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by Gil Zvulony

Seizing Intellectual Property

This discussion will not focus on royalties received from intellectual property, presumably these can be seized by garnishment.  The discussion will focus on the seizure of the intellectual property itself.

Traditionally at common law the execution of judgments were limited to the seizure of tangible property.  The Execution Act represents an attempt to depart from the common law and to make intangible property exigible.  Section 17 specifically makes patents exigible.  Section 19(2) makes choses in action exigible.   In Re Attorney-General for Ontario and Royal Bank of Canada [1970] 2 O.R. 467-474 the Ontario Court of Appeal held that section 19(2) (formerly s. 16(2)) is not limited in application to a particular class of chose in action.

Patents

Section 17 of the Execution Act deems all rights under letters patent of invention to be personal property and may be seized and sold under execution as other personal property.

Copyrights

The Execution Act does not specifically deal with the exigible of copyrights and copyrighted materials.  In Planet Earth Productions Inc. v. Rowlands the court held that copyright is exigible property because it is “personal property” within the meaning of section 18 of the Execution Act and it is a “chose in action” within the meaning of section 19(2) of the Actet Earth Productions Inc. v. Rowlands. The court did not address the issue of limitations on the judgment creditor’s use of the copyright. Presumably the moral rights of the author are still intact. 

Planet Earth is the only reported decision dealing with this issue. The case has sparked scholarly debate. Professor Vaver argues that Planet Earth was wrongly decided (Can Intellectual Property Be Taken to Satisfy a Judgment (1990-91) 6 B.F.L.R. 255).  His argument centres on the difficulty of valuing intellectual property.  He argues that intellectual property should be seized only through equitable execution where a judge can decide if the particular asset should be attached at all and, if so, how the remedy should be shaped to protect all interested persons.  Professor C.R.B. Dunlop disagrees.  In Creditor-Debtor Law in Canada (Thomson Canada, 1995)He argues that the Execution Act should be read to say that any kind of personalty that is not expressly exempted by legislation is exigible.

Trademarks

The law with respect to the exigibility of trademarks is unclear.  In Gegg v. Basset (1902) 3 O.L.R. 263 the trademark was not exigible because the right to a trademark was assignable only in connection with the goodwill of the business in which it had been used.  This is still the position in the United States (see Marshak v. Green, 746 F.2d 927 at 930 (2nd Cir. 1984))

It may be argued that Gegg v. Basset is not good law.  First, section 48 of the current Trade Marks Act ( R.S. 1985, c. T-13 ) allows a trademark to be transferred separately from the goodwill of the business.  However, the Supreme Court of Canada has said that this section does not permit:

untrammelled assignment in gross without regard to the associative character of the assigned trade mark in identifying the goods as those of the assignee owner.

Second, it could be argued that a trademark is a chose in action and the reasoning in Planet Earth applies. Professor Dunlop’s view that all personalty that is not exempted by legislation is exigible, supports this argument.

The problem with the exigibility of trademarks rests with estimating the value of the trademark separate from goodwill. A sheriff should be able to make a rough assessment of the value of what is being seized so as not to deprive the debtor of more than is necessary to satisfy the judgment debt and the cost of the seizure.  Moreover, the purpose of trademark legislation as a mechanism for consumer protection aspect of trademark law also weighs against the exigibility of trademarks.

Enforcement of U.S. Judgments – Summary Judgment Procedure is Proper

The Ontario Court of Appeal has re-affirmed the principle that a judgment from the United States is usually enforceable in Canada, with very few and very limited exceptions.

The case was United States of America v. Shield Development Co. (reproduced below), upholding a decision by the Ontario Superior Court of Justice (December 1, 2004).

The defendants were sued in the United States for the expenses the plaintiff (the US government) had incurred in cleaning up a site that the defendants owned. They did not appear in court to defend themselves, and the U.S. court granted summary judgment against them. When the plaintiffs brought an action to enforce the judgment in Ontario, the defendants appeared before the Ontario court to defend against it.

In their defence, the defendants claimed that the U.S. decision was contrary to natural justice, on the grounds that the plaintiff’s documents were sent to the wrong address, and that it was contrary to Canadian public policy, on the grounds that the plaintiffs had gone after them as an excuse to avoid going after the American corporations that actually caused the problem.

