Canada: Court Of Appeal Accepts Ontario Jurisdiction Despite Forum Selection Clause For Germany

During the spring of 2012, the Canadian Appeals Monitor posted a five-part series on the Supreme Court's judgments in Van BredaBlack, and Éditions Écosociété (the "Van Breda Trilogy"). The Van Breda Trilogy was the Supreme Court's long anticipated reformulation of the common law principles of private international law.

Since the release of the Van Breda Trilogy, courts of first instance have applied the controlling test in Van Breda without much interference from appeal courts. However, on May 31, 2013 the Ontario Court of Appeal released its judgment in 2249659 Ontario Ltd. v. Sparkasse Siegen, overturning Justice Carole Brown's decision denying Ontario's jurisdiction to hear the matter. Of particular interest in the Sparkasse case is the court's finding on the non-applicability of the forum selection clause in favour of Germany.

Background

The plaintiff/appellant, Rohwedder Canada Inc. ("RCI"), is an Ontario-based manufacturer and retailer of automated assembly lines. (RCI was acquired by 2249659 Ontario Ltd. after its parent company declared bankruptcy).

The defendants/respondents are Thomas Magnete GMbH ("TMG"), a German manufacturer and retailer of solenoids (used in the production of automotive transmission systems), and Sparkasse Siegen Bank ("Sparkasse"), a German bank servicing TMG and other Thomas family companies.

Events at Issue

In September 2007, RCI and TMG entered into an agreement for the purchase and installation of assembly lines in an automotive plant in Cambridge, Ontario. The agreement, in the form of a purchase order, was negotiated in Germany and signed by RCI in Ontario. The purchase order contained a forum selection clause stipulating Germany as the jurisdiction of choice. A few months later TMG and RCI entered into a Confidentiality Agreement related to the assembly line project that also identified Germany as the choice of forum.

In the fall of 2007, TMG incorporated Thomas Magnete Canada Inc. ("TMC") in Ontario and sought financing from Sparkasse for TMC to purchase RCI's assembly lines. Sparkasse agreed to a loan on the condition that TMG provide a guarantee.

TMG then asked RCI to substitute TMC for TMG as the purchaser of the assembly lines. Some of these discussions took place in Ontario. After receiving a letter by email (received in Ontario) from Sparkasse to TMG confirming project funding, RCI agreed to make the substitution. A second purchase order was entered into on the same terms and conditions as the first.

RCI delivered the assembly lines in accordance with the purchase orders but the project was promptly suspended after the company to whom TMC was to provide the solenoids went bankrupt. TMC acknowledged a balance of $1.489M owing to RCI.

RCI commenced this lawsuit against TMG and Sparkasse in Ontario in tort and contract. RCI claimed that the defendants/respondents guaranteed payment of any outstanding balance owed by TMC to RCI in connection with the manufacture and installation of the assembly lines. RCI further claimed that a failure to satisfy the guarantee established the basis for the tort of negligent misrepresentation and for breach of contract.

Justice Carole Brown of the Ontario Superior Court heard the jurisdiction motion and decided that Ontario lacked jurisdiction simpliciter and was forum non conveniens.

Analysis by the Ontario Court of Appeal

Justice Doherty, writing for the court, applied the controlling test in Van Breda and overturned Justice Brown's decision rejecting Ontario's jurisdiction and finding Ontario to be forum non conveniens.

Jurisdiction Simpliciter

Justice Doherty identified three errors made by Justice Brown in concluding that Ontario did not have jurisdiction simpliciter. First, Justice Brown erred in her interpretation of the forum selection clause and its applicability to the jurisdiction simpliciter analysis. Justice Doherty clarified that a forum selection clause did not determine jurisdiction simpliciter but informed the second step in the analysis, forum non conveniens. He stated, "[a] forum selection clause is relevant to whether Ontario should exercise its jurisdiction and not whether Ontario has jurisdiction."

Second, Justice Doherty rejected consideration of the adequacy of the pleadings in a jurisdiction motion. Simply, Justice Doherty confirmed that "[a] jurisdiction motion is not the time or place to consider the adequacy of the pleadings for the purpose of trial".

Third, Justice Brown erred in focusing on the purchase orders as the source of the contractual breach. The breach of contract was not the failure to fulfill the terms of the purchase orders but was the failure to fulfill the alleged guarantee.

Justice Doherty concluded that the appellant satisfied the first part of the Van Breda test by identifying three presumptive connecting factors that the respondents failed to rebut. The three presumptive connecting factors (of which only one is necessary to pass this stage) were: (1) the respondents were carrying business in Ontario; (2) the tort of negligent representation occurred in Ontario; and, (3) the contracts relied on in the Statement of Claim were made and breached in Ontario.

