Assuming Jurisdiction

<i>The Supreme Court gave a more predictable test for jurisdiction in </i>Van Breda<i>. But that doesn't necessarily mean less costly legal proceedings</i> <br/> <br/>Assumed jurisdiction is not exactly a topic of conversation in the coffee houses of the nation,” says Ira Nishisato in Borden Ladner Gervais LLP's Toronto office. As it turns out, assumed jurisdiction – where defendants are not resident in the court's jurisdiction and have not assented to its jurisdiction by contract or otherwise – is not exactly a topic of conversation in the law departments of Canada's business community either. So much so that very few in-house lawyers contacted by <i>Lexpert</i> for this article felt qualified to talk about the subject and none would speak on the record. Much more topical among them were subjects related to consensual or contractual jurisdiction in the context of arbitration clauses, choice of forum and choice of applicable law. <br/> <br/>So why is it that that the Supreme Court of Canada's decision in <i>Club Resorts Ltd. v. Van Breda</i>, one of <i>Lexpert</i>'s “Top 10 Business Cases of 2012,” was so eagerly awaited by litigators and the subject of so much commentary and discussion in the profession?
Assuming Jurisdiction
Assumed jurisdiction is not exactly a topic of conversation in the coffee houses of the nation,” says Ira Nishisato in Borden Ladner Gervais LLP's Toronto office. As it turns out, assumed jurisdiction – where defendants are not resident in the court's jurisdiction and have not assented to its jurisdiction by contract or otherwise – is not exactly a topic of conversation in the law departments of Canada's business community either. So much so that very few in-house lawyers contacted by Lexpert for this article felt qualified to talk about the subject and none would speak on the record. Much more topical among them were subjects related to consensual or contractual jurisdiction in the context of arbitration clauses, choice of forum and choice of applicable law.

So why is it that that the Supreme Court of Canada's decision in Club Resorts Ltd. v. Van Breda, one of Lexpert's “Top 10 Business Cases of 2012,” was so eagerly awaited by litigators and the subject of so much commentary and discussion in the profession?

“The law of jurisdiction may seem arcane and academic until you have a client that is affected by it,” Nishisato says. “Then you quickly realize that it is of real, practical importance and also that it is exceedingly complex.”

But which clients are affected by the issue? As it happens, answering that question goes a long way to demonstrating the complexities found in this area of law.

“The law of jurisdiction is weird, complicated and unwieldy,” says Professor Vaughan Black of the Schulich School of Law at Halifax's Dalhousie University, who was a consultant to Morgan Van Breda's lawyers, Toronto's Paliare Roland Rosenberg Rothstein LLP.

Van Breda and its sister decision, Club Resorts. Ltd. v. Charron, were travel cases involving death and injury to Canadian tourists abroad. The foreign defendants objected to being sued in Canada on the basis that there was no real and substantial connection (RSC) between the litigation and the jurisdiction. But because the law of assumed jurisdiction applies interprovincially as well as internationally, the judgments apply to Canadian interprovincial issues as well — meaning that Canadian companies that prefer to be sued in their home province, perhaps because of juridical advantages such as limitation periods, should take note of them as well.

Van Breda, however, extends well beyond travel cases. “Van Breda applies to a wide range of proceedings involving economic torts, fiduciary duties, confidentiality, product liability, consumer-related issues, pharmaceutical cases and securities class actions,” says Peter Pliszka in Fasken Martineau DuMoulin LLP's Toronto office, who represented Club Resorts.


On this basis alone, globalization itself suggests that there are a growing number of foreign defendants that Canadian companies or individuals may wish to sue in Canada. “I've encountered this issue far more frequently in the past five years than I did in the past 20, particularly in the securities litigation arena,” says Larry Lowenstein, who practises in Osler, Hoskin & Harcourt LLP's Toronto office. “In an era where access to justice and to the courts is expensive, you have many if not all such large claims promoted by entrepreneurial plaintiffs' firms bringing claims to serve local clients. Sometimes these claims are quite properly brought and sometimes entrepreneurial lawyers push the envelope because of the incentives.”

Initial indications are that courts will extend Van Breda beyond tort cases. Most significantly, the Supreme Court itself applied Van Breda to two defamation actions, Breeden v. Black and Éditions Écosociété Inc. v. Banro Corp., released concurrently with Van Breda and Charron.

In the year following Van Breda's release, Ontario and Alberta courts applied the judgment to family law cases (Wang v. Lin), interprovincial class actions based in contract (Sears Canada Inc. v. C & S Interior Designs Ltd.), intentional misappropriation proceedings (Zhang v. Hua Hai Li Steel Pipe Co. Ltd.), an action on a promissory note (Nagra v. Malhotra), and claims based on contribution and indemnity (Yemec and Rapp v. Atlantic Lottery Corporation).

