In Hilmer Motorsport GmbH v. Mason, 2025 ONCA 875, the Court dismissed an appeal from a summary judgment enforcing a German default judgment in which the appellants were found to have breached an agreement between the parties. The decision addresses the intersection between foreign judgment enforcement and arbitration agreements. The agreement provided that any dispute between the parties was to be resolved by arbitration and the appellants contended that it would therefore be against public policy to recognize and enforce the judgment of the German court. In its ruling, the Court held that the mere existence of an arbitration clause does not, without more, deprive a foreign court of jurisdiction or render its judgment unenforceable in Ontario. The appellants had failed to defend the German action and could not resist judgment on the basis of the arbitration agreement at the enforcement stage.
Factual Background: The respondent, Hilmer Motorsport GmbH (“Hilmer”), is a German company that operated a car racing team competing in the GP3 car racing series. In 2014, it entered into a Driver Agreement with the appellant Nelson Mason, a professional racing driver, pursuant to which he agreed to pay €460,000 to race for the team during the 2014 season. The Agreement was governed by German law, designated Munich as the “place of jurisdiction”, and required disputes to be resolved by ICC arbitration.
The other appellant, Jay Mason (Nelson Mason’s father), provided a personal guarantee for a substantial portion of the payment obligation. The guarantee was also governed by German law and designated Munich as the “place of jurisdiction”, but it did not contain an arbitration clause. This contract was not the subject of the analysis in this case, which focused on the arbitration clause in the contract with Nelson Mason.
Both the appellants reside in Ontario.
Hilmer alleged that the appellants had breached the contract and commenced court proceedings in the Regional Court Munich I. The appellants were served but did not defend. The German court issued a default judgment in 2016 for approximately €409,000 plus interest and costs. The judgment was served on the appellants in March 2017. The appellants did not appeal the judgment or move to set it aside.
Hilmer then sought recognition and enforcement of the German judgment in Ontario and moved for summary judgment.
Summary Judgment: The Ontario motions judge granted summary judgment enforcing the German default judgment. He found that the German proceedings were properly instituted and served, and that the parties had expressly chosen Munich as the forum and German law in all the relevant agreements.
On the public policy question, while acknowledging that Canadian courts generally stay judicial proceedings in the face of an arbitration agreement, the motion judge concluded that it was for the German court, and not an Ontario court at the enforcement stage, to address any request for a stay. Having failed to raise the arbitration clause in response to the German action, the motions judge found that the appellants should be held to their bargain.
The Appeal: The appellants raised two distinct issues: (i) Whether the German court lacked jurisdiction because the underlying contract contained an arbitration clause; and (2) Whether recognition and enforcement were barred by natural justice or public policy.
i. Jurisdiction of the German Court – Relying on Chevron Corp. v. Yaiguaje, 2015 SCC 42 and Beals v. Saldanha, 2003 SCC 72, the Court of Appeal reaffirmed that, at the enforcement stage, an Ontario court’s role is limited to determining whether the foreign court properly assumed jurisdiction and whether a recognized defence applied. Jurisdiction is established where there is a real and substantial connection, assessed in light of principles of comity and respect for foreign legal systems.
Applying those principles, the Court held that the German court clearly had jurisdiction, given the parties’ contractual choice of Munich as the “place of jurisdiction” and the applicability of German law to the interpretation of the agreements. The existence of the arbitration clause did not automatically negate that jurisdiction. Noting that no evidence of German law was presented, the Court applied Ontario law. In Ontario, arbitration agreements are not self-enforcing. It is up to the parties to seek a stay of proceedings when faced with an agreement to arbitrate (see for example r. 21.01(3)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and the Arbitration Act, 1991, S.O. 1991, c. 17, s. 7). Having failed to seek a stay or invoke arbitration in Germany, the appellants could not now rely on the existence of the arbitration provision in the agreement to resist enforcement.
ii. Natural Justice and Public Policy – The Court also rejected the appellants’ reliance on arguments alleging procedural unfairness and public policy.
The appellants were properly served with the German proceedings and chose not to participate. They were also served with the German judgment and the Ontario application for recognition and enforcement. The Court of Appeal thus found that there was nothing in the submissions of the appellants to suggest procedural unfairness that would engage the natural justice defence.
As for public policy, the Court reiterated that it prevents Canadian courts from enforcing “a foreign judgment which is contrary to the Canadian concept of justice. The public policy defence turns on whether the foreign law is contrary to our view of basic morality”: Beals v. Saldanha, 2003 SCC 72, at para. 71. In their argument, the appellants relied on the UN Convention on the Recognition and Enforcement of Foreign Arbitration Awards and International Commercial Arbitrations Act, 2017 and the requirement to refer matters subject to an agreement to arbitrate to arbitration. These arguments failed, however, as both of these frameworks predicate that referral on the request of a party to stay the proceedings and refer the matter to arbitration (see, e.g., article II, s. 3 of the UN Convention on the Recognition and Enforcement of Foreign Arbitration Awards and the UNCITRAL Model Law on International Commercial Arbitration 1985, with amendments as adopted in 2006, art. 8(1)). None of the appellants’ sources mandate referral to arbitration absent a request by a party. The appellants made no such request in Germany.
The Court stated that it is not for the Ontario courts to assume that the German court did not properly take jurisdiction when faced with the agreement and the guarantee, the latter of which did not even contain an arbitration provision.
Thus, having failed to invoke arbitration before the Munich court, the appellants could not establish that enforcement of the German judgment offended Canada’s fundamental notions of justice.
The appeal was dismissed.
Contributor’s Notes:
The Court of Appeal’s message is clear: unless it is actively invoked by one of the parties, an arbitration clause does not automatically bar court proceedings. Indeed, an arbitration clause, being the product of the parties’ will, must be asserted to have effect. If neither party insists on its application, a court with jurisdiction may hear the dispute.
As the Court of Appeal explains, this is consistent with the rules on referral to arbitration under the Ontario International Commercial Arbitrations Act, 2017. It is also consistent with the rules applicable to domestic arbitration in Canada. The Court referred to the Ontario Arbitration Act, s. 7, which specifies that a proceeding shall be stayed on motion of one of the parties, but it is of note that this is also the case under the Quebec Civil Code of Procedure, art. 622, pursuant to which a proceeding subject to a valid arbitration clause is, on a party’s application, referred to arbitration.
This has practical implications for parties:
First, a defending party receiving a proceeding instituted before a foreign court must assess the underlying jurisdiction of the foreign court over the dispute (real and substantial connection) notwithstanding the existence of the arbitration clause.
Second, if a party considers that the foreign court does not have jurisdiction, the recognition of any default judgment may still be challenged on the basis of the real and substantial connection only. The uninvoked arbitration clause is not relevant to the analysis.
Third, if a party considers that the foreign court does have jurisdiction, the defending party must invoke the arbitration clause and seek to stay the proceedings before the foreign court.
Fourth, if the stay is refused, the party must then decide whether to defend on the merits (and risk attorning to the jurisdiction of the foreign court, depending on the applicable rules of private international law) or default (and contest the recognition of the default judgment, if filed). In either one of these scenarios, it can be extrapolated from the Court of Appeal’s reasoning that the defending party would not be barred from raising the arbitration clause as a defence, either on the basis of jurisdiction or public policy, to recognition and enforcement proceedings in Ontario with respect to any eventual judgment.