International Law Update

In action based upon judgment of Québec court, First Circuit reverses summary judgment for lower court’s failure to resolve genuine issues of fact as to extent of party’s business activities in Québec

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“The Quebec Superior Court’s exercise of personal jurisdiction over Plaintiff did not contravene traditional notions of fair play and substantial justice. Plaintiff had several contacts with Quebec. All the orders, communications, payments, correspondence and dealings between Parties occurred through Defendant’s Montreal office. Moreover, [the] Parties agreed to create a product showroom at Defendant’s Montreal office, which was ultimately constructed. The purpose of this showroom was to display Plaintiff’s products to potential customers and sales agents from Canada and New England.”

“However, as we have noted in our earlier discussion of the Québec jurisdictional statute, the affidavits supplied by the parties were in conflict. … [on the key issues].” [147].

“Furthermore, … [a]bsent from the district court’s analysis is any discussion of the ‘Gestalt factors,’ which, we have made clear, a court must consider to determine the fairness of subjecting the defendant to a foreign jurisdiction. …”

“Jurisdiction in these circumstances may not be avoided merely because the defendant did not physically enter the forum State. Although territorial presence frequently will enhance a potential defendant’s affiliation with a State and reinforce the reasonable foreseeability of suit there, it is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted. So long as a commercial actor’s efforts are purposefully directed toward residents of another State, we have consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there.”

“Because the district court resolved material issues of fact against Plaintiff, the nonmoving party, the judgment must be reversed. The controverted issues of fact that Plaintiff has raised must be resolved. Accordingly, the judgment of the district court is reversed and the case is remanded for proceedings consistent with this opinion.” [148].

Citation: Evans Cabinet Corp. v. Kitchen International Inc., 593 F.3d 135 (1st Cir. 2010).

Filed in: 2009 International Law Update, Issue 11

In proceeding to enforce French judgment awarding 3 million Francs as “reserve,” California Appellate Court holds that the award was final and otherwise fully enforceable under California’s version of Uniform Foreign Money Judgments Recognition Act

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In proceeding to enforce French judgment awarding 3 million Francs as “reserve,” California Appellate Court holds that the award was final and otherwise fully enforceable under California’s version of Uniform Foreign Money Judgments Recognition Act

Societe Civile Succession Richard Guino, a French Trust; Alain Renoir; and Jacques Renoir (Plaintiffs) claim that Redstar Corporation, Jean Emmanuel Renoir, and Louise Hernandez (Defendants) made unauthorized reproductions of certain sculptures by Pierre Auguste Renoir and Michel Guino. A French court ordered the Defendants to pay three million francs “as a reserve” and to pay thirty thousand francs in expenses.

The Plaintiffs sued in a California court to enforce the French judgment under California’s version of the Uniform Foreign Money Judgments Recognition Act (Act). The trial court, however, limited its enforcement to the 30,000 franc award. Plaintiffs appealed to the Court of Appeal of the Second Appellate District. That Court reverses and remands for the entry of judgment on the full French award.

“Section 1713.3 of the Act provides for the enforceability of a foreign money judgment. The Act applies ‘to any foreign judgment that is final and conclusive and enforceable where rendered even though an appeal therefrom is pending or it is subject to appeal.’ (§ 1713.2.) The Act defines a foreign judgment as ‘any judgment of a foreign state granting or denying recovery of a sum of money, other than a judgment for taxes, a fine or other penalty …’ (§ 1713.1, subd. (2).) Section 1713.4 provides grounds for ‘non recognition’ of a foreign judgment — i.e. when the ‘foreign judgment is not conclusive.’ None of those grounds is applicable in this case.” [Slip op. 4].

“The trial court denied enforcement on the theory that the 3 million franc award was not a ‘fixed sum’ and that the amount was subject to modification — i.e., ‘part of a provisional mechanism’ that required ‘an equitable accounting’ so as to fix the sum. Although the Act contains no reference to a requirement of a ‘fixed sum,’ the Act provides that a foreign judgment is enforceable if it is a foreign state judgment granting recovery of ‘a sum of money.’ (§ 1713.1, subd. (2).) The French judgment here specifically provides for the payment of 3 million francs — ‘a sum of money.’”

“The trial court suggests that the sum was not ‘fixed’ because it was provisional. The phrase ‘Orders the provisional execution of this measure’ means that the order for payment of the 3 million francs is immediately enforceable, notwithstanding the availability of an appeal. It does not mean that the order is provisional in the sense that it is tentative or subject to revision within the proceeding. [Cites].” [Slip op. 4 5]

“In providing for an accounting, the French court did not suggest that its 3 million franc monetary order in the matter under consideration was not for a fixed sum of money. The French court did not retain jurisdiction or specify any mechanism within the proceeding before it to enforce the results of an accounting. The French judgment, in effect, required an advance payment to Plaintiffs of the amount owed to Plaintiffs. …”

“There was no further act or proceeding to occur in the French action in which the judgment in question was rendered. Even if the ordered partial payment amount of 3 million francs is subject to a later accounting and subsequent action on that accounting to revise the amount of that 3 million franc payment, the payment order ‘grants . . . a recovery of a sum of money.’ (§ 1713.1, subd. (2).) Although theoretically an accounting might show an amount of less than 3 million francs owing, that lesser amount could only be established in a separate and subsequent action.” [Slip op. 5]

