COURT OF APPEAL FOR ONTARIO

CITATION: Xela Enterprises Ltd. v. Castillo, 2016 ONCA 437

DATE: 20160603
DOCKET: C60470

2016 ONCA 437 (CanLII)

Weiler, LaForme and Huscroft JJ.A.

In the matter of Xela Enterprises Ltd.

and in the matter of 696096 Alberta Ltd.
and in the matter of the Ontario Business Corporations Act

BETWEEN

Xela Enterprises Ltd., Gabinvest S.A., Lisa S.A.,

Juan Arturo Gutiérrez, Juan Guillermo Gutiérrez,
and 696096 Alberta Ltd.

Plaintiffs
(Respondents)
- and -

Margarita Castillo, Roberto Ricardo Castillo,

Juan Luis Bosch Gutiérrez, Dionisio Gutiérrez, Mayorga,
Juan Jose Gutiérrez, Mayorga, Felipe Antonio Bosch Gutiérrez, Roberto Barillas
Castillo, Isabel Gutiérrez De Bosch, La Braña, S.A., Multi-Inversiones, S.A.,
Villamorey, S.A. and Avicola Villalobos S.A.

Defendants
(Appellants)

Katherine L. Kay and Aaron L. Kreaden, for the appellants

Joseph Groia and Martin Mendelzon, for the respondents

Heard: January 12, 2016

On appeal from the order of the Divisional Court (Justices David L. Corbett, Paul
M. Perell and Cory A. Gilmore), dated February 5, 2015, with reasons reported at
2015 ONSC 866, dismissing an appeal of the order of Justice Julie A. Thorburn
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of the Superior Court of Justice, dated January 20, 2014, with reasons reported
at 2014 ONSC 352.

2016 ONCA 437 (CanLII)

Huscroft J.A.:

[1] Can defendants in a state that is not party to the Convention on the

Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial

Matters (the “Hague Convention”) be served in accordance with Ontario rules in

an Ontario action? That is the question posed by this case.

[2] The plaintiffs are individuals residing in Canada and companies carrying

on business in Canada, as well as two Panamanian companies. They seek $400

million in damages from the defendants, individuals residing in Guatemala or

companies carrying on business in Guatemala, for conspiracy to commit tortious

acts, breach of fiduciary duties, fraud and abuse of process, and unjust

enrichment. Their claim alleges that the damages were sustained in Ontario.

[3] The motion judge found that the appellants were served validly in

accordance with the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the

“Rules”). Her order was upheld by the Divisional Court and the appellants appeal

to this court with leave. They submit that the Divisional Court erred in interpreting

r. 17.05(2) of the Rules, by failing to interpret it in a manner consistent with

Canada’s international law obligations.

[4] For the reasons that follow, I would dismiss the appeal.
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BACKGROUND

Facts

2016 ONCA 437 (CanLII)

[5] The Ontario action is a dispute between two factions of the Gutiérrez

family. The action was commenced by a statement of claim issued in Ontario on

April 12, 2011. A fresh as amended statement of claim was issued on February

28, 2013.

[6] The respondents attempted to serve the fresh as amended claim on

several occasions and in several different ways. They emailed a copy to the

appellants’ Canadian legal counsel on March 1, 2013; they sent a copy by

courier to the appellants’ U.S. counsel on March 1, 2013; and they attempted to

serve the appellants at their residences and businesses in Guatemala on March

15, 2013.

[7] The respondents brought a motion seeking a declaration that the

appellants were properly served in accordance with rr. 17.02 and 17.05 of the

Rules, validating service pursuant to r. 16.08, or ordering substituted service

pursuant to r. 16.04.

Ontario’s rules governing service

[8] Service outside of Ontario is governed by different rules depending on

whether the defendant resides in a state that is signatory to the Hague

Convention. Service on defendants residing in signatory states is required to be

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effected through the central authority in the contracting state or in a manner

permitted by the Hague Convention (r. 17.05(3)).

