publication 

Litigating a Cross-Border Dispute in Canada: 10 Things American Lawyers Need to Know Before Getting Started 

January 2012

2012 LEXPERT/American Lawyer Guide to the Leading 500 Lawyers in Canada
It is not surprising that given their shared history and high level of integration, the US and Canada have very similar civil justice systems. However, there are many important differences that can have a tremendous impact on trial strategy and the resolution of a dispute. Understanding these differences can help create a winning strategy when a US litigant faces a dispute in Canada.

This article is intended to provide some general information about 10 key aspects of litigating in Canada that American lawyers will find beneficial. (Because of its unique history, the law of Québec is based on the French Civil Code. Therefore, any generalizations about the Canadian legal system may not be applicable to Québec.)

1. LAWSUITS NORMALLY RESOLVED IN PROVINCIAL COURTS

Like the United States, Canada has a federalist system of government with a discrete separation of powers, where the federal government has certain enumerated powers and the 10 provinces have certain enumerated powers. The administration of the civil justice system falls within the exclusive domain of the provincial governments. Similar to state courts in the US, provincial courts in Canada have trial courts of general jurisdiction and courts of limited jurisdiction, including small claims court, municipal courts, family courts, juvenile courts and criminal courts. Each province also has a court of appeal of last resort. There are no provincial intermediate courts of appeal.

Although there is a federal court system, the jurisdiction of Canadian federal courts is much more limited than US federal courts. Generally speaking, federal courts in Canada only have the authority to hear matters involving the Canadian federal government and certain federal statutory matters. Examples include immigration and refugee matters, elections, privacy, environmental impact assessments, national defense, aeronautics and transportation, oceans and fisheries, First Nations and intellectual property rights. However, unlike in the US, for instance, bankruptcy in Canada falls under provincial law and bankruptcy matters are resolved in provincial courts. All criminal matters are tried in provincial courts only — never in federal courts. There is no such thing as "diversity jurisdiction" for federal courts in the Canadian system.

Given the very limited nature of federal court jurisdiction in Canada, Canadian lawyers often have a difficult time understanding the complexities of the interconnectedness between state courts and federal district courts. In addition, the rules of venue in Canada are generally not nearly as robust as what is generally the case in the US. Accordingly, there is a great deal less strategy involved in determining where to file suit in Canada than what might normally be the case in the US.

2. CASES ADMINISTERED BY A "COURT"

When a lawsuit is filed in Canada, the action is assigned to the courthouse where it was filed and the physical file is kept in the registrar's office. At each step in the proceeding, any judge or master of the court could be assigned to handle the particular matter before the court. Moreover, when a party brings a motion, only the materials filed by the parties that relate specifically to that matter will be presented to the judge assigned to hear that matter. As a result, each step in a proceeding is often handled by a different judge who most likely will have no knowledge of anything else that has happened in the case that does not relate directly to the particular matter before the judge at that moment.

Therefore, contrary to the experience in many US courts, where judges often tend to keep their dockets free from backlogs, in Canada it is much more difficult to move matters along in an efficient and expeditious manner. As a result, it is not uncommon for cases to take many years to move through discovery and on to trial. In addition, because every motion and every step in the proceeding is typically handled by a different judge, it is much more difficult to obtain consistent rulings throughout a case and there is much less predictability, particular with respect to how the case might be tried.

3. ATTORNEYS' FEES GENERALLY RECOVERABLE

Unlike in the US, where attorneys' fees generally are not recoverable unless specifically permitted by statute or contract, in Canada attorneys' fees (or "costs") are awarded to the prevailing party in almost every action. In other words, the prevailing party at trial or on appeal can expect the opposing party to be ordered to pay anywhere from 50 to 90 per cent of the prevailing party's actual legal costs.

