Remedies for United States Creditors In Ontario, Canada

Simon PLC Attorneys & Counselors – April 2020 Memorandum
Remedies for United States Creditors In Ontario, Canada

Bloomfield Hills, Michigan – As U.S. business and trade crosses the border with Ontario, Canada, this issue has become more and more common. What happens when a business relationship, contract or other transaction goes sour with a party from Ontario? You may ask –

“What are my remedies?”

“Can I sue that party?”

“Where do I sue them?”

“If I sue them in, for example, Michigan, what effect would my judgment have?”

This Memorandum will walk you through this common situation. Rest assured, that if the facts line up properly, you can sue the Ontario party in a court in the United States, and have that judgment domesticated and enforced in Ontario, Canada.

Full Faith and Credit Where Due Process Has Been Afforded

The analysis that an Ontario Court will undertake in determining whether to recognize and enforce a Michigan judgment includes addressing the following questions:

(a) Did the Michigan court in the Michigan lawsuit properly assume jurisdiction according to Canadian conflicts of law rules?

(b) Have any defenses of fraud, breach of natural justice, or public policy been established such that an Ontario court should refuse to enforce the Michigan judgment?

For analysis of the process involved, we will use a set of facts that we were recently involved with. The Ontario party came to Michigan and purchased a travel trailer. The parties signed a purchase and financing contract in Michigan, which included language making the Michigan courts the venue of any disputes to be litigated, and that provided the contract was governed by the “Internal Laws of the State of Michigan.” The Ontario party stopped making payments, and the trailer was repossessed by the Michigan based lender. The Michigan lender, after selling the trailer at auction, still had a significant deficiency that needed to be recovered.

The Michigan lender sued the Ontario party in Wayne County (Michigan) Circuit Court. After perfecting service of the Summons and Complaint in compliance with Michigan Court Rules and Hague Convention requirements, the Ontario party failed to timely answer the Complaint. A default was entered with the Michigan court clerk against the Ontario party. A motion for default judgment was subsequently filed in the Michigan lawsuit, and default judgment was entered against the Ontario party.

Throughout this process, the Ontario party was provided with notice of all court proceedings in accordance with the Michigan Court Rules.

A. Did the Michigan Court properly assume jurisdiction?

The process for seeking to domesticate a foreign judgment, in this case the Michigan judgment, in Ontario, is by application to the Ontario Superior Court of Justice. This is a general and trial court of record in Ontario.

The criteria for recognition and enforcement of foreign judgments in Ontario are set out in the Supreme Court of Canada’s decision in Beals v. Saldhana, which concerned a foreign default judgment. An Ontario court enforcing a foreign judgment must first be satisfied that the foreign court assumed jurisdiction over the proceedings that resulted in judgment on the same basis that the Ontario court would; for example, on the basis of a “traditional” ground such as consent to submit to the court’s jurisdiction, or on the basis of a “real and substantial connection” test. Beals v. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416 (“Beals”) at ¶¶29 and 37; Club Resorts Ltd. v. Van Breda, 2012 SCC 17, [2012] 1 S.C.R. 572 at ¶79.

It is immaterial whether the foreign court had subject-matter or personal jurisdiction under the applicable foreign law. The Ontario court is only interested in whether the foreign court could properly assert personal jurisdiction pursuant to Canadian conflict of laws rules. Parsons v. McDonald’s Restaurants of Canada Ltd., 2004 CanLII 28275, [2004] O.J. No. 83 (S.C.J.); Moses v. Shore Boat Builders Ltd., 1993 CanLII 2276.

The real and substantial connection standard is the same whether the foreign judgment resulted from contested proceedings or by default, absent unfairness or “equally compelling reasons.” Beals at ¶ 31.

In our example, the Michigan court properly assumed jurisdiction over the Ontario party on the basis that the parties consented to jurisdiction, and because of a real and substantial connection between the subject-matter of the litigation and the jurisdiction:

  • The contract for the purchase and financing of the travel trailer, was governed by the “Internal Laws of the State of Michigan”;
  • The subject loan was originated and “made” in the State of Michigan/the Ontario party applied for and executed the contract in the State of Michigan, and received and used the loan proceeds there;
  • The contract was breached in the State of Michigan;
  • The damages suffered by the lender were suffered in the State of Michigan;
  • The travel trailer, the collateral that was the subject of the contract, was liquidated in the State of Michigan, and deficiency loan balance generated therefrom; and
  • The lender conducts its business in the State of Michigan.

Indeed, the first four points above would be more than sufficient ground for an Ontario court to assume jurisdiction in relation to an out of province defendant where the proceeding consisted of: (i) a contract made in Ontario; (ii) a contract governed by the laws of Ontario; (iv) a breach of contract in Ontario; and/or (iv) damages suffered in Ontario. As it is determined that the Michigan Court properly assumed jurisdiction, the Michigan Judgment is prima facie enforceable. Ontario Rules of Civil Procedure, Rule 17.02(f), (g), (m); Beals, ¶¶ 29 and 37.

B. Do any of the defenses to enforcement apply?

Once it has been established that the Michigan court had properly assumed jurisdiction of the case, the burden shifts to the Ontario party to establish, on a balance of probabilities, the applicability of any of the defenses to enforcement of the Michigan judgment. Beals at ¶¶47, 59, and 64; see also at para. 211.

i. Fraud does not apply

The evidence in the Michigan lawsuit is presumed not to have been tainted by fraud. Where the Ontario party fails to defend the Michigan lawsuit, they are barred from attacking the evidence presented to the Michigan case. As the Supreme Court of Canada stated in Beals:

Where the foreign default proceedings are not inherently unfair, failing to defend the action, by itself, should prohibit the defendant from claiming that any of the evidence adduced or steps taken in the foreign proceedings was evidence of fraud just discovered. […]

In the present case, the appellants made a conscious decision not to defend the Florida action against them. The pleadings of the respondents then became the facts that were the basis for the Florida judgment. As a result, the appellants are barred from attacking the evidence presented to the Florida judge and jury as being fraudulent.

