The Enforcement of Foreign Judgments in Canada

Our planet is really a global village thanks to the Internet and technology and the fact that people and goods traverse the globe as never before in human history. This reality has recently affected even the area of the enforcement of foreign judgments.

For a better understanding of the of the state of Canadian and international law at the present time, we have to cast our minds back a little on history from the last millennium. Twenty years ago, some Toronto business people were involved in a complex litigation matter involving a real estate project in the Antilles. To advance their strategy, they and their Toronto lawyers decided to commence an action in the court of one of the islands. To help them advance their case, they with a local lawyer to explain the situation and to retain him to start the action against the opposing parties. After having commenced the action and served the defendant, the Toronto businessmen and their lawyers returned to Toronto, where they had to defend a lawsuit by the same party commenced in Ontario. The case went on for quite some time. Meanwhile, the

Caribbean lawyer was, it seems, getting ready for, as he put it, one of the most important trials that his small island had ever known. Unfortunately for him, one fine day, the whole dispute was settled.

The Toronto entrepreneurs' problems had just begun. The island lawyer was not only disappointed that there would not be a trial but he also demanded an unbelievable amount for his legal fees and for the time two other local lawyers whom he retained to assist him, including the "dean" of the local bar. He did not want to hear of settling his account. He wanted nothing less than a figure the Torontonians considered outrageous.

Some time later, the entrepreneurs and their Toronto lawyer found themselves as defendants in a lawsuit of the supreme court of this small island. And to make matters worse, one of the plaintiffs was the dean of the local bar.

The best advice at that time was a defense strategy which today and from now on would be legally troublesome. The defendants decided to do nothing at all. Because they had no personal connection and no assets in the Caribbean island, (and had not been served with the claim on the island), they simply let case go by default and waited for the Caribbean lawyers to claim to enforce their judgment in the courts of Ontario. Their decision was based on the jurisprudence of the day which held that a foreign court had no jurisdiction over a foreign individual unless the claim had been served within the territory of the court or if the defendant attorned voluntarily to the jurisdiction of the court. If the foreign court had no jurisdiction over the Ontario defendant, when the judgment is sought to be enforced in Ontario, the defendant will be entitled to defend the claim on the merits in Ontario.

All of this was turned on its ear by the decision of the Supreme Court of Canada ("SCC") in Morguard v. de Savoye (1990) SCC 1077, where the SCC held that the Morguard case altered the old common law rules for the recognition and enforcement of interprovincial judgments. These rules, based on territoriality, sovereignty, independence and attornment, were held to be outmoded.

The Morguard case established that to determine whether a court has correctly exercised its jurisdiction over the defendant, two factors have to be considered. The first is the need for "order and equity" and the second is the existence of a "real and substantial connection" with the subject-matter of the action or with the defendant. The SCC decided that the existence of a real and substantial connection with the subject-matter of the action satisfies the criteria even if such a connection with the defendant does not exist.

The law did not change for 13 ½ years until the determination of the decision of the SCC in Beals v. Saldanha. In December 2003. Beals v. Saldanha extends the "real and substantial connection" principle to foreign judgments not only from one Canadian province to another but also to judgments from other countries. The facts in Beals are significant because they show far the principle has been extended.

The appellants in the Beals case were residents. They were involved in litigation in Florida but faied to defend the claim. When they were served with a notice about a court hearing for assessment of damages by the jury, they chose not to participate. The Florida Court awarded $210,000 against them plus $500,000 punitive damages and 12% per annum interest. When they got the judgment, their Ontario lawyer told them that they couldn't have a Florida judgment against them because they did not submit to the jurisdiction of the Florida Court. They took no steps to set the Florida judgment aside on any basis, They didn't appeal in Florida.

The Florida plaintiffs sued in Ontario on their judment about a year later. By this time, the amount owing including interest had grown to more than $800,000. The trial judge dismissed the action for enforcement on the ground that there had been fraud in relation to the assessment of damages and for the additional reason of public policy. The Ontario Court of Appeal overturned the trial and allowed the appeal.

To enforce a foreign judgment, an Ontario court must be satisfied that certain conditions exist:

a. Whether the foreign court had a real and substantial connection with the subject-matter or the defendant;

b. Whether the defendant has submitted to the jurisdiction of the foreign court by agreement of the parties or the consent of the defendant. In the case of a judgment of a foreign court having a real and substantial with the defendant, the defendant may, nevertheless, defend the claim in the Ontario court by raising defenses of fraud, breach of public policy or denial of natural justice.

The Supreme Court of Canada, in upholding the validity and enforceability of the Florida judgment drew a distinction between "intrinsic fraud" and "extrinsic fraud". Extrinsic fraud which goes to the jurisdiction of the original court will be enough to refuse to enforce a foreign judgment on public policy grounds. Intrinsic fraud deals with the merits of the case. That kind of fraud must be defended in the place having the closest connection with the subject-matter of the dispute.

