37 Can. Bus. L.J. 418 (2002)

WHAT'S IN A NAME? LLOYD'S, INTERNATIONAL COMITY AND PUBLIC POLICY

Genevieve Saumiei

The Canadian side of the Lloyd's litigation saga has made a round trip from Ontario to England and back. Following the insurance crisis of the last decade, litigation between the Society of Lloyd's and investing "'Names"' has crossed the Atlantic twice, with success for Lloyd's in every forum. For the Ontario Names, the Ontario Court of Appeal's decision in Society of Lloyd's v. Saunders2 is the last chapter, an application for leave to appeal to the Supreme Court of Canada having been denied. As a result, the outcome in Saunders merely replicates the results obtained in the United States and marks another victory for international comity over public policy.

For the purposes of this article, the following facts are critical.' The defendants in this case are Lloyd's Names, that is, investors who are the actual underwriters of insurance. The plaintiff Lloyd's regulates and provides services to the Lloyd's insurance market, including all issues relating to Names and their investments.' Until

*Of the Faculty of Law and Institute of Comparative Law, McGill University. I thank Rod Macdonald for a generous reading of a draft of this paper.

1. "Names" are those individuals who underwrite insurance through Lloyd's syndicates.

2. (2001), 210 D.L.R. (4th) 519, 55 O.R. (3d) 688 sub non Society of Lloyd's v. Meinzer (C.A.) (hereafter Saunders), affg 44 CRC. (4th) 246. [2000] I.L.R. &1-3788 (S.C.J.) (hereafter Saunders (SC)). On June 13, 2002 leave to appeal to the Supreme Court of Canada was refused [2001] S.C.C.A. No, 527 (QL), 212 D.L.R. (4th) vii.

3. The complexity of this litigation defies an easy summary of the facts. Readers particularly interested in the intricacies of the storyline must necessarily wade through the decision itself. But the full picture cannot be gleaned from a cold, detached judicial review of this saga. For one perspective, see www.tnithaboutlloyds.com (sponsored by the American Names Association).

4. The Superior Court's recital of the facts is very useful. It explains the functioning of Lloyd's in the following way: "The Names group together in syndicates, which are managed by a Managing Agent, whose name is often associated with the syndicate. A syndicate is not a legal entity or a partnership; rather, it is simply a group of Names who join a particular syndicate for a particular underwriting year. Each policy of insurance issued at Lloyd's consists of individual contracts made on behalf of the individual Names participating in the syndicate. Each Name is only liable for his share of the risk, but not for the share of any other Name. However, the Name has unlimited liability to the extent [*389] the 1980s, Lloyd's Names were exclusively British. Solicitation of foreign Names began in haste in the 1980s and the Canadian Names involved in this litigation were mostly recruited at that time. Although the Canadian Names were approached directly in their home jurisdictions, they had to travel to London to finalize the investment transaction. In the early 1990s, the world insurance market faced monumental losses flowing mainly from asbestos and pollution claims. At that point, the significance of the unlimited personal liability attaching to the Names' investments proved catastrophic for many of them. While they were aware of their personal liability, those Names recruited in the 1980s claimed that Lloyd's had not disclosed knowledge of the impending crisis at the time of investment.' In other words, the Names invoked the common complaint of investors losing money: if we had known we would lose money, we would not have invested in the first place. The main difference in this case was that the sums involved were formidable, the company involved was powerful and benefited from substantial legislative protection in its home jurisdiction, the market involved was worldwide and potentially reached into millions of individual homes and, most importantly, the failure to disclose the known future risk appeared to violate securities laws in the Names' own jurisdiction.

The Canadian side of the litigation began in 1991 when a group of Canadian Names brought an action against Lloyd's in Ontario.6 In Ash, the Names claimed that their investment contracts with Lloyd's were void ab initio for reasons of fraud and breach of securities law. This action was commenced in response to cash calls made by Lloyd's to cover claims for which the Names were responsible under their contracts. Lloyd's sought a stay of the Ontario proceedings, invoking a choice-of-jurisdiction clause that designated London as the exclusive forum for adjudicating any dispute between the parties. The stay was granted and confirmed on appeal.'

of all his assets in respect of his insurance obligations at Lloyd's." Saunders (SC), supra, footnote 2, at para. 12.

5. Ibid., at para. 16.

6. Ash v. Corp. of Lloyd's (1991), 6 OR. (3d) 235, 87 D.L.R. (4th) 65 (Gen. Div.), per McKeown J. (hereafter Ash); enforcement of the forum selection clause affd 9 OR. (3d) 755, 94 D.L.R. (4th) 378 (C.A.), per Carthy, Osborne and Abella JJ.A., leave to appeal to S.C.C. refused [1992] 3 S.C.R. v.

7. The main impetus for the suit was to stop payments under letters of credit signed by the Names. The fraud allegation raised against Lloyd's was central to this request as fraud is essentially the only ground for refusing payment under a letter of credit: Bank of Nova Scotia v. Angelica-Whitewear Ltd., [1987] 1 S.C.R. 59, 36 D.L.R. (4th) 161. This article will not deal with this issue.

[*390]

The English judgment whose enforcement was sought in Saunders is of a completely different nature. Indeed, it flows from actions brought against Names who refused to participate in a reconstruction plan put together by Lloyd's in 1996. This plan essentially involved the consolidation of all liability arising prior to 1992, to be covered by a reinsurance plan underwritten by a new creation of Lloyd's called Equitas. The plan enabled Lloyd's to force even non-participating Names to contribute premiums to Equitas. Lloyd's paid the premiums on behalf of those Names and was assigned the right to recover the payments by Equitas. In answer to Lloyd's action to recover the payments, the Names attacked, inter alia, the validity of the Equitas scheme itself in addition to the legality of the compulsory payments by non-participating Names. They also claimed that their entire relationship with Lloyd's was vitiated by the initial fraud in contracting to become Names in the first place. Subsidiarily, they raised the breach of Canadian securities law.'

Lloyd's moved for summary judgment in the English court, arguing that the defences raised were without merit.' The Commercial Court granted summary judgment and this was confirmed on appeal.'° The courts upheld the validity of the Equitas scheme and subsequent arrangements thereunder as valid exercises under Lloyd's by-laws. The Names were bound to these rules as they had agreed, at the time of original contracting, to submit to the legislative and regulatory framework of Lloyd's. The allegations of fraud were rejected because the Equitas contract imposed a "pay now, sue later" condition, thus precluding claims of fraud against Lloyd's to set off any obligation to pay the premiums."

8. Saunders (SC), supra, footnote 2, at paras. 19-20.

9. Given the complexity and sheer number of cases before the English courts, the process was managed through a series of test cases. Most of the first instance decisions are unpublished and remain unavailable online.

10. The cases involving the Canadian Names were: The Society of Lloyd's v. Leighs (unreported, February 20, 1997, English Commercial Court, Colman J.) and Society of Lloyd's v. Wilkinson (unreported, April 23, 1997, English Commercial Court, Colman J.), both affirmed in Society of Lloyd's v. Leighs, Lyon and Wilkinson, [1997] N.L.O.R. No. 721 (C.A.), leave to appeal to the House of Lords refused (hereafter Lloyd's v. Wilkinson); Society of Lloyd's v. Daly (unreported, January 27, 1998, English Commercial Court, Thckey J.), leave to appeal refused in The Society of Lloyd's v. Fraser [1998] E.W.J. No. 1045 (C.A.) (the Court of Appeal decision: hereafter Fraser). A thorough review of these cases is offered by the Court of Appeal in Fraser, available online through Quicklaw and Lexis.

11. See Saunders (SC), supra, footnote 2, at para. 25 and Fraser, ibid., at pam. 71.

[*391]

On the allegations of violation of Ontario securities law, the English court accepted that by failing to file a prospectus Lloyd's had breached the Ontario Securities Act.'2 This meant that the Names' obligations to Lloyd's would not be enforceable in Ontario." However, this was said not to affect litigation in England since the enforcement of the contract there was not against English public policy." The English Court of Appeal refused leave to appeal. In so doing, it held that international comity prevented giving any effect to the invalidity under Ontario securities law as this would put into jeopardy innumerable contracts of insurance entered into by third parties."