Beals at ¶¶53-54.

Only if there were “evidence of fraud before the [Michigan court] that could not have been discovered by reasonable diligence” might the Ontario court be justified in refusing to enforce the Michigan judgment on the basis of fraud. Beals at ¶53. In this case, there was a lawful contract, and the exchange of goods and money. There was no evidence of fraud.

ii. Denial of natural justice does not apply

In order to establish the defense of denial of natural justice, the Ontario party would have to establish that the Michigan lawsuit was contrary to Canadian notions of fundamental justice. The defense, where raised, is limited to a consideration of the procedure of the Michigan court, and does not address the merits of the case. Beals at ¶¶59-64.

Generally speaking, there can be no suggestion that the procedure followed by a Michigan court, where the governing rules and procedures are fully and properly followed, is contrary to Canadian notions of fundamental justice. In Yemec, for example, the Ontario Court of Appeals overturned the refusal by a lower court Ontario judge to enforce an injunction granted by a judge of the U.S. District Court for the Northern District of Illinois. The Ontario Court of Appeals rejected any suggestion that the proceedings before the U.S. District Court were unfair. United States of America v. Yemec, 2010 ONCA 414 recon. allowed 2010 ONCA 845 (“Yemec“).

Similarly, in Facebook Inc. v. Guerbuez, the Quebec Superior Court had to ask whether a judgment of the U.S. District Court for the Northern District of California which included an injunction and a damages award of over one billion dollars, was incompatible with “public order” as it is understood in international relations. Her answer was “no” – she granted an Order enforcing the judgment. Facebook Inc. v. Guerbuez, 2010 QCCS 4649 aff’d 2011 QCCA 268.

Among the elements of natural justice recognized in Beals was the requirement that “a defendant be given adequate notice of the claim made against him and that he be granted an opportunity to defend.” Beals at ¶65.

Where every step of the Michigan court rules and procedures are followed, the Ontario party receives adequate notice of the claims being made against her, and an opportunity to defend, all in compliance with the Michigan Court Rules. The Summons and Complaint (originating process) was personally served upon the Ontario party at her residence in Ontario, Canada, in compliance with the Michigan Court Rules. This service was consistent, and in accordance, with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters (to which Canada and the U.S. are signatories). This form of service is also consistent with the provisions of the Ontario Rules of Civil Procedure. Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 16.02(1)(a), 17.05; Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters, article 10.

Further, after a default was entered by the Michigan court clerk as against the Ontario party, the entry of default was then served upon the Ontario party in compliance with the Michigan Court Rules. Thereafter, the motion for default Judgment in the Michigan lawsuit was served on the Ontario party, in compliance with the Michigan Court Rules. The motion papers provided notice to the Ontario party of the default judgment hearing and oral argument.

With this record of proceedings, it was clearly established that there was no denial of “natural justice” in the Michigan lawsuit, as contemplated by the Ontario courts. The Ontario party’s decision to ignore the Michigan lawsuit did not save her, and placed her in legal peril.

iii. Breach of public policy does not apply

The defense of public policy, where applicable, prevents the enforcement of a foreign judgment in Ontario based on a law contrary to the concept of justice or basic morality. The defense is narrowly construed. It does not, for example, bar enforcement of a foreign judgment solely because the damages awarded in the foreign proceeding greatly exceed what would have been awarded under Canadian law. Beals at ¶¶71, 75, and 76.

In the Michigan lawsuit, there was no evidence on the record to indicate that any defense could be made out based on public policy. The underlying causes of action (breach of contract) and laws applied in the Michigan lawsuit, were not contrary to Canadian concepts of justice. Beals at ¶¶3 and 81-82.

CONCLUSION

Ontario courts follow a general principal where foreign judgments are concerned. “In an action to enforce [a] foreign judgment, the Ontario court will not re-litigate the underlying litigation that gave rise to the judgment, and if the foreign judgment is proven and is final, the Ontario court will enforce the foreign court’s judgment with a judgment of its own.” Gutterfilter Company LLC v. Gutterfilter Canada, Inc., 2011 ONSC 3977 at ¶25 Aff’d 2011 ONCA 4.

That includes where a default judgment is awarded by a “foreign court.” Gutterfilter at ¶25.

Thus, where an Ontario party is involved, you are not necessarily entering unknown territory in terms of seeking remedies, litigating, and enforcing a judgment. Mechanisms and procedures exist that allow you to have your day in court in the United States, and to have the resulting judgment domesticated and fully enforceable in Ontario.

Please contact Simon PLC Attorneys and Counselors if you are owed money in the province of Ontario Canada and would like advice on effective tools to collect it. The litigators at Simon PLC are prepared to answer any questions or concerns your organization may have. Visit the Team at www.simonattys.com for more information.

Marjan Neceski is a Senior Attorney with Simon PLC, licensed to practice law in Michigan, New York, Ohio and Ontario, Canada. He has represented Canadian, U.S. and foreign based business clients in the courts of these same jurisdictions, including in complex commercial litigation. Having lived and practiced law in Ontario and in the United States, Marjan has personal experience and expertise that few have – knowledge and understanding of the business and legal climates in both countries. Marjan’s experience has made him especially sensitive to the needs of U.S. businesses being forced to litigate, or choosing to litigate in Ontario, and to avoid the difficulties that those unfamiliar may face.

N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.

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