Nortel’s Joint Canada-US Bankruptcy Trial Begins

On Monday May 12, 2014 the joint Canada-U.S. trial to determine how to allocate the remaining assets of Nortel Networks began.  Linked by video conferencing, Mr. Justice Newbould of the Commercial List of the Ontario Superior Court of Justice in Toronto, and U.S. Bankruptcy Judge Gross in Wilmington, Delaware, simultaneously began hearing the opening submissions, presented by two lawyers in Toronto and two in Wilmington.   Nortel Networks Limited and its subsidiaries and affiliates around the world are parties to this action.    About forty lawyers attended in Toronto, and there was about the same number in the U.S.  The trial is expected to continue until late June, and there is another trial for related claims shortly thereafter.     

Although this author knows of no precedent for a combined trial covering multiple jurisdictions, there is provision for this in the Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases, which was published by the American Law Institute in 2003, and which was adopted by the Commercial List of the Ontario Superior Court of Justice in 2004.  Guideline 9 provides for courts to conduct joint hearings with other courts, subject to various requirements such as that each court can simultaneously hear the proceedings in the other court, and all filings in one court are to be available electronically and publicly in the other court.   Filing in one court does not constitute attornment to the other court’s jurisdiction. 

Presumably the rationale for this joint trial is to reduce costs.  Already over one billion U.S. dollars has been spent in the bankruptcy on professional fees of lawyers, accountants and others, since 2009. Various efforts to resolve the dispute of how to divide the assets have failed. 

It remains to be seen what will happen if the two courts’ decisions conflict,  which conflict may arise from differences between Canadian and American bankruptcy law, or differences in fact-findings, or both.     There does not appear to have been a determination of the proper, applicable substantive law – lex causae -- to govern both the Canadian and American sides of this dispute.   The Allocation Protocol, which sets the ground rules for this trial, says nothing about choice of law.

As well, parties in both countries have their “usual rights of appeal” from interlocutory and final orders, which gives rise to further potential for a conflicting outcome.

I will try to follow developments in the trial.

 

SCC to hear Chevron’s Appeal in Mammoth Equadorian Judgment Enforcement Case

             The Supreme Court of Canada has given leave to appeal the decision of the Ontario Court of Appeal allowing the plaintiffs, villagers in Equador, to pursue their action for enforcement of their $9.5 billion foreign judgment against Chevron in Ontario:  Chevron Corp v. Yaiguaje et al.   

            The Court will be asked to rule on, among other things, whether the real and substantial connection test is a universal test for jurisdiction simpliciter that applies even to recognition and enforcement of foreign judgments.  Chevron apparently says that the test does apply.  If the test applies, would that test be made out where the sole connection between Canada and the foreign judgment debtor is an indirect Canadian subsidiary?     Is the presence of exigible assets a prerequisite to recognition? 

Under the present law, the test for jurisdiction in a recognition and enforcement case focuses on whether the foreign court that issued the judgment had jurisdiction over the defendant, in accordance with Canadian jurisdictional principles.  A real and substantial connection between the foreign case and Canada is not a prerequisite for jurisdiction to hear a recognition and enforcement action.   That real and substantial connection test applies only to determinations as to whether a Canadian court can assert jurisdiction over a non-resident defendant in the original action, not enforcement of a judgment against that defendant.  A ruling that the real and substantial connection test does apply to recognition and enforcement of foreign judgments would be an abrupt departure from the clear trend toward the liberalisation of the requirements for recognition and enforcement that started with Morguard v De Savoye in 1990.

