Canada: Supreme Court Clarifies Law Of Assumed Jurisdiction Over Foreign Defendants

The Supreme Court of Canada has released three long-awaited unanimous decisions that set out a new approach to be followed by Ontario courts in assuming jurisdiction over foreign defendants. The Court's decisions reaffirm the long-standing "real and substantial connection" test, but also provide clarity to the factors to be considered in applying the test. The decisions attempt to set a uniform standard across Canada, however, differing provincial statutes and case law will continue to inform the approach in each province.

The Court's main judgment ( Club Resorts) concerns two cases (Van Breda and Charron) where Canadian tourists suffered personal injury and death in Cuba and lawsuits were subsequently brought against a Cayman Islands-based hotel manager in Ontario. The two other cases, Richard C. Breeden v. Conrad Black (Black) and Les Éditions Écosociété Inc. et al. v. Banro Corporation (Banro), required the Court to apply the new test for assuming jurisdiction from Club Resorts in the context of multi-jurisdictional defamation claims. In each case, the Court concluded that jurisdiction was properly assumed over the non-resident defendants, and that there was no reason to decline to exercise jurisdiction as the defendants had not shown there was a clearly more appropriate forum.

New Test for Assumed Jurisdiction for Tort Claims in Ontario

Prior to Club Resorts, the Ontario courts applied a multi-factor analysis to determine whether a real and substantial connection existed in a particular case. Even if a court determined that it had jurisdiction, it could use its discretion to conclude that another jurisdiction would be better suited for the trial of the issues (i.e., on the grounds of forum non conveniens). In Van Breda, the Ontario Court of Appeal reformulated the analysis for determining whether a real and substantial connection sufficient to ground jurisdiction existed in a particular case. For a summary of the Ontario Court of Appeal's decision, see our previous Blakes Bulletin.

The Court in Club Resorts has sought to bring greater certainty to the application of the real and substantial connection test for assumed jurisdiction. The Court rejected the Court of Appeal's multi-factor approach, which was first set out in Muscutt and reformulated, though not fundamentally changed, in Van Breda. Under the new approach, plaintiffs bringing tort claims in Ontario must demonstrate a "presumptive connecting factor" that links the subject matter of the litigation with Ontario. The Court identified four non-exhaustive "presumptive connecting factors," as follows:

  • the defendant is domiciled or resident in the province;
  • the defendant carries on business in the province;
  • the tort was committed in the province; and
  • a contract connected with the dispute was made in the province.

If a presumptive connecting factor exists, then unless the defendant rebuts the presumption, the court must assume jurisdiction over all aspects of the case.

Rebutting the presumption will not be easy. It will be rebutted only if the defendant establishes "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". So, where a contract has little or nothing to do with the subject matter of the litigation, or the connecting factor is that the defendant is carrying on business in a province but the subject matter of the litigation is unrelated to the defendant's business activities there, it may be possible to rebut the presumption of jurisdiction. In particular, the Court cautioned that the presumptive connecting factor of carrying on business must be applied with care. To be "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". Activities such as advertising or making one's website available in Ontario, on their own, would not constitute "carrying on business" in Ontario.

The factors above are not intended to be exhaustive, and courts may identify new presumptive connecting factors over time. The Court noted, however, that the mere presence of the plaintiff in a jurisdiction or the fact that damages were sustained in a jurisdiction are not, on their own, presumptive connecting factors.

The Court emphasized that all the presumptive connecting factors are underlain by the values of order, fairness, and comity, and "generally point to a relationship between the subject matter of the litigation and the forum such that it would be reasonable to expect that the defendant would be called to answer legal proceedings in that forum." If a plaintiff cannot show that a recognized presumptive connecting factor – whether listed or new – exists, the court will not have jurisdiction over the dispute.

