



COURT OF APPEAL FOR ONTARIO

CITATION: Xela Enterprises Ltd. v. Castillo, 2016 ONCA 437

DATE: 20160603

DOCKET: C60470

Weiler, LaForme and Huscroft JJ.A.

In the matter of Xela
    Enterprises Ltd.

and in the matter of
    696096 Alberta Ltd.

and in the matter of
  the
Ontario Business Corporations Act

BETWEEN

Xela Enterprises
    Ltd., Gabinvest S.A., Lisa S.A.,
Juan Arturo Gutiérrez, Juan Guillermo Gutiérrez,
and 696096 Alberta Ltd.

Plaintiffs

(Respondents)

- and -

Margarita Castillo,
    Roberto Ricardo Castillo,

Juan Luis Bosch Gutiérrez, Dionisio Gutiérrez, Mayorga,
Juan Jose Gutiérrez, Mayorga, Felipe Antonio Bosch Gutiérrez
, Roberto
    Barillas Castillo,
Isabel Gutiérrez De Bosch, La Braña, S.A.,
    Multi-Inversiones, S.A., Villamorey, S.A. and Avicola Villalobos S.A.

Defendants

(
Appellants
)

Katherine L. Kay and Aaron L. Kreaden, for the
    appellants

Joseph Groia and Martin Mendelzon, for the respondents

Heard:  January 12, 2016

On appeal from the order of the Divisional Court
    (Justices David L. Corbett, Paul M. Perell and Cory A. Gilmore), dated February
    5, 2015, with reasons reported at 2015 ONSC 866, dismissing an appeal of the
    order of Justice Julie A. Thorburn of the Superior Court of Justice, dated January
    20, 2014, with reasons reported at 2014 ONSC 352.

Huscroft J.A.:

[1]

Can defendants in a state that is not party to the
Convention on the
    Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial
    Matters
(the Hague Convention) be served in accordance with Ontario
    rules in an Ontario action? That is the question posed by this case.

[2]

The plaintiffs are individuals residing in Canada and companies carrying
    on business in Canada, as well as two Panamanian companies. They seek $400
    million in damages from the defendants, individuals residing in Guatemala or
    companies carrying on business in Guatemala, for conspiracy to commit tortious
    acts, breach of fiduciary duties, fraud and abuse of process, and unjust enrichment.
    Their claim alleges that the damages were sustained in Ontario.

[3]

The motion judge found that the appellants were served validly in
    accordance with the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194
    (the 
Rules
). Her order was upheld by the Divisional Court and the
    appellants appeal to this court with leave. They submit that the Divisional
    Court erred in interpreting r. 17.05(2) of the
Rules
, by failing to interpret
    it in a manner consistent with Canadas international law obligations.

[4]

For the reasons that follow, I would dismiss the appeal.

BACKGROUND

Facts

[5]

The Ontario action is a dispute between two factions of the Gutiérrez
    family. The action was commenced by a statement of claim issued in Ontario on
    April 12, 2011. A fresh as amended statement of claim was issued on February
    28, 2013.

[6]

The respondents attempted to serve the fresh as amended claim on several
    occasions and in several different ways. They emailed a copy to the appellants
    Canadian legal counsel on March 1, 2013; they sent a copy by courier to the
    appellants U.S. counsel on March 1, 2013; and they attempted to serve the
    appellants at their residences and businesses in Guatemala on March 15, 2013.

[7]

The respondents brought a motion seeking a declaration that the
    appellants were properly served in accordance with rr. 17.02 and 17.05 of the
Rules
,
    validating service pursuant to r. 16.08, or ordering substituted service
    pursuant to r. 16.04.

Ontarios rules governing
    service

[8]

Service outside of Ontario is governed by different rules depending on
    whether the defendant resides in a state that is signatory to the Hague
    Convention. Service on defendants residing in signatory states is required to
    be effected through the central authority in the contracting state or in a
    manner permitted by the Hague Convention (r. 17.05(3)).

