US Dealer’s Repossession of Car in Canada Okayed

In a recent case before the Alberta Court of Appeal,  Houle v BMW Financial Services, a couple who had bought a car in the United States and took it with them when they moved to Alberta sued after the American dealer repossessed the car in Canada.  The Court upheld a decision dismissing their  action for an order cancelling and reversing the seizure of the BMW car.  They had bought it in California under an installment sales contract, then had fallen twelve months behind on the payments.  After several months of inquiries and searching, the U.S. dealer found the car in Alberta and, through an affiliated Ontario company, re-possessed the car.  The owners then proposed to pay the arrears to get the car back, but the defendant refused. The car’s owners made much of the fact a non-party had seized the car, presumably hoping for a ruling that only a party to the car sale transaction can seize back the car, and that that party would not be permitted to enforce a U.S. transaction across the border in Canada. 

The facts presented legal issues of two kinds:  the substantive issues (did the U.S. dealer have the right to refuse payment of the arrears,  seize and keep the car , or did the owners have the right to pay those arrears and regain the car?) and the procedural issues (what requirements apply to the seizure?)

The contract had a choice of law clause: the law of California governs substantive matters and the law of the place of seizure  governs procedural matters.  This is the same as what the Alberta conflict of laws rules provide. 

The need to prove the content of the foreign (California) law as a fact can potentially be a difficulty in cases of this size, given the cost of bringing in an expert or other witness to testify on California law.  Here, neither side did so; instead, a copy of the relevant excerpt of the California Civil Code was given to the Court, and both sides argued from that,  probably  in order to minimize costs.  The court applied the presumption of similarity:  it presumed, in the absence of evidence to the contrary, that California law (including their principles of statutory interpretation) is the same as Alberta law.  The court found the defendant had a right to seize and re-sell the car.

The governing law as to procedure is the domestic law; the law of Alberta says that if the owner is in default, the manner of seizure is irrelevant and does not provide a ground for attacking the seizure or sale.  The court had little to say about the fact the search and seizure was directed from outside Canada, without the knowledge or consent of Canadian authorities  – apparently that  was of no consequence for the court.

Evidently, the Canada – U.S. border is not itself a big obstacle to a foreign party’s enforcement of a security interest, in Alberta at least. 

Recent Amendments to China’s Civil Procedure Law Help Litigants

      Several recent amendments to the Civil Procedure Law of the People’s Republic of China (“PRC”), now in effect, could have a bearing on decisions as to where to bring a claim -- in the PRC or elsewhere -- or on the juridical advantage aspect of a forum non conveniens analysis in a jurisdictional dispute involving the PRC. 

      As for considerations as to where to bring the claim,  the amendments give PRC courts power to issue evidence preservation orders before a court proceeding has been commenced, not just after as had previously been the case, and to issue such orders also in aid of domestic or foreign-related arbitration.   This power, comparable to a Canadian ex parte Anton Pillar order,  is valuable especially where the defendant is likely to move or destroy evidence as soon as litigation starts.  The plaintiff must commence his/her proceeding within a certain period following the order.   

      The amendments extend the PRC courts’ powers to preserve property (which had already been available before or after commencing a law suit) to include powers to order a person to do or not do something.  Such orders can also now be given in aid of an arbitration not yet commenced, although it is not clear whether that applies only to domestic arbitrations or to foreign – related arbitrations as well.  Unlike in Canada, the plaintiff may have to provide a surety, not merely an undertaking as to damages.  The order is cancelled if the plaintiff does not commence his/her proceeding or arbitration within thirty days.

      The new law widens the parties’ choice of jurisdiction options.  Previously,  the parties could by mutual agreement, in contractual disputes, choose to litigate in the place where either party was domiciled, or where the contract was signed or performed, or where the subject matter of the lawsuit is located.  Now the parties have an additional option:  “any other place actually connected to the dispute”.  This change could possibly mean that if that place is outside the PRC and the parties choose to litigate in that foreign court, a PRC court might be more likely to accept that foreign court’s jurisdiction for purposes of enforcement of a subsequent judgment.   As well, the right to choose applies also to cases relating to rights or interests in property, not just contractual disputes.  

