SEPTEMBER 2001

ENFORCEMENT OF FOREIGN JUDGMENTS

What should happen when a foreign judgment against an Ontario resident is (1) valid under the law of the jurisdiction it was obtained; (2) was obtained in a jurisdiction with which Ontario has reciprocal enforcement of judgments legislation; (3) relates to conduct in Ontario and which could not have been obtained in Ontario because the conduct was illegal; and (4) is brought to Ontario for enforcement? Should Ontario courts refuse to permit the enforcement of the judgment. That was the issue that the Ontario Court of Appeal dealt with in the case now reported as Lloyd's v. Saunders, [2001] O. J. No. 3403 (C.A.) (released August 28, 2001, court docket numbers 34005-3408).

The result of the case is set out in the caption to this note. Lloyd's was permitted to enforce, in Ontario, judgments obtained in England against "Names" who owed Lloyd's money. The Names were people who had invested in Lloyd's and then had not paid the their calls when the investments went sour. The trial court permitted this, and the Court of Appeal affirmed the decision, even though the contracts under which the Names had invested in Lloyd's, which were contracts made in Ontario, were held to be illegal, in Ontario (by securities law), and it was held that this illegality would have prevented Lloyd's from obtaining the judgments in Ontario.

Modern commercial transactions, of all sorts, frequently involve more than one jurisdiction. The goods may come from a different jurisdiction. The goods may travel through a number of jurisdictions to get to their destination. The parties maybe in different jurisdictions. The parties may agree that the governing law is that of yet another jurisdiction. It is more likely than not that the laws of each jurisdiction will vary in some fashion. That variance may not be significant. Or it may.

In order to recognize and promote extra-local commerce, whether within one country or internationally, modern legal systems tend to have provisions under which qualifying foreign judgments may be enforced in the domestic jurisdiction as if the judgments had been obtained in the domestic jurisdiction. Ontario has statutory provisions of this sort.

So, Ontario enforcement of foreign judgment legislation allows parties to deal with Ontario residents with the knowledge that, should something go wrong in the transaction, the aggrieved party will not be limited to suing in Ontario. The aggrieved party will know that, in appropriate cases, it will be able will be able to obtain a judgment against the Ontario resident in another jurisdiction, and then enforce that judgment in Ontario as if it had been obtained in Ontario.

One hidden difficulty in multi-jurisdictional transaction is that the laws of the jurisdictions will probably be different. The difference may be significant. Conduct which is legal in one jurisdiction involved in the transaction may not be legal in another.

In Ontario, the Reciprocal Enforcement of Judgments (UK) Act, R.S.O., permits the registration of qualifying UK judgments. Once registered, the judgment may be enforced as if it were a judgment of an Ontario Court. The judgment must satisfy a number of specific criteria in order to qualify; however, the legislation provides the Court with residual discretion to refuse to register a judgment even when the judgment satisfies the specific criteria . The ultimate issue facing the Court of Appeal in Saunders was whether to invoke this residual discretion and reject Lloyd's request for registration on the basis of the illegality, in Ontario, of the Lloyd's actions and the investment contracts.

Lloyd's had been successful at first instance in obtaining the order permitting registration of the judgments against the various Names. The Names appealed. (A few of the cases were used as test cases. Lloyd's and the Names involved in their separate law suits with Lloyd's had agreed that the results in the test cases would apply to all.) The crux of the reasons the Court of Appeal gave for affirming the lower court decision and allowing the registration of the UK judgment(s), and the enforcement of the UK judgments in Ontario, was (1) comity between the UK and Ontario in the sense of what refusing to allow enforcement would mean to business relationships -- this was a backhanded way of using the poorly regarded floodgates argument without admitting one is doing so and (2) regarding comity as the key factor was appropriate, here, because while the conduct of Lloyd's was illegal it was not too illegal.

Judgments, particularly appellate judgments are supposed to provide persons interested in the consequences with some useful direction as to what will be permissible conduct. The Court of Appeal has now told parties to commercial transactions that it is permissible to flout Ontario law provided one does not go too far. How far is too far? How much illegality is too much illegality?

The Court did not say. What it did say, in essence, was that what was good enough for the mother country would, in this case, be good enough for the daughter Canada. Lloyd's could collect.

"When I use a word," Humpty Dumpty said in a rather scornful tone, "it means just what I choose it to mean -- neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master, that's all."

Carroll, Through The Looking Glass, chapter 6

Now, as to whether the decision was fair. Some of the Names had done very well for themselves in the beginning. Some, unfortunately, had joined the game too late in the day. Ask yourself: should the Names have been able to rely on the illegality of Lloyd's conduct as a defence? Or putting it more broadly, should the Ontario Court of Appeal have ruled that comity of nations was so important that it could, in exercising the discretion given the courts, by the legislation, as to whether to permit enforcement of the UK judgment, ignore Ontario law and allow Lloyd's to enforce judgments Lloyd's would never have been able to obtain in Canada? Does that not seem, quite reasonably, to be the sort of decision that should be left to the Legislature?

