The Court of Appeal for Ontario recently decided Amtim Capital Inc v Appliance Recycling Centers of America,1 which considered the enforceability of a US default judgment in a contractual dispute. The court upheld the motion judge’s decision not to grant a stay or dismissal of the proceeding on the basis of the foreign court’s judgment.

This case is of interest to those with multijurisdictional business interests, and is an important reminder that courts have discretion in applying the doctrine of res judicata, and that parties cannot avoid the hearing of their dispute on the merits by “racing” to obtain default judgment in a foreign jurisdiction.

Background

The claim in Amtim involved a contractual dispute between Amtim, an Ontario corporation, and Appliance Recycling Centers of America (ARCA), a Minnesota corporation. ARCA’s Canadian subsidiary held a contract with the Ontario Power Authority to recycle appliances. Amtim contracted with ARCA to manage its Canadian operations. The parties found themselves in a dispute over the terms of their agreement, in particular the provisions governing the calculation of Amtim’s compensation. ARCA commenced an action in Minnesota, claiming a declaration that it owed Amtim nothing. Days later, Amtim brought its own action in Ontario seeking damages of $1.6 million.

The Minnesota default judgment and ARCA’s failed motion to stay

Amtim unsuccessfully brought a motion to dismiss the Minnesota action, and, upon Amtim’s failure to defend itself there, the Minnesota court entered a default judgment in favour of ARCA pursuant to special declaratory relief legislation.  

ARCA then moved to have the Ontario action stayed on the basis of forum non conveniens, but its motion was denied. The motion judge found that Ontario had the closest connection to the dispute. ARCA appealed that decision to the Court of Appeal, which dismissed its appeal. In rendering its reasons, the court noted ARCA’s submission that the US default judgment was the definitive factor in the dispute would result in a “race to the courthouse and then to judgment.”2

ARCA’s motion to dismiss on the basis of res judicata

Following its failed appeal, ARCA brought a subsequent motion to dismiss on the grounds that Amtim’s claim for damages was res judicata due to the US default judgment. The motion judge dismissed ARCA’s motion, and reviewed the law regarding enforcement of foreign judgments. In reaching his decision that the Ontario action did not equate to a proceeding for the same cause of action as the default judgment, the motion judge emphasized that the US court had not considered the merits of the dispute, and that the Ontario action sought damages rather than a declaration.  

The Court of Appeal’s decision

ARCA appealed the motion judge’s decision, and argued the lower court had incorrectly held that Ontario was the only jurisdiction with a real and substantial connection to the dispute. Furthermore, ARCA submitted it was Amtim’s fault that a full hearing on the merits did not take place due to its failure to participate in the Minnesota hearing. The court rejected ARCA’s arguments, and took a purposive approach to the doctrines of res judicata and issue estoppel. Namely, the court noted both doctrines were developed to advance justice, and are not subject to mechanical application where the result would not accord with their purposes.  

On the facts, the court held there were a host of factors that justified the motion judge’s refusal to stay the proceedings. In dismissing ARCA’s appeal, the court emphasized its respect for the principles of comity and respect for foreign judgments, but noted it was comforted by jurisprudence suggesting that American courts would be similarly concerned by a “race to res judicata.”  

This decision is an important reminder to parties facing foreign judgment that Ontario courts may refuse to recognize negative declaratory relief where doing so would bar the plaintiff’s action in the jurisdiction most closely tied to the dispute.  

Dana Carson