The Ontario Superior Court of Justice ruled that the U.S. judgment should be enforced in Canada by way of summary judgment. In her judgment, Justice Herman wrote that the defences were not strong enough to provide a “triable issue.” The natural justice defence failed because despite the mis-delivery of documents, the defendants had been provided with sufficient opportunity to defend the action. The public policy defence also failed because their argument was not that the law was contrary to Canadian public policy, but that the original court’s application of the law was contrary to Canadian public policy. This was not something that the Ontario court was prepared to evaluate.

Underlying the decision was the idea that the defendants had their chance to make their case – in the U.S. case – and could not now try to make arguments that they should have made before the original court. Justice Herman pointed out that whereas the defendants were now arguing that they had not been given sufficient opportunity to defend themselves, the record of what they did at the time showed that they simply were not interested in showing up to defend themselves: “Their actions suggest that they made a choice to walk away from the proceedings.”

In upholding the lower court’s decision, the Court of Appeal once again pointed out that the problems the defendants complained about, such as the fact that the documents went to the wrong address, were directly connected to the fact that the defendants did not bother to defend the action. The Ontario Court of Appeal’s decision, signed by the three Justices, suggested that the issues the defendants raised were issues that would not have existed if they had shown up in the U.S. court: “In effect, they now plead the consequences of their decision to walk away from the U.S. proceeding, to which they attorned, in an attempt to create a triable issue.”

Both courts ruled, in other words, that the defendants had to live with the consequences of having walked away from the U.S. action. They could not declare the judgment unenforceable on the basis of issues they themselves created by walking away, or issues that they should have brought up in the U.S.

The important thing to take away from this case is that if you are a Canadian being sued in the United States, you should not ignore it.  If you do, a default judgment will likely be entered against you, and it will almost always be enforceable in Canada.   In the short run, defending an action in the U.S. may seem like a lot of trouble and expense. But if you think you have an arguable case, then you will almost always be better off defending yourself while you can – because you cannot later turn around and make that case in front of a Canadian judge.

The Court of Appeal Judgment is Below:

United States of America v. Shield Development Co., 2005 CanLII 17768 (ON C.A.)

COURT OF APPEAL FOR ONTARIO

RE: UNITED STATES OF AMERICA (Respondent) -and- THE SHIELD DEVELOPMENT CO. LTD. and ANYOX METALS LTD. (Appellants)
BEFORE: CATZMAN, LABROSSE and MOLDAVER JJ.A.
COUNSEL: James C. Orr and Angela Yadav
for the appellants
H. Scott Fairley and John R. Archibald
for the respondent
HEARD AND RELEASED ORALLY:  

May 18, 2005

On appeal from the judgment of Justice Thea P. Herman of the Superior Court of Justice dated December 1, 2004 and from Justice Herman’s costs endorsement dated January 19, 2005.

E N D O R S E M E N T

[1]               The appellants appeal the granting of summary judgment to the respondent to enforce a judgment it obtained in the United States against the appellants.

[2]               The application judge rejected the appellants’ submissions that summary judgment should not be granted on the basis of a denial of natural justice and/or as being against public policy.  She gave detailed and clear reasons in rejecting these submissions on the basis that there had been no denial of natural justice and that there was no evidence that the respondent improperly targeted the appellants.  We see no error in her conclusions.

[3]               As stated by the respondent, the real essence of this matter is that the appellants had received adequate notice of the U.S. proceeding and had adequate opportunity to raise any defence of fact and law before the U.S. District Court.  In effect, they now plead the consequences of their decision to walk away from the U.S. proceeding, to which they attorned, in an attempt to create a triable issue.  Moreover, when the appellants learned of the U.S. judgment, neither appellant appealed nor moved to have the judgment set aside.

[4]               Accordingly, the appeal is dismissed, with costs fixed, inclusive of disbursements and G.S.T., in the amount of the monies currently standing in court to the credit of this action pursuant to the order of MacPherson J.A. dated March 30, 2005 (i.e. $20,000 plus accumulated interest).

Signed: “M.A. Catzman J.A.”

“J.-M. Labrosse J.A.”

“M.J. Moldaver J.A.”

