COURT OF APPEAL FOR ONTARIO

COURT OF APPEAL FOR ONTARIO CITATION: Xela Enterprises Ltd. v. Castillo, 2016 ONCA 437 DATE: 20160603 DOCKET: C60470 Weiler, LaForme and Huscroft JJ.A. BETWEEN In the matter of Xela Enterprises Ltd. and in the matter of 696096 Alberta Ltd. and in the matter of the Ontario Business Corporations Act Xela Enterprises Ltd., Gabinvest S.A., Lisa S.A., Juan Arturo Gutiérrez, Juan Guillermo Gutiérrez, and 696096 Alberta Ltd. - and - Plaintiffs (Respondents) Margarita Castillo, Roberto Ricardo Castillo, Juan Luis Bosch Gutiérrez, Dionisio Gutiérrez, Mayorga, Juan Jose Gutiérrez, Mayorga, Felipe Antonio Bosch Gutiérrez, Roberto Barillas Castillo, Isabel Gutiérrez De Bosch, La Braña, S.A., Multi-Inversiones, S.A., Villamorey, S.A. and Avicola Villalobos S.A. Defendants (Appellants) Katherine L. Kay and Aaron L. Kreaden, for the appellants Joseph Groia and Martin Mendelzon, for the respondents Heard: January 12, 2016 On appeal from the order of the Divisional Court (Justices David L. Corbett, Paul M. Perell and Cory A. Gilmore), dated February 5, 2015, with reasons reported at 2015 ONSC 866, dismissing an appeal of the order of Justice Julie A. Thorburn

Page: 2 of the Superior Court of Justice, dated January 20, 2014, with reasons reported at 2014 ONSC 352. Huscroft J.A.: [1] Can defendants in a state that is not party to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the Hague Convention ) be served in accordance with Ontario rules in an Ontario action? That is the question posed by this case. [2] The plaintiffs are individuals residing in Canada and companies carrying on business in Canada, as well as two Panamanian companies. They seek $400 million in damages from the defendants, individuals residing in Guatemala or companies carrying on business in Guatemala, for conspiracy to commit tortious acts, breach of fiduciary duties, fraud and abuse of process, and unjust enrichment. Their claim alleges that the damages were sustained in Ontario. [3] The motion judge found that the appellants were served validly in accordance with the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the Rules ). Her order was upheld by the Divisional Court and the appellants appeal to this court with leave. They submit that the Divisional Court erred in interpreting r. 17.05(2) of the Rules, by failing to interpret it in a manner consistent with Canada s international law obligations. [4] For the reasons that follow, I would dismiss the appeal.

Page: 3 BACKGROUND Facts [5] The Ontario action is a dispute between two factions of the Gutiérrez family. The action was commenced by a statement of claim issued in Ontario on April 12, 2011. A fresh as amended statement of claim was issued on February 28, 2013. [6] The respondents attempted to serve the fresh as amended claim on several occasions and in several different ways. They emailed a copy to the appellants Canadian legal counsel on March 1, 2013; they sent a copy by courier to the appellants U.S. counsel on March 1, 2013; and they attempted to serve the appellants at their residences and businesses in Guatemala on March 15, 2013. [7] The respondents brought a motion seeking a declaration that the appellants were properly served in accordance with rr. 17.02 and 17.05 of the Rules, validating service pursuant to r. 16.08, or ordering substituted service pursuant to r. 16.04. Ontario s rules governing service [8] Service outside of Ontario is governed by different rules depending on whether the defendant resides in a state that is signatory to the Hague Convention. Service on defendants residing in signatory states is required to be

Page: 4 effected through the central authority in the contracting state or in a manner permitted by the Hague Convention (r. 17.05(3)). [9] Guatemala is not a party to the Hague Convention. As a result, service in Guatemala is governed by r. 17.05(2), which provides as follows: DECISIONS BELOW An originating process or other document to be served outside Ontario in a jurisdiction that is not a contracting state may be served in the manner provided by these rules for service in Ontario, or in the manner provided by the law of the jurisdiction where service is made, if service made in that manner could reasonably be expected to come to the notice of the person to be served. The motion judge [10] The motion judge found that, because Guatemala is a non-contracting state, r. 17.05(2) allows the respondents to serve the appellants in accordance with the Rules, and that the respondents were served in accordance with those rules. [11] She found, further, that the corporate appellants were properly served by leaving a copy of the fresh as amended claim with a person who appeared to be in control or management of their places of business. The motion judge found that service on the individual appellants was attempted but was unsuccessful; a copy of the pleading was left at the residence of each individual and sent by courier, and a further copy was sent to their Canadian counsel; and that the fresh

