Supreme Court develops new test for assuming jurisdiction over foreign defendants - International Law Office

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Litigation - Canada

Supreme Court develops new test for assuming jurisdiction over foreign defendants

June 26 2012

Background
Facts
New common-law test for assumed jurisdiction
Doctrine of forum non conveniens
Decision
Comment


In Club Resorts Ltd v Van Breda(1) and its two companion cases, Éditions Écosociété Inc v Banro Corporation(2) and Breeden v Black,(3) the Supreme Court of Canada established a new common-law test for determining whether a Canadian court may assume jurisdiction over a foreign defendant. The new test is significant for foreign companies that do business in Canada or with Canadians, as it clarifies the circumstances in which such companies may be obliged to defend proceedings in a Canadian court.

Background

Canada has long recognised three grounds on which a court in one province may have jurisdiction over a defendant in another province or country:

  • Presence-based jurisdiction – the defendant was physically present in the jurisdiction at the time the plaintiff served it with the claim commencing the litigation;
  • Consent-based jurisdiction – the defendant submitted to the court's jurisdiction by prior agreement or by filing a defence to the plaintiff's claim; and
  • Assumed jurisdiction – the subject matter of the litigation has a 'real and substantial connection' to the province.(4)

The requirement of a 'real and substantial connection' serves as a necessary limit to a court's 'long-arm reach' outside of its own territory. However, for years, Canadian courts have struggled with the ambit of the 'real and substantial connection' requirement.

In this context, several provinces have adopted a model statute – the Court Jurisdiction and Proceedings Transfer Act – to govern matters of assumed jurisdiction, while other provinces (eg, Ontario) have left it to the courts to develop a common-law approach. For example, since 2002, Ontario courts have applied an eight-part common-law test, known as the Muscutt test,(5) which provides various contextual factors that must be considered in deciding whether a real and substantial connection exists. However, while the Muscutt test was lauded for its flexibility, it was also criticised for being too unpredictable and conferring too much discretion on motion judges. In response to these criticisms, the Ontario Court of Appeal attempted to clarify and reformulate the test in 2010.(6) The reformulation was appealed to the Supreme Court.

Facts

The Supreme Court heard four cases dealing with assumed jurisdiction. The first two cases, decided together in the Club Resorts decision, involved tourists from Ontario who had died or suffered personal injury while visiting holiday resorts in Cuba. The plaintiffs in both cases commenced proceedings in Ontario against a company incorporated in the Cayman Islands which managed the resorts. The company moved to stay the proceedings against it on the basis that the Ontario courts lacked jurisdiction.

The other two cases before the Supreme Court involved cross-border claims in defamation. In Éditions Écosociété the defendants published a book that contained allegedly defamatory comments about the plaintiff's gold mining operations in the Democratic Republic of Congo. All of the defendants resided or were based in Québec, and the book was distributed largely in Québec. However, the plaintiff sued the defendants in Ontario on the basis that a few copies of the book had also been distributed in Ontario.

In Black v Breeden disgraced newspaper mogul Conrad Black filed six libel actions in Ontario against various directors, officers and advisers of Hollinger International Inc. He alleged that the defendants made defamatory statements about him in Hollinger's press releases and reports, which were subsequently reproduced in the Canadian press. Only one of the defendants lived in Ontario; the others lived in Israel and five different US jurisdictions.

In all four cases the court at first instance and the Ontario Court of Appeal found that Ontario had jurisdiction over the out-of-province defendants due to a real and substantial connection to Ontario.

New common-law test for assumed jurisdiction

In Club Resorts the Supreme Court unanimously abandoned the multi-factor analysis established in Muscutt in favour of a succinct categorical approach for assumed jurisdiction.

Under the new Club Resorts test, the party asking a court to assume jurisdiction (usually the plaintiff) has the burden of establishing that a 'presumptive connecting factor' links the subject matter of the litigation to the province. The Supreme Court identified the following presumptive connecting factors in respect of a claim in tort:

  • The defendant is domiciled or resident in the province;
  • The defendant conducts business in the province;(7)
  • The tort was committed in the province; and
  • A contract connected with the dispute was made in the province.

