Canadian Appeals Monitor Information and Commentary on Upcoming and Recent Appeal Court Decisions

No Place To Hide: Service In States That Are Not Signatories To The Hague Convention

Posted in Case Comments, Procedure
Eric Pellegrino

On February 23, 2017, the Supreme Court of Canada refused leave to appeal the Court of Appeal’s decision in Xela Enterprises Ltd. v. Castillo: a case in which the Court determined that it is acceptable to serve parties in accordance with the Rules of Civil Procedure in states that are not signatories to the Hague Convention.

By leaving in place the Court of Appeal’s decision, the Supreme Court of Canada has given Ontario litigants greater certainty that defendants in non-participating states cannot shield themselves from fair service based on the domestic rules of that state.

Background

In March 2013, the Respondents made attempts to serve the Appellants, individuals residing in Guatemala and companies carrying on business in Guatemala, with a fresh as amended Statement of Claim.  The difficulty for the Respondents was that Guatemala is not a signatory to The Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the “Hague Convention”).  The Hague Convention provides streamlined means for parties to effect service of judicial and extrajudicial documents on parties in participating states.

As Guatemala is not a participating state, the Respondents sought to effect service under Rule 17.05(2) of the Ontario Rules of Civil Procedure (the “Rules”).  Rule 17.05(2) permits service on a party in a non-participating state either in the ways permitted by that state or in the ways permitted by the Rules.

The Respondents delivered copies of the Statement of Claim to the Appellants’ businesses and residences in Guatemala, in addition to the offices of their American and Canadian lawyers.  The Respondents then moved for and obtained an order that service had been effected, despite not being in compliance with Guatemalan law.  The Appellants’ appeal of that decision to the Divisional Court was dismissed.

The Appellants then appealed to the Court of Appeal on the basis that the Divisional Court erred in interpreting Rule 17.05(2), by failing to interpret it in a manner consistent with Canada’s international law obligations.  The Court of Appeal dismissed the appeal, concluding that:

  1. Rule 17.05(2) does not violate the principles of international law around state sovereignty because it does not purport to legalize service that would be illegal in Guatemala, nor does it purport to declare Ontario as the proper forum for an action. It simply provides a means to effect service on a party in a non-participating state for the purposes of an action initiated in Ontario; and
  2. Even if Rule 17.05(2) does violate principles of international law, a plain reading of the Rule demonstrates that it was the express legislative intent to do so. Rule 17.05(2) permits the serving party to decide whether to effect service in accordance with the Rules or the service rules of the non-participating state.  Clearly it was not the legislative intent to make this choice illusory by only permitting service in accordance with the Rules if doing so also happened to comply with the service rules of the non-participating state.

However, the Court cautioned that its decision dealt only with the procedural step of service, not the broader assessment of the proper jurisdiction and forum for an action.

Potential Significance

This decision is significant because the Supreme Court of Canada declined to involve itself in the determinations of the Ontario appellate courts below.  Litigants now have greater certainty that potential defendants in non-participating states cannot shield themselves from fair service based on the domestic rules of that state – at least, for actions initiated in Ontario.

That said, effecting service is only the beginning of the battle.  Parties can still challenge whether Ontario has jurisdiction and whether it is the proper forum.  Even then, there is no guarantee that an Ontario judgment would be recognized and enforced by the non-participating state if its domestic rules of service were not followed from the outset.

Case Information

Xela Enterprises Ltd. v. Castillo, 2016 ONCA 437 

Docket: C60470

Date: June 3, 2016

Juan Luis Bosch Gutiérrez, et al. v. Xela Enterprises Ltd., et al., 2017 CanLII 8581 (SCC)

Docket: 37171

Date: February 23, 2017