[9]

Guatemala is not a party to the Hague Convention. As a result, service
    in Guatemala is governed by r. 17.05(2), which provides as follows:

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.

DECISIONS BELOW

The motion judge

[10]

The motion judge found that, because Guatemala is a non-contracting
    state, r. 17.05(2) allows the respondents to serve the appellants in accordance
    with the
Rules
, and that the respondents were served in accordance
    with those rules.

[11]

She found, further, that the corporate appellants were properly served
    by leaving a copy of the fresh as amended claim with a person who appeared to
    be in control or management of their places of business. The motion judge found
    that service on the individual appellants was attempted but was unsuccessful; a
    copy of the pleading was left at the residence of each individual and sent by
    courier, and a further copy was sent to their Canadian counsel; and that the
    fresh claim came to the notice of the individual appellants. As a result, the
    motion judge made an order validating service on the individual defendants in
    accordance with r. 16.08.

[12]

The motion judge considered and rejected the appellants argument that a
    failure to apply Guatemalan law resulted in an absence of comity. She found
    that Guatemalan law does not prohibit a party outside the jurisdiction from
    serving a party in Guatemala in a manner permitted by Ontario law, and that an
    interpretation of the
Rules
that required the respondents to follow
    the rules of service in Guatemala would itself contravene the principles of
    comity by denying the choice r. 17.05(2) provides. Finally, the motion judge
    noted that the appellants retained their right to address the issues of
    attornment to Ontario law and whether Ontario is the most convenient forum.

The Divisional Court

[13]

The Divisional Court dismissed an appeal from the motion judges
    decision. The court noted that Guatemala is a civilian jurisdiction and that
    the Guatemalan courts must be involved in the appointment of notaries to effect
    service within Guatemala, and stated that direct service by a party violates
    the Guatemalan constitution. Although the court accepted that the
Rules
must
    be interpreted in a manner that conforms to Canadas international obligations,
    it concluded that the motion judges interpretation of r. 17.05 did not offend that
    requirement.

[14]

The Divisional Court stated that the principle of comity does not
    override the express intent of Ontarios rules relating to service, which the
    court described as conflicting legislation within the meaning of
R. v.
    Hape
, 2007 SCC 26, [2007] 2 S.C.R. 292, at para. 46.

[15]

Finally, the Divisional Court concluded that the motion judge was
    entitled to exercise her discretion to validate service, given her finding that
    the claim had come to the appellants attention. The court stated: As
    Guatemala is not a signatory to the
Hague Convention
, service in accordance
    with the Ontario Rules does not undermine any Canadian International Law
    obligation.

ANALYSIS

[16]

It is not contested that, on its face, r. 17.05(2) authorizes the
    respondents to serve the appellants outside Ontario. Nor is it contested that
    the motion judge was entitled to exercise her discretion to validate service
    under the
Rules
because the fresh as amended statement of claim had
    come to the appellants attention. What is contested is whether Canadas
    international law obligations or the principle of comity among nations have the
    effect of requiring service in accordance with the law of Guatemala, despite
    the choice of service r. 17.05(2) provides.

[17]

It is common ground that service in Guatemala did not comply with
    Guatemalan law. The Divisional Court went further, stating that [d]irect
    service by a party violates the Guatemalan constitution, and this is repeated
    by the appellants. However, the motion judge did not address the requirements
    of Guatemalan constitutional law and it was not necessary for the Divisional
    Court to do so on appeal.

[18]

For purposes of this appeal, it is enough to proceed from the premise
    that service in Guatemala pursuant to r. 17.05(2) was not in accordance with
    Guatemalan law. The question is whether Canadas international law obligations
    and/or the principle of comity require the respondents to effect service in the
    manner provided for by Guatemalan law, despite the choice r. 17.05(2) provides.

