This is absurd theater. It seems to me that Cassell and Edwards, Jane Doe #3’s lawyers, don’t really want the the Duke’s testimony, since they seem to prefer splashy letters sent to ritzy addresses—Buckingham Palace, the British Embassy—than taking the one step (or one of the steps, anyway) that could actually lead to obtaining the testimony, namely a request to the Florida judge to issue a Letter of Request to the UK Central Authority under the Hague Evidence Convention. Get real.

Since so many of you commented favorably on my lion couchant, here is a great tweet by friend of Letters Blogatory Antonin Pribetic:

https://twitter.com/APribetic/status/558707793700880384

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This paper provides an overview of the governing conflict of laws principles for the recognition or enforcement of foreign judgments, including an analysis of the recent Court of Appeal for Ontario decision in Yaiguaje et al. v. Chevron Corporation et al. and its implications for the recognition and enforcement of foreign judgments, generally. The issue of state immunity as an obstacle to foreign judgment enforcement is also considered.

The paper is available at SSRN.

The post Paper of the Day: Pribetić on “Recognition and Enforcement of Foreign Judgments in Canada” appeared first on Letters Blogatory. Letters Blogatory by Ted Folkman and contributors is © 2011-2024 and is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. Images may be separately licensed.

IJA Brigade member Antonin Pribetić comments today on a recent Ontario case on recognition and enforcement of an Italian judgment. His piece is cross-posted at The Trial Warrior.

Today’s decision of the Court of Appeal for Ontario, Sincies Chiementin S.p.A. v. King, 2012 ONCA 653, upholds a summary judgment, enforcing a foreign judgment issued by an Italian court in Rome on October 1, 2001, against Ontario lawyer Gregory P. King (“King”), for the liquidated sum of US $600,000 plus interest, currency appreciation and costs.

In a per curiam endorsement, the panel (comprised of MacPherson, Armstrong and Blair JJ.A.), rejected King’s argument that the motion judge erred by finding that there was a ‘real and substantial connection’ between King’s alleged misconduct and Italy.

The appeal, originally scheduled to be heard on May 30, 2011,was adjourned pending the decision of the Supreme Court of Canada in Charron Estate and a companion case. The Supreme Court of Canada rendered its decision on April 18, 2012 under the style Club Resorts Ltd. v. Van Breda, 2012 SCC 17 (see my previous analysis here).

On the issue of whether the Italian court had subject-matter jurisdiction over King, the appeal panel held:

[7] [ellipsis] as the appellant acknowledges in his factum, Van Breda “simplified and clarified the law.” Although parts of the eight-pronged test from Muscutt were jettisoned, there is really very little difference between this court’s analysis in Charron Estate and the Supreme Court of Canada’s decision in Van Breda with respect to the core factors to be considered.

[8] In Van Breda, Lebel J. fashioned a list of four specific connecting factors that lead to a presumption that a court has jurisdiction. The third factor is that a tort was committed in the court’s territorial jurisdiction.

[9] In this case, the Civil Court of Rome carefully considered, on its own accord because King did not attorn to the jurisdiction, the question of whether a tort had been committed in Italy. The court concluded that, with regard to “extra-contractual action” (i.e. the tort claim), the tort was committed, and damage resulted, in Italy.

Practitioners should take note that the modified “real and substantial connection” test applies equally to enforcement of foreign judgments. However, there remains some conceptual confusion regarding the front-end (assuming jurisdiction) and back-end (recognition and enforcement).

A one-size-fits-all approach to jurisdictional analysis remains problematic. Using the same factors for jurisdiction simpliciter (i.e. whether an Ontario court should assume jurisdiction over a foreign defendant in an action brought in Ontario) to whether a foreign court has properly asserted personal and/or subject-matter jurisdiction over an Ontario defendant, puts the proverbial domestic cart before the foreign horse. The Supreme Court of Canada in Beals v. Saldanha neither explicitly endorsed nor tacitly approved this analytical approach. Moreover, the enumerated grounds for establishing a rebuttable presumption of jurisdiction under Ontario Rule 17.02 are unlikely to be functionally equivalent in the foreign court rules of procedure. Recall that Italy is civil law jurisdiction. The Ontario Court of Appeal remains unwilling to undertake a proper comparative law analysis, noting:

[10] In our view, a Canadian court should be very cautious in its scrutiny of the decision of a foreign court in determining whether a tort has been committed in its jurisdiction. In short, the Civil Court of Rome is better placed than us to determine its own laws.

[11] Once it is determined that a tort has been committed in the foreign jurisdiction, it brings the case within the third connecting factor from Van Breda, and a real and substantial connection is presumptively established.

[12] Here, the motion judge properly concluded that since there was a real and substantial connection between the subject matter of the action and the Italian court, the Italian judgment should be recognized and enforced in Ontario. Under Beals, at paras. 28-29, the principles of comity and reciprocity inform a Canadian judge’s determination of whether a foreign judgment should be enforced. The motion judge, at para. 189, was keenly aware of this:

Were the situation reversed, so that Sincies was a Canadian corporation with head offices in Ontario and all of the other facts discussed applying, and King as an Italian lawyer who assumed the same role he had in fact assumed in our case, I have no doubt that an Ontario court would have readily assumed jurisdiction [ellipsis] I see no reason why principles of comity and reciprocity should not be recognized in the circumstances of this particular case and foreign judgment.

[13] Further, the motion judge was cognizant of the principles of order and fairness that underlie the modern concept of private international law, and concluded, at para. 186:

‘It is not unfair that a professional who operates on a worldwide basis should be subject to foreign jurisdictions. [King] voluntarily entered into a solicitor/client relationship with a company he knew to be based in Italy, to whom he expected to give advice and from which he knew he would receive instructions, whatever dealings and transactions might occur as a result and wherever they might occur.’

We agree with this analysis. The appellant knew that his advice would be received and acted on in Italy, as the evidence indicates it was. He is a sophisticated party who should have expected to be called to account in Italy.

