THE SOCIETY OF LLOYD’S, Applicant v. PAUL F. SAUNDERS, also known as P.F. SAUNDERS, Respondent


COMMERCIAL No. 99-CL-3511, SUPERIOR No. 99-CV-163442




February 7, 2000; February 8, 2000; February 9, 2000, Heard March 7, 2000, Released


2000 Ont. Sup. C.J. LEXIS 433



COUNSEL:  [ *1]  M. Hartman, H. G. Chaiton, and G. Benchetrit, for the Applicant.


A. J. Lenczner, S. Block, and G. A. Smith, for the Respondents.










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 99-CV-163438), Sheridan Mary-Jane Montfort (Court File 99-C V-163441), Paul F. Saunders (Court File 99-CV- 163442), Alan Milton Paul Smart (Court File 99-CV-163444), and Donald Elmer Stringer (Court File 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


The 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  [ *2]  shall be refused or set aside if:


(a) the judgment has been satisfied; …


(e) 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.


The 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  [ *3]  a result of a motion to compel answers to the refusals, the parties came to a written agreement on procedure inan 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.


Prior 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  [ *4]  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.


Proceeding 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  [ *5]  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.


In 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.


Moreover, there were not material  [*6]  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


Lloyd’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.


Affidavits  [*7]  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.


To 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’sUnderwriting 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  [*8]  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.


Each 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.


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 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  [*9]  liability to the extent of all his assets in respect of his insurance obligations at Lloyd’s. A ll 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.


The 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  [*10]  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.


The respondents allege that despite the impossibility of determining the liability in respect of asbestosis, 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’srecruited 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  [*11]  are alleged to have contained misleading information about the financial health of the syndicates.


By 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 preventingLloyd’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’sbrought 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  [*12]  of Appeal ((1992), 9 O.R. (3d) 755 (C.A.); leave to appeal refused by the Supreme Court of Canada, 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.


Lloyd’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  [*13]  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 CentralFund Writs cases has proceeded.


After 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  [*14]  recoveries and must deal with them in accordance with the Premiums Trust Deeds (The Society of Lloyd’s v. Robinson. 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.


Because of the chaos in the insurance market and in order to keepLloyd’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.


While the offer was accepted by a vast majority of Names worldwide, the respondents did not do so. Nevertheless, those Names who did not  [*15]  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 thema replacement managing agent called “AUA9”, whichLloyd’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


Lloyd’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; thatLloyd’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  [*16]  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’shad breached Canadian securities legislation. Issues of quantum were also raised.


In 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.”


In 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.


In 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  [*17]  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.


The judgements of Colman J. were upheld by the Court of Appeal in The Societyof Lloyd’s v. Leighs, Lyon and Wilkinson (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  [*18]  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.


Subsequently, 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 Englandwas not against public policy, [*19]  and thus, there was no defence available based on Ontario securities law. Subsequently, in March, 1998, summary judgment was awarded toLloyd’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.


Leave to appeal was then sought from the Court of Appeal. In lengthy reasons in Society of Lloyd’s v. Fraser & Ors, 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 an d 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  [*20]  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)


As 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


The 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  [*21]  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).


Article 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 becauseLloyd’s failed to comply with Ontario securities law in soliciting the respondents as Names.


Natural Justice


The 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, [*22]  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).


In 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).


It 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  [*23]  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.


Here, 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 U.K. and fund the litigation of the fraud claims there.


It is said  [*24]  to be the combination of these actions by Lloyd’swith 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 bea 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.


Analogous arguments have been made in two American jurisdictions, in which the English Courts’ procedure was alleged to have denied  [*25]  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.


I reach a similar conclusion that the enforcement of the Lloyd’sjudgments 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  [ *26]  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.


It 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”.


Clearly, 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, [*27]  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 saywill 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


The 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.


“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  [*28]  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).


The 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” [*29]  (at 743, 748). In reaching that conclusion, Lacourciere 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).


Section 53(1) of the Securities Act provides:


No person or company shall trade in a security on his, her or its own account oron 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  [*30]  was available to Lloyd’s.


The 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.); Quebec (Sa Majeste 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.


There 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  [*31]  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.


Issue 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.


The English Courts have determined that public policy, as it is understood in English private international law, does not prevent the enforcement  [*32]  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 (U.K.) 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.


The applicant places great weight on Boardwalk Regency, supra, arguing that the case demonstrates the reluctance of Ontario Courts to refuse enforcement of a foreign judgment, 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  [*33]  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.


Despite the importance of the public policy found in the Securities Act, there is a competing and important public policy in issue here — respect for thede cisions 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.


As 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  [*34]  Ontario Securities Act, they did receive a significant amount of information from Lloyd’s, including documents which outlined the potential limit of their exposure.


This 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 (Bosse 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. [*35]  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 Bosse, supra that third parties without knowledge of illegality with respect to the main contract for the sale of a security can reat 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 ableto rely on their security interests, despite alleged violations of the Securities Act in the sale of the units or limited partnerships.


Here, there are important third party interests, both of insured parties and other Names, which would be adversely affected if the respondents were not boundby 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  [*36]  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)


While 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  [*37]  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 inplace 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


The 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  [*38]  whether the judgements are satisfied in whole or in part.


The applicant argues that there has been no satisfaction, as Lloyd’shas 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 termsof 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.


There was some dispute during the hearing about the admissibility of certain affidavit material, on which the respondents argued that they  [*39]  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.


For 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.


It 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  [*40]  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.




For 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.


K. Swinton J.