“There is no indication that the French judgment was not ‘final.’ Even if not necessary to enforce the foreign judgment under the Act, the appellate process here had been completed. There is uncontradicted evidence that the French judgment is treated in France as final and, as stated by one of the experts, ‘has the force of res judicata.’” [Slip op. 6]

“There is nothing in the enforcement or execution of the judgment section of the French Code of Civil Procedure that suggests that the French judgment is not a final and conclusive judgment for a sum of money. [Cite].” [Slip op. 7]

Citation: Societe Civile Succession Richard Guino v. Redstar Corp.,153 Cal.App. 4th 697, 63 Cal.Rptr. 3d 224 (Dist. 2 , 2007).

Filed in: 2007 International Law Update, Issue7

In case seeking enforcement of New York District Court judgment, British Columbia Court of Appeal holds that defense may not raise plea of fraud to overcome enforcement of foreign judgment unless it shows that fraud claim is based on new and material facts which defendant could not have discovered by exercise of due diligence prior to date of foreign judgment

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In case seeking enforcement of New York District Court judgment, British Columbia Court of Appeal holds that defense may not raise plea of fraud to overcome enforcement of foreign judgment unless it shows that fraud claim is based on new and material facts which defendant could not have discovered by exercise of due diligence prior to date of foreign judgment

Defendant, Rene Hamouth, a Vancouver, British Columbia, businessman, borrowed $300,000 from plaintiff Lev Zaidenberg, a New York citizen. The loan was secured by a way of a promissory note, the terms of which required repayment by June 2, 2001. Plaintiff sued for payment in New York federal court. When defendant failed to defend the New York action, the court entered default judgment in favor of plaintiff for $316,588. (A-1).

Plaintiff then sought recognition and enforcement of the A-1 judgment in a British Columbia (B.C.) court (A-2); defendant responded by alleging that plaintiff had fraudulently induced him to enter into an oral loan agreement with plaintiff. Defendant argued that, in A-1, neither side had disclosed the fraudulent conduct to the New York court and that a plea of fraud prevented the B.C. courts from enforcing the A-1 judgment. The trial court rejected defendant’s claims, ruling that the type of alleged fraud was no defense to the enforcement of the foreign judgment in British Columbia. Defendant appealed but the British Columbia Court of Appeal (B.C.C.A.) affirms.

The B.C.C.A. holds that the New York court had jurisdiction over A-1. The promissory note stated that New York law shall control and that all disputes shall go exclusively to the New York state or federal courts. The Court observes that “parties to an action continue to be free to select or accept the jurisdiction in which their dispute is to be resolved by upturning or agreeing to the jurisdiction of a foreign court.” [¶ 19]

The Court notes that several Canadian Courts of Appeal differ as to whether a plea of fraud can defeat the enforcement of a foreign judgment. For instance, the positions of the appellate courts of British Columbia and Ontario hinged on the distinction between “intrinsic fraud” or “fraud which goes to the merits of the case and to the existence of a cause of action” and “extrinsic fraud” or “fraud going to the jurisdiction of the issuing court or the kind of fraud that misleads the court, foreign or domestic, into believing that it has jurisdiction over the cause of action.” [¶ 24]

As the B.C.C.A. explains: “The courts in British Columbia have maintained a strict approach to the defense of fraud, holding that only extrinsic fraud can be raised as a defense in defense of the enforcement of a foreign judgment. The trial judges below followed this Court’s decision to that effect in Reglaze Consultant Inc. v. Kennedy, Lock and Kennedy (1984), 65 B.K.L.R. 393. In Jacobs v. Beaver (1908), 17 O.L.R. 496, the Ontario Court of Appeal developed a modification to the strict approach by permitting a defence based on intrinsic fraud on proof of new and material facts not before the foreign court.” [¶ 25]

In Beals v. Sadlanha (2003), 3 S.C.R. 416, the Canadian Supreme Court adopted the Ontario court’s reasoning and found that the Jacobs approach effectively balances the need to guard against fraudulently obtained judgments with the need to treat foreign judgments as final. Here, the Court thus holds that, while the lower court ruled correctly, it misapplied the law as clarified by Beals.

“The historic description of, and the distinction between, intrinsic and extrinsic fraud are of no apparent value and, because of their ability to both complicate and confuse, should be discontinued. It is simpler to say that fraud going to jurisdiction can always be raised before a domestic court to challenge the judgment. On the other hand, the merits of a foreign judgment can be challenged for fraud only where the allegations are new and not the subject of prior adjudication. Where material facts not previously discoverable arise that potentially challenge the evidence that was before the foreign court, the domestic court can decline recognition of the judgment.” [¶ 26]

On the other hand, the party raising the fraud defense has the burden of demonstrating that the A-2 defendant could not have discovered the evidence of fraud by the exercise of due diligence prior to the entry of the foreign judgment. Here, the defendant failed to meet that burden. Having failed to defend the A-1 action, the A-2 Court found that the facts alleged by the defendant were neither new nor newly discovered. Hence, the Court dismisses defendant’s appeal and orders the enforcement of the New York judgment.