 

U.S. Ruling in Chevron Judgment Enforcement Case Shows Shortcomings in Canadian Law

The U.S. District Court in Manhattan ruled this month that a 9.5 billion dollar judgment that a group of Equadorian villagers obtained against Chevron Corporation in Equador in 2011 for environmental damage was obtained by fraud and is thus unenforceable anywhere in the United States (see http://www.nysd.uscourts.gov/cases.php). There were multiple frauds, among them:  the judgment issued by the Equadorian trial judge was ghost-written by the plaintiffs.   The trial judge agreed to sign it in return for the promise of a $500,000 cut of the damages collected.    The plaintiffs pressured the court into appointing as an expert purportedly independent and working as an officer of the court, one Richard Cabrera.  The plaintiffs handpicked Cabrera and gave him various financial inducements to ensure that his report would favour the plaintiffs.     The shock waves flowing from the New York court’s findings of fact will soon reach Canadian shores.  The Equadorian villagers brought an action in Ontario to have the same judgment enforced in Canada.   That action had been stayed by the motion court on unrelated grounds, but the Ontario Court of Appeal lifted that stay a few months ago. 

            Canadian law regarding enforcement of foreign judgments is quite liberal, compared to the law in some other countries, and thus more judgment creditors will seek to enforce foreign judgments here than would otherwise be the case.  Thus Canadian courts must be vigilant of fraudulently procured foreign judgments. The Chevron case shows that our law does not provide sufficient safeguards against enforcement of fraudulent foreign judgments.   I am not suggesting that only foreign judgments, never domestic ones, might be fraudulent, but this blog is about foreign judgments. 

The Supreme Court of Canada in Beals v. Saldanha  [2003] 3 SCR 416 stated that “the merits of a foreign judgment can be challenged for fraud only where the allegations are new and not the subject of prior adjudication”.  The court went on to say that fraud relating to the merits is a defence only if that fraud could not have been discovered through reasonable diligence.  The Court explained its goal is to strike a fair balance between the countervailing goals of comity (that is, respect for the foreign court) and finality of judgments on the one hand, and and fairness to the defendant on the other.    The onus is on the defendant to show unfairness.

The Chevron case presents the issue of how courts are to deal with allegations of fraud where there has been prior adjudication, but the trial and/or  appeal court has dismissed the allegations without due consideration, despite reasonable efforts by the party asserting the defence of fraud.  This situation is quite foreseeable if the trial court was complicit in the fraud, and if the judicial system there is weak, but is also quite conceivable even if there was no complicity.  

Chevron appealed the Equadorian trial judgment on various grounds including their contention that the judgment had been ghost-written.  At about the same time, Chevron also brought an action in the United States under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) against the plaintiffs’ lawyers and others.   Chevron did not raise the issues of the bribe or the Cabrera report in its appeal because Chevron apparently did not have any or enough information about these matters at that point. 

The three-judge appeal court, which affirmed the trial judgment, stated it would not “refer at all” to Chevron’s specific allegations of fraud and corruption… except to let it be emphasized that the same accusations are pending resolution before authorities in the United States of America [in the RICO proceeding] and this court has no competence to rule on the conduct of counsel, experts or other officials…”. The plaintiffs sought clarification of the judgment, asking the court to make clear that it had analyzed Chevron’s accusations and that the court had not found fraud on the part of any plaintiff.  The court responded saying that “while it did not find evidence of fraud, it was staying out of these [fraud] allegations”.   

Chevron then appealed to Equador’s National Court of Justice.  Chevron, now aware of the Cabrera expert report and another fraud (but apparently still aware or lacking information about the bribery), cited these matters as well as the ghost-written judgment in arguing that the trial proceedings should be nullified.   Apparently Chevron never raised the bribe allegation in any appeal, because Chevron did not know of the bribery, or did not know much, at the time of those appeals.   

The National Court is a court of cassation – it reviews only legal issues not factual ones.  The court for the most part upheld the trial judgment. Regarding the allegations relating to Cabrera, the court ruled that Chevron had not identified the rule or law that had been infringed or which would render the proceeding a nullity, and accepted the trial court’s statement that it had not relied on the Cabrera report.   The court found the ghost-writing allegations unsuited for review in that court.  That court refused to “re-evaluate the evidence through a cassation appeal because to do so would be to diminish the independence of trial judges”, even though a key aspect of Chevron’s appeal was that the trial judge abandoned his independence when he permitted the plaintiffs to draft his judgment.    

How would the Chevron judgment be treated in Canada? 