If one of these presumptive connecting factors applies, the court is presumed to have jurisdiction over the dispute. However, a party challenging the court's jurisdiction (usually the defendant) may rebut the presumption by establishing facts showing that the presumptive connecting factor does not point to any real relationship between the subject matter of the litigation and the forum, or points to only a weak relationship between them. For example, if the plaintiff establishes that the defendant is conducting business in the province – a presumptive connecting factor – the defendant can rebut the presumption of jurisdiction by showing that the subject matter of the litigation is unrelated to the defendant's business activities in the province.

If no presumptive connecting factor applies or if the presumption of jurisdiction is successfully rebutted, then the court must dismiss or stay the action.(8)

The above list of presumptive connecting factors for tort claims is not exhaustive and additional factors may be identified over time. A court may identify a new presumptive connecting factor by looking at connections that give rise to a relationship that is similar in nature to the ones reflected in the factors already recognised. Relevant considerations include:

  • the similarity of the connecting factor with those already recognised as presumptive connecting factors;
  • the treatment of the connecting factor in case law;
  • the treatment of the connecting factor in statute law; and
  • the treatment of the connecting factor in the private international law of other legal systems with a shared commitment to order, fairness and comity.

The Supreme Court was careful to add that, aside from assumed jurisdiction, a court may still exercise jurisdiction over an extra-provincial defendant on the basis of either presence-based or consent-based jurisdiction.

Doctrine of forum non conveniens

After a court has determined that it has jurisdiction over an extra-territorial defendant, it may still choose not to exercise that jurisdiction on the basis of forum non conveniens. This doctrine allows the court to stay or dismiss a proceeding on the basis that there is another jurisdiction that is clearly more appropriate for the claim.

The Supreme Court did not make any substantial changes to the doctrine of forum non conveniens. However, it did discuss the doctrine at length and made several observations that are worth examining.

First, while the decision to stay or dismiss proceedings on the basis of forum non conveniens is discretionary, the court should consider it only if it is invoked by one of the parties; the court cannot consider forum non conveniens on its own initiative.

Second, the party invoking forum non conveniens has a high threshold to meet, as "the normal state of affairs is that jurisdiction should be exercised once it is properly assumed".(9) The court will not exercise its discretion under forum non conveniens to stay or dismiss proceedings simply because another comparable jurisdiction exists. Instead, the alternative jurisdiction must be clearly more appropriate for the adjudication of the claim.

Third, the Supreme Court emphasised that the determination of jurisdiction simpliciter (ie, the court's ability to assert jurisdiction against an out-of-province defendant which has not submitted or attorned to an action against it) must be distinguished from the doctrine of forum non conveniens. The former relates to whether the court has authority to entertain the claim; the latter refers to the court's discretionary power to decline jurisdiction because it would be fairer and more efficient to have the claim litigated somewhere else.

In deciding whether an alternative jurisdiction is clearly more appropriate, the court will look at such contextual factors as:

  • the comparative convenience and expense for the parties to the proceedings and for their witnesses in litigating in the court or in any alternative forum;
  • the law to be applied to issues in the proceedings;(10)
  • the desire to avoid multiplicity of legal proceedings;
  • the desire to avoid conflicting decisions in different courts;
  • the enforcement of an eventual judgment; and
  • the fair and efficient working of the Canadian legal system as a whole.

The Supreme Court held that no list of relevant factors can be exhaustive and the factors themselves will vary depending on the circumstances of each case. There is, however, one caveat. The possibility that the plaintiff may lose a juridical advantage if the claim is litigated in an alternative jurisdiction "should not weigh too heavily in the forum non conveniens analysis",(11) as it would be inconsistent with principles of comity and respect for other legal traditions.

Decision

Applying the new test for assumed jurisdiction to the four appeals, the Supreme Court held that the courts in Ontario could assume jurisdiction in all four cases because a presumptive connecting factor applied to each. In the two Club Resorts cases, the evidence established that the company managing the resorts conducted business in Ontario and, with respect to one of the cases, a contract was formed in Ontario. In Éditions Écosociété and Breeden the tort of defamation was committed in Ontario because the allegedly defamatory statements were published and distributed in Ontario. In none of the cases was the presumption of jurisdiction rebutted. Furthermore, the Supreme Court deferred to the decisions of the lower courts in each case with respect to forum non conveniens; in all four cases the lower court had found that there was no other forum that was clearly more appropriate than Ontario to adjudicate the respective claims.

