Barer v. Knight Brothers LLC, 2019 SCC 13
Private international law – Foreign judgments – Recognition – Personal actions of patrimonial nature
On appeal from a judgment of the Court of Appeal of Quebec (Vézina, Mainville JJ.A. and Jacques J. (ad hoc)), 2017 QCCA 597, affirming a decision of Blanchard J., 2016 QCCS 3471.
B, a Quebec resident, was sued personally in the state of Utah together with two companies he allegedly controlled, CBC and BEC. The suit was brought by Knight, a Utah-based company, which claimed that BEC had a balance owing under a contract between them. Knight argued that B had fraudulently misrepresented that the defendants would pay a certain amount, that the corporate veil of the two companies should be lifted, and that the defendants had been unjustly enriched. B brought a motion to have the claim against him dismissed on a preliminary basis, raising that: (1) Knight’s claim for fraudulent misrepresentation was barred at law; (2) the Utah court did not have jurisdiction over him personally; and (3) Knight had failed to show that the corporate veil should be lifted. The Utah court dismissed B’s motion and a default judgment was eventually rendered against all three defendants. Knight then sought to have that decision recognized in Quebec and declared enforceable against B. The Superior Court ruled that the Utah court’s jurisdiction could be recognized on three possible grounds. Two of them related to the contract between Knight and BEC and the promise to pay allegedly made by B. However, the main ground for recognizing the Utah decision was the fact that B had submitted to the Utah court’s jurisdiction. The Court of Appeal dismissed B’s appeal.
Held (Côté J. dissenting): The appeal should be dismissed.
Per Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Rowe and Martin JJ.:
The Utah decision should be recognized and enforced against B in Quebec. B submitted to the Utah court’s jurisdiction in accordance with art. 3168(6) of the Civil Code of Québec (“C.C.Q.”) by presenting substantive arguments in his motion to dismiss that, if accepted, would have resolved all or part of the dispute. This submission suffices to recognize the jurisdiction of the Utah court under the Quebec rules of indirect international jurisdiction. Given that the dispute has a substantial connection with Utah in light of B’s submission to the jurisdiction, art. 3164 C.C.Q. does not bar the recognition of the Utah court’s judgment against him.
In accordance with the aim of facilitating the free flow of international trade, art. 3155 C.C.Q. establishes the principle that a decision rendered outside Quebec will generally be recognized and declared enforceable in the province. This provision lists six exceptions that allow Quebec courts to depart from that general principle and refuse to recognize a foreign decision, the first being where a judgment is rendered by an authority that had no jurisdiction over the dispute under the C.C.Q.
With respect to this first exception, Title Four of Book Ten of the C.C.Q. specifies the circumstances in which Quebec courts will recognize foreign jurisdiction. The purpose of these rules is to determine whether it is appropriate to integrate specific decisions rendered outside Quebec into the province’s legal system. Such recognition of a foreign authority’s jurisdiction by local courts in accordance with the rules prescribed by local law has been referred to as the indirect international jurisdiction of the foreign authority. In personal actions of a patrimonial nature, art. 3168 C.C.Q. lists six situations where Quebec courts may find that a foreign authority has indirect international jurisdiction. The use of the word “only” in the opening sentence of art. 3168 C.C.Q. signals that the grounds enumerated are exhaustive, and the presence of a single ground will suffice to recognize jurisdiction.
Quebec courts must ascertain that the foreign authority had jurisdiction over the matter under the rules of the C.C.Q. This requires them to make a positive finding of jurisdiction; they cannot limit themselves to determining whether the party opposing recognition has satisfactorily proved lack of jurisdiction. An application for recognition and enforcement is a judicial demand giving rise to an adversarial relationship to which the general rules of civil procedure apply. In this context, parties are not exempted from the requirement imposed by art. 2803 C.C.Q. of proving the facts on which the right to recognition and enforcement is based. The foreign authority’s jurisdiction is one such fact, and the onus is on the party seeking recognition to establish that fact and thus, to prove the facts upon which the foreign authority’s indirect international jurisdiction is based.