       The courts now have discretion to allow a witness to testify via audio or video transmission or through written testimony, as opposed to physically attending the trial, for reasons of geographic distance, inconvenience of travel, health, or natural disaster. 

      The amendments significantly reduce the grounds to refuse enforcement of domestic arbitration awards.  The grounds provided in the old rules – “the main evidence for determining the facts was insufficient” or “there was an error in the application of the law” have been replaced with “the evidence that forms the basis of the award was fabricated” or “the other party has concealed evidence from the arbitral institution that affects the impartiality of the award”.  

      In summary, the courts' new powers can be of great help to litigants, and reduce some of the differences with other fora outside the PRC.   

      Of course, there are many other factors that bear upon a determination as to where best to sue, including the fact that a litigant’s rights on paper and his/her rights in reality may differ.   One of the amendments, as reported by XinhuaTimes and the National Bureau of Corruption Prevention of China, reminds us of what cannot be taken for granted in Chinese courts:  “The Amendment stipulates that judges should not accept gifts or treatment from any interested parties or their attorneys.” 

When is a foreign judgment penal, and thus unenforceable?

In many jurisdictions including all of Canada, courts will not enforce foreign judgments that are shown to be penal in character.  In Dingwall v Foster,   [2012] A.J. No. 817  the Alberta Court of Queen’s Bench  recently considered whether a Nevada  judgment for damages issued after the defendant’s defence had been struck as a discovery sanction is penal and thus unenforceable.     The defendant had defied a court order to attend the discovery.  However, the damages were calculated based on the causes of action for which the plaintiff had sued, namely breach of  fiduciary duties, conversion, and others.   

The defendant had argued that the damage award was analogous to the American contempt order in Pro Swing v Elta Golf [2006] 2 S.C.R. 612 which the Supreme Court of Canada found was penal and thus unenforceable.  In Pro Swing, a trademark infringement case, a previous order had enjoined the defendant from selling certain golf equipment.  Because the defendant continued selling the equipment, the American court issued a contempt order which required the defendant to, among other things, account for the revenues it received from those sales.     

The Alberta Court of Queen’s Bench distinguished the Pro Swing contempt order on the grounds that it required Elta to account for activities it undertook (sales of equipment) in violation of the earlier court order.  By contrast, in Dingwall, the judgment to be enforced did not award damages arising directly from the defendant’s disobedience of a court order (i.e. the failure to obey an order to attend discovery). The damages were based on the original causes of action.    The Court commented that the judgment was indistinguishable from a default judgment arising from a failure to defend, and that it would be paradoxical to enforce the latter (as the law does) but not the former.  

With respect, the Court overstates the difference with the Pro Swing order, and understates the difference with the default judgment.   In Pro Swing, presumably the original claim included a claim for an accounting for sales that would have covered the same sales covered by the contempt order.   In other words, an judgment  for an accounting for those sales might well have been issued even if there had been no contempt.   The contempt order for an accounting thus can reasonably be said to be based on the original cause of action.  In Pro Swing, the Supreme Court stated that contempt orders, either for civil or criminal contempt, will be considered penal and thus unenforceable.  The reasons in Dingwall do not specify  whether the second court order was worded as a contempt order,  but the Nevada court referred to it as an order for sanctions, and it was issued after the defendant had violated a court order to attend discovery.

As for a default judgment issued upon a defendant’s failure to defend an action, such a judgment is issued, not to punish anyone, but instead because the defendant, having failed to defend, is deemed to have admitted that the plaintiff’s allegations are true.  In Foster, by contrast, the judgment flowed from a penalty,  namely the loss of the defendant’s opportunity to defend either liability or the quantum of damages claimed.   Although the judgment does not impose a fine separate and distinct from the damages for breach of fiduciary duties etc., the amount of those damages are quite possibly higher than if the defendant had been permitted to defend liability or the quantum of damages claimed.    Indeed the judgment in Dingwall illustrates the  point perfectly:   it included $45,000,000 in punitive damages which on  appeal in Nevada  were struck out,  as were $15,000,000 of general damages.  It is not hard to imagine that damages may have been lower still if the defendant had had an opportunity, at trial, to defend on liability or quantum of damages.

In conclusion, with respect, the decision in Dingwall is inconsistent with Pro Swing, and it construes too narrowly what judgments should be considered penal and thus unenforceable.