Citation: Zaidenberg v. Hamouth (2005) B.C.J. No. 1431, 2005 B.C.C.A. 356 (June 28).

Filed in: 2005 International Law Update, Issue 8

In action to enforce British money judgments against U.S. parties, Tenth Circuit permits enforcement, rejecting challenges to the fundamental fairness of the English court system

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In action to enforce British money judgments against U.S. parties, Tenth Circuit permits enforcement, rejecting challenges to the fundamental fairness of the English court system

Lloyd’s is the regulator of the London insurance market, authorized by an Act of Parliament. Individuals and company members of Lloyd’s are called “Names” and underwrite insurance. The Names have several (rather than joint) liability. A condition of membership is signing on to the General Undertaking Agreement, requiring submission of disputes to the English courts for resolution according to English law.

Judgments arising from underwriting obligations against six New Mexico individuals, and nine Utah individuals who had been Names in the London market between the late 1970s and the late 1980s were obtained by Lloyd’s. Eventually, Lloyd’s sought to enforce these judgments before the federal courts in New Mexico and Utah. Both district courts gave summary judgment to Lloyd’s. Of the New Mexico individuals, five settled with Lloyd’s. Of the Utah individuals, one settled.

Lloyd’s had solicited the New Mexico and Utah Names in the early 1980s, when it became aware of the liability problems arising from asbestos and toxic tort claims. The insurance reserves were inadequate to cover these claims. Lloyd’s did not timely disclose this problem to investors, however, and the Names filed suits across the U.S. See 2003 International Law Update 100. In 1995/96, Lloyd’s developed a reorganization plan, requiring all Names to become a party to a reinsurance contract through an appointed, substituted agent. The contract included a “pay now, sue later” clause.

The New Mexico and Utah Names neither signed that agreement, nor paid the assessment associated with that reinsurance. Lloyd’s then used its powers under the Lloyd’s Act of 1982 to appoint a Substitute Agent. This person signed the reinsurance agreement on behalf of the recalcitrant Names. Lloyd’s then sued those Names in the English courts.

Each Name got a summons through their solicitors of record, and appeared through the filing of an Acknowledgment. The New Mexico and Utah Names did not submit a notice of intention to defend. The English court ruled against all Names. Approximately 200 non-settling Names then brought a fraud case against Lloyd’s. The court required any Names with a fraud claim against Lloyd’s to join. The New Mexico and Utah names failed to join, leading the court to rule against all Names. Lloyd’s then launched cases in the U.S. to enforce the judgments.

On appeal, the remaining defendants raise a litany of challenges to the enforcement of the English judgments. These included arguments that the district court had erred in holding (1) that the English courts had provided due process to the Names, and (2) that the English cause of action did not violate the public policy of either New Mexico or Utah. The U.S. Court of Appeals for the Tenth Circuit, however, affirms.

New Mexico has adopted the Uniform Foreign Money-Judgment Recognition Act.(UFMJRA). Under this statute, a foreign judgment is not conclusive if it was rendered “under a system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law” and need not be recognized if “(1) the defendant … in the foreign court did not receive notice … in sufficient time to enable him to defend … (3) the cause of action on which the judgment is based is repugnant to the public policy of this state …”

As the Tenth Circuit explains: “The procedures the English courts afford need not be identical to ours, they must only be compatible in that they do not offend the notion of basic fairness. … And when we look to the basic fairness of the system, the answer is clear: ‘Our courts have long recognized that the courts of England are fair and neutral forums.’ …”

“… The Seventh Circuit similarly lauded the English system’s regard for due process in its highly persuasive opinion involving nearly identical claims: ‘Any suggestion that [the English] system of courts does not provide impartial tribunals or procedures compatible with the requirements of due process of law borders on the risible …’ We agree with the Seventh Circuit’s reasoning and hold that given the structure of the English system, which is substantially similar to our own, the New Mexico Name’s suggestion that the English court system does not provide tribunals compatible with due process is untenable.” [Slip op. 23-25]

The Court also rejects the Name’s claim that enforcement of the English judgments would violate New Mexico’s public policy. The Name argued that Lloyd’s violated the New Mexico Securities Act through its solicitation of unregistered securities and by making fraudulent representations. Also, the New Mexico Unfair Practices Act allegedly prevents enforcement of the reinsurance contract.

“Even if we assume the shaky premises of these assertions to be true, … we reject each of these claims for one overriding reasons: English law as applied here does not violate New Mexico’s public policy. … [T]he view that every foreign forum’s remedies must duplicate those available under American law would render all forum selection clauses worthless …”

“Furthermore, we reiterate that we must focus on the ‘cause of action’ and the ‘claim for relief’ underlying the English judgment, not the differences in the bodies of law, because slight differences between England’s and New Mexico’s laws do not trigger the public policy exception. N.M. STAT. Ann Section 39-4B-5(B)(3) … Neither a breach of contract action nor a claim for money damages is repugnant to New Mexico public policy.” [Slip op. 26-27] Here, the English courts have considered and rejected each Name’s contentions that Lloyd’s took advantage of him. He cannot now seek to re-litigate these contentions.