Page: 5 claim came to the notice of the individual appellants. As a result, the motion judge made an order validating service on the individual defendants in accordance with r. 16.08. [12] The motion judge considered and rejected the appellants argument that a failure to apply Guatemalan law resulted in an absence of comity. She found that Guatemalan law does not prohibit a party outside the jurisdiction from serving a party in Guatemala in a manner permitted by Ontario law, and that an interpretation of the Rules that required the respondents to follow the rules of service in Guatemala would itself contravene the principles of comity by denying the choice r. 17.05(2) provides. Finally, the motion judge noted that the appellants retained their right to address the issues of attornment to Ontario law and whether Ontario is the most convenient forum. The Divisional Court [13] The Divisional Court dismissed an appeal from the motion judge s decision. The court noted that Guatemala is a civilian jurisdiction and that the Guatemalan courts must be involved in the appointment of notaries to effect service within Guatemala, and stated that direct service by a party violates the Guatemalan constitution. Although the court accepted that the Rules must be interpreted in a manner that conforms to Canada s international obligations, it

Page: 6 concluded that the motion judge s interpretation of r. 17.05 did not offend that requirement. [14] The Divisional Court stated that the principle of comity does not override the express intent of Ontario s rules relating to service, which the court described as conflicting legislation within the meaning of R. v. Hape, 2007 SCC 26, [2007] 2 S.C.R. 292, at para. 46. [15] Finally, the Divisional Court concluded that the motion judge was entitled to exercise her discretion to validate service, given her finding that the claim had come to the appellants attention. The court stated: As Guatemala is not a signatory to the Hague Convention, service in accordance with the Ontario Rules does not undermine any Canadian International Law obligation. ANALYSIS [16] It is not contested that, on its face, r. 17.05(2) authorizes the respondents to serve the appellants outside Ontario. Nor is it contested that the motion judge was entitled to exercise her discretion to validate service under the Rules because the fresh as amended statement of claim had come to the appellants attention. What is contested is whether Canada s international law obligations or the principle of comity among nations have the effect of requiring service in accordance with the law of Guatemala, despite the choice of service r. 17.05(2) provides.

Page: 7 [17] It is common ground that service in Guatemala did not comply with Guatemalan law. The Divisional Court went further, stating that [d]irect service by a party violates the Guatemalan constitution, and this is repeated by the appellants. However, the motion judge did not address the requirements of Guatemalan constitutional law and it was not necessary for the Divisional Court to do so on appeal. [18] For purposes of this appeal, it is enough to proceed from the premise that service in Guatemala pursuant to r. 17.05(2) was not in accordance with Guatemalan law. The question is whether Canada s international law obligations and/or the principle of comity require the respondents to effect service in the manner provided for by Guatemalan law, despite the choice r. 17.05(2) provides. The requirements of international law [19] It is important to distinguish two forms of international law, conventional (treaty-based) international law and customary international law. [20] Conventional international law is concerned with treaties negotiated between states. Treaties create obligations as between signatory states but, in general, do not create enforceable obligations in Canadian law unless they are adopted by Canadian legislation. The Hague Convention is specifically adopted into Ontario law by rr. 17.05(3) and (4), which govern service and proof of service in Convention states.

Page: 8 [21] In contrast, customary international law involves rules that are acknowledged as binding by the state. As Guatemala is not a signatory to the Hague Convention, this case is concerned with the impact of customary international law rather than conventional. [22] There is a rebuttable presumption that Canadian legislation complies with Canada s international law obligations, both conventional and customary, as the Supreme Court in Hape explained, at para 53: The presumption of conformity is based on the rule of judicial policy that, as a matter of law, courts will strive to avoid constructions of domestic law pursuant to which the state would be in violation of its international obligations, unless the wording of the statute clearly compels that result. The presumption is rebuttable, however. Parliamentary sovereignty requires courts to give effect to a statute that demonstrates an unequivocal legislative intent to default on an international obligation. See also R. v. Appulonappa, 2015 SCC 59, [2015] 3 S.C.R. 754, at para. 40. [23] The interpretive presumption outlined in Hape applies to secondary legislation regulations such as the Rules as well as primary legislation. Thus the Rules, and in particular r. 17.05(2), are presumed to comply with conventional as well as customary international law, and courts must avoid interpretations of the Rules that would render Ontario law inconsistent with international law unless there is a clear legislative intent to the contrary.

