Court File and Parties
COURT FILE NO.: CV-21-663189 DATE: 20220112 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: QINGDAO TOP STEEL INDUSTRIAL CO. LTD., Applicant -and- FASTENERS & FITTINGS INC, Respondent
BEFORE: FL Myers J
COUNSEL: Rebecca Huang, for the Applicant Young Park and Alexander Evangelista, for the Respondent Chloe Snider, for Michael Wang
HEARD: December 13, 2021
Endorsement
[1]
Overview
The applicant seeks to enforce a judgment dated December 26, 2019 that it obtained against the respondent from the Intermediate People's Court of Qingdao, Shandong Province, in the People's Republic of China.
2In my view, I cannot determine the issues in this application fairly in this summary process. Under Rule 38.10 (1)(b) of the Rules of Civil Procedure, I therefore order this application to proceed to trial.
3Under Rule 38.10 (2) of the Rules of Civil Procedure the application must proceed as an action and is subject to any directions that I make. I direct the applicant to deliver a statement of claim by February 11, 2022. The respondent’s statement of defence shall be delivered by March 11, 2022.
4I direct further that, subject to the discretion of the trial judge, the trial of the action shall proceed at the same time as or immediately following the trial of the action between the parties, Michael Wang, and others under Court File No. CV-17-588442. There shall be common documentary and oral discovery between the two actions and a common pre-trial conference for both. Affidavits of documents shall be delivered by all parties in both actions by March 31, 2022 (if not yet delivered). Common examinations for discovery shall be held before the end of May, 2022.
[5]
Background
In 2017, the respondent Fasteners & Fittings Inc. sued the applicant, Michael Wang, and others in this court. The claim arises from the discovery that during his time as a senior purchasing manager at Fasteners & Fittings, Mr. Wang allegedly stole over $15 million from his employer by surreptitiously buying inventory at inflated prices from his own company in the Peoples’ Republic of China – the applicant Qingdao Top Steel. On being confronted with the allegations by his employer, Mr. Wang was recorded admitting to owning the foreign vendor/supplier and to siphoning secret profits of $1 million.
6While Fasteners & Fittings’ action was under way here, the applicant sued Fasteners & Fittings in China on outstanding invoices for goods sold and delivered. Fasteners & Fittings attorned to the jurisdiction of the foreign court.
7The foreign court did not allow Fasteners & Fittings to deny its indebtedness due to the vendor’s alleged complicity in Mr. Wang’s breaches of duties. It did not allow it to add parties or to claim setoff of its damages for the alleged fraud and breaches of duties underlying the outstanding invoices. It simply found that the applicant had delivered goods to the respondent for which the respondent had not paid and adjudged the respondent liable. The Chinese Court left all of Fasteners & Fittings’ defences and counterclaims to be played out here.
8Fasteners & Fittings says that if it pays the judgment, Qingdao Top Steel is likely to retreat into China where Chinese law will not allow enforcement of any subsequent, related judgment obtained here. There is evidence before me that Chinese law precludes enforcement of any subsequent foreign judgment after an initial judgment is obtained between the parties in China. Moreover, irrespective of the blocking statute, the applicant was not able to show any instance of a court in the Peoples’ Republic of China enforcing a civil judgment of a Canadian court.
9In Beals v. Saldanha, 2003 SCC 72, the Supreme Court of Canada set out the defences that are available to a local defendant when sued on a foreign judgment where the foreign court has jurisdiction (as is the case here in light of the applicant’s attornment in China):
40 The defences of fraud, public policy and lack of natural justice were developed before Morguard, supra, and still pertain. This Court has to consider whether those defences, when applied internationally, are able to strike the balance required by comity, the balance between order and fairness as well as the real and substantial connection, in respect of enforcing default judgments obtained in foreign courts.
10Fasteners & Fittings submits that the foreign judgment was obtained in an unfair process that violated the principles of natural justice and its enforcement would violate public policy.