Following this, Lloyd's sought recognition and enforcement of the English summary judgments in Ontario under the Reciprocal Enforcement of Judgments (U.K.) Act. 16 Before the Ontario court, the Names argued against enforcement of the English judgments on two grounds. First, that the English courts' refusal to hear the allegations of fraud constituted a breach of natural justice. Second, that it would be against public policy to enforce a judgment based upon a contract that violated the Ontario Securities Act. '

The parties agreed that the Ontario court should address the two claims on the basis of a set of assumed facts: (i) that the allegations of fraud were proven and (ii) that Lloyd's was required to deliver a prospectus pursuant to the Ontario Securities Act." Under these assumptions, the defendants' objections based on natural justice and public policy were cast in their best light. Nevertheless, both objections were rejected at first instance and confirmed on appeal. As a result, the English judgment could be registered under the Reciprocal Enforcement Act, entitling it to enforcement as a judgment of an Ontario court.

12. See Fraser, ibid., at paras. 85-89. per Lord Hobhouse for the court.

13. Ibid.

14. Ibid., at paras. 94-96. 15. Ibid., at pam. 96.

16. R.S.O. 1990, c. R.6 (hereafter Reciprocal Enforcement Act). This statute regulates the recognition and enforcement of judgments between Canada and the United Kingdom. The conditions for recognition include a limitative set of exceptions which will deny enforcement. 17. Saunders (SC), supra, footnote 2, at para. 2. The defendants also alleged that the judgments had been satisfied in whole or in part. I will not discuss this part of the decision except to note that the argument was rejected by the court; see ibid., at paras. 54-58, 18. Saunders (SC), ibid., at pam. 3. This point is made more clearly in the appellate court's reasons: Saunders, supra, footnote 2, at pam. 5.

[*392]

The focus of this article will be on the second objection since it raises the most interesting questions of private international law. In terms of principle, this case forces us to consider the role of public policy at the jurisdictional stage. In particular, we need to ask when a choice-of-jurisdiction clause in a contract can supersede a domestic "fundamental value"." I will argue that public policy is an inappropriate tool for that analysis. Instead, Canadian common law courts should rely on the concept of mandatory rules to better define the scope of party autonomy as expressed in choiceof-law and choice-of-jurisdiction clauses in international contracts.

Such a balancing of party autonomy and domestic legislative policy is also at play in the application of the public policy exception at the recognition stage. I will suggest that a more explicit consideration of these two principles in Saunders, alongside the treatment of international comity, could have led to different conclusions. Saunders' favouring of international comity over public policy may appear to fit well within current judicial trends since Morguard Investments Ltd. v. De Savoye.2° It is my view, however, that the facts in Saunders challenge that equation.

Before turning to an examination of the public policy objection, I will briefly consider the natural justice argument put forward by the defendants before the Ontario Court of Appeal. As noted above, this objection was rejected both at first instance and on appeal.

I. NATURAL JUSTICE DEFENCE

The objection based on natural justice has two components in Saunders. First, the court had to determine whether such an objection to enforcement was available under the Reciprocal Enforcement Act since it is not expressly listed in Article IV of that statute. Second, assuming that the defence is available, the court had to assess its merit.

Whether the natural justice defence is separate from the public policy defence is an interesting question. This question highlights an apparent discrepancy between common law defences and those made available under the registration statute. According to accepted common law principles, natural justice is a separate ground for objection - additional to public policy - in an action for the

19. This is the expression used by Feldman J.A. to describe the nature of the prospectus requirement under Ontario securities law. 20. [199013 S.C.R. 1077, 76 D.L.R. (4th) 256.

[*393] recognition and enforcement of a foreign judgment." The content of the natural justice defence is not precise but it is usually interpreted narrowly, being limited to questions of procedural justice. 22 This commonly refers to the right to be notified of proceedings and to present a defence. 13 Admittedly, this is not the aspect of natural justice invoked by the defendants in Saunders. As a result, a response to this objection requires deciding whether there actually is anything more to the defence of natural justice and, if so, whether it is available under the statute.

The decision at first instance dispenses with the question by treating natural justice as an element of public policy."' On appeal, the court was not prepared to make that final determination on the grounds that "it is not necessary in this case. to finally decide whether a denial of natural justice, not specifically referred to in Article IV is included within the public policy provision of the Act"." Instead, the Court of Appeal took the simplest way out of this dilemma by discarding the defence on the merits. The defendants' chief complaint was that they had not been granted a trial on the fraud allegations. In fact, as the Ontario court held, the English court appeared merely to have given effect to a "pay now, sue later" clause in the contract.

It might have been helpful for the court to resolve the issue of statutory interpretation for the future. Indeed, as it stands, plaintiffs have the upper hand. By choosing the registration route instead of the action for enforcement, a plaintiff can profit from the ambiguity in the statute to limit the objections available to the defendant. Despite the apparent unfairness to defendants, correcting this situation by subsuming natural justice within public policy is idiosyncratic given that the natural justice defence is distinct from public

21. Four Embarcadero Center Venture v. Kalen (1988), 65 OR. (2d) 551 at p. 571, 27 C.P.C. (2d) 260 (H.C.J.), per Henry J.

22. There have been some attempts to broaden it under English law but with little impact. See Adams v. Cape industries plc, [1990] Ch. 433 (C.A.). See the Court of Appeal's discussion of this point in Saunders, supra, footnote 2, at paras. 26-28.

23. Interestingly, the Reciprocal Enforcement of Judgments (U.K.) Act, supra, footnote 16, allows member-states to provide that registration of a default judgment can be refused where either of these two elements of procedural justice is not satisfied. Neither the federal nor the Ontario enacting legislation speaks to this possibility. In this context, it is problematic to suggest that this dimension of the natural justice defence could be implicitly included within the public policy defence listed in the statute. 24. Saunders (SC), supra, footnote 2, at para. 31. 25. Saunders, ibid., at para. 20. 26. Ibid., at pam. 35.

[*394] policy at common law, in international conventions and in Quebec law. One might even support the exclusion of natural justice, as La Forest J. did in Morguard, where he suggested that concerns over fair process have no place in the Canadian interprovincial setting." This reasoning may well extend to questions of natural justice in the Canada-United Kingdom context.

II. PUBLIC POLICY DEFENCE

Saunders raises some fundamental questions of private international law design that have yet to be addressed in the case law or the literature in common law Canada. In the first place, the case speaks to the nature and function of public policy at the recognition stage and at the jurisdictional stage in transborder litigation. For example, the court in Saunders draws critical inferences from the jurisdictional decision in Ash in order to answer the recognition question in Saunders. While such a linkage is not necessarily inappropriate, the court's reasoning in Saunders is not fully persuasive on this point.

A second, perhaps more fundamental point raised by the decision in Saunders relates to the role of mandatory rules of the lex fori in private international law. The notion of a mandatory rule is a relative newcomer to Canadian law." While the concept has been discussed in the literature,' it has not appeared in judicial writing in the common law provinces. The impact of this lacuna may be significant given that the notion of mandatory rules is part of English law, a fact that may well have rendered predictable the refusal by the English court to give any effect to the Ontario Securities Act. 30

27. Supra, footnote 20.

28. As I will discuss below, in the text accompanying footnote 50, this concept has recently become part of Quebec law (arts. 3076 and 3079 C.C.Q.) and of English law (through the Rome Convention on the Law Applicable to Contractual Obligations, 1980, 19 I.L.M. 1492 (hereafter "Rome Convention"), in force throughout the European Union since 1991).

29. See for example M. Baer et al., Private International Law in Common Law Canada (Toronto, Emond Montgomery, 1997), pp. 78-84, 577-78 and 598-608; C. Walsh, "Choice of Forum Clauses in International Contracts" in The Continued Relevance of the Law of Obligations. retour au.x sources (McGill Meredith Lectures) (Cowansville, Qc., Yvon Blais, 2000), 211 at p. 36.; J.-G. Castel and J. Walker, Canadian Conflict of Laws, 5th ed. (Markham, Ont., Butterworths, 2002), p. 1.8.

30. This question is fully discussed in 0. Saumier, "Public Policy, Mandatory Rules and Uniform Choice-of-Law Rules in Contract: The Impact of European Harmonization on English Private International Law" (1997) (unpublished doctoral dissertation, on file with author and in the University Library, University of Cambridge). For example, in adopting the Rome Convention, the United Kingdom made a reservation against the provision allowing for the application of mandatory rules of foreign law. Although that

[*395]

More importantly, however, a better understanding of mandatory rules could introduce greater coherence in Canadian private international law. This in turn could provide guidance to courts facing competing principles in transborder cases, namely party autonomy, national sovereignty and international comity. Not surprisingly, these are the principles at stake in the Lloyd's saga.

