



COURT OF APPEAL FOR ONTARIO

CITATION: Khan Resources Inc. v. Atomredmetzoloto
    JSC, 2013 ONCA 189

DATE: 20130402

DOCKET: C55360

Laskin, Rosenberg and Tulloch JJ.A.

BETWEEN

Khan Resources Inc., Khan Resources LLC, Cauc
    Holding Company Limited, Central Asian Uranium Company LLC, Khan Resources B.V.
    and Khan Resources Bermuda Ltd.

Plaintiffs/Appellants

and

Atomredmetzoloto JSC and JSC Priargunsky
    Industrial Mining and Chemical Union

Defendants/Respondents

James Doris and Derek Ricci, for the appellants

Robert Frank and Erik Penz, for the respondents

Heard: September 11, 2012

On appeal from the order of Justice Brian P. OMarra of
    the Superior Court of Justice, dated March 9, 2012, with reasons reported at
    2012 ONSC 1522, 110 O.R. (3d) 298, allowing an appeal from the decision of
    Master Andrew A. Graham dated October 28, 2011, with reasons reported at 2011
    ONSC 5465.

Tulloch
    J.A.:

OVERVIEW

[1]

The appellants seek to commence proceedings in Ontario against the
    Russian respondents. They tried to serve the respondents in Russia in
    accordance with the
Hague Convention on the Service Abroad of Judicial and
    Extrajudicial Documents in Civil or Commercial Matters, 15 November 1965, Can.
    T.S. 1989 No. 2
(entered into force 1 May 1989) (the Convention), but
    the Russian government refused service on grounds of sovereignty and national
    security.

[2]

Rather than pursuing an appeal in Russia, as they were entitled to do,
    the appellants brought a motion in Ontario to dispense with or validate service
    under rules 16.04 and 16.08 of the
Rules of Civil Procedure
, R.R.O.
    1990, Reg. 194. The Master allowed the motion. On appeal, the Superior Court
    judge set aside the Masters order and concluded that the Convention,
    incorporated into Ontario law through rule 17.05(3), is a complete code for
    service on parties in contracting states. The appellants now appeal to this
    court seeking to restore the Masters order.

[3]

For the reasons that follow, in my view the Superior Court judge was
    correct to hold that rule 17.05(3) is a complete code for service on foreign
    defendants in states that are parties to the Convention. I would dismiss the
    appeal.

BACKGROUND

(1)

The Convention

[4]

Canada became a signatory to the Convention in 1988. The preamble to the
    Convention sets out its dual purposes: (i) to create appropriate means to
    ensure that judicial and extrajudicial documents to be served abroad shall be
    brought to the notice of the addressee in sufficient time; and (ii) to
    improve the organisation of mutual judicial assistance for that purpose by
    simplifying and expediting the procedure.

[5]

Article 1 of the Convention provides:

The present Convention
shall apply in all cases, in civil
    or commercial matters
, where there is occasion to transmit a judicial or
    extrajudicial document for service abroad. [Emphasis added.]

[6]

Under the Convention, each contracting state designates a central
    authority where requests for service are directed. When a request is received,
    the central authority in the requesting state arranges for service according to
    the laws of that jurisdiction and issues a certificate of confirmation once
    service has been effected.

[7]

The central authority in a contracting state is obligated to follow this
    procedure subject to one exception: Article 13 of the Convention authorizes a
    state to refuse to effect service only if it deems that compliance would
    infringe its sovereignty or security. Where Article 13 is invoked, the central
    authority shall  promptly inform the applicant and state the reasons for the
    refusal.

[8]

Ontario incorporated the relevant articles of the Convention through
    rule 17.05(3), which provides:

An originating process or other document to be served outside
    Ontario in a contracting state shall be served:

(a)   through the central authority in the contracting state;
    or

(b) in a manner that is permitted by Article 10 of the
    Convention and that would be permitted by these rules if the document were
    being served in Ontario.

[9]

The parties agree that rule 17.05(3)(b) does not apply in this case.