In my view, procedural justice requires that the foreign court explain how and why it took jurisdiction in the original instance; namely:

• consented-based jurisdiction (by attornment, submission, agreement); or
• personal jurisdiction (by physical presence, carrying on business or proof of valid service under the Ontario rules), or
• assumed jurisdiction (under the foreign court’s conflict of laws rules).

The last bullet-point is critical. One approach would involve the Ontario court taking judicial notice of the foreign court’s conflict of laws rules gleaned from the foreign court’s written reasons. Although more cumbersome and less cost-effective, an alternative approach would require the plaintiff to prove the foreign law by affidavit evidence from a duly qualified expert in the procedural law of the foreign jurisdiction.

Finally, the appeal panel gave short shrift to King’s impeachment defence of denial of natural justice, concluding:

[15] [ellipsis] In our view, the motion judge was correct to conclude that the respondent’s actions did not deny the appellant the opportunity to participate in the Italian litigation had he wished to do so. While the word ‘fraud’ was not used in the writ, the material facts going to the appellant’s alleged conduct were clear in the writ. Further, the correspondence from King to the Italian Trustee in Bankruptcy that the appellant contends ought to have been submitted to the Italian court by the respondent contains the appellant’s response to the fraud allegations, demonstrating full well that he knew what allegations he was facing. The reality is that the Italian court proceeding was not an ex parte hearing; it proceeded as a default proceeding only because the appellant did not choose to appear in his own defence.

[16] Finally, the appellant submits that the motion judge erred in concluding that there was no fraud perpetrated by the respondent (by failing to disclose relevant information) on the Italian court.

[17] We do not accept this submission. After a careful and extended analysis, the motion judge concluded that “the Trustee and Giardina [the Trustee’s counsel] did not mislead the court. Nor can I conclude that either of the Trustee or Giardina abused their positions as officers of the court.” We agree with this conclusion.

Notably, the appeal decision does not refer to any limitation period or laches defences. In the motion judge’s decision in Venezia/Sincies v. King, 2010 ONSC 6453 (Ont. SCJ), the defence of laches appears not to apply in circumstances where the foreign judgment creditor delays in notifying the Ontario judgment debtor of the foreign judgment:

[203] The Defendant complained that the Trustee took five years to inform him of the Italian judgment. I fail, however, to see how that is a breach of natural justice or that it is contrary to public policy. The bringing of the present application does not offend any limitation period. What was the prejudice to the Defendant arising from this timing issue, apart from having to face a properly obtained foreign judgment at all? There was no breach of natural justice or public policy arising from this issue. The likely deterioration of evidence through passage of time is as much or more the fault of the Defendant as a result of his decision not to appear before the Italian court. [emphasis added]

It is noteworthy that in Lax v. Lax, 2004 CanLII 15466, (2004), 70 O.R. (3d) 520, 239 D.L.R. (4th) 683 (ON C.A.), the Court of Appeal for Ontario held that the limitation period to enforce a foreign judgment was six years from the date of the foreign judgment (now 2 years under the Limitations Act, 2002):

[29] In summary, a foreign judgment cannot be enforced in Ontario except by first suing on the judgment to obtain a domestic judgment against the debtor. That action must be brought within six years from when the cause of action arose, which is the date of the foreign judgment. However, if the debtor was not in Ontario on the date of the judgment, then the six years does not commence until the debtor returns to Ontario.¹ Once the domestic judgment is obtained, it can be enforced in the usual way and is subject to the twenty-year limitation period.

Ultimately, for Mr. King, the failure to challenge the Italian court’s jurisdiction at first instance, proved fatal.

If there were a retainer agreement that contained an exclusive jurisdiction clause in favour of Ontario, would the result have been different?

Photo credit: Cbl62

The post Mamma Mia!: Ontario appeal court upholds $600,000 Italian judgment against an Ontario lawyer appeared first on Letters Blogatory. Letters Blogatory by Ted Folkman and contributors is © 2011-2024 and is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. Images may be separately licensed.

• Creation of the Letters Blogatory IJA Brigade, a group of correspondents who bring us the news from around the world. So far we have had contributions from Antonin Pribetić in Canada and Rafael Salomão Romano in Brazil, with more on the way.
• Sustained coverage of two really interesting cases: the the Chevron/Ecuador case; and the the Belfast Project case. I don’t think you can find more in-depth coverage of these cases anywhere on the web.
• A really interesting symposium on the intersection between forum non conveniens and recognition of foreign judgments, featuring leading scholars in the field.
• And last, I keep bringing you the case of the day, nearly every business day. Phew! That’s a lot of work!

A nomination from you would be a vote for more coverage of international judicial assistance. So please vote at this page!

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My thanks to Ted Folkman here at Letters Blogatory for inviting me to guest blog as the Canadian correspondent of the IJA Brigade.

Ted has previously written about Canadian cases dealing with the issue of service of process under the Hague Service Convention, including a recent post on the Ontario Superior Court of Justice decision in Khan Resources, Inc. v. Atomredmetzoloto JSC, 2012 ONSC 1522 [“Khan Resources”]. Khan Resources held that when documents must be served in accordance with the Hague Service Convention, an Ontario court cannot order substituted service under the Rules of Civil Procedure in strict compliance with Article 13 of the Hague Service Convention, which has been implemented into domestic law by Rule 17.05(3)(a) of the Ontario Rules of Civil Procedure. Accordingly, a determination of whether an Ontario court may ignore a foreign state’s refusal to serve on the basis that it would infringe its sovereignty or security was rendered moot.

The issue of service of process under the Hague Service Convention arose again recently in Gray v. SNC-Lavalin Group Inc., 2012 ONSC 3735 (CanLII) (Ont S.C.J.) [the “Gray Action”].

