What do you do when your contractual counterpart sues in foreign court in the face of a mandatory arbitration agreement? No one-size-fits-all playbook of “dos” exists, but the Ontario Court of Appeal recently confirmed one “don’t”: wait to object to the foreign court’s jurisdiction until after judgment is awarded against you. If you do not seek a stay of the foreign proceeding in favour of arbitration, there is “no barrier” to a foreign court hearing the dispute.[1] In other words, in Ontario, an arbitration agreement is not self-enforcing—a party seeking to rely on one must take the wheel with both hands. In the case of a foreign court proceeding, that means applying the proverbial brakes at the earliest opportunity in the form of a motion to stay in favour of arbitration. Failure to do so could result in the enforcement of the foreign judgment in Ontario.
Background
In Hilmer Motorsport GmbH v. Mason, the Ontario Court of Appeal dismissed an appeal from an order enforcing a foreign default judgment, holding that arbitration cannot be used as a shield against enforcement where the party seeking to resist did not participate in the foreign proceeding in the first place.
The dispute arose from Canadian racing driver Nelson Mason’s 2014 Driver Agreement with the German motor-racing team Hilmer Motorsport,[2] which was governed by German law and provided that the “place of jurisdiction” was Munich. It further required “[a]ny dispute, controversy or claim arising out of or in relation to [the] Agreement, including the validity, invalidity, breach or termination thereof” to be resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce (ICC).
The racing team sued Nelson for breach of the Driver Agreement in the Munich court. Despite having been properly served, Nelson, an Ontario resident, did not defend the German action, later taking the position that he did not respond to the lawsuit because, in his view, only an arbitrator—not a German court—had jurisdiction to consider the dispute.
The Ontario Superior Court of Justice ultimately recognized and enforced the German judgment against Nelson. Nelson appealed that decision on the basis that: (i) the German court lacked jurisdiction to consider the dispute; and (iii) the judgment offended Canadian principles of natural justice and public policy.
The Court of Appeal’s decision
The Court of Appeal dismissed the appeal, relying on the test to enforce a foreign judgment established in the Supreme Court of Canada’s decision in Chevron Corp. v. Yaiguaje:[3] whether the foreign court had “a real and substantial connection to the parties or the subject matter of the dispute.”[4]
The Court of Appeal upheld the lower Court’s conclusion that a real and substantial connection existed between the German court, the parties and the subject matter of the dispute. The Driver Agreement was governed by German law, the place of jurisdiction was Munich and payments made pursuant to the Driver Agreement were to be delivered to a German entity. While the Court of Appeal found the lower Court erred in finding that all of the races contemplated by the Driver Agreement took place in Germany, this did not “detract” from his conclusion—there was “no basis” to Nelson’s claim that the German court lacked jurisdiction.
The Court of Appeal further held, in no uncertain terms, that the “arbitration provision in the Agreement did not operate to automatically negate the German court’s jurisdiction” as Nelson asserted.[5] In Ontario, “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.”[6] Put differently, pursuant to the UNCITRAL Model Law on International Commercial Arbitration, which applies in Ontario,[7] a party “must request a referral to arbitration.”[8]
Against this backdrop, the Ontario Court of Appeal rejected Nelson’s argument that enforcement would offend natural justice and/or Canadian public policy. As the Court put it, Nelson “did not act or make any request of the German court” despite having been properly served. It was open to him to appear before the Munich court and advance the argument that the proceeding should be stayed and referred to arbitration. He did not do so.
Bottom line
Hilmer Motorsport serves as an important reminder that arbitration agreements are not self-enforcing—parties must immediately take action to seek a stay in favour of arbitration in the court seized of the matter, even where that court is located in a foreign jurisdiction. Once a foreign judgment is rendered, it will be too late, and the arbitration agreement will not act as a shield against enforcement in Ontario.
For more information on this topic, please contact the authors, Emily McMurtry and Ramy Sarouf.
Dentons has a rich global network of subject-matter experts to assist clients efficiently in all arbitration matters, including multi-jurisdictional disputes. Reach out to a member of Dentons Canada’s Arbitration group to learn more or for assistance with any arbitration-related questions.
[1] Hilmer Motorsport GmbH v. Mason, 2025 ONCA 875, para 21 (“Hilmer Motorsport”).
[2] The dispute also involved a related guarantee executed by Nelson’s father that did not include a mandatory arbitration agreement. Nelson and his father, each parties to the proceeding, are collectively referred to herein as “Nelson”.
[3] 2015 SCC 42.
[4] Hilmer Motorsport, para 17, citing Chevron, supra, para 27.
[5] Hilmer Motorsport, para 21.
[6] Hilmer Motorsport, para 21.
[7] Incorporated into Ontario law as Schedule 2 to the International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5.
[8] Hilmer Motorsport, para 24.
