cross border litigation

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Cross Border Issues – Israel and Canada

February 24, 2012 by Charles Wagner

Ontario lawyers are increasingly establishing strategic alliances with Israeli attorneys to better serve their clients.  Why? There are lots of reasons.  Enforcement of Israeli court orders in Ontario, increased trade between the countries requiring cooperation between corporate and tax counsel, and families with members in both jurisdictions requiring cooperation in Family law and estate disputes.   

 

Take this scenario for example – Stella lives with her son in her Toronto home.  She bought an apartment in Jerusalem to be close to her daughter.  She lives ½ the year in her Toronto home to be close to her son and ½ the year in Jerusalem to be close to her daughter.   In her will Stella appointed her two children as executors and divided her estate equally between them.  Simple – yes?  Not really. 

 

Unless proper steps were taken in her estate planning there could be adverse tax consequences that could have otherwise been planned for and perhaps avoided to achieve her goals.  If Stella is determined to be a Canadian resident, the Canadian government will tax her worldwide income and assets, including the Israeli property.  If her executor is a Canadian resident, then her estate will be deemed to be resident in Canada and the executor will be required to remit withholding taxes to Canada in respect of any amounts paid or property transferred to a beneficiary living outside of Canada. If Stella is determined to be an Israeli resident, then her executor must take into account the withholding tax payable on any transfer of the Canadian property. If she is determined to be an Israeli resident, but her executor is a Canadian resident, the estate will immigrate back to Canada for Canadian tax purposes.  

 

Now let’s talk about the Israeli tax issues.  If, for the purposes of Israeli tax law, Stella lives in Jerusalem, then Israeli Tax Authorities (ITA) require her to report her foreign assets and income.  The ITA will impose penalties and interest charges for her failure to do so.  Moreover, the ITA will consider Stella’s worldwide income taxable subject to relevant tax treaties.  If Stella has not addressed these issues during her lifetime than that means this responsibility falls to her executors.  Stella’s children will likely have to deal with her failure to report her assets and income to the ITA.

 

When Canadian and Israeli estate and tax issues are explained to executors the reaction is usually the same – Gevalt!

 

The above is a fictional scenario. While my office only litigates, over the last several years I have been consulted by people like Stella’s children because of my experience in wills and trusts and my network of Israeli attorneys and Canadian lawyers whose practices deal with these issues.  These lawyers are often called upon to address problems that arise when individuals did not take into account the different tax ramifications of multiple residences, beneficiaries and executors in different jurisdictions.   One such lawyer who has assisted me on occasion is Gilead Sher.

 

Mr. Sher is the senior partner of Gilead Sher & Co. Law Offices.  He is a household name in Israel and regardless of where you sit on the Israeli political spectrum he is regarded as a patriot.   You may recognize him as the former chief of staff to former Prime Minister Ehud Barak or for his role as chief peace negotiator for Israel during the Camp David Summit in 2001 and the Taba talks in 2001.  On the last file I dealt with Gilead’s tax partner, Yehuda Mulaem, and my Canadian Tax Counsel Leigh Somerville Taylor.   Together we successfully saved our client a lot of money and aggravation because both Leigh and Yehuda knew the law in their respective jurisdictions and were experienced in cross border issues.

 

So what’s the bottom line?  What should Stella have done?  I can attest that it’s better to retain the competent professionals in the first place and thereby avoid these issues later on.

 

This short review of the law should not be taken as legal advice. Based on my experience in dealing with these cases, they often turn on the specific facts. If you have a legal question relating to something similar, you are best advised to seek out competent legal counsel to determine your best course of action.

Suing an Ontario Defendant – Security for Costs

January 13, 2011 by Charles Wagner

Tal lives in Tel Aviv.  He invests $500,000 with Allen for a business venture located in Toronto Canada.  An additional $1,500,000.00 is borrowed and then Allen ignores Tal’s calls and refuses to report about the business.  Upon investigation Tal finds out there was no business.  Allen refuses to give Tal his money back and a law suit is launched.  The first hurdle Tal will face is a motion brought by Allen for security for costs.