I will begin by exploring the public policy objection from the jurisdictional standpoint. This will allow me to consider whether forum selection clauses should be examined in terms of public policy or whether an alternative approach, based on mandatory rules is more appropriate. I will then focus on the role of public policy as an objection to recognition and the factors considered by the Court of Appeal in Saunders.

III. PUBLIC POLICY AND INTERNATIONAL JURISDICTION

In Ash, Canadian Names were suing Lloyd's in response to its cash calls following the insurance market debacle. Lloyd's sought a stay of proceedings, asking the Ontario court to enforce a forumselection clause in the parties' contract that designated England as the jurisdiction for resolving disputes between the parties. The Names objected to this and one reason offered was that an English court would not take into account Lloyd's alleged violation of the Ontario Securities Act, At first instance, McKeown J. granted the stay of proceedings, holding specifically that "[t]here is no reason to believe that the English courts would not apply the Securities Act"." This belief proved to be ill founded.

Indeed, in subsequent litigation between the same parties before the English courts,' the Canadian Names invoked the application of Ontario securities law. In Fraser,33 the following facts were convention did not apply in this case (see Fraser, supra, footnote 10, at para. 82), the reservation is fully representative of the English court's approach to foreign mandatory rules.

31. Ash, supra, footnote 6. The decision to stay the action was not reversed on appeal (although a refusal to stay with respect to four defendant banks at first instance was reversed on appeal) and the Ontario Court of Appeal did not revisit the question relating to the Securities Act (ibid.).

32. It is useful to recall that these proceedings were of a very different nature altogether although the Names' arguments were very similar. See supra, text accompanying footnote 8.

33. While the securities law argument was originally heard and rejected by Tuckey J. at the Commercial Court, his reasons are not reported by the Court of Appeal: Fraser, supra, footnote 10, at para. 61. In its evaluation of the securities law defence, the Court of Appeal presented its own reasoning: ibid., at pares. 82-97.

[*396] underlined: the agreements between the Names and Lloyd's included an English choice-of-law clause, the contracts were formally concluded in London and all of the relevant obligations were to be performed in London. The court accepted evidence that the contract was illegal under the Ontario Securities Act and unenforceable in Ontario. All of these elements were considered in light of the fact that the proceedings were taking place in England and were governed by English law, in accordance with the choice expressed in the contract. 34

The English Court of Appeal held that no principle of English private international law would allow the Ontario legislation to intervene before the English courts. Indeed, because the contract was governed by English law and was to be performed entirely in England, "invalidity or lack of enforceability under a foreign law is irrelevant" .31 The court added that its holding involved no breach of comity since the Ontario statute did not express a universal norm whose violation could be interpreted to be against the comity of nations.

As a result of this rather cursory consideration of the foreign securities legislation, the English court concluded that the Ontario legislation provided no defence to the enforcement of the contracts in England. The question of the enforceability of this judgment in Ontario was said to be of no relevance. 37 In the end, the English court refused leave to appeal from the summary judgment holding the Canadian Names liable to Lloyd's for the premiums paid on their behalf to Equitas. This is the judgment brought for enforcement before the Ontario courts in Saunders.

The holdings in Ash and Fraser confronted the Ontario court in Saunders with two apparently contradictory statements. The first was the claim in Ash that the English courts could well apply the Ontario Securities Act. The second was the unambiguous contrary statement by the English courts. At the Court of Appeal, Feldman J.A. bridged the gap between the two by finding that "the outcome that eventually resulted [in England] was contemplated as a possible outcome [in Ash]".` In other words, she interpreted Ash to mean that "it would not be contrary to the public policy of Ontario to

34. Ibid. 35. Ibid., at para. 89. 36. Ibid., at para. 94. 37. Ibid., quoting the Court of Appeal's decision in Wilkinson, supra, footnote 10, at p. 28. 38. Saunders, supra, footnote 2, at para. 78.

[*397] enforce a judgment which may have condoned a breach of the Securities Act". 39

Public policy can be called upon at several stages of international litigation. With Ash and Saunders, we have a unique opportunity to observe this doctrine at work in related actions at two stages of the litigation process and in the same forum (Ontario).' According to Saunders, public policy, in the form of the Ontario Securities Act, intervened in Ash at the point of determining the jurisdiction of the court over a trans-jurisdictional case. In Saunders itself, however, the question of public policy arises at the other end of the judicial process, that is, when deciding whether to give any effect to a foreign judgment. The fact that the court in Ash had sent the parties to England in the first place could obviously not be ignored when an English judgment between the same parties was brought to Ontario for enforcement.

This conclusion does not address the question whether public policy is the appropriate tool for addressing jurisdictional questions. In fact, one would be hard pressed to find in Ash any indication that the decision to stay proceedings flowed from considerations of public policy. The suggestion in Saunders that the enforcement of a forum selection clause may involve a public policy analysis requires further scrutiny.

When a court is seized of a dispute with crossborder implications, how will its decision as to jurisdiction encounter public policy? Typically, public policy operates at the choice-of-law stage or at the recognition stage. In both of these cases, public policy has an exclusionary effect, opposing either the application of a foreign law or the recognition of a foreign judgment. In both instances, the standard is extremely high, and violations of public policy will be recognized only in the most egregious cases, where the effect of applying the foreign law or of enforcing the foreign

39. Ibid., at para. 79.

40. To my knowledge, this is the first time that the same court has been confronted with a public policy argument at the initial jurisdictional stage and then at the final enforcement stage. Admittedly, the two cases concern very different causes of action between the parties. It is not the case that the defendant who successfully obtained a stay of action in the original forum was subsequently sued in the preferred jurisdiction and, on the basis of a cross-claim no doubt, obtained an award in the second jurisdiction which it then brought for enforcement in the original jurisdiction. The Lloyd's litigation is far more complex and, I would add, the fact that the Court of Appeal in Saunders did not really address the significant difference in the action involved in Ash is telling. Further reinforcing this confusion is the fact that Quicklaw refers to Saunders as the "same case" as Ash in its notation system.

[*398] decision would fundamentally contradict the forum's essential values.

The justification for such an exclusionary mechanism rests with the general principles that traditionally underpin private international law. One such principle is the equality of laws, usually represented by the neutral choice-of-law rule. Neutrality refers here to the lack of discrimination in designating the applicable law. For example, the lex loci delicti rule for torts formulated by the Supreme Court in Tolofson v. Jensen4' is neutral in the sense that the identification of the applicable law will depend solely on the locus in question and not on any preference for domestic law over foreign law, or for one foreign law over another. Such openness to foreign law is tempered, however, by reference to the public policy exception, which acts as the ultimate guardian of forum policies. The exclusion of a designated foreign law is justified on grounds of incompatibility with the public policy of the forum.42

To give full effect to the principle of equality of laws, and to limit the scope of the exception, the public policy analysis must be undertaken in concreto and not in abstracto. This means that in considering the applicable foreign law, a court must not judge that law's provisions in the abstract but must assess the effect of its application in the specific case. For example, discriminatory divorce laws that unduly favour one spouse over another should not be excluded on public policy grounds alone simply because discrimination is deemed contrary to forum values. Indeed, if the result, such as an unequal division of property, could also occur in similar circumstances under forum law, there is no reason for refusing to apply the designated foreign law.

The same principles operate at the end of the litigation process when a judgment has been obtained and execution is sought in another jurisdiction. While that jurisdiction may admit the competence of the court that rendered the judgment, recognition may still be refused on the basis that the judgment itself is contrary to the public policy of the jurisdiction where recognition is sought. The

41. [199413 S.C.R. 1022, 120 D.L.R. (4th) 289.

42. There is no clear consensus on the impact of excluding a designated foreign law on public policy grounds. While there is some support for the view that the local law simply applies in its residual capacity, others have suggested that the designated law could be refashioned to exclude the provisions leading to the offending result or that another closely connected law should be sought out. See for example the discussion in Y. Loussouarn and P. Bourel, Droit international privé, 4th ed. (Paris, Dalloz, 1993), paras. 255-58.