In the Gray Action, Mr. Justice Perell of the Ontario Superior Court of Justice considered whether the Khan Resources decision applied to the plaintiff’s motion for substituted service on the Defendants Stéphane Roy [“Roy”], and Riadh Ben Aïssa [“Aïssa”], both Quebec residents, in a proposed class action under the Ontario Class Proceedings Act, 1992, S.O. 1992, c. C.6. A parallel class action was commenced in the Quebec Superior Court [the “Quebec Proceedings”] and a separate action was brought by the Trustees of the Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (“Drywall Fund Action”) commenced in Brampton, Ontario. Both the Gray Action and the Drywall Fund Action are to be consolidated in Toronto, with dismissal against some defendants. The main defendant in all of the actions is SNC-Lavalin—a publicly traded company and its shares trade on the Toronto Stock Exchange—and certain of its current and former officers and directors alleging misrepresentations contained in disclosure documents issued by SNC-Lavelin, exposed in an investigation by the Audit Committee of SNC-Lavelin’s Board of Directors into allegedly improper contracts under which US$56 million were paid to unknown agents. The report of the Audit Committee allegedly implicates the defendants Aïssa and Roy as having participated in the wrongful conduct.

The plaintiffs in the Gray Action and Drywall Fund Action intend to seek leave to assert the right of action for secondary market misrepresentation provided by Part XXIII.1 of the Ontario Securities Act, RSO 1990, c S.5, which requires leave of the court to bring a secondary market misrepresentation claim. Recently, in Sharma v. Timminco Ltd. 2012 ONCA 107 (CanLII), 2012 ONCA 107, the Court of Appeal held that the running of the three-year limitation period under section 138.14 of the Act was not suspended by s. 28 of the Class Proceedings Act, 1992. Thus, the limitation period continues to run until the court grants leave, giving rise to potential prescription of the Securities Act claims in the interim.

Perell J. made an order for substituted service on the defendant Roy, given that he was able to be served in Quebec directly through his civil lawyer. However, service on the defendant Aïssa was more complicated. Efforts to serve Aïssa personally in Quebec, or through his Canadian criminal lawyer proved fruitless, as Aïssa is currently incarcerated in Switzerland, where he was arrested in connection with allegations of corruption, fraud and money laundering and his criminal lawyer advised that he had no authority to admit service on his client, Aïssa’s behalf.

Justice Perell writes:

[35] But for the possible complication that Mr. Aïssa is in a detainee in a Hague Convention state, I am also satisfied that the criteria for substitutional service have been satisfied with respect to Mr. Aïssa.

[36] For Ontario proceedings, rule 17.05 imports the Hague Convention into the rules for the service of documents outside Ontario. [ellipsis]

[37] Where service is made outside Ontario in a signatory state of the Hague Convention, the service will not be effective unless it is compliant with the requirements of the Convention: Pharm Canada Inc. v. 1449828 Ontario Ltd. (c.o.b. TrinityWorldwide Services Inc.), 2011 ONSC 4808; Campeau v. Campeau, [2004] O.J. No. 4788 (S.C.J.); Dofasco Inc. v. Ucar Carbon Canada Inc., [1998] O.J. No. 3450 (Gen. Div.); Samina North America v. H3 Environmental II LLC, [2004] O.J. No. 6229 (S.C.J.).

[38] Khan Resources Inc. v. Atomredmetzoloto, supra is authority that an order for substituted service cannot be made when the person to be served resides in a jurisdiction that is a signatory to the Hague Convention. Service in a country that is a signatory to the Hague Convention must be done exclusively in accordance with the Hague Convention. In Khan Resources, Justice O’Marra reversed the decision of Master Graham, who had validated service under rule 16.08, notwithstanding the non-compliance with the Hague Convention [ellipsis].

Mr. Justice Perell then considers whether Khan Resources is correct, admits of exceptions, or is distinguishable and concludes:

[43] In my opinion the Khan Resources case simply does not apply to the circumstances of the case at bar where service need not be performed in a contracting state pursuant to rule 17.05 (3). The difference is that in the case at bar, unlike the Russian companies, Mr. Aïssa is not a foreigner. His situation is not much different than Mr. Roy, who is a Canadian citizen normally subject to the jurisdiction of the courts of his own country and who may be avoiding service or who is not co-operating in acknowledging that he knows about the proceedings in Ontario and Québec.

[44] Thus, the order for substituted service for Mr. Aïssa is actually grounded under the general manner of service (rule 17.05 (2)) and not the rule for the manner of service in a Convention state (rule 17.05(3).)

[45] I wish to be clear that I do not doubt the correctness of Justice O’Marra’s decision in Khan Resources, and I am not refusing to follow the case. I am also not distinguishing or qualifying the case. Rather, in my opinion, the rule from Khan Resources simply does not apply to the circumstances of the case at bar. Put somewhat differently, service of the court documents outside Ontario should be based on Mr. Aïssa’s normal residency in Québec.

[46] In the case at bar, service in accordance with the Hague Convention is a redundancy that should proceed out of an abundance of caution. If the authorities in Switzerland exercise their limited right to refuse to serve the documents, the court in Ontario will respect that decision. That respect, however, does not mean that the domestic law of the Ontario Court has been ousted. Service on Mr. Aïssa is based on his normal connection to Canada and independent of his abnormal connection to Switzerland.

The upshot of the Gray Action decision is that for Canadian residents, the Hague Service Convention stops at the Canadian border. The domestic rules of service trump the Hague Service Convention when Canadian residents travel abroad (whether voluntarily or, in Aïssa’s case, involuntarily).

The post Fifty Shades of Gray: Canadian Court Rules that the Hague Service Convention Does Not Apply to Canadian Residents to be Served Abroad appeared first on Letters Blogatory. Letters Blogatory by Ted Folkman and contributors is © 2011-2024 and is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. Images may be separately licensed.