D.C.

Warsaw Convention, Limits of Liability -- Articles 22 and 25: DSS Trading Limited v. Swiss Air Transport Company Limited, High Court of Hong Kong, Commercial Action No. 248 of 1995, 24 May 2001

The plaintiff shipped a consignment of expensive Swiss watches from Switzerland to a consignee in Hong Kong. The freight forwarder issued house airway bills confirming its receipt of the cargo for carriage and its responsibility for same. There was no declared valuation for the cargo, nor was there any request that the cargo be provided valuable cargo handling care during transit. Either would have involved a freight surcharge. The shipper opted to ship this shipment as a general consolidation.

The goods were stolen. The plaintiff sued various parties including the freight forwarder, one JM. It was conceded that the theft took place while the goods were still "in transit" for the purposes of the freight forwarder's carriage undertaking so that it was liable. The issue was quantum: whether the limits of liability under the Warsaw Convention (as amended by the Hague Protocol) governed or whether the plaintiff could "break" the limits. The plaintiff asserted that the limits of liability in Article 22 of the Protocol did not apply if was proved that the damage resulted from an act or omission of the carrier, his servants or agents, done with intent to cause damage or recklessly knowing that damage would probably result. (It should be remembered that Article 25 imposes an additional further requirement when the act or omission of a servant or agent is an issue. It requires proof that the servant or agent was acting within the scope of employment.)

The goods arrived at the Hong Kong airport; however, they were stolen before they could be picked up by the consignee. They were picked up by a carrier who had been provided false paperwork and so was duped into delivering them to the thief. The thief had obtained a special form, referred to as "SRF," which was used at the Hong Kong cargo terminal facility as a pick-up document. The SRF is a document which entitles the bearer, upon presentation of the SRF at the warehouse, to take delivery of the goods referred to in the document.

The question at trial was how the thief acquired the SRF. The trial focused on the purpose of and handling of the SRF document and whether the freight forwarder or its servants or agents were involved with the theft of the goods, or acted in such a reckless fashion, that the limits of liability might be broken.

The evidence was that when the load arrived at the Hong Kong terminal, it was "deconsolidated" and stored in the terminal warehouse. The terminal produced the SRF which was provided to the freight forwarder together with other documents relating to the goods. The freight forwarder who received the documents, including the SRF, separated the documents in order to extract documents, such as the SRF, which would have to be presented at the warehouse to pickup goods. Once separated, the SRF document was placed in a drawer specifically assigned for that purpose in the freight forwarder's office. The drawer was left unlocked, did not have a lock, and nothing was ever done to secure it in any fashion. The trial judge held that the security system for the documents was very poor.

There were five employees working in the freight forwarder's office. The freight forwarder dismissed one supervisor immediately following the disappearance of the goods,. A regional director of the freight forwarder wrote in correspondence that "we have most likely hired some staff with criminal backgrounds and intentions".

The trial judge held the plaintiff was not bound by the Warsaw-Hague limits. The plaintiff was able to recover all of its losses. The Court found that the freight forwarder was reckless in the manner in which the freight fowarder handled the SRF. The freight forwarder argued that it lacked the subjective knowledge that "damage would likely result" and, therefore, could not be said to have been reckless. The forwarder called evidence from various employees as to their mistaken belief that the SRF was but one of the several requirements that had to met to obtain cargo from the warehouse so that merely the SRF falling into the wrong hands would not be enough to put the cargo at peril. The trial judge rejected this evidence. He did not believe the witnesses. He found that the SRF was known throughout the industry to be a bearer document and that it had to be closely guarded. Accordingly, the Court found that the loss has occurred from acts or omissions done "recklessly and with knowledge that damage would probably result."

The judge also considered the argument that the limits should not apply on the basis that the cause of the loss had been established to be theft on the part of the freight forwarder, or involving servants or agents of the freight forwarder. In what may be regarded as important clarification of the relevant tests under the Warsaw-Hague regime, the judge held that the plaintiff had established on a balance of probability that there had been theft by one or more of the staff of the freight forwarder, who, in making the SRF document available to the third party thief, actually participated in the theft. The judge did not point a specific finger at any one employee or group of employees nor did the judge suggest that that was necessary for the purposes of Article 25. The judge simply found, as a fact, that the SRF document had initially been placed into a drawer, and that others similarly so placed were never altered or removed. These facts created sufficient basis for the inference and conclusion that the an employee of the freight forwarder was involved in the process by which the thief acquired the SRF.

