Hague Convention Choice of Court Agreement and the Common Law 2007

V. Choices within the Convention

[72] Should Canada elect to ratify the Convention there are a number of additional decisions to be made – six in all. These arise from options granted in arts. 19, 20, 21, 22, 26 and 28 of the Convention to modify its scope of operation in limited ways. This section explains those articles, evaluates considerations pertinent to them and offers recommendations as to whether they should be exercised. The assumption necessarily adopted throughout this section is that Canada has elected to implement the Convention and thus has been persuaded that the Convention as a whole is a good thing.

Art. 19 Declarations Limiting Jurisdiction

[73] Art. 19 permits a contracting state to declare that its courts may refuse to determine disputes, even where that state’s courts have been designated in an exclusive choice-of-court clause “if, except for the location of the chosen court, there is no connection between that State and the parties or the dispute.” Sometimes contracting parties who have no connection with a given country might designate that country’s courts as a forum in which to resolve their disputes simply because they see those courts as a neutral forum and because they have confidence in the quality of justice dispensed in them. That puts a strain, financial and otherwise, on a judicial system that is not otherwise affiliated with the parties or transaction in question. This is unfair to the country that must pay to operate that system but which receives in return no significant benefit from resolving disputes that do not involve its citizens or residents. Litigation is subsidized dispute resolution; the salaries of the judges and court officials are not paid for simply out of the fees that courts charge to file a claim, but rather from general tax revenues. Why should any country operate a judicial system to resolve foreigners’ contractual dispute?

[74] Accordingly, art 19 provides an option for states party to the Convention to refuse to engage in this sort of subsidization. States may opt to declare that their courts need not entertain litigation, even if those courts are contractually designated as the exclusive forum, if apart from the designation of its courts the state has no connection with the parties or the contract. (Note that if such a declaration was made the court could still hear the dispute if it chose to; the declaration simply gives the court the option to decline jurisdiction.)

[75] Were Canada to adopt the Convention, should it make a declaration under art. 19? In my view this is a relatively unimportant question; it would not make a lot of difference whether Canada made such a declaration. The opportunity exists under the current common-law regime for commercial parties who have no connection with Canada to opt to litigation in Canada because it provides a neutral forum. Despite this longstanding opportunity, no such practice appears to have developed. If the reported cases are any basis for judgment, parties unconnected with Canada have not hitherto adopted the practice of coming to Canadian courts to resolve their contractual quarrels. There is no reason to think that the Convention’s coming into force would do anything to change this state of affairs. So, failing to make an art. 19 declaration would not result in a flood of foreigners rushing to resolve their disputes before Canadian judges. If it did, then Canada could make a declaration at a later time, since art. 32 stipulates that declarations may be made at the time of ratification or at a later time, and that once made they may later be withdrawn.

[76] Note that even if the foregoing assumption is wrong and, following Canada’s implementation of the Convention, a practice developed among foreigners of designating Canadian courts as a place to resolve disputes in commercial contracts, it is far from clear that this would be harmful to Canada’s balance sheet or Canadian interests generally. Commercial disputes rarely involve jury trials, so if foreigners elected to try their disputes in Canadian courts that would not entail their calling on the time of Canadian citizens to sit as jurors to decide those disputes. Of course, as mentioned above, there would be the time and salaries of judges and court officials to consider. However, that would have to be balanced against the fact that if foreigners fell into the practice of using Canadian courts to resolve their contractual disagreements then they would be engaging Canadian lawyers and litigation support, staying in Canadian hotels, eating in Canadian restaurants and so on. This might more than balance out the cost of the drain on the justice system. I know of no study which offers a full assessment of the net gains or losses a country experiences if foreigners elect to resolve their commercial contractual disputes in that country.

[77] To conclude this subsection, it bears repeating that the scenario of foreigners designating Canadian courts as neutral fora to litigate non-Canadian contracts seems unlikely to develop, but it would not necessarily be a bad thing for Canada if it did. So, while there may be no strong reason not to make an art. 19 declaration, there is equally no convincing reason to make one.