Page: 9 [24] The decisions below do not specifically address the principle of state sovereignty, which is part of customary international law. Instead, the motion judge s decision focuses on the principle of comity, which is discussed below. Although the Divisional Court concluded that service in accordance with the Rules does not undermine Canada s international law obligations, the court addressed only the requirements of the Hague Convention. Interpretation of r. 17.05(2) [25] I set out r. 17.05(2) again for convenience: An originating process or other document to be served outside Ontario in a jurisdiction that is not a contracting state may be served in the manner provided by these rules for service in Ontario, or in the manner provided by the law of the jurisdiction where service is made, if service made in that manner could reasonably be expected to come to the notice of the person to be served. [26] The appellants make two main submissions on the interpretation of r. 17.05(2). First, they submit that the courts below erred in failing to interpret r. 17.05(2) in accordance with the customary international law principle of state sovereignty. Second, the appellants submit that the Divisional Court erred in concluding that the wording of r. 17.05(2) is sufficient to rebut the interpretive presumption that Ontario law complies with international law. In other words, they contend that the Divisional Court erred in finding that r. 17.05(2) amounts to conflicting legislation within the meaning of Hape.

Page: 10 [27] I will deal with each of these arguments in turn, and then address the comity argument. (1) Did the motion judge err in failing to interpret r. 17.05(2) in accordance with the customary international law principle of state sovereignty? [28] In the appellants submission, r. 17.05(2) does not dictate how the choice between service under Ontario law or foreign law is to be made and does not purport to override international law. As a result, the rule must be interpreted in accordance with Canada s international law obligations, and this requires that the rule be interpreted in a manner that respects Guatemalan sovereignty. This, they submit, requires that service in Guatemala be effected in accordance with Guatemalan law, which requires authorization by a Guatemalan court or tribunal. [29] I would reject this argument. [30] The Rules do not purport to legalize service that would be illegal in Guatemala, nor do they purport to declare Ontario is the proper forum for an action. They provide an option as to how service may be effected in a non- Convention state for purposes of an Ontario action. They establish a means of satisfying an Ontario court that foreign defendants have received notice of an Ontario action. As the motion judge noted, the appellants retain their right to challenge the jurisdiction of Ontario s courts over the subject-matter of the action.

Page: 11 An Ontario court must ultimately determine whether it has jurisdiction over the action, and, in the event that it does, whether it should stay the proceedings on the basis of the forum non conveniens doctrine: Club Resorts Ltd. v. Van Breda, 2012 SCC 17, [2012] 1 S.C.R. 572. [31] It is, therefore, a considerable overstatement to characterize the rules governing service as constituting interference in the affairs of a foreign state. In this regard, I agree with the decision of the Supreme Court of the United Kingdom in Abela and others v. Baadarani, [2013] UKSC 44, at para. 53, per Lord Sumption: The characterisation of the service of process abroad as an assertion of sovereignty may have been superficially plausible under the old form of writ ( We command you... ). But it is, and probably always was, in reality no more than notice of the commencement of proceedings which was necessary to enable the Defendant to decide whether and if so how to respond in his own interest. It should no longer be necessary to resort to the kind of muscular presumptions against service out. The decision is generally a pragmatic one in the interests of the efficient conduct of litigation in an appropriate forum. [32] The appellants attempt to distinguish Abela on the basis that the manner of service in that case, which concerned another non-hague Convention state (Lebanon), was not contrary to the law of that state, whereas the service in this case violates the law of Guatemala and is subject to penalty. [33] The motion judge made a contrary finding concerning the law of Guatemala. She stated: Guatemalan law does not specifically prohibit a party

Page: 12 outside the jurisdiction from serving a party in Guatemala in a way permitted by Ontario s domestic law or create an offence for so doing. [34] Although there is evidence indicating that unauthorized service in Guatemala is illegal and subject to a penalty, it is not clear that the penalty applies to service ex juris. Moreover, the penalty for violating the law appears to be in the de minimis range, as though it is akin to an administrative or regulatory matter. There is no evidence concerning the enforcement of the law in any event. The significant consequence of unauthorized service is that it may be considered a nullity, and a Guatemalan court may not recognize or enforce an Ontario judgment as a result. [35] In all of the circumstances, I am not satisfied that the motion judge erred in her conclusions about Guatemalan law. (2) Is r. 17.05(2) conflicting legislation? [36] The conclusion that service pursuant to r. 17.05(2) does not violate Guatemalan sovereignty, and hence principles of customary international law, is sufficient to dispose of this appeal. That said, there is an alternative means of reaching the same conclusion. Even assuming that service pursuant to r. 17.05(2) violates Guatemalan sovereignty, in my view it is not open to interpret the rule in the manner proposed by the appellants because the presumption of conformity with international law is rebutted.

