Foreign Defendants – Legal issues and Strategies

Americans sued in Ontario are at risk. Sometimes these defendants ignore Ontario law suits because they have no assets in Canada. That may be unwise. Ontario courts, under certain circumstances, will assume jurisdiction and grant judgments against American defendants. Such judgments may be enforceable in the US under private international law and the principles of comity. Americans named as defendants in Ontario litigation should contact competent lawyers in both jurisdiction to strategize about how to deal with litigation commenced in a court in Canada.

Why Should Americans Care If They Are Sued In A Foreign Jurisdiction?

Americans who are sued in Ontario sometimes ignore the claim. Perhaps it’s because there is concurrent litigation in the US. Possibly the American defendant feels it advantageous to wait until the Canadian comes to the US to litigate. Failure by the American defendant to respond will result in Default judgment against them. The Canadian Plaintiff will then hire an American Attorney to successfully enforce the Ontario judgment in the appropriate US jurisdiction. Americans who ignore litigation against them in Ontario do so at their own peril.

To appreciate the risks one has to understand that as cross border commerce increased courts and legislatures on both sides of the border had to deal with disputes. Imagine a Ontario manufacturer selling its products to an American distributor located in Texas. The American says the products are flawed and the Canadian wants to get paid. Do they go to a court in Ontario or Texas? Does the law of Texas or Ontario govern? It may be that in accordance with the principles of private international law, comity and forum non conveniens both Texas and Ontario have jurisdiction and the courts have to address which is the most appropriate jurisdiction to deal with the case. In our case scenario outlined above the Texas defendant who ignored the law suit in Ontario may find the Texas court enforcing the Ontario judgment.

First Step – Determine Vulnerability To Assets Being Seized

Enforceability is the first issue. An American defendant in Ontario should determine if there are assets capable of being seized. Does the defendant have assets in Ontario or in a jurisdiction that will enforce an Ontario Judgement? If not then the defendant has to determine in the US jurisdiction will enforce the judgment where the defendant does have assets which are vulnerable to be seized. For example, the Uniform Foreign-Country money Judgments Recognition Act of California¹ provides that if there is judgment from a foreign country that deals with recovery of money, is final, conclusive and enforceable the foreign judgment is enforceable in California²  Each jurisdiction may be different, but a defendant’s first step would be to determine if in accordance with relevant state legislation and the principles of private international law the judgment of the Ontario court would be enforceable in the defendant’s.

Second Step – Consult Competent Lawyer In Your Jurisdiction To Determine If, Given Your Assets, An Ontario Judgment Is Collectable

The Canadian lawyers who have commenced a lawsuit against out of province defendants may be unaware of the differences in collecting on a judgment in Ontario or another jurisdiction. For example, contrary to Ontario the defendant’s state

1. may not permit collection proceedings against the defendant’s home.
2. may not permit wages to be garnished.
3. May exempt a certain amount of personal property.

In other words an American attorney should be consulted to determine if the defendant is judgment proof. That is why it is prudent to contact both an American attorney and Ontario lawyer to coordinate strategies. Both are necessary because a defendant with assets in Ontario will be subject to collection under the laws of Ontario. As an aside, Canadian lawyers should also address these issues when advising American clients about the utility of proceeding against foreign defendants.

Third Step – Are There Grounds To Dispute Ontario Jurisdiction?

Assuming that, given the right circumstances, an Ontario judgment will be enforceable in the American jurisdiction and there the defendant’s assets are vulnerable to being seized in collection proceedings, then coordination between US and Ontario counsel is a key to success for both the plaintiff and defendant. When our firm commences a law suit against an American Defendant we draft the claim with an eye on both:

1. establishing the foundation for an Ontario Court to exercise jurisdiction; and
2. Endeavouring to frame the claim in such a way that an American court will accept that the Ontario court had jurisdiction. It’s complicated and many states in the US have different criteria.

