When the recognition of a foreign judgment clashes with international public order

An important judgment in the field of private international law was issued by the Superior Court of Québec on November 14, 2023, in the matter of TCA Global Credit Master Fund c. Apelian 2023 QCCS 4924.

This is a rare case involving the interpretation of subsections 3155(3) and (5) of the Civil Code of Québec, which state that a foreign judgment will generally be recognized by the courts of Québec, unless : « (3)  the decision was rendered in contravention of the fundamental principles of procedure; (5) the outcome of a foreign decision is manifestly inconsistent with public order as understood in international relations. ».

In this case, the plaintiff sought the recognition of a judgment issued by the courts of Florida, in the United States. However, the financing contracts on which were based the legal proceedings contained the following provisions :

  • the borrowers and guarantors waive ahead of time:
    • any present or future means of defence;
    • any cause of action;
    • any counter-claim;
    • any claim for set-off;
  • the borrowers and guarantors also waive ahead of time:
    • any implicit obligation of good faith in their favour;
  • and the borrowers, still ahead of time:
    • Ratify and confirm “whatever lender may do” regarding the loan;
    • Grant a release and discharge to the borrower and waive their rights to assert as against the borrower :
      • Any claim of any nature whatsoever, whether contractual or otherwise, known or unknown, from the beginning of time to the date of closing;
      • In particular, any claim related to the loan or the documents of loan;
      • In particular also, any claim based on facts that could have viciated the consent of the borrowers or of the guarantors to enter into the loan agreements or the related documents (“and any and all claims that the Credit Parties and Individual Guarantors does not know or suspect to exist, whether through ignorance, oversight, error, negligence, or otherwise, and which, if known, would materially affect their decision to enter into this Agreement or the related Loan Documents”);

The contracts were subject to the laws of Nevada, but granted jurisdiction to the courts of Florida, which ruled that pursuant to Nevada law, such provisions were valid. Consequently, the grounds of defence raised by the defendant in Florida, in particular those based on false representations and fraud, were dismissed at the preliminary stage and summary judgment was issued in favour of plaintiff.

Before the Superior Court of Québec, the defendant argued that :

  • The contractual provisions in issue, as well as the judgment rendered, were contrary to the public order of Québec to such a degree that they conflicted with norms of international public order;
  • These provisions deprived in advance a contractual party of all its rights granted by the Civil Code of Québec, statutory law and the Québec Charter of rights and freedoms;
  • hese provisions set aside in advance and for the future, the obligation to act in good faith which is a founding principle of the Civil Code of Québec, as well as any affirmative defence or other cause of action that a party may assert against its cocontracting party (even in matters of viciated consent or fraud), and also ratified, still in advance, whatever the lender did in relation to the contract. In addition, these provisions extended to the guarantors;
  • In this context, a party is deprived of the enjoyment of its property not by virtue of the law, but rather as a result of contractual provisions which set aside the essential components of the law of contracts as set out in the Civil Code of Québec;
  • The dismissal of the grounds of defence based on fraud and false representations by the Florida court relied explicitly on the “clear and unambiguous covenants not to sue, releases and waiver provisions in the parties’ agreements” of these contractual provisions, which ran contrary to the public order of Québec. As such, the foreign judgment could not be harmoniously integrated in the internal legal order of Québec and could not be recognized pursuant to paragraph 3155(5) C.c.Q.;
  • In addition, as a result of the dismissal of the grounds of defence and of the counterclaim, the defendant was found liable without having had the benefit of a real hearing, which runs counter to the principle of audi alteram partem, and thus conflicts with paragraph 3155(3) C.c.Q.;

In her reasons for judgment, Justice Gabrielle Brochu ruled in favour of defendant and determined that waiving in advance one’s grounds of defence, essentially all claims of any nature along with applicable procedural guarantees, conflicted with Québec public order.

From a private international law perspective, Justice Brochu then stated that the issues went further than simply dealing with a commercial claim against a guarantor, and that a recognition of the Florida judgment would countenance and validate the advance waiver by a party of any and all rights it might enjoy under the law, including those related to fraud and false representation which may even have affected its consent to enter into the contractual relationship in the first place.

As a result, the Court concluded that the Florida judgment illustrated such a profound divergence with the norms of public order applicable under Québec law that it could not be recognized and thus conflicted with the norms of international public order.

The importance of this ruling resides in the fact that the Court clearly established that there are limits not to cross, regarding the elimination of both procedural and substantive rights, at the risk otherwise of conflicting so severely with norms of public order that a recognition of the foreign judgment will be refused.

Reference : TCA Global Credit Master Fund c. Apelian 2023 QCCS 4924

Attorney involved: Me Jean-Philippe Gervais