The decision of the Ontario Court of Appeal in Xela Enterprises Ltd et al v Castillo et al (“Xela”) 2016 ONCA 437, is the most recent addition to the legal saga of one of Guatemala’s most wealthy and powerful families.
The decision in Xela is the leading case on how to serve a document on a party residing in a country that is not a signatory to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (“Hague Service Convention”). The principles in Xela must be considered when applying Rule 17.05(2) of the Ontario Rules of Civil Procedure.
The Facts and Procedural History
The plaintiffs are individuals who live in Canada or are companies that carry on business in Canada. The plaintiffs, who include Juan Arturo Gutierrez and his son, Juan Guillermo Gutierrez, sued Juan Arturo Gutierrez’s children, nephew and sister-in-law for $400 million in damages related to fraud, breach of fiduciary duty, conspiracy to commit tortious acts and unjust enrichment. The defendants reside in Guatemala.
On February 28, 2013, the plaintiffs amended their statement of claim and attempted to serve the fresh statement of claim on the Guatemalan defendants. They emailed a copy to the defendants’ Canadian counsel, left a copy at the defendants’ business, and couriered copies to their Guatemalan businesses and residences.
After attempting service, the plaintiffs brought a motion to validate or substitute service on the Guatemalan defendants.
At the motion, the defendants argued that in order for service to be valid in Ontario it must be done in accordance with Guatemalan law. The defendants stated that to find otherwise would violate Canada’s international law obligations and the principle of comity, the principle that countries will mutually recognize each other’s laws.
In Guatemala, direct service by a party violates the Guatemalan constitution and is subject to a penalty. Instead, the courts must appoint notaries to effect service. At the motion, all parties agreed that the defendants were not served in accordance with the Rules of Service of Guatemala.
At the Superior Court level, Justice J.A. Thorburn found that service on the individual defendants was attempted but unsuccessful. However, she validated service because a copy of the fresh statement of claim had come to the defendants’ attention. For the corporate defendants, Justice Thorburn held that service was effective because a copy was left with a person appearing in control or management of the place of business.
The decision was appealed to the Divisional Court and heard before Justices Corbett, Perell and Gilmore. The Divisional Court dismissed the appeal.
Ontario Court of Appeal Decision
The matter was appealed to the Ontario Court of Appeal and heard before Justices Weiler, LaForme and Huscroft. The Court dismissed the appeal.
The issue before the Court of the Appeal was whether parties residing in a country that is not a signatory to the Hague Service Convention, be served in accordance with Ontario Rules.
The Court explained that the procedure for service of documents outside of Ontario is provided in Rule 17.05 of the Rules of Civil Procedure. Service is governed by a different Rule depending on whether the defendant resides in a country that is a signatory to the Hague Service Convention. If it is a signatory, then service must be through the Central Authority (Rule 17.05(3)). If the country is not a signatory to the Hague Service Convention, Rule 17.05(2) provides as follows:
(2) An originating process or other document to be served outside Ontario in a jurisdiction that is not a contracting state may be served in the manner provided by these rules for service in Ontario, or in the manner provided by the law of the jurisdiction where service is made, if service made in that manner could reasonably be expected to come to the notice of the person to be served. R.R.O. 1990, Reg. 194, r. 17.05 (2).
Guatemala is not a party to the Hague Service Convention, thus service on the defendants was governed by Rule 17.05(2).
No Violation of International Law
The appellants argued that Rule 17.05(2) must be interpreted to respect Guatemalan sovereignty because the Ontario method of service would be illegal in Guatemala. To this, the Court of Appeal stated that Rule 17.05(2) merely provides an option for service. While the method of service is illegal in Guatemala and subject to a penalty, the Court stated that it wasn’t clear that the penalty applied to service ex juris. Further, the penalty appeared to be in the de minimis range. It did not violate Guatemalan sovereignty because ultimately, the defendants could challenge Ontario’s jurisdiction based on forum non conveniens.
Principle of Conformity is Rebutted
The appellants also argued that Rule 17.05(2) should be interpreted to mean service within the law of the destination country - to interpret otherwise would be against the principle of conformity. The principle of conformity states that Canadian courts should strive to avoid construction of domestic laws that violate international obligations unless there is a clear legislative intent. It is a rebuttable presumption. The Court of Appeal held that Rule 17.05(2) was enough to rebut the presumption. Rule 17.05(2) expressly provides a choice to the serving party to serve documents pursuant to Ontario Rules or pursuant to the law of the jurisdiction. To require service in accordance with Guatemalan law would be to remove the choice that is provided for in Rule 17.05(2).
Analysis
This case is now the leading decision on Ontario’s Rule 17.05(2) and its application. It is noteworthy because where a party resides in a country that is not a signatory to the Hague Service Convention, they may be served in a manner that is illegal in their own jurisdiction, yet valid in Ontario.
It is interesting to note that the Court of Appeal did not address whether the plaintiffs attempted to serve the defendants in accordance with Guatemalan law, and if not, why. It was enough that they had attempted service pursuant to the Ontario Rules only.
Practically, this ruling provides certainty for Ontario courts and litigants. Litigants are not required to research service requirements for specific countries, nor comply with them. Further, the application of this case extends beyond civil actions and into family law actions because the Family Law Rules do not specifically provide for service outside Ontario.
However, parties applying this case must be aware that this judgment may invite process servers in non-contracting states to break domestic laws. This may or may not result in violations and penalties for the client in Ontario. For this reason, it is still advisable to be aware of the service laws of the non-contracting state and their penalties.
This case raises legal, practical and political issues. The appellants have applied for leave to appeal to the Supreme Court of Canada. If granted, the Supreme Court may provide some definitive guidance in this area. This discussion is also set against the backdrop of ongoing negotiations of bilateral and multilateral international trade agreements and the unprecedented scale of movement of people across international borders. Without a Supreme Court ruling, we can expect further debate on this subject.
About the authors
Stacey Hsu is an associate at Reisler Franklin LLP where she practices civil litigation with a focus on insurance defence. She is an elected member of Council on the OBA and can be reached at shsu@reislerfranklin.com
Daniel Reisler is a founding partner of Reisler Franklin LLP. He has made numerous appearances at the Court of Appeal for Ontario but is probably best known as jury trial counsel. He may have conducted more civil jury trials than any lawyer in Canada. He is a past President of Canadian Defence Lawyers and has been active in DRI – The Voice of the Defense Bar and IADC, the International Association of Defense Counsel. Dan can be reached atdreisler@reislerfranklin.com