Credit Laws
In This Section:
The Interprovincial Enforcement of Judgments
Suing a Foreigner? Keep Control of the Case with a Forum Selection Clause
The Interprovincial Enforcement of Judgments
by Michael N. Bergman, B.C.L./L.L.B McGill University
A Creditor and a Debtor enter into a financial agreement in Alberta. After several years, the Debtor moves to Manitoba, leaving behind only sparse assets, (not nearly enough to cover the costs owed) in Alberta. Following a slowdown of repayments, the Creditor decides to take legal action against the Debtor in the Alberta Court of the Queen’s Bench. A favourable ruling for the Creditor grants him access to the Debtor’s limited Alberta assets. However, is it at all possible for the Creditor, in using the ruling of the Alberta court, to have access to the Debtor’s Manitoba assets? In other words, what jurisdiction do provincial courts have in enforcing interprovincial matters?
For all intents and purposes, the court system is devised provincially. Provincial judgments can only be enforced within the bounds of the province in which the case was ruled. Therefore, if a Debtor has assets in another province, the creditor may not have access to them as a result of a court ruling in a different province. Up until 1990, there was no process to take an Alberta judgment and register it in Manitoba so that the Manitoba courts would issue a writ of seizure of the Debtor’s assets. Years ago, if a Creditor wanted to seize assets of a Debtor who resided in a different province from the one in which the trial took place, the Creditor would have had to go to the province in which the Debtor’s assets resided and launch a completely new lawsuit. This reality effectively gave the Debtor the ability to defend his position twice and introduce new points of defence.
In the last 20 years, a trilogy of Supreme Court cases addressed this question of whether to enforce court orders issued in other jurisdictions (be they interprovincial or international). In 1990, the Supreme Court in the Morguard case ruled that “the courts in one province should give "full faith and credit" to the judgments given by a court in another province or a territory, so long as that court has properly, or appropriately, exercised jurisdiction in the action.” In other words, where a judgment was rendered in Canada, was rendered in a lawsuit properly served on the defendant, the ruling was not obtained under the pretext of fraud, there was no issue pertaining to questions on public policy rules and finally no novel issues for which the Debtor can ground a defence, then the provinces court’s should recognize the previous provinces judgments. “If it is reasonable to support the exercise of jurisdiction in one province, it is reasonable that the judgment be recognized in other provinces.” As a result, it has become increasingly more difficult to defend against these judgments.
It has now become easier to obtain, recognize and enforce a judgment on a summary basis. As a Credit Manager, if you are seeking to enforce another court’s judgment in a province different from the once it was issued, you must make sure the lawsuit takes place within the proper delays, the lawsuit is properly served, and the judgment is properly granted.
Michael N. Bergman, B.C.L./L.L.B McGill University
Member of the Bar of Quebec and Ontario
Bergman & Associates
Affiliate office in New York City (Weiss & Hiller)
Working in all aspects of corporate, commercial and business law, business litigation and international and interprovincial business transactions.
mnb@bergmanlawyers.com
Suing a Foreigner? Keep Control of the Case with a Forum Selection Clause
by Ken MacDonald, LL.B., LL.M.
In the world of cross-border litigation, I can tell you that prevention is worth much more than a pound of cure. Battles over where a case is to be litigated are common, and can be so protracted and costly that the parties never reach a determination of the merits of the case. Such battles are common because generally there are tremendous strategic advantages to litigating the case in one’s home jurisdiction, and disadvantages to litigating the case in one's opponent's jurisdiction. In some cases the issue of where to litigate effectively determines the outcome of the case. Accordingly, it is prudent to put into one’s contract with a party outside your province or outside Canada a forum selection clause ("FSC", also known as a jurisdiction selection clause or attornment clause), i.e. a clause stating where (in which country or province) any disputes arising from the contract are to be litigated.
Courts in Canada, the U.S., the U.K. and elsewhere will generally enforce FSC's, including in cases where, but for the FSC, the case would come within that court’s jurisdiction or some other court's jurisdiction. The Supreme Court of Canada has ruled that FSC’s are to be enforced unless there is "strong cause" in a particular case not to enforce it. The courts will hold the parties to their contract, including the FSC, so as to ensure predictability in international transactions. The U.S. Supreme Court has recently ruled that a FSC will be enforced against a company to which a contract was assigned (that is, a "successor", a company that takes over a contract from the original contracting party), even if that successor company is outside the United States.
Where a transaction involves several contracts – for example, a sale agreement, bill of lading, security agreement, and loan agreement -- it is important to make sure that the FSC's in those various contracts are consistent. Otherwise, the FSC’s may achieve little or nothing.
Keep in mind also that this fairly strict enforcement of FSC's means that in complex transactions involving several parties, one effect of an FSC may be that parallel proceedings on the same subject matter (albeit involving different or additional parties) cannot be avoided, but might have been avoided if the FSC’s were consistent, or if the FSC was not exclusive.
That brings me to exclusive versus non-exclusive FSC's. The distinction is between FSC's that stipulate that only the courts of X jurisdiction may hear disputes (an exclusive FSC), and FSC's that merely permit taking disputes to the courts of X jurisdiction but do not exclude other jurisdictions (a non-exclusive FSC). The purpose of the latter clause is to ensure that if you choose to have a dispute litigated in X, that your opponent will not be able to object to X's taking jurisdiction. The non-exclusive FSC is more flexible because it does not preclude your taking the case to other jurisdictions instead of X. Such a clause may reduce the risk of wasteful parallel proceedings. However, such a clause carries the risk that disputes will be litigated in a jurisdiction chosen by your opponent, which jurisdiction is unfavourable to you.
Lastly, make sure the FSC covers all the types of disputes that may arise and which you want to cover. A claim based on tort law (e.g. negligence) might not be covered if the FSC is limited to contractual disputes.
This article is intended to provide only general legal information, not legal advice; for advice specifically about a particular case, consult a lawyer.
Ken MacDonald has 14 years experience as a civil litigator in Ontario, with emphasis on commercial and cross-border cases. He is the author of the book, Cross Border Litigation: Inter-jurisdictional Practice and Procedure (Canada Law Book, 2009), and has presented on legal topics to various organizations or conferences. He can be reached at kenmacdonald@hkhlawyers.com.
