JUDGES: The Lord Chancellor (Lord Halsbury), Lord Watson, Lord Bramwell, Lord Hobhouse, Lord Morris, and Lord Shand.

COUNSEL: Sir Horace Davey, Q.C., Finlay, Q.C., and Pollard, for the appellant .
The Attorney General (Sir R. Webster), Goreand Ackwith, for the respondent.

SOLICITORS: For appellant: Freshfields & Williams. Solicitors
For respondent: Harrison & Powell.

DATES: 1891 Nov. 18; Dec. 9; 1892 Feb. 17
 

On Appeal from the Supreme Court of Appeal for Ontario.

International Law—Foreign Judgment—Penal Actions—Distinction between Public and Private Penalties.

To an action by the appellant in an Ontario Court upon a judgment of a New York Court against the respondent under sect 21 of New York State laws of 1875, c. 611, which imposes liability in respect of false representations, the latter pleaded that the judgment was for a penalty inflicted by the municipal law of New York, and that the action, being of a penal character, ought not to be entertained by a foreign Court:— Held, that the action being by a subject to enforce in his own interest a liability imposed for the protection of his private rights, was remedial, and not penal in the sense pleaded. It was not within the rule of international law which prohibits the Courts of one country from executing the penal laws of another or enforcing penalties recoverable in favour of the State:

Held, further, that it was the duty of the Ontario Court to decide whether the statute in question was penal within the meaning of the international rule so as to oust its jurisdiction; and that such Court was not bound by the interpretation thereof adopted by the Courts of New York.

APPEAL from a decree of the Court of Appeal (Jan. 13, 1891) affirming a decree of Street, J. (Sept. 15, 1888), and dismissing the appellant’s action.

The facts and proceedings are stated in the judgment of their Lordships. The judgment of Street, J., is reported in 17 Ontario Reports, 245, and the judgments in the Appeal Court are reported in 18 Ontario Appeal Reports, 136.

Street, J., held that, according to international law, penalties imposed by statute can only be enforced in the tribunals of the State by the laws of which they are imposed, and that the principle applies to actions upon judgments for such penalties. He further held that the claim this case was an action for a [*151] penalty within the above rule, basing his opinion upon New York decisions to that effect.

In the Appeal Court the judges were equally divided in opinion. Burton and Maclennan, JJ.A., held that the question whether the action in New York was for a penalty or not was concluded by the decisions of the New York Courts. Hagarty, C.J., while agreeing that no action is maintainable on the judgment of a foreign State in respect of a penalty inflicted by the laws of such State, dissented from the decisions of the New York Courts, and held that the liability imposed by the statute in question was not a liability in the nature of a penalty. Osler, J.A., agreeing with the conclusion of Hagarty, C.J., held that the liability in question could not be regarded as a penal liability within the meaning of the principles of international law in question, and consequently that the action was maintainable. He was of opinion, however, that no action would have been maintainable in the Canadian Courts upon the cause of action, in respect of which the judgment was given in the New York Supreme Court.

Sir Horace Davey, Q.C., Finlay, Q.C., and Pollard, for the appellant, contended that the liability imposed by the New York State Act was not a liability in the nature of a penalty within the meaning of those provisions of international law which prohibit courts of justice from enforcing penalties inflicted by the laws of a foreign State. The action on the judgment obtained by the appellant accordingly was maintainable. The judgment had been obtained in respect of a liability incurred by the respondent for all the debts of a company under sect. 21 of the New York Act. That liability was in reality and under all the circumstances contractual, and not by way of penalty, and the action in which it was enforced was not a penal action, but one by which a private remedy was sought to be enforced. The appellant contracted with the company, on the faith of the liability imposed in his favour as the respondent, by sect. 21. That liability – resulted in debt by the respondent. [LORD BRAMWELL:— What provision as to limitation would have applied to the case?] The ordinary provision with regard to [*152] debt. The action was a civil remedy to enforce payment of debt, not to enforce a penalty due to the public, nor even for the recovery of damages. By the law of the State of New York the action was not a penal action. Nor was it such by the law of the Ontario Court, which ought to decide by the principles of English law whether an action on such a judgment was maintainable against the respondent. By the law of England such action is maintainable; being brought on a judgment of a Court of competent jurisdiction creating an obligation on the part of the judgment debtor to pay the amount. Reference was made to Godard v. Gray [FN1]. With regard to penal laws, Wharton’s Law Lexicon defines them as of three kinds: poena pecuniaria, poena corporalis, and poena exilii, all prohibiting an act, and imposing a penalty for the commission of it. Penal actions are those brought by a common informer, or by the public authority, to redress a public wrong; remedial actions are those brought by the party injured to redress a private wrong. See Bones v. Booth [FN2]; Hussey v. More [FN3]; Earl Spencer v. Swannell [FN4]; and for American authorities, Merchants Bank v. Bliss [FN5]; Stokes v. Stickney [FN6]. Reference was also made to the judgments of the two dissentient judges in Attrill v. Huntington [FN7]; Steam Engine Company v. Hubbard [FN8]; Flash v. Conn [FN9].

