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 of Ukraine 18 months ago.

A spokesperson for Global Affairs Canada told CBC News the federal government received a letter from the airlines group Monday formally notifying Canada of its dispute.

"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 that appeared on the Air Cargo News site which cited a Russian report by the Interfax news agency.

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

The treaty includes Investor-State Dispute Settlement (ISDS) provisions, which enable a 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-Dnepr might 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 accuses Canada 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 Airlines is based in Kyiv and could theoretically return it to service for its new owner once Canada's asset seizure and transfer process is complete.

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

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

The plane had been contracted 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-Dnepr to its sanctions list, paving the way for an eventual seizure. Ukrainian Prime Minister Denys Shmyhal discussed 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 of being severed."

It's typical in bilateral investment disputes for a party to be required to serve notice. That's usually followed by a set time period during which the two sides may try to negotiate a settlement 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 in financial assets held by Granite Capital, a company believed to be owned by sanctioned Russian oligarch Roman Abramovich.

Government was warned of legal challenges

Neither seizure has completed the required court process to forfeit those assets to the Crown, let alone transfer them to Ukraine.

Canada's original justification for introducing the seizure legislation was a desire to use the proceeds to help finance Ukraine's reconstruction after the war. The Antonov-124 also could be valuable to Ukraine during 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 be risky 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 aircraft originally owned by corporations based in Western democracies that were stranded in Russia when the war broke out have since been re-registered as Russian planes. Their fate has also triggered expensive court proceedings.