1. Society of Lloyd's v. Saunders, [2000] O.J. No. 692
Society of Lloyd's v. Saunders, [2000] O.J. No. 692
Ontario Judgments
Ontario Superior
Court of Justice
Swinton J.
Heard: February
7-9, 2000.
Judgment: March
7, 2000.
Commercial Court
File No. 99-CL-3511
Superior Court
File No. 99-CV-163442
[2000]
O.J. No. 692 | [2000] O.T.C. 168 | 44 C.P.C. (4th)
246 | [2000] I.L.R.
I-3788 | 95 A.C.W.S. (3d)
463
Between The Society of Lloyd's, applicant, and Paul F. Saunders,
also known as P.F. Saunders, respondent
(59 paras.)
Case Summary
Practice —
Judgments and orders — Enforcement of foreign judgments — Registration,
application — Registration or enforcement, defences —
Bars, public policy.
This was an application by Society of Lloyd's for registration and
enforcement in Ontario of English judgments against the respondent Canadian
investors. During the 1980s, Lloyd's had failed to disclose to the respondents
its knowledge of future losses relating to asbestos exposure claims. The
respondents, alleging fraudulent conduct on the part of Lloyd's, refused to pay
premiums owing on contracts of reinsurance. Lloyd's brought successful actions
in England for collection of the premiums. The English judgments were final,
although the respondents were denied a determination of their fraud claims. The
respondents argued that enforcement of the judgments would be contrary to
public policy, as a denial of natural justice and a violation of the Ontario
Securities Act. They claimed that being deprived of a trial on the merits of
their fraud allegations constituted a denial of natural justice. They further
claimed that Lloyd's had contravened the Securities Act by not filing a
prospectus before selling syndicate memberships. The respondents also argued
that 43 of the judgments had been satisfied in whole or in part by the setting
aside of escrow funds in England.
HELD: Action allowed.
Enforcement of
the judgments in Ontario was not contrary to natural justice. The respondents
had the right to initiate further proceedings in English courts concerning
their fraud claims. Lloyd's had solicited investors in Ontario in violation of the
Ontario Securities Act and contrary to public policy. It had distributed securites in Ontario without a prospectus, and no exemption
was availabe under the Act. However, respect for the
decisions of a foreign judicial system, in the interests of international
comity, was a competing and overriding public policy. As no monies had yet been
paid to Lloyd's from the escrow funds, the judgments had not been satisfied.
Statutes, Regulations and Rules Cited:
Gaming Act, R.S.O. 1990, c. G.2.
Ontario Rules of Civil Procedure, Rules 20, 21,
38.10, 73.
Reciprocal Enforcement of Judgments (U.K.) Act,
R.S.O. 1990, c. R.6.
Securities Act, R.S.O. 1990, c. S.5, ss. 53(1), 122,
127.
Counsel
M. Hartman, H.G. Chaiton, and G. Benchetrit, for the applicant. A.J. Lenczner,
S. block, and G.A. Smith, for the respondents.
SWINTON
J.
1 The Society of Lloyd's has commenced five "test
case" applications under the Reciprocal Enforcement of Judgments (U.K.)
Act, R.S.O. 1990, c. R.6 to register judgments in Ontario which Lloyd's
obtained in England against certain individuals represented by Lenczner Slaght Royce Smith
Griffin: Gerhard Emil Meinzer (Court File No.
99-CV-163438), Sheridan Mary-Jane Montfort (Court File No. 99-CV-163441), Paul
F. Saunders (Court File No. 99-CV-163442), Alan Milton Paul Smart (Court File
No. 99-CV-163444), and Donald Elmer Stringer (Court File No. 99-CV-163443). Lenczner Slaght represents 88
individuals, listed in Schedule A to the applicant's factum, all of whom have
agreed to be bound by the decisions in these applications.
2The Act incorporates the Convention Between Canada and the
United Kingdom for the Reciprocal Recognition and Enforcement of Judgments in
Civil and Commercial Matters, which is set out in the Schedule to the Act.
Article IV(1) provides that registration of a judgment shall be refused or set
aside if:
(a)
the
judgment has been satisfied; ...
(b)
enforcement
of the judgment would be contrary to public policy in the territory of the
registering court; ...
3.
If
at the date of the application for registration the judgment of the original
court has been partly satisfied, the judgment shall be registered only in
respect of the balance remaining payable at that date.
The respondents have defended the applications on three grounds.
They argue that the registration and enforcement of the U.K. judgments would be
contrary both to natural justice and public policy, and that certain of the
U.K. judgments have been satisfied in whole or in part. The natural justice and
public policy arguments are based on the lack of opportunity for the
respondents to litigate allegations of fraud against Lloyd's in the United
Kingdom to date and the allegation that Lloyd's breached the prospectus
requirements of the Ontario Securities Act, R.S.O. 1990, c. S.5.
3The respondents filed nine affidavits, and the applicant
filed affidavits in reply. Cross-examinations began on the reply affidavits,
and there were a significant number of refusals. As a result of a motion to
compel answers to the refusals, the parties came to a written agreement on
procedure in an effort to expedite the proceeding. They requested that the
Court first determine two issues: assuming that the respondents' allegations of
fraud are proven, would these allegations provide a defence
to registration of the U.K. judgments on the grounds that enforcement would be
contrary to natural justice or public policy; and assuming that Lloyd's was
required to deliver a prospectus pursuant to the Ontario Securities Act and
failed to do so, would registration of the U.K. judgements be contrary to
public policy? If both questions were decided in favour
of Lloyd's position, the parties agreed that the applications would be allowed
and the judgments registered, subject to the issue of whether certain judgments
had been satisfied in whole or in part.