2016 ONCA 437 (CanLII)

[9] Guatemala is not a party to the Hague Convention. As a result, service in

Guatemala is governed by r. 17.05(2), which provides as follows:

An originating process or other document to be served

outside Ontario in a jurisdiction that is not a contracting
state may be served in the manner provided by these
rules for service in Ontario, or in the manner provided
by the law of the jurisdiction where service is made, if
service made in that manner could reasonably be
expected to come to the notice of the person to be
served.

DECISIONS BELOW

The motion judge

[10] The motion judge found that, because Guatemala is a non-contracting

state, r. 17.05(2) allows the respondents to serve the appellants in accordance

with the Rules, and that the respondents were served in accordance with those

rules.

[11] She found, further, that the corporate appellants were properly served by

leaving a copy of the fresh as amended claim with a person who appeared to be

in control or management of their places of business. The motion judge found

that service on the individual appellants was attempted but was unsuccessful; a

copy of the pleading was left at the residence of each individual and sent by

courier, and a further copy was sent to their Canadian counsel; and that the fresh
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claim came to the notice of the individual appellants. As a result, the motion

judge made an order validating service on the individual defendants in

2016 ONCA 437 (CanLII)

accordance with r. 16.08.

[12] The motion judge considered and rejected the appellants’ argument that a

failure to apply Guatemalan law resulted in an absence of comity. She found that

Guatemalan law does not prohibit a party outside the jurisdiction from serving a

party in Guatemala in a manner permitted by Ontario law, and that an

interpretation of the Rules that required the respondents to follow the rules of

service in Guatemala would itself contravene the principles of comity by denying

the choice r. 17.05(2) provides. Finally, the motion judge noted that the

appellants retained their right to address the issues of attornment to Ontario law

and whether Ontario is the most convenient forum.

The Divisional Court

[13] The Divisional Court dismissed an appeal from the motion judge’s

decision. The court noted that Guatemala is a civilian jurisdiction and that the

Guatemalan courts must be involved in the appointment of notaries to effect

service within Guatemala, and stated that direct service by a party violates the

Guatemalan constitution. Although the court accepted that the Rules must be

interpreted in a manner that conforms to Canada’s international obligations, it

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concluded that the motion judge’s interpretation of r. 17.05 did not offend that

requirement.

2016 ONCA 437 (CanLII)

[14] The Divisional Court stated that the principle of comity does not override

the express intent of Ontario’s rules relating to service, which the court described

as “conflicting legislation” within the meaning of R. v. Hape, 2007 SCC 26, [2007]

2 S.C.R. 292, at para. 46.

[15] Finally, the Divisional Court concluded that the motion judge was entitled

to exercise her discretion to validate service, given her finding that the claim had

come to the appellants’ attention. The court stated: “As Guatemala is not a

signatory to the Hague Convention, service in accordance with the Ontario Rules

does not undermine any Canadian International Law obligation.”

ANALYSIS

[16] It is not contested that, on its face, r. 17.05(2) authorizes the respondents

to serve the appellants outside Ontario. Nor is it contested that the motion judge

was entitled to exercise her discretion to validate service under the Rules

because the fresh as amended statement of claim had come to the appellants’

attention. What is contested is whether Canada’s international law obligations or

the principle of comity among nations have the effect of requiring service in

accordance with the law of Guatemala, despite the choice of service r. 17.05(2)

provides.
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[17] It is common ground that service in Guatemala did not comply with

Guatemalan law. The Divisional Court went further, stating that “[d]irect service

2016 ONCA 437 (CanLII)

by a party violates the Guatemalan constitution…”, and this is repeated by the

appellants. However, the motion judge did not address the requirements of

Guatemalan constitutional law and it was not necessary for the Divisional Court

to do so on appeal.

[18] For purposes of this appeal, it is enough to proceed from the premise that

service in Guatemala pursuant to r. 17.05(2) was not in accordance with

Guatemalan law. The question is whether Canada’s international law obligations

and/or the principle of comity require the respondents to effect service in the

manner provided for by Guatemalan law, despite the choice r. 17.05(2) provides.

