Canada: To Defend Or Not Defend Oneself Before A Foreign Court? That Is The Question!

Last Updated: May 28 2019
Article by Laurent Debrun

Barer v. Knight Brothers LLC 2019 SCC 13

The Supreme Court of Canada reminds us of the serious legal consequences of certain actions which a Quebec resident prosecuted in a foreign court may take and which a Quebec Court will later qualify as a recognition of the jurisdiction of such foreign court.

Summary:

Barer resides in Quebec. He was sued by Knight, an American company, in the State of Utah together with two companies he controlled, one of which, BEC, is an American company based in Vermont, the other one is a Canadian corporation. Knight claimed from them the difference between the price of a contract and additional work that Barer would have agreed to during a telephone conversation. Barer would have confirmed to Knight that the additional costs associated with the changes to the work order would be duly paid. Barer was not a party to the contract. Knight requested the lifting of the corporate veil on the grounds of fraud, unjust enrichment and delict. Barer responded to the suit by requesting the summary dismissal of the suit and challenged the jurisdiction of the court over him.

Barer and the two corporate defendants accepted service of the complaint and entered their appearance before the Utah court. The three defendants then pursued a different strategy. BEC, the party to the contract with Knight, filed an answer, defence and counterclaim. BEC did not raise the issue of jurisdiction of the Utah court and was satisfied with denying the facts underlying the claim. The Canadian corporation presented a motion to allow its counsel to withdraw on the ground that it did not recognize the jurisdiction of the Utah court and would not participate in the proceedings. As it did not defend itself, the Utah court entered a default judgment. Barer brought a motion to have the claim asserted against him personally dismissed on a preliminary basis. Barer denied that the two companies were his alter egos, that the fraudulent misrepresentation claim having caused the alleged pure economic loss was barred under Utah law and, finally, that the Utah court did not have personal jurisdiction over him. Barer's motion to dismiss and each of its grounds were dismissed and the court allowed the case to proceed to trial upon its merits. A default judgement was then rendered against the three defendants.

Now Knight applies to the Superior Court in Quebec to have the Utah default judgment recognized and enforced against Barer in Quebec.

How did the Supreme Court decide that Barer had "recognized" the jurisdiction of the Utah court?

In order to contest Barer's motion to dismiss in Utah, Knight had filed as evidence various exhibits and an affidavit in support of its claim. Under Utah law, this evidence can be taken as proven for the court to decide the motion to dismiss. In the view of the Utah court, having the three defendants judged together, in one action, furthered the interest of the international justice system. The Utah court found that Knight's evidence supported its alter ego claim, prima facie. Barer never filed a defence, although he was invited to do so. Barer only took part in a settlement conference, which is an obligatory requirement in Utah. According to Barer, this did not mean that he submitted to the jurisdiction of the foreign court. So what positive action, taken by Barer in Utah, was successfully raised against him by Knight so that the Quebec Superior Court recognized and enforced the default judgement rendered in Utah?

Both the Superior Court and the Court of Appeal held that Barer, through his conduct, had submitted to the jurisdiction of the Utah court and therefore Quebec courts had to recognize and enforce the default judgment. By presenting substantive arguments, in support of his motion to dismiss based on the Utah court lacking jurisdiction, a majority of the judges of the Supreme Court of Canada agreed that Barer submitted to the Utah court's jurisdiction in accordance with art. 3168(6) of the Civil Code of Quebec (CCQ.). This was sufficient to establish the requisite connection between the substance of the dispute, the parties and the Utah court. Therefore, Barer had no legal means to oppose recognition and enforcement in Quebec.

The dilemma, for any resident of Quebec, is therefore to choose between defending oneself abroad or playing the "empty seat" card. The risks and benefits of the strategy to be adopted in the event of prosecution abroad must be considered with extreme caution, even though the deadline to respond is often very short. This decision confirms once again the importance of a multi-jurisdictional analysis of the dispute from the very beginning and of a close cooperation between the Quebec and foreign attorneys so that sound decisions can be made before the foreign court.

The decision of the Supreme Court of Canada:

The Supreme Court indicated that the objective of the CCQ is to ensure that any legal decision rendered outside of Quebec will be recognized and declared enforceable in Quebec, save for specific exceptions. This key principle dates back to prior judgements of the Supreme Court such as Beals v. Saldanha, (2013) S.C.R. 416. Dan Beals, a resident of Canada, had sold his property located in Florida for $8,000. He was sued by the purchaser, but failed to defend himself and a jury entered a default judgement against him in the amount of $260,000. At the Supreme Court level, the judgement, with interest, was approximately $1,000,000. The Supreme Court concluded that Mr. Beals was barred from invoking in Canada defences that he could have raised in Florida. The judgement was therefore recognized in Canada.