To that end and of note, Justice Doherty found that the tort of negligent misrepresentation occurred in Ontario because the email containing the alleged misrepresentations was received at RCI's place of business in Ontario.1 The contract was made in Ontario because RCI received notification of acceptance of its offer to substitute TMC for TMG at its office in Ontario. Citing Eastern Power Ltd v. Azienda Communale Energia and Ambiente, the location where the offeror receives notification of the offerees' acceptance marks the location of the contract.

Based on the foregoing, the court concluded that Ontario had jurisdiction simpliciter.

Forum Selection Clause

Justice Doherty next addressed the applicability of the forum selection clauses contained in the Confidentiality Agreement and the purchase orders. He stated that a forum selection clause did not preclude Ontario from assuming jurisdiction but required the plaintiff to show a "strong cause" that the clause should not be enforced. In this case Justice Doherty found that the forum selection clauses contained in the purchase orders and the Confidentiality Agreement were not applicable to the appellant's claims.

First, the forum selection clause found in the Confidentiality Agreement was explicitly limited to "all disputes arising from or in connection with this agreement." Since the terms of the Confidentiality Agreement were not in dispute, the clause did not apply.

Second, similar to the Confidentiality Agreement, the forum selection clauses contained in both versions of the purchase order did not extend to any related agreements. Since the terms of the purchase orders were not in dispute (rather the dispute related to the fulfillment of the guarantee), the forum selection clauses contained therein did not apply. As a side, Justice Doherty raised suspicion as to whether either version of the forum selection clause was clear enough to create an effective clause.

Forum Non Conveniens

Justice Doherty then turned to the second step in the Van Breda test – the forum non conveniens inquiry. He confirmed the high regard for judicial discretion at this stage, stating that deference must be accorded to the judge of first instance with no interference except where an error of law or principle, or a clear and serious factual error has occurred.

In this case, Justice Brown erred in finding that the choice of law clause in the purchase order was valid and applied. Moreover, she completed a forum non conveniens analysis despite her conclusion, which amounted to an error in law (the finding of no "strong cause" renders a forum non conveniens analysis unnecessary). The error in law removes deference to the motion judge's decision and requires the Court of Appeal to conduct its own analysis of forum non conveniens.

The Court of Appeal focused its analysis of forum non conveniens on the commercial activity giving rise to the litigation. "Commercial activity" not only included the guarantees but also the actions leading up to the guarantees. Justice Doherty summarized, "[t]he commercial activities that give context to this litigation can be described as business decisions made by Germans in Germany about doing business in Ontario". The Court accepted that both jurisdictions had meaningful connections to the commercial activity and found that the respondents failed to establish that Germany was a clearly more appropriate forum for resolving the claims. Justice Doherty concluded that Ontario was not forum non conveniens.

Potential Significance

This case is instructive in analyzing the validity and applicability of forum selection clauses. In this case, the Court of Appeal dismissed the applicability of the forum selection clause on the grounds that the claims advanced by the plaintiff/appellant focused on the related agreement of the guarantee and not on the interpretation or enforcement of any of the terms of the purchase orders or the Confidentiality Agreement. Since language of the purchase orders in particular did not extend to any related agreements, the clause did not apply.

Courts must engage in an in-depth and meaningful analysis of the entire circumstances surrounding the creation of agreements to determine jurisdiction simpliciter and forum non conveniens. In this case, the motions judge erred by focusing her analysis on the effect of the purchase orders and not on the agreement of the guarantee.

Finally, this decision assists with interpreting the situs of the tort and contract under Van Breda. Van Breda identifies the location of the tort and the location of the creation of the contract as presumptive connecting factors, either one of which is sufficient to trigger jurisdiction simpliciter.

Justice Doherty held that the location where the email containing the alleged misrepresentations was received, and the location where notification of acceptance of RCI's offer was received, established the situs of the tort and contract creation. Justice Doherty's brief analysis of the breach of contract and the tort of negligent misrepresentation provides insight into how courts will determine the situs of the tort and contract going forward.

Case Information

2249659 Ontario Ltd. v. Sparkasse Siegen, 2013 ONCA 354

Docket: C55836

Date of Decision: May 31, 2013

Footnotes

1.It bears noting that at para 35, Justice Doherty stated "[a]s I am satisfied that the alleged negligent misrepresentations were made in Ontario...". Throughout the decision, Justice Doherty is clear that it is where the representations were received and not where they were expressed that determines where the misrepresentations were "made" (cites Cannon v. Funds for Canada Foundation).

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