4Prior to the hearing of this application, I raised
questions about the propriety of the procedure, and the parties made
submissions. Cases in this Court and the Court of Appeal have determined that a
motion under Rule 21 can not be pursued in a
proceeding commenced by way of application, since Rule 21 applies only where
the proceedings are commenced by an action (Zavitz
Technology Inc. v. 146732 Canada Inc. (1991), 49 C.P.C. (2d) 26 (Ont. Ct. (Gen.
Div.)); McLeod v. Castlepoint Development Corp. (1997), 31 O.R. (3d) 737 (C.A.)
at 753). However, the applicant argued that I should proceed with the
application on its merits, bearing in mind the terms of Rule 38.10. It provides
that a judge hearing an application may grant the relief sought, dismiss or
adjourn the application in whole or in part and with or without terms, or order
that the whole application or any issue proceed to trial and give such
directions as are just. It was the applicant's submission that if I ruled
against Lloyd's and held that any of the defences
were available, it would be necessary to determine, pursuant to Rule 38.10,
whether issues relating to fraud, securities legislation, or satisfaction of
the judgment should proceed to trial and, if so, whether the proceeding should
be in a Canadian court, rather than in the United Kingdom.
5Proceeding in the manner suggested by the applicant was, in
my view, the most efficacious way to proceed, given the nature of this case,
and consistent with the parties' agreement. Article III(1) of the Convention
for the Reciprocal Recognition and Enforcement of Judgments in Civil and
Commercial Matters provides that a judgment creditor may apply to have a
judgment registered, and "on any such application the registering court
shall, subject to such simple and rapid procedures as each Contracting State
may prescribe and to the other provisions of this Convention, order the
judgment to be registered" (emphasis added). Rule 73 of the Ontario Rules
sets out a summary procedure for the registration of a U.K. judgment,
commencing by notice of application. Thus, the goal of the legislation is to
provide an expeditious manner for the enforcement of U.K. judgments.
6In addition, this case was transferred to the Commercial
List in the spring of 1999. Consistent with the Commercial List Practice
Direction and the emphasis on case management for cases on the Commercial List,
it appeared appropriate to make a determination of the legal issues framed by
the parties, given that this would facilitate the resolution of this dispute,
either by ending the dispute if the applicant was correct or by narrowing it,
if the respondents were correct.
7Moreover, there were not material facts in dispute with
respect to the legal issues before me. It is noteworthy that the respondents'
argument rested on the allegation that the procedure adopted in the United
Kingdom was contrary to natural justice, given their inability, to date, to
have a trial on the fraud issue. It was clear at the outset of this hearing
that were they to succeed on that argument, the proper order would not be a
trial of the fraud issue in Ontario, but a refusal to enforce. Similarly, while
the Securities Act and satisfaction issues would determine the applications if
the applicant was correct, directions pursuant to Rule 38.10 would be necessary
if the respondents succeeded, in order to determine the appropriate process and
the jurisdiction to resolve those issues. Therefore, I proceeded to hear the
application, relying on the affidavit material provided.
The Factual Background
8Lloyd's does not carry on an insurance business. Instead,
the function of Lloyd's is to regulate and provide services to the Lloyd's
insurance market. Underwriting is carried out by "Names" -
individuals who underwrite insurance through Lloyd's syndicates. All of the
respondents here have been Names.
9Affidavits filed by the respondents indicate the way in
which some of the Names were recruited by Lloyd's. For example, Jacqueline Levin
indicates that she was recruited by Lloyd's agents in Ontario. She stated that
an application for membership must be made through a Members' Agent, authorized
by Lloyd's to recruit members. She also had to attend a Rota Committee
interview in London, England, where she was questioned about becoming a member
of Lloyd's by a member of the Council of Lloyd's, the Society's governing body.
After being accepted, she then signed the necessary documents in England, and
she was given copies. The affidavit of Paul F. Saunders outlines in more detail
the written information he received prior to becoming a member.
10To be accepted for membership, the Names were required to
enter into a series of agreements with the Members' Agent and Lloyd's itself,
including the General Undertaking, the Agency Agreement and the Lloyd's
Underwriting Members' Security Agreement. The General Undertaking bound the
Names to comply with directions imposed by Lloyd's Council. Like the other
documents signed, it mandated that disputes with Lloyd's must be heard in the
English Courts and be governed by the laws of England. For example, Clause 2.1
reads:
The rights and obligations of the parties arising out of or
relating to the member's membership of, and/or underwriting of insurance
business at, Lloyd's and any other matter referred to in this Undertaking shall
be governed by and construed in accordance with the Laws of England.
11Each Name must lodge a deposit with Lloyd's equal to a certain
percentage of the premium income, normally in the form of a letter of credit.
As well, Names must appoint a registered Members' Agent to act on their behalf,
to whom they delegate the complete control of their affairs at Lloyd's.
12The 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 nor 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 of all his
assets in respect of his insurance obligations at Lloyd's.