FN1 Law Rep. 6 Q. B. 139.

FN2 2 W. Bl. 1225.

FN3 Cro. Jac. 413.

FN4 3 M. & W. 154.

FN5 35 N. Y. 412.

FN6 96 N. Y. 323.

FN7 70 Maryland Rep. 191.

FN8 101 U. S. (11Otto.) 188 .

FN9 109 U. S. (2 Davis) 371.

The Attorney General (Sir R. Webster), Goreand Ackwith, for the respondent, contended that, according to principles of international law, the judgment sued on created no obligation on the part of the respondent which a foreign State will recognise. The Courts of the country where the judgment is sued on must judge for themselves as to the nature of the judgment, although in doing so they will pay great regard to any decisions of the Courts of the country where the judgment was passed, and to the reasons on which such decisions proceed. It was contended that this judgment was of a punitive or penal nature, and as such was enforceable only by the Courts of New York. Here, [*153] by universal consent of all the Courts of the country where the Act and the judgment were passed, an action of this kind has been treated as penal. They held that a liability of the kind sought to be enforced in this case is in the nature of a penalty, that it bears no relation to the actual loss or damage sustained by the party to whom the action is given, that it is punitive in its nature and is inflicted upon grounds of public policy. Reference was made to Merchants Bank v. Bliss [FN10]; Wiles v. Suydam [FN11]; Easterly v. Barber [FN12]; Knox v. Baldwin [FN13]; Veeder v. Baker [FN14]. In those and other cases, causes of action of this nature have been held to be within a New York Statute of Limitationapplicable solely to actions for penalties. Reference was also made to Jones v. Jones [FN15]; Hobbs v. Hudson [FN16]; Attrill v. Huntington [FN17]; First National Bank of Plymouth v. Price [FN18]; Steam Engine Company v. Hubbard [FN19]; State of Wisconsin v. Pelican Insurance Company [FN20]; De Brimont v. Penniman [FN21]; Robinson v. Currey [FN22]; The Halley [FN23].

FN10 35 N. Y. 412.

FN11 64 N. Y. 173, 177.

FN12 65 N. Y. 252.

FN13 80 N. Y. 610.

FN14 83 N. Y. 156.

FN15 22 Q. B. D. 425.

FN16 25 Q. B. D. 232.

FN17 70 Maryland Rep. 191.

FN18 33 Maryland Rep. 487.

FN19 101 U. S. (11 Otto.) 188.

FN20 127 U. S. (Sup. Ct.) 265.

FN21 10 Blatchford U. S. (Circ.) 436.

FN22 Law Rep. 6 Q. B. 21, 28.

FN23 Law Rep. 2 P. C. 193.

The appellant, in June, 1880, became a creditor for money lent to the Rockaway Beach Improvement Company, Limited, which carried on business in the State of New York, being incorporated pursuant to Chapter 611 of the State laws of 1875.

Sect. 21 of the Act provides that: “If any certificate or report made, or public notice given, by the officers of any such corporation, shall be false in any material representation, all the officers who shall have signed the same shall be jointly and severally liable for all the debts of the corporation contracted while they are officers thereof.ž

[*154] The respondent was, in June, 1880, a director, and in that capacity an officer of the company within the meaning of the statute. On the 30th of that month he, along with other officers of the company, signed and verified on oath, as prescribed by sect. 37, a certificate setting forth that the whole capital stock had, at its date, been paid up in cash.

In the year 1883, the appellant instituted a suit against the respondent before the Supreme Court of New York State for the unpaid balance of his loan to the company, alleging that the certificate contained representations which were material and false, and that the respondent had incurred personal responsibility for the debt as provided by sect. 21. The respondent defended the action; but, a verdict having been found against him, the Court, on the 15th of June, 1886, gave final judgment, ordering him to pay to the appellant the sum of $100,240.

