The limits of “conducting business” in a virtual world: Supreme Court dismisses recognition and enforcement appeal in HMB Holdings

In H.M.B. Holdings Ltd. v. Attorney General of Antigua and Barbuda, the Supreme Court of Canada dismissed a judgment creditor’s application to register a British Columbia judgment against a judgment debtor in Ontario under the Reciprocal Enforcement of Judgments Act (REJA or the Act). The case turned on whether the judgment debtor, Antigua, was “carrying on business” in British Columbia at the time of the judgment, a condition for REJA’s application. Despite having contracts with “Authorized Representatives” in British Columbia to promote investment in Antigua, the Court held that Antigua did not carry on business in the province and that the B.C. judgment therefore could not be registered in Ontario.

What you need to know

• The decision clarifies the test for assessing whether a party “carries on business” in a jurisdiction, one of the limited potential bases for refusing to register an award under the Act, and reflects the limits of the liberal approach to the recognition and enforcement of foreign judgments that the Supreme Court has otherwise espoused.
• Businesses engaged in multijurisdictional recognition and enforcement efforts to collect on judgments issued abroad in Ontario should be aware of the strategic advantages afforded by REJA, but also the limits of its application.
• Where applicable, REJA provides an easy, economical and expedient route for enforcing foreign judgments in Ontario relative to the usual requirement to commence a separate action to have the judgment recognized and enforced in the province.
• REJA sets out a limited number of defences against registering the foreign judgment in Ontario, including if the judgment debtor was not carrying on business or ordinarily resident within the jurisdiction of the court granting the original judgment and did not otherwise submit to that court’s jurisdiction.
• Whether a judgment debtor carried on business in a jurisdiction is a question of fact to be assessed contextually. The debtor must have some kind of actual presence in the jurisdiction in which the judgment was rendered, whether direct or indirect. A virtual presence that falls short of an actual presence will not suffice.

The road to the SCC

In 2007, Antigua expropriated a luxury property owned by HMB. HMB commenced proceedings against Antigua culminating in a judgment in HMB’s favour in May 2014 from the Judicial Committee of the Privy Council (JCPC), Antigua’s highest court.

By October 2016, HMB had collected on part, but not all, of the judgment. The limitation period in Ontario for seeking to have a foreign judgment recognized and enforced in the normal course is two years pursuant to Section 4 of the Limitations Act, 2002. Conversely, the British Columbia Limitations Act provides for a ten-year limitation period to have a foreign judgment recognized and enforced in the province.

In order to circumvent the limitations issue in Ontario, HMB commenced an action to have the JCPC judgment recognized and enforced in British Columbia with the intention of then registering the B.C. judgment in Ontario under REJA. REJA permits a judgment creditor to enforce a foreign judgment in Ontario from a reciprocating jurisdiction without the need to go through the usual process of commencing a separate action to have the judgment recognized and enforced and provides a six-year window to have the judgment registered in lieu of the two-year limitation period that would otherwise apply. All provinces in Canada (including British Columbia) are reciprocating jurisdictions except Québec. Antigua is not.

Antigua did not defend the recognition action in British Columbia and HMB obtained a default judgment in April 2017. In May 2018, HMB commenced an application in Ontario to register the B.C. judgment there.

REJA sets out limited bases on which the court can refuse to register a judgment from a reciprocating jurisdiction. These include, at Section 3(b) of the Act, “if the judgment debtor, being a person who was neither carrying on business nor ordinarily resident within the jurisdiction of the original court, did not voluntarily appear or otherwise submit during the proceedings to the jurisdiction of that court”. Antigua asserted that it fell within the parameters of Section 3(b).

The concept of “carrying on business” forms part of the traditional bases of jurisdiction and has a long history at common law. Under the traditional bases of jurisdiction at common law, a foreign judgment could be recognized and enforced in Canada only if the defendant in the original action had been present in the foreign jurisdiction at the time of the action, including by “carrying on business” there, or had consented in some way to the foreign court’s jurisdiction.