13All premiums received for insurance policies are credited
to a Premiums Trust Fund, which is governed by a Premiums Trust Deed. Its prime
purpose is for the protection of policy holders. Each member is also required
to make annual mandatory contributions to the Central Fund, which exists
primarily to protect policy holders. It is used if claims cannot be satisfied
through the Names' Lloyd's funds and personal assets.
14The respondents allege that Lloyd's acted fraudulently in
concealing the magnitude of risks associated with asbestos exposure claims
arising in the United States from about mid-1980. Normally, the accounts of a
syndicate are left open for three years in order to defer the distribution of
the profit until the pattern of claims' settlement for the syndicate year in
question can be determined with reasonable certainty. Reinsurance to close is
obtained, usually by paying a premium to the following underwriting year of the
same syndicate. This premium is intended to cover the total outstanding claims,
including those not yet reported in respect of risks signed in the year of
account and those still outstanding from all previous years. However, if the
closing reserve cannot be calculated with sufficient certainty, and there are
insufficient funds to purchase reinsurance to close, the syndicate is left
open.
15The respondents allege that despite the impossibility of
determining the liability in respect of asbestos, virtually every syndicate
closed its 1979 year of account at December 31, 1981, taking reserves over a
series of years in an attempt to spread the losses over the Names who
underwrote the syndicates throughout the 1980's. Apparently during the 1980's,
Lloyd's recruited a considerable number of new Names. The respondents state
that they were generally recruited in 1986 and after, becoming Names in 1987
and subsequent years, although the affidavit of Eric Mellish Lane indicates
that he became a Name in 1979. They believe that Lloyd's misrepresented to them
the risks to which they were exposed from asbestos and other long tail risks.
Specifically, Lloyd's knowledge of future enormous and unquantifiable losses
and its failure to disclose this information are alleged to be fraudulent
conduct. So, too, was the publication of Lloyd's Global Accounts, which are
alleged to have contained misleading information about the financial health of
the syndicates.
16By 1991 or 1992, the insurance market was in crisis.
Lloyd's made cash calls on the Names and threatened to draw upon their letters
of credit. In 1991, a group of Canadian Names issued a Statement of Claim in
Ontario against Lloyd's and a number of banks, seeking an injunction to prevent
the banks from paying out on the letters of credit, and preventing Lloyd's from
trying to draw down on the letters of credit. They argued that their contracts
with Lloyd's were void ab initio as having been induced by fraud and made in
contravention of the Securities Act. Lloyd's brought a motion to stay the
action on the basis of forum non conveniens, and was
successful. McKeown J. determined that the proper forum for the determination
of the issues was the United Kingdom because of the choice of law clause in
Lloyd's General Undertaking. In addition, he determined that the English Courts
should take jurisdiction because the proceeding had a more substantial
connection to England (Ash v. Lloyd's Corp. (1991), 6 O.R. (3d) 235 (Gen. Div.)
at 248). That decision was upheld by the Court of Appeal ((1992), 9 O.R. (3d)
755 (C.A.); leave to appeal refused by the Supreme Court of Canada, [1992]
S.C.C.A. No. 357, October 8, 1992). Writing for the Court of Appeal, Carthy J.A. stated at 758:
With a starting point of treating Lloyd's as the engine of the defence and treating the claims against it as the prominent
concern in selecting a forum, I endorse the entirety of McKeown J.'s reasons
for staying the action against Lloyd's. Even without the exclusive jurisdiction
clauses, the contracts are to be performed in England, the alleged wrongful
conduct was on the part of a large number of English residents who carry out
the day-to-day functions under Lloyd's jurisdiction, and the overall picture is
of an overwhelming affinity to England.
17Lloyd's drew down on the Names' letters of credit, but also made
cash calls. When the respondents did not pay the cash calls, Lloyd's paid the
losses from the Central Fund, and in 1992 brought an action in the High Court
of Justice of the United Kingdom against many of the respondents for
reimbursement of the amounts paid. One of the defendants, Dr. Gian Carlo Mason
from Hamilton, Ontario, filed a defence and
counterclaim denying that there was money owing to Lloyd's because of the
fraudulent conduct and misrepresentations by Lloyd's related to asbestos
losses. This action has never proceeded to trial as a result of an order of the
Commercial Court of the High Court of Justice that Lloyd's was not required to
proceed with the Mason case and could leave it in abeyance while it pursued the
Clementson case, which raised defences relating to
European Community law. To date, none of the Central Fund Writs cases has
proceeded.
18After 1993, a number of cases brought by action groups of
Names against Managing Agents for negligence went to trial or settled. When the
Names succeeded, damages were awarded to them. Some of the respondents here
were successful in these actions. In subsequent litigation, the House of Lords
determined that the litigation recoveries of the Names related to negligent
underwriting are part of the Premiums Trust Funds. Similarly, litigation
recoveries related to negligent advice in portfolio selection are part of the
Premiums Trust Funds to the extent provided in the Premiums Trust Deeds.
Lloyd's is the Regulating Trustee of Names' Premiums Trust Funds. In its
capacity as Trustee, Lloyd's is entitled to those litigation recoveries and
must deal with them in accordance with the Premiums Trust Deeds (The Society of
Lloyd's v. Robinson, [1999] H.L.J. No. 17, House of Lords, reasons delivered
March 25, 1999). Those funds are currently held by various solicitors for the
action groups in escrow accounts, and there is ongoing dispute about their
release.
