|Lang v. Lapp, State of California. The defendants argued fraud COURT OF APPEAL FOR BRITISH COLUMBIA|
COURT OF APPEAL FOR BRITISH COLUMBIA
Kathryn D. Lang, Whatever You Want LLC,
Annabel Lapp and Annabel Lapp Group Inc.
On appeal from: Supreme Court of British Columbia, May 12, 2009
Corrected Judgment: The text of the judgment was corrected at paragraph 20
Reasons for Judgment of the Honourable Chief Justice Finch:
 The defendants appeal from the judgment of the Supreme Court of British Columbia pronounced 12 May 2009 requiring them to pay to the plaintiffs a sum in excess of U.S. $1.9 million. The judgment was entered following a summary trial on the plaintiffs’ application to register and enforce the judgment they had obtained in the Los Angeles Superior Court for the State of California on 22 March 2007. The defendants opposed recognition and enforcement of the California judgment on the ground that it had been obtained by fraud.
 In his reasons for judgment Mr. Justice Pearlman held that the defendants failed to establish fraud relevant to the exercise of jurisdiction by the California Court; that the defendants failed to adduce any new facts going to fraud on the merits that the defendants could not by due diligence have adduced in the California proceedings; that the real and substantial connection test supporting jurisdiction in the California Court had been met; and that the defendants attorned to the jurisdiction of the California Court when they filed an answer to the plaintiffs’ complaint and defended the action in California.
 In my respectful opinion, on this appeal the defendants have failed to demonstrate any error of fact or law that would justify intervention by this Court. I would dismiss the appeal.
 The plaintiff k.d. lang is a recording artist and the corporate plaintiffs are U.S. companies with offices in California. The defendant Annabel Lapp is a business woman resident in Victoria, B.C., and the corporate defendant is a B.C. company.
 The plaintiffs hired the defendants as their business managers for several years prior to the fall of 2005. On 8 November 2005 the plaintiffs filed a complaint against the defendants in the Los Angeles Superior Court for the State of California claiming damages for breach of fiduciary duty and other causes of action arising from the relationship between the parties. The defendant was served with the complaint. Counsel on her behalf filed a motion to quash service, and then withdrew it.
 On 17 March 2006 defendants’ California counsel filed a forum non conveniens motion. That motion was heard on 11 April 2006 and in a ruling on 12 May 2006 the motion was dismissed.
 On 19 July 2006 the defendants’ counsel filed an answer to the complaint. Thereafter plaintiffs’ counsel sought discovery of documents and answers to interrogatories. On 6 September 2006 defendants’ California counsel withdrew as counsel of record. The defendants did not thereafter have California counsel retained on their behalf.
 On 5 October 2006 the plaintiffs applied for an order compelling responses to their earlier demands for discovery. On 6 November 2006 the California Court granted an order compelling responses.
 On 18 December 2006 the plaintiffs filed and delivered a motion for “terminating sanctions”, seeking an order striking out the defendants’ answer to the complaint for the defendants’ non-compliance with the order of 6 November 2006 compelling discovery. The motion for terminating sanctions was set for hearing on 18 January 2007. The defendants delivered a motion to adjourn the trial of the action which had been set for 20 February 2007. The defendants’ motion to adjourn was set for hearing at the same time as the plaintiffs’ motion for terminating sanctions on 18 January 2007. On that day the California Court granted the order for terminating sanctions and struck out the defendants’ answer.
 The plaintiffs then applied to prove the damages suffered (the “prove-up application”), and it was set for hearing on 22 March 2007. On that date the court entered default judgment against the defendants for damages in the amount of $1,921,673 in U.S. funds.
 On 25 May 2007 the plaintiffs commenced this action in British Columbia for recognition and enforcement of the California judgment. The defendants filed a defence raising a number of grounds. The plaintiffs applied under Rule 19(24) to strike out the defence and on 11 September 2008 a judge in chambers struck out defences that: the defendants did not attorn to the jurisdiction of the California Court; that there was no real and substantial connection between the California Court and the defendants or the cause of action advanced; that the judgment was obtained contrary to the principles of natural justice and fairness; and that the judgment was contrary to public policy.