[*399] strength of the public policy defence will depend on the importance of the links between the litigation and the jurisdiction involved as well as the nature of the violation."'

The general common law rule that excludes consideration of the law applied by the foreign court as well as any review of the merits reinforces the narrow ambit of the public policy defence at the recognition stage. In other words, public policy is not concerned with the foreign court's failure to give effect to any particular law, whether local or foreign; it is interested in outcomes.45 Public policy looks at the ends, not the means.

The relevance of public policy at the jurisdictional stage must be assessed in light of the above. In the absence of an existing foreign judgment or of an applicable foreign law, conclusions regarding the potential incompatibility with domestic values will necessarily be provisional at the jurisdictional stage. At the moment of deciding whether or not to hear a case, a court can only speculate about future violations of public policy if, for example, the foreign court were not to apply the forum law invoked by the party resisting the stay. Without knowing the ultimate result in the foreign court, it is presumptuous for the forum to make its jurisdictional decision based on public policy concerns.

Even if the domestic court had some indication that the foreign court would categorically refuse to apply some particular law, this still may not justify invoking public policy to refuse to send the parties to that foreign jurisdiction. Until the foreign court has adjudicated the matter, there is no way for the forum to determine whether the eventual outcome will violate its public policy. To do otherwise would be to pre-empt the in concreto analysis and, therefore, to undermine the balance sought in the definition of the public policy defence.

This conclusion on the role of public policy at the initial jurisdictional stage does not entail, however, that the foreign decision, once rendered, cannot be scrutinized for its compatibility with public policy at the enforcement stage. Indeed, it is only at the

43. This is acknowledged in Feldman J.A.'s analysis of the few Canadian cases on point; see Saunders, supra, footnote 2, at paras. 67-68.

44. See Castel and Walker, supra, footnote 29, at pp. 14.26-27. These two rules have been adopted into Quebec law with the 1991 reform: see arts. 3157 and 3148 C.C.Q.

45. The public policy defence may sometimes conflict with the rule against review of the merits in a recognition proceeding. However, focusing on the exceptional character of the defence and the conditions limiting its application mitigates incursions against the no-review principle.

[*400] enforcement stage that an in concreto assessment can take place. Again, it bears repeating that, under traditional analysis, the failure of the foreign court to apply a particular forum law would not in itself justify exclusion of the judgment on public policy grounds. The compatibility with public policy would be assessed in relation to the foreign judgment, in terms of its holding and the clash between that result and fundamental values of the forum.

This analysis, when applied to the facts in Ash, could serve to justify a stay in order to respect the jurisdictional clause designating English courts. Indeed, even if it could be shown that English courts would refuse to apply Ontario securities law, it would still not be possible to determine, ex ante, that the dispute between the parties would be resolved in a manner that violated Ontario public policy. In other words, it was certainly possible, at the time Ash was decided, to envisage a result favourable to the Names in litigation before the English courts.

This is not exactly how the court in Ash addressed the question. In fact, McKeown J. does not consider the interaction between the forum selection clause and the Ontario securities law in terms of public policy at all. I can see two reasons for this. First, as noted earlier, there is but a single sentence on the potential consideration of the Ontario securities legislation before an English court.

McKeown J. simply presumes that the English courts would apply Ontario law." Any concern that the outcome in England would necessarily violate Ontario securities law is mitigated by this assumption.

Second, and more critical I think, is McKeown J,'s scepticism regarding the applicability of the Ontario Act to the contract in question. Without going into a detailed analysis of the prospectus requirement, he appears to consider that it is highly unlikely that the transaction in question is covered by the Act." In this perspective, his lack of concern over the application of Ontario law before English courts is understandable. If there had been no doubt that the

46. McKeown J. does refer to the applicability of Ontario law before English courts in the course of his analysis of forum non conveniens. However, his comments are to the effect that the Names had not demonstrated how, in relation to the question of fraud, the law of Ontario was any different than the law of England or that an English court would not apply Ontario law "if it was properly pleaded, proven and determined to be applicable": Ash, supra, footnote 6, at p. 250. McKeown J.'s discussion of the Ontario Securities Act is dealt with in a separate section of his judgment. 47. Ash, ibid., at p. 252. 48. Ibid., at p. 251.

[*401] Ontario securities law applied to the contract in question, McKeown J. may have been more reluctant to send the parties to England.

This is precisely the situation before the Court of Appeal in Saunders. It will be recalled that the court agreed to assume that the securities legislation applied and that Lloyd's had acted fraudulently. This is a far from the scenario faced by McKeown J. in Ash. But even if this had been the factual backdrop in Ash, I would still argue that public policy is not the appropriate way to deal with the forum selection clause. Mandatory rules offer a better solution.

IV. MANDATORY RULES: REFINING THE PUBLIC POLICY EXCEPTION

The concept of mandatory rules is well known in European civil law jurisdictions." It was also introduced into Quebec law with the reform of 1991.50 Mandatory rules even made their appearance in English law in 1991 as well, with the adoption of the Rome Convention on the Law Applicable to Contractual Obligations, a convention of the European Union meant to harmonize choice-of-law rules in contract." In Canadian common law provinces, the term is used in the literature '52 but so far not in the case law.53

Mandatory rules, as understood in private international law, are rules of substantive law that apply to transborder disputes regardless of the law designated under applicable choice-of-law rules. Specifically, mandatory rules will apply to a contract notwithstanding that the parties have designated another applicable law and notwithstanding that such a designation is normally valid according to the forum's choice-of-law rules. In this way, mandatory

49. See for example in France, B. Audit, Droit International Privé, 3rd ed. (Pans, Economica, 2000), paras. 112-16; in Switzerland, A. Bücher, "L'ordre public et le but social des lois en droit international privé" (1992), 239 Recueil de cours de l'Académie de droit international de La Haye 9.

50. In arts. 3076 and 3079 C.C.Q. For a discussion see H.P. Glenn, Droit international privé in La reforme du Code civil, tome 3 (Québec, P.U.L., 1993) 669 at paras. 8-9.

51. See supra, footnote 28. This document actually adopts the expression "mandatory rule" to refer to the notion I discuss in this text. In French, it is encountered as either loi d'application immediate or as loi de police. Some readers may have seen the idea described as a "unilateral" rule or a "rule of immediate application". The French expressions are also frequently found in English texts, much like the expression "ordre public" to refer to the public policy exception.

52. See references supra, footnote 29.

53. The main Canadian case on point is Avenue Properties Ltd. v. First City Development Corp. (1986), 32 D.L.R. (4th) 40, [1987] 1 W.W.R. 249, 7 B.C.L.R. (2d) 45 (C.A.). It will be discussed below; see text accompanying footnote 60.

[*402] rules eliminate recourse to general choice-of-law rules because mandatory rules are, by their very nature, directly applicable to the dispute between the parties. The mediating role of choice-of-law rules is set aside; there is no need to search for the applicable law.54

This mandatory nature can be expressed in two ways. First, a statutory norm can state expressly that it is to apply regardless of the law designated by the parties." This type of mandatory rule is infrequently encountered. Indeed, until recently legislators rarely turned their minds to the international dimensions of legislation and regulation. With the advent of the Internet, this is likely to change. In any event, express mandatory rules present no difficulty for the forum court: they must be applied. Such a mandatory rule eliminating party autonomy with respect to the applicable law would normally extend to deny any effect to a jurisdictional clause designating a foreign venue. Indeed, since the forum has no control over the choice-of-law rules of foreign jurisdictions, allowing the parties to adjudicate elsewhere would undermine the mandatory rule-'

Mandatoriness can also be implicit. In such a case, courts must declare it to be so. A rule is implicitly mandatory where a court finds that its object and purpose make it unavoidable, even in an international contract. The objects and purposes that will render a rule mandatory remain undefined and will depend on the court's appreciation of the fundamental nature of the legislative policies involved. Unlike traditional public policy, mandatory rules can reflect more diverse and specific concerns and can embrace social, economic and even political values.

In terms of private international law principles, the identification of a rule as mandatory, and the resulting displacement of the law chosen by the parties, indicates that the legislative policy of the

54. The "applicable law" refers here to the law of a country, from which the relevant rules are to be drawn. For example, if the parties have indicated that their contract is to be governed by the law of France, the court must find, within the law of France, the applicable legal rules to resolve the dispute. These rules will most likely be found in the law of obligations, mainly contract. A mandatory rule is a specific legal rule, usually of statutory nature, but it may also originate in a code or, in a common law jurisdiction, from a case. 55. An example commonly mentioned in the literature is the Unfair Contract Terms Act 1977 (U.K.), c. 50, s. 27(2).