11The Supreme Court of Canada described the natural justice defence in Beals as follows:
61 The enforcing court must ensure that the defendant was granted a fair process. Contrary to the position taken by my colleague LeBel J., it is not the duty of the plaintiff in the foreign action to establish that the legal system from which the judgment originates is a fair one in order to seek enforcement. The burden of alleging unfairness in the foreign legal system rests with the defendant in the foreign action.
62 Fair process is one that, in the system from which the judgment originates, reasonably guarantees basic procedural safeguards such as judicial independence and fair ethical rules governing the participants in the judicial system. This determination will need to be made for all foreign judgments. Obviously, it is simpler for domestic courts to assess the fairness afforded to a Canadian defendant in another province in Canada. In the case of judgments made by courts outside Canada, the review may be more difficult but is mandatory and the enforcing court must be satisfied that fair process was used in awarding the judgment. This assessment is easier when the foreign legal system is either similar to or familiar to Canadian courts. [Emphasis added.]
12In Beals, the Supreme Court of Canada described the public policy defence to the enforcement of foreign judgments:
71 …This defence prevents the enforcement of a foreign judgment which is contrary to the Canadian concept of justice. The public policy defence turns on whether the foreign law is contrary to our view of basic morality. As stated in Castel and Walker, supra, at p. 14-28:
. . . the traditional public policy defence appears to be directed at the concept of repugnant laws and not repugnant facts. . . .
72 How is this defence of assistance to a defendant seeking to block the enforcement of a foreign judgment? It would, for example, prohibit the enforcement of a foreign judgment that is founded on a law contrary to the fundamental morality of the Canadian legal system. Similarly, the public policy defence guards against the enforcement of a judgment rendered by a foreign court proven to be corrupt or biassed. [Emphasis added.]
[13]
Analysis
The applicant submits that the respondent failed to assert bias or unfairness in the Chinese courts and that this ought to be fatal. However, the Supreme Court of Canada was clear in Beals, that the assessment of fairness and bias is made here under our conflicts of laws principles. We do not know whether the respondent was entitled to raise those types of issues before the foreign court or what risks, if any, might be involved in doing so. I am not prepared at this stage to foreclose inquiries.
14The applicant submits that there is no evidence that the price charged by it exceeded the market price for the goods at the time. However this assumes that the parties were in a bona fide arms length relationship. It may be quite beside the point if the applicant was secretly owned by Mr. Wang who owed fiduciary duties to Fittings & Fasteners.
15The respondent submits that in addition to the recognized defences set out in Beals, allowing enforcement of this judgment now would be so unjust as to require an expansion to the list of available defences. The Supreme Court of Canada expressly left open this possibility in Beals:’
41 These defences were developed by the common law courts to guard against potential unfairness unforeseen in the drafting of the test for the recognition and enforcement of judgments. The existing defences are narrow in application. They are the most recognizable situations in which an injustice may arise but are not exhaustive.
42 Unusual situations may arise that might require the creation of a new defence to the enforcement of a foreign judgment. However, the facts of this case do not justify speculating on that possibility. Should the evolution of private international law require the creation of a new defence, the courts will need to ensure that any new defences continue to be narrow in scope, address specific facts and raise issues not covered by the existing defences.
16I find it particularly concerning here that the foreign court recognized and left open the possibilities that Fittings & Fasteners would have its own claims against the applicant vendor in this court. It did not explain however, why judgment would issue for one piece of a wider claim when that piece could be undermined or at least set off by the remaining claims. Rather, the court criticized Fittings & Fasteners’ failure to prove Michael Wang’s complicity and duplicity while denying it the ability to add parties or compel discovery to try to do so.
17Moreover, as mentioned previously, despite leaving open the possibility that Fittings & Fasteners may be entitled to judgment against Qingdao Top Steel here, it appears that the applicable Chinese law in evidence may expressly prohibit enforcement of a foreign judgment where the Chinese court has already ruled as between the parties. Fittings & Fasteners submits that if one runs to court in China for judgment on a piece of a larger transaction, as was done here, the judgment precludes any later recognition of the rest of the puzzle once all the pieces are fitted together.
