SCC Affirms Lawyer’s Liability for Referral

     Clients ask lawyers from time to time for referrals to other professionals or advisors.  In the case of international law lawyers, the referrals sought are often for lawyers (or other professionals) in far away places.    Lawyers must consider the risks in providing such referrals.  The most obvious risk is that you do not know the lawyer you are referring very well, because he/she does not work near you and you do not talk with him/her often.  If he or she committed some misdeed, you are not likely to read about in your local lawyers’ newspapers.      Another risk is that in some foreign jurisdictions, including some Caribbean jurisdictions, many, or even most, lawyers, do not carry errors and omissions insurance.   If the lawyer you referred makes an error or omission but has no insurance, the client may incur a loss for which he/she may blame you.    

     Now the risk of consequences for the referring lawyer is substantial. The Supreme Court of Canada, in Salomon v. Matte-Thompson 2019 SCC 14, has affirmed that a lawyer may be held liable to his/her client for losses arising from a referral the lawyer made.  The Court stated that although the lawyer does not guarantee the services of the people the lawyer refers, the lawyer must “act competently, prudently and diligently in making such referrals, which must be based on reasonable knowledge of the professionals or advisors in question.  Referring lawyers must be convinced that the professionals or advisors to whom they refer clients are sufficiently competent to fulfill the contemplated mandates” (para. 45).

     In Salomon, the lawyer had referred his client to an investment advisor.  Salomon also endorsed the advisor’s investment products, repeatedly over several years.    He did so without adequate due diligence on the advisor.  As well, the lawyer’s personal and financial relationship with the advisor put him in a conflict of interest.  The client invested several million dollars in those products, which she lost after the investment product turned out to be a Ponzi scheme and the advisor absconded.    

     These facts are unusual but the court’s ruling makes plain that even absent a conflict of interest and repeated endorsements, a lawyer can be liable for carelessness in making a referral.  

The case originated in Quebec, and it says the lawyer’s duty arises from the lawyer’s relationship to his client as a mandatary, defined as one to whom a mandate is given, (“mandataire”), a term of Quebec law.  Another example of a mandatary is person who hold a power of attorney.   The concept is similar to fiduciary.   As such, lawyers elsewhere in Canada would be prudent to regard Salomon v Matte-Thompson as applicable to them also. 

Draft Convention on Recognition & Enforcement of Foreign Judgments

Introduction

The Hague Conference on Private International Law has released its Draft Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (“Convention”).  It is scheduled for adoption at the Hague Conference’s 22^nd Diplomatic Session in June 2019.  Work on this Convention has been underway since 1992.  It is encouraging to see some momentum building for this Convention, a project that started back in 1992.  If many countries sign, the Convention will be useful.   Enforcement of foreign judgments is highly restricted, or not available, in several big countries which impose a reciprocity requirement, such as the People’s Republic of China, the Russian Federation, India, Germany, Japan, and Austria.   The Convention would eliminate reciprocity as a prerequisite for enforcement.   The Convention has a long way to go before it catches up with its equivalent for arbitral awards, namely the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards a.k.a. the New York Convention, which is in force in 159 countries.

Highlights of the Draft Convention

The draft Convention requires that a judgment given by a court of a Contracting State (the “State of Origin”) shall be recognized and enforced in other Contracting States (the “Requested State”)  if certain conditions are met.  Those conditions are similar to those in the common law in Canada, including that the judgment is final, and that the court in the State of Origin had jurisdiction over the defendant and subject matter.     The Convention considers the court to have had jurisdiction if the judgment debtor:

a.)    was habitually resident in the State of Origin,

b.)    had its principal place of business or at least a branch there, or

c.)    attorned to the jurisdiction (e.g. by suing there, by consenting to jurisdiction in a forum selection clause, or by arguing the merits of the case without contesting jurisdiction). 

There is jurisdiction also if the case pertained to real property located in the State of Origin, or pertained to a non-contractual obligation involving a death, physical injury, or loss or damage to property, and the act that caused such harm occurred in the State of Origin.   There are also some other bases for jurisdiction in the Convention.    

The Convention expressly bars any review of the merits of the judgment, except as may be required to apply the Convention.

Recognition and enforcement may (not must) be refused only on specific grounds set out in the Convention, which grounds are similar to the defences found in the common law of Canada, such as a breach of natural justice, more specifically if the defendant was not properly notified of the court proceeding in the State of Origin, or, if the defendant was in the Requested State, he/she was  notified of the proceeding in a manner incompatible with the fundamental principles of the Requested State regarding service of documents.     Enforcement may also be refused if the judgment: 

a.)    is inconsistent with another judgment in the Requested State;

b.)    is inconsistent with an earlier judgment from another state;

c.)    was issued in a proceeding that was contrary to a forum selection clause;

d.)    is manifestly incompatible with the public policy of the Requested State; or

e.)    was obtained by fraud. 

Enforcement may also be refused, or postponed, if there is a court proceeding in the Requested State involving the same parties and subject matter, provided that the court was seized before the court in the State of Origin and there is a close connection between the dispute and the Requested State. Enforcement may also be refused to the extent the judgment imposes non-compensatory damages, e.g. punitive damages.