(2)

The dispute between
    Khan Resources and ARMZ

[10]

The
    appellant Khan Resources Inc. (Khan) is an Ontario corporation engaged in uranium
    exploration and development in Mongolia. The other appellants are either direct
    or indirect subsidiaries of Khan. The respondent Atomredmetzoloto JSC (ARMZ)
    is a Russian company in which Rosatom, the Russian State Atomic Energy
    Corporation, has a controlling interest. The other respondent is a subsidiary
    of ARMZ.

[11]

Khan,
    ARMZ and other companies embarked on a joint venture to develop a uranium
    mining property in Mongolia known as the Dornod property. Khan had a 58% share in
    the joint venture and ARMZ had a 21% share through their respective subsidiaries.

[12]

In
    August 2010, the appellants commenced an action against the respondents in
    Ontario. They allege that the Russian government, acting through ARMZ, sought to
    deprive them of their interest in the Dornod property by: (i) entering into a
    new joint venture with the Mongolian government to develop the same property; (ii)
    attempting a hostile takeover bid of Khan; (iii) attempting to eliminate Khans
    mining licences; and (iv) issuing misleading press releases regarding Khans
    licences.

[13]

Pursuant
    to rule 17.05(3)(a), the appellants tried to serve ARMZ in Russia.
In December 2010, the Russian
    Ministry of Justice, the designated central authority, informed the appellants
    that it had refused service of their statement of claim, citing Article 13 of
    the Convention.

[14]

The
    Russian government did not provide further reasons for its refusal.  The
    appellants did not appeal the decision in the Moscow Arbitrazh Court because their
    counsel in Russia advised them that such efforts would be costly and time-consuming,
    and that the result may be driven by political considerations.  The appellants
    also opted not to pursue any avenue of relief through Article 14 of the
    Convention, which provides that [d]ifficulties which may arise in connection
    with the transmission of judicial documents for service shall be settled
    through diplomatic channels.

[15]

In
    September 2011, the appellants brought a motion in the Ontario Superior Court
    for an order substituting or dispensing with service pursuant to rule 16.04 or
    validating service pursuant to rule 16.08. Those rules provide:

16.04(1)
Where

it appears to the court that

it is impractical for any reason to effect prompt service of an originating
    process
or any other document required to be served personally or by an
    alternative to personal service under these rules, the court may make an order
    for substituted service or, where necessary in the interest of justice, may
    dispense with service.



16.08
Where
    a document has been served in a manner other than one authorized by these rules
or an order, the court may make an order validating the service where the court
    is satisfied that,

(a)
the document came to the notice of

the
    person to be served
; or

(b)   the document was served in such a manner that it would
    have come to the notice of the person to be served, except for the persons own
    attempts to evade service. [Emphasis added.]

DECISIONS BELOW

(3)

The Masters decision

[16]

In
    October 2011, the Master granted the appellants motion to validate service of
    their statement of claim pursuant to rule 16.08.

[17]

The
    Master held that rule 17.05(3) did not oust the jurisdiction of Ontario courts
    to substitute, dispense with or validate service under rules 16.04 and 16.08. He
    explained, at para. 46: The purpose of the Convention, similar to that of Rule
    16, is to facilitate the service of legal documents outside their jurisdiction
    of origin, not to enable foreign states to immunize their own subsidiary
    corporations by arbitrarily refusing to effect such service.

[18]

The
    Master then applied rule 16.08 and found that the statement of claim had come
    to the respondents attention either through the appellants 2010 press release
    announcing the litigation, their public disclosure documents from 2010 and 2011
    alleging ARMZs wrongdoing, or their attempt to serve the document through the central
    authority. The Master exercised his discretion to validate service.

(4)

The Superior Court
    judges decision

[19]

Without attorning to the jurisdiction of the
    Ontario courts, the respondents appealed to a judge of the Superior Court to set
    aside the Masters order. In March 2012, the judge allowed the appeal.

[20]

In
    his reasons, the Superior Court judge addressed three discrete issues.  First,
    he held that all of the relevant articles of the Convention, including Article
    13, have been incorporated into domestic law through the enactment of rule
    17.05(3). Second, he held that the Convention applied to the case before him
    and therefore its procedure governed service of the claim. Finally, he held
    that the combined effect of rule 17.05(3) and Article 1 of the Convention is
    that the Convention applied to the exclusion of domestic law.

