Choice of Court Convention to go into Effect October 1, 2015

              The European Union having recently approved the Hague Convention on Choice of Court Agreements, that Convention will go into effect in the European Union (except Denmark) and in Mexico on October 1, 2015. 

The convention facilitates international business by giving weight to choice of court clauses, also known as forum selection clauses, in the dispute resolution provisions in international contracts.    Among other things, the Convention compels courts to respect such clauses, e.g. to accept jurisdiction over a dispute where mandated by such clause, and to not exercise jurisdiction if parties to a contract have agreed not to litigate in that court.    For details of the Convention, see my April 27, 2015 post, “Some Progress for the Hague Choice of Court Convention”, or the Hague Conference on Private International Law website, www.hcch.net.

 The Convention applies presently in only the European Union and Mexico, the only two states to have ratified it.  There are just two other signatories: the United States and Singapore; there is no indication as to when they might ratify it.     It is unfortunate that Canada has not even signed, let alone ratified, the Convention.   There is much to be done before the full potential of this convention can be realized.  Choice of Court Convention to go into Effect October 1, 2015

BCCA Affirms Order for Google to Censor its Search Results Worldwide

             Last month, the British Columbia Court of Appeal unanimously affirmed an injunction that prohibits Google, the internet search engine giant, from including specific websites in results delivered by its search engines – anywhere in the world.    Was this such a “disastrous” decision or the “most expansive decision in the common law world to date”, as some commentators claim?  First, for those who have not heard about the case, what was it about?

            The case – Equustek Solutions v. DatalinkTechnologies Gateways et al 2015 BCCA 265 --  arose out of a trademark dispute.  The plaintiff is a manufacturer of industrial network interface hardware, and the defendant Datalink, a B.C .company, was its distributor.   Datalink advertised the plaintiff’s products but began filling the orders with its own products, which were knockoffs of the plaintiff’s products.  The plaintiff sued Datalink for infringement of its trademarks and misappropriation of trade secrets.  Datalink initially contested the claim but later stopped defending the action and the court struck out their statement of defence.   Datalink moved out of British Columbia and apparently out of Canada, but continued to advertise online and fill orders from an unknown location.  Most of its sales are to customers outside Canada.  Efforts to locate Datalink proved fruitless.  Injunctions against Datalink were ignored.   The plaintiff then sought an injunction against Google, on the grounds that if Google search results did not include Datalink’s sites, Datalink’s sales – and thus the amount of business diverted from the plaintiff – would be significantly reduced.   70-75% of all searches are done through Google.    Google had voluntarily agreed to remove certain results from searches but only those done at Google.ca, not other Google sites, e.g. Google.com.  The plaintiff then obtained an order that “Google Inc. is to cease indexing or referencing in search results on its internet search engines [certain listed websites].”  This order extends to all Google searches worldwide. 

            The court found that it had territorial jurisdiction over Google based on the provisions of the Court  Jurisdiction and Proceedings Transfer Act, S.B.C. 2003,ch. 28  regarding territorial competence.  The court found in personam jurisdiction based on the business Google carries on in B.C.  – the sale of advertising – and its website.  The mere fact a company’s website is accessible in B.C. would not suffice for jurisdiction, but Google’s search engine is not passive:  its search results are based in part on the particular user’s previous searches.   

            What makes the decision controversial is the world-wide scope of the injunction, made against an innocent party that neither intentionally facilitates Datalink’s infringement of trademark, nor profits from it.    Moreover, the order imposes a limit on freedom of expression. Commentators have raised the concern that if this order is legitimate, what stops courts in other countries from applying their laws to conduct in Canada?   

In fact, the decision is not as alarming or expansive as it may first appear, for several reasons.  One,   injunctions with extra-territorial effect are nothing new.  World-wide Mareva injunctions freezing assets in foreign jurisdictions have been issued by Canadian courts since 1989*.   There is precedent also for orders requiring innocent non-parties to do things.  Mareva injunctions often include a provision requiring banks to freeze funds.  Consider also Norwich Pharmacal orders, whereby a plaintiff can obtain financial information about a defendant or potential defendant by way of an order requiring a third party  -- usually the defendant’s bank – to provide that information if it is not otherwise available. 