Esteemed fellow blogger Antonin Pribetic and I have discussed this issue on several occasions, for example, in the comments to the post on Progressive Southeastern Insurance v. J&P Transport and in the comments to the post on Schiff v. Hurwitz. I refer readers to Antonin’s comments for a different perspective on the permissibility of service by mail in Canada in a US civil action, though I think that the US law on this is well settled. Whether a Canadian court would recognize or enforce a US judgment where the service of process was by mail is another question on which I can’t express a view.

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I asked Rafael to fill us in a little on the procedure we should expect to see play out in Brazil now that the Lago Agrio plaintiffs have sought recognition of their judgment there and on the defenses available to Chevron. You should of course read Rafael’s post in full, but here is a summary of the main points of interest:

• The action is one for recognition only, not enforcement. If the Brazilian court determines that the judgment is entitled to recognition, the plaintiffs will have to bring a second action to enforce it.
• The Montevideo Convention has apparently never been applied by the Brazilian courts, and it is unlikely to play much of a role in the case, because Brazilian law’s requirements for recognition and enforcement of a judgment are substantially similar to the Convention’s requirements.
• According to Rafael, one live issue is the Brazilian courts’ willingness or unwillingness to recognize the punitive portion of the judgment. He says that a puntive damage award—if the Ecuadorian judgment is construed as punitive—may violate Brazil’s ordre public.
• Another live issue is similar to an issue we saw in Antonin’s post on the Canadian case: the possibility that the Lago Agrio plaintiffs have to succeed on a reverse veil-piercing theory to get at Chevron’s assets in Brazil, and the uncertainty about that theory under Brazilian law.
• It seems clear from Rafael’s summary of the law that the court will not be receptive to a claim of intrinsic fraud, which was for the Ecuadoran courts to address. Extrinisic fraud is likely to be considered under the heading of ordre public.

Thanks to Rafael for his useful summary!

The post Rafael Salomão Romano on the Lago Agrio Case in Brazil appeared first on Letters Blogatory. Letters Blogatory by Ted Folkman and contributors is © 2011-2024 and is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. Images may be separately licensed.

My thanks to Ted Folkman for inviting me to write a guest post as a follow-up to the excellent Symposium recently hosted here at Letters Blogatory on forum non conveniens and enforcement of foreign judgments.

Unsurprisingly, a considerable amount of the discussions has revolved around the Chevron Ecuador litigation, including the Second Circuit’s decision in Republic of Ecuador v. Chevron Corp. 638 F.3d 384 (2d Cir. 2011).

As Ted reported here recently, the Lago Agrio plaintiffs have commenced an action in the Ontario Superior Court of Justice to enforce the Ecuador judgment against Chevron Corporation and its Canadian subsidiaries. A copy of the Statement of Claim in Yaiguaje et al. v. Chevron Corporation et al. (Court File No. CV-12-454778) is available here (the “Ontario Enforcement Action”).

This post will provide an overview of the impeachment defenses available in Canada for the recognition and enforcement of foreign judgments and will offer some thoughts on the apparent ‘reverse veil-piercing’ theory implicit in the Statement of Claim in the Ontario Enforcement Action.

The Ontario Enforcement Action

Briefly, the Lago Agrio plaintiffs have commenced an action against Chevron Corporation, a Delaware corporation (“Chevron Corp.”) and its Canadian subsidiaries, Chevron Canada Limited, a British Columbia corporation (“CCL”) and Chevron Canada Finance Limited, an Alberta corporation (“CCFL”).

The Lago Agrio plaintiffs seek to enforce the final Judgment of the Appellate Division of the Provincial Court of Sucumbios of Ecuador of January 3, 2012 in the amount of $18,256,718.00. They also seek their costs in the Ecuador proceedings, a declaration that the shares of CCL and CCFL are exigible to satisfy the Judgment, and appointment of an equitable Receiver over the shares and assets of CCL and CCFL as wholly owned subsidiaries of Chevron Corp.

Defences to Enforcement of Foreign Judgments in Canada

The leading case on recognition and enforcement of foreign judgments in Canada is the decision of the Supreme Court of Canada in Beals v. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416 (S.C.C.), which dealt with enforcement of a default judgment obtained in Florida against four Ontario defendants arising from a mistaken property lot description.¹ In a six to three split decision, the Supreme Court of Canada majority held that the “real and substantial connection” test, which until then only applied to interprovincial judgments, should equally apply to the recognition and enforcement of foreign judgments.² Both the majority and dissenting judgments in Beals affirmed that once the foreign court’s jurisdiction is recognized, there are only three limited defences to an action for enforcement in Canada; namely:

1. Fraud,
2. Denial of natural justice, and
3. Public policy.³

Thus, a foreign litigant is only required to show:

1. that the foreign judgment was “issued by a court acting through fair process and with properly restrained jurisdiction,”⁴
2. there exists a “real and substantial connection” between:
   • the issue in the action and the location where the action is commenced;
   • the damages suffered and the jurisdiction; and
   • the defendant and the originating forum; ⁵ and
3. the defendant fails to raise a recognized defence.⁶

(1) Fraud

With respect to the fraud defence, the majority in Beals held that the defendant must produce new and material facts, or newly discovered and material facts, which were not before the foreign court. “New” facts are facts, which came into “existence after the foreign judgment was obtained.” “Newly discovered facts” refers to facts which existed at the time the foreign judgment was obtained but were not known to the defendant” and could not have been discovered through the exercise of reasonable diligence.⁷

Douglass Cassel’s Symposium post summarizes the nature of the fraud allegations raised by Chevron in the U.S. litigation as follows:

As I have detailed elsewhere, the Ecuadorian proceedings amounted to a fraud in which some (not all) of plaintiffs’ lawyers colluded with Ecuadorian judges. Strong evidence—never convincingly refuted by plaintiffs—indicates, for example:

1. Lawyers for plaintiffs forged the signature on the “report” of their expert, Dr. Charles Calmbacher, falsely claiming that he found widespread environmental problems, when in fact he did not;
2. Plaintiffs’ lawyers and consultants ghost wrote the report of the Court’s supposedly “independent” expert on damages, Mr. Cabrera, even drafting it in English (a language he does not understand, so that his report had to be translated for him at the last minute);
3. In an effort to conceal their fraud, plaintiffs’ lawyers later paid Cabrera thousands of dollars in hush money from their “secret” bank account;
4. Once their fraud was discovered, plaintiffs hustled to present “cleansing” witnesses—who nonetheless relied on Cabrera’s fraudulent report; and
5. The Judgment contains data found nowhere in the judicial record, (see also here) but which appear verbatim in plaintiffs’ internal files, complete with identical mistakes and idiosyncratic symbols and punctuation.