Art. 20 Declarations Limiting Recognition

[78] Art. 20 is the enforcement counterpart of art. 19. It permits contracting states to make declarations limiting their obligations to enforce foreign-country judgments pursuant to the Convention in one limited set of circumstances – namely

if the parties were resident in the requested State, and the relationship of the parties and all other elements relevant to the dispute, other than the location of the chosen court, were connected only with the requested State.

An example might afford some clarification. If the parties and all factors associated with a given contract were Canadian, but their contract contained an exclusive choice-of-court clause in favor of, say, France, then – assuming Canada and France were contracting states and the Convention otherwise applied -- Canada would be obliged to enforce that French judgment (subject, of course, to the defences in arts. 8 and 9). Art. 20, in effect, gives Canada the option of declaring that situations like the one just described are essentially Canadian domestic ones rather than international matters, and that recognition of the French judgment should be a matter of Canadian internal law, not governed by the Convention. Making such a declaration would, at least in theory, tell Canadians that in an entirely intra-Canadian contract they should not designate the courts of other countries to resolve their disputes; such “Canadian” contracts should be litigated in Canada.

[79] In my judgment not a great deal turns on art. 20 so far as Canada is concerned. This is so because, as noted above, common law Canada’s existing regime for enforcement of foreign-country judgments (which is the régime that would govern situations like that just described if an art. 20 declaration were made) does not differ much from the enforcement scheme required by the Convention. That is, it is no part of existing law in the common law jurisdictions of Canada that a court may decline to enforce a foreign judgment on the grounds that the foreign court took jurisdiction pursuant to a choice-of-court clause but was not otherwise connected to the parties. I do not even recall reading a case where a judgment debtor thought to raise the argument that a foreign judgment should be denied enforcement because, despite the existence of a choice-of-court clause in favour of the foreign court, the parties had no connection with that forum. So Canada’s making an art. 20 declaration would not make much difference: the declaration only tells the contracting parties that they cannot count on the Convention to render their foreign judgments enforceable in Canada. But those judgments are enforceable at common law so an art. 20 declaration would have little effect.

[80] Perhaps more to the point, the common law practice on this issue appears to demonstrate that Canadian courts have not in the past been concerned about enforcement of such foreign judgments (that is, foreign judgments where all the parties and the subject matter of the dispute are Canadian). If Canada is not worried about enforcement of such judgments, as seems to be the case, then a declaration offered in art. 20 need not be made.

Art. 21 Declarations with respect to Specific Matters

[81] Canada was instrumental in getting art. 21 added to the text of the Convention. That article provides that states with a compelling interest in not having the Convention apply to some specific, discrete area may enter a declaration excluding that area from the scope of operation of the Convention so far as they are concerned.

[82] As noted above,[67] British Columbia has legislation precluding enforcement of foreign judgments given in respect of injury arising from asbestos that has been mined in that province.[68] Conceivably that might clash with the Convention. If there were an international contract dealing with sale of B.C. asbestos and that contract contained a choice-of-court clause giving exclusive jurisdiction to the courts of, say, New York, then a resulting New York judgment for injury arising from that asbestos would, according to art. 8 of the Convention, have to be enforced in B.C. Of course the Convention does not apply to “claims for personal injury brought by or on behalf of natural persons”,[69] so most asbestos-related judgments would not be enforceable under the Convention anyway. However, possibly asbestos-related claims could be brought by subrogated insurers or reinsurers, and those would fall within the scope of the Convention.[70] Art. 21 permits Canada to avoid the conflict between this obligation to enforce and the existing B.C. statute barring enforcement by entering a declaration to the effect that, so far as Canada is concerned, the Convention will not apply to asbestos injuries. Unless B.C. were willing to subordinate its existing legislation to the Convention such a declaration would be necessary. Note that if it were made, other contracting states would be relieved from their obligation under the Convention to enforce asbestos injury judgments from Canadian courts.

[83] This is a political matter and I decline to offer any extended assessment of it here. Presumably a province which feels sufficiently strongly about protecting and subsidizing a given industry, such as asbestos mining, to have enacted legislation precluding enforcement of foreign judgments that affect that industry will want to ensure that such judgments are not enforced under the Convention. That is, there is nothing about the Convention which would make foreign-country judgments in those areas more palatable to such provinces, so they will presumably want to make art. 21 declarations with respect to those areas. Conversely, provinces which do not have existing legislative provisions barring foreign-judgment enforcement in certain fields should see no need to make any art. 21 declarations since, as noted numerous times in this report, the basis for foreign-judgment enforcement pursuant to the Convention differs little from that which already obtains under the common law.