The jurisdiction of the Utah court in the instant case cannot be established under art. 3168(3) or (4) C.C.Q. Article 3168(3) C.C.Q. provides that the jurisdiction of a foreign authority is recognized in Quebec if both the injury and the fault that gave rise to the injury occurred in the State where the decision was rendered. For its part, art. 3168(4) C.C.Q. states that a foreign authority’s jurisdiction is recognized where its decision concerns obligations arising from a contract that were to be performed in that State. In this case, the exhibits filed by Knight before the Superior Court were essentially limited to documents reflecting the progress of the proceedings in Utah. Knight could not rely on the allegations in its own proceedings before the Utah court in order to establish that court’s jurisdiction over B according to the rules of the C.C.Q. It had to adduce evidence before the Quebec enforcing court to meet its burden of establishing the grounds for recognition upon which it was relying. Knight failed to provide any evidence with regard to either art. 3168(3) or (4) insofar as B was personally concerned. Accordingly, the Superior Court could not, on this record, recognize the Utah court’s jurisdiction under either of those subparagraphs.
However, the lower courts were justified to conclude that the ground for recognition under art. 3168(6) C.C.Q., submission to jurisdiction, was met in this case. Contrary to the grounds under art. 3168(3) and (4), the procedural facts underlying the claim under art. 3168(6) C.C.Q. are all supported by the exhibits filed. Submission has long been recognized in Quebec case law as a basis for a court’s jurisdiction, and is now expressly provided for in art. 3168(6). The question of whether the defendant has submitted to the jurisdiction of the foreign authority is assessed in light of the rules of indirect international jurisdiction set out in the C.C.Q. Under Quebec law, submission to jurisdiction can be either explicit or implicit, but it must be clear. After having submitted to the jurisdiction of an authority, a defendant cannot withdraw its consent. The orderly administration of justice requires that, once jurisdiction has been validly established, the case proceed in the same forum regardless of the changing whims of the parties. Submission to jurisdiction is a question of mixed fact and law, as it involves applying a legal standard to a set of facts, weighing these facts and drawing inferences. Such a determination is not to be overturned absent palpable and overriding error, provided no extricable legal questions have been identified.
A defendant submits to jurisdiction when it presents substantive arguments which, if accepted, would resolve the dispute — or part of the dispute — on its merits. Parties who choose to advance substantive arguments to further their positions in a forum consent to the jurisdiction of that authority. The “save your skin” approach to submission to jurisdiction, whereby a defendant who presents a defence on the merits at the same time as its jurisdictional arguments will not be taken to have submitted to jurisdiction, should be rejected. In this case, B presented at least one argument pertaining to the merits of the action against him in his motion to dismiss, which, if accepted, would have led to a final conclusion in his favour. The argument that Knight’s fraudulent misrepresentation claim was barred at law could have led the Utah court to conclusively dismiss that claim. Such a ruling would have attracted the authority of res judicata and precluded Knight from asserting that claim in another jurisdiction. B’s argument was thus akin to a defence on the merits for the purposes of submitting to the Utah court’s jurisdiction. B has also failed to establish that, as a result of Utah procedural law, he had to proceed as he did and present all of his preliminary exceptions together. None of the evidence he adduced before the Superior Court supports that claim, and thus the latter made no palpable and overriding error in determining that submission to jurisdiction was established on the record.
B’s submission to jurisdiction under art. 3168(6) C.C.Q. clearly establishes a substantial connection between the dispute and the Utah court. The substantial connection test is set out in art. 3164 C.C.Q. and establishes the general principle for recognition of foreign authorities’ jurisdiction. It is not necessary to resolve in this case the issue of whether the establishment of a ground for recognition of the foreign authority’s jurisdiction under art. 3168 C.C.Q. always satisfies the requirement for a substantial connection between the dispute and the forum under art. 3164 C.C.Q. Here, the fact that B participated in the legal proceedings in Utah to the extent of submitting to the Utah court’s jurisdiction suffices amply and raises no question as to whether the dispute is substantially connected with Utah and the Utah court.
