June 2003
Enforcing Your Washington State Judgment in Canada
By Kimberly Jakeman and John Sullivan
The U.S. Constitution guarantees that a judgment of a Washington court will be given "full faith and credit" in all other American courts.1 This ensures that a judgment obtained in Washington can be enforced in the other 49 states, without having to relitigate the matter.
But what if you need to enforce your Washington judgment in Canada? The "full faith and credit" clause is of no assistance to you once you cross the 49th parallel, as the U.S. Constitution does not apply in Canada.2 Will Canadian courts recognize and enforce U.S. judgments, or will you have to relitigate the matter in a Canadian court, and prove your case once again, in order to seize Canadian assets?
The answer is of vital importance to Washington attorneys. The proximity and relative wealth of both nations have made the U.S.-Canada relationship the largest, most successful trading relationship the world has ever seen. With over a billion dollars' worth of trade between Canada and the United States every day, Canada is America's largest trading partner by far. In fact, in 2001 Canada bought more U.S. exports ($163.7 billion) than the entire 15 nations of the European Union combined ($159.2 billion).3 And, of course, intertwined economies mean cross-border disputes.
By and large, the answer is this: Subject to certain exceptions, a judgment obtained from a Washington court will be recognized and enforced in Canada, without relitigating the merits. 4 Throughout Canada, the courts will enforce U.S. judgments under the "Morguard Principle,"5 which effectively provides that a foreign judgment will be recognized by Canadian courts, provided that the foreign court properly had jurisdiction over the matter, and provided that certain narrow defenses (such as fraud on the foreign court) do not apply. The result is that in the absence of special circumstances, the defendant will be precluded from relitigating the matter in Canada.
If you wish to enforce a Washington judgment in British Columbia, you have a second option. Subject to certain exceptions, you will be able to rely upon the expedited statutory scheme for enforcement of foreign judgments contained in B.C.'s Court Order Enforcement Act. Again, in the absence of special circumstances, the defendant will be precluded from relitigating the matter.
Enforcing Judgments in Canada by Means of the Common Law "Morguard Principle"
For most of Canada's history, U.S. judgments were prima facie unenforceable in Canada.
Traditionally, the Canadian approach to U.S. judgments was that found in the 1908 decision of Emanual v. Symon.6 The rule from Emanual v. Symon effectively provided that a foreign judgment would be recognized only if the defendant was a resident of the foreign state when the action began, voluntarily appeared in the action, or contracted to submit to the jurisdiction of the foreign state. Although Emanual v. Symon was an English decision, it was adopted by the Canadian provincial superior courts, not only with respect to foreign decisions, but also with respect to decisions from other Canadian provinces.
Thus, under the traditional Emanual v. Symon approach, a Washington judgment against a B.C. resident or company would not be effective in B.C. unless the B.C. defendant had either voluntarily appeared in the proceeding or agreed by way of contract to submit to the jurisdiction of the Washington court. Judgments from other Canadian provinces were treated the same.
However, a lot has changed since 1908. For example, Canada, the United States and Mexico have joined together as trading partners through the North American Free Trade Agreement. And, as noted, the cross-border trade between Canada and the United States has grown to phenomenal levels over the years.
One of the strengths of the common law is that it can change with the times. And the Canadian common law has changed 180 degrees on the question of recognition of U.S. judgments.
This change occurred in the 1990s, by means of Canadian decisions that rejected the restrictive Emanual v. Symon approach, first in the Canadian domestic context, and subsequently in the Canada-U.S. context.
Canada's decisive break with the Emanual v. Symon tradition occurred with the 1990 decision of the Supreme Court of Canada in Morguard Investments v. De Savoye.7 Morguard involved a foreclosure in the Alberta Court of Queen's Bench with respect to property located in Alberta. The defendant was a British Columbian; he did not appear in the Alberta proceedings. The plaintiff ultimately obtained a money judgment for the amount of the mortgage deficiency.