Art. 22 Reciprocal Declarations on Non-Exclusive Choice-of-Court Agreements

[84] The other optional matters dealt with in this section all involve choices whether to restrict the operation of the Convention in some fashion. The choice that arises from art. 22 is different. It involves an option to extend the scope of the Convention – namely, to enlarge it to cover non-exclusive choice-of-court clauses. As noted in para. 10, art. 1(1) provides that the Convention only applies to exclusive choice-of-court clauses. However, art. 22 permits contracting states to declare that their courts will enforce judgments given by the courts of other contracting states designated by non-exclusive clauses.

[85] The effect of such a declaration would be limited in three ways. First, it only affects the obligation to enforce, not the obligations under arts. 5 and 6 related to original adjudicatory jurisdiction. Secondly, it would only relate to non-exclusive choice-of-court clauses that were otherwise covered by the Convention. (That is, the limitations as to subject-matter would still apply, as would those relating to formation – i.e., writing. In addition, any reservations made under art. 21 would operate here as well.) Thirdly, there would be a reciprocity requirement: even where a contracting state had made a declaration under art. 22 it would only affect enforcement of “a judgment given in a Contracting State that has [also] made such a declaration . . . .”[71]

[86] Canada should make a declaration pursuant to art. 22. This country already generally enforces foreign-country judgments where those foreign courts took jurisdiction pursuant to a choice-of-court clause – even a non-exclusive one. So Canada’s making a declaration under art. 22 would not commit it to enforcing foreign judgments it does not already enforce (subject to the observations at paras. 33-37 above, which elaborate ways in which the impeachment defences may be slightly wider under the common law than under the Convention). However, while making an art. 22 declaration would have little effect on the results of cases where foreign-country judgments are brought for enforcement in Canada, it might result in some Canadian court judgments being enforced abroad in situations where, absent the Convention, they would not. In short, there seems nothing to lose yet something (albeit not a lot) to gain in exercising the right to make a declaration pursuant to art. 22.

Art. 26(5) Declarations Concerning Conflicting Treaties

[87] Art. 26(5) deals with a matter of very restricted scope: clashes between the Convention and other jurisdiction and enforcement treaties if those other treaties operate “in relation to a specific matter” – for instance, marine insurance. Art. 26(5) gives contracting states the option to enter declarations stating that the conflicting treaties take precedence over the Convention, regardless of whether they were made before or after the Convention came into effect.

[88] Although Canada is party to some treaties that deal with jurisdiction over specific matters – the Hague Convention on the Child Aspects of International Child Abduction, for instance – I am not aware of any that would clash with the Convention. Accordingly I see no need for an art. 26(5) declaration. Note, however, that art. 26(5) allows such declarations to be made with respect to treaties made at any time – that is, before or after the Convention – and that art. 32(1) allows art. 26(5) declarations to be made at any time, so if Canada were to conclude such a specific treaty at a later date then an art. 26(5) declaration could be made at that time.

Art. 28 The Federal State Clause

[89] Art. 28 is a standard federal state clause. It permits non-unified legal systems such as Canada to make declarations that the Convention shall only apply to certain of its territorial units. Such declarations may be modified at any time, but in the absence of any such declaration the Convention would apply to the entire country. Accordingly (since it is assumed for the purposes of this report that, for constitutional reasons, the Convention would require implementation at the provincial level), unless all the provinces were prepared to enact appropriate implementing legislation Canada would, at least initially, have to make art. 28 declarations in respect of all provinces which did not wish to adopt the Convention.

[90] There seems little to discuss here. The various jurisdictions will make their own assessments about whether and when to implement the Convention. Presumably the discussion in the other parts of this report will be of some assistance to the making of such assessment. Even if all the provinces eventually elect to embrace the Convention, not all of them are likely to do so at the same time. Accordingly declarations under art. 28 will have to be made. Those declarations can be withdrawn if those initially reluctant provinces or territories later sign on.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018