In addition, attorneys' fees are typically awarded to the prevailing party on a motion. For instance, if a party brings a discovery motion or a motion for summary judgment, the losing party likely will be ordered to pay the prevailing party's legal fees (or a portion of them) incurred in responding to the motion. When "costs" are awarded on a motion, normally the cost award must be paid within 30 days and the party required to pay costs is prohibited from taking any further steps in the litigation until the award has been satisfied.

Awarding costs at trial, on appeal, or on a motion is a very important procedural device used by the courts to control the legal process. Therefore, judges in Canada have very broad discretion in determining the amount in costs to award. As a result, because of the significant consequences that can result from losing at trial or even being denied relief on a motion, litigants in Canada tend to be decidedly more cautious when filing pleadings or motions with the court.

These cost-shifting rules have a tremendous impact on litigation strategy in Canada, both with respect to whether suit should be filed and what claims should be asserted, and with respect to what strategies should be employed to move the action along or bring the suit to resolution.

4. FOREIGN PLAINTIFFS POSTING SECURITY FOR COSTS

One key element of Canada's cost-shifting approach is that a plaintiff who brings an action must have sufficient assets within the jurisdiction of the court to pay a cost award in favor of the defendant in the event the plaintiff's claim fails. Therefore, foreign plaintiffs and corporate plaintiffs who lack sufficient assets located within the jurisdiction of the court to pay the costs of the defendant can be ordered to post security for costs before proceeding with the action.

The amount of security is generally equal to the attorney's fees the court is likely to award should the defendant prevail in the action. Security is posted in cash, letter of credit or surety bond. In some cases, the plaintiff may provide security in installments that match the actual costs incurred by the defendant as the case progresses.

5. LAW OF PERSONAL JURISDICTION

Canadian courts take a very different approach to personal jurisdiction from the due process analysis familiar to US litigants. There are 10 provinces in Canada and, like each of the 50 states, each province is a distinct judicial jurisdiction. However, unlike in the US, where a suit can only be brought in a state where the defendant has sufficient minimum contacts, lawsuits in Canada are to be heard in the province that has the most "real and substantial connection" to the matter in dispute. The appropriateness of filing suit in the jurisdiction of the defendant's residence or where the defendant maintains contacts depends on the forum's overall connection to the claim.

In determining whether a jurisdiction has a real and substantial connection to the dispute, courts take into account a variety of factors, including the parties' connection to the forum, where the witnesses are located, where the dispute arose and where the substance of the dispute is located. However, Canadian courts take a considered interest in protecting the legal rights of their residents and therefore will afford an injured plaintiff generous access to courts in the plaintiff's home jurisdiction to recover its damages. Thus, if the defendant has engaged in any activity within the jurisdiction, regardless of whether the conduct relates to the plaintiff's claim, Canadian courts will be likely to assume jurisdiction over the defendant.

In this regard, Canadian courts tend to take a much more plaintiff-oriented approach to jurisdiction. For instance, because damage is an essential element of any tort, if the damages complained of were suffered in the forum, the tort is deemed to have been committed in the forum, regardless of whether the actual tortious conduct occurred somewhere else. Therefore, if an Ontario resident were injured in a car accident in New York with a New York driver and then returned to Ontario where she incurred pain and suffering and received medical treatment for her injuries, an Ontario court likely would conclude it has jurisdiction over the New York driver, regardless of whether the driver had any contacts with Ontario whatsoever. Accordingly, the Canadian approach to personal jurisdiction can lead to extremely surprising results for US litigants.

6. SIGNIFICANTLY LESS PRE-TRIAL DISCOVERY

The rules of discovery in the Canadian legal system are much more restrictive than the rules of discovery in the US. Unlike in the US, where information is considered discoverable as long as it is reasonably calculated to lead to the discovery of admissible evidence, to be discoverable in Canada information must be actually relevant to material facts at issue in the dispute. As a result, the volume of information exchanged between the parties quite often is significantly less than what normally would occur in the US.

