Commercial Litigation and Dispute Resolution Blog

If a plaintiff located in Canada serves documents outside Canada but fails to first obtain an order for service ex juris, can the Court retroactively validate service?  

  

The circumstances are important. Consider a situation where:

1. both parties have an agreement that the dispute to which the documents in question relate is to be heard in Canada (in Alberta) and governed by the laws of Canada and Alberta; and
2. counsel for the party outside Canada acknowledges receipt of the documents in question (while still refusing to admit formal service).

Surely in such circumstances, a failure to meet the procedural requirements to serve documents outside Canada can be cured by the Court after-the-fact? 

This same type of argument was at issue before the Alberta Court of Appeal in Acciona Infrastructure Canada Inc v Posco Daewoo Corporation, 2019 ABCA 241.  In short, the Court of Appeal rejected the argument and held that even under these circumstances, the failure to properly serve outside Canada (i.e., the failure to take the preliminary step of obtaining an order for service ex juris) was too significant a deficiency to be overlooked or cured retroactively.

Key Facts

• Two parties—one located in Alberta and one in the Republic of Korea—agree that the contract between them (the Agreement) is governed by the laws of Alberta and applicable federal laws of Canada and that all disputes arising out of their contract would be resolved by arbitration in Alberta and in accordance with the Alberta Arbitration Act, RSA 2000, c A-43.
• A dispute arises under the Agreement. The Alberta company issues a Notice to Arbitrate, tracking the language of the Agreement (making reference to the Alberta Arbitration Act).
• Counsel for the Korean company ask that all correspondence relating to the dispute be sent to them and also retain local litigation counsel in Calgary.
• The Korean company takes the position that the Alberta company’s Notice to Arbitrate was invalid because it referenced the Alberta Arbitration Act rather than the International Commercial Arbitration Act, RSA 2000, c I-5.   
• Eventually, counsel for the Alberta company becomes frustrated by the delay and files an originating application in the Court of Queen’s Bench of Alberta to appoint arbitrators and validate service, among other things. 
• The application materials are served on the Korean company’s counsel (both the Korean and the Calgary law firms), who refuse to accept service on behalf of the Korean company, while acknowledging that they have received the materials.
• The Alberta company starts the process for service of a party outside Canada under the Hague Convention but does not follow the process under the Alberta Rules of Court (the Rules) and does not obtain the required order for service ex juris. 
• Instead, the Alberta company applies to the Court of Queen’s Bench of Alberta for relief, requesting the Court to validate service on the Korean company.  Rule 11.27 of the Rules (a similar rule exists in most Canadian jurisdictions) empowers the Court to validate irregular methods of service.

Two other key facts worth noting in this case are:

• There was also a standstill agreement where the parties had agreed that "each of the Parties irrevocably and unconditionally submits and attorns to the exclusive jurisdiction of the Courts of the Province of Alberta to determine all issues … arising from this Agreement".
• The Korean company had also served a Notice to Arbitrate on the Alberta company: At around the same time as it refused service of the Alberta company’s documents, the Korean company served the Alberta company with its own Notice to Arbitrate, seeking to arbitrate issues under the same Agreement that had been the subject of the Alberta company's earlier Notice to Arbitrate. 

The Lower Court Decision

The Alberta Court of Queen’s Bench validated service on the Korean company (despite the lack of service ex juris) on the basis that the Korean company had in effect already submitted or attorned to the Alberta court's jurisdiction by agreeing that any dispute would go to arbitration in Calgary and that any arbitration would be conducted under the Alberta Arbitration Act (as well as through the relevant provisions in their standstill agreement). As such, the rule requiring service ex juris did not apply.

The Korean company appealed the decision.

The Court of Appeal Decision

Although the Alberta Court of Appeal acknowledged that it was unclear what would be accomplished by forcing the Alberta company to proceed with obtaining a proper service ex juris order (other than further delay), the Court of Appeal allowed the Korean company's appeal: the lower court had no jurisdiction to cure "substantive" irregularities in the service of international parties.

The Rule in Alberta empowering the Court to validate irregular methods of service could not assist as the failure to obtain service ex juris was too substantive a deficiency.

The distinction between "jurisdiction" and "service"

As the Court of Appeal reminds us, there is “an important distinction between jurisdiction and service”:

Any defendant may voluntarily attorn to the jurisdiction of the Alberta courts, regardless of the regularity of the service of process on it. However, when the defendant resists the jurisdiction of the Alberta courts, then proper service ex juris is the platform on which the court decides if it has and should exercise jurisdiction over the parties and the dispute (Acciona at para 14).

As a result, the Alberta company’s mere assertion that the Alberta court had jurisdiction over the Korean company did not justify non-compliance with the threshold requirements in the Rules on service ex juris. 

Attornment (by contract or conduct) is relevant only on an application to set aside service ex juris

Where a defendant resists service, a plaintiff wishing to serve a commencement document is required to establish a threshold argument for "jurisdiction" (a "real and substantial connection" to Alberta) as a preliminary step. Only once the plaintiff has obtained the order for service ex juris, can it then proceed to serve the defendant under the applicable rules (which in this case, involved service under the Hague Convention)—unless the defendant agrees voluntarily to accept service.

If the defendant, once served, brings an application to set aside service ex juris, it would only be at that point that the issue of whether the defendant had attorned to the jurisdiction of the court (by contract or conduct) would become a relevant argument for the plaintiff. “In that respect, attornment is a shield not a sword” (Acciona at para 16).

Side-issue: Is it necessary to overtly commence a “domestic arbitration” or “international arbitration” when commencing arbitration proceedings against an international party?

So what about the Korean company’s argument that the Alberta company’s Notice to Arbitrate was invalid because it referred to the domestic Arbitration Act (or the Domestic Act) rather than the International Act?

Can a failure to cite the International Act (if it applies as a result of the parties or subject matter involved) in a Notice to Arbitrate make the Notice defective or invalid?  

Wakeling J.A., concurring in the result, says no. While acknowledging that this was not a decision for the Court of Appeal to make (as the issue would be determined by the arbitration panel eventually convened), Wakeling J.A. offered the following thoughts:

• The Alberta company’s Notice to Arbitrate simply tracked the language included in the parties' Agreement. The Agreement referred to the Domestic Act (Alberta Arbitration Act) and made no reference to the International Act.
• Further, the Alberta Arbitration Act itself allows the parties to exclude expressly or by implication application of the International Act.

(Note that the ability to exclude application of the International Act is not consistent across Canada. In Alberta and Ontario, the International Act can be excluded, however, the British Columbia Arbitration Act expressly excludes agreements to which the International Act applies in its definition of an “arbitration agreement”. Therefore, in British Columbia, the International Act will apply to all international commercial arbitrations.)

While Wakeling J.A. did not think the Notice to Arbitrate was invalid in this case, he did offer some practical advice that may be helpful for drafters of Arbitration Notices: If your contract refers to the Domestic Act but arguably the International Act also applies, refer to both Acts in your Notice to Arbitrate and simply explain why.

Takeaways from the Alberta Court of Appeal in Acciona:

Procedural requirements to serve parties outside Canada (and in particular, the requirement to obtain an order for service ex juris) are "substantive" irregularities, not mere technicalities—even where there is a very strong case that the party outside Canada has in effect or by agreement submitted to the jurisdiction of the Alberta Court.

Where a party outside Canada resists service, the lack of an order for service ex juris cannot be corrected retroactively, even where a plaintiff might have a "good arguable case" to support service ex juris.