But foreign or extra-provincial defendants aside, Van Breda has an expanded dimension, albeit not one discussed by the SCC. The RSC test – which remains the standard for determining jurisdiction, although within a new analytical framework – also provides the standard for determining the enforceability of foreign judgments. The recurrence of reported enforcement cases in the past few years demonstrates that the Van Breda principles should arise at least as often in these types of cases as in judicial jurisdiction cases.

As Black points out, while the RSC test is a preliminary (albeit critical) matter for a pre-trial motion in the context of judicial jurisdiction issues, it may be at “the heart of the inquiry” in enforcement actions. “Although Van Breda said nothing about enforcement, the Supreme Court has made it clear in previous cases that direct and indirect jurisdiction should correlate,” Black says.

Indeed, just months after the SCC released Van Breda, the Ontario Court of Appeal applied the decision in enforcing an Italian judgment for tortious professional conduct against Gregory King, an international business law practitioner in Gowlings' Toronto office.

“It's unlikely that any of the old tests used by the courts in enforcing foreign judgments will continue to apply,” says Barry Glaspell in Borden Ladner Gervais LLP's Toronto office. As well, the RSC test has been used by the SCC in determining the place where torts and criminal acts have occurred, and in setting constitutional limits on provincial legislation dealing with the administration of justice, including the assertion of judicial jurisdiction.

But just what is it that Van Breda has or has not done? “The decision completely changes the road map for determining jurisdiction,” Glaspell says. “But it doesn't change the traditional two-step approach.”

At the outset, the Supreme Court of Canada set out four categories that could found a presumption of RSC. The presumption arises only when the defendant is domiciled or resident in the jurisdiction, carries on business in the jurisdiction, the tort was committed in the jurisdiction, and when a contract connected with the dispute was made in the jurisdiction.

Absent these presumptive factors, courts will not assume jurisdiction. “The court warned that jurisdiction should not be assumed by combining non-presumptive factors,” Nishisato explains.

The SCC further narrowed the RSC test by limiting some of the four categories. The simple presence of a plaintiff in a particular jurisdiction or the fact that the plaintiff has suffered damages in the jurisdiction, for example, will not be enough to trigger a presumption of jurisdiction. “‘Tag' or ‘gotcha' jurisdiction is dead in Canada,” Glaspell says. “And the fact that having sustained damages in the jurisdiction is not a presumptive connection represents a big change from previous jurisprudence.”

As well, the top court observed that the “carrying on business” category required “some caution” to avoid creating “forms of universal jurisdiction” in tort claims. “The court stated, for example, that active advertising in the jurisdiction or the fact that a website can be accessed from the jurisdiction would not suffice to establish that the defendant is carrying on business there,” Nishisato notes. “The court also held that carrying on business requires some form of actual, not only virtual, presence in the jurisdiction, such as maintaining an office there or regularly visiting the territory of the particular jurisdiction.”

In other words, as one judge has already framed it, carrying on business “with” a jurisdiction is different from carrying on business “in” a jurisdiction. That's a nice way of putting it, but still, that's not as simple as it might appear. “One of the big unknowns, for example, is how far advertising and marketing has to go before it's considered to be carrying on business,” Pliszka says.

While the SCC did recognize the potential for creating new presumptive categories, it was extremely cautious in doing so. The court opined that new categories should be “similar in nature” to the existing ones and that their determination should include reference to existing Canadian law as well as the approach to jurisdiction in other legal systems with a shared commitment to order, fairness and comity.

“It will likely be a steep climb to convince a court that a new presumptive category should be recognized,” Nishisato says. “An argument in favour of a new presumptive category will likely have to be built on a significant body of existing case law that supports the assumption of jurisdiction for the proposed category. It may also require an extensive evidentiary record and experts on foreign law and practice, which could be a costly and ambitious exercise for clients.”

Quite apart from the difficulty plaintiffs will have in establishing new categories, defendants will have at least two other escape routes, even where jurisdiction is asserted on the basis of an existing presumptive category.

Firstly, the defendant will have an opportunity to rebut the presumption by showing that the connection is insufficient to establish an RSC. “Where a defendant points to a weak relationship between a claim and an Ontario court, for example, taking jurisdiction would not be consistent with the rules of comity, fairness and order that the Supreme Court highlighted as the foundation of the law regarding jurisdiction,” Lowenstein says. But even where a party contesting jurisdiction fails to rebut the presumption, it may seek a stay on the basis of forum non conveniens.