On the other hand, Utah has not adopted the UFMJRA, which changes the analysis. The Utah Supreme Court has held that a foreign judgment can be enforced in Utah courts under principles of comity.

“According to the Utah Names, … Utah’s comity requires an analysis of the fairness of the English judgment, not merely of the English judicial system. The judgment here was based upon the Utah Names’ signing the General Undertaking, which is a standardized contract between Lloyd’s and the individual Names. According to the Utah Names, their assent to the General Undertaking resulted in their unknowing waiver of future due process rights in the [reinsurance] contract.” [Slip op. 38-39]

Under Utah law, the courts test the validity of a foreign judgment by the law of the jurisdiction where the judgment was rendered. Thus, the Court must look to the entirety of the foreign judicial system, and not just the particular judgment at issue. Virtually all U.S. courts which have confronted the issue found the English system fair. Furthermore, the district court reviewed the underlying decisions of the English courts and rejected the challenges to the reinsurance agreement. In sum, the New Mexico and the Utah individuals received due process under the English system of jurisprudence and had ample opportunity to present their case.

Citation: Society of Lloyd’s v. Reinhart, 402 F.3d 982 (10th Cir. 2005).

Filed in: 2005 International Law Update, Issue4

Rejecting defenses of fraud, ordre public, and denial of justice, Supreme Court of Canada rules 6 to 3 that Canadian courts should enforce substantial default judgment against Canadian defendants in litigation over their Florida land

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Rejecting defenses of fraud, ordre public, and denial of justice, Supreme Court of Canada rules 6 to 3 that Canadian courts should enforce substantial default judgment against Canadian defendants in litigation over their Florida land

The defendants (below and in the Florida proceedings) are Geoffrey Saldanha, Leueen Saldanha and Dominic Thivy, residents of Ontario. They agreed to sell a vacant lot located in Sarasota County, Florida to Frederick H. Beals III and Patricia A. Beals, the plaintiffs (in both proceedings) for about $8,000. A controversy broke out, inter alia, as to which lot was involved and, in September 1986, the plaintiffs sued the defendants and two others in the Sarasota County courts. Defendants responded to the original complaint but decided not to defend the complaint as altered by the Second and Third Amendments. Under Florida rules of procedure, however, the failure to file defenses to the amendments amounted to a default as to the entire lawsuit.

In July 1990, the Florida court duly noted that defendants lay in default on liability and notified them that there would be a jury trial to determine damages. Defendants neither replied to the notice nor did they put in an appearance personally or through counsel at the damages hearing. In early December of 1991, the jury awarded the plaintiffs US$ 210,000 in compensatory damages and US$ 50,000 in punitive damages, plus 12 percent per annum post-judgment interest.

When the Ontario defendants got the notice of the adverse monetary judgment a few weeks later, they consulted an Ontario attorney. The lawyer advised them that the plaintiffs would not be able to enforce the foreign judgment in Ontario because the defendants had not “attorned to the Florida court’s jurisdiction.” Heeding this questionable advice, the defendants neither appealed nor moved to set aside the judgment within one year as allowed under Florida law.

When defendants failed to satisfy the damage awards, plaintiffs sued the them in the Ontario courts in 1993 to enforce the Florida judgment. By the time of the hearing in 1998, the Florida judgment with interest had increased to about C$ 800,000. The Canadian trial judge dismissed the action for enforcement mainly on the ground that there had been fraud in the award of damages. The Ontario appellate court allowed the plaintiffs’ appeal. Upon further review, the Supreme Court of Canada in a 6 to 3 ruling, dismisses the defendants’ appeal, ruling that the lower court should have enforced the Florida judgment.

In the majority’s view, international comity and the growth of international cross border transactions strongly suggest that the law of private international judgments needs updating. Unless the Canadian legislatures enact to the contrary, the Court believes that it should apply the “real and substantial connection” test (which it has thus far applied only to the enforcement of interprovincial judgments) equally to the recognition and enforcement of foreign country judgments.

The test generally requires that a meaningful link exist between the cause of action and the foreign court. “In light of Canadian rules of conflict of laws, Dominic Thivy [a former co-defendant] attorned to the jurisdiction of the Florida court when he entered a defence to the … [original] action. His subsequent procedural failures under Florida law do not invalidate that attornment. As such, irrespective of the real and substantial connection analysis, the Florida court would have had jurisdiction over Mr. Thivy for the purposes of enforcement in Ontario.” [¶ 34]

“The presence of more of the traditional indicia of jurisdiction (attornment, agreement to submit, residence and presence in the foreign jurisdiction) will serve to bolster the real and substantial connection to the action or parties. Although such a connection is an important factor, parties to an action continue to be free to select or accept the jurisdiction in which their dispute is to be resolved by attorning or agreeing to the jurisdiction of a foreign court.” [¶ 37] Finally, the agreement of the parties on appeal that the Florida action met this test reinforces the Court’s decision.