56. This argument was persuasive in a Canadian case: Agro Co. of Canada v. "Regal Scout" (The) (1983), 148 D.L.R. (3d) 412 (F.C.T.D.) (choice-of-jurisdiction clause in favour of Japan held ineffective because incompatible with unavoidably applicable Canadian law); this case followed a similar decision of the House of Lords in The Hollandia, [1983] 1 A.C. 565 (H.L.).

[*403] mandatory rule supersedes the competing policy of party autonomy. Just as freedom of contract can be limited in domestic contract law, party autonomy is also circumscribed in the international context." The challenge to courts is to determine the extent to which those two limitations coincide. Where a contract presents connections outside the jurisdiction, how far can the domestic legislative policy reach? This is the question asked within the framework of an analysis based on mandatory rules.

In methodological terms, recourse to a concept of mandatory rules simplifies the analysis. It allows a court to give immediate effect to a forum statute, for example, without having to engage in an artificial" consideration of the issue under a public policy lens. As discussed previously, in conflicts methodology, public policy is essentially an exclusionary tool, one that serves to reject the application of foreign law or foreign judgments. At the stage of deciding upon jurisdiction, a court is poorly positioned to engage in a public policy analysis. Besides involving a risky exercise of speculation about how a foreign court will act, a public policy analysis shifts focus away from the relevant issues, which are the scope of party autonomy and the territorial reach of domestic legislative policies. 59

V. THE IDEA OF MANDATORY RULES IN CANADIAN CASES

The British Columbia Court of Appeal decision in Avenue Properties Ltd. v. First City Development Corp.' illustrates the methodological dimension described in the previous section. In British Columbia proceedings, the court had to decide whether to refuse a stay of proceedings on the ground that the provincial Real Estate Act was applicable to the parties' transaction despite their selection of Ontario law to govern their transaction. The party resisting the

57. This is not surprising, given that contract law and private international law are both part of domestic law.

58. It is artificial in the sense that ii involves the pretence of looking at the result in a foreign jurisdiction, under a foreign law, and comparing it with the result under the lex ford while the forum is really only concerned with the scope of application of its own law regardless of how the question would resolve abroad.

59. An additional advantage is that it avoids displacing the question to one of validity of consent to the clause. This type of inquiry is secondary to the issue of whether such clauses can be concluded at all.

60. Supra, footnote 53, per McLachlin J.A. In Avenue Properties, an Alberta real estate developer had sold units located in Ontario to a B.C. purchaser. The contract was stated to be governed by Ontario law and the transaction was not done in conformity with the requirements of the B.C. Real Estate Act. When the purchaser defaulted, the vendor sued in Ontario and the purchaser responded with a countersuit in British Columbia.

[*404] stay was claiming that British Columbia should retain jurisdiction because the Ontario court would not give effect to the British Columbia statute. In her reasons, McLachlin J.A. considered the issue in these terms:

I think there is at least a reasonable possibility that a British Columbia court, given this legislation, would accept the "choice of law" argument that the Legislature intended s. 62 [of the B.C. Act] to apply, notwithstanding that the land and the proper law of the contract were foreign. Alternatively, given the specificity of the provisions, it might be held that it is against public policy to enforce a contract made in clear contravention of the B.C. legislation.61

The "choice of law" and public policy arguments which can be raised in British Columbia cannot be raised in Ontario, since the foundation of these arguments is a law in the jurisdiction in which the proceedings are brought which is contrary to the proper law of the contract."

This reasoning suggests that there are two routes available: one is based on an interpretation of the legislation's scope of application in transjurisdictional cases, what McLachlin J.A. calls the "choice-of-law" route; the other she calls the public policy route. In fact, the second route is simply a reformulation of the first: the violation of public policy flows from the fact that the statute cannot be contractually avoided by a choice-of-law clause. The substantive policy of the Act is not engaged in this analysis. Arguably, this version of public policy is quite different from the usual understanding of public policy in private international law: there is no suggestion that a breach of the British Columbia Real Estate Act is incompatible with fundamental values of that province's law .611 would venture to suggest that the two routes are presented as equivalent and neither really involves the public policy defence as normally understood in private international law.

The second quoted paragraph raises another difficulty with recourse to public policy in this context. As McLachlin J.A. states, a public policy analysis is intended to protect the fundamental policies of the forum; it does not operate to protect the fundamental values of a foreign jurisdiction. It follows, therefore, that an examination of the British Columbia statute cannot be undertaken by the

61. Ibid., at p. 51 (my emphasis). 62. Ibid., at p. 52.

63. This point is actually made in an earlier B.C. case: Block Bros. Realty Ltd. v Mollard (1981), 122 D.L.R. (3d) 323, [198114 W.W.R. 65, 27 B.C.L.R. 17 (C.A.), mentioned by Feldman J.A. in Saunders, supra, footnote 2, at pg. 56.

[*405] Ontario court under the public policy lens. The public policy exception cannot be twisted this way. Here McLachlin J.A. is clearly referring to the usual sense of public policy in private international law. Her conclusion raises one of the shortcomings of using public policy in the jurisdictional context: its exclusionary nature.

One may wonder why it should not be possible to consider the legislative policy of a foreign state at the jurisdictional stage. For example, if the contract designates the forum as the jurisdiction for dispute resolution, why should a defendant not be entitled to raise a foreign mandatory rule to challenge the enforceability of the forum selection clause? While a public policy analysis precludes this, no such limitation follows using mandatory rules.

There is no reason in principle to exclude consideration of mandatory rules of foreign law. In fact, this possibility is expressly recognized in existing international choice-of-law conventions and in Quebec law.' It is precisely because mandatory rules are not analyzed according to the public policy paradigm that foreign rules can be taken into 'account. In so doing, the court must balance the principle of party autonomy with the legislative policy of the foreign mandatory rule.

The Supreme Court of Canada decision in R. v. Thomas Equipment Ltd. 65 can lend support for this approach in common law provinces, even though it involved a choice-of-law and not a choice-of-jurisdiction clause. There the parties' contract for the supply of farm equipment included a clause specifying that New Brunswick law would govern. The Supreme Court held that an Alberta statute, granting certain rights over the equipment to the Alberta retailer, was applicable to the New Brunswick vendor, notwithstanding the choice of New Brunswick law in the contract. The court did so by considering the legislative policy behind the statutory protection provided by the Alberta statute. Its ruling is an implicit recognition that the policy behind the statute trumped the choice of law in the contract. This analysis is consistent with mandatory rule reasoning and it is difficult to imagine that its success would have depended on whether the case came up through the courts of Alberta or of

64. See for example, the Rome Convention, supra, footnote 28, at art. 7, and art. 3079 in the Civil Code of Québec. See also B. Audit, supra, footnote 49. at paras. 117-19. Admittedly, this idea remains controversial and it can be excluded from the Rome Convention by reservation.

65. [1979] 2 S.C.R. 529,96 D.L.R. (3d) 1.

[*406] New Brunswick. On the other hand, on a public policy analysis, the same result could only occur in Alberta.'

Such a hierarchy of norms is readily observed in other legal systems. In Québec, for example, the opening provision of Book Ten on private international law states that mandatory rules will take precedence over other conflict rules.67 Limits on forum selection in the securities law context would have to rest on this provision since the Civil Code of Quebec would otherwise give full effect to party autonomy.68 Indeed, restrictions on forum selection are provided expressly only in relation to employment, consumer and insurance contracts.

These limitations on forum selection in Quebec private international law indicate that party autonomy may be subject to other principles, such as protection of weaker parties .70 Exceptional recourse to the notion of mandatory rules allows courts in Québec to add to this list of limitations when this is justified, as art. 3076 C.C.Q. states, "by reason of [the] particular object" of the mandatory rule in question. Thus, while party autonomy is the primary governing principle underlying the C.C.Q. 's approach to forum selection clauses, this principle may be displaced in certain circumstances, some explicitly provided for in the Code itself, others left to be identified by courts in individual cases.