In either case, the onus of establishing the rebuttal of the presumption or justifying the stay will be on the party contesting jurisdiction. “[The defendant must] establish facts which demonstrate that the presumptive connecting factor does not point to any real relationship between the subject matter of the litigation and the forum or points only to a weak relationship between them,” the court stated.

Although the court emphasized that a clear distinction must be drawn between jurisdiction and forum non conveniens, the court did not change the law relating to the latter. “Jurisdiction is a black and white issue – either the court has jurisdiction or it doesn't – and forum non conveniens is a discretionary matter,” Glaspell says. “While that's always been the law, some courts have had a tendency to confuse the two, so it's a good thing that the high court reiterated the clear division.”

But just how is it all going to work? “Assume that a US national and a French national negotiated a contract and realized that it would be convenient to sign the contract at a time when both were passing through Pearson International Airport,” Peter Pliszka says. “A dispute arises and one party decides to bring the lawsuit in Canada, asserting jurisdiction on the basis of the presumptive connecting factor that the contract was made here. It would be open to the defendant to rebut the presumption on the basis that the connection is weak. If the defendant fails to rebut the presumption, it could still argue that Canada or Ontario is forum non conveniens and ask the judge to decline jurisdiction because there is another jurisdiction that is clearly more appropriate.”

There's just one little problem, however, and it comes in the form of in-house's counsel perennial bugbear: cost. “The regime set out in Van Breda means that jurisdiction motions can now take over a case,” Glaspell says. “The existence of a rebuttable presumption encourages parties who don't want to litigate in Canada to put forward a credible case to show that – despite the presence of a presumptive factor — no real and substantial connection exists.”

As well, the SCC's suggestion – that Canadian courts asked to enshrine new presumptive connectors should consider whether a relevant foreign court would take jurisdiction in a similar case – opens up the prospect of expert evidence regarding foreign law.

The rules regarding forum non conveniens also do so. “Courts don't take kindly using their discretion to decline jurisdiction without considering where a case can be heard,” Glaspell says. “By ruling that judges should decline jurisdiction only where another forum is clearly more appropriate, the SCC has raised the bar for declining jurisdiction, and that invites evidence on the subject to meet the new standard.”

The upshot may be that the SCC has unwittingly created practical complexity in a search for theoretical simplicity. “Van Breda is a noble effort to make jurisdictional issues less costly, but it may not bear much fruit unless we at least get rid of forum non conveniens, and that isn't going to happen,” Black says.

As always, certainty and flexibility each have their advantages and disadvantages. “In Europe, the rules are much more cut and dried, but they do sometimes give rise to decisions that just seem plain wrong,” Black says.

Procedural considerations aside, it is apparent that Van Breda has changed the way that Canadian in-house counsel operating in an increasingly globalized world must think about jurisdiction. This is so whether they are encountering it in the context of suing a foreign defendant in Canada or in fighting off the domestic enforcement of a foreign judgment. In the first instance, they will have to ask themselves whether a Canadian court will take jurisdiction and in the second instance, whether a Canadian court will rule that the court granting the foreign judgment has properly taken jurisdiction over the matter.

Van Breda now governs the answers to both these questions. “As I see it, the test for jurisdiction is now slightly tougher from a global perspective and because our test for jurisdiction is also the test for when we enforce, foreign judgments will now be slightly more difficult to enforce,” Barry Glaspell says.

Nishisato is of similar mind: “Van Breda takes a cautious approach to assuming jurisdiction, and that cautious approach should benefit Canadian companies who are here, there and everywhere in the information age,” he says.

As Pliszka sees it, Van Breda is a “big improvement” over the Muscutt test it supplanted. “Van Breda answers the two biggest criticisms of Muscutt: namely, that the eight Muscutt factors were too many and too discretionary, and also that Muscutt, by introducing notions of fairness into the determination of jurisdiction, conflated that issue with the forum non conveniens issue,” the lawyer explains.

By eliminating notions of fairness in the jurisdictional issue and promulgating presumptive factors that constitute an objective test, the Supreme Court of Canada also created greater predictability if not clear-cut certainty in this area of the law. “In-house counsel now have a jurisdictional test that is much more predictable,” Pliszka says. “Among other things, that's an important consideration when Canadian companies are deciding whether to defend suits against them in foreign jurisdictions.”

But, for some lawyers, it's too early to tell just what Van Breda will mean in practical terms. As our sidebar indicates (see below), there are a number of important unanswered questions. “In theory, you've got a test that's a little bit tighter and a little bit more certain,” says John Terry in Torys LLP's Toronto office. “But it all depends on how the courts apply it.”

And if the issue didn't come down to that, what would lawyers do to keep themselves busy?