Per Brown J.:
There is agreement with the majority that the appeal should be dismissed, but for different reasons. B has not submitted to the jurisdiction of the Utah court within the meaning of art. 3168(6) of the C.C.Q.;rather, the jurisdiction of the Utah court has been established under arts. 3168(4), 3164 and 3139 C.C.Q.
When deciding whether to recognize a foreign decision, Quebec courts must review the evidence submitted to ensure that the foreign authority had jurisdiction under the rules of the C.C.Q. The record placed in the instant case is sufficient to decide whether art. 3168(4) C.C.Q. can support a finding of the Utah court’s jurisdiction. The causes of action asserted by Knight against the three defendants are all so closely connected that they represent different aspects of a single contractual dispute over which the Utah court had jurisdiction pursuant to art. 3168(4) C.C.Q. Article 3168(4) C.C.Q. deals with jurisdiction based on connections with the subject-matter of the dispute, and not with jurisdiction based on connections with the defendant. All co-defendants are connected to the subject-matter of the dispute, which is contractual by nature, and which falls squarely within the jurisdiction of the Utah court under art. 3168(4) C.C.Q.
The fact that B is not a party to the contract does not preclude art. 3168(4) C.C.Q.’s application, insofar as other provisions of the C.C.Q., such as arts. 3164 and 3139, confirm that the Utah court had jurisdiction against B personally. Restricting the application of art. 3168(4) C.C.Q. in such a way would have the impermissible effect of imposing upon a plaintiff the burden of proving, before a Quebec court, its allegations of alter ego or fraud in order to justify the lifting of the corporate veil pursuant to art. 317 C.C.Q. This is impermissible because the question of whether to lift the corporate veil is a substantive legal issue, not a jurisdictional one. Quebec courts cannot review the merits of a case or retry parts thereof under Quebec’s recognition procedure (art. 3158 C.C.Q.). Thus, a defendant should not be able to resist recognition and enforcement on the ground that the foreign authority should not have lifted the corporate veil. Further, such a narrow interpretation of art. 3168(4) is incompatible with the recent decision of Lapointe Rosenstein Marchand Melançon LLP v. Cassels Brock & Blackwell LLP, 2016 SCC 30,  1 S.C.R. 851, in which the Court stated that a connection between a claim and a contract does not necessarily require that a defendant be a party to the contract. In support of this conclusion, the Court referred by analogy to art. 3139 C.C.Q., the provision granting jurisdiction to Quebec courts for reasons of administrative convenience. Article 3139 C.C.Q.provides that if a Quebec authority has jurisdiction to rule on the principal demand, it also has jurisdiction to rule on an incidental demand.
Courts must interpret Quebec’s private international law rules as a coherent whole, in accordance with the general principles of interpretation of the C.C.Q. and the principles of comity, order and fairness which inspire the interpretation of these rules. Answering the question of whether and on what conditions art. 3139 C.C.Q. can be invoked to establish the jurisdiction of a foreign authority against a particular co-defendant requires interpreting art. 3164 C.C.Q. The scope of these provisions, and their relationship with art. 3168(4), cannot be determined in isolation. According to art. 3164 C.C.Q., the recognized grounds for establishing the jurisdiction of a foreign authority are essentially those available to Quebec courts as listed under Title Three. This is referred to as the principle of jurisdictional reciprocity, or the mirror principle. Title Three is divided into two Chapters: Chapter I (“General Provisions”) and Chapter II (“Special Provisions”). The jurisdiction of a foreign court should be assessed by looking to both Chapters.
