Renvoi: Lex Situs Conflictus

Canadian Conflict of Laws Blawg by Seva Batkin

Posts Tagged ‘procedural’

Procedural Corporate Law

Posted by Seva on July 10, 2008

In an action involving foreign corporations or corporate-like trusts, how should the question of plaintiff shareholders’ standing to make a claim be decided? This issue was addressed by Madam Justice Newbury confirmed in Everest Canadian Properties Ltd. v. Mallmann, 2008 BCCA 276. Considering the classic rule from Foss v. Harbottle, which dictates that a shareholder cannot sue for injury to the corporation, she confirmed that this is a procedural rule. Thus, a shareholder’s standing is to be determined in accordance with lex fori even if the corporation involved is foreign. I think that it may useful to reproduce the two key paragraphs from the judgment where Newbury J.A. pays heed not only to precedents, but to academic literature on this subject as well:

12 Although the characterization of the rule in Foss v. Harbottle for conflicts of law purposes was not discussed by the court below, it is implicit in Ross J.’s reasons and in counsel’s arguments that the rule is a procedural one and that therefore the lex fori applies to determine a shareholder’s standing to sue. This was the view taken in Heyting v. DuPont, [1964] 2 All E.R. 273, 1 W.L.R. 843 (C.A.), where a shareholder of a Jersey company sought to sue, in England, a corporate director for misfeasance. At the outset of his reasons, Russell L.J. said this:

This appeal is from a decision of Plowman J. that a claim, asserting liability of a director of a Jersey incorporated limited liability company, to the company for damages for misfeasance, could not be put forward by a shareholder suing on behalf of himself and shareholders other than the allegedly liable director, who held the majority of shares and could therefore control a vote on whether the company should be a plaintiff in such a claim. It thus appears that the question is whether this is a case in which a departure from the rule in Foss v. Harbottle is required. I dare say that the rule in Foss v. Harbottle is a conception as unfamiliar in the Channel Islands as is the Clameur de Haro in the jurisdiction of England and Wales. But clearly this is a matter of procedure to be decided according to the law of this forum. [At 848; emphasis added.]

13 Although this reasoning was questioned by one writer (see Anthony Boyle, “A Liberal Approach to Foss v. Harbottle” (1964) 27 Mod. L. Rev. 603), the same author in a later article (“The Shareholders’ Derivative Action in the English Conflict of Laws” (2000) Eur. Bus. L. Rev. 130) retreated from his previous position and agreed that “… the principle of the company as the proper plaintiff (even if it rests upon the concept of corporate personality) should probably be regarded as procedural. Certainly the conditions that govern the use of the derivative actions are essentially procedural.” (At 131.) In Canada, although the matter is not free from doubt, the better view would appear to accord with Heyting v. DuPont. (See, e.g., Baniuk v. Carpenter (No. 2) (1987) 85 N.B.R. (2d) 385, at 393-4, 217 A.P.R. 385 (C.A.) and Teck Corp. v. Millar, [1973] 2 W.W.R. 385 at 388-9, 33 D.L.R. (3d) 288 (B.C.S.C.), at para. 13; cf. King v. On-Stream Natural Gas Management Inc., [1993] B.C.J. No. 1302 (S.C.) (QL) at para. 67.)

While the conclusion reached does not appear to be particularly controversial, it is always useful to have recent and persuasive authorities restating an old rule.

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When is a Substantive Limitation Period Procedural?

Posted by Seva on March 10, 2008

In my naiveté, I thought that it was now trite law in Canada that limitation periods are substantive law and thus are governed by lex loci delicti, i.e. the law of the place where the wrong has occurred. However, life is never this simple. As a recent decision of the Nova Scotia Court of Appeal in Vogler v. Szendroi, 2008 NSCA 18 shows, even when it comes to limitation periods, some things can still be deemed to be procedural and thus be governed by lex fori.

At issue in this case was not a foreign limitation period, which the parties conceded was a matter of substantive law and thus governed by lex loci delicti, i.e. Wyoming, but rather the rules for service and commencement of an action. Specifically, R. 3(a) of the Wyoming Civil Procedure Rules provided that “for purposes of statutes of limitation, an action shall be deemed commenced on the date of filing the complaint … If … service is not made within 60 days the action shall be deemed commenced on the date when service is made.” As service was not made within 4 years of the accident, the defendant succeeded in chambers in arguing that the claim was statute barred because the action was not commenced within the limitation period.

On appeal, the court disagreed. After reasonably holding that the distinction between procedural and substantive law is evaluated from the perspective of lex fori, the court concluded that because the Wyoming rule described the how, rather than when the action was to be commenced, from the perspective of Nova Scotia law it was properly characterized as procedural and thus inapplicable in N.S. courts:

26 Returning to the ultimate question of whether Rule 3(b) is substantive or procedural, we must draw our attention to the true subject matter of the impugned provision. In other words, is s. 3(b) about timing as the respondents suggest, i.e., concerning when an action must be commenced? If so, and given its alignment with Wyoming’s four-year statutory rule, it would appear to be more substantive than procedural in nature. On the other hand, the appellant suggests that this provision is not about timing but about methodology. In other words, it describes the manner in which an action is (or is deemed to have been) commenced. That would be a subject matter more akin to procedure.

28 Respectfully, I believe that the Chambers judge erred by misreading the provision’s true subject matter. He found that Rule 3(b) prescribed when an action had to be commenced. In other words, he found it to be integral to the four-year limitation provision and thus substantive in nature. Respectfully, despite its title, “When commenced”, I do not read the provision that way. Instead I view it as simply directing the manner in which an action is commenced. Let me elaborate.

34 … In my view, this introductory phrase in Rule 3(b) simply identifies the rationale for the provision. In other words, Rule 3(b) sets out the process for complying with statutory deadlines for filing actions. In this case, the limitation period is four years and that is prescribed by statute. Nothing in Rule 3(b) changes that. Again, it simply directs how one can comply with this prerequisite. In summary, Rule 3(b) is not about how long you have to file a claim; it is about how a plaintiff commences a claim.

Alas, it is exactly as my conflict of laws professor told us: there is always more than one way to characterize a matter, even if apparently the same matter has been characterized before.

Update: this case has also been discussed at, an international conflict of laws journal/blawg.

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