In Canada, the impeachment defence of fraud rarely, if ever, succeeds in foreign judgment enforcement proceedings, as Canadian courts generally tend to view fraud defences with skepticism.  Based upon the principles of finality (res judicata and estoppel) and certainty, once a judgment has been rendered by a foreign court, a Canadian court cannot look into the merits. This creates a jurisdictional paradox: if the defendant raises the issue of jurisdictional fraud before the foreign court, it risks a finding of attornment or submission. Even where the foreign court allows a defendant to challenge jurisdiction without attornment or submission, there remains some uncertainty whether a Canadian court will allow the defendant to raise the defence at the enforcement stage. Particularly, if the foreign court otherwise had subject-matter jurisdiction.

In foreign judgment enforcement proceedings, two types of fraud are distinguished: fraud going to jurisdiction (or jurisdictional fraud) and fraud going to the merits (or merit-based fraud). In Beals, the majority eschewed the traditional distinctions between “intrinsic” and “extrinsic” fraud, suggesting that:

“It is simpler to say that fraud going to jurisdiction can always be raised before a domestic court to challenge the judgment.  On the other hand, the merits of a foreign judgment can be challenged for fraud only where the allegations are new and not the subject of prior adjudication. Where material facts not previously discoverable arise that potentially challenge the evidence that was before the foreign court, the domestic court can decline recognition of the judgment.” (at para. 51).

At paragraphs 52-53 of the Beals decision, Justice Major writes,

“52  Where a foreign judgment was obtained by fraud that was undetectable by the foreign court, it will not be enforced domestically.  “Evidence of fraud undetectable by the foreign court” and the mention of “new and material facts” in [Jacobs v. Beaver (1908), 17 O.L.R. 496], demand an element of reasonable diligence on the part of a defendant.  To repeat Doherty J.A.’s ruling [2001 CanLII 27942 (ON C.A.), (2001), 54 O.R. (3d) 641], in order to raise the defence of fraud, a defendant has the burden of demonstrating that the facts sought to be raised could not have been discovered by the exercise of due diligence prior to the obtaining of the foreign judgment.  See para. 43:

A due diligence requirement is consistent with the policy underlying the recognition and enforcement of foreign judgments. In the modern global village, decisions made by foreign courts acting within Canadian concepts of jurisdiction and in accordance with fundamental principles of fairness should be respected and enforced.  That policy does not, however, extend to protect decisions which are based on fraud that could not, through the exercise of reasonable diligence, have been brought to the attention of the foreign court. Respect for the foreign court does not diminish when a refusal to enforce its judgment is based on material that could not, through the exercise of reasonable diligence, have been placed before that court.  [Emphasis added.]

Such an approach represents a fair balance between the countervailing goals of comity and fairness to the defendant.

53 Although Jacobs, supra, was a contested foreign action, the test used is equally applicable to default judgments.  Where the foreign default proceedings are not inherently unfair, failing to defend the action, by itself, should prohibit the defendant from claiming that any of the evidence adduced or steps taken in the foreign proceedings was evidence of fraud just discovered.  But if there is evidence of fraud before the foreign court that could not have been discovered by reasonable diligence, that will justify a domestic court’s refusal to enforce the judgment.”

In Yeager v. Garner, 2007 BCSC 72 (CanLII), Madam Justice Humphries, in addressing the apparent ambiguity in Beals, observed:

[30]           Counsel for the applicant says this paragraph retains the distinction between fraud going to jurisdiction, maintaining the ability to challenge it at any stage, and fraud going to the merits.  Counsel for the respondent says the “due diligence” test now applies to both fraud going to jurisdiction and fraud on the merits.

[31]           To frame the issue another way, was the court in Beals merely expanding the grounds for admissibility of evidence going to establish fraud on the merits to include the due diligence test in Jacobs, or were they at the same time purporting to limit the admissibility of evidence of fraud going to jurisdiction by subjecting it to the due diligence test as well?

[32]           Paragraph 51 is indeed confusing.  While purporting to reject and discontinue the historical description of and distinction between “extrinsic” and “intrinsic” fraud, the court purports to simplify matters by retaining the two concepts by the use of other terms:  “fraud going to jurisdiction” and “fraud on the merits,” and again sets out the historical distinction between them.

[33]           I must confess I cannot reconcile the first sentence in that paragraph with the second and third, but despite the internal contradictions in this paragraph, I am of the view that the court did intend to maintain the distinction between fraud going to jurisdiction and fraud going to the merits.  They merely intended to discontinue the use of the words “extrinsic” and “intrinsic” as unhelpful.

[See also, Marx v. Balak, 2008 BCSC 195 (CanLII) (B.C.S.C. per Humphries, J. at paras. 24-33)].