Comment

The Club Resorts test for assumed jurisdiction is a common-law test only. For those Canadian provinces and territories that have adopted the Court Jurisdiction and Proceedings Transfer Act - which to date include British Columbia, Nova Scotia, Saskatchewan and Yukon - (12) the act's statutory scheme for assumed jurisdiction applies.

The Club Resorts test is nonetheless a significant and welcome development in the law of assumed jurisdiction in Canada. First, the new test brings the common law closer into line with the act, which provides similar categories of connection that are presumptively real and substantial. Second, as the Supreme Court has now identified situations where jurisdiction is presumed, it may now be easier to predict when a foreign defendant may be sued in Canadian courts or when a defendant in one province may be sued in another. This could have significant implications (eg, for cross-border class proceedings against non-resident defendants).

However, the full impact of the new test for assuming jurisdiction over foreign defendants remains to be seen.

For further information on this topic please contact Matthew Fleming or Soloman Lam at Fraser Milner Casgrain LLP by telephone (+1 416 863 4511), fax (+1 416 863 4592) or email (michael.schafler@fmc-law.com or matthew.fleming@fmc-law.com).

Endnotes

(1) 2012 SCC 17.

(2) 2012 SCC 18.

(3) 2012 SCC 19.

(4) By definition, in cases of assumed jurisdiction the defendant is served with the originating process outside of the province.

(5) See Muscutt v Courcelles (2002), 60 OR (3d) 20 (CA).

(6) See Van Breda v Village Resorts Limited, 2010 ONCA 84. The reformulated test was short lived, since on appeal to the Supreme Court, the Supreme Court provided a new test for assumed jurisdiction: see Club Resorts, note 1 above.

(7) The court cautioned that for a defendant to conduct business in the province, there must be some form of actual, rather than virtual, presence in the province, such as maintaining an office in the province or regularly visiting the province. Active advertising or making a website accessible in a province is not enough to establish that the defendant is conducting business there, although the court expressly left open the possibility that e-trading in the province may constitute conducting business there.

(8) This is subject to the possible application of the doctrine of 'forum of necessity', an extraordinary basis of exercising jurisdiction which the Supreme Court chose not to address in Club Resorts. Under the doctrine of forum of necessity, if the plaintiff fails to establish that a real and substantial connection exists between the forum and the subject matter of the litigation, the court can nonetheless exercise a residual discretion to take jurisdiction over the litigation if the plaintiff can show that there is no other forum in which it could reasonably seek relief. The doctrine of forum of necessity is an exception to the 'real and substantial connection' rule. It is incorporated in Section 6 of the Court Jurisdiction and Proceedings Transfer Act and has been affirmed in the Canadian common law: see Van Breda, note 6 above at para 100.

(9) Club Resorts, note 1 above at para 109.

(10) With respect to this factor, in the Éditions Écosociété and Breeden decisions the Supreme Court commented, in obiter, on the law which should be applied to a cross-border defamation action. In Canada, the choice of law for a tort is generally where the tort occurred (doctrine of lex loci delicti); the rationale is that for most torts, the occurrence of the tort and the damages that flow from it typically happen in the same place. However, in defamation cases, the defamatory material can be published in one place, but the damage to the plaintiff's reputation may be felt in another jurisdiction. The Supreme Court considered whether the lex loci delicti rule should be abandoned for actions in defamation in favour of an approach based on the location of the most substantial harm to reputation. This is significant because the elements of the tort of defamation can vary significantly from one jurisdiction to another. The Supreme Court ultimately declined to decide the issue, however, because no matter which approach is taken, the applicable law in both Éditions Écosociété and Breeden was the law of Ontario.

(11) Breeden, note 3 above at para 27.

(12) See Court Jurisdiction and Proceedings Transfer Act, SBC 2003, c 28; Court Jurisdiction and Proceedings Transfer Act, SNS 2003 (2nd Sess), c 2; and Court Jurisdiction and Proceedings Transfer Act, SS 1997, c C‑41.1. Although the act received royal assent in Yukon in 2000, it is not yet in force: see Court Jurisdiction and Proceedings Transfer Act, SY 2000, c 7.


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