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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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Corruption as a Defence to the Recognition and Enforcement of Foreign Judgments in Ontario

Can a judgment rendered in a corrupt foreign tribunal be enforced in Ontario? Where a litigant can raise enough evidence that the foreign tribunal was corrupt, and that the corruption influenced the outcome of the proceeding, the judgment will typically not be enforced. However, in order to make use of applicable defences at the recognition and enforcement stage, the litigant must raise evidence of actual corruption by the particular foreign tribunal during the foreign proceeding.

In Beals v. Saldanha, the Supreme Court of Canada said the following about the defences to the enforcement of foreign judgments:

The defences of fraud, public policy and lack of natural justice […] were developed by the common law courts to guard against potential unfairness unforeseen in the drafting of the test for the recognition and enforcement of judgments. The existing defences are narrow in application. They are the most recognizable situations in which an injustice may arise but are not exhaustive.

Recently, in an Ontario action for the enforcement of a judgment rendered in Singapore, the Ontario Court of Appeal was asked to recognize a judgment by a foreign tribunal that was alleged to be corrupt. The case was Oakwell Engineering Ltd. v. Enernorth Industries Inc., [2006] O.J. No. 2289 (C.A.).

The Oakwell Decision

In Oakwell, the parties were joint venturers for a constructing project in respect of a power generating facility in Singapore. Oakwell commenced an action in Singapore for the breach of a term in the settlement agreement between the parties by Enernorth.

Enernorth did not contest jurisdiction in the Singapore court, but subsequently appealed the Singapore court’s decision, under which Enernorth was ordered to pay sums under the agreement to Oakwell. The appeal was dismissed. At no time during the appeal did Enernorth raise the issue of fairness in the trial proceeding.

During an action in Ontario to enforce the Singapore judgment, Enernorth claimed that the Singapore judgment ought not to be enforced, because it had been granted by a corrupt legal court, with biased judges, and in a jurisdiction that operates outside the rule of law. Oakwell countered by arguing that, while there might be possible government interference in certain trials, the Singapore court was impartial when it adjudicated commercial matters between private parties.

At issue was whether Enernorth’s arguments justified the application of the natural justice and/or public policy defence.  The Court of Appeal dismissed Enernorth’s appeal, concluding that Enernorth did not raise enough evidence to meet the defences of public policy or natural justice.

Public Policy

The Court of Appeal raised the following points concerning the public policy defence. First and foremost, Enernorth failed to sufficiently prove that the Singapore court was biased. Second, Enernorth’s evidence raised a question of fact, instead of a question of law, and therefore the public policy defence was inapplicable:

The public policy defence turns on whether the foreign law is contrary to our view of public morality […] The traditional public policy defence appears to be directed at the concept of repugnant laws and not repugnant facts.

The ways in which a government is said to have influenced a court is an issue that must be resolved by examining the facts, as opposed to an issue of examining a foreign law.

Natural Justice

With respect to natural justice, the Court noted that Enernorth had failed to raise any issues of unfairness during the proceeding in Singapore, and as such, could not raise that defence now. Additionally, the Court noted that Enernorth had attorned to the jurisdiction of the Singapore court by defending the proceeding, and had also chosen Singapore law as the applicable law under the settlement agreement with Oakwell. Therefore, the natural justice defence was inapplicable.

The Court of Appeal also stressed that, absent special or unusual circumstances, which may require the creation of a new defence, a court should only consider the three existing defences to enforcing a foreign judgment.  In this case, the alleged corruption on the part of the Singapore court did not form the unique circumstances required to justify the creation of a new defence.

Conclusion

The corruption of a foreign tribunal is a factor that could bar the enforcement of a judgment obtained in the tribunal. In order to raise this as a defence in an enforcement proceeding, the litigant must prove that the particular foreign tribunal was actually corrupt and that the specific corruption influenced the outcome of the foreign proceeding. It is not enough to allege that the tribunal has a reputation for being corrupt. Specific evidence of corruption must also be raised during the foreign proceeding in order to make use of the applicable defences at the enforcement stage.

Are Treble Damages Enforceable In Canada?

Treble damages are a form of damages by which the amount of actual damages is calculated and then multiplied by three.  This head of damages is created by statute and is intended to be punitive in nature.  Treble-damages laws are common in many United States jurisdictions.

