Recently, the Ontario Court of Appeal substantially upheld the Superior Court’s decision in Tracy v. Iran. Previously, the Superior Court had recognized U.S. default judgments in favour of victims of terrorist groups sponsored by the Iranian government and, in turn, ordered that Iran’s state assets located within Canada be paid to the victims. The decision was the first of its kind in Canada under the Justice for Victims of Terrorism Act.
In its ruling upholding the Superior Court on every key conclusion, the Court of Appeal reproached the appellants for arguments “that appear designed solely to frustrate Parliament’s intention and the proper operation of the JVTA.”
The Court of Appeal expressed strong sentiments on terrorism, calling it “repugnant to civil society” and its sponsorship “chilling.” The Court of Appeal also affirmed that the Superior Court was correct to enforce the U.S. default judgments because Iran was “deemed to admit the allegations (against it) in the statements of claim” by virtue of those judgments.
The Court of Appeal’s comments in Tracy may impact Speer v. Khadr, slated to be heard in October 2017. Like in Tracy, the U.S. plaintiff in Speer will ask the Ontario Superior Court to recognize a U.S. default judgment in a terrorism liability case carrying significant monetary damages.
In Speer, the widow of U.S. Sergeant Christopher Speer, killed in a firefight with Omar Khadr, a Canadian fighting with terrorist forces overseas, is urging the Canadian court to enforce a U.S. default judgment obtained against Khadr. The U.S. judgment must be recognized by Canadian courts in order to realize on the much-publicized $10.5-million payment made by Justin Trudeau’s government assuming Khadr still has any assets in this jurisdiction.
The Court of Appeal held that the Superior Court properly relied on the facts found in the U.S. default judgments, and that the only proof of support for terror required to enforce the judgments in Canada was that Iran be listed under s. 6.1 of the State Immunity Act. Further, the Court of Appeal held that the Superior Court’s function was to consider whether the criteria of s. 4(5) of the JVTA were met based on factual findings of the American courts, including “Iran’s deemed admissions, having been noted in default.” It affirmed that it would be an error and contrary to Canadian law to review or reconsider the factual findings and “look behind the American statutory authority.”
The ruling said that “any argument that the court must look behind the foreign courts’ factual findings and conduct its own inquiry is contrary to the plain language of the JVTA and the jurisprudence on the enforcement of foreign judgements.”
In Speer, the Superior Court will similarly have to consider whether to recognize and enforce a Utah default judgment against Khadr. Consequently, the Court of Appeal’s comments in Tracy greenlighting reliance on the factual findings of a foreign court in a default judgment, including the deemed admissions of the defendant, could have a major impact.
The Court of Appeal in Tracy held that a foreign judgment must violate “conceptions of essential justice and morality” to be unenforceable on public policy grounds. To the contrary, in Tracy, the U.S. judgments arose from acts that are “repugnant to civilized society” and anti-terrorism laws that are an inoffensive and “peaceful legislative means to combat terrorism.”
In addition, the Court of Appeal held that the large non-pecuniary damages issued by the U.S. courts were “entirely consistent with Canadian legal morals” and a “sensible and measured response” to state-sponsored terrorism, despite exceeding the Canadian cap on non-pecuniary damages.
It will be interesting to see whether the public policy goals noted in Tracy will have any bearing on the Speer court’s decision whether to enable the plaintiff to collect on the large damages awarded to her in the U.S. default judgment.
The Court of Appeal’s decision in Tracy signals that the JVTA and SIA provide a solid foundation upon which to advance claims in Canada against foreign states accused of state-sponsored terrorism. It also confirms that foreign judgments in respect of state-sponsored terrorism may be enforced in Canada by saying, “Once it is determined that a foreign court properly assumed jurisdiction, a foreign judgment is prima facie enforceable.”
The Tracy decision also confirms that the JVTA brings liability for state-sponsored terrorism in line with the Canadian approach to commercial actions seeking compensation for foreign state misconduct. The SIA provides an express carve-out from the immunity typically enjoyed by foreign states when their misconduct relates to commercial activity.
Like in Tracy, the foreign default judgment in Speer will be heavily contested. The Court of Appeal in Tracy was clear that U.S. default judgments are prima facie enforceable with the defendant deemed to have admitted fault, and that it is an error for the court to reconsider factual findings. In terms of public policy, the Court of Appeal was resolute that terrorism is fundamentally at odds with Canadian morals, and that it is sensible to enforce even large non-pecuniary foreign awards against terrorists and their supporters. The Superior Court may, therefore, take guidance from the Court of Appeal’s comments in Tracy when it is called upon to recognize and enforce the U.S. default foreign judgment issued in connection with the terrorist acts at issue in Speer.
Litigators Lincoln Caylor and Nathan Shaheen, of Bennett Jones LLP in Toronto, both focus on cross-border financial crime disputes.