[21]

The
    Superior Court judge then considered his interpretation in light of the dual purposes
    of the Convention. He found the first purpose, ensuring that documents served
    abroad are brought to the notice of the addressee, was not met if states were
    able to use Article 13 to prevent service.  The second purpose, simplifying and
    expediting the procedure, was met, however, through the creation of an
    international standard for service abroad free from divergent domestic laws.

[22]

To
    resolve this discrepancy the Superior Court judge considered several sources
    and agreements between Convention parties, including the
Practical Handbook
    on the Operation of the Hague Service Convention
, 3rd ed. (Montreal:
    Wilson & Lafleur, 2006), published by the Permanent Bureau of the Hague
    Conference on Private International Law. He accepted the Handbooks conclusion
    that the Convention is of exclusive character. Therefore, the Convention
    operates exclusively in the sense that when it applies, it specifies the only
    service channels available to parties.

[23]

The
    Superior Court judge concluded that courts in Ontario have no discretion to substitute,
    dispense with, or validate service pursuant to rules 16.04 or 16.08 where the
    Convention applies.

[24]

Alternatively,
    the Superior Court judge held that if he had found that the Master had discretion
    to substitute, dispense with or validate service pursuant to the rules, he
    would have still allowed the appeal. In his view the court could not permit the
    appellants to circumvent the Convention simply because complying with it would
    be costly or tedious.

ISSUE ON APPEAL

[25]

The
    appellants argue that the Superior Court judge erred by holding that the
    Convention, through rule 17.05(3), is a complete code for service in a
    contracting state. They submit that rule 17.05(3) provides the
prima facie
means of service in a contracting state, but it does not oust the courts
    discretion under rules 16.04 and 16.08 to substitute, dispense with or validate
    service in appropriate circumstances. Rather rule 17.05(3) should be read
    purposively to advance the Conventions objective, which is to bring notice of
    a legal proceeding to a foreign defendants attention.

ANALYSIS

[26]

I
    cannot accept the appellants submissions. There are several reasons why.

[27]

First,
    the appellants cast the purpose of the Convention too narrowly. As its preamble
    reflects, the Convention has two purposes. One is undoubtedly to give a
    defendant in another jurisdiction notice of a legal proceeding. But the other
    purpose is to improve the system of giving notice, by establishing a uniform
    procedure in all contracting states. The appellants interpretation of rule
    17.05(3) undermines the latter objective.

[28]

Second,
    the appellants interpretation of rule 17.05(3) is not supported by the
    provenance of the rule itself. Rule 17.05(3) was added to the
Rules of
    Civil Procedure
in 1989, the year Canadas accession to the Convention
    took effect.

[29]

Prior
    to 1989, the rules provided that originating documents could be served outside
    Ontario in the same manner as provided for by the rules of service in Ontario.
    Then-rule 17.05(1) stated:

An originating process or other document to be served outside
    Ontario may be served in the manner provided by these rules for service in
    Ontario, or in the manner prescribed by the law of the jurisdiction where
    service is made if that manner of service could reasonably be expected to come
    to the notice of the person served.

[30]

This
    rule was amended when rule 17.05(3) was added. The rule, now numbered 17.05(2),
    reads:

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. [Emphasis
    added.]


[31]

To
    repeat, rule 17.05(3) states:

(3)
An originating process or other document to
    be served outside Ontario in a contracting state
shall
be served
,

(a)
through the central authority in the contracting
    state
; or

(b)   in a manner that is permitted by Article 10 of the
    Convention and that would be permitted by these rules if the document were
    being served in Ontario. [Emphasis added.]

[32]

The
    mandatory language of rule 17.05(3) regarding contracting states stands in
    contrast to the permissive language of rule 17.05(2) regarding non-contracting
    states. Further, the old rule 17.05(1), which permitted service outside Ontario
    in the manner provided by the Ontario rules or by the rules of the other
    jurisdiction, stands in contrast to the current rule 17.05(2), which permits
    such service only in jurisdictions that are not contracting states under the
    Convention. The manner provided by these rules for service in Ontario
    referenced in rule 17.05(2) obviously includes the Rule 16 provisions for
    substituted service, validated service and dispensing with service. Rule
    17.05(3) contains no such reference. The clear implication is that rule
    17.05(3) is intended to provide a complete code for service in contracting
    states.