19Because of the chaos in the insurance market and in order
to keep Lloyd's viable, Lloyd's sought a way to settle all the litigation in
the market and the outstanding claims. In July, 1996, as part of its
Reconstruction and Renewal Plan ("R & R Plan"), Lloyd's made an
offer to Names worldwide to settle claims in respect to their 1992 and prior
underwriting years. In order to effect the R & R Plan, a contract of
reinsurance was entered into with a group of companies known as "Equitas". The Equitas
reinsurance contract covered the entire non-life insurance market for the 1992
and prior underwriting years. Those Names who accepted the offer waived all
claims against Lloyd's, Equitas, agents and auditors
in respect of 1992 and prior years.
20While the offer was accepted by a vast majority of Names
worldwide, the respondents did not do so. Nevertheless, those Names who did not
accept the R & R Settlement Offer still had their liabilities mandatorily
reinsured by Equitas. Lloyd's compelled them to
contract with Equitas by imposing upon them a
replacement managing agent called "AUA9", which Lloyd's then directed
to execute the reinsurance contracts on behalf of the Names. Lloyd's paid all Equitas premiums owing, and the rights to collect the Equitas premiums were then assigned to it. Clause 5.5 of
the reinsurance contract provided that each Name was obliged to pay his premium
free and clear from any set-off, counterclaim or other deduction, including in
respect of claims against Lloyd's. It also provided for a waiver by the Name to
any claim to a stay of execution on the judgment.
The English Court Proceedings
21Lloyd's then commenced actions to recover the Equitas premiums from those Names who did not accept the R
& R offer, including the respondents here. Various Names raised numerous defences, arguing that they were not bound because of their
non-acceptance of the R & R settlement offer; that Lloyd's had exceeded its
power to amend or enact by-laws in creating the R & R scheme; that the
assignment to Equitas from Lloyd's was improper; that
the fraud by Lloyd's gave rise to a right to rescind the Names' contract with
Lloyd's; that fraud by Lloyd's should give rise to a set-off of the fraud
claims against the premium claims; that a stay of execution should be granted
until the determination of the fraud claims; and that Lloyd's had breached
Canadian securities legislation. Issues of quantum were also raised.
22In a series of test cases managed through the Commercial
Court, Lloyd's moved under R.S.C. Orders 14 and 14A, which bear some similarity
to Ontario's Rules 20 and 21 dealing with summary judgment and determination of
a preliminary point of law. Under O.14, r. 3, the English Court must ask
whether there is "an issue or question in dispute which ought to be
tried."
23In a series of judgments, Justices Colman and Tuckey of the
Commercial Court wrote lengthy reasons in which they stated that the defences raised were without merit. Their decisions were
upheld by the Court of Appeal. A brief summary follows.
24In The Society of Lloyd's v. Leighs (February 20, 1997),
Colman J. rejected defences based on the fact that
the Names had not accepted the R & R plan and therefore, could not be bound
by it, and that Lloyd's had no title to sue in respect of moneys payable under
the R & R plan. Canadian Names were intervenors in this proceeding. In a
subsequent decision released on April 23, 1997, The Society of Lloyd's v.
Wilkinson, he determined that even if Lloyd's had engaged in fraudulent
conduct, the law of rescission would not apply in the circumstances because of
the impossibility of restitutio in integrum. He also held that Clause 5.5 of
the Equitas contract prevented the defendants from
setting off their counterclaim for damages for fraud against Lloyd's claim for
the Equitas premium, and that there should be no stay
of execution against them with respect to the judgment for the Equitas premium.
25The judgements of Colman J. were upheld by the Court of
Appeal in The Society of Lloyd's v. Leighs, Lyon and Wilkinson, [1997] N.L.O.R.
No. 721, (reasons dated July 31, 1997), and leave to appeal to the House of
Lords was refused. Counsel appeared for 215 Canadian Names, who were granted
intervenor status. The Court upheld the conclusions of Colman J. that the R
& R By-law fell within the Society's powers, and the directions given to
implement it were validly given; that the Names had not validly rescinded their
General Undertakings and thereby avoided their contracts with Equitas concluded on their behalf by AUA9; that the Names
were bound by the "no set off" provision in Clause 5.5 of the Equitas, contract, given their agreement, at the time that
they became Names, to be bound by the legislative and regulatory regime of the
Society; and that clause prevented the non-accepting Names from raising claims
of fraud against the Society in answer to a claim by the Society as assignee
for the Name's premium. Finally, the Court refused to order a stay of
execution.
26Subsequently, Tuckey J. determined that there was no defence to the claim for the premiums based on the
allegation that Lloyd's had failed to comply with Ontario securities law (The
Society of Lloyd's v. Daly, reasons dated January 27, 1998). In doing so, he
gave full effect to a legal opinion of James C. Baillie, Q.C., which had
concluded that the actions of Lloyd's had contravened Ontario securities law
because of the failure to file a prospectus, and thus, the obligations to
Lloyd's would be unenforceable in Ontario. Tuckey J. nevertheless held that the
enforcement of the contractual obligations in England was not against public
policy, and thus, there was no defence available
based on Ontario securities law. Subsequently, in March, 1998, summary judgment
was awarded to Lloyd's for the various Equitas
premium amounts. Tuckey J. granted a stay of execution until the determination
of a leave to appeal application before the Court of Appeal, although he
refused to order a general stay of execution.
27Leave to appeal was then sought from the Court of Appeal.
