Ontario Court of Appeal upholds Enforcement of German Judgment despite Arbitration Clause
The Ontario Court of Appeal in Hilmer Motorsport GmbH v. Mason, 2025 ONCA 875 upheld the recognition and enforcement of a foreign default judgment obtained in Germany. This decision is particularly important for parties in contracts containing arbitration clauses, as it confirms that a defendant should not disregard foreign court proceedings on the assumption that an arbitration clause will automatically apply. Rather, it is prudent to advance the argument within the foreign proceeding that the matter should be stayed and the dispute referred to arbitration.
Background
In April 2014, Nelson Mason, a professional racing car driver, entered into a Driver Agreement (the “Agreement”) with Hilmer Motorsport GmbH (“Hilmer”), a German corporation. Under the Agreement, Nelson was to represent Hilmer’s racing team in the 2014 GP3 Series, in exchange for a payment of €460,000 from Nelson. The Agreement stipulated that it was governed by German law, the place of jurisdiction was Munich, and any disputes were to be settled by arbitration under the Rules of Arbitration of the International Chamber of Commerce.
Jay Mason, Nelson’s father and manager, provided a guarantee for Nelson’s debt up to €409,512.13. This guarantee was also subject to German law with Munich as the prescribed jurisdiction but did not contain an arbitration provision. Nelson and Jay were residents of Ontario, and the racing events primarily took place in Europe, with none in Ontario or North America.
In October 2015, Hilmer commenced proceedings in Germany against Nelson and Jay (the “Appellants”) for breach of contract and payment under the Agreement and guarantee. The Appellants were served but did not defend the action, stating they believed arbitration was the agreed method for dispute resolution. Consequently, Hilmer obtained default judgment for €409,512.13 plus interest and costs.
Superior Court of Justice
Hilmer then initiated an action in Ontario for recognition and enforcement of the German judgment and subsequently moved for summary judgment. The motion judge granted summary judgment in favour of Hilmer, rejecting the Appellants’ arguments that the German court lacked jurisdiction and that the arbitration clause precluded recognition/enforcement on public policy grounds. The motion judge found that service of the German proceeding was proper and that the Munich court had a real and substantial connection to the dispute.
Court of Appeal
On appeal from the summary judgment, the Appellants argued that the motion judge erred in recognizing and enforcing the German judgment because the Agreement contained an arbitration provision. They also submitted that the guarantee should be read as subject to arbitration and that the enforcement of the judgment was contrary to public policy and natural justice.
The court found that the motion judge correctly concluded that the German court had jurisdiction. Both the Agreement and the guarantee specified Munich as the place of jurisdiction and were subject to German law, and the funds were to be paid to a German entity. There was no issue about the judgment being final and for a definite sum of money and there was a real and substantial connection between the German court, the parties, and the subject matter of the proceeding.
The court held that the arbitration provision in the Agreement did not automatically negate the German court’s jurisdiction. Since German law was not pleaded or proven by the Appellants, Ontario law applied. Under Ontario law, an arbitration agreement is not self-enforcing; a party must seek a stay of court proceedings in favour of arbitration. Since the Appellants took no steps to seek such relief in Germany, the presence of the arbitration provision did not dictate a lack of jurisdiction in the German court.
The court rejected the Appellants’ arguments regarding natural justice and public policy. The court noted that the Appellants were properly served with the German proceedings, but opted not to participate, and that it was open for the Appellants to appear before the Munich court and advance the argument that the proceeding should be stayed and the dispute referred to arbitration. The court of appeal dismissed the appeal.
Takeaway
This decision highlights the importance of engaging in, and defending, foreign legal proceedings, even when an arbitration clause is present. Arbitration clauses are not going to enforce themselves! Under Ontario law, a party that wants to enforce an arbitration clause must seek a stay of the proceeding in favour of arbitration. Doing nothing is not an option. This case also reinforces the principles of comity and the limited scope of public policy and natural justice defences in the recognition and enforcement of foreign judgments.