[33]

Third,
    interpreting rule 17.05(3) as a complete code for service is consistent with
    the principle that domestic law should be read, where possible, to comply with
    Canadas international legal obligations. In
Bouzari v. Iran
(2004),
    71 O.R. (3d) 675 (C.A.), Goudge J.A. explained, at para. 64:

Where Canada has undertaken treaty obligations, it is bound by
    them as a matter of conventional international law. Parliament is then presumed
    to legislate consistently with those obligations.
Thus, so far as possible,
    courts should interpret domestic legislation consistently with these treaty
    obligations
. [Emphasis added; citation omitted.]

[34]

See
    also
R. v. Hape
, 2007 SCC 26, [2007] 2 S.C.R. 292, at paras. 53-54.

[35]

In
Bouzari
, Goudge J.A. went on to state the key exception to this rule,
    at para. 66: [W]hether Canadas obligations arise pursuant to treaty or to
    customary international law, it is open to Canada to legislate contrary to
    them.  Such legislation would determine Canadas domestic law although it would
    put Canada in breach of its international obligations. See also J.H. Currie,
Public
    International Law
, 2nd ed. (Toronto: Irwin Law, 2008), at pp. 241-243,
    where the author explains that this principle applies to laws passed by
    provincial legislatures as well as by Parliament.

[36]

The
    appellants submit that Ontarios rule 17.05(3) does not incorporate the whole
    of the Convention and does not require that the Convention apply exclusively.
    They submit that Ontario did, in fact, explicitly legislate against Canadas
    treaty obligations under the Convention.

[37]

In
    support of this argument, the appellants contrast rule 17.05(3) of Ontarios
Rules
    of Civil Procedure
with rule 137(2) of the
Federal Court Rules
,
    S.O.R./98-106, which they say fully enacts the Convention. That rule
    provides:

Where service is to be effected in a contracting state to the
    Hague Convention, service shall be as provided by the Convention.

[38]

I
    reject this submission. I see no meaningful difference in the wording of the
    Ontario rule and the Federal Court rule.

[39]

Fourth,
    my interpretation is also consistent with the guidance provided in the
Practical
    Handbook
the Superior Court judge consulted in the decision under appeal.
    At para. 44, the
Handbook
instructs:

[T]he Conventions exclusive nature is now
undisputed
. Thus, if under the law of the forum
    a judicial or extrajudicial document is to be
transmitted abroad
for
    service, the Convention applies and it provides the relevant catalogue of
    possible means of service abroad. In this sense, the Convention is exclusive.
    [Emphasis in original.]

[40]

See
    also
Volkswagenwerk Aktiengesellschaft v. Schlunk
, 486 US 694 (1988),
    where OConnor J. explained, at p. 705: [C]ompliance with the Convention is
    mandatory in all cases to which it applies.

[41]

The
    notion of the Conventions exclusive character was recently affirmed by the
    Alberta Court of Appeal in
Metcalfe v. Yamaha Motor Powered Products Co.
,
    2012 ABCA 240, 536 A.R. 67.

[42]

Rule
    11.26(1)(b) of the Alberta
Rules of Court
, AR 124/2010, provides that
    unless the Court orders otherwise, a document served outside Alberta must be
    served in accordance with the Convention. Rule 11.27 provides that on
    application, the Court may make an order validating service of a document
    served outside Alberta in a manner that is not specified by the rules if the
    Court is satisfied that the method of service used brought or was likely to have
    brought the document to the attention of the person to be served
.


[43]

In
Metcalfe
, the Alberta plaintiffs obtained an order for leave to serve
ex
    juris
a copy of a statement of claim on Japanese defendants pursuant to
    the Convention. The central authority in Japan advised that it would take
    several months to effect service, so the plaintiffs acting through a Japanese
    law firm asked the defendants to accept service and dispense with the formality
    of complying with the Convention. The defendants refused. In due course the
    defendants applied in the Alberta court for an order setting aside the
    purported service
ex juris
, and the plaintiffs brought a competing
    application to validate service.