The Court then turns to the defenses that may justify a refusal to enforce an otherwise valid foreign judgment. “The defenses of fraud, public policy and lack of natural justice … still pertain. This Court has to consider whether those defenses, when applied internationally, are able to strike the balance required by comity, the balance between order and fairness as well as the real and substantial connection, in respect of enforcing default judgments obtained in foreign courts.” [¶ 40]

“Inherent to the defense of fraud is the concern that defendants may try to use this defense as a means of relitigating an action previously decided and so thwart the finality sought in litigation. The desire to avoid the relitigation of issues previously tried and decided has led the courts to treat the defense of fraud narrowly.” [¶ 44]

“Courts have drawn a distinction between ‘intrinsic fraud’ and ‘extrinsic fraud’ in an attempt to clarify the types of fraud that can vitiate the judgment of a foreign court. Extrinsic fraud is identified as fraud going to the jurisdiction of the issuing court or the kind of fraud that misleads the court, foreign or domestic, into believing that it has jurisdiction over the cause of action. Evidence of this kind of fraud, if accepted, will justify setting aside the judgment.”

“On the other hand, intrinsic fraud is fraud which goes to the merits of the case and to the existence of a [meritorious] cause of action. The extent to which evidence of intrinsic fraud can act as a defense to the recognition of a judgment has not been as clear as that of extrinsic fraud.” [¶ 45]

The Court then notes the historic complexity and confusion caused when courts try to apply the above distinction and recommends its abolition. “It is simpler to say that fraud going to jurisdiction can always be raised before a domestic court to challenge the judgment. On the other hand, the merits of a foreign judgment can be challenged for fraud only where the allegations are new and not the subject of prior adjudication. Where material facts not previously discoverable arise that potentially challenge the evidence that was before the foreign court, the domestic court can decline recognition of the judgment.” [¶ 51]

“No evidence was led to show that the jury was misled (deliberately or not) on the extent of the damages. The admitted facts presented to the jury included allegations of fraudulent misrepresentations and loss of profits. The claim by the [plaintiff] was for damages to recoup the purchase price of the land, loss of profits and punitive damages. … [A]lthough the amount of damages awarded may seem disproportionate, it was a palpable and overriding error for the trial judge to conclude, on the dollar amount of the judgment alone, that the Florida jury must have been misled.” [¶ 57]

Another defense is the foreign court’s alleged denial of Canadian notions of natural justice. As with most defenses, the defendants have the civil burden of persuasion that the foreign proceedings had this fatal defect.

“In the present case, the Florida judgment is from a legal system similar, but not identical, to our own. If the foreign state’s principles of justice, court procedures and judicial protections are not similar to ours, the domestic enforcing court will need to ensure that the minimum Canadian standards of fairness were applied. If fair process was not provided to the defendant, recognition and enforcement of the judgment may be denied.”

“The defense of natural justice is restricted to the form of the foreign procedure, to due process, and does not relate to the merits of the case. The defense is limited to the procedure by which the foreign court arrived at its judgment. However, if that procedure, while valid there, is not in accordance with Canada’s concept of natural justice, the foreign judgment will be rejected. The defendant carries the burden of proof and, in this case, failed to raise any reasonable apprehension of unfairness.” [¶¶ 63-64]

Disagreeing with a dissenter, the majority holds that natural justice does not demand that plaintiffs in a foreign litigation expressly or impliedly notify Canadian defendants of each and every available procedural step that they might take when notified of a foreign claim against them. “To find otherwise would unduly complicate cross border transactions and hamper trade with Canadian parties. A defendant to a foreign action instituted in a jurisdiction with a real and substantial connection to the action or parties can reasonably be expected to research the law of the foreign jurisdiction. The Saldanhas and Thivys owned land in the State of Florida and entered into a real estate transaction in that state. When served with notice of an action against them in the State of Florida, the [defendants] were responsible for gaining knowledge of Florida procedure in order to discover the particularities of that legal system.” [¶ 68]

“Once they received notice of the amount of the judgment, the [defendants] obviously had precise notice of the extent of their financial exposure. Their failure to act when confronted with the size of the award of damages was not due to a lack of notice but due to relying on the mistaken advice of their lawyer.” [¶ 69]

Citation: Beals v. Saldanha, File No.: 28829, 2003 S.C.C. 72 (Sup. Ct. Can. Dec. 18, 2003).

Filed in: 2004 International Law Update, Issue1

In legal malpractice action, Ontario Court of Appeal dismisses appeal by Canadian plaintiff from judgment that found that plaintiff had not relied on counsel’s bad advice to default in New York case against it because of likely jury bias against foreign plaintiff

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In legal malpractice action, Ontario Court of Appeal dismisses appeal by Canadian plaintiff from judgment that found that plaintiff had not relied on counsel’s bad advice to default in New York case against it because of likely jury bias against foreign plaintiff

Sovereign General Insurance Company (SGI) (plaintiff) sought damages from the Alberta, Canada, law firm of Atkinson, McMahon and one of its senior partners, Terrence McMahon (defendants) for giving it negligent legal advice. Occidental Chemical Corporation (OCC) had lodged a suit against SGI in a New York state court. Defendants had advised plaintiff not to defend that lawsuit and to allow the New York court to enter a default judgment against it. This advice had several components and appeared in a letter from defendants to plaintiff in December 1989 and signed by Terrence McMahon.