If the bribery could not have been addressed in the appeals through reasonable diligence, and the bribery is proven, it will be a near-unassailable defence to the enforcement of the judgment in Canada.  

But what about the other frauds?  Having been the subject of prior adjudication, they will not meet the test for the defence of fraud as set out in Beals.  This is unfortunate.  Appeal courts cannot always be relied upon to properly review a judgment tainted by judicial misconduct.  The appeal court judges may feel some embarrassment, or an instinct to protect their judicial brothers in the lower court, or may be as biased as the trial judge, perhaps for the same reasons. In a recent criminal case in the U.S., a defendant sought to nullify his conviction on the grounds that the prosecutor and the judge were having an affair, a fact that was admitted.    After the convicted man’s efforts to nullify failed at first instance, he brought an appeal. That appeal was dismissed with a terse, single-sentence decision.     

In a case where the defendant had to obtain leave to appeal but was denied it, or where the appeal court heard the appeal but dismissed it without reasons (there being no legal requirement to issue reasons), this too might constitute prior adjudication.

In my view, the mere fact an allegation of fraud has been raised in an appeal ought not preclude that fraud being a defence to enforcement, if it cannot be shown the appeal court did a meaningful, independent review.

Another potential defence to the enforcement of the Chevron judgments is the defence of breach of natural justice.  This defence is meant to ensure the defendant “was granted a fair process…[that is, one that].. reasonably guarantees basic procedural safeguards such as judicial independence and fair ethical rules…” (Beals para. 61-62)   This defence requires proof of a breach having occurred in the same proceeding in which the judgment in question was issued. Evidence of bias or breaches of natural justice occurring in the court system as a whole does not suffice:  Oakwell Engineering v. Enernorth Industries  (2006), 81 O.R. (3d) 288 (O.C.A.).   Because the National Court of Justice heard, then dismissed, the complaints of Chevron, a Canadian court might conceivably find the allegations of breaches of natural justice have not been proven.   Further, to prove bias as a defence to a foreign judgment in Canada, one must prove actual bias, as opposed to a reasonable apprehension of bias.  In the Chevron case, the New York court considered evidence, including an expert, about whether the Equadorian justice system as a whole provides impartial tribunals and procedures consistent with due process of law, and found that it does not.   A Canadian defendant, however, could not rely on such evidence, or at least not heavily, to make out his defence. 

This can pose a serious problem in cases where the judgment comes out of a court system that as a whole is clearly unfair.  I refer to situations where the problem is not in the court’s rules and procedures but rather that there have been repeated instances of judicial misconduct involving various judges and various proceedings.  The nature of some forms of judicial misconduct is such that there will generally be little or no evidence in a specific proceeding.    For example, the existence of a bribe may never become revealed unless there is a witness willing to blow the whistle.   The bribe in Chevron came to light only late in the day.   Similarly, some forms of bias might not be known, for example where the judge has an undisclosed personal financial stake in the outcome of proceeding. 

That leaves the defence of public policy, one part of which guards against the enforcement of judgment rendered by a court proven to be corrupt or biased.  But this does not really add anything not covered by the defence of breach of natural justice.  

To conclude, but for the bribery, the Chevron judgment would arguably be enforceable in Canada.   The problem is two-fold. One, our law does not sufficiently recognize that prior adjudication may be ineffectual or inconclusive.  Two, judicial misconduct may be hard to prove, especially if evidence of problems in the justice system as a whole is not considered, or if the court requires proof of actual bias, not merely a reasonable apprehension of bias.

 

 

 

Enforcement of Foreign Protective Orders

The Hague Conference on Private International Law is working on how to encourage the recognition and enforcement of foreign protection orders, a.k.a. restraining orders, that aim to protect persons found to be at risk of attack or abduction related to e.g.  domestic violence, stalking, forced marriages,  “honour crimes”, human trafficking, and the like.   The initiative is intended to address problems such as (a) the delays and costs the person to be protected will face in the jurisdiction he/she has come to (the “jurisdiction of refuge”)  to obtain a new protective order or to have a foreign order enforced, and  (b) the lack of sufficient evidence in the jurisdiction of refuge to establish the court’s jurisdiction and to support the issuance of a protective order in respect of a threat that arose in the foreign jurisdiction (from where the person has come),  among other problems.        

