Jurisdictional Fraud: A Defence of Last Resort?

“Fraud is the ready minister of injustice.”~ Edmund Burke

The impeachment defence of fraud rarely succeeds in foreign judgment enforcement proceedings. One reason is that Canadian courts generally tend to view fraud defences with a heavy dose of skepticism.  Based upon the principles of finality (res judicata and estoppel) and certainty, once a  judgment has been rendered by a foreign court, a Canadian court cannot look into the merits. This creates a jurisdictional paradox: if the defendant raises the issue of jurisdictional fraud before the foreign court, it risks a finding of attornment or submission. Even where the foreign court allows a defendant to challenge jurisdiction without attornment or submission, there remains some uncertainty whether a Canadian court will allow the defendant to raise the defence at the enforcement stage. Particularly, if the foreign court otherwise had subject-matter jurisdiction.

This begs the question: is jurisdictional fraud a defence to improper assertion of personal jurisdiction or subject-matter jurisdiction?

In foreign judgment enforcement proceedings, two types of fraud are distinguished: fraud going to jurisdiction (or jurisdictional fraud) and fraud going to the merits (or merit-based fraud).

The Supreme Court of Canada in Beals v. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416 (S.C.C.) previously eschewed the traditional distinctions between “intrinsic” and “extrinsic” fraud, suggesting that:

“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.” (at para. 51).

In a pre-Beals decision, Braintech, Inc. v. Kostiuk, 1998 CanLII 953 (BC S.C.), R.R. Holmes, J. considered the issue of untruthful affidavits upon which a foreign court assumed jurisdiction to be one of “intrinsic fraud”:

“[31] What if [the plaintiff] is lying and he did not serve the defendant personally?  Does that vitiate the Texas judgment?  That involves consideration of whether untruthful affidavits by [the plaintiff] would constitute extrinsic or intrinsic fraud.

[32] In my view, as the court was not relying upon the fact of personal service to found its jurisdiction, it would be a matter of intrinsic fraud.  The defendant’s remedy would lie with the court in Texas and not here, where the merits of judgment are not in issue.

[33] There is nothing unfair about the granting of judgment in this matter.  The defendant had notice of the Texas action for many months prior to the default judgment and consciously made the decision not to defend it in Texas.”

So when and where must a defendant raise the issue of jurisdictional fraud?

At paragraph 52 of the Beals decision, Justice Major writes,

“52                              Where a foreign judgment was obtained by fraud that was undetectable by the foreign court, it will not be enforced domestically.  “Evidence of fraud undetectable by the foreign court” and the mention of “new and material facts” in [Jacobs v. Beaver (1908), 17 O.L.R. 496], demand an element of reasonable diligence on the part of a defendant.  To repeat Doherty J.A.’s ruling [2001 CanLII 27942 (ON C.A.), (2001), 54 O.R. (3d) 641], in order to raise the defence of fraud, a defendant has the burden of demonstrating that the facts sought to be raised could not have been discovered by the exercise of due diligence prior to the obtaining of the foreign judgment.  See para. 43:

A due diligence requirement is consistent with the policy underlying the recognition and enforcement of foreign judgments. In the modern global village, decisions made by foreign courts acting within Canadian concepts of jurisdiction and in accordance with fundamental principles of fairness should be respected and enforced.  That policy does not, however, extend to protect decisions which are based on fraud that could not, through the exercise of reasonable diligence, have been brought to the attention of the foreign court. Respect for the foreign court does not diminish when a refusal to enforce its judgment is based on material that could not, through the exercise of reasonable diligence, have been placed before that court.  [Emphasis added.]

Such an approach represents a fair balance between the countervailing goals of comity and fairness to the defendant.

53                              Although Jacobs, supra, was a contested foreign action, the test used is equally applicable to default judgments.  Where the foreign default proceedings are not inherently unfair, failing to defend the action, by itself, should prohibit the defendant from claiming that any of the evidence adduced or steps taken in the foreign proceedings was evidence of fraud just discovered.  But if there is evidence of fraud before the foreign court that could not have been discovered by reasonable diligence, that will justify a domestic court’s refusal to enforce the judgment.

