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Commercial Litigation Update – May 2004

BY KENNETH DEKKER, JENNIFER ROBERTS-LOGAN, MICHAEL OSBORNE AND TANISHA TULLOCH

Canada’s Top Court Highlights the Perils of Ignoring Foreign Actions

, 2003 SCC 72

Two Ontario residents who were sued on an $8,000.00 (U.S.) Florida land deal are likely regretting their decision to ignore the Florida litigation that ultimately led to a $800,000.00 (U.S.) judgment against them. In a decision released last December, the Supreme Court Canada enforced the surprisingly steep Florida judgment – finding that the Florida court had jurisdiction over the action and that there was no sufficiently compelling reason to refuse enforcement.

In his strongly worded dissent, Mr. Justice Lebel criticised the majority’s decision to enforce the Florida judgment and underlined its serious consequences for Canadians sued abroad:

“ The implication of the position of the majority is that Canadian defendants will from now on be obliged to participate in foreign lawsuits no matter how meritless the claim or how small the amount of damages at issue reasonably appears to be, on pain of potentially devastating consequences from which Canadian courts will be virtually powerless to protect them.”

The saga began with the purchase and sale in the mid-1980’s of an $8,000.00 (U.S.) piece of land in Florida by two Ontario residents, Mr. and Mrs. Saldanha. When the purchasers of that land then sued them, the Saldanhas chose to ignore it because, among other things, they knew the land was worth very little and assumed it was “a minor dispute that would be more expensive to defend than to lose.” Unfortunately for the Saldanhas, the Florida plaintiffs later increased their damages claim and in 1991 a Florida jury ultimately awarded damages of $260,000.00 (U.S.). Despite receiving notice of the default hearing, the damages hearing, and the resulting judgment, the Saldanhas did not appear or pursue any of the avenues available to them in Florida to appeal the judgment. The judgment went unpaid and the plaintiffs sued to enforce it in Ontario. By the time of the 1998 hearing in Ontario to enforce it, the Florida judgment and accrued interest had ballooned to $800,000.00 (U.S.).

The Test

In writing on behalf of the majority’s decision to enforce the Florida judgment, Mr. Justice Jack Major started from the proposition that the realities of modern international commerce require judgments properly rendered in one jurisdiction to be recognised in another. In a 1990 decision1, the found that this proposition, among others, warrant making it easier to enforce judgments between provinces within Canada. In Beals v. Saldanha, the Supreme Court has now made it clear that the same considerations apply internationally and facilitate Canadian courts’ recognition and enforcement of judgments rendered by foreign courts.

The primary consideration in determining whether a foreign judgment should be enforced involves whether the foreign court had a “real and substantial connection” to the subject matter of the action and thereby properly took jurisdiction over it. A number of criteria and connections between the claim and the foreign jurisdiction are relevant to whether a real and substantial connection exists2. If such a connection is found, the foreign court’s judgment will almost always be enforced. It does not matter whether or not a Canadian defendant has a physical presence in the foreign jurisdiction – if they conduct business or ship goods into a jurisdiction, they can expect that they will be required to defend any resulting litigation there. Canadians who choose not to defend foreign litigation do so at their peril – as they can expect the consequences of that choice to hit home when the resulting judgment is enforced in Canada.

Limited Defences to Enforcement of a Foreign Judgment

There are few defences to the local enforcement of a judgment rendered within a foreign court’s jurisdiction, namely: (1) fraud; (2) the denial of ; and (3) public policy.

The fraud defence will apply where the Canadian defendant can show that the foreign Court was intentionally misled regarding its ability to render judgment. This would arise where the plaintiff, for example, had lied to the foreign Court regarding whether or not the Canadian defendant was notified of the proceeding. Fraud might also be raised where evidence not available prior to the foreign court’s judgment calls into question its validity. This defence is very narrow and does not give a Canadian defendant the right to re-litigate the issues in the foreign action by raising evidence and issues that they could and should have put before the foreign court in the first instance.

The denial of natural justice defence relates solely to whether the procedure used by the foreign Court was fair and unbiased, and whether the defendant had an opportunity to be heard. The substantive merits of the foreign judgment and whether a Canadian court would come to a similar conclusion are irrelevant. In the case of Mr. and Mrs. Saldanha, it did not matter that the Florida judgment was significantly higher than would have been awarded by a Canadian court. It did not matter to the majority in the Supreme Court that the Saldanhas were not notified that the Florida plaintiffs had substantially increased the amount of their claim until they received a copy of the Florida judgment3. All that mattered was that the Saldanhas were given notice of the Florida proceeding and an opportunity to participate and they chose not to do so. The Supreme Court found that the Florida court provided a fair and unbiased hearing. While the resulting judgment was very high, the procedure used in arriving at that result was not unfair. Accordingly, the Saldanhas could not establish that they were denied natural justice.

The public policy defence is cited to refuse to enforce when they are rendered on the basis of laws that are “contrary to the fundamental morality of the Canadian legal system.” For example, a judgment rendered on the basis of a racially discriminatory law would likely not be enforced in Canada. This exception focuses on the laws at issue and not the result in a case decided under those laws. In the case of the Saldanhas, the laws upon which the judgment was based were not repugnant and it did not therefore matter that the resulting judgment was different or much higher than any Canadian court would award.

Conclusion

In summary, Beals v. Saldanha presents a cautionary tale for all Canadian residents who carry on abroad business or other activities that carry the potential for litigation. Canadians should be aware that, should they be sued in foreign jurisdictions, they should use their best efforts to determine whether the foreign jurisdiction has a connection to the litigation before deciding whether or not to defend it. Further, the onus is on Canadian defendants, once they learn of a foreign action against them, to keep apprised of developments within that action and ascertain the extent of their exposure in the foreign action. Canada’s highest court has made it clear that Canadians sued abroad cannot choose to ignore foreign litigation against them and then expect to hide behind Canada’s borders from any judgment that might result. One will do so at their peril! (K.D.)

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AGM :: Affleck Greene McMurtry LLP

THE LITIGATOR LIVE

Affleck Greene McMurtry LLP
365 Bay Street, Suite 200  ·  Toronto, Canada
416 360 2800  ·  info@agmlawyers.com
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