 The defendants then filed an amended statement of defence, with leave, raising the defence that the California judgment was obtained by fraud. On the plaintiffs’ application for recognition and enforcement of the California judgment before Mr. Justice Pearlman, fraud was the only ground on which the application could be denied.
III. The Parties’ Positions
 In this Court the defendants alleged three errors in the judgment appealed from. They say first the judge erred in holding as a matter of law that the defence of fraud going to jurisdiction requires a consideration of whether the evidence relied on in the domestic court was known to, or could have been discovered, by the exercise of due diligence by the defendants in the foreign court.
 Second, the defendants say the judge erred in fact in finding that fraud going to jurisdiction had not been established in the circumstances of this case.
 And third, the defendants say the judge erred in finding that fraud on the merits had not been made out in the circumstances of this case.
 In response, the plaintiffs say the judge was correct to find no fraud going to jurisdiction; that the judge made no legal error in reaching that conclusion; that in any event the defendants attorned to the jurisdiction of the California Court; and that the judge did not err in finding that there was no fraud going to the merits of the case.
IV. The Fraud Defence
 The fraud defence has a long and somewhat clouded history. The basic principle is that any judgment, domestic or foreign, is open to attack on the basis that it was obtained by fraud. In the domestic context, English law developed the requirement that fraud must be based on evidence newly discovered since trial. In the foreign judgment context, English law took a different approach and permitted allegations of fraud even though no newly discovered evidence is produced and even though fraud might have been or was alleged in the foreign proceeding. This was laid down in Abouloff v. Oppenheimer (1882), 10 Q.B.D. 295 (C.A.), and appears to remain the law in England today: see Dicey, Morris & Collins on the Conflict of Laws, 14th ed. (London: Sweet & Maxwell, 2006) at 622-24.
 Canadian law took a different approach in Jacobs v. Beaver Silver Cobalt Mining Co. (1908), 17 O.L.R. 496. In order to reconcile competing rules that judgments based on fraud are impeachable and that foreign judgments should not be examined on the merits, the Ontario Court of Appeal held that:
... the fraud relied on must be something collateral or extraneous, and not merely the fraud which is imputed from alleged false statements made at the trial, which were met by counter-statements by the other side, and the whole adjudicated upon by the Court and so passed on into the limbo of estoppel by the judgment. This estoppel cannot, in my opinion, be disturbed except upon the allegation and proof of new and material facts, or newly discovered and material facts which were not before the former Court and from which are to be deduced the new proposition that the former judgment was obtained by fraud. [Emphasis added.]
This is the origin of the distinction between intrinsic and extrinsic fraud. In a manner akin to res judicata, if an issue was adjudicated or should have been raised before the foreign court it should not be relitigated on the merits. Thus, to support an allegation of fraud on the foreign court, the domestic court will require something extrinsic to the foreign proceedings, that is new evidence or evidence not discoverable through due diligence.
 In Beals v. Saldanha, 2003 SCC 72,  3 S.C.R. 416, the Supreme Court of Canada abandoned the intrinsic / extrinsic nomenclature, preferring the categories of fraud going to jurisdiction and fraud on the merits. However, strictly speaking the concepts are not analogous. The intrinsic / extrinsic distinction is an evidentiary requirement whereas the new categories relate to the subject matter of the fraud. The evidentiary requirement captured by the concept of extrinsic fraud continues to apply to fraud on the merits.