The requirements of international
    law

[19]

It is important to distinguish two forms of international law,
    conventional (treaty-based) international law and customary international law.

[20]

Conventional international law is concerned with treaties negotiated
    between states. Treaties create obligations as between signatory states but, in
    general, do not create enforceable obligations in Canadian law unless they are
    adopted by Canadian legislation. The Hague Convention is specifically adopted into
    Ontario law by rr. 17.05(3) and (4), which govern service and proof of service
    in Convention states.

[21]

In contrast, customary international law involves rules that are acknowledged
    as binding by the state. As Guatemala is not a signatory to the Hague
    Convention, this case is concerned with the impact of customary international
    law rather than conventional.

[22]

There is a rebuttable presumption that Canadian legislation complies
    with Canadas international law obligations, both conventional and customary,
    as the Supreme Court in
Hape
explained, at para 53:

The presumption of conformity is based on the rule of judicial
    policy that, as a matter of law, courts will strive to avoid constructions of
    domestic law pursuant to which the state would be in violation of its
    international obligations, unless the wording of the statute clearly compels
    that result.  The presumption is rebuttable, however. Parliamentary
    sovereignty requires courts to give effect to a statute that demonstrates an
    unequivocal legislative intent to default on an international obligation.

See

also
R. v. Appulonappa
, 2015 SCC
    59, [2015] 3 S.C.R. 754, at para. 40.

[23]

The interpretive presumption outlined in
Hape
applies to
    secondary legislation ­ regulations such as the
Rules
 as well as
    primary legislation. Thus the
Rules
, and in particular r. 17.05(2),
    are presumed to comply with conventional as well as customary international
    law, and courts must avoid interpretations of the
Rules
that would
    render Ontario law inconsistent with international law unless there is a clear
    legislative intent to the contrary.

[24]

The decisions below do not specifically address the principle of state
    sovereignty, which is part of customary international law. Instead, the motion
    judges decision focuses on the principle of comity, which is discussed below.
    Although the Divisional Court concluded that service in accordance with the
Rules
does not undermine Canadas international law obligations, the court addressed
    only the requirements of the Hague Convention.

Interpretation of r.
    17.05(2)

[25]

I set out r. 17.05(2) again for convenience:

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.

[26]

The appellants make two main submissions on the interpretation of r. 17.05(2).
    First, they submit that the courts below erred in failing to interpret r. 17.05(2)
    in accordance with the customary international law principle of state
    sovereignty. Second, the appellants submit that the Divisional Court erred in
    concluding that the wording of r. 17.05(2) is sufficient to rebut the
    interpretive presumption that Ontario law complies with international law. In
    other words, they contend that the Divisional Court erred in finding that r.
    17.05(2) amounts to conflicting legislation within the meaning of
Hape
.

[27]

I will deal with each of these arguments in turn, and then
    address the comity argument.

(1)

Did the motion judge err in failing to interpret r.
    17.05(2) in accordance with the customary international law principle of state sovereignty?

[28]

In the appellants submission, r. 17.05(2) does not dictate how the
    choice between service under Ontario law or foreign law is to be made and does
    not purport to override international law. As a result, the rule must be
    interpreted in accordance with Canadas international law obligations, and this
    requires that the rule be interpreted in a manner that respects Guatemalan
    sovereignty. This, they submit, requires that service in Guatemala be effected
    in accordance with Guatemalan law, which requires authorization by a Guatemalan
    court or tribunal.

[29]

I would reject this argument.

[30]

The
Rules
do not purport to legalize service that would be
    illegal in Guatemala, nor do they purport to declare Ontario is the proper
    forum for an action. They provide an option as to how service may be effected in
    a non-Convention state
for purposes of an
    Ontario action
. They establish a means of satisfying an Ontario
    court that foreign defendants have received notice of an Ontario action. As the
    motion judge noted, the appellants retain their right to challenge the
    jurisdiction of Ontarios courts over the subject-matter of the action. An
    Ontario court must ultimately determine whether it has jurisdiction over the
    action, and, in the event that it does, whether it should stay the proceedings
    on the basis of the
forum non conveniens
doctrine:
Club Resorts
    Ltd. v. Van Breda
, 2012 SCC 17, [2012] 1 S.C.R. 572.