The British Columbia Court of Appeal in Lang v. Lapp 2010 BCCA 517 (CanLII) appears to have resolved the issue by ruling that the defendant’s lack of due diligence does not bar a claim of jurisdictional fraud:

[20]           Fraud going to jurisdiction is an exception to the generally applicable new evidence or due diligence requirement.  According to the text Castel & Walker: Canadian Conflict of Laws, vol. 1., 6th ed. (Markham, Ont.: LexisNexis, 2005) loose‑leaf updated 2010, release 19 at 14-42, the exception exists because facts that relate to jurisdiction are so fundamental that they should always be open to attack.  This principle was set out by the Supreme Court of Canada in Powell v. Cockburn, 1976 CanLII 29 (S.C.C.), [1977] 2 S.C.R. 218, and again in Beals.  These cases are binding precedent and the proposition that fraud going to jurisdiction can always be raised, even without satisfying the due diligence requirement, must be accepted as settled law.  Though no due diligence requirement applies it should be remembered that “[e]ven within the limited area of what might be termed jurisdictional fraud there should be great reluctance to make a finding of fraud for obvious reasons”, Powell at 234.

[21]           Two cases, Cabaniss v. Cabaniss, 2006 BCSC 1076 (CanLII), and Garner Estate v. Garner, 2007 BCSC 72 (CanLII), [2007] 6 W.W.R. 469 are cited as instances where the due diligence requirement was applied to jurisdictional fraud.  Without commenting on the correctness of those decisions, to the extent that they support the proposition that failure to exercise due diligence can bar a claim of jurisdictional fraud, they appear to be inconsistent with Powell and Beals.

In Cortés v. Yorkton Securities Inc., 2007 BCSC 282 (CanLII), Humphries, J. citing with approval the English Court of Appeal’s decision in Adams v Cape Industries, [1991] 1 All E.R. 929 (C.A.), 118, noted the distinction between cases of failure to give adequate notice and failure to provide the defendant with the opportunity to present his case, which are breaches of the “primary kind”, contrasted with other breaches of natural justice.  The learned judge held:

[125]      In my view, a plaintiff who has not given the defendant notice of its action should not be able to put the defendant in this difficult position by not providing it with proper service.

[126]      To put both the first and second points a different way, I do not think it is fair or reasonable to allow a plaintiff to obtain a procedural or logistical advantage over a defendant who has not been served with notice of the action in breach of natural justice.

[127]      There is one further consideration.  As the English Court of Appeal noted in Adams (see the first passage from it which I quoted above), a defendant seeking to impeach a foreign judgment on grounds of fraud is not obliged to make use of any remedies available to it in the foreign jurisdiction.

[128]      One of the grounds of fraud which may be used to impeach a foreign judgment is the type of fraud alleged in this case, namely, to quote from Beals (at para. 45) “… fraud going to the jurisdiction of the issuing court or the kind of fraud that misleads the court, foreign or domestic, into believing that it has jurisdiction over the cause of action”.

[129]      Service has always been closely tied to jurisdiction.  Lack of notice also goes to the issue of whether the foreign court took jurisdiction appropriately.  It would be anomalous to require a defendant alleging breach of natural justice on the basis of non-service to make use of foreign remedies, but yet not impose the same obligation on a defendant who alleges fraud going to jurisdiction.

[130]      I therefore conclude that in cases where the breach of natural justice is one of failure to give notice, a defendant need not apply in the foreign jurisdiction to have the judgment set aside in order to impeach the judgment.

(2) Denial of Natural justice

The Chevron defendants may have more success with the defence of denial of natural justice (the American equivalent of due process).

The enforcing court must determine whether the defendant was granted fair process by the foreign legal system when the foreign court granted judgment. Fair process is one that “reasonably guarantees basic procedural safeguards such as judicial independence and fair ethical rules governing the participants in the judicial system.” It also includes a requirement that the defendant be given adequate notice of the claim and an opportunity to defend. Major, J. further noted that this “assessment is easier when the foreign legal system is either similar to or familiar to Canadian courts.”⁸ Justice Major defines the defence of natural justice as follows:

The defence of natural justice is restricted to the form of the foreign procedure, to due process, and does not relate to the merits of the case. The defence is limited to the procedure by which the foreign court arrived at its judgment. However, if that  procedure, while valid there, is not in accordance with Canada’s concept of natural justice, the foreign judgment will be rejected. The defendant carries the burden of proof and, in this case, failed to raise any reasonable apprehension of unfairness.⁹

In United States of America v. Yemec, 2010 ONCA 414 (Ont. C.A.), the Court of Appeal for Ontario closed the door on the “new” impeachment defence of a “denial of a meaningful opportunity to be heard” in the recognition and enforcement of foreign judgments and held it was indistinguishable from the impeachment defence of denial of natural justice (See my backgrounder here).

(3) Public Policy

In my view, the real battle in the Ontario Enforcement Action will be fought under the banner of the public policy defence, which Justice Major summarized in Beals as follows:

The third and final defence is that of public policy. This defence prevents the enforcement of a foreign judgment which is contrary to the Canadian concept of justice. The public policy defence turns on whether the foreign law is contrary to our view of basic morality. As stated in Castel and Walker at p. 14 – 28:

the traditional public policy defence appears to be directed at the concept of repugnant laws and not repugnant facts …¹⁰

The use of the defence of public policy is strictly limited:

The use of the defence of public policy to challenge the enforcement of a foreign judgment involves impeachment of that judgment by condemning the foreign law on which the judgment is based. It is not a remedy to be used lightly. The expansion of this defence to include perceived injustices that do not offend our sense of morality is unwarranted. The defence of public policy should continue to have a narrow application.¹¹

The Beals majority decision also confirms that bias must be proved, but makes no reference to proving reasonable apprehension of bias.¹²  Two Ontario decisions have addressed scope of the public policy defence relating to alleged systemic and institutional bias, albeit within the Singapore legal system.