By referring generally to Title Three, art. 3164 C.C.Q. authorizes a Quebec court to recognize the jurisdiction of a foreign authority on the basis of one of the “General Provisions” situated in Chapter I of that Title, such as the provision granting jurisdiction for reasons of administrative convenience (art. 3139 C.C.Q.). Consequently, in personal actions of a patrimonial nature, satisfying the jurisdictional requirement of article 3168 C.C.Q. may not always be necessary for the purposes of recognition under Quebec law. Though the exclusive language of art. 3168 C.C.Q. may appear to suggest otherwise, it should not be overstated. Absent the use of the word “only” under art. 3168 C.C.Q., the mirror effect of art. 3164 C.C.Q. would direct Quebec courts to decide the jurisdiction of a foreign authority by applying one of the subparagraphs of art. 3148 para. 1 C.C.Q. The exclusive language in art. 3168 C.C.Q. indicates that, notwithstanding the mirror principle, art. 3148 C.C.Q. cannot be relied upon to determine the jurisdiction of the foreign authority in such circumstances. Therefore, art. 3168 C.C.Q. does not preclude a Quebec court from recognizing the jurisdiction of a foreign authority on the basis of one of the “General Provisions” situated in Chapter I of Title Three.
However, art. 3164 C.C.Q. does not authorize a Quebec court to apply the requirement of a substantial connection between the dispute and the foreign authority so as to reject a foreign court’s exercise of jurisdiction even where one of art. 3168’s jurisdictional criteria is satisfied. Book Ten of the C.C.Q., stating as it does the private international law of Quebec, encapsulates the requirement of a real and substantial connection. Thus, a real and substantial connection does not operate as an additional condition to those contained in art. 3168 C.C.Q.; it is rather given expression by the scheme contained within Book Ten. The view that art. 3164 C.C.Q. requires a substantial connection between the dispute and the forum, even where one of the conditions for jurisdiction of a foreign authority is established under art. 3168 C.C.Q., finds no support and is inconsistent with the text of art. 3164 C.C.Q. Any concern for a substantial connection under this provision arises only where the jurisdiction of a foreign authority is established on the provisions of Title Three. Furthermore, art. 3168 C.C.Q. is more restrictive than the mirror provision of art. 3148 C.C.Q. precisely in order to ensure the existence of a substantial connection. However, Quebec courts must still conduct an independent inquiry into the existence of a substantial connection between the dispute and the foreign authority where the court bases its finding of jurisdiction on one of the “General Provisions” in Chapter I of Title Three.
Article 3139 C.C.Q. is a jurisdiction-granting provision that ensures the efficient use of judicial resources and efficiency in the administration of justice by fostering the joinder of proceedings. The term “incidental demand” in art. 3139 C.C.Q. should be read as including a related or connected claim. Thus, in personal actions of a patrimonial nature, the jurisdiction of a foreign authority over a particular co-defendant can be established in accordance with art. 3139 C.C.Q., even where that co-defendant is not a party to the contract upon which the foreign authority’s jurisdiction is grounded, if (a) that foreign authority has jurisdiction over the main contractual dispute pursuant to art. 3168(4) C.C.Q.; (b) the claim against the co-defendant is connected to the contract; and (c) there is a substantial connection between the dispute and the foreign authority’s State pursuant to art. 3164 C.C.Q. In this case, the Utah court had jurisdiction over the main contractual dispute between Knight and BEC under art. 3168(4) C.C.Q., and the claims of alter ego and fraud made against B personally were clearly connected to the contract. B participated in the legal proceedings in Utah and admitted to having had a key role in dealing with Knight for the performance of a contract to be executed in Utah. Furthermore, the alter ego claim made against B personally is governed by Utah law. Accordingly, there is a substantial connection between Utah and both the object of the dispute and the parties for the purposes of satisfying art. 3164 C.C.Q. It is in the interests of justice to have connected claims decided together by one forum. The Utah court chose to assert its jurisdiction over all aspects of the case. This choice was open to it, and should be respected in light of the principle of international comity.
Per Côté J. (dissenting):
The appeal should be allowed. The Utah court’s jurisdiction cannot be established under art. 3168 C.C.Q. and the dispute is not substantially connected with Utah as required by art. 3164 C.C.Q. As a result, the decision cannot be recognized against B.