This is also a good place to mention some other examples of the subjects which international lawyers involved in the enforcement of foreign judgments deal with and appropriate links to the Internet:

o The Hague Convention on the Recognition and Enforcement of Foreign Judgments in civil and commercial matters (which does not apply in Canada)

o Enforcement of Judgments Conventions Act, 1999 (also doesn't apply in Canada)

o Interjurisdictional Support Orders Act, 2002

o Reciprocal Enforcement of Judgments Act (provinces du Canada);

o Reciprocal Enforcement of Judgments (U.K.) Act

I close by repeating this important word of advice - if your client tells you a story about a claim they have to defend in a court in another country, don't disregard it. At the same time, it does not necessarily follow that you should send your client to retain a lawyer in the foreign jurisdiction. It may be that the foreign court will not accept jurisdiction over your client. The American principle to which I refer only briefly, seeks to determine whether there are minimum contacts between the defendant, served outside the court in question, so that it has an interest in deciding the case. So, it's the lawyer not the client who should retain counsel in the foreign state.

Litigation in China for Foreign Investors

The People's Courts

Chinese courts rely on a legal system more akin to continental
Europe than the common law system of the UK, Canada, or the
United States, yet there are distinctively Chinese
characteristics. Get a good local lawyer before litigation in
China - only Chinese nationals working for mainland Chinese law
firms may appear in court.

Local Bias - Although there are a number of examples of foreign
investors prevailing in Chinese courts against state-owned
enterprises and other well-connected local parties, results
vary drastically with location (big cities being considered
among the safest bets for foreigners), and it is often
difficult for the foreign party to enforce favorable judgments.

Jurisdiction and Forum Shopping- Lower courts in China operate
on a regional basis, and the Supreme People's Court is the
court of last resort. Jurisdiction rules must be complied with
- a corporate defendant must usually be sued in the
jurisdiction where its headquarters are located.

Procedure

Some of the key features of the People's Courts include:

lGreat emphasis on formal documentation over witness testimony

lA lot of attention to the production of powers of attrney,
authenticated original documents, notarizations, and seals

lRelatively low-cost, high speed procedures, at least compared
with the glacial speed of litigation in the United States

lStrict limits on ability to compel the production of evidence
(discovery procedures), probably the greatest disadvantage of
litigating in China

lLenient treatment of perjury

lLack of emphasis on precedent - judicial precedent is not
binding in China, although higher courts do issue detailed
legal interpretations to guide lower courts

lLower damage awards - damages awards are low by US standards,
and it is more difficult to prove the amount of loss than in
Western countries

lDifficulty in enforcing injunctions, seizure of assets, and
specific performance - large bonds are often required before a
temporary restraining order will be issued.

Administrative action (bypassing the couret system) is often
available in cases or intellectual property infringement or
counterfeiting.

Appeals - Dissatisfied claimants ar usually entitled to one
appeal, whci is usually granted and executed speedily. However,
some judgments are effectively unappealable.

Enforcement

Domestic judgments can be difficult to enforce. Local
authorities may fail to assist the enforcement a judgment that
is seen as damaging to local economic interests. Furthermore,
the People's Courts have a reputation of being vulnerable to
the "Enron Effect" - they seldom bother to trace and seize
assets deliberately hidden by defndants through the use of
complicated corporate structures.

Foreign judgments are enforceable in theory but difficult to
execute. Enforcement is generally based on the principle of
reciprocity, meaning that China will only enforce judgments
originating from jurisdictions that enforce Chinese judgments.
However, since China is signatory to a number of relevant
bilateral enforcement treaties, the principle of reciprocity is
subordinated to treaty requirements. Of course the best way to
enforce a foreign judgment is to locate overseas assets of the
defendant in a jurisdiction willing to recognize the judgment
and seize assets.

Judgments from Taiwan, Hong Kong and Macau - Judgments from
Taiwan have long been enforceable on the mainland, and
judgments from Macau have been enforceable since April 2006, in
both cases subject to certain conditions. Nevertheless, expect
difficulties in actual practice. Surprisingly, judgments from
Hong Kong are currently unenforceable in the mainland except in
cases where the judgment was rendered pursuant to an exclusive
jurisdiction clause in a contract, and even this provision is
subject to exceptions.

International tribunals

Other alternatives for foreign investors include adjudication
by the World Trade Organization (WTO) or the International
Centre for Settlement of Investment Disputes (ICSID). Both of
these tribunals have serious drawbacks, however - the WTO
because foreign investors cannot sue directly (the plaintiff
must be a state), and ICSID because jurisdiction is based on
consent and unless you are Dutch, German or Finnish, your
country has not entered into a bilateral investment treaty with
China that would authorize ICSID jurisdiction (although this
situation may be about to change).