The judge held that here was simply too short a time, too narrow a window of opportunity, between the time when the forwarder's office was supposed to have been locked, with the SRF still in the office in the drawer, and when the goods were picked up at the warehouse, for anyone unconnected with the freight forwarder's operation be able to remove the SRF and get it to the thief in time for him or her to make the various arrangements (including "setting up" the carrier) that were required to for the pick up of the goods.

The judge held that the plaintiff simply had to prove an "inside job." The plaintiff would not be placed in the "evidential straight jacket" of having to specifically prove which employee was responsible. This ruling is significant as Article 25 requires proof the person involved was "acting within the scope of his employment". No evidence was specifically led on this point and the judge did not comment on it, so we are left to assume the judge made the necessary inferences or thought it self-evident on the facts.

There are similar Canadian decisions -- one Federal Court, one Ontario Superior Court of Justice -- holding that the there is no need, under Article 25, to identify the specific employee or agent so long as the evidence establishes that it was an agent or employee.
The freight forwarded argued that there was contributory negligence on the cargo interests in shipping the cargo as general cargo and not as valued cargo, since the latter had better security procedures. The court rejected this argument on the basis of uncontradicted evidence that the widespread industry practice was that most goods of the type involved were shipped as general cargo.

M.G.H.

Ontario Insurance Act, s.132 "direct action" rights are limited by the provisions of the liability policy upon against which the claim is made

The rights of a subrogating insurer as a judgment creditor suing under the direct action provisions of the Insurance Act are subject to the provisions in liability policy issued to the judgment debtor: Tai Foong International Ltd. v. Lombard Canada Ltd. (2001), 53 O.R. (3d) 595 (Ont. Sup. Ct.)

The defendant Lombard issued a comprehensive business policy to Rothmar Manufacturing Ltd. Rothmar was in the business of maintaining refrigeration systems. It contracted to do so with the plaintiff, Tai Foong. The plaintiff's refrigeration system failed June 4, 1989. Tai Foong sustained losses as a result. It was insured by Chubb. It recovered under the policy issued to by Chubb. Chubb then advanced a subrogated claim against Rothmar, in the name of Tai Foong, and obtained a judgment February 12, 1997 in excessive of $1.28 million.

Rothmar did not have money to pay. The solicitors for Chubb issued writs of seizure and sale more than one and a half years later: on November 27, 1998. These were returned unsatisfied. Chubb then commenced a subrogated action in the name of Tai Foong against Lombard. The action was brought under s. 132 of the Insurance Act. That section is the provision of the Insurance Act which gives a person who is a judgment creditor the right to sue the liability insurer of the judgment debtor, directly, where the judgment is one to which the liability policy applies. Without that provision, a judgment creditor has no right to sue the insurer on the policy because the judgment creditor is not a party to the policy. Without that provision, a liability insurer which was not concerned about its insured paying the judgment and seeking indemnity from the insurer -- for instance, in case where the insured had gone bankrupt and had no assets -- could deny coverage with impunity, even in cases where the policy clearly applied. Then, so long as the insurer was not a risk of the insured assigning its rights on the policy to the judgment creditor, the insurer would be able to avoid payment.

To avoid that, section 132 provides:

" Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of his liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer he amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied."

The language and grammar of the section are awkward; however, the meaning is clear: the judgment creditor has the right to sue the liability insurer of the judgment debtor to force the liability insurer to pay the judgment, up to policy limits; however the liability insurer has the same defences in this action as it would have if the insured had paid the judgment and then sought indemnity. In simple terms: the insurer has to pay the judgment debtor only if it would have had to pay the insured, had the insured satisfied paid the judgment and then sought indemnity on the policy.

Lombard refused to pay the judgment. Chubb commenced an action in the name of its insured against Lombard, as permitted by the Act. Lombard's defence was that the claim on the policy was out of time. The Lombard policy contained a one year limitation period for actions on the policy by Rothmar.

Lombard argued that meant the action had to be commenced within one year after the date of judgment against Rothmar, because the date of the judgment was Rothmar's right to claim on the indemnity provision of the policy arose. The action against Lombard had been commenced outside of that one-year period.

Chubb conceded that the limitation period was one year but argued that it did not start to run until the writs of seizure and sale against Rothmar came back, since that was a precondition to success under section 132. Chubb, therefore, argued that holding that limitation period that Chubb had to satisfy began to run on the date of the judgment was inconsistent with the statutory remedy since the right of Tai Foong to sue Lombard did not arise until after that date, that is, until the writs of seizure and sale came back unsatisfied. Obviously writs of seizure and sale could not have gone out until after the judgment unsatisfied. Obviously writs of seizure and sale could not have gone out until after the judgment.

