Some Progress for the Hague Choice of Court Convention

             The Convention of Choice of Court Agreements, which the Hague Conference on Private International Law finished in 2005, received a much needed and deserved boost recently when Singapore signed it.  To date, only three other states have signed: the United States, Mexico, and the European Union.    Only Mexico has ratified it so far, although the European Union is expected to do so soon.  At least two  states must ratify it before it enters into force. 

            The Convention aims to ensure the effectiveness of choice of court clauses, also known as forum selection clauses, in international, cross-border contracts.  The Convention obligates the courts of the jurisdiction specified in the contract to accept jurisdiction, and obligates courts of jurisdictions not chosen by the contracting parties to decline jurisdiction.  As well, courts in contracting states must recognize and enforce judgments issued by the court chosen by the contracting parties.    The Convention applies in international cases to civil and commercial contracts, but exempts employment, consumer, and certain other types of contracts. It applies to contracts with exclusive choice of court clauses, i.e. clauses that require, not merely permit, disputes to be litigated in the courts of a specific jurisdiction. 

            This Convention would benefit Canadians and Canadian businesses as much as anyone else, and thus it is to be hoped that Canada will sign and ratify the Convention soon too.

Recognition of a Chinese Judgment

             Despite the volume of trade between Canada and the People’s Republic of China (“PRC”) cases involving the recognition or enforcement of PRC judgments are rare.   It is only a matter of time before courts will need to address this.    A recent case in California alerts us to aspects of PRC law relevant to proceedings in Canada.  In California, as in Canada, courts will recognize foreign judgments if the foreign court had jurisdiction over the defendant, and as in Canada, failure to properly serve process in the foreign proceeding is generally a full defence to enforcement. 

            In Folex Golf v. O-TA Precision,  Folex Golf (“F”) and the Luoyang Ship Material Research Institute (“L”) had an agency agreement, F introduced O-TA Precision (“O”) to L, and O became L’s customer.  L later sued F in the PRC.  A default judgment there dissolved the agency agreement.   F then sued O in California.   O, arguing that the default judgment bars F’s action,  won summary judgment dismissing F’s action.  

            The U.S Court of Appeals for the 9th Circuit reversed in a ruling last month, giving two reasons why the PRC default judgment was not enforceable.  One was that the PRC claim had not been properly served, even under PRC law.   According to expert evidence on PRC law in that case, PRC law permits service by way of publication, if personal service is shown to be impossible.  Such publication must be done both in the PRC and abroad in cases where the defendant is based outside the PRC.    In other words, the PRC judgment was arguably invalid even in the PRC.    As such, the PRC judgment would likely not be enforceable in Canada, where one prerequisite to enforcement is that the judgment be final and conclusive.  If the judgment is vulnerable to be being set aside due to shortcomings in service, it is not conclusive.     Incidentally, the fact the PRC plaintiff did not comply with PRC law regarding service does not by itself constitute a reason in Canada to not recognize the judgment.  In Canada, failure to provide the defendant a fair process is a defence to enforcement of foreign judgments, but fairness is based on Canadian standards, not the foreign country’s legal requirements. 

            The second reason the California court reversed was that according to expert evidence in that case, PRC law does not recognize third party collateral estoppel.  In other words, under PRC law, the PRC would not enforce its judgment against L, which was not a party to that proceeding.   Therefore the PRC would not enforce the California summary judgment ruling.    Under California law, courts will not recognize a judgment from another U.S. state unless that state recognizes California judgments; presumably the same applies to judgments from the PRC.   Accordingly, the appeal court ruled that it would not recognize the PRC judgment in this case.   Canadian courts, in determining whether to enforce a foreign judgment, generally do not consider whether courts in the foreign jurisdiction would enforce Canadian judgments.   However, Canadian courts will consider, when asked to issue an order to be enforced abroad, whether such order could in fact be enforced.  Thus if F had sued L in Canada to obtain an order to be used against O in the PRC,  the PRC law described in Folex would be a reason for the Canadian court not to issue the order.

E.U. Gives Boost to Choice of Court Convention

Earlier this month, European Union Justice Ministers approved ratification of the Hague Conference’s Convention of 30 June 2005 on Choice of Court Agreements.   