In Oakwell Engineering Ltd. v. Enernorth Industries Inc.,¹³ Oakwell Engineering, a Singapore corporation that supplies engineering works and products to the marine industry and Enernorth, an Ontario corporation engaged in engineering, construction, shipbuilding and power generation worldwide entered into a joint venture in 1997 for a contract to build and operate power generation facilities in India. Under their agreement, they jointly formed the “Project Company” to finance, construct and operate the project. Disputes arose between the parties, culminating in a Settlement Agreement in December 1998 which included an attornment clause providing that any future disputes would be governed by Singapore law and a choice of law clause subjecting the parties to the non-exclusive jurisdiction of the Singapore courts.¹⁴ Under the Settlement Agreement, Oakwell Engineering was entitled to payment of a sum from Enernorth upon successful financing of the project, referred to as Financial Closure. Enernorth failed to achieve such Financial Disclosure, and in August 2000, without notice to Oakwell Engineering, it divested its interest in the joint venture. Oakwell Engineering  then sued Enernorth in Singapore, which Enernorth defended at trial without contesting the Singapore court’s jurisdiction and was ordered to pay the sums owing under the Settlement Agreement. Enernorth unsuccessfully appealed to the Singapore Court of Appeal, but failed to raise issues of the conduct or fairness of the trial.¹⁵

Oakwell Engineering then successfully applied to have the judgment of the Singapore court against Enernorth recognized by an Ontario court.¹⁶ Enernorth’s appeal to the Ontario Court of Appeal was dismissed.¹⁷ MacFarland, J.A. for the unanimous court, agreed with the application judge that there was a “real and substantial connection” with Singapore. The Court of Appeal then considered Enernorth’s impeachment of the Singapore judgment “not that it resulted from a law that is contrary to the fundamental morality of the Canadian legal system, but rather that it is the product of a corrupt legal system, with biased judges, in a jurisdiction that operates outside the rule of law,”¹⁸ and held:

¶ 23      The application judge carefully reviewed the evidence relied on by Enernorth in support of its bias argument. He considered the exchange between a witness and the Singapore trial judge concerning the correct spelling of the Koh Brothers Group’s name, and the fact they now controlled Oakwell. He concluded that this evidence was insufficient to prove bias or corruption. He considered the evidence of the expert witnesses—Ross Worthington, Nihal Jayawickrama and Francis T. Seow—and concluded that their evidence was either unreliable (as in the case of Mr. Worthington) or too general to prove that there was not a fair trial in this case. He concluded there was a lack of evidence of corruption or bias in private commercial cases and no cogent evidence of bias in this specific case.¹⁹

The Court of Appeal upheld the motion judge’s conclusion that public policy considerations were not relevant as Enernorth’s argument was based on facts about the judicial system of Singapore, not the laws themselves. The record also supported the motion judge’s findings about the lack of bias and the fact both Enernorth and Oakwell Engineering enjoyed fair process in the Singapore courts. The Court of Appeal further noted the following:

¶ 29      The application judge considered both the substantive and procedural law of Singapore, as well as its constitution and compared those laws to the Canadian rule of law. He concluded that “while Enernorth’s experts, political scientists and lawyers, provide reports that aspects of the government of Singapore do not meet the standards of the rule of law in Canada, this evidence goes against Singapore’s formal legal structure as evidenced by its constitution and laws” and, importantly, “furthermore, Oakwell has provided evidence to the contrary”. He concluded that, on a balance of probabilities, both parties enjoyed fair process in the Singapore courts.²⁰

In State Bank of India v. Navaratna,²¹ three Indian Banks moved for summary judgments to enforce default judgments obtained from the High Court of Singapore against the Navaratnas, as guarantors of short-term financing loans from the Banks, backed by international letters of credit.²² The court held that that Singapore had a real and substantial connection to the Navaratnas, in part relying upon the choice of law and forum selection clauses contained in the guarantees.²³ The Navaratnas opposed the Banks’ motions, claiming that they failed to defend due to a fear of incarceration, and that the Singapore courts were corrupt, and biased in favour of banks.²⁴ Although Justice Sachs suggested that a trial judge may well come to a similar conclusion regarding Mr. Seow’s evidence and the Singapore legal system,²⁵ the learned judge distinguished the facts in Enernorth:

¶ 39    … However, the question is whether that determination should be made by me on a summary judgment motion because of the Oakwell decision. In my view, it should not. The factual issues raised are not the same. Mr. Seow’s Affidavit speaks to the use of imprisonment to collect debts, an issue that was not before Day J. It also speaks to the desire of the Singapore government to protect the banking industry, another issue that was not before Day J. Mr. Seow’s opinion with respect to the use of imprisonment to collect debts is supported by a U.S. Travel Advisory. Finally, on a summary judgment motion, I should not be engaged in the business of weighing evidence.²⁶

The Banks claimed that the facts raised by the Navaratnas did not bring them within any of the existing defences to the enforcement of a foreign judgment and did not justify the creation of a new defence. The Navaratnas, on the other hand, argued that the facts of their situation either fell within the existing defences of public policy or natural justice or justified the creation of a new defence, namely, duress.²⁷ At paragraph 46, Justice Sachs citing Beals noted that:

Unusual situations may arise that might require the creation of a new defence to the enforcement of a foreign judgment. However, “should the evolution of private international law require the creation of a new defence, the courts will need to ensure that any new defences continue to be narrow in scope, address specific facts and raise issues not covered by the existing defences.” [original emphasis]

Based upon the test for summary judgment,²⁸ Sachs, J held that the question of whether these facts, if established, would constitute a natural justice defence to the enforcement of a foreign judgment or the creation of a new defence to that enforcement was an unsettled question that would benefit from a trial.²⁹ Notably, the Ontario Court of Appeal in Enernorth distinguished the Navaratna decision on its facts.³⁰

Reverse Veil-Piercing

Perhaps the most novel aspect of the  Ontario Enforcement Action is the Lago Agrio plaintiffs’ apparent attempt to lift or pierce the corporate veil, in reverso.  Michael Richardson, in his article, The Helter Skelter Application of the Reverse Piercing Doctrine University of Cincinnati Law Review, Volume 79, Issue 4, Article 9 (2011), describes the remedy as follows:

Less frequently, parties will try to pierce the corporate veil “in  reverse.”  “Outsider” reverse piercing occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of  a corporation owned or substantially controlled by the defendant.