The requirements of international law

[19] It is important to distinguish two forms of international law, conventional

(treaty-based) international law and customary international law.

[20] Conventional international law is concerned with treaties negotiated

between states. Treaties create obligations as between signatory states but, in

general, do not create enforceable obligations in Canadian law unless they are

adopted by Canadian legislation. The Hague Convention is specifically adopted

into Ontario law by rr. 17.05(3) and (4), which govern service and proof of service

in Convention states.
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[21] In contrast, customary international law involves rules that are

acknowledged as binding by the state. As Guatemala is not a signatory to the

2016 ONCA 437 (CanLII)

Hague Convention, this case is concerned with the impact of customary

international law rather than conventional.

[22] There is a rebuttable presumption that Canadian legislation complies with

Canada’s international law obligations, both conventional and customary, as the

Supreme Court in Hape explained, at para 53:

The presumption of conformity is based on the rule of

judicial policy that, as a matter of law, courts will strive
to avoid constructions of domestic law pursuant to
which the state would be in violation of its international
obligations, unless the wording of the statute clearly
compels that result. … The presumption is rebuttable,
however. Parliamentary sovereignty requires courts to
give effect to a statute that demonstrates an
unequivocal legislative intent to default on an
international obligation.

See also R. v. Appulonappa, 2015 SCC 59, [2015] 3 S.C.R. 754, at para. 40.

[23] The interpretive presumption outlined in Hape applies to secondary

legislation – regulations such as the Rules – as well as primary legislation. Thus

the Rules, and in particular r. 17.05(2), are presumed to comply with

conventional as well as customary international law, and courts must avoid

interpretations of the Rules that would render Ontario law inconsistent with

international law unless there is a clear legislative intent to the contrary.

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[24] The decisions below do not specifically address the principle of state

sovereignty, which is part of customary international law. Instead, the motion

2016 ONCA 437 (CanLII)

judge’s decision focuses on the principle of comity, which is discussed below.

Although the Divisional Court concluded that service in accordance with the

Rules does not undermine Canada’s international law obligations, the court

addressed only the requirements of the Hague Convention.

Interpretation of r. 17.05(2)

[25] I set out r. 17.05(2) again for convenience:

An originating process or other document to be served

outside Ontario in a jurisdiction that is not a contracting
state may be served in the manner provided by these
rules for service in Ontario, or in the manner provided by
the law of the jurisdiction where service is made, if
service made in that manner could reasonably be
expected to come to the notice of the person to be
served.

[26] The appellants make two main submissions on the interpretation of

r. 17.05(2). First, they submit that the courts below erred in failing to interpret

r. 17.05(2) in accordance with the customary international law principle of state

sovereignty. Second, the appellants submit that the Divisional Court erred in

concluding that the wording of r. 17.05(2) is sufficient to rebut the interpretive

presumption that Ontario law complies with international law. In other words, they

contend that the Divisional Court erred in finding that r. 17.05(2) amounts to

“conflicting legislation” within the meaning of Hape.

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[27] I will deal with each of these arguments in turn, and then address the

comity argument.

2016 ONCA 437 (CanLII)

(1) Did the motion judge err in failing to interpret r. 17.05(2) in

accordance with the customary international law principle of state

sovereignty?

[28] In the appellants’ submission, r. 17.05(2) does not dictate how the choice

between service under Ontario law or foreign law is to be made and does not

purport to override international law. As a result, the rule must be interpreted in

accordance with Canada’s international law obligations, and this requires that the

rule be interpreted in a manner that respects Guatemalan sovereignty. This, they

submit, requires that service in Guatemala be effected in accordance with

Guatemalan law, which requires authorization by a Guatemalan court or tribunal.

[29] I would reject this argument.