This convention is designed to ensure that choice of court clauses (also known as forum selection clauses) in international commercial contracts are effective.  The convention does so by requiring the court chosen by the parties not to decline jurisdiction on the basis of forum non conveniens, by requiring courts the parties did not choose to decline jurisdiction if one of the parties attempts to litigate there in contravention of its contract, by requiring courts to recognize and enforce judgments issued by courts the parties have chosen in a forum selection agreement, and by providing clarity on the rules governing international contracts with such clauses, among other things.    

The Convention is not yet in force but probably soon will be.  It has been ratified only by Mexico so far, but has been signed by the United States as well as the European Union.   The convention comes into force upon ratification by two or more states.  Therefore, after the European Parliament gives its consent, it will come into force in the European Union and Mexico.

Wang v Sun – Slam Dunk Forum non Conveniens Motion Fails

If you are defending a civil claim with ties to Asia, getting the court to decline jurisdiction in favour of a court in Asia will often seem like a great way to dispose of a case at an early stage.   It must have seemed that way, initially, for the defendant in the recent B.C. case of Wang v. Sun.  Wang sued Sun for commission on a sale of land located in the People’s Republic of China (“PRC”). Both Wang and Sun are residents of the PRC.    Sun, the vendor, had already begun a law suit in the PRC against the purchaser, Coastal, for failure to close.  The purchaser alleged the contract had been frustrated, thereby putting in issue its enforceability.   The governing law for both the sale contract and commission contract is Chinese law.   As one might expect, Sun asked the B.C. court to decline jurisdiction in favour of the PRC court, based on forum non conveniens (he did not deny the court has jurisdiction, because he is a resident of B.C. as well as of the PRC).  B.C.’s Court Jurisdiction and Proceedings Transfer Act (“CJPTA”) codifies the criteria for forum non conveniens, but many are the same as the common law criteria, e.g. the convenience and expense for the parties and witnesses, the applicable law, avoiding a multiplicity of proceedings and avoiding conflicting decisions.    The CJPTA adds another factor: the enforcement of an eventual judgment, which factor weighed in favour of the PRC.  One might think Sun’s motion is pretty close to a “slam dunk”.  In fact, the B.C. court dismissed it and retained jurisdiction.  How could this happen? 

The court began by stressing that the plaintiff has a prima facie right to proceed in his or her chosen forum.     The onus is on the one who raises forum non conveniens to show that a.) there is another suitable forum, b.) that forum has a real and substantial connection to the case, and c.) that forum is “clearly more appropriate”, that is, the forum is in a better position to dispose fairly and efficiently of the litigation.   This, despite the fact the CJPTA test for declining jurisdiction – “[that the foreign court be] “a more appropriate forum” – is lower than the test in the common law:  “[that the foreign court be] clearly more appropriate”.   

The court dismissed Sun’s argument that if the commission claim was tried in B.C., i.e. was tried separately from the contract claim, there would be a risk of conflicting court decisions.   The court ruled that based on the commission contract’s terms,  actually the commission claim would not turn on whether the sale contract was valid, or whether the sale closed.  Accordingly the outcome of the Chinese proceeding would not actually affect the commission claim.    

If the parties and witnesses in the two proceedings closely overlap, as one might expect, that would be itself a factor supporting a decision to decline jurisdiction. But Wang’s case for having the action tried in B.C. was strengthened by the fact that he had, perhaps partly in anticipation of Sun’s motion, pleaded that Sun had used a partial payment of the purchase money to buy property in B.C. (allegedly a breach of trust and a fraudulent conveyance both occurring in B.C.) thereby tying his case closer to B.C.

As for the matter of foreign law, although the court accepted that Chinese law is the governing law for the commission contract, this factor did not weigh in favour of the PRC because there was no evidence that the law of China is different from the law of B.C.  Although the court did not say so, it was presumably relying on the principle of the presumption of similarity, that is, a court will presume the foreign law is the same as the local law unless there is evidence to the contrary.   It may be that Sun assumed that the B.C. court would surmise the Chinese law is different, because its origins and the culture in which that law developed are so self-evidently different from that of B.C. law.   Apparently Sun neglected to prove that the applicable Chinese law is different, which reminds us that the presumption of similarity can be a pitfall for the unwary.   As well, if he had shown a difference advantageous to him, that would have been another factor in favour of choosing the PRC.     

The court also stated there was no evidence the B.C. Court would have difficulty interpreting or applying Chinese law.  This statement is hard to fathom. As Sun pointed out, interpreters and experts on Chinese law would be needed, and the experts would likely have to travel from the PRC. 

