Tuesday, 30 April 2013

OCA Confirms: No substituted Service of Claims to Hague Convention Countries

The Ontario Court of Appeal ruled this month that where a statement of claim is to be served in  a country  to which the Hague Convention on the Service Abroad of Judicial and Extra-judicial Documents in Civil or Commercial Matters (“the Convention”)  applies,  the court has no power to order substituted service even if personal service would be impractical, and has no power to validate or dispense with service, even if the defendant has actual notice of the claim.   Plaintiffs are limited to the means of service set out in the Convention.    
In Khan Resources Inc. et alv. Atomredmetzoloto JSC et al   2013ONCA 189, a Canadian mining company sued its Russian joint venture partners, alleging the latter sought to deprive them of their interest and substantial investment in a certain mine in Mongolia.    The Russian government owns 80% of the shares of the Russian defendants.    Pursuant to the Convention, the plaintiff requested the Russian Central Authority to serve the claim.  The Central Authority refused,  giving no explanation other to simply cite article 13 of the Convention, which says that a state may refuse service “if it deems that [service] would infringe its sovereignty or security”.        
Under Russian law an appeal lies from that decision.   However, there were indications that the result may be driven by political considerations.  Also, the appeal could take a year and cost $100,000.    Article 14 of the Convention provides that  difficulties that arise “in connection with the transmission of documents for service shall be settled through diplomatic channels”.  The plaintiffs chose neither option; they opted instead to bring a motion before the Ontario Superior Court of Justice for substituted service or an order validating service, on notice. After all, lawyers for the Russian defendants had  a copy of the claim.  The Master granted an order validating service.  On appeal  to a judge, Mr. Justice O’Marra,  the decision was reversed, on the grounds that there is no power to validate service or allow substituted service.    The Ontario Court of Appeal dismissed the appeal.    
The Court of Appeal ruled that the Convention provides the only means by which service into a contracting state under the Convention (a “Convention country”) may be effected; the Convention ousts the domestic law provisions for substituted service or validation of service, even if the defendant has actual notice of the claim.  There are several reasons. One is that one of the two stated purposes for the Convention is to establish a uniform procedure in all contracting states; to open the door to the use of domestic powers   to validate service or allow substituted service would undermine that purpose.   Also, the origins and wording of the rule that implements the Convention into Ontario law (R. 17.05 (3) indicate that for service to Convention countries, use of the means provided in the Convention is mandatory.  The Practical Handbook on the Operation of the Hague Service Convention, published by the Hague Conference on Private International Law, confirms that the Hague provisions are intended to the only means to effect service in Convention countries.   A 2012 ruling of the Alberta Court of Appeal  Metcalfe v Yamaha Motor Powered Products2012 ABCA 240, 536 A.R. 67 --  and a 1988 ruling from an American court say the same.  
The Ontario Court of Appeal discussed but did not rule on the question of whether the plaintiffs would be permitted to move to validate or dispense with service if they had pursued all possible remedies under the Convention and were still  unable to effect service, as in Zhang v.  Jiang (2006), 82 O.R. 306 (S.C. Master), a case in which violation of basic human rights, torture and crimes against humanity were alleged.   The Court of Appeal hinted that there could be an “access to justice” exception to the otherwise prevailing rule that the Convention is exclusive.  
The facts of Khan Resources would indicate the plaintiffs there also lacked access to justice.  Given the Russian government’s 80% interest in the defendants, the prospects for an impartial ruling or a successful outcome for diplomatic efforts seem very remote. 
Also, arguably the Convention need not apply. Article 1 of the Convention provides it applies “where there is occasion to transmit a judicial … document for service abroad”.  There would be no need to transmit anything abroad if service on the Russians’ Canadian lawyers could be validated.