Enforcement of US Judgments in Canada: Case Comment

Case Comment: Old North State Brewing Co. v. Newlands Services Inc.

One of the principal tenets of contract law is freedom of contract. It can be said with a fair degree of certainty that a court will have regard to the intentions of the parties when interpreting a valid contract. The circumstances where a court will interfere with the intentions of the parties are rare and exceptional. The case of Old North State Brewing Co. Inc. v. Newlands Services Inc. is one such case.

The plaintiff, Old North State Brewing, sought the enforcement of a North Carolina judgment against the defendant, Newlands Services, in British Columbia. The defendant did not defend the North Carolina action and a judgment was subsequently rendered in default. Evidence of damages was tendered ex parte and the North Carolina court awarded the plaintiff damages which included treble and punitive damages.

The contract contained a choice of forum and choice of law clause. Justice Finch of the British Columbia Court of Appeal held that the choice of forum clause did not grant British Columbia exclusive jurisdiction and thus the contract did not bar the North Carolina court from asserting jurisdiction. Justice Finch also held that in the absence of proof of British Columbia law the North Carolina court properly applied its own law.

It is submitted that Justice Finch properly applied the law as it currently stands in Canada. The court’s interpretation of the choice of forum clause was properly grounded in authority. Moreover the “real and substantial connection” test as set out in the Supreme Court of Canada’s Decision in Morguard Investments Ltd. v. De Savoye when assessing the North Carolina court’s jurisdiction was also properly applied. Admittedly some of the connections highlighted in the judgment were far from being “real and substantial”, namely the internet advertising, the testimonial and photographs from Brooklyn and the defendant’s offices in a third jurisdiction. However, the delivery of the goods to North Carolina and the servicing of those goods was probably sufficient for the North Carolina court to invoke its jurisdiction.

Justice Finch also properly concluded that the North Carolina court applied the proper law of the contract. While avoiding an extensive examination of the merits of the case, the BC court agreed with the North Carolina’s court’s use of the lex fori, holding that, absent proof to the contrary, it was proper for the North Carolina court to assume that BC law was the same as the law of North Carolina.

The BC court of appeal’s decision may have been proper in law, however the judgment highlights the problems with the law’s current state. It is clear from the contract that the parties intended their relationship to be governed by British Columbia law. The choice of forum clause may have been ambiguous but the choice of law clause was not. As such, in the promotion of commercial certainty, the North Carolina court should have given effect to the parties intentions by enforcing the choice of law clause. This was not done because the defendants were not present to prove BC law, thus it initially appears that the court had little choice but to proceed and apply local law to the detriment of the defendants.

Did the North Carolina court have another option? It is submitted that it did. Although it appears from the facts that the North Carolina court had jurisdiction to hear the matter, it could have invoked its discretionary power to decline jurisdiction on the grounds that British Columbia was a more appropriate forum. By declining jurisdiction it could have given effect to the intentions of the parties. In Guarantee Co of North America v. Gordon Capital Corp. (1994) 18 OR (3d) 9 (Gen Div), leave to appeal dismissed (1994) 24 CPC (3d) 277; leave to appeal SCC dismissed (1994) 29 CPC (3d) 148, the applicable law of the contract was a factor in determining whether the court should exercise its jurisdiction.

It is not clear from the facts whether the North Carolina court should have actually declined jurisdiction. However the issue highlights a gap in our law. Assuming the North Carolina court did in fact err and should have declined jurisdiction, does this error render the judgment unenforceable in British Columbia?

It appears that the Morguard line of cases suggest that this is an irrelevant question. Since enforcing a foreign judgment is seen as enforcing a debt, proper jurisdiction of the foreign court is the only concern. The merits of the case and thus the equities between the parties are of no concern.  The reluctance by the courts to reopen and retry the merits of a foreign judgment are for the most part justifiable. When both parties have already had their day in court it is reasonable for our courts to defer to the foreign court’s findings. The rationale is significantly weakened when a judgment is rendered in default.

Justice Finch had an opportunity to address these issues but did not. As a result, a valid and significant clause in a contract was ignored by the judicial process. Such an outcome will only create further uncertainty in this area of the law.

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