 Fraud going to jurisdiction is an exception to the generally applicable new evidence or due diligence requirement. According to the text Castel & Walker: Canadian Conflict of Laws, vol. 1., 6th ed. (Markham, Ont.: LexisNexis, 2005) loose?leaf updated 2010, release 19 at 14-42, the exception exists because facts that relate to jurisdiction are so fundamental that they should always be open to attack. This principle was set out by the Supreme Court of Canada in Powell v. Cockburn,  2 S.C.R. 218, and again in Beals. These cases are binding precedent and the proposition that fraud going to jurisdiction can always be raised, even without satisfying the due diligence requirement, must be accepted as settled law. Though no due diligence requirement applies it should be remembered that “[e]ven within the limited area of what might be termed jurisdictional fraud there should be great reluctance to make a finding of fraud for obvious reasons”, Powell at 234.
 Two cases, Cabaniss v. Cabaniss, 2006 BCSC 1076, and Garner Estate v. Garner, 2007 BCSC 72,  6 W.W.R. 469 are cited as instances where the due diligence requirement was applied to jurisdictional fraud. Without commenting on the correctness of those decisions, to the extent that they support the proposition that failure to exercise due diligence can bar a claim of jurisdictional fraud, they appear to be inconsistent with Powell and Beals.
V. Fraud Going to Jurisdiction
 The defendants’ assertion of fraud going to the California Court’s jurisdiction is based on allegations that the plaintiff misrepresented California as her place of residence, and that she failed to clarify the California Court’s apparent belief that there was a dispute about the location in which the parties’ agreement was made. The judge reviewed in some detail the record of the California proceedings with respect to these matters. He said:
 In her declaration made on March 17, 2006, in support of the defendants’ forum non conveniens motion, Ms. Lapp gave evidence that Ms. Lang was a Canadian citizen, and maintained a residence in British Columbia. Ms. Lapp also declared that she made the oral agreement to provide business services to Ms. Lang in Canada in 1989, and that for nearly 10 years she and her company had assisted Ms. Lang with her personal and business affairs in Canada under that oral agreement. She also stated in her declaration that after Ms. Lang purchased property in California in 1998, the defendants continued to provide management services to her under their oral agreement until 2005.
 Ms. Lang made her declaration of March 23, 2006 in response to the defendants’ forum non conveniens motion. She did not dispute the truth of any of the statements in Ms. Lapp’s declaration regarding the place where the oral contract was made, or where it was performed. Ms. Lang explained that she spent most of her time in California, and had done so since 1990. She did not dispute Ms. Lapp’s assertion that she also continued to maintain a residence in Canada.
 Ms. Lang’s answers to her interrogatories disclose additional details respecting the properties she owned, and how she divided her time between British Columbia and California between 1990 and 2006. However, there are no inconsistencies between her declaration of March 23, 2006 and her recent answers to interrogatories on any facts relevant to the forum non conveniens motion that would lead me to conclude that Ms. Lang misled the California Court.
 The defendants have not established that plaintiffs’ California counsel made any false statement to the court. The failure of counsel to tell the court that his clients did not dispute that the contract was made in British Columbia is too thin a reed to support a finding of fraud inducing the California Court to take jurisdiction. I am not prepared to infer that plaintiffs’ California counsel deliberately withheld information relevant to the California Court’s exercise of jurisdiction. Nor have the defendants persuaded me that Judge Hart Cole was likely under a misapprehension regarding the place where the contract was made when she rendered her decision, or that if she were under such a misapprehension, it was material to her decision to deny the defendants’ motion.
 The defendants have not shown that there was any fraud on the part of either Ms. Lang or her California counsel that induced the California Court to deny the forum non conveniens motion.
 In my respectful opinion the record amply supports the judge’s conclusions on this issue. I do not see any basis on which the Court could say that the learned summary trial judge made a reversible error of fact in finding that the California Court was not misled or under any misapprehension respecting its jurisdiction simpliciter or “territorial competence”. There was no fraud going to jurisdiction in the California Court.
 It appears to me, as contended by counsel for the plaintiff, that the defendants’ argument for fraud going to jurisdiction is not about whether California’s jurisdiction was lawfully established, but rather whether the plaintiffs misled the California Court during the course of the defendants’ application for a ruling that California was forum non conveniens. The Court dismissed that motion on 12 May 2006. That was a discretionary decision on whether the Court should exercise the jurisdiction already found to exist.