At the time of the B.C. action, Antigua had no physical presence in British Columbia (in the sense of a consulate or an office). However, the Antiguan government had contracts with Authorized Representatives with business, premises and employees in British Columbia as part of a Citizenship by Investment Program (CIP) pursuant to which Antigua encouraged investment in the country in exchange for citizenship for investors. HMB argued that, through its CIP program, Antigua had carried on business in British Columbia and could not avail itself of the defence to registration in section 3(b).

At first instance, the Ontario Superior Court of Justice dismissed the application, holding that the CIP was not a business activity and that Antigua therefore had not carried on business in British Columbia when the B.C. judgment was rendered.

On appeal, a majority of the Court of Appeal upheld the application judge’s decision. However, Nordheimer J.A. dissented, holding that the liberal approach espoused by the Supreme Court of Canada in its seminal decision on the recognition and enforcement of judgments in Chevron Corp. v. Yaiguaje, 2015 SCC 42 required the Court to interpret “carrying on business” in section 3(b) of REJA as setting a low bar that was easily satisfied by Antigua’s CIP efforts in British Columbia.

The SCC’s decision

A five-member panel of the Supreme Court dismissed the appeal, holding that Antigua had not carried on business in British Columbia by virtue of the CIP initiative and could therefore avail itself of the defence to registration in section 3(b) of REJA.

The Supreme Court held that to determine whether a defendant is carrying on business in a jurisdiction, a court must inquire into whether the defendant has some direct or indirect presence in the jurisdiction accompanied by a degree of sustained business activity. Whether or not a defendant is “carrying on business” is a question of fact requiring the court to consider factors such as whether it has established a fixed place of business in the other country from which it has carried on its own business, or a representative of the defendant has been carrying on the defendant’s business in the other country from some fixed place of business. In assessing whether a representative has been carrying on the defendant’s business or has been doing no more than carrying on its own business, the court will consider factors such as:

• whether or not the fixed place of business from which the representative operates was originally acquired for the purpose of enabling them to act on behalf of the defendant;
• whether the defendant has directly reimbursed the representative for the cost of their accommodation at the fixed place of business and the cost of their staff;
• what other contributions the defendant makes to the financing of the business carried on by the representative;
• whether the representative is remunerated by commission, fixed regular payments or in some other way;
• the degree of control the defendant exercises over the running of the business;
• whether the representative reserves part of their accommodation and part of their staff for conducting business related to the defendant;
• whether the representative displays the defendant’s name at their premises or on their stationery to indicate that they are a representative of the defendant;
• what business, if any, the representative transacts as principal exclusively on their own behalf;
• whether the representative makes contracts with customers or other third parties in the name of the defendant or otherwise in such manner as to bind it; and
• if so, whether the representative requires specific authority in advance before binding the defendant to contractual obligations.

In all cases, some kind of actual presence, whether direct or indirect, is required. A virtual presence that falls short of an actual presence will not suffice.

On the facts of HMB, the CIP did not rise to the level of carrying on business in British Columbia because the Authorized Representatives were not agents of Antigua, carried on their own businesses independent of the businesses of the Antiguan government and the CIP had no particular focus on British Columbia.

Implications of HMB

In Chevron Corp. v. Yaiguaje, the Supreme Court endorsed a “generous and liberal” approach to the recognition and enforcement of foreign judgments so as to allow that the doctrine of comity “to evolve concomitantly with international business relations, cross‑border transactions, and mobility”.

Where applicable, REJA provides an expedited route for enforcing foreign judgments in Ontario relative to the usual requirement to commence a recognition and enforcement action. Advantages of proceeding under REJA include a simplified process for registering the judgment in the province and a more generous limitation period.

HMB shows the limits of this regime and, in particular, that the “generous and liberal” approach espoused in Chevron does not lower the traditional common law threshold for determining whether a company carries on business in a foreign jurisdiction for the purposes of determining whether there is a sufficient connection between the defendant and the foreign jurisdiction issuing the judgment to be recognized and enforced in Ontario.

Business engaged in multijurisdictional recognition and enforcement efforts to collect on judgments issued abroad in Ontario should be aware of the strategic advantages afforded by REJA but also need to factor the limits of its application into their enforcement strategy.