Wednesday, February 4, 2009

Service ex Juris
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"...[1] This is an appeal from the order of Lederman J. (the motion judge) dismissing the defendants’ (appellants’) motion for an order dismissing or staying the action brought against them by the respondent (plaintiff). The order further provided that the ex juris service on the non-Ontario defendants was valid under Rule 17.02(h). The non-Ontario defendants also appeal this order...

[9] The characterization of the plaintiff’s claim was an important step in the determination of whether the Ontario court had jurisdiction. The appellants argued on the motion and again on appeal, that the plaintiff’s claims, in their essence, alleged breaches of a series of agreements between the plaintiff and various defendants. Many of those agreements contained provisions giving the English courts exclusive jurisdiction over disputes arising out of the agreements. The appellants argued that these exclusive-jurisdiction provisions applied to the plaintiff’s action. On the appellants’ submissions, the exclusive jurisdiction provisions provided a strong argument both against the assumption of jurisdiction and, if jurisdiction was taken, the further determination that Ontario was the most appropriate forum: see Z.I. Pompey Industrie v. E.C.U.-Ligne N.A., [2003] S.C.J. No. 23 at para. 20.

[10] The characterization of the claims depends in large measure on the contents of the statement of claim. That document is long and in some respects unclear. The motion judge reviewed the claim and the additional material filed on the motion. He did not accept the appellants’ contention that the plaintiff’s lawsuit was in essence a series of claims based on alleged breaches of the contracts. He characterized the claim in this way at paras. 19-20:
I accept the plaintiff’s characterization of this claim as, in pith and substance, centering on the fiduciary relationship between PMCC and Peebles and Smith. The allegation is that the two deliberately orchestrated events to put PMCC at a disadvantage, to ultimately pursue the Peruvian opportunities in their own interests. The objects of an agency relationship should not be the sole determinant of that relationship’s character.

This alleged orchestration included improprieties in preparing and executing the loan advance documents and the Asset Purchase Agreement. However, this case is not about Smith’s loans to PMCC or the Asset Purchase Agreement: it is about an allegedly abusive course of conduct by fiduciaries. The suit is not contractual in substance. Although PMCC has specifically pleaded a breach of the Asset Purchase Agreement, on a review of the Amended Statement of Claim as a whole, I am satisfied that the references to the loan advances and Asset Purchase Agreement serve as illustrations or iterations of the defendants’ breaches of their duties of confidence, loyalty and good faith and as part of a broader narrative of abusive conduct. [Emphasis added.]

[11] I agree with the motion judge’s characterization of the claim.

[12] The other significant feature of the claim for jurisdictional purposes arises out of the remedies sought by the plaintiff. In essence, the plaintiff seeks orders in the nature of disgorgement of the profits the defendants gained as a result of the alleged breaches of their duties to the plaintiff. The disgorgement takes the form of a constructive trust over any interest any of the defendants have in the Peruvian properties, or a constructive trust over the shares in various foreign corporate defendants.


[13] The motion judge set out his reasons for holding that the Ontario court had jurisdiction with his usual clarity. He approached the jurisdictional question in two stages. First, he determined whether the Ontario court had jurisdiction to grant the remedies sought by the plaintiff even though those remedies potentially affected property (shares and land) in foreign jurisdictions (paras. 22-34). At this stage of the inquiry, he considered and applied the four-part test set out in Catania v. Giannattasio 1999 CanLII 1930 (ON C.A.), (1999), 174 D.L.R. (4th) 170 (Ont. C.A. ). He concluded that the remedies sought did not preclude the Ontario court from taking jurisdiction.

[14] Having determined that the Ontario court had jurisdiction over the remedies, the motion judge turned to the question of whether the court should assume jurisdiction over the non-Ontario defendants (paras. 35-53). In making that determination, he considered and applied the factors identified in Muscutt v. Courcelles 2002 CanLII 44957 (ON C.A.), (2002), 60 O.R. (3d) 20 ( C.A. ). The motion judge concluded that the action did have a real and substantial connection to Ontario warranting the assumption of jurisdiction by an Ontario court.

[15] I take a somewhat different approach to the jurisdictional question, but arrive at the same result. I do not favour the two-stage analysis engaged in by the motion judge in which he first considered jurisdiction based on the nature of the remedy sought and then turned to the broader question of the sufficiency of the connection of the action to Ontario to justify the assumption of jurisdiction over non-Ontario defendants...