The advantages of treating public policy and mandatory rules as methodologically distinct are several. By recognizing the particularity of mandatory rules, courts can focus their inquiry on the nature and purpose of the rule in question, as it relates to transjurisdictional disputes. In most cases, in the absence of express words to the contrary, party autonomy is likely to remain the governing principle in contract choice-of-law. In those cases where a specific legislative policy requires a different solution, however, party autonomy will have to cede to this identified priority. In their

66. In fact, the case did come from Alberta. The actual basis of the decision remains unclear as the Supreme Court seemed to treat it as a simple case of statutory interpretation. For commentary on the case see H.P. Glenn (1981), 59 Can. Bar Rev. 840.

67. Art. 3076 C.C.Q.

68. In patrimonial matters only: arts. 3148 and 3168 C.C.Q. 69. Arts. 3149 and 3150 C.C.Q.

70. Paul Lagarde would refer, no doubt, to the broader principle of sovereignty to encompass such objectives. The idea is that party autonomy is but one principle governing rules of private international law and that in certain circumstances it comes into competition with other principles, namely the principle of proximity and the principle of sovereignty. See P. Lagarde, "Le principe de proximité clans le droit international privé contemporam" (1986), 196 Recueil des cours de l'Académie intemationale de La Haye 9.

[*407] analysis, courts will have to engage in an explicit consideration of competing policies. Parties will be required to argue within these parameters without wading into the murky waters of public policy. The coherence of the public policy exception will be heightened. It will retain its role as a shield against foreign law and foreign judgments, instead of being forced to act as a weapon to impose local law. Finally, reliance on the notion of mandatory rules is more flexible than public policy, as it allows for consideration to be given to similar foreign laws. The possibility of recognizing foreign mandatory rules has the added advantage of furthering the principle of neutrality that can otherwise be undermined by mandatory rules of the lex fori.

The outcome in Ash may well have remained the same if its analysis of the Ontario securities legislation had been undertaken under the lens of mandatory rules. Indeed, as indicated above, McKeown J. was highly sceptical that the statute even applied to the transaction between the parties. On the other hand, if the analysis had considered the mandatory nature of the securities legislation, McKeown J. would have had to deal with that question more fully. As for what his view would have been on the mandatory character of the prospectus requirement under the Ontario Securities Act, there is little in his reasons to suggest an answer. Such an analysis is available, however indirectly, in the decision of the Court of Appeal in Saunders in the context of its examination of the public policy defence. A retrospective conclusion on the jurisdictional question may usefully be gleaned from that decision.

VI. PUBLIC POLICY IN SAUNDERS

The public policy argument raised by the defendants in the registration proceeding was framed around the Ontario Securities Act. Specifically, the Names argued that it would be against public policy to enforce the English judgment because it was based on "underlying agreements [that]... were illegal and unenforceable" in Ontario. This illegality stemmed from Lloyd's failure to file a prospectus as required by s. 53(1) of the Ontario Securities Act."

In putting forward the objection, the appellants argued that the content of public policy is not limited to principles of "essential

71. Saunders, supra, footnote 2, at para. 4.6. As mentioned earlier, Saunders proceeded on the assumption that the agreements in question were subject to the prospectus requirement. It will be recalled that the court in Ash was sceptical on this point.

[*408] justice or morality" but that it can encompass broader notions such as the legislative policy behind certain conditions of the Securities Act. The appellants admitted that the broader definition of public policy was required for the violation complained of to amount to a breach of public policy.

The Court of Appeal's review of the case law confirmed that the public policy exception is traditionally very narrow and usually requires some form of "moral opprobrium"." Feldman J.A. was not ready to define the prospectus requirement as a "moral imperative" whose breach would fall within the traditional definition of public policy. However, as public policy is meant to protect fundamental values (of which morality and justice are but examples), she was prepared to consider whether the prospectus requirement expressed such a value in contemporary society. Thus, upon examining the purpose behind the prospectus requirement, as revealed by the cases, Feldman LA. arrived at this important conclusion:

In my view, it is appropriate at this stage in the development of our society, to characterize the protection of our capital markets and of the public who invest in and depend on the confident and consistent operation of those markets as such a fundamental value.'

In other words, she accepted the appellants' argument that public policy should be extended to include economic considerations, such as the stability of markets. On that basis, Feldman J.A. would have agreed to exclude registration of the English judgment on the basis of a violation of public policy. That the ultimate result in the case is the opposite rests on what she called the "historical and factual context of the proceedings"." These are respectively the decision in Ash and international comity. I will examine each in turn.

1. The Impact of Ash

The court in Saunders gave full effect to the stay granted in Ash. In other words, Feldman LA. viewed the jurisdictional holding in Ash as having pre-determined the public policy issue for the recognition stage:

The decision of this court that the Lloyd's cases were to be heard in England and not in Ontario was effectively a decision that if the English courts

72. Ibid., at pam. 61. 73. Ibid., at pam. 65. 74. Ibid., at pam. 66.

[*409] determined that Ontario law was not the proper law of the contracts, the judgments that flowed from that decision would not be contrary to our public policy. Had this court been of the view that compliance with the Securities Act was so basic to the public policy of Ontario that a judgment which did not give effect to the Act could never be registered and enforced, no matter what the circumstances, then it would have treated that as a factor which, in effect, trumped all other factors, including the exclusive jurisdiction clause and the connections to England, and it would not have stayed the action."

This statement goes some distance beyond McKeown J.'s reasons. Indeed, at no point did he inquire into the proper law of the contract,76 or consider the question of the application of the Securities Act from the angle of public policy. Moreover, his statement that "[t]here is no reason to believe that the English courts would not apply the Securities Act" is difficult to reconcile with the above passage."

On the other hand, it is not altogether surprising that the Court of Appeal would draw these inferences from Ash. Faced with the grant of a stay in that case, which was approved on appeal and which the Supreme Court of Canada refused to reconsider, the court in Saunders had little room to manoeuvre. Short of declaring that Ash had got it wrong on the mandatory nature of the Securities Act, Feldman J.A. was almost forced to deny the relevance of the statute at the enforcement stage. And yet, the quoted passage is difficult to reconcile with Feldman J.A.'s conclusions on the nature of the securities legislation discussed previously.

Feldman J.A.'s own analysis of the nature and purpose of Ontario securities law easily supports an argument that the Act should have been interpreted to exclude any prospective waiver of its application, whether by way of a choice-of-forum or a choice-oflaw clause. The strong language used by Feldman J.A. to describe the "fundamental value" expressed by the securities law supports such a limitation on party autonomy. In my view, Feldman J.A.'s teleological examination of the securities legislation is consistent

75. Ibid., at para. 78.

76. In fact, McKeown J. specifically indicated that it was not his role at the jurisdictional stage: Ash, supra, footnote 6, at p. 250.

77. Feldman J.A. gives little weight to this statement. She assumes that McKeown J.'s previous statements regarding the applicable law are implied in his comment on the Securities Act: Saunders, supra, footnote 2, at para. 75. This is debatable as his comments on whether Ontario law was the applicable law came in response to a claim that Ontario's law of fraud would be more favourable to the Names than English law: Ash, ibid., at p. 250.

[*410] with a characterization of that legislation as mandatory. As discussed previously, this characterization should suffice to exclude any choice-of-law or choice-of-jurisdiction clause in a contract. At the recognition stage, a similar result is achieved through the application of the public policy exception, this time properly deployed since an actual foreign judgment is before the forum.

In this perspective, I am not convinced that the decision in Ash should have had such a determinative impact on the decision of the Court of Appeal in Saunders. The court in Ash dealt with a different cause of action and did not face the critical assumptions of fact admitted in Saunders regarding the applicability of the Ontario securities legislation to the transaction. 'In addition, as argued in the preceding section, the application of public policy analysis to the forum-selection clause is inappropriate in principle at the jurisdictional stage. This has a mitigating effect on the claim that Ash had somehow predetermined the availability of the public policy defence at the recognition stage. I would argue that the true impact of Ash ought to be reconsidered. That leaves only the argument of international comity as a justification for recognizing the English judgment.

2. International Comity

The argument based on international comity has two dimensions. A first dimension involves general statements that globalization justifies an ever-increasing openness to foreign laws and foreign judgments. The second is essentially pragmatic and it relates to the incredible complexity of the Lloyd's saga and the potentially far-ranging implications of contradictory results for third parties. While neither one of these arguments is fully convincing, the second one cannot be easily ignored.