Further, requests for production and interrogatories as they are used in the US are not permitted in Canada. Rather, litigants in Canada generally have only two avenues of discovery available to them — documents the opposing party voluntarily discloses and the oral examination of a representative of the opposing party. Defendants can request plaintiffs to provide more detailed facts in support of their claim before defending the action and can request copies of documents referred to in the pleadings, but these are very limited discovery tools.

After the defendant files its defense and the plaintiff files a reply (or the time to do so has expired), an affirmative duty is automatically triggered for the parties to search for and disclose all documents relevant to the matters pleaded. In other words, the parties do not exchange requests for production and do not have the right to compel the production of documents. Rather, the parties determine for themselves what documents they believe are relevant and must provide a list that describes each document.

Aside from informally requesting the production of additional documents, if a party believes the documents disclosed by the other side do not include all relevant documents, the party could bring a motion to compel further production of documents. However, in Canada, all motions must be supported by evidence. To bring a motion for further production, the moving party would have to have evidence that the other party is in possession of relevant documents that have not been produced. Depending on the circumstances, compiling sufficient evidence in that regard to support a motion can be difficult.

After documents have been exchanged, the parties have the right to depose any adverse party. If a party is a corporation, the corporation must designate a representative to be examined on behalf of the corporation. As would be the case with the deposition of a corporate representative in the US, the representative examined is required to become well informed prior to the examination regarding the corporation's information on the matters at issue. Depending on the individual's position, the representative often must prepare for the examination by talking to many others in the corporation who possess relevant information.

This is important because, in Canada, employees, fact witnesses and expert witnesses normally are not subject to examination before trial, although any fact witness can be subpoenaed to testify at trial. Because the parties are only entitled to examine one person from the opposing party, it is not uncommon for depositions to last for several days or more. However, in Ontario, for instance, examinations are limited to seven hours, absent an agreement or court order to permit more time. 

During the course of the oral examination, there may be questions the witness is unable to answer or it may become clear there are additional relevant documents that have not been produced. To resolve this problem, the party being examined will be asked to give an undertaking, or promise, to find the answer to the question or search for and produce the additional documents. The practice of requesting and giving undertakings is a very important part of the discovery process in Canada.

In addition, obtaining documents and testimony from non-parties is much more restricted. To be entitled to examine or obtain documents from a non-party, litigants must obtain leave of court and must show a compelling need for the information. Such requests are rarely granted. Accordingly, the scope of pre-trial discovery in Canada is considerably narrower than in the US. 

7. "IMPLIED UNDERTAKING" RULE

In most jurisdictions in Canada, documents and information provided during discovery are protected by the "implied undertaking" rule. This principle prohibits parties from using such information for any purpose beyond the conduct of the litigation. As a result, documents obtained through discovery cannot be disclosed to outside parties and the information obtained cannot be used to bring other claims against other parties in separate lawsuits. A breach of this principle is viewed as a contempt of court. However, once the information is filed with the court, used at trial, or otherwise made a matter of public record, the implied undertaking no longer applies.

As a result of the implied undertaking rule, Canadian courts might be reluctant or find it unnecessary to issue protective or confidentiality orders covering discovery documents and transcripts. In exceptional circumstances, the court may be persuaded to provide this additional protection, for example, where the documents contain trade secrets or highly proprietary and confidential information.

8. SETTING THE CASE FOR TRIAL

The process for setting a case for trial in Canada can be a much more difficult and time-consuming process than is often the case in the US. Courts in the US often issue scheduling orders that set specific deadlines for each stage of the litigation, such as when discovery must be completed, when motions for summary judgment can be brought, when expert reports must be exchanged, and a date when the case will be placed on the court's trial docket. In Canada, however, there is a great deal less direct control over the process of the litigation and courts do not issue such firm scheduling orders. In addition, because cases are not assigned to a specific judge who will handle all aspects of the case from the very beginning of the proceeding through trial, in most instances, the parties will not know who their trial judge will be until the case is actually called for trial.