Morguard subsequently sued in B.C. Supreme Court to enforce its deficiency money judgment. However, the defendant argued that the Alberta judgment was not enforceable in B.C., because he had not appeared in the Alberta proceeding, relying upon Emanual v. Symon. However, the Supreme Court of Canada rejected this argument and held that the Alberta deficiency judgment was enforceable in B.C., despite the defendant's nonappearance. In so deciding, the Supreme Court of Canada gave us the "Morguard Principle," which is as follows: "the courts in one province should give full faith and credit, to use the language of the United States Constitution, to the judgments given by a court in another province . . . so long as that court has properly, or appropriately, exercised jurisdiction in the action."8
Thus, through the Morguard decision, the Canadian common law advanced to the stage of having an implicit "full faith and credit" clause with respect to decisions of other Canadian courts, effectively by borrowing language from the U.S. Constitution.9 But because Alberta and B.C. are both Canadian provinces, Morguard was a purely domestic Canadian decision. Would the Morguard Principle apply to American judgments?
This question was answered in the affirmative three years later in Moses v. Shore Boat Builders,10, where the B.C. Court of Appeal applied the Morguard Principle to an Alaskan judgment. The plaintiff, Moses, was an Alaskan resident who purchased a fishing boat from the defendant, Shore Boat Builders, a B.C. company. Moses claimed the boat was defective and thus sued Shore Boat in 1987 in the Superior Court of Alaska. Shore Boat ignored the Alaskan proceeding, believing that Moses would have to sue in B.C. in order to execute in B.C., and that Shore Boat would have the opportunity to defend on the merits in that B.C. proceeding. Big mistake! Moses obtained a default judgment in Alaska, then sued in B.C. in the early 1990s for recognition and enforcement of the Alaskan judgment. Moses argued that Morguard (December 1990) had changed the law, such that his default judgment was entitled to recognition in B.C., despite the fact that Shore Boat had not appeared in the Alaskan proceeding.
Moses was right. The B.C. Court of Appeal applied the Morguard Principle and recognized the Alaskan default judgment, stating that "modern rules of international law must accommodate the flow of wealth, skills and people across state lines and promote international commerce."11
Other Canadian courts have reached the same conclusion, such that it is now uncontroversial that courts throughout Canada will apply the Morguard Principle to U.S. judgments.12
Limitations on the Morguard Principle (i.e., circumstances where your Washington judgment will not be enforced in Canada)
Notwithstanding Morguard and Moses, not every U.S. judgment will be enforced in Canada. Generally speaking, a Canadian court will refuse to enforce in two circumstances: (1) the American court did not properly have jurisdiction; or (2) specific defenses (such as fraud on the U.S. court) apply. We will consider both potential problems in turn.
Jurisdictional Problems
The Morguard Principle contains the condition that the original court must have "properly exercised jurisdiction in the action." Thus, if the American court did not properly have jurisdiction — according to Canadian conflict-of-laws rules — then its judgment will not be enforceable in Canada.
This is precisely what happened in Braintech Inc. v. Kostiuk,13 where the B.C. Court of Appeal refused to enforce a Texas judgment. In Braintech, the plaintiff was a Nevada-incorporated company which had its corporate head office in Vancouver, B.C. The defendant, Kostiuk, resided in West Vancouver. During a period of time in which the Kostiuk family and Braintech were embroiled in multiple lawsuits in the B.C. courts, Kostiuk made some allegedly defamatory comments about Braintech on an Internet bulletin board called "Silicon Investor." Notwithstanding the clear connections to B.C., Braintech sued Kostiuk for defamation — in Texas. Kostiuk had no links of any kind with Texas. For its part, Braintech maintained a research office in Austin, had a director in Austin, and approximately 10 percent of its shareholders resided in Texas.
However, Canadian conflict-of-laws rules are clear that a state's connections to the plaintiff are not sufficient to provide jurisdiction to the courts of that state. Instead, jurisdiction exists only if there is a "real and substantial connection" between that state and either the defendant or the cause of action.14 This is referred to in Canada as the "real and substantial connection" test.