Forum of Necessity

The Court noted in Club Resorts that while an absence of a presumptive connecting factor will mean that the Ontario court will not have jurisdiction based on a real and substantial connection, there is a possibility an Ontario court could assert jurisdiction as a "forum of necessity", such as where no other jurisdiction has a stronger claim or another jurisdiction is not available. As the forum of necessity issue did not arise on the facts of Club Resorts, the Court declined to address the concept.

Forum Non Conveniens Framework

Once the plaintiff establishes the Ontario court has jurisdiction, the question shifts to consideration of forum non conveniens grounds. To obtain this exceptional discretionary relief, a defendant must show that another forum is "clearly more appropriate" because that other forum is better suited to "fairly and efficiently" resolve the dispute. Thus, unlike the prior law under Muscutt and Van Breda, which involved a weighing of various connections in determining jurisdiction – which often involved similar considerations as found under the forum non conveniens analysis – the Court has limited the jurisdiction test and attempted to keep the more discretionary balancing involved in considering convenient forum separate.

The Court has not made significant changes here. There is no strict forum non conveniens "test". Instead, a defendant can raise a number of factors which may, but need not, include the locations of parties and witnesses, the cost of transferring the case to another jurisdiction or of declining the stay, the impact of a transfer on the conduct of the litigation or on related or parallel proceedings, the possibility of conflicting judgments, problems related to the recognition and enforcement of judgments, and the relative strengths of the connections of the two parties.

Outcome and Implications

The Court concluded that jurisdiction had been properly assumed in each of the four cases on appeal. The presumptive connecting factor in Van Breda was the existence of a contract in Ontario, whereas, in Charron, it was the fact that the defendant carried on significant business activities in Ontario. In Black, the defamatory words were downloaded, read, and re-published in Ontario where the plaintiff had a significant reputation (although he no longer lives there). And in Banro, an Ontario-based corporation was able to sue Quebec-based defendants over a book published in French, because 108 copies of the book were available to be purchased or read in Ontario (93 in bookstores and 15 in libraries) and the book was also available for sale via the defendants' website. In none of the four cases was the presumption of jurisdiction rebutted, nor did the forum non conveniens doctrine apply.

As a result of these decisions, courts will likely be more active in taking jurisdiction and there may be a reduction in the number of challenges to courts assuming authority over foreign defendants. The adoption of presumptive connecting factors and the clear burden on defendants to rebut those factors will be difficult to overcome in many cases. However, as the list of presumptive connecting factors is not exhaustive, and the decision is limited to assumed jurisdiction over tort claims, the applicability of the Club Resorts analysis to non-tort cases will likely require further consideration in the next few years.

Defamation Claims and "Libel Tourism"

As for multi-jurisdictional defamation claims in particular, the decisions are likely to result in an increase in so-called "libel tourism". In confirming that the tort of defamation "occurs" when and where a defamatory statement is published to a third party (i.e., where it is read), and that "every repetition or republication of a defamatory statement constitutes a new publication", the practical result of Black and Banro is that whenever a plaintiff can demonstrate that at least one copy of an allegedly defamatory publication made its way into Ontario, or was read by someone on the Internet, Ontario courts will have presumptive jurisdiction over any non-resident defendant. Surprisingly, having stated such a broad rule, the Court did not engage in any analysis in Black or Banro as to how a defendant might displace the presumption in a future case.

In addition, the Court left "for another day" one of the most pressing questions impacting multi-jurisdictional defamation claims, namely what substantive law should be applied to determine the claim. Typically in Canada, the law to be applied in tort claims is that of the place of the tort (the lex loci delicti). In Banro, the Court left open the possibility of a new rule in defamation matters in the future. This issue remains unresolved, which adds to the uncertainty facing foreign defendants sued in Canadian defamation actions. This uncertainty is especially troubling in light of the very different defamation law principles in the United States, and that country's unique approach to foreign libel judgments. This will also require clarification soon.

We wish to acknowledge the contribution of Paul Schabas to this publication.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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