The contemporary definition of comity is found in Morguard:

"Comity" in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other. But it is 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 .. . .11

78. Supra, footnote 20, at p. 1096, citing Hilton v. Guyot, 159 U.S. 113 (1895).

[*411]

That landmark case revolutionized Canadian common law rules governing recognition and enforcement of foreign judgments.19 In Morguard, comity was essentially used as a justification for the rejection of the narrow common law recognition rules which "emphasized sovereignty and independence, often at the cost of unfairness".' La Forest J. argued generally that the interdependence of states in the global economy needed to be reflected in the legal system's treatment of trans-border litigation. Comity demanded greater respect for other countries' assertions of jurisdiction in international cases and rested on the view that international judicial cooperation is a valuable objective. Following this perspective, it is perhaps not surprising to find the Court of Appeal in Saunders invoking comity as a limit to the public policy exception raised against the recognition of the English judgment.

Yet, the purpose of the public policy exception is precisely to give priority to local concerns over and above other aims of private international law. Since public policy's function is to privilege sovereignty, its application will always go against international comity. As such, if the public policy exception is required to meet or further international comity, it is doomed to failure. The approach adopted by Feldman J.A. is somewhat confusing. She admits that recognition of the English judgment violates public policy given the fundamental nature of the legislative policy and the fact that a breach occurred in Ontario." But her conclusion on public policy is then revisited in light of other factors, namely the previous decision in Ash and international comity.

The underlying assumption seems to be that if Saunders accorded priority to the Ontario Securities Act, this would be a breach of comity since it would emphasize national sovereignty

79. At that time, in Québec, rudimentary rules were found in the Civil Code of Lower Canada at article 6. Since 1991, however, a comprehensive codification of recognition rules is provided in Book Ten of the Civil Code of QUébeC. The impact of Morguard on Québec law is therefore limited to the constitutional dimensions of the case, further elucidated in Hunt v. T&N plc, [1993] 4 S.C.R. 289, 109 D.L.R. (4th) 16. See G. Saumier, "The Recognition of Foreign Judgments in Quebec: The Mirror Crack'd?" (2002), 81 Can. Bar Rev. (forthcoming).

80. Hunt, ibid., at p. 321 (quoted by Feldman iA. in Saunders, supra, footnote 2, at para. 86).

81. This was admittedly assumed for the purposes of litigation. But once the court agreed to proceed on that basis, it should not have subjected its reasoning to considerations going to the soundness of the assumptions.

[*412] over international cooperation." Yet the notion of comity, as spelled out above, specifically reserves "due regard... to the rights of its own citizens". If the Ontario Securities Act expresses a fundamental value and f the statute would have applied to the transactions given their connection to the province and the parties involved, it is difficult to understand why, on principle, comity should take precedence. It cannot be overlooked that comity did not persuade the English courts to give effect to the Ontario statute despite their acknowledgment that the contracts in question would be unenforceable in Ontario. In this context, deferring to the foreign judgment on the basis of comity is tantamount to granting an implicit exemption from the Ontario Securities Act to foreign parties soliciting in Ontario;

Interestingly, this result is foreshadowed in an article by Catherine Walsh on the effect of mandatory rules in the securities context." In the course of discussing forum selection clauses, Walsh suggests that any precedence granted to domestic policies over party autonomy at the jurisdictional stage will only be deflected by other strategic posturing by international actors, for example by way of anti-suit injunctions. Her conclusion is a stark one, suggesting that forum law is basically incapable of imposing its policy in a transnational context, even where the policy involved is understood by the forum to be fundamental."

There is no doubt that the forum cannot preclude litigation in other jurisdictions, including the contractual forum designated in the parties' contract. The only effective protection of the forum's public policy occurs at the recognition stage, where it can give its

82. It is worth noting that the English courts rejected any appeal to comity as a basis for giving effect to Ontario law. The economic policy underlying the Ontario legislation, however closely connected to the transaction in question, was said to be of no concern to an English court applying English law: Fraser, supra, footnote 10, at para. 94. Quoting Sopinka J. in Amchem Products inc. v. British Columbia (Workers' Compensation Board), [1993] 1 S.C.R. 897,102 D.L.R, (4th) 96, one might be tempted to conclude that 'The foreign court, not having, itself, observed the rules of comity, cannot expect its decision to be respected on the basis of comity."

83. "Choice of Forum Clauses in International Contracts", supra, footnote 29, at pp. 241 if. 84. Ibid., at p. 250. Even if such measures are not available or not effective, forum A cannot preclude litigation in the contractual forum B. Forum B may well hear the case despite the decision in forum A. While it is unlikely that recognition could then be attempted in forum A, recognition and execution could be sought in any jurisdiction where the judgment debtor has assets and where the clash between the two original fora may carry little weight.

85. Ibid., at p. 254.

[*413] policy the upper hand over party autonomy and international comity. This power is obviously a limited one as it only protects the judgment debtor against enforcement in that particular jurisdiction.86 Assets elsewhere will remain vulnerable unless the particular jurisdiction is open to a consideration of foreign mandatory rules. Nevertheless, such considerations are insufficient to justify a total submission of public policy to party autonomy or international comity. If anything, a refusal to enforce sends a signal to international business and to foreign courts. Until uniform substantive law spells the end of diversity, public policy remains an effective and legitimate tool to protect this diversity. Such a result should only follow, however, from a careful analysis of the policy involved and the necessity of its application in a given case if it is to fulfil its goals.

My reading of the Ontario Court of Appeal's decision in Saunders supports a refusal to enforce on the above analysis. In other words, the principle of international comity is not the obstacle to recognition. The critical impediment, it seems to me, lies only in the concern over fairness to third parties that would flow, it is said, from a refusal to enforce. Since this concern is directly linked to worries about contradictory judgments in general, I will address both issues.

3. Practical Considerations

This practical side of the comity argument involves both the prospect of contradictory judgments in general and the impact on third parties of a single (and singular perhaps) refusal to enforce. In reviewing this aspect of the question, Feldman JA. is careful to underline the existence of numerous American cases in the Lloyd's saga where stays were issued and where subsequent English judgments were recognized, despite apparent breaches of U.S. securities legislation." It is worth noting that the two cases in which the

86. But see H.P. Glenn, "A North American Transformative Judgment" (2002), 81 Can. Bar Rev. 469.

87. These are Richards v. Lloyd's of London, 135 F.3d 1289 (9th Cir. 1998); Bonny Society of Lloyd's, 3 F.3d 156 (7th Cir. 1993); Riley v. Kingsley Underwriting Agencies, 969 F.2d 953 (10th Cir. 1992); Lipcon v. Lloyd's, 148 F.3d 1285 (11th Cir. 1998) and Allen v. Lloyd's of London, 94 E3d 923 (4th Cir. 1996). She also points to other Canadian cases were stays were granted. These are Morrison v. Society of Lloyd's (2000), 224 N.B.R. (2d) 1 (C.A.), leave to appeal to S.C.C. refused [2000] S.C.C.A. No. 137 (QL), 228 N.B.R. (2d) 402n and Crockett v. Society of Lloyd's (2000), 189 Nfld. & P.E.I.R. 129 (P.E.I.S.C.).

[*414] forum selection clauses were not given effect - one from California and one from Australia" - are not mentioned. Feldman J.A. also echoes the concern expressed by the English court that "economic chaos" will follow in the insurance market if some Names are granted rescission and not others.9°

Objections to contradictory decisions are common in private international law. The prospect of contradictory results underlies attempts to avoid multiple proceedings between the same parties in different fora.91 This is not precisely the type of contradiction of concern in Saunders. Here, the Ontario court appears to be concerned with treating Names differently according to their place of origin. The implication is that all Lloyd's Names, around the world, should be similarly treated. In other words, a result that provides for the rescission of some contracts and the maintenance of others should be avoided.

The desirability of obtaining a unique international result fuels projects to unify substantive law on a global scale. In the absence of international uniformity of securities law, however, each jurisdiction remains at liberty to determine its own policy. The fact that a particular securities contract may be valid under English law and void under Ontario law is a natural consequence of the diversity of laws. Comity protects this diversity as a reflection of the particularity of each legal system and the respect owed to that diversity on an international level. Private international law merely serves to coordinate this diversity.