[31]

It is, therefore, a considerable overstatement to characterize the rules
    governing service as constituting interference in the affairs of a foreign
    state. In this regard, I agree with the decision of the Supreme Court of the
    United Kingdom in
Abela and others v. Baadarani,
[2013] UKSC 44, at para. 53,
per
Lord Sumption:

The characterisation of the service of process abroad as an
    assertion of sovereignty may have been superficially plausible under the old
    form of writ (We command you...). But it is, and probably always was, in
    reality no more than notice of the commencement of proceedings which was
    necessary to enable the Defendant to decide whether and if so how to respond in
    his own interest. It should no longer be necessary to resort to the kind of
    muscular presumptions against service out.  The decision is generally a
    pragmatic one in the interests of the efficient conduct of litigation in an
    appropriate forum.

[32]

The appellants attempt to distinguish
Abela
on the basis that
    the manner of service in that case, which concerned another non-Hague
    Convention state (Lebanon), was not contrary to the law of that state, whereas
    the service in this case violates the law of Guatemala and is subject to
    penalty.

[33]

The motion judge made a contrary finding concerning the law of
    Guatemala. She stated: Guatemalan lawdoes not specifically prohibit a party
    outside the jurisdiction from serving a party in Guatemala in a way permitted
    by Ontarios domestic law or create an offence for so doing.

[34]

Although there is evidence indicating that unauthorized service in
    Guatemala is illegal and subject to a penalty, it is not clear that the penalty
    applies to service
ex juris.
Moreover,
the penalty for violating the law appears to be in the
de minimis
range, as though it is akin to an administrative or regulatory matter. There is
    no evidence concerning the enforcement of the law in any event. The significant
    consequence of unauthorized service is that it may be considered a nullity, and
    a Guatemalan court may not recognize or enforce an Ontario judgment as a
    result.

[35]

In all of the circumstances, I am not satisfied that the motion judge
    erred in her conclusions about Guatemalan law.

(2)

Is r. 17.05(2) conflicting legislation?

[36]

The conclusion that service pursuant to r. 17.05(2) does not violate
    Guatemalan sovereignty, and hence principles of customary international law, is
    sufficient to dispose of this appeal. That said, there is an alternative means
    of reaching the same conclusion. Even assuming that service pursuant to r. 17.05(2)
    violates Guatemalan sovereignty, in my view it is not open to interpret the
    rule in the manner proposed by the appellants because the presumption of
    conformity with international law is rebutted.

[37]

The appellants acknowledge that the presumption of conformity with
    international law is rebuttable, but emphasize language from
Hape
that
    suggests a requirement that the wording of the legislation clearly compels
    the finding of inconsistency. Nothing, they submit, demonstrates an intention
    to disregard Canadas international law obligation to respect the sovereignty
    of sovereign states concerning service
ex juris
. On the contrary, the
    appellants assert that r. 17.05(2) was designed to allow for service in a
    manner that respects the sovereignty of foreign states.

[38]

The appellants submit that r. 17.05(2) should be interpreted as
    requiring service to be carried out in accordance with the law of the
    destination state for civilian states, while service in common law states may
    be carried out in accordance with the
Rules
.

[39]

I would reject this argument.

[40]

There is little authority concerning the nature of a conflict with
    international law for purposes of rebutting the presumption of conformity: see O.
    Jones, The Doctrine of Adoption of Customary International Law: A Future in
    Conflicting Domestic Law and Crown Tort Liability (2010) 89 Can. Bar. Rev.
    401, at pp. 403-411. Although, as the appellants submit, the
Rules
evince
    an intention to respect Canadas conventional international law obligations by
    specifically recognizing the Hague Convention obligations and requiring service
    in accordance with those obligations, it does not follow that the rule
    regarding service in non-Hague Convention states can be read as being in
    conformity with customary international law.