In Yeager v. Garner, 2007 BCSC 72 (CanLII), Madam Justice Humphries, in addressing the apparent ambiguity in Beals, observes:

[30]           Counsel for the applicant says this paragraph retains the distinction between fraud going to jurisdiction, maintaining the ability to challenge it at any stage, and fraud going to the merits.  Counsel for the respondent says the “due diligence” test now applies to both fraud going to jurisdiction and fraud on the merits.

[31]           To frame the issue another way, was the court in Beals merely expanding the grounds for admissibility of evidence going to establish fraud on the merits to include the due diligence test in Jacobs, or were they at the same time purporting to limit the admissibility of evidence of fraud going to jurisdiction by subjecting it to the due diligence test as well?

[32]           Paragraph 51 is indeed confusing.  While purporting to reject and discontinue the historical description of and distinction between “extrinsic” and “intrinsic” fraud, the court purports to simplify matters by retaining the two concepts by the use of other terms:  “fraud going to jurisdiction” and “fraud on the merits,” and again sets out the historical distinction between them.

[33]           I must confess I cannot reconcile the first sentence in that paragraph with the second and third, but despite the internal contradictions in this paragraph, I am of the view that the court did intend to maintain the distinction between fraud going to jurisdiction and fraud going to the merits.  They merely intended to discontinue the use of the words “extrinsic” and “intrinsic” as unhelpful.

[See also, Marx v. Balak, 2008 BCSC 195 (CanLII) (B.C.S.C. per Humphries, J. at paras. 24-33)].

More recently, the British Columbia Court of Appeal, in Lang v. Lapp 2010 BCCA 517 (CanLII) appears to have resolved the issue by ruling that the defendant’s lack of due diligence does not bar a claim of jurisdictional fraud:

“[20]           Fraud going to jurisdiction is an exception to the generally applicable new evidence or due diligence requirement.  According to the text Castel & Walker: Canadian Conflict of Laws, vol. 1., 6th ed. (Markham, Ont.: LexisNexis, 2005) loose‑leaf updated 2010, release 19 at 14-42, the exception exists because facts that relate to jurisdiction are so fundamental that they should always be open to attack.  This principle was set out by the Supreme Court of Canada in Powell v. Cockburn, 1976 CanLII 29 (S.C.C.), [1977] 2 S.C.R. 218, and again in Beals.  These cases are binding precedent and the proposition that fraud going to jurisdiction can always be raised, even without satisfying the due diligence requirement, must be accepted as settled law.  Though no due diligence requirement applies it should be remembered that “[e]ven within the limited area of what might be termed jurisdictional fraud there should be great reluctance to make a finding of fraud for obvious reasons”, Powell at 234.

[21]           Two cases, Cabaniss v. Cabaniss, 2006 BCSC 1076 (CanLII), 2006 BCSC 1076, and Garner Estate v. Garner, 2007 BCSC 72 (CanLII), 2007 BCSC 72, [2007] 6 W.W.R. 469 are cited as instances where the due diligence requirement was applied to jurisdictional fraud.  Without commenting on the correctness of those decisions, to the extent that they support the proposition that failure to exercise due diligence can bar a claim of jurisdictional fraud, they appear to be inconsistent with Powell and Beals.”

The Lang v. Lapp decision is otherwise sound, but for the following obiter dicta:

“[25]           I respectfully agree with the submission of counsel for the plaintiffs that in abandoning their challenge to the territorial competence of the California Court, which they did when they withdrew their motion to quash service of the plaintiffs’ complaint, the defendants effectively conceded that the California Court had territorial competence over the action commenced there.  The decision on the forum non conveniens motion that the California Court should exercise its jurisdiction is, in my view, properly to be regarded as an element of the Court’s decision on the merits of the case.” [emphasis added]”

While providing clarity on the issue of jurisdictional fraud, the Lang v. Lapp decision crosses into merit-based fraud; conflating personal and subject-matter jurisdiction on the one hand, and forum non conveniens, on the other.

The merits are irrelevant to whether a court should decline jurisdiction based upon lack of personal or subject-matter jurisdiction or forum non conveniens grounds. While the analytical approaches are different, forum non conveniens is a discretionary test, both in Canada and the U.S.

