Lift Off! Canada Initiates Expropriation of Russian Aircraft

The Canadian Government has formally launched its first attempt to forfeit the property of sanctioned persons under a new and unique mechanism in sanctions law. On March 18, 2025, it initiated long-anticipated forfeiture proceedings with the Superior Court of Ontario (the “Application”) to acquire a Russian cargo aircraft belonging to a person listed under Canada’s sanctions against Russia. The aircraft was operated by Volga-Dnepr Airlines LLC and Volga-Dnepr LLC (collectively, “Volga-Dnepr”) and has been stranded at Toronto’s Pearson International Airport since Russian airlines were prohibited from using Canadian Airspace in February 2022. The Canadian government had issued orders enabling the seizure of the aircraft in 2023 and earlier this year.

This marks the first attempt by the Canadian Government to acquire property from a person listed under Canadian sanctions using the forfeiture mechanism announced in Canada’s Federal Budget 2022. Notably, unlike other mechanisms for seizure and forfeiture of property in the context of economic sanctions, there is no requirement for the government to demonstrate that the property was involved in or facilitated a sanctions violation or constituted, or was derived from, proceeds traceable to such violation.

Background

The Russian-registered cargo aircraft Antonov An-124 (“Antonov Aircraft”) is one of the largest cargo aircrafts in the world, with a lifting capacity of 150 tons. The airplane initially landed at Toronto Pearson International Airport in February 2022 during the delivery of a shipment of COVID-19 test kits. It was still unloading the shipment when Canada closed its airspace to Russian carriers, grounding the plane.

Subsequently, on April 5, 2023, the Volga-Dnepr Group, Volga-Dnepr Airlines and Aleksey Ivanovich Isaykin (founder and CEO of the airline) were listed pursuant to the Special Economic Measures (Russia) Regulations.

On June 8, 2023, on the recommendation of the Minister to the GIC, the Antonov aircraft was seized pursuant to paragraph 4(1)(b) of the Special Economic Measures Act (“SEMA”).  That allows the Governor in Council (“GIC”) to issue an order causing any property situated in Canada that is owned, held or controlled — directly or indirectly — by a foreign state or a person who is designated under Canadian sanctions, to be seized or restrained in the manner set out in the order. We discuss this seizure in detail in our client alert issued at the time, “Canada Initiates Second Forfeiture of Property of Russian Sanctioned Persons, This Time Targeting Russian Aircraft”.

On August 2024, Volga-Dnepr filed a USD $100 million dollar claim against the Canadian Government. The claim argued that the Canadian Government’s seizure of the aircraft, under the pretext of sanctions against the Russian Federation, had negatively impacted their business,  and violated the Canada - Russian Federation Bilateral Investment Treaty (“Can-Rus BIT”) of 1989. The Can-Rus BIT, in force since 1991, is a bilateral investment treaty which allows Russians to claim against the Canadian government for damages arising out of its failure to abide by its investment protection obligations, including its commitment not to engage in expropriation of Russian-owned assets without prompt, effective and adequate compensation.  As of now, these proceedings are still pending.

Most recently, on February 14, 2025, the 2023 seizure order was repealed and replaced by a seizure order listing all of the Respondents, including Volga-Dnepr Limited, and Irish entity, Volga-Dnepr Logistics B.V., a Dutch entity, and Sberbank. This listing comes from the application of the 2023 amendments to SEMA, permitting it to impose sanctions on persons based outside of the targeted jurisdiction. The newly targeted entities are subsidiaries of Volga-Dnepr Airlines and Volga-Dnepr Group, which are already sanctioned under Schedule 1 for their involvement in Russia’s war on Ukraine. Any of these entities have the right, pursuant to section 5.1 of the SEMA, to apply in writing to the Minister of Foreign Affairs to request that the property cease being the subject of the seizure order. According to the Application, to date no such request has been made.

The Forfeiture Order

On March 18, 2025, the Attorney General of Canada submitted the Application to the Ontario Superior Court of Justice for forfeiture of the Antonov aircraft. Pursuant to subsection 5.4(1) of SEMA:

5.4 (1) On application by the Minister, a judge shall order that the property that is the subject of the application be forfeited to Her Majesty in right of Canada if the judge determines, based on the evidence presented, that the property (a) is described in an order made under paragraph 4(1)(b); and (b) is owned by the person referred to in that order or is held or controlled, directly or indirectly, by that person. The Application argues that both of these conditions have been satisfied.

The Crown has stated their intention to dispose of the property in such a manner to recover the costs incurred. While no other explicit plans have been announced, both the Canadian Government and Ukraine’s Deputy Prime Minister Olha Stefanishyna have stated that Canada “will work with the Government of Ukraine on options to redistribute this asset to compensate victims of human rights abuses, restore international peace and security, or rebuild Ukraine.”

This stated intention appears to be in line with section 5.6 of SEMA, which states that:

5.6 After consulting with the Minister of Finance and the Minister of Foreign Affairs, the Minister may — at the times and in the manner, and on any terms and conditions, that the Minister considers appropriate — pay out of the Proceeds Account, as defined in section 2 of the Seized Property Management Act, amounts not exceeding the net proceeds from the disposition of property forfeited under section 5.4, but only for any of the following purposes: (a) the reconstruction of a foreign state adversely affected by a grave breach of international peace and security; (b) the restoration of international peace and security; and (c) the compensation of victims of a grave breach of international peace and security, gross and systematic human rights violations or acts of significant corruption.

In response to the Application, Volga-Dnepr has released a statement condemning Canada, and calling the Order a “pirate hijacking”, stating that these actions will negatively impact the “reputation of Canada as a country that adheres to international law and does not encourage forcible takeover of private property.” The Russian government has demonstrated previous support for Volga-Dnepr and the Kremlin stated the seizure would have “serious repercussions” for Canada-Russian relations, but it remains to be seen whether they will respond to the forfeiture of the aircraft – and any other Russian property – in kind by taking action against Canadian assets within reach of their jurisdiction.

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This is the first time we have seen this exercise of Canada’s forfeiture powers over the property of persons listed under Canadian sanctions. This case is unprecedented among the G7 countries and will be watched closely as Ukraine’s allies continue to consider the forfeiture and redistribution to Ukraine of Russian funds and other property located in Western countries.

McCarthy Tétrault’s International Trade and Investment Law Group has significant experience with Canadian sanctions matters and will continue to monitor these developments and shifting sanctions landscape related to the conflict in Ukraine and beyond. For assistance with Canadian sanctions and assistance navigating them ― please contact our team.