 I respectfully agree with the submission of counsel for the plaintiffs that in abandoning their challenge to the territorial competence of the California Court, which they did when they withdrew their motion to quash service of the plaintiffs’ complaint, the defendants effectively conceded that the California Court had territorial competence over the action commenced there. The decision on the forum non conveniens motion that the California Court should exercise its jurisdiction is, in my view, properly to be regarded as an element of the Court’s decision on the merits of the case.
 The case authority much discussed in counsels’ submissions before us, Beals v. Saldanha, did not concern an allegation of fraud going to jurisdiction. It was a decision on whether there was fraud going to the merits of the case. The court decided that before such a defence could succeed in a domestic court, the defendants had the obligation to adduce new and material facts that could not by the use of due diligence have been put before the foreign court (see Beals at para. 52). In my opinion, a similar requirement applies with respect to an allegation of fraud in a forum non conveniens hearing.
 The forum non conveniens application was fully argued in the California Court. No facts were put before Pearlman J. that were not, or could not have been, put before the California Court. If the defendants were dissatisfied with the decision of the California Court to exercise its jurisdiction, the proper course was to appeal that decision, or otherwise seek to have it reconsidered in that jurisdiction. It would not conform to principles of international comity to permit the defendants to re-litigate issues of fact or law which could have been addressed in the foreign jurisdiction.
VI. Fraud Going to the Merits
 In the court below, the defendants asserted fraud on the merits in two respects. They say first that the plaintiffs misled the California Court by representing that the defendants had failed to comply with discovery obligations. Secondly, they say that the plaintiffs misled the California Court in proving damages suffered after the defendants’ defence had been struck out.
 Beals makes clear that the merits of a foreign judgment can be challenged for fraud only where the allegations are new and not the subject of prior adjudication. A defendant has the burden of demonstrating that the facts raised were not before the foreign court and could not have been discovered by due diligence before the foreign judgment was obtained.
 The defendants contend that a default judgment is not a judgment on the merits, and that the facts they rely on to show fraud on the merits were not the subject of prior adjudication, and are therefore not governed by the due diligence test. However, Beals decided at para. 53 that:
... the test used is equally applicable to default judgments. Where the foreign default proceedings are not inherently unfair, failing to defend the action, by itself, should prohibit the defendant from claiming that any of the evidence adduced or steps taken in the foreign proceedings was evidence of fraud just discovered. But if there is evidence of fraud before the foreign court that could not have been discovered by reasonable diligence, that will justify a domestic court’s refusal to enforce the judgment.
The requirement to adduce new evidence or evidence that was not discoverable through due diligence applies to default judgments. The trial judge concluded that the defendants failed to raise new and material facts that could not have been placed before the California Court. I see no basis on which this Court could properly interfere with that conclusion.
 On appeal the defendants advanced myriad reasons why Ms. Lapp failed adequately to defend the California action: Ms. Lapp was not represented by counsel; in her opinion it was not possible to respond properly to outstanding discovery requests; Ms. Lapp did not understand the nature and import of the order made by the California Court; and the limitation period to have the order reconsidered was only 10 days. However, none of these explanations suggest that the California Court was misled or point to any fraud on the merits. Nor do they relate to any new and material facts that were not before the California Court or discoverable before judgment was granted.
 As stated in Beals, failing to defend an action, by itself, prohibits the defendant from claiming that any of the evidence adduced or steps taken in the foreign proceeding is evidence of fraud. There is no argument that natural justice or rules of California civil procedure were violated.
 The defendants have failed to establish any error by the chambers judge in granting the order to register and enforce the California judgment. I would dismiss the appeal.
“The Honourable Chief Justice Finch”
“The Honourable Madam Justice Saunders”
“The Honourable Madam Justice Neilson”