In doing so, plaintiffs attempt to increase the ease of collecting on their judgment by skipping the intermediary step of seizing the defendant’s interest in the corporation.Outsider reverse piercing flips the traditional doctrine on its head by contemplating the seizure of corporate assets in a suit against an owner. (citations omitted)

Canadian courts traditionally apply the “alter ego” theory in piercing the corporate veil based upon fraud or avoidance of debt obligations. The leading statement on lifting the corporate veil is the judgment of Wilson J. in Constitution Insurance Co. of Canada v. Kosmopoulos, 1987 CanLII 75 (SCC), [1987] 1 S.C.R. 2 at pp. 10-11, 34 D.L.R. (4th) 208:

As a general rule a corporation is a legal entity distinct from its shareholders: Salomon v. Salomon & Co. [1897] A.C. 22 (H.L.). The law on when a court may disregard this principle by “lifting the corporate veil” and regarding the company as a mere “agent” or “puppet” of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the “separate entities” principle is not enforced when it would yield a result “too flagrantly opposed to justice, convenience or the interests of the Revenue”: L.C.B. Gower, Modern Company Law (4th ed. 1979) at p. 112. I have no doubt that theoretically the veil could be lifted in this case to do justice… But a number of factors lead me to think it would be unwise to do so.

In Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., (1996), 28 OR (3d) 423 (Ont. S.C.) Sharpe, J. (as he then was) suggested a strict approach to lifting the corporate veil focusing on “complete control” of the subsidiary by the parent, or some form of fraudulent conduct that unjustly deprives the claimant’s rights.

Conclusion

The attempt by the Lago Agrio plaintiffs to install an equitable Receiver and attach the assets of Chevron Corp.’s Canadian subsidiaries may prove an uphill battle, unless there is evidence of fraud or dissipation or secreting of assets from creditors generally. Ultimately, this chapter in the Chevron Ecuador litigation may be only one stop for the Lago Agrio plaintiffs along the long and winding road to asset recovery.

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The gist of the case is that the Canadian courts could properly exercise jurisdiction over the US defendants, on the grounds that the tort had occurred in Canada, where the supposed libels were published; and that the lower court judge had not abused his discretion by refusing to dismiss the case on forum non conveniens grounds (though Justice LeBel, who wrote the opinion, found that many of the forum non conveniens factors favored trial in Illinois, and I have the sense that he would have ruled in favor of trial in Illinois had he been the judge in the first instance).

A few points of interest:

• There seemed to be no question that a Canadian judgment in favor of Lord Black, if he prevails, will be unenforceable in the United States. Presumably this is on account of the SPEECH Act. I would go further and say that if the case were litigated in the United States in the first instance, it is almost inconceivable that the report the directors put on their website would be found libelous. The First Amendment requires proof of actual malice in a case like this, and Lord Black almost certainly could not prevail under US law.
• Two civil actions were pending in the United States at the time of the decision, charging Lord Black with breaches of fiduciary duty. What happens if the US actions are decided first, and Lord Black loses? Would a Canadian court apply non-mutual collateral estoppel? Canadian lawyers, please chime in!
• The choice of law discussion is interesting. Justice LeBel makes a point of pointing out that Lord Black has “limited his claim to damages to his reputation in Ontario.” Does this make sense? Does a figure such as Lord Black have one reputation in Ontario and another reputation elsewhere? Even if that could have been the case in the past, in a global media culture I don’t think this is sensible.

Do read the posts on my Canadian colleagues’ blogs for more details.

Photo Credit: United States Marshal’s Service

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In an American case in the federal courts (other than a case brought under the Foreign Sovereign Immunities Act), a plaintiff in this situation would look to Rule 4(f)(3) of the Federal Rules of Civil Procedure, which provides for service “by other means not prohibited by international agreement, as the court orders.” Typically the plaintiff seeks an order permitting service on the defendant’s US lawyer, or on a US subsidiary, or in by some other method that does not require transmission of the documents outside of the United States. Even service by publication is a possibility (subject to the constraints of the Due Process Clause). Since Article 1 of the Convention provides that the Convention applies only when documents are to be transmitted to the territory of another state, these alternative methods of service avoid whatever problems the Convention poses.

The Ontario Rules of Civil Procedure contain provisions permitting a court to authorize alternate means of service or to waive service altogether. But Rule 17.05(3), which governs service of process in Hague Convention cases, provides:

(3) An originating process or other document to be served outside Ontario in a contracting state shall be served,

(a) through the central authority in the contracting state; or

(b) in a manner that is permitted by Article 10 of the Convention and that would be permitted by these rules if the document were being served in Ontario.

Khan was successful in obtaining an order waiving the necessity of service in the lower court, but on appeal, the Superior Court of Justice reversed the decision. The decision is instructive, though I don’t really want to express a strong opinion on whether it is correct under Ontario law. The judge adopted what is, I think, the accepted view, and the view of the US Supreme Court, namely that the Convention is non-mandatory but exclusive. That is, the the law of the forum and not the Convention itself determines when it is necessary to transmit a document abroad (i.e,. the Convention is not mandatory). But when it is necessary to transmit a document abroad, the Convention provides the exclusive means for doing so. So far, I agree with everything the court says.

The judge read Rule 17.05(3) to “prescribe[] the only methods of service available when service is to be performed in a contracting state.” In short, the judge reasoned that Ontario law required the document to be served abroad, and therefore, the service had to comply with the Convention. If the judge is right about what Rule 17.05(3) required, then the outcome is correct. I’m not sure, though, why the rule shouldn’t be read simply to say that if a document is to be served abroad, then the service must comport with the Convention, but to preserve the possibility that under other applicable Ontario law, it may turn out to be the case that service abroad is not required. Suppose, for example, that a foreign corporation has an office in Ontario, or that an individual foreign defendant happens to be traveling in Ontario. Is it the case that service in Ontario in such cases is improper? Canadian lawyers, please comment!

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