18I am asked to determine if the respondent was denied the right to answer and defend the claim in China. If that was the case, then might the law that allows this also be morally repugnant to our law? Might it be the product of a legal system that protects local vendors from accountability for foreign purchasers’ just claims despite participation of both in global commerce? If so, is that a situation that is repugnant to our laws and conception of justice? Even if not, is it an outcome that is so unfair as to raise a prima facie case for consideration of a new or revised defence?
19Fittings & Fasteners asks the court to make a bold statement. In my view, any decision on the facts and principles raised needs consideration of full evidence on proper discovery with proper notice to all interested parties.
20I say this especially with regard to the submission made by counsel for Mr. Wang. Mr. Wang chose not to make himself a party when his company sued in China. The company successfully resisted the request by Fittings & Fasteners to add Mr. Wang as a party there.
21Mr. Wang caused his company to sue in this proceeding as well without naming himself as a party.
22Moreover, in this proceeding, the corporate applicant refused to answer questions concerning Michael Wang’s role. That leaves the evidence of Fittings & Fasteners concerning Michael Wang uncontested. The applicant says it is irrelevant to the issue of enforcement of a foreign judgment.
23Mr. Wang’s personal counsel attended the hearing of this application. She made no submissions on the merits. But, she submitted that Mr. Wang did not have notice that serious allegations of wrongdoing would be made against him in this proceeding. She submitted that fairness requires that he be given an opportunity to respond before findings are made in this proceeding that could affect him in the other proceeding.
24A similar situation occurred in Meridian Credit Union Limited v. Baig, 2016 ONCA 150. In that case there were also two proceedings and a party in one case complained to the Court of Appeal that his reputation was tarnished and his legal position was prejudiced by findings made in the proceeding in which he was not a party. The Court of Appeal held that it was inappropriate to wait for an appeal to raise such an issue. Rather, the proper process, when a person believes he may be affected by a decision in an action, is to come forward and seek to be added as a party to the action under Rule 13.01 of the Rules of Civil Procedure. He can also seek a form of consolidation of the two proceedings under Rule 6 of the Rules of Civil Procedure.
25Although this proceeding was started by Mr. Wang’s company, he quite fairly came forward when his alleged wrongdoing was raised. I agree with him that it would be inappropriate to make findings against him without him having a full and fair opportunity to participate.
26In my view, the factual and legal overlap between the two proceedings is clear. They should proceed together. The facts by which the respondent seeks to establish that enforcement of the judgment of the foreign court should be refused because it was pronounced without natural justice, or is based on law that offends public policy, or ought to be rejected based on a new defence, are the same facts and issues as are in issue in the other proceeding.
27I disagree with the applicant’s submission that this ruling interferes with the exercise of judicial comity or creates a loophole in the sanctity of enforcement of foreign judgments. The merits of the foreign judgment will not be contested in this court. The issues for trial are the defences of natural justice and public policy that I find to be sufficiently raised on a prima facie basis, and the possibility of a new defence applying where the processes of a foreign court and the system of foreign law are so different from our law as to create a race to judgment or an overall result that might appear to be intolerably unjust. I say expressly, it is not the potential injustice on the merits of the foreign action that is the issue. I do not understand the thrust of the respondent’s defences to be aimed at the quantum of the applicant’s invoices. The concerns are with the granting of judgment without allowing defences beyond the invoices themselves and with an acknowledgement that there are related issues being litigated here in circumstances where, by statute and a historic lack of bilateral comity, the outcome here appears to be unenforceable there.
28The issues turn on the potential unfairness of the foreign process and the assessment of foreign laws against our conceptions of commercial morality and justice in international commerce. The assessment of these issues turns on a full assessment of the facts and circumstances with Mr. Wang and his alleged cohorts fully and fairly before the court as he now seeks.
[29]
Costs and Disposition
Costs reserved the judge who decides the trial of this action.
30As a result of the outcome, I do not need to deal with the respondent’s motions for leave to deliver late material or to stay the application.
FL Myers J
Date: January 12, 2022