Case of the Day: Khan Resources, Inc. v. Atomredmetzoloto JSC

HT to Antonin Pribetic for a pointer to today’s case of the day, Khan Resources, Inc. v. Atomredmetzoloto JSC, 2012 ONSC 1522. Khan Resources, Inc. and some affiliates entered into a joint venture with Atomredmetzoloto JSC (“AMRZ”), which is a subsidiary of the Russian State Atomic Energy Corporation—as its name suggests, a state enterprise. The purpose of the venture was to develop a uranium mine in Mongolia. In 2010, Khan sued AMRZ in Ontario for $300 million. The claims were for breach of fiduciary duty, tortious interference, and so forth. Khan sought to serve process via the Russian Ministry of Justice, which is the central authority for Hague Service Convention purposes, but the Ministry refused to execute the request for service, citing Article 13, which provides that the state addressed may refuse to comply with a request for service if and only if “it deems that compliance would infringe on its sovereignty or security.” This is not an uncommon move where the defendant is a state-owned enterprise, a state official, or even the state itself. Because Russia had objected to service under the alternate channels permitted by Article 10 (including service by postal channels), there was no other means under the Convention to effect service (though Article 19, which the decision does not discuss, permits service under laws of the foreign state governing service of documents coming from abroad).

In an American case in the federal courts (other than a case brought under the Foreign Sovereign Immunities Act), a plaintiff in this situation would look to Rule 4(f)(3) of the Federal Rules of Civil Procedure, which provides for service “by other means not prohibited by international agreement, as the court orders.” Typically the plaintiff seeks an order permitting service on the defendant’s US lawyer, or on a US subsidiary, or in by some other method that does not require transmission of the documents outside of the United States. Even service by publication is a possibility (subject to the constraints of the Due Process Clause). Since Article 1 of the Convention provides that the Convention applies only when documents are to be transmitted to the territory of another state, these alternative methods of service avoid whatever problems the Convention poses.

The Ontario Rules of Civil Procedure contain provisions permitting a court to authorize alternate means of service or to waive service altogether. But Rule 17.05(3), which governs service of process in Hague Convention cases, provides:

(3) An originating process or other document to be served outside Ontario in a contracting state shall be served,

(a) through the central authority in the contracting state; or

(b) in a manner that is permitted by Article 10 of the Convention and that would be permitted by these rules if the document were being served in Ontario.

Khan was successful in obtaining an order waiving the necessity of service in the lower court, but on appeal, the Superior Court of Justice reversed the decision. The decision is instructive, though I don’t really want to express a strong opinion on whether it is correct under Ontario law. The judge adopted what is, I think, the accepted view, and the view of the US Supreme Court, namely that the Convention is non-mandatory but exclusive. That is, the the law of the forum and not the Convention itself determines when it is necessary to transmit a document abroad (i.e,. the Convention is not mandatory). But when it is necessary to transmit a document abroad, the Convention provides the exclusive means for doing so. So far, I agree with everything the court says.

The judge read Rule 17.05(3) to “prescribe[] the only methods of service available when service is to be performed in a contracting state.” In short, the judge reasoned that Ontario law required the document to be served abroad, and therefore, the service had to comply with the Convention. If the judge is right about what Rule 17.05(3) required, then the outcome is correct. I’m not sure, though, why the rule shouldn’t be read simply to say that if a document is to be served abroad, then the service must comport with the Convention, but to preserve the possibility that under other applicable Ontario law, it may turn out to be the case that service abroad is not required. Suppose, for example, that a foreign corporation has an office in Ontario, or that an individual foreign defendant happens to be traveling in Ontario. Is it the case that service in Ontario in such cases is improper? Canadian lawyers, please comment!

This Post Has 3 Comments

  1. Antonin I. Pribetic

    Ted,

    Thanks for your informative analysis.

    Under the Ontario Rules of Civil Procedure (the “RCP”), service of a document is contrasted with service of originating process (i.e. Statement of Claim or Notice of Application). In the former instance, documents may be served by any means that are sufficient to bring the documents to the attention of the defendant. In the latter instance, personal service is mandatory, unless the Rules allow for an alternative to personal service, or an order is obtained for substituted service or dispensing with service.

    As you correctly point out, the defendant in Khan is a “subsidiary of the Russian State Atomic Energy Corporation—as its name suggests, a state enterprise.” I do not think that the motion judge adopts the American judicial approach to the “non-mandatory” nature of the Hague Service Convention. The motion judge’s reasons address the mandatory nature of Canada’s international treaty obligations to apply the Hague Service Convention once implemented by the various provinces and territories.

    In any event, as discussed in my recent post on the New York State Thruway Auth. v. Fenech decision, I cite the Ontario Superior Court of Justice decision Wilson v. Servier Canada Inc. (2002), 58 O.R. (3d) 753, 23 C.P.C. (5th) 193 (S.C.J.), which upheld service by regular mail in France where the statement of claim came to the actual notice of each of the French defendants, or was served in such a manner that would have come to their attention, but for the defendants’ attempts to evade service. However, unlike the Russian Federation, France has not filed a Declaration under Article 10.

    In response to your hypothetical:

    “Suppose, for example, that a foreign corporation has an office in Ontario, or that an individual foreign defendant happens to be traveling in Ontario. Is it the case that service in Ontario in such cases is improper?”

    If a foreign corporation has an office in Ontario, then it has a “physical presence” in Ontario such that presence-based jurisdiction is established. Rule 17 deals with “Service Outside Ontario”, obviating any resort to the Hague Service Convention.

    If an individual foreign defendant happens to be traveling in Ontario, the prevailing case law is that a sojourn is not sufficient to establish presence-based jurisdiction. As such, Ontario, and Canada, generally, does not recognize “tag jurisdiction”.

    The Court of Appeal for Ontario decision in Van Breda v. Village Resorts Limited (see my post: “Supreme Court of Canada grants leave in Van Breda v. Village Resorts Limited appeal”: http://thetrialwarrior.com/2010/07/08/supreme-court-of-canada-grants-leave-in-van-breda-v-village-resorts-limited-appeal/) which modified the “real and substantial connection” test for assuming jurisdiction over foreign defendants remains under reserve by the Supreme Court of Canada since March 2011).

    Sub-Rule 17.02(p) of the RCP raises a rebuttable presumption of personal jurisdiction over a foreign defendant allowing for service outside Ontario without leave “against a person ordinarily resident or carrying on business in Ontario”…”

    Hence, a sojourner or ‘accidental tourist’ would not meet the definition of someone who is “ordinarily resident” under Rule 17.02. If the defendant neither has attorned nor consented to the Ontario jurisdiction, then the plaintiff would be required to prove any other jurisdictional facts sufficient to establish an alternative basis for assumed jurisdiction under Rule 17.02 (except 17.02(h) damages sustained in Ontario; and 17.02(o) necessary or proper party). If not, the plaintiff must prove on a balance of probabilities that the Ontario court may assume jurisdiction applying the multi-factored “real and substantial connection” test for jurisdiction simpliciter in Van Breda.

    1. Antonin I. Pribetic

      Ted, the law of the forum is the Convention if the defendant is from a Contracting State and where service out is concerned. Nino

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