OCC duly got their default judgment from the New York court and filed proceedings in the Ontario courts to enforce this judgment. After OCC moved for summary judgment, plaintiff agreed to settle and ended up paying OCC $2,921,168. This is the damage figure that plaintiff is trying to recover from the defendants in the present case. The trial court granted defendants’ motion for summary judgment, however, and plaintiff sought appellate relief. The Ontario Court of Appeal, however, dismisses plaintiff’s appeal with costs.

The first element of the defendants’ letter analyzes recent developments in Canadian law on the enforcement of foreign country judgments. It declared: “We must point out that there is recent authority, currently on appeal to the Supreme Court of Canada, which states that the residency and submission arguments are no longer available as defences against the recognition of judgments from other provinces (as opposed to other countries). Based on this recent development, there is some risk that the principle could be extended to include cases such as the one at hand, thereby allowing recognition of a New York judgment in Canada even where the defendant is not resident in New York or has not submitted to the jurisdiction.” [Slip op. 2-3]

While a challenge to the jurisdiction of the foreign court over a defendant has been a traditional defense to the enforcement of foreign country judgments, some recent Canadian authority suggests some changes in this view. “The second passage referred to Morguard v. DeSaroye, [1990] 3 S.C.R. 1077 (‘Morguard’), in which, a year after Mr. McMahon gave his advice, the Supreme Court of Canada established a new rule for the recognition and enforcement of judgments of courts in other provinces. The rationale in Morguard was then applied by Ontario courts to foreign [country] judgments: see Arrowmaster Inc. v. Unique Forming Ltd. (1993), 17 O.R. (3d) 407 (Gen. Div.) and United States of America v. Ivey (1995), 26 O.R. (3d) 533 (Gen. Div.). Thus, by the time Occidental sued Sovereign in Ontario to enforce its New York judgment, the law of Ontario had changed. In other words, the ‘some risk’ to which Mr. McMahon adverted in his opinion had in fact come to fruition.” [Slip op. 3-4]

Plaintiff concentrates its attack on the advice given in the final paragraph of the McMahon letter. “There may, however, be a more substantial risk involved in defending the Writ in New York. A New York jury deciding a case brought by a New York company against a foreign bonding company may, in any event, be sympathetic to the New York company. If Sovereign General defends, and judgment is obtained against it, our courts would be inclined to enforce the judgment in Canada on the ground that there was submission to the foreign jurisdiction. Accordingly, we advise not to defend in New York and to face Occidental in Canada raising the defence that the New York court acted without jurisdiction in the matter.” [emphasis supplied] [Slip op. 4]

The Appeal court agrees with the lower court that the correct jurisdictional advice was what plaintiff actually had relied upon — not the recommendation based on the alleged jury bias point. “The trial judge’s analysis on the causation issue was strongly supported by the record before him. He engaged in a careful review of the structure and contents of the letter. He also considered the testimony of the two principal Sovereign witnesses, Mr. Wingerter and Mr. Bowes, and concluded that it did not support Sovereign’s position that the ‘jury sympathy’ point was an important factor in terms of Sovereign’s final decision. He also considered the testimony of six expert witnesses, including Clifton O’Brien, an experienced Alberta counsel who ‘considered McMahon’s opinion to be accurate and his advice to refrain from defending the New York action to be sound and reasonable.’ In the end, we can see no basis for overturning the judgment of the trial judge. His analysis was comprehensive and lucid. His conclusion was, in our view, correct.” [Slip op. 5-6]

Citation: Occidental Chemical Corporation v. Sovereign General Insurance Company v. Atkinson McMahon and Terrence McMahon, 2002 Ont. C. A. LEXIS 142 (Ct. App. Ont. April 8).

Filed in: 2002 International Law Update, Issue 6

EU issues regulation on jurisdiction and on recognition and enforcement of judgments in civil and commercial matters which supersedes Brussels Convention among EU Member States

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EU issues regulation on jurisdiction and on recognition and enforcement of judgments in civil and commercial matters which supersedes Brussels Convention among EU Member States

The European Union has issued Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. The Regulation unifies EU rules on the recognition of judgments and is based on the rules provided by the 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended. [Note: A "Regulation” in the EU is directly applicable to the Member States, no national implementation is required as would be the case for a "Directive.”] Entering into force on March 1, 2002, the Regulation expressly does not apply to litigation over the status or legal capacity of natural persons, property rights arising out of marriage, wills and succession, as well as bankruptcy, social security and arbitration matters. (Article 1).

Some of the key provisions are as follows. A plaintiff may sue a defendant regardless of his or her nationality in the country of defendant’s domicile. (Article 2) The Regulation, however, provides for “special jurisdiction for matters such as the sale of goods and provision of services,” where jurisdiction may be had at the place of performance. (Article 5) In addition, the Regulation has different sections for insurance matters, consumer contracts, and employment contracts (Sections 3-5). Member State courts may deny recognition of a judgment where such recognition would be contrary to the public policy of the forum state. (Article 34) A forum court, however, is not to review a foreign judgment on the merits. (Article 36)

Finally, the Regulation contains a separate Section on its interaction with other conventions and agreements. For example, it will supersede the Brussels Convention as between the EU Member States, and specified bilateral conventions in this area. (Chapter VII). Note that the Regulation excludes Denmark because the Brussels Convention remains in force between Denmark and other EU Member States.