In the Lloyd's cases, the expectation of uniformity over diversity does not flow from uniform substantive law but rather from its

88. West v. Lloyd's, No. B095440, 1997 WL 1114662 (Cal. App. 2d Dist. Oct. 23, 1997), petition for review denied 1998 Cal. LEXIS 8110. It appears, however, that the case has been settled: see Jaff ray, infra, footnote 97, at para. 59.

89. Commonwealth Bank of Australia v. White; ex parte Lloyd's, [1999] V.S.C. 262 (Sup. Ct. Vic.); an appeal to the Court of Appeal of the Supreme Court of Victoria against the judgment was dismissed; an application for leave to appeal was also refused by the High Court of Australia: see Commonwealth Bank of Australia v White (No 4), [2001] VSC 511 (from Lexis, no pagination provided).

90. Saunders, supra, footnote 2, at para. 87.

91. The argument is that the two courts could render contrary decisions. A contracting party could be declared in breach and required to pay damages by one court while in the other forum, the same party is said to be entitled to performance by theco-contractor. It will be recalled that this is one of the factors influencing the decision of the Supreme Court in Ainchem Products Inc. v. B.C., supra, footnote 82, on the role of forum non conveniens and anti-suit injunctions in limiting multiple proceedings.

[*415] private approximation via choice-of-jurisdiction and choice-oflaw clauses in the contracts. Indeed, one of the purposes of these clauses is to avoid the diversity of laws and the contrary results that may come from their application to similar contracts in different jurisdictions." The acceptance of such clauses by most legal systems does not derive from any principle of comity however, but rather from the principle of party autonomy as it applies in most systems of private international law.

If my earlier argument is persuasive, then party autonomy cannot operate to avoid the application of the Ontario Securities Act. If party autonomy is superseded by the policy of the Act, then uniformity of results attached to the choice-of-law clause is no longer an operative consideration at the recognition stage. In other words, if uniformity is premised on the validity of the choice-oflaw and jurisdiction clauses, and that is challenged by the mandatory nature of the Ontario securities law, uniformity cannot then reappear as an objective to pursue at the recognition stage. It seems circular, therefore, to ask whether the public policy objection to recognition should be subject to considerations of uniformity. Indeed, this is equivalent to asking whether the parties can avoid a mandatory rule, which by definition they cannot do.

The concern about uniformity that appears to be motivating the recognition of the English judgments - in the U.S. cases as well as in Saunders - can only relate to the impact of the decision on third parties." As Feldman J.A. notes:

All of the courts that have recognized the authority of the English courts to hear and decide all of the Lloyd's litigation and have decided to enforce the resulting judgments, have been satisfied that to grant rescission to some Names, when the insurance policies which they have underwritten remain outstanding, would create a situation of economic chaos as well as un-fairness.

This argument replicates the English Court of Appeal's conclusion on the inapplicability of the Ontario Securities Act: "[i]f [the defendant Canadian Name] was not an underwriting member of Lloyd's he could not lawfully enter into any insurance contract, as an insurer, in England. No principle of comity or public policy

92. These clauses may also be a way for a stronger party to impose its national law and courts or for parties with equal bargaining power to choose a neutral law and forum. 93. Fraser, supra, footnote 10, at para. 96. 94. Saunders, supra, footnote 2, at para. 87. 15-37 C.BIJ.

[*416] would suffice to justify that result". The anomaly" of such a consequence is perhaps understandable from the perspective of an English court applying English law. However, it is essentially a decision based on English contract law and the effects of rescission under that law.

In its consideration of this argument, the Ontario court appears simply to assume that rescission would be the only available remedy if the Ontario securities legislation applied, or that third parties would remain without protection under Ontario law if insurance contracts were affected. While the weight of American cases 96 echoing the economic chaos argument may have convinced the Ontario court to follow suit, some further justification for this result would have been welcome. Moreover, if fairness was the key criterion, one would have expected to see a discussion of its application to the Names themselves. On the assumption that Lloyd's had acted both fraudulently and in breach of the Ontario Securities Act, considerations of fairness to the defendants are surprisingly lacking.97

The fallout for third-party insurance contractors is a strong argument favouring enforcement. On the other hand, the assumption that such third parties would be left without insurance and without any other relief is never really tested. Moreover, if Names are rendered bankrupt as a result of enforcement, the effect on third parties may be no different. Finally, the links between these third parties and the forum may also be relevant in determining the extent to which their interests should be considered ahead of the forum's public policy.

95. This is the word used by the first instance judge in the Wilkinson case to describe the consequence of giving effect to the Canadian Names' claim under the Ontario Securities Act.

96. I note that these results have been criticized by commentators in the United States. See for example Courtland H. Peterson, "Choice of Law and Forum Clauses and The Recognition of Foreign Country Judgments Revisited through the Lloyd's of London Cases" (2000), 60 La. L. Rev. 1259 and J. Gange, "Comment: Richards v. Lloyd's of London: The Ninth Circuit Denies Access to the Securities Laws to American Investors" (1998), 24 Brook. J. Int'l L. 625.

97. The court takes note that a test case on the fraud allegations had recently failed before the English court in Society of Lloyd's v. Jaff ray, [2000] E.W.J. No. 5731. It is not clear, however, how the decision in that case, based on the tort of deceit, would necessarily answer questions relating to disclosure requirements under the Ontario securities legislation. Moreover, leave to appeal has been granted in that case: [2001] E.W.J. No. 4422 (C.A.).

[*417]

VII. CONCLUSION

The Ontario Court of Appeal faced a daunting task in the case of Society of Lloyd's v. Saunders. In addition to the sheer complexity and magnitude of the litigation, the court had to grapple with the doctrine of public policy, which is notoriously challenging and rarely resolved to anyone's satisfaction. The weight of U.S. decisions could not be easily overlooked. On the other hand, the steadfast opposition repeatedly expressed in Australia could have provided support if the court had chosen to go the other way.

In this article, I have addressed two questions. First, I have asked whether it is ever useful to consider forum selection clauses in terms of the public policy exception. I have argued that the public policy exception in private international law is not an appropriate tool at the jurisdictional stage, since its application would involve excessive speculation about foreign court actions. I argued instead for an analysis based on mandatory rules. Such an approach subjects the principle of party autonomy, expressed in choice-offorum and choice-of-law clauses, to overriding policies of the forum whose application in an international context cannot be set aside by private interests. The Court of Appeal's characterization, in Saunders, of the Ontario Securities Act as expressing a fundamental value in the province is indicative of its mandatory nature. This is sufficient, I think, to minimize the weight accorded to the previous decision, in Ash, to send the parties to England."

Second, I have considered the role of public policy at the recognition stage and its interaction with international comity and party autonomy. I attempted to show that the description of the securities legislation as expressing a fundamental value of the forum justifies rejecting the foreign judgment on public policy grounds. Given the assumptions of fact presented to the court, in particular the assumption that the Ontario Securities Act did apply and had been breached, it is difficult to conceive of a different result. Indeed, to do otherwise would amount to an implicit exemption from the Act for the simple reason that the plaintiff had been able to sue in a foreign court that excluded the application of the Act. International comity should not extend that far.

98. It should also justify refusing to give effect to a forum selection clause in an investment contract that falls within the scope of the Ontario legislation.

[*418]

The decision in Saunders may best be explained by a concern for innocent third parties who could suffer prejudice if Ontario Names were treated differently from American or British Names. In response, I offer the following quotation from Justice Cresswell, made as a finding of fact in the latest English instalment of the Lloyd's saga:

[T]he catalogue of failings and incompetence in the 1980s by underwriters, managing agents, members' agents, and others (established by judgments of the court, by disciplinary hearings and other means ...) is staggering (and brought disgrace on one of the City's great markets). External Names were the innocent victims of the failings and incompetence. Many Names have suffered enormously in financial and personal terms."

In the end, the Ontario Court of Appeal chose to support Lloyd's worldwide insurance market rather than its own domestic securities market and residents. That private interests could so easily trump the fundamental value enshrined in the local law may be surprising, but so is the Lloyd's saga. One might be tempted to say that 12 years after Morguard, the triumph of internationalism over parochialism is complete. In the absence of uniform substantive law, however, parochialism is a rather pejorative epithet to describe the existing diversity of legislative policies, of which securities law is but one. The careful deployment of the public policy defence and the notion of mandatory rules is one way for courts to identify the legitimate local concerns that deserve protection in an increasingly small world.

99. Jaffray, supra, footnote 97, at pam. 1452.