Court of Appeal Decision of the Week

Customary International Law, the Rules of Civil Procedure: Service Outside Canada

Case: Xela Enterprises Ltd. v. Castillo, 2016 ONCA 437 (CanLII)

Keywords: Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the “Hague Convention”); Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”); Rule 17.05(3)

Synopsis:

The Respondents are companies and individuals residing in Canada or carrying on business in Canada, along with two Panamanian companies. Together they seek $400 million in damages from the Appellants (individuals and companies residing in and/or carrying on business in Guatemala) for conspiracy to commit tortious acts, breach of fiduciary duties, fraud and abuse of process, and unjust enrichment.

A motions judge finds the Appellants are served validly in accordance with the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”). This order is upheld by Divisional Court; the Appellants appeal to the Court of Appeal, with leave.

The grounds of appeal are as follows:

  1. The courts below erred in failing to interpret Rule 17.05(2) in accordance with the customary international law principle of state sovereignty;
  2. The Divisional Court erred in concluding the wording of Rule 17.05(2) is sufficient to rebut the interpretive presumption that Ontario law complies with international law; the Divisional Court erred in finding Rule 17.05(2) is “conflicting legislation” within the meaning of v. Hape, [2007] 2 SCR 292, 2007 SCC 26 (CanLII).

The Court of Appeal dismisses the appeal with costs awarded against the Appellants, inclusive of taxes and disbursements.

Importance:

The Court of Appeal found this matter to be governed by “customary international law”, meaning it involves rules that are acknowledged as binding by the state rather than rules established by treaty (“conventional international law”).

As stated by the Supreme Court of Canada in both R. v. Hape, [2007] 2 SCR 292, 2007 SCC 26 (CanLII) (at para. 53), and R. v. Appulonappa, 2015 SCC 59 (CanLII), [2015] 3 S.C.R. 754 (at para. 40), there is a rebuttable presumption that Canadian legislation complies with international law.

This “presumption of conformity” applies to “secondary legislation” (such as the Rules) as well as to “primary legislation” (see at para. 23). It is based on the notion courts will generally strive towards a construction of domestic law which does not violate Canada’s international obligations.

The rules for service outside of Ontario vary depending on whether the party being served resides in a state that has signed the Hague Convention (see para. 8). Service on defendants residing in signatory states is required to be effected through the “central authority” in the contracting state or in a manner permitted by the Hague Convention (Rule 17.05(3)).

Since Guatemala is not a party to the Hague Convention, service in Guatemala is governed by Rule 17.05(2), which provides as follows:

An originating process or other document to be served outside Ontario in a jurisdiction that is not a contracting state may be served in the manner provided by these rules for service in Ontario, or in the manner provided by the law of the jurisdiction where service is made, if service made in that manner could reasonably be expected to come to the notice of the person to be served [emphasis added]

With respect to the Appellants’ first argument, the Court of Appeal concluded the Ontario rules do not impact Guatemalan sovereignty. Rather, Rule 17.05(2) should be understood simply as having established a means of satisfying an Ontario court foreign defendants have received notice of an Ontario action. In support of this view, the Court of Appeal noted the Appellants retained the right to challenge Ontario’s jurisdiction on the basis of forum non conveniens (see Club Resorts Ltd. v. Van Breda, 2012 SCC 17 (CanLII), [2012] 1 S.C.R. 572).

To the Appellants’ second argument, the Court of Appeal found that, even assuming Guatemalan sovereignty was violated by the method of service adopted by the Respondent, the operational requirements of Rule 17.05 are sufficient to rebut the “presumption of conformity”. The reason is simple: the language of Rule 17.05 offers a choice to the serving party. If the Appellants’ submission was correct on this point, says the Court, then “…the respondents would be deprived of the choice the rule is designed to provide” (see at para. 42).

Counsel for the Appellants: Katherine Kay and Aaron Kreadon (Stikeman Elliot LLP, Toronto)

Counsel for the Respondents: Joseph Groia and Martin Mendelzon (Groia & Company Professional Corporation, Toronto)

 

Posted: Wednesday, June 08, 2016