Hague Convention Choice of Court Agreement and the Common Law 2007

III. Comparison of the Convention and Existing Law

[20] The focus in this section is on the differences between the rules laid out in the Convention and the rules on the corresponding subjects in common law Canada. This will assist in identifying where modifications would have to be made to Canadian law were Canada to implement the Convention.

[21] There are two parts to this section. The first seeks to make broad observations that are generally applicable to all – or at least most of – the common law jurisdictions in Canada: the nine common law provinces, the territories and, for the most part (though this may be a controversial classification), federal jurisdiction, at least as manifested in the Federal Court of Canada. Such an approach is possible because – again, speaking very generally – the pertinent legal regimes in those jurisdictions are similar and therefore helpful generalizations can be made about them. The second part touches briefly on each of the jurisdictions in turn. This is required since, despite the broad resemblance just alluded to, there are also non-trivial differences among the provinces’ and territories’ various approaches to the matters addressed in the Convention. These differences are found in part in rules of court, in particular those pertaining to service ex juris, which vary from province to province. Differences also arise from variations in other provincial legislation -- in particular statutes that are adoptions of certain ULCC uniform acts bearing on court jurisdiction and enforcement of foreign-country judgments.

A.The Convention vs. the Common Law

[22] In para. 2 I claimed that the difference between the regime found in the Convention and that presently in place in the common law provinces of Canada is not great. This part elaborates on that observation, at least insofar as concerns the three main obligations in the Convention set out in the previous section. At the outset I venture a generalization that applies throughout this part of the report. The main dissimilarities between the Convention and the common law relate not to deep discrepancies about the general shape of the law or the goals to be pursued, but rather to legal method – that is, to how those goals should be pursued. To be more specific, the Convention seeks to define any exceptions to its general goals in narrow and exhaustive language – language that adopts bright-line rules that could easily be incorporated in a statute without significant change, or indeed without any change. In contrast, the common law, as it frequently does, seeks to preserve a measure of flexibility, open-endedness and judicial discretion, and to eschew a definitive a priori inventory of exceptions because such a closed list might render a court incapable of reaching a fair result in all cases. To a considerable extent, therefore, a preference for one or the other of these approaches – the Convention or the common law -- will be conditioned by one’s general preference for either (1) certainly and ex ante knowability, perhaps at the risk of rigidity and the cost of occasionally failing to do justice in every case, or (2) an adaptable and open-textured regime that prizes justice in the individual case but achieves that (if at all) only at the cost of vagueness of language and consequently less certainty of outcome.

[23] Of course the debate is not whether the common law approach to this subject is so vague and uncertain as to be in need of statutory codification. It is, rather, whether the codification and rigidification which necessarily accompany the drafting of a multilateral convention which promises to secure the advantages of international uniformity and reciprocity is a worthwhile price to pay for the loss of the common law’s flexibility.

[24] That choice plays out against each of the three core requirements in the Convention. First, consider the obligation of the chosen court to both have and exercise jurisdiction. As the Supreme Court of Canada noted 17 years ago in Morguard Investments Ltd. v. De Savoye,[16]consent of the parties is a long-recognized and unproblematic basis on which to assert personal adjudicatory jurisdiction. Jurisdiction on the basis of consent is not limited to situations where that consent is granted in a contract,[17] but it certainly includes that; contractual submission is a well-recognized species of consent-based personal jurisdiction. In recognition of this, provincial rules of court allow extraterritorial service on defendants,[18] and thus the existence of personal[19] jurisdiction, in contract cases where the parties to the contract have stated that that province’s courts shall have jurisdiction over disputes arising from their contract. (Those rules do not require that such choice-of-court provisions be exclusive ones, but they undoubtedly encompass exclusive choice-of-court clauses, and thus provide for the taking of adjudicatory jurisdiction in the exact circumstances where the Convention requires such jurisdiction to exist.)

[25] However – and this is where the common law’s approach departs from that found in the Convention – common law rules relating to forum non conveniens permit judges who possess jurisdiction to decline to exercise it in a given case in the interests of justice. Judges can stay or dismiss cases over which they have jurisdiction so that those cases may be resolved in some other court that, in the circumstances of an individual case is the better (fairer, cheaper, more efficient) place to resolve it. This is a power which is confirmed repeatedly in provincial legislation and rules of court.[20] The circumstances in which the common law permits this are broader than those in which the Convention permits the court designated in an exclusive choice-of-court clause to refuse to hear the case (which, it will be recalled from para. 14, is only where the choice-of-court agreement is void). Accordingly, were Canada to adopt the Convention, the implementing legislation would have to remove the judicial discretion to employ forum non conveniens where the Convention was applicable.