The experts believed that victims or potential victims should have assurances in advance of a move abroad that their protective order will be enforceable there, so as to protect their mobility rights. As well, if the person against whom the order is issued knows the order can be enforced abroad, that will increase general deterrence.   Finally, the experts are looking into how to achieve specific deterrence by finding a way to achieve “on-the-spot” enforcement in cases of imminent harm.

At the meeting of the Experts’ Group on Recognition and Enforcement of Foreign Protective Orders in The Hague on Feb 12-13, 2014 the types of orders considered do not have final financial or property ownership consequences and do not determine final parental rights or responsibilities.    Thus the scope of enforcement proposed is limited compared to the laws of some jurisdictions including Canada that already permit, on a case by case basis, enforcement of a broad range of foreign non-monetary judgments and orders. 

Although the European Union and some individual states are working on enforcement of foreign protective orders, there is no global instrument in this area.

The Group considered three approaches to recognition and enforcement.   To facilitate on-the-spot enforcement, the group discussed the possibility of automatic recognition and enforcement of a foreign protective order upon presentation of same,  perhaps accompanied by a multi-lingual enforcement certificate, presumably to confirm the order is in effect, and perhaps to confirm it is intended to have extraterritorial effect.   This approach might be necessary in the case of imminent harm.   Another approach is advance establishment of a protective order, i.e. to permit the courts to take jurisdiction over the parties involved and to issue a protective order even before the person to be protected has arrived in that country, perhaps on the basis that courts elsewhere have already issued such an order.   Even in cases where harm is not imminent, traditional methods of obtaining recognition and enforcement may well be too slow to ensure adequate protection.  A third approach is advance recognition, i.e. to permit those courts to recognize a foreign protective order before the person to be protected has arrived in that country.

The Group recommended that further work on recognition of foreign protective orders, including the feasibility of a global instrument, be carried out.   Their recommendation will be considered by the Council on General Affairs and Policy of the Hague Conference when it meets in April, 2014.

 

 

 

Juridical Advantage as a Factor in Forum Non Conveniens: the Need to Give it Back the Weight it Deserves

When a defendant asks a court that has jurisdiction over a given case to decline to exercise that jurisdiction and let a foreign court take the case instead,  the first court embarks on a forum non conveniens analysis to determine whether the alternative forum the defendant proposes is  a clearly more appropriate forum.  Among the factors to be considered is “juridical advantage” (“JA”), which is the advantage (s) for a litigant provided by difference(s) between the laws of the home jurisdiction and the laws of the foreign, alternative forum.   Recently, the Supreme Court of Canada stated that juridical advantage “should not weigh too heavily in the forum non conveniens analysis”: Breeden v.Black  [2012] 1 S.C.R. 666;  Van Breda v. Club Resorts  [2012] 1 S.C.R. 572.   Citing that ruling, the Ontario Superior Court of Justice, in Sullivan v. Four Seasons Hotels [2013] O.J. No. 3335  effectively dismissed a sizable claim to damages for wrongful dismissal without regard for the merits.  The court ruled that, although it had jurisdiction simpliciter over the case, the case should be brought instead in New York, an “at will” jurisdiction where the law does not recognize claims for damages in lieu of notice of termination.     This blog post will argue, using Sullivan as an example, that juridical advantage warrants substantial weight.

Let us begin by recalling the principle that a plaintiff’s choice of jurisdiction ought not be lightly disturbed.   The defendant must show that the proposed other forum is “clearly more appropriate”.  As the Supreme Court itself states, this test reflects the fact that “the normal state of affairs is that jurisdiction should be exercised once it is properly assumed”:   Van Breda, para. 108-109 and Breeden, para 23.