Before a trial date can be obtained, the case must actually be ready for trial, meaning that all discovery has been completed, including all undertakings answered, mediation has been completed, and there are no other steps to be taken to prepare the case for trial. At that stage, any party can request that the court schedule a pre-trial conference, which will be held before a judge of the court. At the pre-trial conference, the judge will determine whether the case is ready for trial and will ask the parties whether the case can be settled. If the case does not settle at the pre-trial conference and it is ready for trial, a trial date will then be set. Because of the many steps that must be taken before obtaining a trial date, getting a case to trial can often take several years.

9. JURY TRIALS IN CIVIL CASES RELATIVELY RARE

The right to a jury trial for litigants in civil cases in Canada is much more restricted than the constitutional rights enjoyed by litigants in the US. Although, generally speaking, courts in Canada regard the right to a jury trial in civil cases as a "substantial" right, it is not absolute. For instance, in Ontario, claims for injunctive relief, the partition of real property, foreclosure of a mortgage, specific performance, declaratory judgment and claims against municipalities are prohibited from being tried before a jury.

Moreover, even when the claims at issue are permitted to be tried before a jury, courts have broad discretion to strike the jury and proceed with a bench trial. The determination of whether to strike the jury is generally based on whether "justice will be better served" by proceeding with or without a jury. As long as the court's decision is not arbitrary or capricious, an appellate court will not second-guess the court's determination.

It is generally accepted that cases involving complex legal or factual disputes are not appropriate to be decided by a jury but rather are more appropriately decided by a judge. For instance, a case that involves scientific or medical testimony, voluminous documents, multiple parties, or a case that would require a lengthy trial may not be appropriate for a jury in many Canadian courts. Because judges have the opportunity to reflect upon the evidence at their leisure, even marginally complicated cases normally will be tried without a jury in Canada. Accordingly, given that all but the simplest of cases could be described as "complex" to at least some degree, the right to a jury trial in a civil case is far more elusive in Canada than is typically the case in the US.

Even when a jury trial is permitted, conducting a civil jury trial in Canada can be quite different from the US. For instance, although the process of conducting voir dire of a venire panel in the US can vary greatly from courtroom to courtroom, generally in Canada there is very little if any voir dire of the prospective jurors at all. Rather, the prospective jurors are selected at random from the venire. In addition, although litigants have the right to make peremptory challenges and to strike prospective jurors for cause, normally the only information available is the juror's name and occupation.

10. MORE FORMAL COURTROOM CONDUCT

Generally speaking, courtroom proceedings in Canada tend to be somewhat more formal than what might be the case in some US courts. For instance, in most circumstances, the judges, lawyers and some court personnel all wear formal black robes and white collars. Until relatively recently, appellate court judges were addressed as "My Lord" or "My Lady." Nowadays, however, as in the US, all judges are addressed as "Your Honor." It is also common practice to bow to the court when entering and leaving the courtroom when the judge is sitting.

In addition, in court, the lawyers often refer to each other as "My Friend." And rather than say "the plaintiff argues ...," a Canadian lawyer would say "My Friend submits ...." Further, when addressing the court, lawyers are expected to sit at counsel table and normally should only stand and speak when requested to by the court.

11. CONCLUSION

Even though Canada and the US are close neighbors, when disputes arise that may spill over the border it would be a mistake to assume that procedural rules and substantive rights fundamental to the US legal system would necessarily apply in Canada. Although the two systems share much in common, they are also profoundly different. The matters mentioned in this article are merely examples of the many significant differences that could have an impact on litigation strategy. Understanding some of the important features of the Canadian system can go a long way to developing a winning strategy in the event a US litigant is forced to resolve a dispute in a Canadian court.

 
a cautionary note

This article is featured in the 2012 LEXPERT/American Lawyer Guide to the Leading 500 Lawyers in Canada.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2012