The injunction in Equustek imposes a limit on freedom of expression, in the sense that Datalink’s website is made effectively invisible around the world, and Google is forced to censor its search results.  However, the expression affected in this case is not political at all, it is only the advertising of a certain product, and that advertising is clearly an infringement of a trademark.    In Canada such a limit on expression is not controversial.  Insofar as the defendants have essentially admitted the infringement (in that they are no longer defending the action), presumably there are many jurisdictions in which this limit is not considered controversial.  However, courts in other countries may impose limits which are regarded there as uncontroversial but which would be regarded as highly intrusive and inappropriate in other countries, especially if imposed by a foreign court.     Thus there is an issue about the legitimacy of a Canadian court ordering that search results in other countries be limited.   To ensure that courts’ exercise of jurisdiction is legitimate, there is a constitutional real and substantial connection test, as distinct from the more familiar conflicts of law real and substantial connection test where practical considerations are key.  It is disappointing that the Court did not address the constitutional real and substantial connection test except in passing.

Although the order is worded as prohibitive, it is effectively mandatory in the sense that Google must take action to ensure its search results exclude the listed websites.  However, Google already has about 45 full time staff working on ensuring search results do not include child pornography or hate speech.  Google admitted it would be able to comply with the injunction in Equustek and did not allege that compliance would cause significant expense or inconvenience (para. 153 of the motion court’s reasons: 2014 BCSC 1063).

Generally courts are reluctant to issue orders that will be likely unenforceable.   Non-monetary foreign judgments are not enforceable in many – probably most -- foreign jurisdictions.  (Even Canada, which is relatively liberal about enforcing foreign judgments, did not enforce any foreign non-monetary judgments until quite recently, and even then only on a case-by-cases basis:  ProSwing v. Elta Golf 2006 SCC 52).    This order will likely not be enforced, or even be enforceable, in many jurisdictions abroad.    

Apparently for that reason, the motion court indicated that if Google did not abide by the order, Google might be barred from access to the Courts of B.C.   The Court of Appeal said barring access would be “draconian” but hinted that such a bar could be imposed if circumstances warrant:  “Given that Google does business in the Province, British Columbia courts are entitled to expect it will abide by its orders” (para. 98).   This is certainly a controversial aspect of the decision. While it is not uncommon to bar a party in default of a court order from taking steps in the same lawsuit, to bar a party from all access to the courts -- even for unrelated cases -- is unprecedented.   It is not clear whether the courts have that power under statute, or among their inherent powers.   Such a bar is contemplated in this case presumably only because there would be no other way to enforce the order. 

So all in all, Equustek is a controversial decision, but not an alarming or radical one.

 

 

* See Mooney v Orr (1994), 98 B.C.L.R. (2d) 318 and 100 B.C.L.R. (2d) 335.  The B.C.C.A. decision cites decisions giving orders in the context of the internet, from courts in Paris, Hamburg, Ireland, and Spain at paragraph 95. 

 

 

Highlights from the Advocates’ Society’s Cross Border Conference

             Several prominent lawyers and judges gathered June 12, 2015 for the Advocates’ Society’s Conference on “Cross Border Issues for Litigators” in Toronto.   A lawyer involved in the recent Nortel Networks dual (Ontario – Delaware) trial recounted the procedural and logistical challenges of conducting two trials in two jurisdictions simultaneously.     Another challenging aspect was the French blocking statute that would have exposed French witnesses to criminal sanctions if they had testified in either of those trials. 

Another lawyer explained the need for protective orders when evidence given in Canada might otherwise be used in American companion proceedings where witnesses may have reason to “invoke the fifth (amendment)”. 

A judge in the Sino-Forest proceedings discussed a world-wide Mareva injunction he issued. The order allowed defendants in Hong Kong to access certain funds for living expenses, but because the judge had no evidence as to the cost of living in Hong Kong, he left the amounts for a Hong Kong judge to decide.