It is because of that same principle that a court cannot even address forum non conveniens on its own initiative.  If the court chosen by the plaintiff has jurisdiction it must exercise its jurisdiction -- it cannot decline jurisdiction  -- unless  a defendant has asked that the case be moved to another court, and has met the test for same: Van Breda, supra, at para 102. 

            A similar approach is taken in legislation.  The Quebec Civil Code, article 3135, states that a court having jurisdiction “may, exceptionally and on application by a party, decline jurisdiction if the [courts] of another country are in a better position to decide”.    The Court Jurisdiction and Proceedings Transfer Act (“CJPTA”) which has been enacted in British Columbia, Saskatchewan, and Nova Scotia, section 11(1) provides that the court may (not must) decline to exercise jurisdiction if “[a]fter considering the interests of the parties to the proceeding and the ends of justice”, it finds “the court of another state is a more appropriate forum in which to hear the case”      In other words, under these laws the court may decline jurisdiction only if some other forum is more appropriate, and only if a party requests it. 

Let us remember also that merely commencing a proceeding in a jurisdiction with favourable laws, by itself, does not constitute unacceptable forum shopping:  Wenngatz v 371431 Alta Ltd. [2013] B.C.J. No. 1049 (B.C.C.A.). 

 Now let us review the two reasons the Supreme Court offered for de-emphasizing juridical advantage.     First, the Court says that:

“as a practical matter, juridical advantage may not add very much to the jurisdictional analysis.  As the Court emphasized in Amchem Products Inc. v. British Columbia (Workers' Compensation Board), [1993] 1 S.C.R. 897,  'Any loss of advantage to the foreign plaintiff must be weighed as against the loss of advantage, if any, to the defendant in the foreign jurisdiction if the action is tried there rather than in the domestic forum'  (p. 933). ": Breeden, at para. 27

However, consider that a plaintiff’s “choice” to proceed in a given jurisdiction is meaningful only in cases where more than one jurisdiction may conceivably be appropriate, and that the plaintiff will naturally choose the most advantageous jurisdiction.     To de-emphasize juridical advantage is in effect to weaken the principle that a plaintiff’s choice of jurisdiction ought not be lightly disturbed, and thus to lower the threshold for declining jurisdiction in favour of a foreign jurisdiction.    

The Court’s other reason for de-emphasizing juridical advantage is that an emphasis on juridical advantage

“may be inconsistent with the principles of comity. In particular, a focus on juridical advantage may put too strong an emphasis on issues that may reflect only differences in legal tradition which are deserving of respect, or courts may be drawn too instinctively to view disadvantage as a sign of inferiority and favour their home jurisdiction” (Van Breda, para. 112). 

            It is hard to see how the decision of a court that has jurisdiction simpliciter over a case to exercise that jurisdiction could constitute disrespect for another forum.    And as a practical matter, it is unlikely in cases involving only or mainly private disputes between private parties, that the foreign forum would be so concerned about the decision that there would be a risk of damage to relations between the two jurisdictions.    Apart from cases where such a risk is real (e.g. where foreign governments are named as defendants) comity ought not play a significant role in the forum non conveniens analysis. 

            As well, frankly in some cases one might very reasonably regard the applicable laws of the foreign jurisdiction as less protective than the legal rights and protections a plaintiff enjoys in a given jurisdiction, often his/her own country.   This is not a jingoistic statement and does not mean one regards most or all of the laws of that foreign jurisdiction as inferior.   This is merely to recognize that a given jurisdiction’s laws, in respect of a specific subject matter, may be more modern than the corresponding laws of a particular other jurisdiction proposed as an alternative forum.    There are many different subject matters to which a cross border dispute may pertain, such as matters of contract, tort or human rights, and many different jurisdictions in the world.  In most if not all jurisdictions, including Canada, people will consider at least some of their own jurisdiction’s laws to be modern and just, while also believing that other laws of their own jurisdiction on other subject matter to be antiquated or worse, even compared to the laws of another jurisdiction.   Depriving a plaintiff of rights and protections bestowed by the laws of his country can hardly be justified by fears or speculation that a foreign country with laws less modern on a particular subject matter will find the court’s decision disrespectful.

