Canada: Ontario’s Court Of Appeal Clarifies The Assumption Of Jurisdiction On The Basis Of Contract

When can an Ontario contract be used to maintain proceedings against a foreign defendant in Ontario? How much connection must there be between the Ontario contract and the dispute? When can a foreign defendant avoid an action in Ontario on the basis that it has no connection to the Ontario contract at issue?

One of the connecting factors outlined by the Supreme Court of Canada in Van Breda,1 which allows a Canadian court to assume jurisdiction over an action, is where a "contract connected with the dispute" was entered into in the jurisdiction. In two decisions released in June 2014, the Court of Appeal for Ontario has provided useful guidance on applying this factor.

No nexus between the defendant and the Ontario contract: Tamminga v Tamminga

In Tamminga,2 the plaintiff suffered a motor vehicle-related injury in the province of Alberta. The plaintiff was a resident of the province of Ontario and she commenced an action in Ontario including both (i) tort claims against the vehicle owner and his company, both located in Alberta; and (ii) contract claims against her own insurance company, located in Ontario, based on her uninsured and underinsured motorist coverage.

The question before the Ontario courts was whether the plaintiff's contract claims against her insurer, which arose from the same accident, created a basis for the court to assume jurisdiction over the tort claims against the non-resident alleged tortfeasors. In a decision authored by the newly appointed Chief Justice of Ontario, the Court of Appeal determined that the Ontario courts did not have jurisdiction:

Unlike the contract in Van Breda, there is nothing that connects the appellant's insurance contract to the respondents. They are not parties to or beneficiaries of the contract. The appellant was not visiting... Alberta for any reason related to the contract. The connection between the insurance policy and the dispute only arises in the aftermath of the tort and its application is conditional on the outcome of the appellant's claim against the tortfeasors.

In a word, there is no nexus between the insurance contract and the respondents.3

The Court of Appeal observed that while insurance contracts anticipate an accident generally, they do not identify a tortfeasor in advance. The absence of any connection between the contract and the non-resident defendants was fatal to asserting jurisdiction. Tamminga clarifies and resolves a conflict in the recent Ontario Superior Court jurisprudence and confirms that an Ontario insurance claim cannot be used to "bootstrap" jurisdiction over non-resident defendants. The ruling is likely to put an end to attempts to use a contract claim against a domestic insurer to obtain jurisdiction over a non-resident tortfeasor.

Ontario contract connected to the tort claim: Trillium Motor World v GMC

One week after releasing its decision in Tamminga, the Court of Appeal released a decision considering a case where the requisite nexus between the contract and the non-resident defendants was found to be present.

In Trillium,4 the law firm Cassels Brock was hired by the Canadian Automobile Dealers' Association to advise members on whether or not they should accept wind-down agreements offered by General Motors Canada Ltd. where GMC had decided to terminate certain dealerships as a result of the 2008 economic downturn and the auto industry bailout. The wind-down agreements were expressly governed by Ontario law and the court found the contracts were formed in Ontario. To accept the wind-down agreement, the dealer was required to obtain and attach a certificate of independent legal advice from a local solicitor.

A number of dealers commenced a class action alleging Cassels Brock's advice had been negligent and the firm had acted in a conflict of interest, including a conflict in relation to advice provided to the federal government on the GMC bailout. Cassels Brock, in turn, brought third-party claims in negligence for contribution and indemnity against 150 law firms and sole practitioners across Canada who had provided independent legal advice to the terminated dealers.

The third-party solicitors located outside Ontario brought a motion to challenge the Ontario courts' jurisdiction over the third-party claims as against them, which was dismissed by the motion judge. The third-party lawyers in the province of Quebec appealed. The Court of Appeal for Ontario dismissed the appeal, approving the motion judge's finding of jurisdiction on the basis that, although the third-party solicitors were not parties to the wind-down agreements, there was a nexus between them and the agreements:

  • the third-party lawyers were brought within the scope of the contractual relationship by the very terms of the wind-down agreements, which required that they review the agreement and sign the certificate of independent legal advice (which became a schedule to the agreement);
  • the dispute between Cassels Brock and the third-party solicitors concerned the propriety of the legal advice provided by the latter, and this advice concerned the contractual relationship created by the wind-down agreement and the requirements of the certificate of independent legal advice; and
  • it was reasonable for out-of-province lawyers to be called on to defend Ontario proceedings challenging their advice where the advice was given in respect of a contract the terms of which provided that it was governed by Ontario law and all disputes relating to it would be litigated in Ontario.

The Court of Appeal approved the motion judge's holistic approach to the proceedings, which considered the third-party claims in the context of their relationship to the main action, and his assessment of the character of the actual work undertaken by the third-party solicitors. The Court of Appeal held that, even though Cassels Brock's claims were based in part on the contracts for professional services between the Quebec-resident class members and their Quebec-based local lawyers, the advice given under those Quebec contracts was deeply connected to the Ontario wind-down agreements. This connection to an Ontario contract was sufficient to establish the Ontario courts' jurisdiction over the third-party claims.

Key takeaways

These decisions clarify that an Ontario court may assume jurisdiction over a non-resident defendant on the basis of an Ontario contract only where there is a sufficient nexus connecting the non-resident defendant to the contract.

Based on this jurisprudence, a non-resident company that is a party to, obtains benefits under, or provides services in relation to an Ontario contract should be prepared to defend an action in Ontario. However, a non-resident is unlikely to be required to defend a proceeding in Ontario where it has no prior involvement in the Ontario contract.

Conversely, for a company considering bringing a claim in Ontario against a non-resident based on an Ontario contract to which the non-resident is not a party, it will be important to consider the degree to which the non-resident was involved in the contract or is contemplated by its terms.

Norton Rose Fulbright in Canada were the lawyers for the non-resident defendants in Tamminga. Our Transnational Litigation team is one of the leading Canadian practices in multijurisdictional disputes.

Footnotes

1 Club Resorts Ltd. v Van Breda, 2012 SCC 17.

2 Tamminga v Tamminga, 2014 ONCA 478.

3 Tamminga at paras 25-26.

4 Trillium Motor World Ltd. v General Motors of Canada Ltd., 2014 ONCA 497.

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