The Annexes list the EU Member State national rules of jurisdiction (Annex I), and the national courts or competent authorities for recognition and enforcement matters (Annexes II, III & IV). They also set forth a sample court certificate which the enforcing party has to present to secure recognition and enforcement in another Member State court (Annex V), and a sample authentication certificate (Annex VI).

Citation: Council Regulation No. 44/2001, 2001 O.J. of European Communities (L 12) 1, 16 January 2001.

Filed in: 2001 International Law Update, Issue 2

In action by Lloyd’s to enforce English money judgments against U.S. insurance syndicate members, Seventh Circuit finds that English courts provide basic due process protections and rejects arguments that Illinois law allows imposition of citations to enforce judgments only after court has found judgments enforceable

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In action by Lloyd’s to enforce English money judgments against U.S. insurance syndicate members, Seventh Circuit finds that English courts provide basic due process protections and rejects arguments that Illinois law allows imposition of citations to enforce judgments only after court has found judgments enforceable

After winning judgments in an English court, The Society of Lloyd’s brought an action in an Illinois federal court against American members of Lloyd’s-managed insurance syndicates to enforce the money judgments in the U.S. The defendants opposed the enforcement of the judgments claiming that the English procedures had denied them due process of law and were therefore unenforceable under the Illinois version of the Uniform Foreign Money-Judgments Recognition Act (735 Ill. Comp. Stat. Section 5/12-618 to 626). The district court ruled against defendants. The U.S. Court of Appeals for the Seventh Circuit affirms.

“The judgments about which [the defendants] complain were rendered by the Queen’s Bench Division of England’s High Court, which corresponds to our federal district courts; they were affirmed by the Court of Appeal, which corresponds to the federal courts of appeals; and the Appellate Committee of the House of Lords, which corresponds to the U.S. Supreme Court, denied the defendants’ petition for review. Any suggestion that this system of courts ‘does not provide impartial tribunals or procedures compatible with the requirements of due process of law’ borders on the risible. ‘The courts of England are fair and neutral forums.’” [Slip op. 3-4]

The foreign legal proceedings do not have to provide precisely the same due process requirements as the U.S. Rather, the foreign procedures need only be “fundamentally fair” and not offend “basic fairness.” The Court calls this the “international concept of due process.” The key question in this case is not the fairness of Lloyd’s actions but the fairness of the English court in holding in favor of Lloyd’s. The English court’s interpretation of the contract is not so unreasonable that it would be denial of international due process.

Furthermore, the Court upholds Lloyd’s ability to issue citations to collect its judgments, and rejects the defendants’ argument that a court has first to hand down an order recognizing the judgment.

“We cannot see any legal or practical basis for such a two-step, … The issue of the judgment’s enforceability is raised by way of defense to compliance with … the citations proceeding … There is no reason to make the judgment creditor bring two separate proceedings, one to enforce the judgment and the other to collect it.”

“Any doubt on this score is dispelled by reading in tandem the statutes governing enforcement of foreign-state and foreign-nation judgments respectively. The Illinois Enforcement of Foreign Judgments Act, which governs the enforcement in Illinois of judgments rendered in the courts of other states of the United States, as distinct from foreign nations, not only treats such judgments the same as Illinois judgments … which means that no separate step of ‘recognition’ is necessary before they can be enforced … The Uniform Enforcement of Foreign Money-Judgments Act, which governs judgments of courts outside the United States, makes such judgments, if enforceable at all, ‘enforceable in the same manner as the judgment of a sister state which is entitled to full faith and credit.’” [Slip op. 22-23]

Citation: The Society of Lloyd’s v. Ashenden, No. 99-3195, 99-4064, 00-0166, 00-1371, 00-1430 & 00-0172 (7th Cir. November 27, 2000).

Filed in: 2000 International Law Update, Issue 12

Paris Court of Appeal rules that order of U.S. federal bankruptcy court approving Chapter 11 petition by U.S. debtor was not enforceable decision under French Code of Civil Procedure

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Paris Court of Appeal rules that order of U.S. federal bankruptcy court approving Chapter 11 petition by U.S. debtor was not enforceable decision under French Code of Civil Procedure

In a filing of Chapter 11 bankruptcy in the U. S. District Court for the Southern District of New York by Barney’s Inc., an American company, the federal judge approved an order for the cessation of payments on January 11, 1996. Armed with this document, Barney’s filed proceedings in the Paris District Court [Tribunal de Grande Instance] in May 1996 against a creditor, the French Company, C.M.C.

It asked the French court to enforce the January order of the U.S. federal bankruptcy court under Article 509 of the New Code of Civil Procedure. Under Article 509, N.C.P.C. “judgments handed down by foreign courts and documents witnessed by foreign officials are enforceable within the territory of the Republic in the manner and in the situations provided for by the law.”

The Paris District Court, however, ruled that the procedural act in question did not constitute the exercise of judicial power but merely the rubber-stamping of the debtor’s declarations. Barney’s appealed to the Paris Court of Appeal [Cour d'Appel] to overturn this judgment.