Having failed to recover payment, the appellant, in September, 1886, brought an action upon his decree in the Common Pleas Division of the High Court of Justice for the Province of Ontario, where the respondent resided. The only plea stated in defence was to the effect that the judgment sued on was for a penalty inflicted by the municipal law of New York; and that the action being one of a penal character ought not to be entertained by the Courts of a foreign State.

Mr. Justice Street, who tried the case, being of opinion that the enactments of sect. 21 were strictly punitive and not remedial, dismissed the action with costs. The judges of the Appeal Court were equally divided in opinion, the result being that the appeal taken from his decision was dismissed. The Chief Justice (Hagarty) and Mr. Justice Osler were of opinion that the statutory remedy given to the appellant as a creditor of the company being civil only, and not enforceable by the State or by the public, was not a penal matter in the sense of international law. Mr. Justice Burton was of the same opinion, but held himself precluded from giving effect to it for reasons which he thus explains: “The Courts of the State of New York have placed an interpretation upon this particular statute in which I should not have agreed; but those decisions are the law of the State of New York, and with that we are dealing. I am of opinion, [*155] therefore, that on that undisputed expert testimony this is a penal statute there, and the judgment obtained upon it cannot be enforced here.” In the conclusion thus stated, Mr. Justice Maclennan expressed his concurrence. But the learned judge, in that respect agreeing with the Court of First Instance and differing from the other members of the Court of Appeal, held that the enactment was in itself undoubtedly penal, inasmuch as it was “passed in the public interest, providing a punishment for an offence,” and that “it makes no difference that what it exacts from the offender is given to persons who are ordinary creditors of a company in payment of their respective debts.”

Their Lordships cannot assent to the proposition that, in considering whether the present action was penal in such sense as to oust their jurisdiction, the Courts of Ontario were bound to pay absolute deference to any interpretation which might have been put upon the Statute of 1875 in the State of New York. They had to construe and apply an international rule, which is a matter of law entirely within the cognizance of the foreign Court whose jurisdiction is invoked. Judicial decisions in the State where the cause of action arose are not precedents which must be followed, although the reasoning upon which they are founded must always receive careful consideration, and may be conclusive. The Court appealed to must determine for itself, in the first place, the substance of the right sought to be enforced; and, in the second place, whether its enforcement would, either directly or indirectly, involve the execution of the penal law of another State. Were any other principle to guide its decision, a Court might find itself in the position of giving effect in one case and denying effect in another, to suits of the same character, in consequence of the causes of action having arisen in different countries; or in the predicament of being constrained to give effect to laws which were, in its own judgment, strictly penal.

The general law upon this point has been correctly stated by Mr. Justice Story in his “Conflict of Laws,” and by other text writers; but their Lordships do not think it necessary to quote from these authorities in explanation of the reasons which have induced courts of justice to decline jurisdiction in suits somewhat loosely described as penal, when these have their origin in a [*156] foreign country. The rule has its foundation in the well-recognised principle that crimes, including in that term all breaches of public law punishable by pecuniary mulct or otherwise, at the instance of the State Government, or of some one representing the public, are local in this sense, that they are only cognizable and punishable in the country where they were committed. Accordingly no proceeding, even in the shape of a civil suit, which has for its object the enforcement by the State, whether directly or indirectly, of punishment imposed for such breaches by the lex fori, ought to be admitted in the Courts of any other country.

Their Lordships have already indicated that, in their opinion, the phrase “penal actions,” which is so frequently used to designate that class of actions which, by the law of nations, are exclusively assigned to their domestic forum, does not afford an accurate definition. In its ordinary acceptation, the word “penal” may embrace penalties for infractions of general law which do not constitute offences against the State; it may for many legal purposes be applied with perfect propriety to penalties created by contract; and it therefore, when taken by itself, fails to mark that distinction between civil rights and criminal wrongs which is the very essence of the international rule. The phrase was used by Lord Loughborough and by Mr. Justice Buller in a well-known case (Folliott v. Ogden [FN24], and Ogden v. Folliott [FN25]), and also by Chief Justice Marshall, who, in The Antelope [FN26], thus stated the rule with no less brevity than force: “The Courts of no country execute the penal laws of another.” Read in the light of the context, the language used by these eminent lawyers is quite intelligible, because they were dealing with the consequences of violations of public law and order, which were unmistakably of a criminal complexion. But the expressions “penal” and “penalty,” when employed without any qualification, express or implied, are calculated to mislead, because they are capable of being construed so as to extend the rule to all proceedings for the recovery of penalties, whether exigible by the State in the interest of the community, or by private persons in their own interest.

