Wednesday, 9 May 2012

Service of Claims on Defendants in Totalitarian Countries

A recent Ontario Superior Court of Justice decision will complicate, if not stymie, service of a statement of claim abroad,  despite the Hague Convention on the Service of Abroad of Judicial and Extra-Judicial Documents in Civil or Commercial Matters, in countries where political interference in legal proceedings occurs.

In Khan Resources v Atomredmetzoloto JSC, the plaintiff attempted to serve its claim on two Russian defendants under the Hague Convention by way of Russia's Central Authority.   That Central Authority refused to serve the claims, offering no explanation other than to cite Article 13 of that Convention, which allows for refusal to serve a claim if to do so "would infringe its sovereignty or security".  An review and appeal of the Central Authority’s refusal in a Russian court would cost about $100,000 and take a year.  A Russian lawyer with Baker and McKenzie in Moscow said success would be unlikely because the Russian government owns 80% of the defendant companies and would likely interfere in the proceeding.  Russia does not permit any form of service other than through its Central Authority.  The plaintiffs then brought a motion in Ontario for substituted service or an order validating service, on notice to the Russian defendants.  The motions court, having found that the plaintiffs had no practical alternative for service and having found that the defendants had ample notice of the claims, validated the service.    The court observed that "the purpose of the Convention, similar to that of [the rule regarding substituted or validated service], is to facilitate the service of legal documents..., not to enable foreign states to immunize their own subsidiary corporations by arbitrarily refusing to effect service." 

However, on appeal, a judge has recently ruled that where service is to be effected under the Hague Convention, the court has no power to order substituted service or to validate service.  Mr. Justice B.P. O'Marra, observing that when interpreting the court rules, as with any legislation, the court must presume that the rules are intended to conform to Canada's treaty obligations, held that service must be done only by the means permitted by the Hague Convention.  The Court ruled that Article 13, although not referred to in the rules of court (or in any other legislation), has been implemented in Ontario law and thus has the force of law.   

O'Marra J.'s  ruling is under appeal to the Ontario Court of Appeal.

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