In the end, the unlikely facts that the commission claim would not depend on the enforceability of the purchase contract, and that Sun and Wang are residents of both B.C. and the PRC, doomed Sun’s motion to failure.  Not a slam dunk after all.     

 

 

Update on Determination of Jurisdiction in Family Law

           The Ontario Court of Appeal has recently made two important rulings on the determination of jurisdiction in cross-border cases in family law.  One, it ruled that for jurisdictional purposes, a person may be ordinarily resident in two different jurisdictions, at the same time, even if he/she does not split his/her time evenly between those two jurisdictions.  Two, the fact the plaintiff or applicant resides in Ontario may itself constitute a presumptive connecting factor for the purpose of determining whether  there is a real and substantial connection to Ontario : Knowles v Lindstrom [2014]O.J. No. 695 (Doherty, S.T. Goudge and Lauwers JJ.A.).  

In a blog posted last October, I reviewed the lower court’s decision.  An unmarried couple lived for ten years mainly in Florida but also spent several weeks in each of the last five years of their relationship at a property in Muskoka, Ontario.  After they split up, the former girlfriend – Knowles, originally from Ontario and of modest means – sued her former boyfriend – Lindstrom, a wealthy American – in Ontario for support and for a part of his Ontario property based on an unjust enrichment/constructive trust claim.  Lindstrom challenged the jurisdiction of the Ontario courts on various grounds.  The motion court stated, albeit arguably in obiter, that a person can be considered ordinarily resident in two different places, at the same time, and that despite the fact the parties lived primarily in Florida, both parties were ordinarily resident also in Ontario based on the fact they spent significant time every year in Muskoka.   The court based its ruling in part on a long-standing tax law case, Thomson v Minister of National Revenue [1946] S.C.R.209, about someone who, like the parties in this case, maintained homes in both the United States and Canada and spent time with his family in both, year after year, by choice.  However, unlike in Thomson, the applicant did not own either home even in part (subject to her property claim).

   The motion judge also stated, again arguably in obiter, that the fact the applicant is a resident of Ontario may by itself constitute a presumptive connecting factor, despite the fact that the Supreme Court of Canada in Club Resorts v. Van Breda stated clearly that it does not, at least in tort cases (para. 86). 

I say the motion court’s rulings on these points were arguably obiter in that the court did not need to decide them.  The court plainly had jurisdiction over the property claim insofar as the property was in Ontario,   and could have taken jurisdiction over the support claim on the basis of the principle that as far as possible a multiplicity of proceedings is to be avoided.    

The Ontario Court of Appeal has now upheld these two rulings.   The Court stated that the parties had the same lifestyle as in Thomson.  The court held that “the concept of ordinary residence as defined in Thomson is appropriate when considering whether the parties’ physical connection to a jurisdiction is sufficient to constitute a presumptive connecting factor for the purposes of the Van Breda analysis.”      The Court did not address any possible differences in the policy considerations relevant to a determination of ordinary residence for tax purposes and a determination for jurisdictional purposes in family law.  The fact one spends significant time in Canada is clearly relevant to whether he/she ought to contribute financially to Canada through taxes, even if he/she also lives in another jurisdiction, in that he benefits from tax-funded services while in Canada.   Nonetheless, the fact both parties by choice spent significant time, year after year, at a residence in Ontario does seem to amount to as strong a form of residency as is seen already in the case law of what constitutes residence for the purpose of jurisdiction. 

The Court also affirmed that the fact an applicant is resident in the forum at the time of the application may in family cases constitute a presumptive connecting factor.   The Court distinguished Van Breda on the ground it dealt with a tort claim.  The Court reasoned that “support claims are arguably quite different from tort or contract claims in that, absent appropriate support from the former partner, the burden of support may fall upon the state where the party seeking support resides.”  To the contrary, support cases and tort cases are not so different.  In a tort case the burden of medical care (in an accident case such as Van Breda) may fall upon the state too.  The Court of Appeal's reasoning is hard to reconcile with Van Breda, specifically the reason why the plaintiff’s/applicant’s residence in the forum does not constitute a presumptive connecting factor:  the Supreme Court said that principles such as fairness, efficiency and comity are not to be confused with “factual connections that will govern the assumption of jurisdiction” (para 84).   With respect, this new presumptive connecting factor is likely not consistent with Van Breda.

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.