In lengthy reasons in Society of Lloyd's v. Fraser & Ors,
[1998] E.W.J. No. 1045, the Court of Appeal denied leave to appeal from this
judgment of Tuckey J. and others (reasons released July 31, 1998). The Court
noted that there was no question here of enforcing a contract that would
involve the infringement of an Ontario law, and there was no infringement of
comity. The Court noted that if the Canadian Names were correct and their
contracts with Lloyd's were void and unenforceable, then so, too, would be the
insurance contracts which they had entered, because their contracts' validity
depended upon the validity of the underwriting membership with Lloyd's (at 37).
Lord Hobhouse concluded that "no principle of comity or public policy
would suffice to justify that result". In the course of these reasons, he
also stated with respect to the procedure that had been adopted:
Trials are necessary in order to determine triable issues of fact.
It is not the function of the Court on an O.14 hearing to make findings of
fact. It is its function to consider whether the affidavits lodged by the
defendants in response to the O.14 summons raise triable issues of fact which
are capable in law of providing the defendant with a defence
to the claim or part of it. (at 29)
28As a result of these decisions, the Equitas
judgments are final in the United Kingdom as there is no further right to
appeal. Lloyd's now seeks to enforce them in Ontario.
Enforcement of Foreign Judgements
29The leading Canadian case on the enforcement of foreign
judgments is DeSavoye v. Morguard
Investments Ltd. (1990), 76 D.L.R. (4th) 256 (S.C.C.). There, LaForest J. described the principle of comity as
... the informing principle of private international law, which
has been stated to be the deference and respect due by other states to the
actions of a state legitimately taken within its territory. Since the state
where the judgment was given had power over the litigants, the judgments of its
courts should be respected. (at 268)
The concern in that case was the reciprocal enforcement of
judgements by Canadian provinces, but in the course of his reasons, La Forest
J. spoke of the purpose of private international law rules as "grounded in
the need in modern times to facilitate the flow of wealth, skills and people
across state lines in a fair and orderly manner" (at 269).
30Article IV(1)(e) of the Convention permits a court to
refuse registration where enforcement of the foreign judgment would be contrary
to the public policy of the territory. This is a codification of the common law
rules. Here, the respondents argue that enforcement would be contrary to public
policy because it would be contrary to natural justice. Alternatively, the
registration would be contrary to public policy because Lloyd's failed to
comply with Ontario securities law in soliciting the respondents as Names.
Natural Justice
31The enforcement of a foreign judgment will be refused on
public policy grounds only if it offends a fundamental principle of justice or
a deep-rooted tradition of the forum (J.-G. Castel, Canadian Conflict of Laws,
4th ed. (Toronto: Butterworths, 1997) at 171). While natural justice is not
mentioned explicitly as a defence in the Convention,
a failure of natural justice has been held to be an aspect of public policy.
Nevertheless, as noted by Sharpe J. in United States of America v. Ivey (1995),
26 O.R. (3d) 533 (Gen. Div.), the defence is rarely
applied in practice (at 550).
32In a proceeding to enforce a foreign judgment, the merits
of the claims and defences in the foreign proceeding
which led to the judgment are irrelevant (Four Embarcadero Centre Venture v.
Kalen (1988), 65 O.R. (2d) 551 (H.C.J.) at paragraph 63). Therefore, the
concept of natural justice, as a defence to
enforcement, relates to the procedure in the foreign proceedings, and not the
merits (at paragraph 67).
33It is not enough that the procedures of the foreign court
are different from those of the forum. Generally, the defence
of natural justice has resulted in a refusal to enforce a foreign judgment
where the respondent has been denied notice or a proper opportunity to be
heard. However, the English Court of Appeal in Adams v. Cape Industries plc,
[1991] 1 All E.R. 929 refused to enforce the judgment of a District Court in
Texas, in which default judgement had been given, on the ground that the
judgment was contrary to English views of substantial justice. There, in
determining the damages to be awarded in a class action law suit involving
personal injury claims, the American judge made a total award for the class
without making an objective assessment, on evidence, of the condition of the
plaintiffs (at 1048, 1050). This was held to be contrary to substantial
justice, because the assessment of damages was not made judicially.
34Here, the respondents argue that the procedure adopted to
date in the United Kingdom has deprived them of a trial, on the merits, of
their claims of fraud against Lloyd's, contrary to natural justice. In their
submission, Lloyd's has proceeded, through the device of the reinsurance
contract with Equitas and Clause 5.5 preventing the
legal defence of set-off and stay of execution, to
obtain judgments which will impoverish the respondents and, practically,
prevent them from ever litigating their claims in the U.K. The reason is said
to lie in their inability both to satisfy these judgements, and then post
security for costs in the UK and fund the litigation of the fraud claims there.
35It is said to be the combination of these actions by
Lloyd's with the utilization of the procedures in Orders 14 and 14A which
constitutes the denial of natural justice so as to bring these cases within the
public policy exception. The respondents argue that there is a fundamental
public policy in Ontario that a litigant should have a trial on the merits of
his or her case except in rare circumstances, such as those set out in Rule 21,
where it is plain and obvious that a cause of action or defence
can not succeed. The respondents also invoke the
summary judgment jurisprudence under Rule 20 of the Ontario Rules of Civil
Procedure to demonstrate that in Ontario, there should be a trial if there is a
genuine issue of material fact (see, for example, Aguonie
v. Galion Solid Waste Material Inc. (1998), 38 O.R. (3d) 161 (C.A.) at 173). It
is argued that the English Courts do not use such a rigorous test, and the
judges in the English proceedings have made findings of fact in the Order 14
and 14A proceeding without giving the respondents the benefit of a trial.
