The 'Difficult Strategic Choice' Of Parties Sued Before A Foreign Court They Believe Does Not Have Jurisdiction

Last February 22, the Supreme Court of Canada dismissed the appeal from a judgment of the Court of Appeal of Québec in an action instituted by Knight Brothers LLC (Knight) against David Barer (Barer) seeking recognition of the default judgment rendered by a Utah court against Barer and two companies he controlled.

The Supreme Court of Canada's decision in Barer v. Knight Brothers LLC1 is relevant for a number of reasons, chief among them being the court's teachings on the recognition of a foreign authority's jurisdiction.

The facts and judicial history

In 2009, following a dispute over an amount owing to Knight under a subcontracting agreement, Knight brought proceedings before a Utah court against Barer personally and the two companies he controlled.2 At the preliminary stage, Barer filed a motion to dismiss Knight's action arguing, besides the Utah court's lack of jurisdiction over Barer, that the action was barred by the pure economic loss rule.3

The Utah court dismissed Barer's motion to dismiss and, in 2012, granted a motion for a default judgement filed by Knight. Knight then filed an originating application before the Superior Court of Québec to have the Utah decision recognized and declared enforceable.4

The Quebec courts then addressed the issue of the Utah court's jurisdiction over Barer. At trial, Judge Blanchard, j.c.s., recognized the Utah court decision and declared it enforceable in Quebec against Barer. In Judge Blanchard's opinion, the Utah court had jurisdiction given, among other reasons, that Barer had submitted to the court's jurisdiction5 by raising substantive arguments in his motion to dismiss.6

Barer appealed this decision. The Court of Appeal, in a two-sentence ruling and without endorsing all the reasons of the judge of first instance, upheld its ruling.7

The difficult strategic choice, recognition of jurisdiction and "legal mulligan"

While emphasizing that this debate remains particularly contentious,8 Justice Gascon, writing for the majority of the Supreme Court justices, concluded that a defendant submits to a foreign court's jurisdiction when it "presents substantive arguments which, if accepted, would resolve the dispute - or part of the dispute - on its merits."9

Justice Gascon rejected the argument holding that a party presenting "an argument on the merits not in the belief that a court has jurisdiction," but to "avoid the negative consequences that may result from non-participation in the proceedings" does...