Executive Summary: Key Legal and Evidentiary Issues

• The appeal centered on whether various defences to enforcement of Chinese judgments in BC disclosed no reasonable prospect of success.

• The BC Court of Appeal upheld the natural justice and public policy (except for limitations) defences as arguable and not bound to fail.

• Mr. Cao’s limitation period argument, framed as a public policy defence, was struck for lacking merit under Canadian legal standards.

• Claims of laches, conspiracy, and res judicata were allowed to proceed due to their plausible relevance to equitable or procedural fairness.

• The factual pleadings supporting the defences were preserved because they plausibly related to the legal issues raised.

• Costs of the appeal were awarded to Mr. Cao, reflecting his substantial success despite the partial allowance of the appeal.

Background and facts of the case

This case arises from an attempt by Jiashan County Agri-Commerce Joint Small-Sum Loan Co. Ltd., a Chinese lender, to enforce two money judgments obtained in Chinese courts against Lian Cao, a former director and resident of British Columbia since 2014. The Chinese judgments stemmed from allegations that Mr. Cao unlawfully withdrew capital from the company, resulting in court orders requiring him to repay over CAD $6.5 million. The lender had recovered part of the amount through enforcement proceedings in China but sought the remainder through litigation in BC. The action also included a claim for unjust enrichment related to funds allegedly used by Mr. Cao to purchase property in British Columbia.

Mr. Cao filed a response to the civil claim, raising several defences against enforcement, including that the Chinese proceedings violated natural justice, that enforcement would be contrary to Canadian public policy, that the claims were barred by laches, and that the judgments were the product of a conspiracy involving the company's current controllers. He later amended his response to include a res judicata defence, arguing that the second judgment was duplicative of the first. The plaintiff applied to strike much of the amended response under Rule 9-5(1)(a) of the BC Supreme Court Civil Rules, asserting that none of the defences were legally viable.

Procedural history and chambers decision

The chambers judge refused to strike the pleadings. He found that the threshold for striking a defence—that it must be “plain and obvious” it would fail—had not been met. While acknowledging the defences were novel, he ruled they were arguable and should proceed. He also refused to strike supporting factual pleadings, reasoning they were connected to the defences and relevant to the issues raised. Importantly, the judge did not address the res judicata defence since it was raised only after his ruling.

BC Court of Appeal decision and analysis

The BC Court of Appeal allowed the appeal only in part. The Court ruled that Mr. Cao’s limitations-based public policy defence was bound to fail. It emphasized that differing limitation periods or exceptions in foreign law do not inherently offend Canadian legal morality, especially since BC’s own legislation also excludes certain claims from time limitations. Consequently, paragraphs relating to this specific argument were ordered struck.

However, the Court upheld all other defences. It found that the natural justice defence, alleging the Chinese courts failed to consider relevant evidence and joint liability issues, was not bound to fail. The Court emphasized that participation in a foreign proceeding must be assessed qualitatively, not just procedurally.

The laches defence, though not applicable to enforcing money judgments, was considered viable in response to the appellant’s equitable claims for unjust enrichment. Similarly, the conspiracy defence—while novel—was found to be potentially relevant as it alleged the enforcement efforts stemmed from a scheme by parties involved in the original misconduct, thereby raising questions of fairness and justice.

Regarding the res judicata defence, the Court ruled it could consider the issue even though it was raised for the first time on appeal. The Court declined to strike it, finding that enforcing inconsistent or duplicative foreign judgments could offend Canadian legal principles, making it a legitimate issue for trial.

The Court also rejected the appellant’s attempt to strike various factual pleadings, finding they were plausibly connected to the surviving defences and responsive to allegations in the notice of civil claim.

Final outcome and disposition

The BC Court of Appeal allowed the appeal only to the extent of striking Mr. Cao’s limitations defence. All other parts of the appeal were dismissed. The Court ordered Mr. Cao to amend his pleadings to remove the limitations-based argument but preserved all other defences and factual assertions.

Given that Mr. Cao retained the ability to argue the majority of his defences, and the striking was limited to one issue, the Court found that Mr. Cao was substantially successful and awarded him the costs of the appeal.