There are only six exceptions under Quebec law which allow Quebec courts to depart from this general principle and to refuse to recognize a foreign decision. The main exception is that the foreign court had no jurisdiction over the dispute (article 3155 CCQ).

Anyone intending to have a foreign decision recognized in Quebec must prove the existence of 1 of the 6 grounds listed in article 3168 CCQ so that the indirect international jurisdiction of the foreign authority is recognized; only 1 of the 6 is required. Article 3168 CCQ. provides:

" 3168. In personal actions of a patrimonial nature, the jurisdiction of foreign authorities is recognized only in the following cases:

(1) the defendant was domiciled in the State where the decision was rendered;

(2) the defendant possessed an establishment in the State where the decision was rendered and the dispute relates to its activities in that State;

(3) injury was suffered in the State where the decision was rendered and it resulted from a fault which was committed in that State or from an injurious act or omission which occurred there;

(4) the obligations arising from a contract were to be performed in that State;

(5) the parties have submitted to the foreign authorities the present or future disputes between themselves arising out of a specific legal relationship; however, renunciation by a consumer or a worker of the jurisdiction of the authority of his place of domicile may not be set up against him;

(6) the defendant has submitted to the jurisdiction of the foreign authorities.»

According to the Supreme Court, this list is exhaustive. By filing arguments in Utah which, had they been found valid, would have resolved the matter in whole or in part, this constituted either an implicit or explicit recognition by Barer of the indirect international jurisdiction of the foreign court in accordance with art. 3168(6) CCQ.

Barer argued in Quebec (but did not present evidence as to the state of Utah law) that he was required, according to that foreign law, to argue both the merits and substance of his defence while contesting jurisdiction at the preliminary stage, failing which he risked being barred from doing so at a late date. The Supreme Court noted that Barer had the burden of proving that this is the procedural law in this foreign state and he did not.

An application for recognition and enforcement of a foreign decision is a judicial demand giving rise to an adversarial relationship to which the general rules of civil procedure apply. Therefore, parties are not exempted from the requirement imposed by article 2803 CCQ. The applicant must prove the facts on which the right to recognition of the foreign decision is based. Quebec courts must examine the evidence to ensure that the foreign court had jurisdiction in accordance with article 3168 CCQ.

Refraining from appearing or appearing only to contest the jurisdiction of the foreign court can show that the defendant did not recognize the jurisdiction of the foreign court. However, the Supreme Court rejected the theory that a defendant should be allowed to argue the merits while contesting jurisdiction, to lose and then claim lack of jurisdiction of the foreign court to contest recognition of an unfavourable foreign decision in Quebec. It would be unfair if the defendant had the opportunity of convincing the foreign authority of the merits of his case while maintaining his right to later challenge the jurisdiction of such authority if he is ultimately displeased with the decision. It would be giving him a second chance (legal mulligan).

In his motion to dismiss in Utah, Barer presented at least one argument to contest the merits of the action against him, which, had it been accepted, would have led to a final conclusion in his favour. Barer attempted to take advantage of the proceedings in Utah to resolve the dispute in his favour and lost. He could not later ask the Quebec courts to shield him from the consequences of having lost a legal battle that he chose to fight in Utah. This is contrary to both the principle of comity and the efficient use of international judicial resources.

Conclusion:

A Quebec resident who believes that he is wrongfully prosecuted abroad must not take any action that could later be interpreted by a Quebec court as a recognition of the indirect international jurisdiction of the foreign court. If he is required by local laws to contest simultaneously jurisdiction and the merits of the claim before the foreign court, he must be prepared to prove in Quebec that this is the state of the law abroad in order to avoid a Quebec court concluding that he recognized the foreign court's jurisdiction. If a challenge to the foreign court's jurisdiction is dismissed, the question is then what can the Quebec defendant continue to argue before the foreign court without it being later seen as a recognition of jurisdiction. For example, if Barer had completely ceased taking part in the proceedings in Utah once his motion to dismiss was dismissed, the Quebec courts may have examined the situation differently and not have found that he had recognized the foreign court's jurisdiction within the meaning of article 3168 (6) CCQ.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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