19] I agree with the appellants’ contention that Lederman J. erred at para. 28 in holding that for the purpose of the Catania inquiry, a court had in personam jurisdiction if ex juris service could be effected on the defendant under the Rules. As Sharpe J.A. stated in Muscutt, supra, at para. 48:

I agree with the motion court judge that Rule 17.02(h) is procedural in nature and does not by itself confer jurisdiction.

[20] In personam jurisdiction, which is not based on the presence of the defendant (as it was in Catania) or the defendant’s attornment to the jurisdiction, can exist only where there is a sufficient connection between the action and Ontario to warrant assumption of jurisdiction over that action by the Ontario court. The real and substantial connection test measures the sufficiency of that connection. Consequently, in cases of assumed jurisdiction, what is described in Catania as the first of four prerequisites to jurisdiction in fact requires a determination of whether on the totality of the circumstances there is a real and substantial connection between Ontario and the action so as to justify the assumption of in personam jurisdiction. In other words, the first criterion identified in Catania calls for the much broader inquiry mandated by the real and substantial connection so clearly explained in Muscutt.

[23] Recognizing that the real and substantial connection test is the single test for determining whether an Ontario court can assume jurisdiction over out of province defendants in no way diminishes the relevance of the Catania factors where the remedy sought affects foreign immovables. Performing the entire jurisdictional analysis within the real and substantial connection framework does, however, best achieves the flexibility and holistic inquiry favoured by Muscutt.

26] Smith had a potentially significant connection to Ontario. On the plaintiff’s allegations, he received confidential information from the plaintiff, an Ontario corporation. He agreed to work with Peebles on of the business affairs of that Ontario corporation. Smith knew that Peebles, an Ontario resident, was the Ontario corporation’s agent and was in a fiduciary relationship with that Ontario corporation. Although Smith was never in Ontario, it is fair to say that he became involved in a business relationship that he knew originated in and was centered in Ontario. Smith could well have foreseen an action in Ontario if the obligations and duties arising out of the business relationship to which he became a party were not honoured.

[27] I agree with the motion judge’s finding that the Ontario court could assume jurisdiction over the non-Ontario defendants.


[28] Having determined that an Ontario court could assume jurisdiction over the action, the motion judge turned to whether Ontario was the appropriate jurisdiction in which to try the claim (paras. 54-61). He concluded at para. 61:

In sum, this action has connections to Ontario, Peru , and the U.K. Though both Peru and the U.K. might also have jurisdiction to hear the action, neither forum is clearly more appropriate than Ontario.

29] Unlike the jurisdictional determination, which raises a question of law reviewable on a correctness standard, the motion judge’s determination that Ontario was the convenient forum for this litigation, involves the exercise of judicial discretion to which this court owes deference: B.N.P. Paribas (Canada) v. B.C.E. Inc., 2007 ONCA 559 (CanLII), [2007] 227 O.A.C. 102 at para. 4 ( C.A. ).


[35] Rule 17.02(h) permits service ex juris

In respect of damage sustained in Ontario arising from a tort, breach of contract, breach of fiduciary duty or breach of confidence wherever committed.

36] The plaintiff seeks damages by way of an alternative remedy. The damage claimed is not as thoroughly articulated in the statement of claim as are the plaintiff’s other claims. The damage claim is, however, essentially a claim for the money equivalent of the potential profits lost to the plaintiff when, according to its allegation, the defendants misappropriated the various mining opportunities in Peru .

[37] The plaintiff, as indicated above, is an Ontario corporation with a registered office in Ontario, carrying on business in Ontario. It is a reasonable inference that its financial records and infrastructure are maintained in Ontario.

[38] The motion judge held that damages flowing from the alleged breaches constituted damages sustained in Ontario, thereby bringing the claim within rule 17.02(h). I agree with that conclusion. As held by Osler J. in Skyroters Ltd. v. Carriere Technical Industries Ltd. (1979), 26 O.R. (2d) 207 at 209–210 (H.C.J.):

In my view, the corporations here bringing action to the extent that they have suffered a loss of profits and a loss of use of the machine, were disadvantaged and were so disadvantaged at the place where their financial records were kept and where they did business, namely at their head office in Ontario. The damage sustained was so sustained, in my view, within Ontario…

[39] I think the damage claim brings the action within rule 17.02(h)..."

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