Page: 13 [37] The appellants acknowledge that the presumption of conformity with international law is rebuttable, but emphasize language from Hape that suggests a requirement that the wording of the legislation clearly compels the finding of inconsistency. Nothing, they submit, demonstrates an intention to disregard Canada s international law obligation to respect the sovereignty of sovereign states concerning service ex juris. On the contrary, the appellants assert that r. 17.05(2) was designed to allow for service in a manner that respects the sovereignty of foreign states. [38] The appellants submit that r. 17.05(2) should be interpreted as requiring service to be carried out in accordance with the law of the destination state for civilian states, while service in common law states may be carried out in accordance with the Rules. [39] I would reject this argument. [40] There is little authority concerning the nature of a conflict with international law for purposes of rebutting the presumption of conformity: see O. Jones, The Doctrine of Adoption of Customary International Law: A Future in Conflicting Domestic Law and Crown Tort Liability (2010) 89 Can. Bar. Rev. 401, at pp. 403-411. Although, as the appellants submit, the Rules evince an intention to respect Canada s conventional international law obligations by specifically recognizing the Hague Convention obligations and requiring service in

Page: 14 accordance with those obligations, it does not follow that the rule regarding service in non-hague Convention states can be read as being in conformity with customary international law. [41] Ontario s rules governing service expressly establish two different means of effecting service outside Ontario, depending on whether the relevant state is signatory to the Hague Convention. Service in a Hague Convention state must be completed in accordance with the requirements of the Convention, but service on a party in a non-hague Convention state may be effected in accordance with either Ontario rules or the rules of the foreign state at the choice of the serving party. The unequivocal intent of r. 17.05 is that the serving party is to be afforded the choice. [42] The appellants argument would render this choice illusory. The respondents could serve in accordance with the Rules only so long as the law of the foreign state were compatible with Ontario law. The law of civilian states is necessarily different than Ontario law; so, in effect, the respondents would be deprived of the choice the rule is designed to provide. They could serve in accordance with Guatemalan law or not at all. [43] Thus, even assuming that r. 17.05 is inconsistent with customary international law, the operational requirements of the rule rebut the presumption of conformity and, as a result, the rule governs.

Page: 15 The principle of comity [44] The appellants cite Tolofson v. Jensen, [1994] 3 S.C.R. 1022, and in particular Justice La Forest s remarks, at p. 1047, that the ability of states to make and apply law within their territorial limits will ordinarily be respected, absent a breach of some overriding norm. [45] The concept of comity is well understood in Canadian law. In Chevron Corp. v. Yaiguaje, 2015 SCC 42, [2015] 3 S.C.R. 69, at para. 51, the Supreme Court described comity as: the deference and respect due by other states to the actions of a state legitimately taken within its territory, as well as the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws : [citing Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, at pp. 1095-96], quoting with approval the U.S. Supreme Court s foundational articulation of the concept of comity in Hilton v. Guyot, 159 U.S. 113 (1895), at pp. 163-64; see also Spencer v. The Queen, [1985] 2 S.C.R. 278, at p. 283, per Estey J., concurring. [46] In Hape, at para. 47, the Court described comity as relating to informal acts performed and rules observed by states in their mutual relations out of politeness, convenience and goodwill, rather than strict legal obligation. [It is] more a principle of interpretation than a rule of law, because it does not arise

Page: 16 from formal obligations. The Court added, at para 48: Where our laws statutory and constitutional could have an impact on the sovereignty of other states, the principle of comity will bear on their interpretation. [47] I have already concluded the Ontario rules governing service for purposes of an Ontario action do not impact on Guatemalan sovereignty. Service pursuant to r. 17.05 is a procedural step, and the appellants mischaracterize things in suggesting that it involves an assertion of Ontario jurisdiction over them. The respondents are entitled to have the rule applied according to its terms and the choice it provides. As the motion judge noted, a requirement that Guatemalan rules of service be followed would contravene the rights of those under the protection of Ontario law. DISPOSITION [48] I would dismiss the appeal. [49] I would order the appellants to pay costs to the respondents agreed in the amount of $20,000, inclusive of taxes and disbursements. Released: June 3, 2016 KMW Grant Huscroft J.A. I agree K.M. Weiler J.A. I agree H.S. LaForme J.A.