36Analogous arguments have been made in two American
jurisdictions, in which the English Courts' procedure was alleged to have
denied due process (The Society of Lloyd's v. Ashenden,
unreported, Case No. 98C5335, U.S. Dist. Ct. (Ill.); The Society of Lloyd's v.
Grace, unreported, Index No. 604065/98 (N.Y.S.C.)). In both cases, the
arguments were rejected.
37I reach a similar conclusion that the enforcement of the
Lloyd's judgments in Ontario is not contrary to natural justice. The Ontario
Court of Appeal in Ash, supra has already determined that England is the proper
forum to resolve disputes between Lloyd's and the Names, including the claims
of fraud and the effect of Ontario securities legislation on the enforceability
of their contracts. Throughout the English proceedings, the respondents have
been given an opportunity to participate, and their interests have been
defended by counsel. They have participated in motions for directions which
have shaped the process by which the Order 14 and 14A applications were managed
and heard in the Commercial Court. They were afforded an opportunity to raise
any and all defences upon which they sought to rely
to resist judgment. For purposes of the applications, the Courts in England
accepted the Names' positions at their highest, assuming that the Names would
be capable of proving fraud and breaches of the Securities Act at trial.
Nevertheless, the Courts concluded that there were no triable defences in the Equitas actions
under English law, the proper law of the contract.
38It is true that there has not yet been a determination, on
the merits, of the fraud claim, but neither has the English procedure precluded
the trial of such a claim. The respondents have chosen not to proceed with
their own fraud claim, nor have they apparently chosen to participate in a test
case being pursued by a number of Names. It involves Sir William Otho Jaffray, and, at the time of the hearing of these
applications, was scheduled to go to trial shortly on a specific preliminary
issue described as the "threshold fraud point". In an order of Colman
J. dated June 30, 1998, that issue was defined as "whether Lloyd's made
representations which it knew to be untrue and/or to which it was reckless
whether they were true or false and whether such misrepresentations were
communicated to the Name and if so when".
39Clearly, the respondents will face some financial hardship
in pursuing their fraud claims in England, because they will have to "pay
now and sue later". However, this is not a sufficient basis on which to
deny the enforcement of the judgments in issue. Moreover, while the respondents
argue that they will be required to post security for costs in England, which
they say will deny them access to the English courts, such orders are
discretionary there, as they are in Ontario (affidavit of Philip Holden, June
8, 1999, paragraph 11(b)). To date, no order for security for costs has been
made by an English Court. In these circumstances, there has been no denial of
natural justice that would justify refusing enforcement of the judgments.
Public Policy
40The second defence to enforcement
rests on the argument that Lloyd's contravened s. 53(1) of the Ontario
Securities Act by failing to file a prospectus when soliciting the
participation of the respondents as Names, and the failure to do so makes
enforcement of the judgments contrary to public policy.
41"Public policy" is a term difficult to define.
Professor Castel, in his text on Canadian Conflict of Laws, has stated that,
"Public policy is relative and in conflict of law cases it represents a
national policy operating on the international level" (supra, at 172).
Canadian courts have described the term "public policy" as including
something that offends some "essential public or moral interest" of
the forum, or "is inconsistent with the good order and solid interests of
society". Generally, our courts have been very reluctant to employ the
doctrine of public policy (see, for example, Old North State Brewing Co. v.
Newlands Services Inc. (1998), 41 B.L.R. (2d) 191 (B.C.C.A.) at 205-206; U.S.
v. Ivey, supra at 549; Block Brothers Realty Ltd. v. Mollard
(1981), 122 D.L.R. (3d) 323 (B.C.C.A.) at 329; Canadian Acceptance Corp. Ltd,
v. Matte (1957), 9 D.L.R. (2d) 304 (Sask. C.A.) at 312).
42The Ontario Court of Appeal in Boardwalk Regency Corp. v. Maalouf (1992), 6 O.R. (3d) 737 discussed the doctrine of public
policy in detail. The majority determined that a default judgment for a
gambling debt, made in New Jersey, was enforceable in Ontario despite the
Gaming Act, R.S.O. 1990, c. G.2, which rendered void agreements relating to
gaming or wagering. New Jersey was held to be the proper law of the contract.
Notwithstanding the wording of the Ontario legislation, enforcement of the New
Jersey judgment was held not to offend "essential morality" (at 743,
748). In reaching that conclusion, Lacourcière J.A.
noted, "Where the foreign law is applicable, Canadian courts will
generally apply that law even though the result be contrary to domestic
law" (at 748). He then went on to adopt a "contemporary community
standard of morality" to determine if enforcement of foreign gambling
debts would be contrary to public policy (at 750).
43Section 53(1) of the Securities Act provides:
No person or company shall trade in a security on his, her or its
own account or on behalf of any other person or company where such trade would
be a distribution of such security unless a preliminary prospectus and a
prospectus have been filed and receipts therefor obtained from the Director.