[44]

The
    chambers judge allowed the plaintiffs application. He held that service
ex
    juris
does not require strict compliance with the Convention, and observed
    that rule 11.27 gives the court discretion to validate service outside Alberta
    even where the service is not effected according to the
Rules.
He
    concluded that the defendants had been properly served and so he validated the
    service.

[45]

The
    Alberta Court of Appeal set aside the chambers judges decision on the primary
    ground that the original order granting the plaintiffs leave to serve
ex
    juris
was premised on service pursuant to the Hague Convention. Since
    the purported service did not comply with the Convention, it did not comply
    with the order and was invalid.

[46]

However,
    a majority of the court went further and concluded that the chambers judge had
    no discretion to validate service under rule 11.27.
[1]
McDonald J.A. explained, at para. 48: In order to conform to international
    law, rule 11.27 should not be interpreted so as to circumvent the methods of
    service provided in the Hague Convention unless done so in clear and unequivocal
    language. Such clear and unequivocal language does not appear in rule 11.27.

[47]

Reflecting
    on the dual purposes of the Convention, and especially the goal of establishing
    an international standard for service, McDonald J.A. continued, at para. 50:

Allowing courts to validate service which fails to comply with
    the international standard would undermine that purpose, as the Hague
    Convention would no longer be a comprehensive authority for service abroad
    involving the signatories to that Hague Convention. Canadian law is presumed to
    comply with that purpose. Therefore, rule 11.27 should not be used to avoid the
    international standard created by the Hague Convention. There are many other
    nations that are not signatories to the Hague Convention and rule 11.27
    undoubtedly applies to service situations within those nations.

[48]

On
    its face, Albertas rule 11.27 appears explicitly to grant the type of
    discretion that the appellants urge us to read into the Ontario rules. The
    Alberta Court of Appeal insisted that rule 11.27 be narrowly construed to
    conform to Canadas treaty obligations and to uphold the principle of
    exclusivity.
A fortiori
, rule 17.05(3) should be interpreted that way,
    as well.

[49]

Finally,
    my conclusion that rule 17.05(3) should be regarded as a complete code for
    service in contracting states is strengthened by three earlier cases in which
    plaintiffs in Ontario sought substituted or validated service, or to dispense
    with service altogether, rather than comply with the Convention. All three
    cases stand for the same proposition: where service must be effected through
    the Convention, a plaintiff cannot circumvent this requirement even if the
    defendant has actual notice of service.

[50]

In
Dofasco Inc. v. Ucar Carbon Canada Inc.
, (1998), 27 C.P.C. (4th) 342 (Ont.
    Gen. Div.), the plaintiff sought to effect substituted service on a Japanese
    corporation through its U.S. subsidiary because, it claimed, going through the
    central authority in Japan would take too long. Without deciding whether he had
    the discretion to substitute service if the plaintiff had tried and failed to
    serve in accordance with the Convention, Campbell J. refused the motion. He
    explained, at p. 344: [I]t would appear that rule 17.05 is now a code for
    matters relating to service abroad in Convention states. I agree with the
    Master that it is necessary for a plaintiff to comply with the terms of the
    Convention for service abroad and this has not been done.

[51]

Similarly,
    in
Samina North America Inc. v. H3 Environmental II LLC
, 2004 CanLII
    65382, [2004] O.J. No. 6229 (S.C.), affd on other grounds [2005] O.J. No. 4644
    (C.A.), the plaintiffs did not serve the American defendants through the
    applicable central authority in accordance with the Convention. The plaintiffs
    did not argue that it was impractical to effect service in this manner; rather,
    they simply requested validated service because the defendants had actual notice
    of the claim. Echlin J. refused, holding that mere notice of an originating
    process is not sufficient where service must be effected pursuant to the
    Convention. If notice were the only objective, then substituted or validated
    service could be ordered whenever foreign defendants in a contracting state
    learned of the proceeding against them.

[52]

He
    explained, at para. 4:

[Counsel for the applicant] urged that I validate the service
    pursuant to Rule 16.08. I cannot do so. Even though the Statement of Claim may
    have come to the notice of [the defendants], that is not the test.
To
    correct such irregularity would undermine the objectives of the Hague
    Convention
and encroach upon the sovereignty of the United States. There
    is a difference in treatment between inter-provincial and international
    service. [Emphasis added; citation omitted.]