In Sinochem Int’l Co., Ltd. v. Malaysia International Shipping Corp. No. 06-102 (slip opinion) (March 5, 2007), Justice Ginsburg, writing for a unanimous U.S. Supreme Court, held that “a district court has discretion to respond at once to a defendant’s forum non conveniens plea, and need not take up first any other threshold objection,” such as subject-matter jurisdiction over the dispute or personal jurisdiction over the parties. It then characterized forum non conveniens dismissal as a preliminary determination denying the plaintiff a decision on the merits because the merits ought to be decided elsewhere—a determination that “does not entail any assumption by the court of a substantive law-declaring power”. Id., at 8-9.

Therefore, the U.S. Supreme Court concluded, forum non conveniens is a non-merits ground for dismissal for which jurisdiction need not be established. This means that “[a] district court . . . may dispose of an action by a forum non conveniens dismissal, bypassing questions of subject-matter and personal jurisdiction . . .”Id., at 8. However, when considering the private interest and public interest factors which inform the overall forum non conveniens analysis, the U.S. Supreme Court noted the following:

“A federal court has discretion to dismiss on forum non conveniens grounds “when an alternative forum has jurisdiction to hear[the] case, and . . . trial in the chosen forum would establish . . . oppressiveness and vexation to a defendant . . . out of all proportion to plaintiff’s convenience, or . . . the chosen forum [is] inappropriate because of considerations affecting the court’s own administrative and legal problems.” American Dredging Co. v. Miller, 510 U. S. 443, 447–448. Such a dismissal reflects a court’s assessment of a “range of considerations, most notably the convenience to the parties and the practical difficulties that can attend the adjudication of a dispute in a certain locality.” Quackenbush v. Allstate Ins. Co., 517 U. S. 706, 723. A defendant invoking forum non conveniens ordinarily bears a heavy burden in opposing the plaintiff’s chosen forum. When the plaintiff’s choice is not its home forum, however, the presumption in the plaintiff’s favor “applies with less force,” for the assumption that the chosen forum is appropriate is then “less reasonable.” Piper Aircraft Co. v. Reyno, 454 U. S. 235, 255–256. Pp. 5–6.” [emphasis added]

Maybe it is not simply an issue of jurisdictional fraud, but, rather a denial of natural justice.

In Cortés v. Yorkton Securities Inc., 2007 BCSC 282 (CanLII), Humphries, J. citing with approval the English Court of Appeal’s decision in Adams v Cape Industries, [1991] 1 All E.R. 929 (C.A.), 118, noted the distinction between cases of failure to give adequate notice and failure to provide the defendant with the opportunity to present his case, which are breaches of the “primary kind”, contrasted with other breaches of natural justice.  The learned judge held:

“ [125]      In my view, a plaintiff who has not given the defendant notice of its action should not be able to put the defendant in this difficult position by not providing it with proper service.

[126]      To put both the first and second points a different way, I do not think it is fair or reasonable to allow a plaintiff to obtain a procedural or logistical advantage over a defendant who has not been served with notice of the action in breach of natural justice.

[127]      There is one further consideration.  As the English Court of Appeal noted in Adams (see the first passage from it which I quoted above), a defendant seeking to impeach a foreign judgment on grounds of fraud is not obliged to make use of any remedies available to it in the foreign jurisdiction.

[128]      One of the grounds of fraud which may be used to impeach a foreign judgment is the type of fraud alleged in this case, namely, to quote from Beals (at para. 45) “… 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”.

[129]      Service has always been closely tied to jurisdiction.  Lack of notice also goes to the issue of whether the foreign court took jurisdiction appropriately.  It would be anomalous to require a defendant alleging breach of natural justice on the basis of non-service to make use of foreign remedies, but yet not impose the same obligation on a defendant who alleges fraud going to jurisdiction.

[130]      I therefore conclude that in cases where the breach of natural justice is one of failure to give notice, a defendant need not apply in the foreign jurisdiction to have the judgment set aside in order to impeach the judgment.”

Perhaps the solution is for a more transnational approach to procedural law. One possible solution is to allow the parties to adduce evidence through a jurisdictional discovery process, allowing Canadian courts to assess whether a foreign court properly asserted subject-matter and personal jurisdiction. Other potential solutions such as a new judicial test for foreign judgment enforcement cases, or further amending the various rules of civil procedure are less likely. As it now stands, when a defendant attorns or submits to a foreign jurisdiction, and only later tries to raise the impeachment defence of jurisdictional fraud at the enforcement stage , a Canadian court is likely to say “you snooze, you lose.”

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