In Ontario the loser of the law suit is often ordered to pay a portion of the winner’s legal costs.  Allen argues that if Tal loses his law suit there is a concern that any cost order against him would be unenforceable.  In cases like this the Ontario Rules of Civil Procedure provides a mechanism for the Ontario defendant to ask the court to order Tal to provide security for costs (FN1). 

Allen will argue that Tal is ordinarily resident outside Ontario, that there is good reason to believe that the law suit is frivolous and vexatious and/or that Tal has insufficient assets in Ontario to pay the costs of the defendant.

Tal might respond that the reason he has no assets in Ontario is because Allen took it all for an apparently bogus business deal.  Tal will argue that his claim has merit and that Israel has a statute (FN2) that provides for reciprocal enforcement of judgments so the risk of an unpaid cost order is minimized.  Further, Tal has a home in Israel which is worth more than enough to satisfy any Ontario court cost order.

Under Ontario law a foreign plaintiff can possibly defeat an order for security by establishing that he has assets that can be used to satisfy a cost order in a reciprocating jurisdiction.  However, Allen will argue that under Israeli law (FN3) there are restrictions on the ability to take someone’s home away to pay a debt so Tal should pay the security for costs. What would the court say?

There is a very interesting case relevant to our scenario that was heard by the Superior Court of Justice in Ontario called Uribe v. Sanchez (FN 4).  In that case a Florida plaintiff claimed he had no money to pay security for costs and that Florida had legislation permitting the enforcement of foreign money judgments that would include a judgment for costs made in Ontario.  So – argued the plaintiff, there was no risk to the defendant.  The judge disagreed. 

The problem with the Florida plaintiff’s argument was that Florida law exempts a person’s primary place of residence from such a judgment. In this case the court ruled that this does not meet the test as to sufficiency and quality of assets in the reciprocating jurisdiction. Despite the merits of the plaintiff’s claim, the judge was not satisfied that the plaintiff could not post security or that the plaintiff would be prevented from pursuing a meritorious claim if he were required to do so.  Would an Ontario Judge see the Israeli legislation called the “Execution Law” the same way? It provides that a property that is the family home is not to be sold unless the Execution Office is convinced that the family has reasonable alternate accommodation.

This short review of the case law should not be taken as legal advice. Based on my experience in dealing with these cases, they often turn on the specific facts. If you have a legal question relating to something similar, you are best advised to seek out competent legal counsel to determine your best course of action.
 
Charles B. Wagner is a partner at Wagner Sidlofsky LLP. This Toronto office is a boutique litigation law firm whose practice is focused on estate, commercial and tax litigation.

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(FN1)  See Rule 56 Security for Costs RULES OF CIVIL PROCEDURE – R.R.O. 1990, Reg. 194

(FN2)  See Foreign Judgments Enforcement Law – 1958

http://www.israelinsurancelaw.com/foreign-judgments/foreign-judgments-enforcement-law-1958.html

(FN3) See the Israeli statute called the ‘Execution Law’, which says that a property that is the family home is not to be sold unless the Execution Office is convinced that the family has reasonable alternate accommodation.

הגנת דירת המגורים (תיקון מס’ 15) תשנ”ד-1994 (תיקון מס’ 29) תשס”ט-2008

38.   (א)  היו המקרקעין שעוקלו משמשים, כולם או מקצתם, דירת מגורים לחייב, לא יהיה רשם ההוצאה לפועל רשאי להורות על מכירת המקרקעין ועל פינוי החייב ובני משפחתו הגרים עמו מהמקרקעין, אלא לאחר שהוכח, להנחת דעתו, שיהיה לחייב ולבני משפחתו הגרים עמו מקום מגורים סביר או שיש לו ולבני משפחתו הגרים עמו יכולת כלכלית המאפשרת מימון מקום מגורים סביר, או שהועמד לרשותם סידור חלוף.

 

(FN4)  Uribe v. Sanchez 2006 CanLii 19498 (ON S.C.)