Braintech tried to avoid the application of this rule by arguing that the tort had occurred in Texas by means of publication on the Internet. Because the comment was on the Internet, and because the Internet was accessible in Texas, the argument went, Braintech had been defamed in Texas. However, Braintech provided no evidence that anyone in Texas had actually read Kostiuk's statement.
The problem with Braintech's argument, of course, is that the Internet is accessible just about anywhere. Thus, if publication of a comment on the Internet were sufficient to provide jurisdiction to any court where the Internet is accessible, it would mean that Internet defamation could be litigated virtually anywhere in the world, and pursuant to Morguard and Moses, the resulting foreign judgment would be enforceable in Canada (subject only to the very limited defenses listed below). Not surprisingly, the B.C. Court of Appeal rejected such an approach, holding that it would have "a crippling effect on freedom of expression if, in every jurisdiction the world over in which access to internet could be achieved, a person who posts fair comment on a bulletin board could be haled before the courts of each of those countries."15
Given that the defendant had no links to Texas, and given the rejection of the Internet argument, the B.C. Court of Appeal thus refused to recognize the Texas judgment for lack of jurisdiction.
One problem with the "real and substantial connection" test is that it is not a completely objective, clear test. How can you know if there is a "real and substantial connection" between a cause of action and the state of Washington such that a Canadian court will enforce a Washington default judgment? One relatively recent B.C. Court of Appeal decision said that the "real and substantial connection" test remains "undefined." However, the court did give some guidance, noting that "clear examples of connecting factors include the residency of the defendant in the jurisdiction or the fact that the tortious act was committed or damages [were] suffered" in the jurisdiction.16 Furthermore, one learned Canadian author has suggested that the Canadian test is in effect very similar to the American "minimum contacts" test for personal jurisdiction.17
Specific Defenses
Along with lack of jurisdiction, there are also specific defenses that can apply to stop a U.S. judgment from being enforced in Canada: fraud on the U.S. court, public policy, breach of natural justice, manifest error on the face of the judgment, and certain statutory defenses.
The general trend in Canadian law has been in favor of recognizing U.S. judgments. Thus, all of these defenses are narrowly construed. The courts clearly do not want to force parties to relitigate matters in Canada.
For example, the fraud defense is narrowly circumscribed to "fraud on the court," such that an allegation of "fraud on the merits" cannot be raised to stop enforcement of a U.S. judgment. In other words, for the fraud defense to succeed, the fraud in question must be an "extrinsic" fraud — not a fraud committed in the underlying dealings between the parties, but a fraud committed in the course of the foreign proceeding — which had the effect of denying to the defendant a fair and adequate opportunity to present its case to the foreign court. An example would be where a plaintiff submitted a fraudulent proof of service to the foreign court in circumstances where the defendant was in fact unaware of the action.
The B.C. Supreme Court restated the law in this area in December 2002, expressly rejecting the view that an allegation of fraud on the merits could provide a defense to an action on a U.S. judgment. In that case, the plaintiff was a New Yorker who sued a British Columbian on a promissory note, in the District Court for the Southern District of New York. The B.C. defendant did not appear in New York, and default judgment was granted. The New York plaintiff subsequently sued in B.C. for enforcement of the New York judgment, and moved for summary judgment. The defendant opposed, arguing that he had entered into the promissory note on the basis of "fraudulent misrepresentations," which he particularized in his statement of defense. The defendant urged the B.C. court to not grant judgment until after the plaintiff had been subjected to full documentary and oral discovery. However, the B.C. court rejected this argument, and granted judgment for the New York plaintiff. The court noted that the wider the scope of the fraud defense, the more likely it is that the Canadian court will be drawn into a re-examination of the merits of the claim. The court held that the B.C. defendant "cannot defend the judgment on the basis of fraud going to the merits," and must lose because "there is no evidence before me of fraud on the part of the plaintiff which deprived the defendant of an adequate opportunity to present his case in [the New York] court."18
Equally, although a foreign judgment will not be applied if it stands for a proposition that is contrary to the public policy of Canada, this does not mean that U.S. judgments will be denied simply because they are based upon substantive law that differs from Canadian law. For the public-policy defense to apply, the foreign judgment must be contrary to Canadian "essential morality" such that it is fundamentally inconsistent with the Canadian system of justice.19
The other defenses are similarly narrowly construed. A successful defense for breach of natural justice requires a "fundamental flaw" in the foreign proceedings, as "mere irregularities" will not suffice.20 It is unclear whether the "manifest error" defense continues to exist at all in the post-Morguard era.21 The statutory defenses address very specific matters such as claims relating to asbestos mined in B.C., or claims under the "Helms-Burton Act," and will have no impact on the enforceability of the vast majority of American judgments.22
Defendants can also delay matters by requiring that the American judgment be "final" (in the sense that the American court that rendered it no longer has the power to rescind or vary it in any way), and by obtaining a stay of proceedings or execution pending appeals in the United States.23
Enforcing Judgments in B.C. by Means of Reciprocal Enforcement of Judgments Legislation
As outlined above, you can prima facie enforce a Washington judgment in any province of Canada, including B.C., by means of bringing an action for enforcement relying upon Morguard and Moses.