[30] The Rules do not purport to legalize service that would be illegal in

Guatemala, nor do they purport to declare Ontario is the proper forum for an

action. They provide an option as to how service may be effected in a non-

Convention state for purposes of an Ontario action. They establish a means of

satisfying an Ontario court that foreign defendants have received notice of an

Ontario action. As the motion judge noted, the appellants retain their right to

challenge the jurisdiction of Ontario’s courts over the subject-matter of the action.
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An Ontario court must ultimately determine whether it has jurisdiction over the

action, and, in the event that it does, whether it should stay the proceedings on

2016 ONCA 437 (CanLII)

the basis of the forum non conveniens doctrine: Club Resorts Ltd. v. Van Breda,

2012 SCC 17, [2012] 1 S.C.R. 572.

[31] It is, therefore, a considerable overstatement to characterize the rules

governing service as constituting interference in the affairs of a foreign state. In

this regard, I agree with the decision of the Supreme Court of the United

Kingdom in Abela and others v. Baadarani, [2013] UKSC 44, at para. 53, per

Lord Sumption:

The characterisation of the service of process abroad as

an assertion of sovereignty may have been superficially
plausible under the old form of writ (“We command
you...”). But it is, and probably always was, in reality no
more than notice of the commencement of proceedings
which was necessary to enable the Defendant to decide
whether and if so how to respond in his own interest. It
should no longer be necessary to resort to the kind of
muscular presumptions against service out. … The
decision is generally a pragmatic one in the interests of
the efficient conduct of litigation in an appropriate forum.

[32] The appellants attempt to distinguish Abela on the basis that the manner of

service in that case, which concerned another non-Hague Convention state

(Lebanon), was not contrary to the law of that state, whereas the service in this

case violates the law of Guatemala and is subject to penalty.

[33] The motion judge made a contrary finding concerning the law of

Guatemala. She stated: “Guatemalan law…does not specifically prohibit a party

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outside the jurisdiction from serving a party in Guatemala in a way permitted by

Ontario’s domestic law or create an offence for so doing.”

2016 ONCA 437 (CanLII)

[34] Although there is evidence indicating that unauthorized service in

Guatemala is illegal and subject to a penalty, it is not clear that the penalty

applies to service ex juris. Moreover, the penalty for violating the law appears to

be in the de minimis range, as though it is akin to an administrative or regulatory

matter. There is no evidence concerning the enforcement of the law in any event.

The significant consequence of unauthorized service is that it may be considered

a nullity, and a Guatemalan court may not recognize or enforce an Ontario

judgment as a result.

[35] In all of the circumstances, I am not satisfied that the motion judge erred in

her conclusions about Guatemalan law.

(2) Is r. 17.05(2) “conflicting legislation”?

[36] The conclusion that service pursuant to r. 17.05(2) does not violate

Guatemalan sovereignty, and hence principles of customary international law, is

sufficient to dispose of this appeal. That said, there is an alternative means of

reaching the same conclusion. Even assuming that service pursuant to

r. 17.05(2) violates Guatemalan sovereignty, in my view it is not open to interpret

the rule in the manner proposed by the appellants because the presumption of

conformity with international law is rebutted.

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[37] The appellants acknowledge that the presumption of conformity with

international law is rebuttable, but emphasize language from Hape that suggests

2016 ONCA 437 (CanLII)

a requirement that the wording of the legislation “clearly compels” the finding of

inconsistency. Nothing, they submit, demonstrates an intention to disregard

Canada’s international law obligation to respect the sovereignty of sovereign

states concerning service ex juris. On the contrary, the appellants assert that

r. 17.05(2) was designed to allow for service in a manner that respects the

sovereignty of foreign states.

[38] The appellants submit that r. 17.05(2) should be interpreted as requiring

service to be carried out in accordance with the law of the destination state for

civilian states, while service in common law states may be carried out in

accordance with the Rules.

[39] I would reject this argument.

[40] There is little authority concerning the nature of a conflict with international

law for purposes of rebutting the presumption of conformity: see O. Jones, “The

Doctrine of Adoption of Customary International Law: A Future in Conflicting

Domestic Law and Crown Tort Liability” (2010) 89 Can. Bar. Rev. 401, at pp.