Barney’s contended that, since the bankruptcy court had the power to either accept or reject its submissions, the approval was an exercise of the judicial office by a competent court applying the relevant U.S. law. The order thus amounted to a judicial declaration of Barney’s bankruptcy under Article 301 of the U.S. statute. Since it did not offend French public policy, it had the needed characteristics of an internationally enforceable ruling.

The Paris Court of Appeal, however, dismisses the appeal with costs. It first concludes that the U.S. order was not a “decision” within Article 509.

“In the case more particularly, of an instrument issued by a judicial authority, its classification depends on finding out whether the foreign judge did in fact exercise any volition in relation to the relationship submitted to him. An instrument cannot be characterised as a decision unless, after noting the agreement of the parties, or the wishes of one of them, the judge had been able to proceed to the verification of the infringement or respect of a legal rule, thus exercising a control over the issues submitted to him.” [Paragraph 9]

Nor was the action of the U.S. Court an enforceable “instrument” under Article 509. Even in the absence of the exercise of decision-making powers, certain documents may become enforceable in France.

This comes about, however, “only when the issuing authority has nevertheless played a certain determinative role in the drafting of the instrument and has not limited itself to registering it, as is the case when, as on the present facts, the judge or the registrar have done nothing more than add their name or signature to the declaration made by the party itself without taking charge of the contents, and when they have not ‘accepted’ it even in the sense of imposing on it a certain form.” [Paragraph 13]

Citation: Barney’s Inc. v. C.M.C., S.A., [1999] Int. Lit. Proc. 386 (Court d’Appel, Paris).

Filed in: 1999 International Law Update, Issue 7

Fifth Circuit finds reversible error in Texas federal court’s failure to enforce Mexican judgment though interest on underlying loan far exceeded that allowed under Texas usury law

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Fifth Circuit finds reversible error in Texas federal court’s failure to enforce Mexican judgment though interest on underlying loan far exceeded that allowed under Texas usury law

Darrel and Mary Jane Hargrove (the Hargroves) are nationals of the United States and officers of Southwest Livestock & Trucking Co., Inc. (SLT). SLT engages in the buying and selling of livestock.

In 1998, SLT borrowed $400,000 from Reginaldo Ramon (Ramon), a citizen of the Republic of Mexico. According to the arrangement, SLT would execute a Mexican promissory note, a “pagare,” each month.

After a series of regular payments, SLT defaulted in October 1994. The notes did not recite an interest rate but it turned out to be between 48% and 52%.

Ramon sued SLT in a Mexican court to collect on the last pagare. The court of first instance ruled for Ramon and ordered SLT to pay its debt at 48% interest. SLT appealed, claiming lack of personal jurisdiction over it. The Mexican court disagreed and affirmed.

After Ramon had filed his Mexican suit but before judgment, SLT sued Ramon in a Texas federal court for a judgment declaring that the loan arrangement violated Texas usury laws. Both sides moved for summary judgment. When the Mexican judgment came down, Ramon sought its recognition under principles of collateral estoppel and res judicata that would bar SLT’s lawsuit.

Citing the Texas version of the Uniform Foreign Money Judgments Recognition Act (“TRA”), the district court gave summary judgment to SLT. The court applied Texas law, ruling that the Mexican judgment violated Texas public policy against usurious interest rates. After a hearing, the court awarded SLT $5,766,000 plus interest. Ramon appealed.

On appeal, Ramon claimed error in the application of Texas law. He pointed out that the pagares designated Mexico as the place of payment and argued that Mexico has “the most significant relationship” to the loan transaction, apparently invoking the Restatement of Conflicts (Second). The U.S. Court of Appeals for the Fifth Circuit vacates and remands.

The Court first considers the refusal of the lower court to enforce the Mexican judgment. Applying the TRA, the Court notes that its plain language allows a court not to recognize a foreign country judgment if “the cause of action on which the judgment is based is repugnant to the public policy” of Texas. Here, a routine suit upon an unpaid promissory note does not raise public policy concerns. That the judgment might contravene Texas public policy against usury is irrelevant.

Urging the Court to go beyond a literal reading of the TRA, SLT contended that enforcement of the Mexican judgment would oblige SLT to pay 48% interest to Ramon, many times more than Texas public policy allows.

“We are especially reluctant to conclude that recognizing the Mexican judgment offends Texas public policy under the circumstances of this case. The purpose behind Texas usury laws is to protect unsophisticated borrowers from unscrupulous lenders. (cit.) This case, however, does not involve the victimizing of a naive consumer.”

“Southwest Livestock is managed by sophisticated and knowledgeable people with experience in business. Additionally, the evidence in the record does not suggest that Ramon misled or deceived Southwest Livestock. Southwest Livestock and Ramon negotiated the loan in good faith and at arms length. In short, both parties fully appreciated the nature of the loan transaction and their respective contractual obligations.” [323]

Citation: Southwest Livestock and Trucking Company, Inc. v. Ramon, 169 F.3d 317 (5th Cir. 1999).

Filed in: 1999 International Law Update, Issue 6