ONTARIO – ARBITRATION – Enforcement & recognition of a foreign judgment-Real & Substantial Connection Test.

ONTARIO – ARBITRATION – Arbitration agreements are not self-enforcing in Ontario. A party must seek a stay of court proceedings in favor of arbitration

Hilmer Motorsport GmbH v Mason
2025 ONCA 875 (CanLII)
ONCA ( Pepall, Lauwers and Dawe JJ.A)

This appeal addresses enforcement and recognition of a foreign default judgement in the face of an agreement to arbitrate not invoked. The Respondent (plaintiff) obtained a foreign default judgment for breach of contract against the Appellants (defendants) in Germany. The Respondent brought an action in Ontario for recognition and enforcement of the foreign judgment and then moved for summary judgment against the Appellants. The motion judge granted the summary judgment.

The Driver Agreement (“Agreement”) between the parties included an arbitration agreement that any disputes were to be resolved by arbitration on law settled under the Rules of the International Chamber of Commerce. In the Driver Agreement Nelson Mason agreed to represent the Respondents’ car racing team. The Guarantee Agreement signed by Jay Mason, Nelson’s Father did not contain an agreement to arbitrate.

The Appellants main argument in the appeal was that public policy prohibits the enforcement and recognition of a foreign judgment that is based on an agreement that contains an agreement to arbitrate.(para.2)

The appeal was dismissed.

Relevant Facts

The Appellants reside in Ontario. They were served with the Statement of Claim, issued in Germany, where the Respondent sought payment under the Agreement for breach of contract. The Appellants did not defend or respond as they understood that arbitration was the agreed upon method of resolving disputes. The Respondents obtained default judgment in Germany in February 2016. The default judgment was served on the Appellants in Ontario in March 2017. The Appellants did not move to set aside the default judgment or to appeal the judgment in Germany.(paras. 5 and 9)

Analysis

The motion judge granted summary judgment in favour of the Respondent. The Appellants argued that there was no real and substantial connection between the German court and the subject matter or to the Appellants. (para.11) The motions judge did not accept this argument as the Agreement expressed the parties intention to address disputes in Munich, to be governed by German law, with Germany being the venue, German law being the law of the arbitration, and payment to be made to a German entity.(para.12)

The Appellants opposed the recognition and enforcement of the judgment, because of the arbitration agreement. They argued that the granting of default judgment was against public policy and that the proceedings should be stayed. ( para.11) The motions judge held that it was for the German court to address staying the proceeding in favour of arbitration and any public policy issues. (para.13)

Jurisdiction of the German Court

The Appellants also took the position that the German courts had no jurisdiction due to the arbitration agreement .They relied upon the United Nations’ Convention on the Recognition and Enforcement of Foreign Arbitration Awards and on the International Commercial Arbitrations Act ,2017 (Ontario).(“ICAA”) (para.15)

The ONCA referred to the SCC’s decision in Chevron Corp. v Yaiguaje in which the SCC held that when determining if a foreign court properly assumed jurisdiction over a dispute, the foreign court must have “a real and substantial connection to the parties or to the subject matter of the dispute” or the traditional bases of jurisdiction must be satisfied. The party challenging the foreign court’s jurisdiction must prove one of the defences applies: breach of natural justice, public policy and fraud. The only purpose of the court asked to recognize the foreign judgment is to allow a pre-existing obligation to be fulfilled. (para. 17)

The ONCA also referred to Pro Swing Inc v. Elta Golf Inc. in which the SCC extended the category of foreign judgments that may be recognised and enforced to non-monetary foreign judgments. Monetary and final and conclusive foreign judgments have traditionally been recognized and enforced if the test was met and the defences not proven. (para.18)

The SCC in the Chevron case stated that the underlying principle in these types of applications is the concept of “comity”, which calls for “ the promotion of order and fairness and respect and deference to other states and a degree of stability and predictability in order to facilitate reciprocity.” (para.19)

The ONCA held that the German court had jurisdiction as there was a real and substantial connection between the German court , the parties and the subject matter of the disputes. Both the Agreement and the Guarantee provided that the place of jurisdiction was Munich and the Agreements were subject to German law and payment was to be made to a German entity.(para.20)

The ONCA held that the arbitration agreement in the Agreement did not automatically negate the German court’s jurisdiction. As German law was neither pleaded nor proven by the Appellants the only law available to be applied was Ontario law. The court referred to Janet Walker’s treatise titled, Canadian Conflict of Laws which states “In Ontario, an arbitration agreement is not self-enforcing. Rather in the face of an agreement to arbitrate, a party may seek a stay of court proceedings.”(para.21)

In this case the Appellants took no steps to stay the German proceedings and that was a fatal mistake.

Defenses not proven

There was no denial of natural justice as the Appellants were properly served with the German statement of claim and default judgment and the recognition and enforcement motion. (para.22)

The foreign judgment was not contrary to Canadian concepts of justice and was not contrary to Canadian views of basic morality and therefore the public policy defense failed. (para.23)

The Appellants’ International Commercial Arbitrations Act, 2017 argument, that referral to arbitration by a court when presented with an agreement to arbitrate should have happened was also rejected. The reason being that the Appellants did not request a stay and referral to arbitration in Germany.(para.24 and 25)