In such an action, the defendant will have an opportunity to file a statement of defense, relying upon those defenses outlined above. The plaintiff can then move forward to judgment by way of either
summary trial or full trial. Documentary and oral discovery may be required, depending on how the summary trial application goes.
If you are considering enforcement in B.C., you have another option. You can, in some instances, utilize the reciprocal enforcement of judgments provisions that exist between Washington and B.C., which are found in Part 2 of B.C.'s Court Order Enforcement Act (COEA).24 Where applicable, these provide an expedited process for enforcement of a Washington judgment.
The COEA provisions allow a Washington judgment creditor to apply to the B.C. Supreme Court for registration of its Washington money judgment. Once registered, the judgment will be of the same force and effect as if it were a judgment of the B.C. Supreme Court given on the date of registration. Thus, from that date forward, execution proceedings may be taken upon it in B.C. without any impairment by virtue of its foreign nature.
However, there are a number of limitations and defenses. Specifically, the B.C. Supreme Court will not register a Washington judgment if it is more than six years old;25 the Washington court acted either without jurisdiction under B.C.'s conflict- of-laws rules, or under Washington state law;26 the defendant, being a person who was neither carrying on business nor ordinarily resident in Washington, did not voluntarily appear or otherwise submit during the proceedings to the jurisdiction of that court;27 the defendant was not duly served with the process of the Washington court and did not appear, even though he or she was ordinarily resident or was carrying on business in Washington or had agreed to submit to the jurisdiction of the Washington court;28 the judgment was obtained by fraud;29 an appeal is pending or the time in which an appeal may be taken has not expired;30 the judgment was for a cause of action that for reasons of public policy or for some similar reason would not have been entertained by the B.C. court;31 or the defendant would have a good defense if an action were brought on the judgment (i.e., if an action were brought under the common-law Morguard Principle).32
As can be seen, a defendant does have more defenses available under these provisions than under the common law. For example, a defendant who did not carry on business in Washington, was not a Washington resident, and did not voluntarily submit to the Washington proceedings could successfully oppose registration, even though Washington had a "real and substantial connection" to the dispute. Importantly, however, the COEA provides that these provisions do not deprive a judgment creditor from bringing an action on the judgment under the common law.33 It is thus simply an option that can be utilized in appropriate cases, to obtain enforcement through an expedited process.
Other limitations of the COEA provisions include the fact that they may be used only for money judgments (such that if the Washington judgment orders the payment of money and also other relief, the judgment may be registered for the purposes of the money portion only) and that they are not available for periodic payments of money as alimony or maintenance.34
Conclusion
Canadian law with respect to enforcing U.S. judgments has developed considerably in the past 15 years. In keeping with our era of liberalized international trade, the Canadian courts have reformed the common law from a position where U.S. judgments were prima facie unenforceable in Canada, to one where they are prima facie enforceable.