Forum Non Conveniens

September 7, 2010 by Charles Wagner

Private international law and forum non conveniens is complicated.  It is really too complicated to properly address is a simple blog.  But, let’s consider this as wetting your appetite on the subject.  So let me tell you what happened and let’s see if you come to the same conclusion as Justice Hoilett of the Ontario Superior Court of Justice.  In Towne Meadow Development Corp. v. Israel Development Bank the Ontario Superior Court of Justice had to determine the appropriate location for litigating a dispute.  A Canadian construction company hoped to build in Israel. The Israeli bank granted it credit. A shareholder of the company allegedly pledged company assets to secure the loan. The bank then called in its line of credit for repayment wanting access to the assets.  The builder suggested that Ontario law applied and that the court case should be heard in Ontario. The Israeli bank disagreed.

Truth be told my question to you is unfair. The case was far more complicated.  But nonetheless – what do you think?

Cross-border trade means contractual disputes end up in court. Ontario has grappled with issues such as this through passing legislation and application of the common law as it relates to private international law.

The courts apply certain tests to determine whether there is a ‘substantial connection’ between the litigation and Ontario. If there is that connection, our courts make their decisions having in mind that there may be a substantial connection with another jurisdiction, and then decide which forum (i.e., in our case Israel or Ontario) is best suited to hear the case. This is what lawyers mean when they speak of forum non conveniens.

In our scenario, Justice Hoilett felt that Israel was a far more convenient forum for the litigation to proceed than Ontario. The judge arrived at this conclusion by considering the fact that all loans and transactions were made in Israel in relation to projects undertaken in Israel; almost allwitnesses material to the issue were in Israel; the defendant was in Israel and representatives of the plaintiff travelled to Israel often.

This blog deals with the complicated issue of forum non conveniens, comity and private international law and is not meant as legal advice.  For those interested in a more detailed review of the topic I refer you to the following articles:

Foreign Defendants – Legal issues and Strategies

August 30, 2010 by Charles Wagner

Americans sued in Ontario are at risk. Sometimes these defendants ignore Ontario law suits because they have no assets in Canada. That may be unwise. Ontario courts, under certain circumstances, will assume jurisdiction and grant judgments against American defendants. Such judgments may be enforceable in the US under private international law and the principles of comity. Americans named as defendants in Ontario litigation should contact competent lawyers in both jurisdiction to strategize about how to deal with litigation commenced in a court in Canada.

Why Should Americans Care If They Are Sued In A Foreign Jurisdiction?
Americans who are sued in Ontario sometimes ignore the claim. Perhaps it’s because there is concurrent litigation in the US. Possibly the American defendant feels it advantageous to wait until the Canadian comes to the US to litigate. Failure by the American defendant to respond will result in Default judgment against them. The Canadian Plaintiff will then hire an American Attorney to successfully enforce the Ontario judgment in the appropriate US jurisdiction. Americans who ignore litigation against them in Ontario do so at their own peril.

To appreciate the risks one has to understand that as cross border commerce increased courts and legislatures on both sides of the border had to deal with disputes. Imagine a Ontario manufacturer selling its products to an American distributor located in Texas. The American says the products are flawed and the Canadian wants to get paid. Do they go to a court in Ontario or Texas? Does the law of Texas or Ontario govern? It may be that in accordance with the principles of private international law, comity and forum non conveniens both Texas and Ontario have jurisdiction and the courts have to address which is the most appropriate jurisdiction to deal with the case. In our case scenario outlined above the Texas defendant who ignored the law suit in Ontario may find the Texas court enforcing the Ontario judgment.

First Step – Determine Vulnerability To Assets Being Seized:
Enforceability is the first issue. An American defendant in Ontario should determine if there are assets capable of being seized. Does the defendant have assets in Ontario or in a jurisdiction that will enforce an Ontario Judgement? If not then the defendant has to determine in the US jurisdiction will enforce the judgment where the defendant does have assets which are vulnerable to be seized. For example, the Uniform Foreign-Country money Judgments Recognition Act of California (FN1) provides that if there is judgment from a foreign country that deals with recovery of money, is final, conclusive and enforceable the foreign judgment is enforceable in California(FN2). Each jurisdiction may be different, but a defendant’s first step would be to determine if in accordance with relevant state legislation and the principles of private international law the judgment of the Ontario court would be enforceable in the defendant’s.

