Canada: The "Difficult Strategic Choice" Of Parties Sued Before A Foreign Court They Believe Does Not Have Jurisdiction

Last February 22, the Supreme Court of Canada dismissed the appeal from a judgment of the Court of Appeal of Québec in an action instituted by Knight Brothers LLC (Knight) against David Barer (Barer) seeking recognition of the default judgment rendered by a Utah court against Barer and two companies he controlled.

The Supreme Court of Canada's decision in Barer v. Knight Brothers LLC¹  is relevant for a number of reasons, chief among them being the court's teachings on the recognition of a foreign authority's jurisdiction.

The facts and judicial history

In 2009, following a dispute over an amount owing to Knight under a subcontracting agreement, Knight brought proceedings before a Utah court against Barer personally and the two companies he controlled.²  At the preliminary stage, Barer filed a motion to dismiss Knight's action arguing, besides the Utah court's lack of jurisdiction over Barer, that the action was barred by the pure economic loss rule.³

The Utah court dismissed Barer's motion to dismiss and, in 2012, granted a motion for a default judgement filed by Knight. Knight then filed an originating application before the Superior Court of Québec to have the Utah decision recognized and declared enforceable.⁴

The Quebec courts then addressed the issue of the Utah court's jurisdiction over Barer. At trial, Judge Blanchard, j.c.s., recognized the Utah court decision and declared it enforceable in Quebec against Barer. In Judge Blanchard's opinion, the Utah court had jurisdiction given, among other reasons, that Barer had submitted to the court's jurisdiction⁵  by raising substantive arguments in his motion to dismiss.⁶

Barer appealed this decision. The Court of Appeal, in a two-sentence ruling and without endorsing all the reasons of the judge of first instance, upheld its ruling.⁷

The difficult strategic choice, recognition of jurisdiction and "legal mulligan"

While emphasizing that this debate remains particularly contentious,⁸  Justice Gascon, writing for the majority of the Supreme Court justices, concluded that a defendant submits to a foreign court's jurisdiction when it "presents substantive arguments which, if accepted, would resolve the dispute – or part of the dispute – on its merits."⁹

Justice Gascon rejected the argument holding that a party presenting "an argument on the merits not in the belief that a court has jurisdiction," but to "avoid the negative consequences that may result from non-participation in the proceedings" does not submit to a foreign court's jurisdiction.¹⁰  Consequently, a Quebec defendant sued abroad cannot present substantive arguments in order to "save its skin" without submitting to the foreign court's jurisdiction.¹¹

Being of the opinion that the argument Barer raised in his motion – namely that Knight's action was barred by the pure economic loss rule – constituted a substantive argument, Justice Gascon concluded that Barer, by raising this argument, submitted to the Utah court's jurisdiction.¹²

This Supreme Court of Canada judgment illustrates the "difficult strategic choice" that Quebec defendants face when sued abroad. The outcome of this dispute shows that Quebec defendants cannot use foreign courts in an attempt to definitively settle their dispute by presenting substantive arguments without assuming the consequences. Indeed, it would be unfair, as Justice Gascon points out, for Quebec defendants sued abroad to try to convince the foreign authorities of the merits of their substantive arguments "while at the same time preserving their right to challenge the jurisdiction of that authority later if they are ultimately displeased" with the decisions rendered, seeing as this would be tantamount to granting them "two kicks at the can" (a "legal mulligan") to raise their arguments.¹³  The same would hold for foreign defendants sued in Quebec when determining whether or not they have submitted to the jurisdiction of Quebec courts.

The need for substantial connection: issue left for another day

On this point, Barer argued that the substantial connection factor described in article 3164 C.C.Q. is an additional criterion that must be demonstrated.¹⁴  Leaving this issue for another day, Justice Gascon did emphasize however that "once one of the conditions under art. 3168 C.C.Q. is satisfied, the substantial connection requirement in art. 3164 C.C.Q. will in most cases be satisfied as well."¹⁵  Thus, the fact that Barer "participated in the legal proceedings in Utah to the extent of submitting to the Utah court's jurisdiction suffices amply and raises no questions as to whether the dispute is substantially connected with Utah and the Utah court."¹⁶

Footnotes

1            2019 SCC 13.

2            Id., para. 8-9.

3            Id., para. 11-12.

4            Id., para. 15-16.

5            Civil Code of Québec, S.Q. 1991, c. 64, art. 3168(6).

6            Barer v. Knight Brothers LLC, supra, note 1, para. 18; Knight Brothers, L.L.C. v. Central Bearing Corporation Ltd., 2016 QCCS 3471.

7            Barer v. Knight Brothers, 2017 QCCA 597.

8            Barer v. Knight Brothers LLC, supra, note 1, para. 64.

9            Id., para. 69.

10          Id., para. 64-68

11       Id., para. 68. For more on this argument holding that defendant presenting substantive arguments in order to "save its skin" is not submitting to the foreign court's jurisdiction, see: Gérald GOLDSTEIN and Ethel GROFFIER, Droit international privé, t. I, "Théorie générale", Cowansville, Éditions Yvon Blais, 1998, para. 183.

12          Id., para. 81.

13          Id., para. 69.

14          Id., para. 83.

15          Id., para. 87-88.

16          Id., para. 88.

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