Judgments in some types of cases are excluded from the Convention, such as family law, insolvency, wills and estates, defamation, some maritime law cases, and the carriage of passengers and goods.  Nor does the Convention apply to judgments in tax or customs matters or law enforcement.  However, the mere fact a government is a party to the proceeding does not by itself exclude the case from the reach of the Convention.    

Commentary

Overall, the Convention would substantially improve international cooperation in legal matters, and substantially improve the efficacy of court judgments. 

However, the Convention unfortunately will probably not remedy the problems of excessive delays or bureaucratic requirements for enforcement proceedings seen in some countries (e.g. Mexico, India).  Although the Convention says the court in the Requested State “shall act expeditiously”, the Convention does not attempt to streamline procedures. It allows each country to follow its own procedures for enforcement.

The Convention provides welcome protection to consumers who are judgment debtors in consumer contract cases and to employees who are judgment debtors in employment contract cases.  Contracts of adhesion often contain forum selection clauses that are unfavourable to the consumer or employee.  See for example the clause for Uber drivers in Heller v Uber 2019 ONCA 1. The court in the State of Origin does not have jurisdiction, for the purpose of enforcement, based on the consumer’s or employee’s consent to the court’s jurisdiction unless that consent was addressed to the court, i.e. not given merely by way of a forum selection clause. 

The Convention does little for enforcement of judgments for injunctions or other monetary relief.   Enforcement of such judgments under the Convention is unlikely.   The Convention does not apply to many of the main areas of law where such remedies are given, namely family law (orders for access), defamation (injunctions to not publish defamatory material), anti-trust (injunctions restraining anti-competitive tactics) and intellectual property, if the infringement occurred outside the State of Origin (injunctions restraining the sale of infringing products).    However, the text of the Convention does not exclude judgments for non-monetary remedies, save for two exceptions.  The Convention’s definition of judgment does not address the type of remedy, other than to exclude interim measures of protection.  Article 11 requires recognition and enforcement of judgments regarding infringement in intellectual property matters only to the extent of a monetary remedy.    One can arguably infer that the Convention does apply to judgments for non-monetary remedies; otherwise the Convention would not need to specify the two aforementioned exceptions. 

Court of Appeal Strikes Down Uber Arbitration Clause

     My April 30, 2018 post told of Justice Perell’s decision in Heller v Uber to dismiss an action by Uber drivers for a declaration that the drivers are employees and protected by the Employment Standards Act.  The Uber contract contains an arbitration clause that requires disputes to be arbitrated, specifically in the Netherlands.   The clause is a hybrid, i.e. both an arbitration clause and a forum selection clause.   The court held that the arbitration clause is enforceable, and thus stayed the (proposed class) action.    Unfortunately, the court did not address the enforceability of the clause as a forum selection clause, even though the test is a bit different than the test for enforceability of an arbitration clause.

     Early this year, a unanimous Ontario Court of Appeal (2019 ONCA 1, Feldman, Pardu & Nordheimer JJ.A.) reversed. It held that one, the arbitration clause amounted to an impermissible contracting out of the Employment Standards Act and two, the clause is invalid because it is unconscionable, in part because of the burden it imposes on drivers, which burden includes the cost of travel to the Netherlands.     The Court of Appeal did not address specifically the enforceability of the clause as a forum selection clause.   It did not need to, in light of its ruling that the clause amounted to an impermissible contracting out of the Employment Standards Act

     There is for both arbitration clauses and also forum selection clauses, a legal presumption of enforceability, rebuttable on certain grounds.    The Arbitration Act, 1991 and the International Commercial Arbitration Act, 2017 say a court shall stay court proceedings that  pertain to disputes that are subject  to an arbitration agreement unless certain exceptions apply, such as that the clause is invalid, or inoperative.  Similarly, the Supreme Court of Canada held in Z I Pompey v. ECU-Line NV (2003) S.C.J. No.23 that forum selection clauses are to be enforced unless the contract in which the clause is found is invalid (a product of fraud, or of grossly uneven bargaining strength, or is contrary to public policy) or there is strong cause not to enforce the clause.    However, the grounds for rebutting that presumption differ.  There are some other factors in the strong cause analysis that are not part of an arbitration clause enforceability analysis.  These include the location of the evidence, the governing law, the impact on the parties of proceeding in one forum versus another, and other factors similar to the factors used in a forum non conveniens analysis.   Thus it is conceivable that the arbitration part of a hybrid clause is enforceable but the forum selection part is not.   Put another way, the requirement to arbitrate is enforceable, but not the requirement to do so in the selected forum. 

     In such a case, the logical outcome would be that the parties arbitrate their dispute, but not in the forum stipulated in the forum selection clause.     This should be so even if the clause stipulated a particular arbitration organization that operates only in the stipulated forum.  There is a public interest in enforcement of agreements to arbitrate because arbitration lightens the load on the courts, and in protecting the parties’ decision to use a private, expedited dispute resolution with decision makers with specialized backgrounds, chosen by the parties.  There is no public interest, however, in ensuring that a specific arbitral organization, and no other, is used for a given dispute.