rapid test kits from China late in the winter of 2022. While it was in Toronto unloading its cargo on Feb. 27, the official notice to airmen (NOTAM) was issued, banning Russian aircraft from Canada's airspace.

Legislation enabling the seizure of assets held by sanctioned Russian individuals and entities passed four months after the full-scale invasion began.

Canada subsequently added Volga-Dneprto its sanctions list, paving the way for an eventual seizure.Ukrainian Prime Minister DenysShmyhaldiscussed transferring the plane's ownership during his meetings in Canada last April.

The Russian foreign ministry called the seizure of the cargo plane "cynical and shameless theft" and warned the Canadian government in an official diplomatic rebuke earlier this summer that relations between the two countries were "on the verge ofbeing severed."

It's typical in bilateral investment disputes for a party to be required to serve notice. That's usually followed by a settime periodduring which the two sides may try tonegotiate asettlement of their issues before going to court.

This case is only Canada's second use of its seizure powers. Its first move came last December,when Canada announced it would seize $26 million US infinancial assets held byGranite Capital, a company believed to be owned by sanctioned Russian oligarch Roman Abramovich.

Government was warned of legal challenges

Neither seizure has completed the requiredcourt process to forfeitthose assets to the Crown, let alone transfer themto Ukraine.

Canada's original justification for introducing the seizure legislationwas a desire to use the proceeds to help finance Ukraine's reconstruction after the war. The Antonov-124 also could be valuable to Ukraineduring the current armed conflict but this latest legal move makes a quick transfer of the plane unlikely.

At the time Parliament enabled these seizure powers, Canadian officials were warned that such seizures would berisky and unprecedented and likely would be challenged in court.

International observers have been watching both the Volga-Dnepr and the Abramovich seizures as test cases.

Other leased aircraftoriginally owned by corporations based in Western democraciesthat were stranded in Russia when the war broke outhave since been re-registered as Russian planes. Their fate has also triggered expensive court proceedings.