403-411. Although, as the appellants submit, the Rules evince an intention to

respect Canada’s conventional international law obligations by specifically

recognizing the Hague Convention obligations and requiring service in

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accordance with those obligations, it does not follow that the rule regarding

service in non-Hague Convention states can be read as being in conformity with

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customary international law.

[41] Ontario’s rules governing service expressly establish two different means

of effecting service outside Ontario, depending on whether the relevant state is

signatory to the Hague Convention. Service in a Hague Convention state must

be completed in accordance with the requirements of the Convention, but service

on a party in a non-Hague Convention state may be effected in accordance with

either Ontario rules or the rules of the foreign state at the choice of the serving

party. The unequivocal intent of r. 17.05 is that the serving party is to be afforded

the choice.

[42] The appellants’ argument would render this choice illusory. The

respondents could serve in accordance with the Rules only so long as the law of

the foreign state were compatible with Ontario law. The law of civilian states is

necessarily different than Ontario law; so, in effect, the respondents would be

deprived of the choice the rule is designed to provide. They could serve in

accordance with Guatemalan law or not at all.

[43] Thus, even assuming that r. 17.05 is inconsistent with customary

international law, the operational requirements of the rule rebut the presumption

of conformity and, as a result, the rule governs.

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The principle of comity

[44] The appellants cite Tolofson v. Jensen, [1994] 3 S.C.R. 1022, and in

2016 ONCA 437 (CanLII)

particular Justice La Forest’s remarks, at p. 1047, that the ability of states to

make and apply law within their territorial limits will ordinarily be respected,

absent a breach of some overriding norm.

[45] The concept of comity is well understood in Canadian law. In Chevron

Corp. v. Yaiguaje, 2015 SCC 42, [2015] 3 S.C.R. 69, at para. 51, the Supreme

Court described comity as:

“the deference and respect due by other states to the

actions of a state legitimately taken within its territory”,
as well as “the recognition which one nation allows
within its territory to the legislative, executive or judicial
acts of another nation, having due regard both to
international duty and convenience, and to the rights of
its own citizens or of other persons who are under the
protection of its laws”: [citing Morguard Investments Ltd.
v. De Savoye, [1990] 3 S.C.R. 1077, at pp. 1095-96],
quoting with approval the U.S. Supreme Court’s
foundational articulation of the concept of comity in
Hilton v. Guyot, 159 U.S. 113 (1895), at pp. 163-64; see
also Spencer v. The Queen, [1985] 2 S.C.R. 278, at p.
283, per Estey J., concurring.

[46] In Hape, at para. 47, the Court described comity as relating to “informal

acts performed and rules observed by states in their mutual relations out of

politeness, convenience and goodwill, rather than strict legal obligation…. [It is]

more a principle of interpretation than a rule of law, because it does not arise
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from formal obligations.” The Court added, at para 48: “Where our laws —

statutory and constitutional — could have an impact on the sovereignty of other

2016 ONCA 437 (CanLII)

states, the principle of comity will bear on their interpretation.”

[47] I have already concluded the Ontario rules governing service for purposes

of an Ontario action do not impact on Guatemalan sovereignty. Service pursuant

to r. 17.05 is a procedural step, and the appellants mischaracterize things in

suggesting that it involves an assertion of Ontario jurisdiction over them. The

respondents are entitled to have the rule applied according to its terms and the

choice it provides. As the motion judge noted, a requirement that Guatemalan

rules of service be followed would contravene the rights of those under the

protection of Ontario law.

DISPOSITION

[48] I would dismiss the appeal.

[49] I would order the appellants to pay costs to the respondents agreed in the

amount of $20,000, inclusive of taxes and disbursements.

Released: June 3, 2016 “KMW”

“Grant Huscroft J.A.”
“I agree K.M. Weiler J.A.”
“I agree H.S. LaForme J.A.”