The factors typically considered in the forum non conveniens analysis include the links between the case and the alternate forum, such as, in tort cases, where the tort was committed or, in contract cases, where the contract was made.  Other factors pertain to practical considerations such as the location of witnesses (whether requiring them to travel for the trial would be unduly burdensome), and whether trial in a given forum would entail proof of foreign law, and whether that might be difficult.  If a related proceeding has already been commenced in another forum, then avoidance of a multiplicity of proceedings is an important factor too.

Factors that are links to the alternative forum are relevant mainly to whether the proposed alternative forum would have jurisdiction simpliciter, i.e. whether it would be appropriate at all, and less relevant to whether it would be a more appropriate forum.    Only if that alternative forum does have jurisdiction does it make sense to begin comparing the relative merits of the original forum and the proposed alternative.  That comparison should focus on practical considerations, and juridical advantage, not on the closeness of ties to the case.  After all, the forum non conveniens analysis is done only if the initial court has determined it has a real and substantial connection to the case.    

In Sullivan, the juridical advantage of suing in Ontario, as opposed to New York, was that Ontario employment law entitles employees to reasonable notice of termination, and to compensation if reasonable notice is not given, whereas New York law does not.  The plaintiff’s claim was sizable: she had worked for the defendant hotel for ten years as director of sales.    In New York, only her claims for discrimination and certain “tortious claims” would survive.

The court in Sullivan addressed seven factors in its forum non conveniens analysis.  The court found that the first factor, being the location where the contract of employment was made, favoured Ontario.  The second factor, the law of the contract, did not favour either fora because the contract (drafted by the defendant) did not state the applicable law.  The court did not carry out a choice of law analysis to determine the applicable law.   

The third factor, being the location where the witnesses are located, favoured New York.   The court made this finding despite the fact that the cost of having those New York witnesses travel to Toronto (where the trial would be held) would likely be minor compared to the size of the wrongful dismissal claim.  The fourth factor, being the location where the bulk of the evidence would come from, also favoured New York.  However, there was no indication that there was significant physical evidence to transport, nor any other indication as to why in this case the fourth factor should be a factor separate from and in addition to, the third factor.   

The fifth factor, where the factual matters arose, also favoured New York.  The sixth factor, the residence or place of business of the parties, split evenly between the two fora.

The court gave little or weight at all to the seventh factor, juridical advantage.  The court cited the above quoted dicta from Breeden v. Black.    The court did not say it assigned any weight to this factor.  

Because there was only the Ontario proceeding, avoidance of a multiplicity of proceedings was not applicable.

In the result, the court found New York to be the clearly more appropriate forum, and stayed the Ontario action.  The claim was settled shortly thereafter.  The plaintiff lost her claim for damages for wrongful dismissal because the court gave her ability to “have her day in court” on that claim either no weight or little weight, while giving more weight to the factors of the location of the witnesses and other evidence. 

            It is true that the Supreme Court’s dicta about de-emphasizing JA did not make the outcome in Sullivan inevitable, for two reasons.   One is the Sullivan court arguably made an error in that New York was not “more clearly appropriate”.  Of the seven factors the court considered, only three favoured New York, while two favoured Ontario and the other two were inconclusive.   Two of the factors in favour of New York (location of witnesses and evidence) had only a limited impact in practical terms.   Also, the Supreme Court only de-emphasized juridical advantage; the Court did not eliminate it as a factor. 

            The other reason is that even if the case is moved to New York, the applicable substantive law is not necessarily the law of New York.   As the Supreme Court said in Van Breda, “In considering the question of juridical advantage, a court may be too quick to assume that the proper law naturally flows from the assumption of jurisdiction….Even if the jurisdictional analysis leads to the conclusion that courts in different states may properly entertain the action, the same substantive law may apply, at least in theory, wherever the case is heard.”  (Para. 111)   As a practical matter, however, if a case is moved to a foreign forum, the substantive law applied to the case will often be that of the foreign forum.

