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.

Substituted Service and the Hague Service Convention

     Anyone who has had to serve process abroad more than a few times knows that sometimes locating and serving the defendant can be a big challenge, especially if the defendant has moved abroad partly to avoid someone.  That challenge may be bigger still insofar as substituted service is not available, at all, in cases governed by the Ontario Rules of Civil Procedure (“RCP”), if the country where service is to be done is a country that is a party to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, a.k.a. the Hague Service Convention (“HSC”).   See Khan Resources v Atomredmetzoloto [2013] O.J. No. 1453 (O.C.A.).    As well, service in many HSC countries must be done by the Central Authority, which can take a very long time.

     It appears now however that at least in certain situations in family law cases, substituted service on defendants in HSC countries is available.  In November 2018, the Ontario Superior Court of Justice in a family law case ordered substituted service on a defendant in India, which is a party to the HSC:  Tiwari v Tiwari  [2018] O.J. No. 5797 (Sanfilippo J.)   The applicant Sneha Tiwari needed to serve her Application for Divorce in India.  She submitted a request for service to the Central Authority in India, which request was acknowledged.   However, almost a year later and despite follow up, Sneha Tiwari had not received a certificate of service nor any letter indicating service cannot be effected.  She then moved for leave for substituted service via email and regular mail. 

The Court considered Article 15 of the HSC, which says that a court “may give judgment even if no certificate of service or delivery has been received”, provided that the document to be served was properly transmitted and at least six months have passed without any certificate of any kind.  The Court ruled that the power to give judgment includes the power to grant an order for substituted service, an order validating service and an order dispensing with service (para. 24).   The Court proceeded to order service by regular mail and email, and to the respondent’s lawyer in India.  Ironically, substituted service was unnecessary insofar as Article 15 allows a court to issue a judgment on the merits.

     Unfortunately, if the Central Authority is unable to effect personal service despite attempts, and sends back a certificate under Article 6 to that effect,   the Article 15 power to issue judgment does not apply.  This is because one of the prerequisites is that “no certificate of any kind has been received”.    In other words, substituted service in HSC countries remains unavailable in cases where the defendant cannot be found or is evading service, if the Central Authority issues a certificate saying it cannot serve the process.

     The Court in Tiwari interpreted Khan (and a more recent, Divisional Court ruling in Wang v Lin (2016) 132 O.R. (3d) 48*) to mean that one cannot resort to substituted service until after one has attempted service under the HSC (Tiwari, para. 8 and 17)  This is not correct. Unfortunately, Khan does not allow for substituted service even if one has made all reasonable efforts at service.  Khan was decided under the RCP; Rule 17.05 (3) says that “an originating process …  to be served outside Ontario in a contracting state shall be served … through the Central Authority in the contracting state….”  [emphasis added].  Khan held that the mandatory language of this rule means service must be effected only under the HSC and thus Rule 16.04 (substituted service or dispensing with service) is not available (para. 32). Because the HSC does not provide for substituted service, it is not available.  Khan also noted other court rulings elsewhere in Canada in abroad to the effect that the HSC is meant to be the sole means of service for HSC countries, and that the purpose of the HSC would be undermined if means of service outside the HSC were permitted.  

     Khan is arguably distinguishable from Tiwari, in that Khan Resources did not exhaust all its options under the HSC before it sought substituted service.  Khan Resources had attempted to serve process in Russia through the Central Authority, which refused to serve it on grounds of infringement of Russian sovereignty.   Khan did not pursue any appeal or review of that refusal in the Russian courts, nor did it pursue any relief under Article 14 of the HSC, which says that difficulties that arise shall be settled through diplomatic channels.  The Court admonished the plaintiff for not pursuing that relief.

     What can a plaintiff do if he has in fact exhausted all options under the HSC?    In Ziang v Jiang (2006) 82 O.R.(3d) 306, the plaintiffs were members of the Falun Gong spiritual movement who were suing senior officials of the Chinese Communist Party.  The Chinese Central Authority refused to serve the claim, and there was no means of appeal.  Master Glustein dispensed with service, in effect holding there is an access to justice exception to the rule that the HSC is exclusive.  

     Tiwari has nonetheless streamlined service under the HSC in another way.  The Court held that an Ontario lawyer can submit a request for service to a Central Authority abroad.  One does not have to rely on the Central Authority in Ontario to forward the request to the Central Authority in the receiving state.   The Court stated that a lawyer is a judicial officer competent … [to] forward to the Central Authority [of the receiving state] a request for service, under Article 3 of the HSC (para. 19 – 22).  

*The Court in Wang v Lin did not discuss the issue; it merely cited Khan.