Furthermore, although some defenses remain that can potentially stop the enforcement of a U.S. judgment in Canada, those are relatively few and are narrowly construed. In most instances, the key question will be whether the U.S. court properly had jurisdiction over the matter, in the eyes of the Canadian court.
In the case of enforcing a Washington judgment in B.C., you are in a particularly good position, given that, in most instances, you can choose from either the common-law action for enforcement, or an expedited application under the COEA for registration of the Washington judgment.
Kimberly Jakeman is a member of both the Washington state and B.C. bars. She is a partner with Harper Grey Easton in Vancouver, B.C., where she practices civil litigation. John Sullivan is a member of the B.C. bar with an interest in multijurisdictional disputes. He also practices civil litigation with Harper Grey Easton. The authors can be reached by e-mail at kjakeman@hgelaw.com or jsullivan@hgelaw.com.
NOTES
1. U.S. CONST. Art IV, § 1: "Full Faith and Credit shall be given in each State to the public Acts, Records and judicial Proceedings of every other State."
2. Canada has its own constitution, consisting primarily of the Constitution Act, 1982, and the earlier Constitution Act, 1867 (usually referred to as the "British North America Act").
3. For these and other basic facts relating to the enormous trading relationship between Canada and the United States, see, inter alia, The Economist, "The Americas," March 15-21 (2003 ed.), 33, as well as the U.S. Department of Commerce's "National Trade Estimate 2002, Canada," and "National Trade Estimate 2002, European Union," found at www.export.gov, which records that in 2001 the U.S. imported $217 billion worth of goods from Canada, and exported $163.7 billion worth of goods to Canada. By comparison, U.S. exports to all 15 member states of the European Union in 2001 amounted to only $159.2 billion, or $4.5 billion less than U.S. exports to Canada. A substantial amount of that U.S.-Canada cross-border trade flows between Washington and B.C. For example, in 2000, British Columbians imported over $13 billion in U.S. products.
4. Regardless of whether it is a state court or federal court.
5. This principle takes its name from the decision of the Supreme Court of Canada in Morguard Investments v. De Savoye [1990] 3 S.C.R. 1077.
6. Emanual v. Symon [1908] 1 K.B. 302 (English Court of Appeal).
7. Morguard Investments v. De Savoye [1990] 3 S.C.R. 1077.
8. Morguard, supra, 1102. Plaintiffs can still invoke Emanual v. Symon if they wish. In other words, if the defendant appeared and participated in the foreign proceeding, it is not necessary to consider the "Morguard Principle" when seeking to enforce the judgment in B.C. Emanual v. Symon would be sufficient.
9. The Supreme Court of Canada addressed the constitutional nature of the Morguard Principle three years after Morguard, referring to the principle as a "constitutional imperative" in Hunt v. T&N plc [1993] 4 S.C.R. 289.
10. Moses v. Shore Boat Builders [1993] 83 B.C.L.R.2d 177 (C.A.).
11. Moses, supra, at 190. Shore Boat Builders sought to have this decision overturned, but the Supreme Court denied leave. See Moses v. Shore Boat Builders [1993] S.C.C.A. No. 496 (QuickLaw).
12. See, inter alia, Arrowmaster Incorporated v. Unique Forming Limited [1993] 17 O.R.3d 407 (O.S.C.J.); Beals v. Saldanha [2001] 54 O.R.3d 641 (Ontario Court of Appeal).
13. Braintech Inc. v. Kostiuk [1999] 63 B.C.L.R. 3d 156 (C.A.).
14. Jordan v. Schatz [2000] 77 B.C.L.R.3d 134 (B.C. Court of Appeal); Cook v. Parcel, Mauro [1997] 31 B.C.L.R.3d 24 (B.C. Court of Appeal).
15. Braintech, supra, at 171. It should be noted that the B.C. Court of Appeal's rejection of the notion that Internet accessibility in Texas is sufficient to provide the Texas courts with jurisdiction over a matter is consistent with American law on Internet jurisdiction. See, inter alia, Zippo Manufacturing v. Zippo Dot Com Inc., 952 F. Supp. 1119 (W.D. Penn. 1997); Ronnach Inc. v. Rannoch Corp., 52 F. Supp. 2d 681 (E.D. Virginia); and Young v. New Haven Advocate, 315 F.3d 256 (4th Cir. 2002). Indeed, the B.C. Court of Appeal quoted at length from the Zippo decision in reaching its conclusion that the Texas court did not properly have jurisdiction.