            Nonetheless, Sullivan illustrates how reducing the weight given to JA can result in a Canadian plaintiff being denied substantive legal rights she would otherwise enjoy as a resident of Canada.

Ontario Court of Appeal Reverses Stay of Proceeding to Enforce Giant Ecuadorian Judgment

A unanimous Court of Appeal recently allowed the plaintiffs’ appeal of the ruling of Brown J., which had stayed their action for recognition and enforcement of their judgment from Equador against Chevron Corp. relating to environmental damage that harmed villagers there: Yaiguaje et al v. Chevron et al.   

After the plaintiffs had brought their action, the defendants – Chevron Corporation and its two Canadian subsidiaries, Chevron Canada Limited and Chevron Canada Finance Limited -- brought a motion to stay the action, specifically and only on jurisdictional grounds.   The defendants had plainly and emphatically stated they were not attorning to the jurisdiction. 

The motion court held that it has jurisdiction over the case, but nonetheless stayed the action on its own motion, exercising its discretion under s. 106 of the Courts of Justice Act.  The motion court cited the fact that Chevron Corp. has no assets in Ontario and the view that there is no reasonable prospect that the corporate veil will be pierced in respect of Chevron’s Canadian subsidiaries, and concluded that allowing the action to proceed would be “a waste of judicial resources”. 

The appeal court ruled the case did not meet the test for such a stay, namely that continuance of the action would be oppressive or vexatious or an abuse of process, and the stay would not cause an injustice to the plaintiff.     Without commenting on the merits of the plaintiffs’ action the court said the plaintiffs ought to be allowed to present their case at trial.     The court also noted the motion court had not solicited submissions from either side on the discretionary stay.

 The Court also dismissed Chevron’s cross appeal. Chevron had argued that the Ontario court could not take jurisdiction over this judgment enforcement action unless there was a real and substantial connection between the defendant and Ontario, as well as between the defendant and the jurisdiction where the original judgment was issued.  The court pointed out that the recent Supreme Court of Canada decision in Beals v. Saldanha made clear that such a connection to the jurisdiction where the original judgment was issued is necessary, but not also such a connection to the jurisdiction where enforcement is sought, in this case, Ontario.  The Court also discussed the recent Club Resorts v Van Breda decision of the Supreme Court of Canada.

The appellate ruling raises a number of fascinating issues I hope to explore in future posts.  In the meanwhile, have a happy holiday!

Validity of Exclusive Forum Selection Clauses in Corporate Bylaws

            The Delaware Court of Chancery has recently upheld the statutory and contractual validity of corporate bylaws that designate one court, usually the Delaware court, as the exclusive forum for disputes relating to the corporation’s internal affairs.  These provisions are aimed at reducing multi-forum stockholder and derivative litigation, and gaining the benefit of the perceived pro-management perspective of the Delaware courts.     Such provisions, adopted by over 250 public companies in the United States over the past few years, have been controversial.  There have been legal challenges in different states, criticism from proxy advisory firms and widespread shareholder opposition.   Most of those over 250 firms subsequently repealed their provisions, but two did not: Chevron and Fed Ex. 

In Boilermakers Local 154 Retirement Fund v. Chevron Corp.  C.A. No. 7220-CS and in Iclub v FedEx Corp. C.A. No. 7238-CS, the Court of Chancery held that such clauses are statutorily and contractually valid.  The court said that to find them invalid, statutorily and contractually, the plaintiff would have had to show that the bylaws cannot operate in compliance with the statute under any circumstances; it would not be enough for the plaintiff to show a fact-specific instance where the bylaw is at odds with the statute.  However, the court also said this finding of statutory and contractual validity does not bar legal challenges from persons who are affected by the actual operation of the clause, if they have an unreasonable or unlawful effect in that situation. As well, the clauses remain subject to challenge as inconsistent with a board’s fiduciary duties.   

Such clauses, uncommon in Canada,  have not been tested in Canadian courts so far as this author is aware.