There is agreement with the majority’s conclusion that Knight did not meet its burden of establishing the Utah court’s jurisdiction over B insofar as arts. 3168(3) and (4) are concerned. Contrary to cases where a Quebec court is considering its own jurisdiction, in an application to recognize a foreign decision, the general rules of evidence apply, meaning that the allegations will not be accepted as averred and a prima facie showing will not be sufficient. Along with its application, Knight filed documentary evidence that essentially consisted of the pleadings and decisions from the proceedings before the Utah court. None of the documents submitted offered any evidence with regard to a fault committed by B in Utah or a contractual obligation to be performed by him in that State. The alleged promise to pay and the alter ego allegations against B have yet to be proven in court. B expressly denied those allegations, and no evidence of the alleged promise to pay, its content or its acceptance was adduced at any other time in the Utah proceedings. The decisions of the Utah court filed as evidence are default judgments and contain no findings of fact that may be relied on in the Quebec proceedings to conclude that the foreign authority had jurisdiction.
Given that B is not himself a party to the contract at issue, Knight could not rely on art. 3168(4) C.C.Q. absent evidence that would have allowed the corporate veil to be pierced under Quebec law. Article 3168(4) C.C.Q. cannot be relied on to establish jurisdiction against anyone remotely associated with a contract regardless of whether they are a party to that contract. This provision requires a connection not only with the object of the dispute (i.e. the contract), but also with the defendant (i.e. the person liable for the contractual obligations). Holding otherwise would render this connecting factor indeterminate and diffuse, such that it would become difficult for litigants to predict with reasonable certainty whether a foreign decision rendered against them may be recognized in Quebec. Thus, where the defendant is not a party to the contract at issue, the plaintiff cannot rely on art. 3168(4) C.C.Q. unless it is shown that the defendant is otherwise personally responsible for the contractual obligations under Quebec law. In practice, it would be insufficient to show that BEC was B’s alter ego. Knight would have also had to present evidence establishing that B invoked BEC’s juridical personality “so as to dissemble fraud, abuse of right or contravention of a rule of public order” within the meaning of art. 317 C.C.Q. The nature and scope of a connecting factor codified in the C.C.Q. such as the obligations arising from a contract must be determined according to the law of Quebec. In this case, there is no evidence that would justify piercing the corporate veil for jurisdictional purposes. Requiring such evidence does not amount to an impermissible review of the merits of the case, but rather serves to verify whether the requirements for recognition are met.
The Superior Court erred in law in finding that B submitted to the Utah court’s jurisdiction pursuant to art. 3168(6) simply by raising substantive arguments in his motion to dismiss. The test set out by the majority is too strict. It ignores the fact that the defendant’s subjective intent must be taken into account. A more flexible approach should be adopted, one that allows a defendant wishing to contest the jurisdiction of a foreign authority to argue why the authority lacks jurisdiction without risking being found to have submitted to that jurisdiction. A defendant must be permitted to raise arguments and considerations capable of convincing a foreign authority that it should not assume jurisdiction, and it is unreasonable to suggest that any defendant who does so necessarily submits to the foreign authority’s jurisdiction. This would leave defendants in a “catch-22” situation. If they attempt to challenge the jurisdiction of a foreign authority, they risk being found by a Quebec court to have submitted to that jurisdiction. If they do not, they will likely be faced with a foreign default judgment which could seriously limit their ability to conduct business (or any other activities) in the foreign jurisdiction. The practical implications are real and serious.
On the facts of this case, there is little support for the inference that B submitted to the jurisdiction of the Utah court. While B did make some substantive arguments, they were presented alongside jurisdictional arguments. Submission to jurisdiction can be either explicit or implicit, but it must be clear. In alleging that the Utah court had jurisdiction over B, Knight bore the burden of proving that B had a choice under Utah procedural law not to proceed as he did when he presented substantive arguments in his motion to dismiss. This is consistent with the well-established principle that in Quebec, the plaintiff bears the burden of proving the facts upon which the court’s jurisdiction is based. Knight has not met its burden in this regard. There is no evidence in the record to indicate that B had the procedural choice not to raise certain substantive arguments at the stage of objecting to jurisdiction.