The court was sympathetic, but did not accept Chubb's argument. It held the provisions of section 132 are clear. Chubb's insured had no higher rights under the Lombard policy than Rothmar would have had had it paid the judgment and then commenced an action on the policy on the date the Tai Foong action was commenced. Lombard had the same defences against Tai Foong as it would have had against Rothmar; that is, the claim by Tai Foong was subject to the same equities as a claim by Rothmar would have been. As of November, 1998, a Rothmar action would have been out of time. Hence, the Tai Fong action had to fail. Rothmar and Lombard had agreed to a one-year limitation period. That provision would have defeated a Rothmar claim and, so, defeated the Tai Foong claim or, more precisely, Chubb subrogating through Tai Foong.

This decision is not new and not novel. It affirms long standing law, including, for example, the 1996 decision in Ontario Housing Corporation: Ontario Housing Corporation v. Canadian General insurance Co. (1996), 36 C.C.L.I. (2d) 52 (Gen. Div). In Ontario Housing, although the Writ of Seizure and Sale was issued within six months of the judgment, it was not returned unsatisfied until over a year after judgment. When the plaintiff then commenced a subrogated action, it found that it was barred by the limitation provision contained in the insurance policy. This and other decisions to the same effect emphasize, for subrogating insurers, the need to take immediate action when a judgment is obtained.

Accordingly, a subrogating insurer must commence an action under section 132 of the Insurance Act on the assumption that the policy likely contains a limitation period. The insurer should not wait. In practice, that means the insurer will have at least 1 year from the date of the judgment against the defendant since most liability policies, in Ontario, provide a limitation period of at least one year from the date the insured's right to sue on the policy first arose. The case law establishes that the subrogating insurer's ability to recover from the liability insurer will be lost if the limitation period in the liability policy, for action by the insured (judgment debtor) on the policy expires before the commencement of the action under section 132. The action may have to be commenced even though writs of seizure and sale returned unsatisfied as required by the Act. That is not contrary to section 132. That section does not deal with when the action against the liability insurer may be commenced. It deals with what must be shown for the action to succeed.

J.G.N.

100% Case Management Comes to Toronto

Effective July 3, 2001, the civil courts in Toronto have moved to 100% case management for "ordinary" civil actions commenced in Toronto. The expression "100% Case Management" is a bit of a misnomer. Cases in Estates, Construction Liens, Family, Bankruptcy, Simplified Rules, and on the Commercial List are not caught in the new case management regime..

Cases will be assigned to either a normal or fast track. The track is chosen by the party filing the claim. The case will then be assigned to a team of judges and a Case Management Master who will assist in coordinating movement of the matter through case management procedure. All motions and other interlocutory events within the jurisdiction of the Master will be dealt with by the Master assigned to the case.

In certain cases, generally ones involving complicated multi-party issues, a single Case Management Judge may be assigned to handle a case. This will only be done on application by the parties to the Regional Senior Judge.

The Case Management Rules require the parties to file, within 100 days of commencing the proceedings, a timetable setting out a time for completion of discovery and related motions. If the parties can not agree a timetable will be imposed. Failure to comply with the obligation to set up the timetable will result in various consequences, the more serious of which include having pleadings struck, the action dismissed, or costs sanctions imposed.

Claims that are issued but not forced along by the plaintiff requiring a defence or taking default proceedings will be dismissed as abandoned after 180 days. The intent is to prevent the current situation where cases sit, abandoned, and clog the system.

All case managed actions are subject to mandatory mediation. This is to take place generally within 90 days of the first defence being filed. The reference to the first "defence" is misleading as the rules define "defence" to include a notice of defence. It can be postponed by agreement for a further 60 days. If the parties fail to choose a mediator on their own within 30 days of the first "defence" being filed, the system will assign one without regard to the parties wishes. There is a list of approved mediators. The result may be a mediator who is unsuited for the matter. "Firing" a mediator is not difficult but can be time-consuming. It will require a motion if the mediator does not consent.

The Rules require that the settlement conference take place within 150 days of the first "defence" being filed in matters that are on the fast track and within 240 days of the first defence on standard track matters. All discoveries and related motions, documents production and expert reports are to be completed at least 10 days before the settlement conference. For actions on the fast track, a trial date will be set at the settlement conference.

In connection with the move to Case Management, the court has also instituted a "Call-Over Court". The purpose of this court is to attempt to clean up old "stale" cases. These older, non-case management cases will come before the Call-Over Court where the courts will begin to manage the cases in much the same way that the case management actions are being handled. The Court may set timetables and trial dates. It may also deal with certain motions such as motions to have a solicitor removed from the record.

A.B.

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