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.

 

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.