A seminal Canadian case raised the question of whether such a high award of damages, one that is deliberately out of proportion to the actual harm suffered, can be enforced in Canada.  This was the Supreme Court of Canada’s decision in Beals v. Saldanha, [2003] 3 S.C.R. 416.

Here the Supreme Court dealt with the case of an Ontario family that had received a judgment against them by a Florida court, in a case concerning a piece of land they had sold in Florida to an American buyer.  The plaintiff in that case sought and won treble damages as permitted by a Florida statute; the jury calculated that the plaintiff was owed $70,000 for “the actual expenditures… plus loss of profit,” and then multiplied that by three.

The plaintiff, Beals, then sought to enforce the judgment in Canada.  The defendants, the Saldanha family, claimed that the judgment could not be enforced in Canada, and part of their argument was that the award of treble damages was unenforceable for reasons of public policy: such a high award of damages, they argued,  contrary to Canadian principles of justice and fairness.

Justice Major, for the majority, dismissed the argument that the extra-large award of damages should be unenforceable for reasons of Canadian public policy.  At paras 73-76 of the decision, he wrote that a very large sum of damages is not, in and of itself, immoral or unenforceable, as long as it is arrived at fairly by a court with a real and substantial connection to the case.  The fact that the damages are higher than they would be in Canada does not, in itself, make them unfair or unenforceable:

[76] The award of damages by the Florida jury does not violate our principles of morality. The sums involved, although they have grown large, are not by themselves a basis to refuse enforcement of the foreign judgment in Canada. Even if it could be argued in another case that the arbitrariness of the award can properly fit into a public policy argument, the record here does not provide any basis allowing the Canadian court to re-evaluate the amount of the award. The public policy defence is not meant to bar enforcement of a judgment rendered by a foreign court with a real and substantial connection to the cause of action for the sole reason that the claim in that foreign jurisdiction would not yield comparable damages in Canada.

Justice Binnie dissented from the majority, but for other reasons; in his dissenting opinion, he also agreed that treble damages were not unenforceable as a matter of public policy.  At paras 246-247, he wrote that since the Florida court’s decision was based on a fair trial and a fair application of Florida law, the high damages were not in and of themselves unfair:

[246] If the defence of public policy is understood as a bar to enforcing immoral or unjust foreign laws, it is not met here. The enforcement of such a large award in the absence of a connection either to harm suffered by the plaintiffs and caused by the defendants or to conduct deserving of punishment on the part of the defendants would be contrary to basic Canadian ideas of justice. But there is no evidence that the law of Florida offends these principles. On the contrary, the record indicates that Florida law requires proof of damages in the usual fashion. Treble damages are only available by statute to victims of crimes. There is no indication that punitive damages are available where the defendant’s conduct is not morally blameworthy.

The rule from Beals v. Saldanha, then, is that if a foreign court orders a very high award of damages, one that is much higher than would be awarded in a similar matter in Canada, it is enforceable in Canada as long as the original civil action was fair and done according to the laws of the original jurisdiction.  Even treble damages, which are by definition three times higher than the actual damage caused, are enforceable as long as they are in keeping with the original jurisdiction’s law.

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A judgment from the United States or another foreign country, as well as Quebec, is not automatically enforceable in Canada. To enforce these judgments, the judgment creditor must start a new lawsuit in Ontario.

Canadian courts now tend to incorporate the “full faith and credit” principle (a principle that is entrenched into the U.S. Constitution). This means that one jurisdiction gives the benefit of the doubt to the laws of another jurisdiction, respecting and enforcing that jurisdiction’s decisions unless there is a very good reason not to do so.  This does not mean that U.S. judgments will automatically be accepted in Ontario, but it means that it is usually likely that they will be.

Relevant Factors

To grant enforcement of any foreign judgment, an Ontario court typically must be satisfied of three things.

First, the court that granted the judgment must have had jurisdiction to try the case, according to its own rules. If the judgment debtor was physically present in the jurisdiction, or actually defended the lawsuit, then the court’s jurisdiction is  automatically assumed.  The defendant is said to have attorned to the jurisdiction of the foreign court. If the judgment debtor was not physically present, then the judgment creditor must prove that there was a “real and substantial connection” that justified the foreign court assuming jurisdiction over the dispute.