In Ontario the test for assuming jurisdiction in involving a foreign defendant was addressed in the seminal case of Muscutt v Courceles (2002) 60 O.R. (3d) 20.³ The Muscutt test was adjusted by the Court of Appeal in Van Breda v. Village Resorts Limited, 2010 ONCA 84.⁴ The exact nature of the test for determining jurisdiction of Ontario courts over an American defendant will hopefully be clarified as the Supreme Court of Canada has granted leave to appeal the Ontario Court of Appeal’s decision on this case. ⁵ As of the writing of this article this case has been judicially considered in Canada 22 times. For a clear review of the evolution of the test used by Ontario Courts for assuming jurisdiction of foreign defendants see Sona Dhawan’s February 17th, 2010 blog “Muscutt Quintet Test Simplified in Van Breda”. ⁶ For the purposes of this article it is unnecessary to review the Van Breda case in detail other than to say the Court of Appeal wanted, in their words, “tune-up” the Muscutt test “after seven years in the trenches”. In summary, under the new test a preliminary analysis is conducted to determine if there is a presumption that a “real and substantial connection” exists between the conflict and Ontario. The court will then look at two main issues:

1. the connection between the forum and the plaintiff’s claim and
2. the connection between the forum and the defendant.

The other 6 factors set out under Muscutt are “analytic tools” used to weigh the connection between the forum, claim and defendant.

Until the Supreme Court of Canada rules otherwise the Ontario Court of Appeal test articulated in Van Breda stands. The Supreme Court of Canada will not nullify the principles of comity or forum non conveniens. There is no going back to the time where an Ontario Court will not assume jurisdiction over a foreign defendant. However, what will be addressed is the exact nature and evolution of the test set out in Muscutt. Van Breda has already been followed 12 times by different courts in Canada. In is also important to remember that the Supreme Court of Canada has addressed the issue in four key decisions in the early 1990s⁷ As set out in paragraph 40 of the Ontario Court of Appeal decision “As Sopinka J. explained in Amchem, supra, at p. 912, “[f]requently there is no single forum that is clearly the most convenient or appropriate for the trial of the action but rather several which are equally suitable alternatives.”

Where more than one forum is capable of assuming jurisdiction, the most appropriate forum is determined through the forum non conveniens doctrine, which allows a court to decline to exercise its jurisdiction on the ground that there is another forum more appropriate to entertain the action.” Those decisions, make it clear that that the Supreme Court of Canada has accepted that while more than one forum may have jurisdiction to hear a case, each jurisdiction should exercise jurisdiction if it identifies its forum as the most appropriate forum for the litigation in accordance with the principles of international comity⁸

Fourth Step – Foreign  Defendant to Review Grounds to Dipute Ontario Jurisdiciton

If it is in the defendant’s interest to not litigate in Ontario the lawyer should review the case law and determine if there are grounds to dispute jurisdiction. For example, did the plaintiff commit fraud? Did  the litigation process result in a denial of natural justice to the defendant? Would assumption of jurisdiction offend public policy? The following additional questions should be addressed:

• the location of the majority of the parties
• the location of key witnesses and evidence
• contractual provisions that specify applicable law or accord jurisdiction
• the avoidance of a multiplicity of proceedings
• the applicable law and its weight in comparison to the factual questions to be decided
• geographical factors suggesting the natural forum
• whether declining jurisdiction would deprive the plaintiff of a legitimate juridical advantage available in the domestic court

Conclusion

Given that the law in every jurisdiction may be different there are often advantages to the litigants in different jurisdictions. For example, if the Ontario limitation period has lapsed and the US jurisdiction limitation period has not lapsed it makes sense for the plaintiff to litigate in the US jurisdiction. Accordingly, disputes about forum are common. For anyone involved in cross border litigation it is prudent to consult with attorneys/lawyers on both sides of the border to ensure that the issues of jurisdiction and vulnerability to judgments are addressed.