No Ostrich Defence To Recognition Of Foreign Judgment

The Ontario Court of Appeal's decision in Hilmer Motorsport GmbH v Mason, 2025 ONCA 875, confirms that when faced with a foreign court proceeding a defendant may not bury its head in the sand just because it believes an arbitration clause applies.

The facts

The case involved an Ontario driver's agreement to pay for a seat with a German team in a European racing series. The agreement was governed by German law, stated that the "place of jurisdiction was Munich", and provided for disputes to be resolved by arbitration under the rules of the International Chamber of Commerce.

The driver's father guaranteed the payment. The guarantee was also subject to German law, and named Munich as the venue, but it did not contain an arbitration provision.

The racing team commenced a court action in Munich to collect on the debt. The driver and father were properly served but did not defend. Only when the team sought recognition of a default judgment in Ontario did the defendants assert the Munich court lacked jurisdiction because an arbitration clause applied.

The decision

The Court of Appeal ruled that the defendants' argument about the arbitration clause was too late and brought in the wrong court. Summary judgment in favour of the team was appropriate.

The existence of an arbitration clause did not oust the jurisdiction of the German court, which was established by the terms of the agreements and a real and substantial connection to Germany. The court held, "an arbitration agreement is not self-enforcing. Rather, in the face of an agreement to arbitrate, a party may seek a stay of court proceedings. ... If neither party seeks a stay in favour of arbitration, there is no barrier to a court hearing the dispute."

The defendants had no reasonable basis for ignoring the German proceeding. If they believed an arbitration clause applied, they had to make that argument in Germany: "it was open to them to appear before the Munich court and advance the argument that the proceeding should be stayed and the dispute referred to arbitration. As the motion judge noted, this was a matter to be addressed by the Munich court, not the Superior Court of Justice in Ontario."

Commentary

Some decisions dealing with requests for a stay of court proceedings in favour of arbitration express the effect of an arbitration clause broadly – suggesting it "ousts" the jurisdiction of the court. As the Court of Appeal notes in Hilmer Motorsport, that's not quite right. It is arbitration legislation that may accomplish that end, but it requires an affected party to request a stay, and there are grounds for refusing the request. For example, most arbitration legislation requires either that the request for a stay be brought promptly, or before any substantive response is made in the court proceeding. Absent a successful request, the court's ordinary jurisdiction continues to apply.

Ultimately, it is never a good idea to bury one's head in the sand. When served with a foreign proceeding, appropriate legal advice should be sought right away.

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