FN24 1 H. Bl. 135.

FN25 3 T. R. 734.

FN26 10 Wheaton, 123.

[*157] The Supreme Court of the United States had occasion to consider the international rule in Wisconsin v. the Pelican Insurance Company [FN27]. By the statute law of the State of Wisconsin, a pecuniary penalty was imposed upon corporations carrying on business under it who failed to comply with one of its enactments. The penalty was recoverable by the commissioner of insurance, an official entrusted with the administration of the Act in the public interest, one half of it being payable into the State Treasury, and the other to the commissioner, who was to defray the costs of prosecution. It was held that the penalty could not be enforced by the Federal Court, or the judiciary of any other State. In delivering the judgment of the bench, Mr. Justice Gray, after referring to the text books, and the dictum by Chief Justice Marshall already cited, went on to say:

FN27 127 U. S. (20 Davis) 265.

“The rule that the Courts of no country execute the law of another applies not only to prosecutions and sentences for crimes and misdemeanors, but to all suits in favour of the State for the recovery of pecuniary penalties for any violation of statutes for the protection of its revenue or other municipal laws, and to all judgments for such penalties.”

Their Lordships do not hesitate to accept that exposition of the law, which, in their opinion, discloses the proper test for ascertaining whether an action is penal within the meaning of the rule. A proceeding, in order to come within the scope of the rule, must be in the nature of a suit in favour of the State whose law has been infringed. All the provisions of Municipal Statutes for the regulation of trade and trading companies are presumably enacted in the interest and for the benefit of the community at large; and persons who violate these provision are, in a certain sense, offenders against the State law, as well as against individuals who may be injured by their misconduct. But foreign tribunals do not regard these violations of statute law as offences against the State, unless their vindication rests with the State itself, or with the community which it represents. Penalties may be attached to them, but that circumstance will not bring them within the rule, except in cases where these penalties are recoverable at the instance of the State, or of an [*158] official duly authorized to prosecute on its behalf, or of a member of the public in the character of a common informer. An action by the latter is regarded as an actio popularis pursued, not in his individual interest, but in the interest of the whole community.

The New York Statute of 1875 provides for the organization and regulation of corporations formed for the purpose of carrying on all kinds of lawful business with the exception of certain branches therein specified. It confers rights and privileges upon persons who choose to form a trading association, and to become incorporated under its provisions, with full or with limited liability; and, in either case, it varies and limits the rights and remedies which, under the common law, would have been available to creditors of the association, as against its individual members. On the other hand, for the protection of those members of the public who may deal with the corporation, the Act imposes upon its directors and officers various stringent obligations, the plain object of which is to make known, from time to time, to all concerned, the true condition of its finances. Thus they are required (sect. 18) to publish an annual report stating the amount of capital, the proportion actually paid in, the amount and nature of existing assets and debts, the names of the shareholders and the dividends, if any, declared since last report; and (sect. 37) to certify the amount of capital stock paid in within thirty days after payment of the last instalment. In both cases the consequence of the report or certificate being false in any material representation, is that every director or officer who vouched its accuracy becomes, under sect. 21, liable personally for all the debts of the corporation contracted during his period of office.

The provisions of sect. 21 are in striking contrast to the enactments of sect. 34, which inflicts a penalty of $100 upon every director or officer of a corporation with limited liability, who authorises or permits the omission of the word “limited” from its seal, official publications, or business documents. In that case, the penalty is recoverable “in the name of the people of the State of New York by the district attorney of the county in which the principal office of such corporation is located, and the amounts recovered shall be paid over to the proper [*159] authorities for the support of the poor of such county.” It does not admit of doubt that an action by the district attorney would be a suit in favour of the State, and that neither the penalty, nor the decree of a New York Court for its amount, could be enforced in a foreign country.

In one aspect of them, the provisions of sect. 21 are penal in the wider sense in which the term is used. They impose heavy liabilities upon directors, in respect of failure to observe statutory regulations for the protection of persons who have become or may become creditors of the corporation. But, in so far as they concern creditors, these provisions are in their nature protective and remedial. To use the language of Mr. Justice Osler, they give “a civil remedy only to creditors whose rights the conduct of the company’s officers may have been calculated to injure, and which is not enforceable by the State or the public.” In the opinion of their Lordships, these enactments are simply conditions upon which the Legislature permits associations to trade with corporate privileges, and constitute an implied term of every contract between the corporation and its creditors.