Second Step – Consult Competent Lawyer In Your Jurisdiction To Determine If, Given Your Assets, An Ontario Judgment Is Collectable:
The Canadian lawyers who have commenced a lawsuit against out of province defendants may be unaware of the differences in collecting on a judgment in Ontario or another jurisdiction. For example, contrary to Ontario the defendant’s state
1. may not permit collection proceedings against the defendant’s home.
2. may not permit wages to be garnished.
3. May exempt a certain amount of personal property.
In other words an American attorney should be consulted to determine if the defendant is judgment proof. That is why it is prudent to contact both an American attorney and Ontario lawyer to coordinate strategies. Both are necessary because a defendant with assets in Ontario will be subject to collection under the laws of Ontario. As an aside, Canadian lawyers should also address these issues when advising American clients about the utility of proceeding against foreign defendants.

Third Step – Are There Grounds To Dispute Ontario Jurisdiction?
Assuming that, given the right circumstances, an Ontario judgment will be enforceable in the American jurisdiction and there the defendant’s assets are vulnerable to being seized in collection proceedings, then coordination between US and Ontario counsel is a key to success for both the plaintiff and defendant. When our firm commences a law suit against an American Defendant we draft the claim with an eye on both:
1. establishing the foundation for an Ontario Court to exercise jurisdiction; and
2. Endeavouring to frame the claim in such a way that an American court will accept that the Ontario court had jurisdiction. It’s complicated and many states in the US have different criteria.

In Ontario the test for assuming jurisdiction in involving a foreign defendant was addressed in the seminal case of Muscutt v Courceles (2002) 60 O.R. (3d) 20. (FN3). The Muscutt test was adjusted by the Court of Appeal in Van Breda v. Village Resorts Limited, 2010 ONCA 84, (FN4). The exact nature of the test for determining jurisdiction of Ontario courts over an American defendant will hopefully be clarified as the Supreme Court of Canada has granted leave to appeal the Ontario Court of Appeal’s decision on this case. (FN5). As of the writing of this article this case has been judicially considered in Canada 22 times. For a clear review of the evolution of the test used by Ontario Courts for assuming jurisdiction of foreign defendants see Sona Dhawan’s February 17th, 2010 blog “Muscutt Quintet Test Simplified in Van Breda”. (FN6). For the purposes of this article it is unnecessary to review the Van Breda case in detail other than to say the Court of Appeal wanted, in their words, “tune-up” the Muscutt test “after seven years in the trenches”. In summary, under the new test a preliminary analysis is conducted to determine if there is a presumption that a “real and substantial connection” exists between the conflict and Ontario. The court will then look at two main issues
1. the connection between the forum and the plaintiff’s claim and
2. the connection between the forum and the defendant.
The other 6 factors set out under Muscutt are “analytic tools” used to weigh the connection between the forum, claim and defendant.
Until the Supreme Court of Canada rules otherwise the Ontario Court of Appeal test articulated in Van Breda stands. The Supreme Court of Canada will not nullify the principles of comity or forum non conveniens. There is no going back to the time where an Ontario Court will not assume jurisdiction over a foreign defendant. However, what will be addressed is the exact nature and evolution of the test set out in Muscutt. Van Breda has already been followed 12 times by different courts in Canada. In is also important to remember that the Supreme Court of Canada has addressed the issue in four key decisions in the early 1990s (FN7). As set out in paragraph 40 of the Ontario Court of Appeal decision “As Sopinka J. explained in Amchem, supra, at p. 912, “[f]requently there is no single forum that is clearly the most convenient or appropriate for the trial of the action but rather several which are equally suitable alternatives.”