[53]

In
Campeau v. Campeau
, 2004 CanLII 42942, [2004] O.J. No. 4788 (S.C.) the
    court held that the plaintiff could not serve the defendant, a resident of
    Austria, with a statement of claim drafted in English. In attempting to do so,
    the plaintiff was acting contrary to the Convention which requires translation
    into the official language of the state addressed. Even though there was
    evidence that the defendant had the ability to communicate in English, the
    court concluded that the claim must nevertheless be served in accordance with
    the Convention.

[54]

One
    question remains: if the appellants had in fact pursued all possible remedies
    under the Convention and were still unable to effect service, would they then
    be permitted to move to validate or dispense with service?

[55]

This
    question was answered in the affirmative in
Zhang v. Jiang
(2006), 82
    O.R. (3d) 306 (S.C. (Master)). The plaintiffs in
Zhang
were members of
    the Falun Gong spiritual movement who sought to sue top officials in the
    Chinese Communist Party for alleged persecution. The plaintiffs attempted to
    serve the defendants through Chinas central authority, but the request was
    refused pursuant to Article 13 with no mechanism to appeal. The plaintiffs then
    tried to serve the statement of claim under the
State Immunity Act
,
    R.S.C. 1985, c. S-18, but Canadas Department of Foreign Affairs took the
    position that the
Act
did not apply. The plaintiffs were advised that
    there was no appeal or judicial review of that decision, either.

[56]

In
    these circumstances,

Master Glustein granted the plaintiffs motion to
    dispense with service under rule 16.04. He explained, at para. 19: The
    evidence is compelling that the plaintiffs have taken all reasonable steps to
    serve the defendants... The plaintiffs have exhausted all means to serve the
    defendants, and no other means are available. He distinguished
Dofasco
and
Campeau
on their facts and concluded that in this case, the interests
    of justice favoured dispensing with service.

[57]

The
    respondents argue that Master Glusteins ruling in
Zhang
is no longer
    good law in light of the Superior Court judges decision in the case at bar.
    That was Perell J.s conclusion in
Gray v. SNC-Lavalin Group Inc.
,
    2012 ONSC 3735, where he stated, at para. 39, that
Zhang
should be
    treated as overturned.

[58]

We
    do not have to decide whether
Zhang
is correctly decided, and even if
    it is correctly decided, in my view
Zhang
is distinguishable from the
    case at bar in two respects. First, the plaintiffs in that case had exhausted all
    avenues available under the Convention before seeking alternative methods of
    service. Second, their claim sought to vindicate the basic human rights of the
    Falun Gong and to expose torture and other crimes against humanity allegedly
    perpetrated by the defendants. In these circumstances, the Master in
Zhang
essentially recognized an access to justice exception to the otherwise prevailing
    rule that the Convention is exclusive.

[59]

Here,
    the appellants rely on
Zhang
and argue that the interests of justice
    favour dispensing with or validating service in light of the time, expense and
    uncertain outcome of an appeal from the Article 13 refusal in Russia. I disagree.
    In my view, none of these considerations rise to the levels that were present
    in
Zhang
. I am particularly unmoved by the appellants argument that they
    should be excused from complying with the Convention because an appeal in
    Russia could take up to a year or longer and cost approximately US$100,000.
    The appellants claim is for $300 million. Their attempts to circumvent the
    Convention in the Ontario courts have taken over a year and a half and have
    presumably been expensive. Further, there is nothing on the record to indicate
    that they have attempted to pursue a remedy through diplomatic channels, as
    Article 14 permits them to do.

[60]

The
    question of whether considerations of access to justice could militate in
    favour an exception to service under the Convention in extreme circumstances is
    beyond the scope of this appeal. Suffice it to say that such an exception does
    not arise on the facts of this case.

CONCLUSION

[61]

Accordingly,
    I would dismiss the appeal.

[62]

If
    the parties cannot agree on costs they may file brief written submissions.

Released: JL April 2, 2013

M.
    Tulloch J.A.

I
    agree J.I. Laskin J.A.

I
    agree M. Rosenberg J.A.





[1]
The concurring judge, Hunt J.A., found it unnecessary to comment on the larger
    issues addressed by the majority.