16. Jordan v. Schatz, supra.
17. See Hogg, Constitutional Law of Canada (Looseleaf ed.), vol. 1, ch. 13 5(b), "Jurisdiction." The American "minimum contacts" test for personal jurisdiction is derived from the "due process" provision contained in the 14th Amendment to the U.S. Constitution. See, inter alia, International Shoe Co. v. Washington, 326 U.S. 310; Calder v. Jones, 465 U.S. 783 (1984); and Zippo, supra.
18. Zaidenberg v. Hamouth [2002] B.C.J. No. 2834 (Can.) (QuickLaw). The Court in Zaidenberg relied heavily upon the earlier decision of the Ontario Court of Appeal in Beals v. Saldanha [2001] 54 O.R.3d 641. It should be noted that an application for leave to the Supreme Court of Canada has been accepted in Beals, and thus it is possible that the Supreme Court of Canada will be restating the ambit of the fraud defense in the near future. For an additional authority, see Stanton v. Gudbranson [1999] B.C.J. No. 896 (Can.).
19. See, inter alia, U.S.A. v. Ivey [1995] 130 D.L.R.4th 674 (O.S.C.J.), aff'd, [1996] 30 O.R.3d 370 (O.C.A.); Old North State Brewing Co. v. Newlands [1998] 58 B.C.L.R.3d 144 (C.A.); Beals v. Saldanha, supra. Some authorities indicate that part of the "public policy" defense is that Canadian courts will not recognize a foreign judgment where so doing would involve the Canadian court in the enforcement of the "penal," "revenue" or "other public laws" of another nation. See, inter alia, Lane & Baltser v. Estonian State Cargo & Steamship Line [1949] S.C.R. 530, where the Supreme Court of Canada refused to enforce an order from the Estonian Soviet Socialist Republic; and U.S.A. v. Ivey, supra.
20. See, inter alia, National American Insurance Co. v. Leong [1996] 49 C.P.C.3d 246 (B.C.S.C.) and U.S.A. v. Ivey, supra.
21. See, inter alia, Moses, supra, and Silver Star Properties v. Veinotte [1998] B.C.J. No. 2385 (QuickLaw), at para. 57.
22. For example, foreign judgments relating to "injury that arises out of exposure to or the use of asbestos that has been mined in B.C." are unenforceable pursuant to section 40(2) of B.C.'s Court Order Enforcement Act. Furthermore, any judgment given under the Cuban Liberty and Democratic Solidarity Act, 1996 (better known as the "Helms-Burton Act") are unenforceable pursuant to section 7.1 of Canada's Foreign Extraterritorial Measures Act.
23. See Four Embarcadero Centre v. Kalen [1988] 65 O.R.2d 551 (O.S.C.J.), at 563; A.T.U. v. I.C.T.U. [1998] 63 B.C.L.R.3d 335; and Rule 54(9) of the B.C. Supreme Court Rules.
24. Court Order Enforcement Act, R.S.B.C. 1996, ch. 78 (COEA). Along with British Columbia, the Provinces of Prince Edward Island and New Brunswick also have statutory schemes for the enforcement of Washington judgments.
25. Id. § 29(1).
26. Id. § 29(6)(a).
27. Id. § 29(6)(b).
28. Id. § 29(6)(c).
29. Id. § 29(6)(d).
30. Id. § 29(6)(e).
31. Id. § 29(6)(f).
32. Id. § 29(6)(g).
33. Id. § 38.
34. Id. §§ 28 and 29(8). It should be noted that there is specific legislation relating to the reciprocal enforcement of family support orders. See International Support Orders Act, S.B.C. 2002, ch. 29. However, that is beyond the scope of this article.
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