[41]

Ontarios rules governing service expressly establish two different
    means of effecting service outside Ontario, depending on whether the relevant
    state is signatory to the Hague Convention. Service in a Hague Convention state
    must be completed in accordance with the requirements of the Convention, but
    service on a party in a non-Hague Convention state may be effected in
    accordance with either Ontario rules or the rules of the foreign state
at
    the choice of the serving party
. The unequivocal intent of r. 17.05 is
    that the serving party is to be afforded the choice.

[42]

The appellants argument would render this choice illusory. The
    respondents could serve in accordance with the
Rules
only so long as
    the law of the foreign state were compatible with Ontario law. The law of
    civilian states is necessarily different than Ontario law; so, in effect, the
    respondents would be deprived of the choice the rule is designed to provide.
    They could serve in accordance with Guatemalan law or not at all.

[43]

Thus, even assuming that r. 17.05 is inconsistent with customary international
    law, the operational requirements of the rule rebut the presumption of
    conformity and, as a result, the rule governs.

The principle of comity

[44]

The appellants cite
Tolofson v. Jensen,
[1994] 3 S.C.R. 1022,
    and in particular Justice La Forests remarks, at p. 1047, that the ability of
    states to make and apply law within their territorial limits will ordinarily be
    respected, absent a breach of some overriding norm.

[45]

The concept of comity is well understood in Canadian law. In
Chevron
    Corp. v. Yaiguaje
, 2015 SCC 42, [2015] 3 S.C.R. 69, at
    para. 51, the Supreme Court described comity as:

the deference and respect due by other states
    to the actions of a state legitimately taken within its territory, as well as
    the recognition which one nation allows within its territory to the
    legislative, executive or judicial acts of another nation, having due regard
    both to international duty and convenience, and to the rights of its own
    citizens or of other persons who are under the protection of its laws: [citing
Morguard Investments Ltd. v. De Savoye
, [1990]
    3 S.C.R. 1077, at pp. 1095-96], quoting with approval the U.S. Supreme Courts
    foundational articulation of the concept of comity in
Hilton v.
    Guyot
, 159 U.S. 113 (1895), at pp. 163-64; see also
Spencer
    v. The Queen
, [1985] 2 S.C.R. 278, at p. 283, per Estey
    J., concurring.

[46]

In
Hape
, at para. 47, the Court described comity as relating to
    
informal acts performed and rules
    observed by states in their mutual relations out of politeness, convenience and
    goodwill, rather than strict legal obligation. [It is] more a principle of
    interpretation than a rule of law, because it does not arise from formal
    obligations.  The Court added, at para 48: Where our laws  statutory
    and constitutional  could have an impact on the sovereignty of other states,
    the principle of comity will bear on their interpretation.

[47]

I have already concluded the Ontario rules governing service for
    purposes of an Ontario action do not impact on Guatemalan sovereignty. Service
    pursuant to r. 17.05 is a procedural step, and the appellants mischaracterize
    things in suggesting that it involves an assertion of Ontario jurisdiction over
    them. The respondents are entitled to have the rule applied according to its
    terms and the choice it provides. As the motion judge noted, a requirement that
    Guatemalan rules of service be followed would contravene the rights of those
    under the protection of Ontario law.

DISPOSITION

[48]

I would dismiss the appeal.

[49]

I would order the appellants to pay costs to the respondents agreed in
    the amount of $20,000, inclusive of taxes and disbursements.

Released: June 3, 2016 KMW

Grant
    Huscroft J.A.

I
    agree K.M. Weiler J.A.

I
    agree H.S. LaForme J.A.


