It’s Just Notice: Ontario Court of Appeal Holds that Rules of Service Do Not Interfere with State Sovereignty
June 9, 2016
In a decision released on June 3, 2016, the Ontario Court of Appeal (Court) rejected the proposition that Canada’s international law obligations require that service of an originating process in a non-Hague Convention state, for the purpose of an Ontario action, has to be made in accordance with the laws of the foreign state. In dismissing the defendants’ appeal in Xela Enterprises Ltd. v. Castillo (Xela), the Court held that the Ontario rule governing service on parties in a non-contracting state did not interfere with the sovereignty of a foreign state (in this case Guatemala), and that, being a procedural step, it does not engage the principle of comity.
In Xela, the plaintiffs, individuals residing in Canada and corporations carrying on business in Canada, as well as two Panamanian companies, sued the defendants, residents of Guatemala and companies carrying on business in Guatemala, for C$400-million under various causes of action, alleging that the damages were sustained in Ontario.
The Ontario Rules of Civil Procedure (Rules) set out the manner in which plaintiffs must serve a document outside of Ontario in a state that is a signatory to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (Hague Convention), known as a “contracting state”, and also the manner in which parties may be served in a non-contracting state. In the latter case, Rules state that a document may be served either according to the rules for service in Ontario, or according to the law of the non-contracting state, if service in that manner could reasonably be expected to come to the notice of the person to be served.
Guatemala is a non-contracting state. The plaintiffs in Xela had tried to serve their statement of claim on the defendants in a number of different ways, including by attempting to serve the defendants at their residences and businesses in Guatemala. The plaintiffs then brought a motion for a declaration that the defendants had been properly served, for validation of service, or for an order of substituted service under the Rules.
The motion judge found that rule 17.05(2) allowed the plaintiffs to serve the defendants in accordance with the Rules, that Guatemalan law did not prohibit a party outside of the jurisdiction from serving a party in Guatemala in a manner permitted by Ontario law, and made an order validating service. The defendants appealed the motion judge’s decision to the Divisional Court, which dismissed the appeal, holding, among other things, that service in accordance with the Ontario Rules did not undermine any Canadian international law obligation. The defendants then appealed to the Ontario Court of Appeal, with leave.
COURT OF APPEAL’S DECISION
In dismissing the appeal, the Court distinguished between two types of international law: conventional or treaty-based international law (such as the Hague Convention), and customary international law, which was at issue in this case, being “rules that are acknowledged as binding by the state.” Citing the Supreme Court of Canada’s decision in R. v. Hape, the Court noted that there is a rebuttable presumption that Canadian legislation complies with Canada’s international law obligations, both conventional and customary. The presumption is rebutted where a statute demonstrates legislative intent to default on an international obligation.
The Court rejected the argument that in order to be interpreted in a manner that respected Guatemalan sovereignty, rule 17.05(2) required that service in Guatemala be effected in accordance with Guatemalan law, holding that the Rules do not purport to legalize service that would be illegal in Guatemala. The Court held that the Rules “provide an option as to how service may be effected in a non-Convention state for purposes of an Ontario action” and “establish a means of satisfying an Ontario court that foreign defendants have received notice of an Ontario action.” It was a “considerable overstatement” to characterize the rules governing service as interference in the affairs of a foreign state.
Importantly, the Court reiterated that the defendants retained their right to challenge the jurisdiction of Ontario’s courts over the subject matter of the action.
While this was enough to dispose of the appeal, the Court went on to find that, even assuming service pursuant to rule 17.05(2) violated Guatemalan sovereignty, the presumption of conformity in this instance was rebutted.
Finally, the Court held that the principle of comity was not violated. Having already concluded that Ontario rules governing service for purposes of an Ontario action did not impact Guatemalan sovereignty, the court held that service pursuant to rule 17.05(2) was a procedural step that did not involve an assertion of Ontario jurisdiction over the defendants.
The Court’s decision in Xela is important in that it makes a clear distinction between service as a procedural step taken to put an opposing party on notice of an action, and the assertion of a court’s jurisdiction over that action. While the principles of foreign sovereignty and international comity are not necessarily engaged where a party is simply putting an opposing party in a foreign jurisdiction on notice of an action commenced in Ontario (by, for instance, serving a statement of claim), the Court emphasized that effective service does not take away the other party’s right to address issues of an Ontario court’s jurisdiction over the action, or to address whether Ontario is the most convenient forum for the action.
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