Second, the court that granted the judgment must have acted in accordance with due process.  In other words, the court’s legal procedure must have been just and fair.

Third, the original judgment must have been a final judgment. This does not mean a judgment that cannot be appealed, but a judgment that the originating court itself cannot change.

The Role of Canadian Law

A Canadian court will not usually be concerned with whether the foreign judgment would have been granted under Canadian law; the judgment debtor cannot argue that the judgment should not be enforced because he/she would not be liable in Canada. The question is merely whether the original court acted fairly and in accordance with basic principles of justice, and whether the court had jurisdiction to pass judgment on the judgment debtor.

Possible Defences to the Enforcement of a Foreign Judgment in Canada

Some common defences against the enforcement of a foreign judgment are:

  1. The original judgment was obtained fraudulently.
  2. The judgment was contrary to natural justice (the original trial was not fair, or did not give the judgment debtor a proper opportunity to make his or her case).
  3. It would be against Ontario public policy to grant the judgment (for example, the original judgment must not be based on laws that conflict strongly with the underlying morality of Canadian law; this does not normally apply to U.S. judgments, since the Canadian and American legal systems are similar).
  4. The judgment debtor was not given notice of the original proceedings and therefore did not have the opportunity to appear in court and defend himself or herself.
  5. The judgment is for the enforcement of a foreign penal law.

Procedural Steps For Enforcing a U.S. and Foreign Judgment in Ontario, Canada

Typically, a judgment creditor does not have to go to the time and expense of trying the whole case over again.  The issues in the Ontario enforcement action are related to the manner that the foreign judgment was obtained rather than the underlying merits of the original foreign action.  As such, an action for the enforcement of a foreign judgment is analogous to the enforcement of a simple debt.   Actions for the enforcement of most foreign judgments usually proceed by way of a summary judgment motion, which asks the court to declare that there is no genuine issue for trial and rule in the judgment creditor’s favour.  Interest and the legal costs of the Ontario enforcement action are usually awarded in the new Ontario judgment.

Once the Ontario court finds in the judgment creditor’s favour, then the judgment creditor has a valid Ontario judgment, and can then proceed to enforce it the way he or she would enforce any Ontario judgment.

Enforcing a U.K. Judgment or Extra-provincial Judgment in Ontario

Ontario courts will recognize and respect the judgments of courts in other provinces (except Quebec judgments, which are treated as a foreign judgment) as well as U.K. courts, and enforce them in Ontario where appropriate.

Factors

The test for registering a U.K. or extra-provincial (except Quebec) judgment in an Ontario court is:

  • You must show that the judgment was in the judgment creditor’s favour and that he or she is entitled to enforce it.
  • You must show that the original judgment is final and the court cannot rescind it. (If the judgment was final in the originating court, but is now being appealed, an Ontario court will usually wait until the appeal process is over before enforcing the judgment.)

Exceptions

Enforcing a U.K. or extra-provincial judgment does not require a separate action, so there is no “defence” per se to be made. However, there are some cases where the court might still refuse to enforce the judgment based on the facts. A U.K. judgment will not be enforced in Ontario where the court has reason to believe that:

  1. The original judgment was obtained fraudulently.
  2. The judgment was contrary to natural justice.
  3. It would be against Ontario public policy to grant the judgment
  4. The judgment debtor was not given notice of the original proceedings and therefore did not have the opportunity to appear in court and defend himself or herself.
    If the judgment was arrived at fairly, it will not be set aside because the original court made errors of fact or law; it is not up to the Canadian court to decide whether the original judgment was right, merely that it was arrived at by a fair process.

Procedure for Enforcement

A successful U.K. or extra-provincial judgment creditor must bring an application in Ontario for registration of the original judgment. This must be done no later than six years after the original judgment was handed down (if there was an appeal, then the limitation period is six years after the appeal judgment).

The judgment creditor must also submit an affidavit that sets out all the facts necessary to demonstrate that he or she qualifies to register the judgment, as well as a copy of the original judgment from the U.K. or extra-provincial court.

Once this material has been submitted to the court, registration will be granted as long as the above stated factors are fulfilled.

Once the judgment has been registered, it can be enforced in Ontario as if it had been directly granted by an Ontario court.