[26] It should be noted that, while it is hardly uncommon for a Canadian court to order a stay or dismissal of proceedings on grounds of forum non conveniens, it is rare indeed for them to do so where sophisticated parties have selected that court in a contract. It would be exceptional for a judge to conclude that the interests of justice were served by ignoring commercial parties’ contractual choice in this fashion. However, the possibility remains that it might be done, and moreover done on grounds other than the voidness of the clause in question (which, it will be recalled, is the only exception the Convention permits). So implementing legislation would have to make it clear that the general power which Canadian courts have to stay or dismiss proceedings on grounds of forum non conveniens does not operate where the Convention governs.

[27] In passing I note that there seems no reason to expect any difficulty resulting from this. For instance, the Divorce Act sets out the circumstances in which Canadian courts have jurisdiction to hear a petition for divorce, and in such circumstances forum non conveniens is not applicable.[21] If the statutory jurisdiction over a divorce petition exists then courts should not decline it except in the (limited) circumstances set out in the Divorce Act.[22] In short, despite the widespread applicability and inherent nature of forum non conveniens, Canada’s common law judges are not unfamiliar with regimes which set out circumstances in which they both have and must exercise adjudicatory jurisdiction.

[28] A comparable situation exists with respect to the Convention’s second key requirement – that of the non-chosen court to decline jurisdiction. Here the problem is, in effect, the opposite of the one just dealt with. Normally, under the common law, the non-chosen court (which otherwise had jurisdiction) would decline to exercise it if the parties had contractually granted exclusive dispute-resolution authority to another country’s judiciary. It would do so pursuant to the doctrine of forum non conveniens – an aspect of the inherent power of the common law courts to control abuse of process, and one confirmed in various provincial statutory rules of court. This approach was confirmed just four years ago by the Supreme Court of Canada in Z.I. Pompey Industrie v. ECU-Line N.V.[23] It is not limited to commercial contracts; however, it is firmly in place there (and indeed operates most strongly in the commercial context). The non-chosen court (assuming it otherwise has jurisdiction over the dispute in question) should normally decline to hear a contractual matter where the parties have exclusively designated some other country’s courts.

[29] Of course, as noted above, the Convention also permits the non-chosen court to take jurisdiction in certain circumstances. That is (as outlined in para. 16), the Convention lists some exceptions to the general obligation of the non-chosen court to decline jurisdiction. However, the Convention’s exceptions are exhaustively enumerated. By way of contrast, the common law’s forum non conveniens power is open ended. In the context of exclusive choice-of-court clauses that power finds expression in the strong-cause test confirmed by the Supreme Court in Z.I. Pompey: the non-chosen court should heed the choice-of-court clause and refuse to exercise jurisdiction unless there is strong cause to do otherwise, and the burden of proving this is on the party which wants the court to override or ignore the choice-of-court clause. The fact that the common law’s exceptions (found in the strong cause test) are broader than those in the Convention may most clearly be seen in some of the factors which the common law permits courts to consider. These include (1) the location of evidence and the effect of that on the relative expense and convenience of trying the matter in the competing forum, (2) which law applies, (3) the relative ease of enforcement of judgments from the respective courts, and (4) how closely the parties are connected with the jurisdictions in question.

[30] The Supreme Court has confirmed that normally commercial parties should “be held to their bargain”[24] and that the non-chosen court should stay or dismiss proceedings. However, it will readily be seen that the factors just listed could permit a non-chosen court to hear a case in circumstances where the Convention would require it to decline to do so. Accordingly, legislation implementing the Convention would have to specify that, where the Convention operated (and where no exception specified in the Convention applied), the non-chosen court simply had to suspend or dismiss proceedings that were brought before it, even if it would otherwise have jurisdiction over them, and that there was no discretion to do otherwise.

