Fifty Shades of Gray: Canadian court rules that the Hague Service Convention does not apply to Canadian residents to be served abroad

Fifty Shades of Grey

Fifty Shades of Grey (Photo credit: ellebnere)

My esteemed American colleague, Ted Folkman, author of the exceptionally well-written book, International Judicial Assistance: Serving Process, Obtaining Evidence, Enforcing Judgments and Awards (for Massachusetts Lawyers) (1st Ed.) [MCLE, 2012-available in print and e-book) writes extensively about conflict of laws issues over at his authoritative Letters Blogatory blog.

Ted has a keen interest in cross-border and international jurisdictional issues and has previously written about Canadian cases dealing with the issue of service of process under the Hague Service Convention, including a recent post on the Ontario Superior Court of Justice decision in Khan Resources, Inc. v. Atomredmetzoloto JSC, 2012 ONSC 1522 [“Khan Resources”].

Khan Resources held that when documents must be served in accordance with the Hague Service Convention, an Ontario court cannot order substituted service under the Rules of Civil Procedure in strict compliance with  Article 13 of the Hague Service Convention, which has been implemented into domestic law by Rule 17.05(3)(a) of the Ontario Rules of Civil Procedure. Accordingly, a determination of whether an Ontario court may ignore a foreign state’s refusal to serve on the basis that it would infringe its sovereignty or security was rendered moot.

The issue of service of process under the Hague Service Convention arose again recently in  Gray v. SNC-Lavalin Group Inc., 2012 ONSC 3735 (CanLII) (Ont S.C.J.) [the “Gray Action”].

In the Gray Action, Mr. Justice Perell of the Ontario Superior Court of Justice considered whether the Khan Resources decision applied to the plaintiff’s motion for substituted service on the Defendants Stéphane Roy [“Roy”], and Riadh Ben Aïssa [“Aïssa”], both Quebec residents, in a proposed class action under the Ontario Class Proceedings Act, 1992, S.O. 1992, c. C.6. A parallel class action was commenced in the Quebec Superior Court [the “Quebec Proceedings”] and a separate action was brought by the  Trustees of the Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (“Drywall Fund Action”) commenced in Brampton, Ontario. Both the Gray Action and the Drywall Fund Action are to be consolidated in Toronto, with dismissal against some defendants. The main defendant in all of the actions is SNC-Lavalin— a publicly traded company and its shares trade on the Toronto Stock Exchange— and certain of its current and former officers and directors alleging misrepresentations contained in disclosure documents issued by SNC-Lavelin, exposed in an investigation by the Audit Committee of SNC-Lavelin’s Board of Directors into allegedly improper contracts under which US$56 million were paid to unknown agents.  The report of the Audit Committee allegedly implicates the defendants Aïssa and Roy as having participated in the wrongful conduct.

The plaintiffs in the Gray Action and Drywall Fund Action intend to seek leave to assert the right of action for secondary market misrepresentation provided by Part XXIII.1 of the Ontario Securities Act, RSO 1990, c S.5, which requires leave of the court to bring a secondary market misrepresentation claim. Recently, in Sharma v Timminco Ltd2012 ONCA 107 (CanLII), 2012 ONCA 107, the Court of Appeal held that the running of the three-year limitation period under section 138.14 of the Act was not suspended by s. 28 of the Class Proceedings Act, 1992. Thus, the limitation period continues to run until the court grants leave, giving rise to potential prescription of the Securities Act claims in the interim.

Perell J. made an order for substituted service on the defendant Roy, given that he was able to be served in Quebec directly through his civil lawyer.  However, service on the defendant Aïssa was more complicated. Efforts to serve Aïssa personally in Quebec, or through his Canadian criminal lawyer proved fruitless, as  Aïssa is currently incarcerated in Switzerland, where he was arrested in connection with allegations of corruption, fraud and money laundering and his criminal lawyer advised that he had no authority to admit service on his client, Aïssa’s behalf.

Justice Perell writes,

[35]           But for the possible complication that Mr. Aïssa is in a detainee in a Hague Convention state, I am also satisfied that the criteria for substitutional service have been satisfied with respect to Mr. Aïssa.

[36]           For Ontario proceedings, rule 17.05 imports the Hague Convention into the rules for the service of documents outside Ontario.

[37]           Where service is made outside Ontario in a signatory state of the Hague Convention, the service will not be effective unless it is compliant with the requirements of the Convention: Pharm Canada Inc. v. 1449828 Ontario Ltd. (c.o.b. TrinityWorldwide Services Inc.), 2011 ONSC 4808; Campeau v. Campeau, [2004] O.J. No. 4788 (S.C.J.); Dofasco Inc. v. Ucar Carbon Canada Inc., [1998] O.J. No. 3450 (Gen. Div.); Samina North America v. H3 Environmental II LLC, [2004] O.J. No. 6229 (S.C.J.).

[38]           Khan Resources Inc. v. Atomredmetzoloto, supra is authority that an order for substituted service cannot be made when the person to be served resides in a jurisdiction that is a signatory to the Hague Convention. Service in a country that is a signatory to the Hague Convention must be done exclusively in accordance with the Hague Convention. In Khan Resources, Justice O’Marra reversed the decision of Master Graham, who had validated service under rule 16.08, notwithstanding the non-compliance with the Hague Convention….

Mr. Justice Perell then considers whether Khan Resources is correct, admits of exceptions, or is distinguishable and concludes:

 [43]           In my opinion the Khan Resources case simply does not apply to the circumstances of the case at bar where service need not be performed in a contracting state pursuant to rule 17.05 (3). The difference is that in the case at bar, unlike the Russian companies, Mr. Aïssa is not a foreigner. His situation is not much different than Mr. Roy, who is a Canadian citizen normally subject to the jurisdiction of the courts of his own country and who may be avoiding service or who is not co-operating in acknowledging that he knows about the proceedings in Ontario and Québec.

[44]           Thus, the order for substituted service for Mr. Aïssa is actually grounded under the general manner of service (rule 17.05 (2)) and not the rule for the manner of service in a Convention state (rule 17.05(3).)

[45]           I wish to be clear that I do not doubt the correctness of Justice O’Marra’s decision in Khan Resources, and I am not refusing to follow the case. I am also not distinguishing or qualifying the case. Rather, in my opinion, the rule from Khan Resources simply does not apply to the circumstances of the case at bar. Put somewhat differently, service of the court documents outside Ontario should be based on Mr. Aïssa normal residency in Québec.

[46]           In the case at bar, service in accordance with the Hague Convention is a redundancy that should proceed out of an abundance of caution. If the authorities in Switzerland exercise their limited right to refuse to serve the documents, the court in Ontario will respect that decision. That respect, however, does not mean that the domestic law of the Ontario Court has been ousted. Service on Mr. Aïssa is based on his normal connection to Canada and independent of his abnormal connection to Switzerland. “

The upshot of the Gray Action decision is that for Canadian residents, the Hague Service Convention stops at the Canadian border. The domestic rules of service trump the Hague Service Convention when Canadian residents travel abroad (whether voluntarily or, in Aïssa’s case, involuntarily).

An earlier version of the preceding post has been cross-posted over at Letters Blogatory. My sincere thanks to Ted Folkman for inviting me to guest blog as the Canadian correspondent of the IJA Brigade.

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