Another presentation covered the Supreme Court of Canada’s decision in R. v. Hape, 2007 SCC 26 which addresses the applicability of the Charter of Rights and Freedoms to the extra-territorial collection of evidence.  In a nutshell, the Court held that the Charter generally does not apply extraterritorially, but would apply in specific circumstances, including where to not apply it would be to violate Canada’s international human rights obligations. 

Letters Rogatory were discussed too.  They are a timely topic:  they played a role in recent litigation involving Nestles, and Sedona Canada has issued a Commentary on Enforcing Letters Rogatory Issued by an American Court in Canada.

Changes may be coming to the enforcement of foreign judgments, specifically in cross-border insolvency cases.  The United Nations Commission on International Trade Law (UNCITRAL) is working on a model law for the enforcement of insolvency-derived judgments.  However, a completed model law is likely still three or more years away.

 

“Judgment Arbitrage” – Can You Enforce a Foreign Judgment in a State that does not Recognize Foreign Judgments by First Obtaining a Recognition Judgment in Another State?

Judgment arbitrage refers to the practice of getting a foreign judgment that would normally be unenforceable in a given jurisdiction (say a particular Canadian province or U.S. state) enforced there by first obtaining recognition of that judgment in another, more liberal province or U.S. state.  The idea is that the recognition judgment, because it is not a foreign judgment, might get around the first state’s restrictions on recognition of foreign judgments.  Some would say this is just a form of forum shopping, i.e. litigating in a particular jurisdiction for its juridical advantages and not because of any connection between the case and that jurisdiction.   Might there be circumstances in which the recognition judgment could properly be enforced?  

Consider the case of the Alberta Securities Commission (“ASC”) and the judgment it obtained in Alberta against one Lawrence Ryckman for $500,000 in costs following an ASC proceeding in which Ryckman had been found to have misled investors.    After Ryckman moved to Arizona the ASC sued in Arizona and obtained a judgment there recognizing the Albertan judgment.    The ASC then sought to enforce the Arizona judgment in Delaware.  (It is not clear whether Ryckman had subsequently moved to Delaware or whether the ASC discovered assets of Ryckman in Delaware.) 

Had the ASC attempted to enforce the Albertan judgment directly in Delaware, the ASC would have failed:  that state does not recognize foreign judgments for fines or penalties.  As well, the claim would have been statute-barred in Delaware.     Ryckman therefore argued that the ASC was trying to gain enforcement through the back door, i.e. by trying to circumvent the Uniform Foreign Country Money Judgments Recognition Act (“UFCMJRA”), which bars enforcement of foreign judgments for fines or penalties.    That statute, which is a relatively recent updating of the Uniform Foreign Money Judgment Recognition Act and which has been enacted in a number of states, shifts the onus to the defendant opposing recognition, thus liberalizing somewhat the enforcement of foreign money judgments in those U.S. states that enacted the UFCMJRA.  

But would the Delaware court allow the ASC to enforce “through the back door”?  The Delaware court observed that Ryckman voluntarily moved to Arizona.  Thus it was Ryckman who chose that forum, not the ASC.  The court concluded that there is no evidence that the ASC engaged in any improper forum shopping.   Leave to enforce was granted.   

This is a reasonable outcome.  There is no indication that the ASC’s decision to sue in Arizona was driven by anything other than the fact Ryckman lived there.  There is no indication that the ASC somehow knew at the time it sued in Arizona that it would need to be able to enforce in Delaware (such that suing in Arizona was chosen as a means by which the ASC could later enforce in Delaware).  If following a judgment debtor as he moves around, perhaps in order to avoid a judgment, constitutes forum shopping then as blogger Ted Folkman of Letters Blogatory says, the cure is worse than the disease!

Amongst Canadian provinces the law regarding enforcement of foreign judgments is fairly uniform, but there are differences that could be significant in some cases.  For example, common law provinces will not enforce foreign penal judgments, whereas the Quebec Civil Code does not mention such judgments in its Article 3155 list of exceptions to the default rule that foreign judgments are enforceable.  There may also be differences between common law provinces that have enacted the Court Jurisdiction and Proceedings Transfer Act, which among other things codifies the grounds for territorial competence, and those provinces that have not. 

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.