Section 122 sets out an offence for contravention of the Act,
while s. 127 permits the Commission to make orders in the public interest. I
have assumed for purposes of this argument that Lloyd's was required to file a
prospectus, in that the membership arrangements would constitute a security
under the Act; that there was a trade in Ontario; and there was a distribution
in Ontario of securities; that there was no prospectus filed; and no exemption
was available to Lloyd's.
44The Securities Act exists both to protect investors and to
ensure the proper functioning of the Ontario capital markets (see, for example,
Committee for Equal Treatment of Asbestos Minority Shareholders v. Ontario
Securities Commission (1999), 43 O.R. (3d) 257 (C.A.); Québec (Sa Majesté du Chef) v. Ontario Securities Commission (1992),
10 O.R. (3d) 577 (C.A.) at 590). In Pacific Coast Exchange of Canada v. Ontario
Securities Commission (1977), 80 D.L.R. (3d) 529 at 538, the Supreme Court of
Canada noted that the policy of the legislation is to protect the public,
quoting with approval the following passage from Hartt
J. in Re Ontario Securities Commission and Brigadoon Scotch Distributors
(Canada) Ltd. (1970), 14 D.L.R. (3d) 38 at 41:
... the basic aim or purpose of the Securities Act, 1966 ... is
the protection of the investing public through full, true and plain disclosure
of all material facts relating to securities being issued.
45There can be no doubt that the Act expresses important public
policy in Ontario. The issue here is whether that domestic policy should be
applied at the international level. It was the applicant's position that the
argument based on public policy should not even be considered by this Court
because of the doctrine of issue estoppel. Since the English courts had
determined that enforcement of the contracts in England was not contrary to
public policy, despite the assumption that there had been no compliance with
Ontario securities law, that issue had already been determined.
46Issue estoppel prevents a person from litigating a
particular legal issue when that same issue has been conclusively determined in
prior judicial proceedings involving the same parties or their privies.
However, in Heynen v. Frito-Lay Canada Ltd. (1999),
179 D.L.R. (4th) 317, the Ontario Court of Appeal stated (at 323):
Although at a high level of generalization, two proceedings might
seem to address the same question, this requirement of issue estoppel is met
only if on careful analysis of the relevant facts and the applicable law the
answer to the specific question in the earlier proceeding can be said to
determine the issue in the subsequent proceeding.
47The English Courts have determined that public policy, as it is
understood in English private international law, does not prevent the
enforcement of the Lloyd's contracts with the Ontario Names. The English Courts
did not decide, nor could they decide, whether judgments emanating from their
jurisdiction would or would not be enforceable in Ontario, because they were
contrary to Ontario public policy. It is Ontario public policy that must be
applied in the interpretation of Article IV(1)(e) of the Convention found in
the Reciprocal Enforcement of Judgments (UK) Act. Therefore, the doctrine of
issue estoppel does not apply here. Nor is there an abuse of process in the
respondents' request that I determine this issue, despite the conclusions of
the English Courts.
48The applicant places great weight on Boardwalk Regency,
supra, arguing that the case demonstrates the reluctance of Ontario Courts to
refuse enforcement of a foreign judgement, unless enforcement would be contrary
to fundamental moral values in our society. The respondents argue that the case
can be distinguished, because the gaming contract in issue there was entered
into outside Ontario, and the Court of Appeal concluded that the Ontario
legislation was not meant to have extraterritorial reach (at 742). Moreover,
the majority held that evolving societal attitudes with respect to gaming and
the relaxation of legal controls on gambling in Canada suggested that
enforcement was not contrary to essential morality. The respondents emphasize
that here, in contrast, Lloyd's has come into Ontario and solicited investors
without regard to the securities regime of the province designed to protect
those investors through its policy of full, fair and frank disclosure.
49Despite the importance of the public policy found in the
Securities Act, there is a competing and important public policy in issue here
- respect for the decisions of a foreign judicial system in the interests of
international comity. Having considered all the circumstances, I have concluded
that enforcement of these judgments would not be contrary to public policy as
that term is understood in Canadian conflict of laws jurisprudence.
50As a starting point, it is important to remember that the
law of the contract here is English law. The respondent Names all entered into
their arrangements with Lloyd's in England and accepted, as a term of those
arrangements, that their relationship would be governed by the law of England.
While they did not receive a prospectus in accordance with the Ontario
Securities Act, they did receive a significant amount of information from
Lloyd's, including documents which outlined the potential limit of their
exposure.
51This is not a case where the enforcement of the contract
raises serious issues of morality, as in the examples usually cited to show the
type of contracts contrary to public policy - for example, contracts for
slavery or prostitution. Nor is this a situation where enforcement offends an
essential public interest in Ontario. It is important to note that
non-compliance with the prospectus provisions of the Securities Act does not
render the contracts between Lloyd's and the Names void as a matter of domestic
law. Section 53(1) prohibits a trade without a prospectus, but does not prohibit
a sale. Thus, Ontario courts have held that a contract for the sale of
securities in contravention of the Act is voidable at the option of the buyer,
and a purchaser can proceed with an investment despite non-compliance with the
prospectus provisions of the Act (Bossé v. The
Mastercraft Group Inc. (1995), 80 O.A.C. 185 (C.A.) at 195-6). Moreover, the
Court of Appeal in Lumley v. Broadway Coffee Co. Ltd., [1935] O.R. 278 stated
that a contract for the sale of securities could not be rescinded by the purchaser,
despite non-compliance with the Securities Act, where restitutio in integrum
was not possible. The Court of Appeal has also held in Bossé,
supra that third parties without knowledge of illegality with respect to the
main contract for the sale of a security can treat the sale of the security as
effective. There, financial institutions which had provided mortgages or loans
to finance the purchase of condominium units or limited partnerships in
condominium buildings developed by Mastercraft were able to rely on their
security interests, despite alleged violations of the Securities Act in the
sale of the units or limited partnerships.