As none of the connecting factors under art. 3168 C.C.Q. is present, there is no need to consider whether the dispute is substantially connected with the foreign State under art. 3164 C.C.Q. The wording of art. 3168 C.C.Q. makes clear that in personal actions of a patrimonial nature, the jurisdiction of foreign authorities is recognized only where one of the listed factors is present. However, had it been found that B submitted to the Utah court’s jurisdiction, there would still be no substantial connection between the dispute and Utah under art. 3164 C.C.Q.
There will be exceptional circumstances in which a substantial connection will need to be demonstrated under art. 3164 C.C.Q. even where one of the connecting factors in art. 3168 C.C.Q. has been met. Evidence of one of the factors in art. 3168 C.C.Q. being present will generally be sufficient to demonstrate a substantial connection and thus to establish jurisdiction. Nevertheless, this will not always be the case. Requiring that a substantial connection between the dispute and the foreign State be demonstrated even where art. 3168 C.C.Q. is engaged is consistent with the language, context and purpose of art. 3164 C.C.Q., as well as with the principle of comity and the values of order and fairness underlying the rules of private international law.
Article 3164 C.C.Q. is the first article and key provision of the chapter of the C.C.Q. that sets out the rules applicable to the jurisdiction of foreign authorities. It establishes the general principle of reciprocity, or mirror principle, whereby the jurisdiction of foreign authorities is established in accordance with the rules on jurisdiction applicable to Quebec authorities under Title Three. To that general principle of reciprocity, art. 3164 C.C.Q. adds the further requirement that a dispute be substantially connected with the foreign State whose authority is seized of the matter. The reference to Title Three is not meant to limit the application of that fundamental requirement, but simply to express the reciprocity principle which serves as the foundation for Title Four. As such, the subsequent provisions of Title Four, which include art. 3168 C.C.Q., do not displace, or entirely subsume, the requirement of a substantial connection. The substantial connection requirement is meant to prevent Quebec courts from recognizing a foreign decision where the connection is so weak that recognition would be inappropriate.
This is one of the exceptional cases in which a separate substantial connection analysis would have been warranted. Specifically, where a defendant is found to have submitted to the jurisdiction of a foreign authority pursuant to art. 3168(6) C.C.Q., further evidence may be required to establish a substantial connection between the dispute and the forum. This will be the case where submission has been reluctant and largely involuntary, and where the defendant has not presented a defence on the merits but has merely challenged the foreign authority’s jurisdiction. Submission does not in itself establish an actual connection between the underlying dispute and the foreign State, as it is more properly understood as a distinct ground for jurisdiction. Unless there is extensive participation in foreign proceedings, other factors should be considered to determine whether a substantial connection exists. In the present case, the mere fact that B made substantive arguments in his motion to dismiss does not establish a substantial connection between the dispute and Utah. Nor does B’s involvement as President of BEC, or the fact that Utah law may have applied to certain claims made against him personally. Further, a substantial connection cannot be presumed on the mere basis that it appears more convenient to recognize a foreign decision in a given situation, for instance by having a single forum decide related claims. Convenience is not an independent ground for jurisdiction.
Finally, and even if we are to assume that art. 3139 C.C.Q. may be relied upon to recognize a foreign decision through the mirror effect of art. 3164 C.C.Q., it could not be applied in the instant case. The action against B is a principal demand, not an incidental demand. Additionally, art. 3139 C.C.Q. cannot be relied upon to extend jurisdiction over any related claim. Such a broad interpretation would be inconsistent with the text of the provision. Furthermore, it would allow B to do indirectly what cannot be done directly. B does not fall within the ambit of art. 3168(4) C.C.Q. because he is not himself a party to the contract. Article 3139 C.C.Q. cannot be used to circumvent the requirement of adducing evidence justifying the piercing of the corporate veil in order for art. 3168(4) C.C.Q. to apply.
Reasons for Judgment: Gascon J. (Wagner C.J. and Abella, Moldaver, Karakatsanis, Rowe and Martin JJ. concurring)
Concurring Reasons: Brown J.
Dissenting Reasons: Côté J.
Neutral Citation: 2019 SCC 13
Docket Number: 37594