A number of American authorities were cited in the course of the argument, which may be briefly noticed, seeing that they were made the subject of comment in both Courts below. With one exception, they do not appear to their Lordships to have a direct or material bearing upon the point raised in this appeal.

In Steam Engine Company v. Hubbard [FN28] the facts were these. The law of Connecticut, in the event of the president and secretary of a corporation intentionally neglecting to issue a certain certificate, made them jointly and severally liable “for all debts contracted during the period of such neglect.” Under that provision an action was brought by a creditor of the corporation against its president, for a debt contracted before the period of neglect began, which remained unpaid during its continuance. There was no question as to enforcing the claim in another State. The Supreme Court of the States held that the enactment was penal, and, therefore, to be strictly [*160] construed; and also that the president was not liable, inasmuch as the debt was not contracted during the period of his default. The decision appears to be absolutely right; but their Lordships apprehend that the canon of construction applied in that case would be equally applicable to the case of penalty stipulated by bond, or in a mercantile contract.

FN28 101 U. S. (11 Otto.) 188.

Flash v. Conn [FN29], another decision of the Supreme Federal Court, was relied on by the appellant. In that case a New York Statute of 1848 had provided that, until the whole capital stock of the corporation was paid up, every stockholder should be liable to its creditors to an amount equal to the amount of stock held by them. It was decided that the claim of a creditor under that provision was contractual and not penal, and might therefore be enforced by an action at law. The result appears to be inevitable, because the liability was not imposed in respect of failure to perform any duty prescribed by the Act; but it throws no light upon the present question.

FN29 109 U. S. (2 Davis) 371.

The respondent, in his argument, placed great reliance upon Merchants’ Bank v. Bliss [FN30], which was decided in 1866. The statute of 1848, already referred to, required the trustees of the corporation to make a report at a stated period, and, in the event of their failure to do so, rendered them jointly and severally liable for all its debts then existing, or which might be contracted before the report was actually made. The suit was by a creditor against a defaulting trustee, and the only question raised was this - whether the action was for a “liability created by statute, other than penalty or forfeiture,” within the meaning of the Statute of Limitations, or “for a penalty or forfeiture, when action is given to the party aggrieved”? The Supreme Court of New York decided that the liability belonged to the second category, and that suit was consequently barred by the lapse of three years. In another case, Wiles v. Suydam [FN31], the same Court held that a similar claim by a creditor, being for a statutory penalty or forfeiture, could not be joined in a declaration with a claim upon contract. Their Lordships see no reason to question the propriety of these decisions, but [*161] it is hardly necessary to say that a delict may give rise to a purely civil remedy, as well as to criminal punishment. Although a right of action is given to the party aggrieved, it does not follow that the law of nations must regard his action as a suit in favour of the State.

FN30 35 N. Y. (8 Tiffany), 412.

FN31 64 N. Y. 173.

Attrill v. Huntington [FN32] is, however, an authority upon the very point raised in this appeal. During the dependence of the present action, the appellant preferred a bill in equity, before the Supreme Court of the State of Maryland, to set aside certain transfers of stock by the respondent, upon the allegation that they were fraudulently made in order to defeat his claims under the decree of June, 1886. The primary judge granted the relief craved, but the Court of Appeal, by a majority of five judges against two, reversed his decision and dismissed the bill, holding that the decree, being for a penalty, could not be enforced beyond the limits of the State of New York. Their Lordships are constrained to differ from the reasons assigned by Mr. Justice Bryan in delivering the judgment of the majority, which do not appear to them sufficiently to recognize the distinction, from an international point of view, between a suit for penalty by a private individual in his own interest, and a suit brought by the government or people of a state for the vindication of public law. The distinction is clearly pointed out in the opinion of the dissentient judges as expressed by Mr. Justice Stone, in whose reasoning their Lordships concur.

FN32 70 Maryland, 191.

Being of opinion that the present action is not, in the sense of international law, penal, or, in other words, an action on behalf of the government or community of the State of New York, for punishment of an offence against their municipal law, their Lordships will humbly advise Her Majesty to reverse the judgments appealed from, and to give decree in favour of the appellant, with costs in both Courts below. The appellant must have the costs of this appeal.

Representation