Wrong Place, Wrong Time: The Court Of Appeal Confirms That An Arbitration Clause Will Not Automatically Oust A Foreign Court's Jurisdiction

In Hilmer Motorsport GmbH v. Mason¹, the Court of Appeal for Ontario upheld the recognition in Ontario of a German judgment where the underlying contract on which the foreign judgment was given provided for disputes to be resolved by arbitration. The case illustrates the narrow bases on which Canadian courts will refuse to recognize foreign judgments and reminds litigants that arguments about the propriety of a court proceeding should be brought at first instance, rather than waiting until the plaintiff attempts to enforce the judgment.

What you need to know

• Arbitration clauses must be proactively asserted. Where a party contests a court proceeding on the basis that the dispute should be determined by arbitration, the party must, where possible, proactively assert that right before the first instance court. Failure to do so may be construed as a waiver or otherwise preclude the party from later attacking the court proceeding on the basis that the dispute was subject to an agreement to arbitrate.
• Arbitration clauses do not automatically negate a foreign court's jurisdiction over a dispute. Where it is open to the party to seek to stay a foreign proceeding in favour of arbitration, an Ontario court asked to recognize a judgment subsequently rendered by the foreign court will not assume that the foreign court lacked jurisdiction solely because the parties' agreement contains an arbitration clause.
• Recognizing and enforcing a foreign judgment where the underlying dispute may have been subject to arbitration is not contrary to public policy. Canadian law dictates that arbitration clauses must be proactively asserted, and courts are not required to refer a proceeding to arbitration absent a party doing so. There is therefore nothing contrary to the Canadian concept of justice about recognizing and enforcing a foreign judgment where the parties agreed to arbitrate, but neither party sought to enforce the arbitration clause.

Background

Facts

The appellant, Nelson Mason, is an Ontario-based professional race car driver. In 2014, he entered an agreement with the respondent, Hilmer Motorsport GmbH, a German company operating a car-racing team. The agreement provided that Nelson would pay Hilmer for the opportunity to represent Hilmer in a series of European races. The agreement further provided that it was to be governed by the laws of Germany, the choice of forum was Munich, and any disputes arising out of the agreement would be resolved through arbitration.

The appellant, Jay Mason (Nelson Mason's father and manager), guaranteed Nelson's debt. The guarantee was also subject to German law and the choice of forum was Munich, but it did not contain an arbitration clause.

In October 2015, Hilmer commenced court proceedings in Munich, claiming against Nelson and Jay Mason for breach of contract and for payment of amounts due under the agreement and the guarantee. Nelson and Jay Mason elected not to defend the court proceeding, and Hilmer obtained a default judgment.

Hilmer then brought an action in Ontario to have the German judgment recognized and enforced. The motion judge granted summary judgment in favour of Hilmer. Nelson and Jay Mason appealed.

The Court of Appeal's decision

The appeal turned on two questions:

1. whether the German court lacked jurisdiction over the parties' dispute because of the arbitration clause in one of the parties' agreements; and
2. whether natural justice and public policy precluded an Ontario court from recognizing the German judgment, given the arbitration clause in one of the parties' agreements.

Recognition and enforcement of foreign judgments

A Canadian court asked to recognize and enforce a foreign judgment must determine, inter alia, whether the foreign court properly assumed jurisdiction over the dispute². To establish this criterion, the foreign court must have had a real and substantial connection to the parties or the subject matter of the dispute, or the traditional bases of jurisdiction must have been satisfied³. If the plaintiff establishes this jurisdiction, the defendant has an opportunity to prove that a defence to recognition and enforcement—such as a breach of natural justice, that the judgment is contrary to public policy, or was procured through fraud—should apply⁴.

The German court's jurisdiction over the dispute

The Court of Appeal held that the motion judge had properly concluded that the German court had jurisdiction because there was a real and substantial connection between the German court, the parties and the dispute. The Court of Appeal rejected the appellants' argument that the arbitration provision in the agreement automatically negated the German court's jurisdiction. As German law was neither pleaded nor proved, the only law available to be applied was Ontario law. In Ontario, an arbitration agreement is not self-enforcing. If neither party seeks a stay in favour of arbitration, as in the Hilmer case, the mere presence of the arbitration provision would not oust the jurisdiction of the German court.

No defences to recognition available

The appellants also could not rely on any of the defences to the recognition and enforcement of the German judgment. The Court of Appeal noted that the appellants were properly served and granted a fair process by the German court, so there was no breach of natural justice in recognizing and enforcing the German judgment.

The Court of Appeal further held that the defence of public policy did not apply in these circumstances. The defence of public policy prevents Canadian courts from enforcing a foreign judgment which is contrary to the "Canadian concept of justice"⁵. Ontario law provides that a party must request a referral to arbitration if it intends to rely on an arbitration clause. On being served with the German proceeding, the appellants did not seek a stay of the proceeding and request that the dispute be referred to arbitration. As such, it would not be appropriate for the Ontario court being asked to recognize the German judgment to assume that the German court lacked jurisdiction over the dispute, nor was it contrary to public policy to enforce the German judgment.

Footnotes

1. Hilmer Motorsport GmbH v. Mason, 2025 ONCA 875.

2. Chevron Corp. v. Yaiguaje, 2015 SCC 42, para. 34.

3. Ibid., para. 27.

4. Ibid., para. 34; Beals v. Saldanha, 2003 SCC 72, para. 35.

5. Beals v. Saldanha, 2003 SCC 72, para. 71.

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.