[31] Arguably the flexibility of the common law’s strong-cause test provides superior protection for unsophisticated commercial parties that may be caught by choice-of-court clauses in adhesion contracts. It should be recalled that, while the Convention does not apply to consumer contracts or contracts of employment, it would operate in an international commercial agreement between a large, sophisticated commercial entity on one hand and a small business on the other. This would be so even where the choice-of-court clause was contained in a standard-form contract drafted by the former and offered only on a take-it-or-leave-it basis. Of course the Convention offers some resources to the non-chosen court to cope with such situations: it can ignore the obligation to stay the action, doing so on the grounds that giving effect to the choice-of-court clause would lead to a manifest injustice.[25] Arguably this provision – which has been criticized as “seriously detract[ing] from the stated goal of furthering international trade by enhancing predictability in the use of choice of court agreements”[26] – approximates the common law’s flexibility. But it does not go as far as the common law’s strong cause test. This has led some to claim that the Convention’s rules may be a trap for small business,[27] and the matter under consideration here is the most prominent instance of that.

[32] When it comes to the third chief obligation of the Convention – namely, the requirement to enforce foreign judgments where the original rendering court was one designated in an exclusive choice-of-court clause – the situation in the common law jurisdictions of Canada is the same was it was with the Convention’s first two principal obligations: the common law provinces already do this. Under the common law, as acknowledged by the Supreme Court of Canada in Morguard[28] and Beals v. Saldanha[29] (and also under the ULCC’s Enforcement of Foreign Judgments Act[30]), the judgment debtor’s consent to the adjudicatory jurisdiction of the original court is a sufficient jurisdictional connection to justify that court’s judgment being recognized and enforced in Canada.

[33] Of course there are exceptions to that, commonly known as the impeachment defences. These exist both under the Convention and at common law. Under the Convention, a foreign judgment need not be enforced if it is “manifestly incompatible with the public policy of the requested State”.[31] The common law’s formulation of this test may be somewhat broader in that it does not contain the requirement of manifest incompatibility but only that the foreign judgment is founded on a law “which is contrary to the Canadian concept of justice.”[32] Arguably these are no more than variations in verbal formulation and do not reflect profound or even significant underlying differences. However, the Convention’s approach to the impeachment defences might be seen as slightly harder-to-meet test than the common law’s.

[34] The defence of fraud is somewhat broader at common law than under the Convention; that is, adoption of the Convention might require the enforcement of some foreign judgments that would not presently be enforced. To elaborate, under the Convention, an otherwise enforceable foreign-country judgment need not be enforced if it “was obtained by fraud in connection with a matter of procedure”.[33] The Convention’s Explanatory Report gives several examples of fraud going to procedure: where the plaintiff deliberately serves the writ at the wrong address or gives wrong information about the date or place of the hearing, where a party seeks to corrupt a witness or juror, or where a party deliberately conceals key evidence.

[35] The limitation of the fraud defence to “procedure” renders it narrower than the fraud defence at common law. That was most recently dealt with by the Supreme Court of Canada in Beals.[34] The Supreme Court there made it clear that, although the fraud defence should be narrow, it could include so-called intrinsic fraud. This might include evidence that came to light after the original judgment which showed that the plaintiff’s witnesses in the original trial had lied and that the judgment in favour of the plaintiff was attributable to these lies. The burden of proving this would be on the judgment debtor, and the defence could only be established where it was based on new and material facts that “could not have been established by due diligence prior to the obtaining of the foreign judgment.”[35] The defence is thus a limited one, but it is broader than the “procedural fraud” found in the Convention.

[36] There is a third difference. Under the Convention a foreign judgment may not be enforced if it is under appeal or if the time for appealing it has not yet run. That is not a defence under the common law. However, in practice a common law court faced with an action to enforce a judgment that was being appealed in the rendering jurisdiction would normally grant a stay of proceedings until that appeal was resolved. In short, this difference between the Convention and the common law seems trivial, and shifting from the current common law approach to the approach in the Convention would not represent a significant change.

[37] Finally, there is the possibility at common law that a judge could invent/recognize a new impeachment defence, simply as a common law development. The Supreme Court of Canada acknowledged this possibility in Beals when it wrote that “[u]nusual situations may arise that might require the creation of a new defence to the enforcement of a foreign judgment.”[36] Indeed, even as this report was being written such an argument was entertained by the Ontario Superior Court of Justice.[37] While the argument for the recognition of a new impeachment defence was rejected in that case, the decision does highlight a difference between the existing common law and the Convention – viz., the former continues to change and adapt while the latter does not.

Next Annual Meeting

2020 Annual Meeting

Place to be Announced

August 9 – 13, 2020