Where more than one forum is capable of assuming jurisdiction, the most appropriate forum is determined through the forum non conveniens doctrine, which allows a court to decline to exercise its jurisdiction on the ground that there is another forum more appropriate to entertain the action.” Those decisions, make it clear that that the Supreme Court of Canada has accepted that while more than one forum may have jurisdiction to hear a case, each jurisdiction should exercise jurisdiction if it identifies its forum as the most appropriate forum for the litigation in accordance with the principles of international comity (FN8).

Fourth Step – Foreign  Defendant to Review Grounds to Dipute Ontario Jurisdiciton.
If it is in the defendant’s interest to not litigate in Ontario the lawyer should review the case law and determine if there are grounds to dispute jurisdiction. For example, did the plaintiff commit fraud? Did  the litigation process result in a denial of natural justice to the defendant? Would assumption of jurisdiction offend public policy? The following additional questions should be addressed:
• the location of the majority of the parties
• the location of key witnesses and evidence
• contractual provisions that specify applicable law or accord jurisdiction
• the avoidance of a multiplicity of proceedings
• the applicable law and its weight in comparison to the factual questions to be decided
• geographical factors suggesting the natural forum
• whether declining jurisdiction would deprive the plaintiff of a legitimate juridical advantage available in the domestic court

Conclusion
Given that the law in every jurisdiction may be different there are often advantages to the litigants in different jurisdictions. For example, if the Ontario limitation period has lapsed and the US jurisdiction limitation period has not lapsed it makes sense for the plaintiff to litigate in the US jurisdiction. Accordingly, disputes about forum are common. For anyone involved in cross border litigation it is prudent to consult with attornies/lawyers on both sides of the border to ensure that the issues of jurisdiction and vulnerability to judgments are addressed.

FN 1. Uniform Foreign-Country Money Judgments Recognition Act. There is similar legislation in 30 other states. For a more comprehensive review of this topic I refer readers to an article written by Stephen Maddex of Lang Michener LLP found at http://www.langmichener.ca/index.cfm?fuseaction=content.contentDetail&ID=10450&tID=244
FN2. The cursory description should not be taken as a detailed review of the act. For example, the California legislation indicates that it will not enforce foreign judgments which are a judgment for taxes, fines, divorce, support or maintenance.

FN3. For on line access to the case please see http://www.ontariocourts.on.ca/decisions/2002/may/muscuttC35934.pdf
FN4. For on line access to this case please see http://www.ontariocourts.on.ca/decisions/2010/february/2010ONCA0084.pdf

FN5. See the Supreme Court of Canada Case Information Summary at http://www.scc-csc.gc.ca/case-dossier/cms-sgd/sum-som-eng.aspx?cas=33692 and Julius Melnitzer’s article in the Financial Post http://business.financialpost.com/2010/07/08/scc-grants-leave-in-van-breda/

FN6. Sona Dhawan reviews the Muscutt case and its treatment in Ontario. In that case the Ontario Court of appeal indicated that there must be a real and substantial connection between the dispute and Ontario before a court can assume jurisdiction over an out of province party. That 8 pronged test was reviewed, revised and simplified by the Ontario Court of Appeal in Van Breda v. Village Resorts Limited. It is an interesting blog and a worthwhile read. It can be found at http://www.thecourt.ca/2010/02/17/muscutt-quintet-test-simplified-in-van-breda/

FN7 Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077 and Hunt v. T&N plc., [1993] 4 S.C.R. 289, Tolofson v. Jensen; Lucas (Litigation Guardian of) v. Gagnon, [1994] 3 S.C.R. 1022, and Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897.

FN 8. See Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897 and paragraph 39 of Mache Products Inc. v. British Columbia (Workers’ Compensation Board) 1993 CarswellBC 47; 77 B.C.L.R. (2d) 62, [1993] 1 S.C.R. 897, [1993] 3 W.W.R. 441, 14 C.P.C. (3d) 1, 150 N.R. 321, 23 B.C.A.C. 1, 39 W.A.C. 1, 102 D.L.R. (4th) 96, J.E. 93-674.