52Here, there are important third party interests, both of
insured parties and other Names, which would be adversely affected if the
respondents were not bound by their contracts with Lloyd's. Indeed, the
interests of the insured parties appear to have been acknowledged by the
Canadian Names in the course of the litigation in England, for Mr. Lenczner argued before the English Courts that the Canadian
Names would continue to be liable for the insurance business which they had
underwritten. Both Tuckey J. and the English Court of Appeal commented on this
concession in determining that it was not contrary to public policy to enforce
the contracts, despite any contravention of the Ontario securities legislation.
Tuckey J., for example, stated,
So what is being said is that the General Undertaking is
enforceable so far as it made Mr. Daly a member of Lloyd's, but should be
treated as a matter of English public policy as unenforceable insofar as
membership made him subject to a regime which entitled Lloyd's to make him
liable to pay premium under the Contract. I do not think English public policy
should give effect to such an anomaly either on the grounds of comity or common
sense. (The Society of Lloyd's v. Daley, supra, unpaginated)
53While Tuckey J. approached this question from the perspective of
English public policy, I reach the same conclusion from the perspective of
Ontario's public policy. There has been no suggestion before me that the
policies of insurance underwritten by the respondents were unenforceable.
Therefore, the respondents will benefit from the reinsurance provided by Equitas, as Equitas is satisfying
the insurance obligations which they had agreed to underwrite. To hold them
liable for the Equitas premiums, even if the
contracts with Lloyd's were made without compliance with Ontario securities
legislation, is not inconsistent with essential public or moral interests in
Ontario society. If there has been a violation of Ontario legislation, there is
an institution in place with jurisdiction to protect the public interest - the
Ontario Securities Commission - should it decide to act. However, the
recognition and enforcement of the U.K. judgments is not contrary to public
policy.
Satisfaction of the Judgments
54The respondents argued that 43 of the U.K. judgments have
been satisfied in part or in whole within Article IV(1)(a) and (3) of the
Convention. As noted above, funds have been obtained through actions by some
Names in England against their underwriting agents, and the litigation
recoveries are being held in escrow by a number of solicitors in England. The
respondents who were members of these action groups argue that the funds held
in escrow are available to be set off against the Equitas
premium, and should be taken into account in these proceedings in determining
whether the judgements are satisfied in whole or in part.
55The applicant argues that there has been no satisfaction,
as Lloyd's has not yet received the escrow monies. Moreover, even when the
funds are made available, the House of Lords has determined in Robinson, supra,
that recoveries related to negligent underwriting are part of the Names' respective
Premiums Trust Funds, and are subject to the Premiums Trust Deeds
("PTD"). Therefore, the applicant argues that while Lloyd's is the
Regulating Trustee of each applicable PTD, its position in that capacity must
be distinguished from its position in its personal capacity. Specifically, the
Premiums Trust Funds are to be applied for the benefit of the beneficiaries of
the funds in accordance with the trusts established by the relevant PTD. The
first obligation under the terms of those funds is to satisfy the claims of
those who are insured. Moreover, those deeds provide that the law of England
applies to the PTD, and the English Courts have exclusive jurisdiction with
respect to interpretation.
56There was some dispute during the hearing about the admissibility
of certain affidavit material, on which the respondents argued that they had
had no opportunity to cross-examine - specifically, Mr. Holden's January 17,
2000 affidavit and Colin Tyne's February 3, 2000 affidavit. Ultimately, it was
agreed that these affidavits and that of Michael Freeman of January 27, 2000
would not be relied upon. Both parties were also agreed that, as of the date of
the hearing, the escrow funds had not been paid to Lloyd's.
57For purposes of this application, it is important to note
that there is no legal right in the respondents to demand that the escrow
monies be paid to satisfy their Equitas Premiums. As
noted by the Court of Appeal in Patterson v. Vacation Brokers Inc., [1997] O.J.
No. 1685, the issue in a case such as this is whether the judgment has been
satisfied in whole or in part (paragraph 6). The defence
with respect to satisfaction is not meant to allow the judgment debtor to
assert that monies are available or may become available to satisfy the
judgment.
58It is undisputed that no monies have yet been paid, and
therefore, the Equitas judgments have not been
satisfied, either in whole or in part. Whether Lloyd's must exercise its powers
as a trustee in a particular manner once it receives those funds is a question
to be determined by the English Courts. It is not my task to interpret the
Premiums Trust Deeds, nor to determine the manner in which Lloyd's should act
as trustee. Therefore, there is no defence available
based on satisfaction of the judgments.
Conclusion
59For these reasons, there is no defence
in law to the registration of the judgments in issue here on the basis of
natural justice, public policy or satisfaction, given the facts before me. The
parties are agreed that if I should reach such a conclusion, the applications
should be granted. Therefore, an order is to go for the registration of the
judgments in the five applications that have been the subject matter of this
hearing. If the parties wish to speak to costs, they may make an appointment with
my secretary.
SWINTON J.
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of Document