Tag Archive for: private international law

Law on Jurisdiction Clauses Changes in Canada

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In 2011 Facebook, Inc. used the name and picture of certain Facebook.com members as part of an advertising product.  In response, a class action was started in British Columbia on behalf of roughly 1.8 million British Columbia residents whose name and picture had been used.  The claim was based on section 3(2) of the province’s Privacy Act.  In response, Facebook, Inc. sought a stay of proceedings based on an exclusive jurisdiction clause in favour of California contained in the contracts of use for all Facebook.com members.

Canadian courts had repeatedly held that “strong cause” must be shown to displace an exclusive jurisdiction clause.  In addition, while there was some ambiguity, the leading view had become that the analysis about whether to stay proceedings due to such a clause is separate and distinct from the general forum non conveniens analysis (para 18).  The clause is not simply an important part of the forum non conveniens analysis – rather, it triggers a separate analysis.

In Douez v Facebook, Inc., 2017 SCC 33 (available here) the Supreme Court of Canada confirms the second of these points: the analysis is indeed separate.  However, by a slim majority of 4-3 the court holds that the “strong cause” test operates differently in a consumer context than in the commercial context in which it was originally formulated.  The court overturns the decision of the British Columbia Court of Appeal and rejects a stay of proceedings, paving the way for the class action to proceed in British Columbia.

The Separate Analysis

All of the judges support the separation from forum non conveniens (paras 17, 20 and 131).  I have found this approach troubling as it has developed and so, while not a surprise, I am disappointed to see it confirmed by the court.  As I understand it, the core reason for the separate analysis is to make sure that the clause is not overcome by a series of less important factors aggregated under the forum non conveniens analysis.  So the separate analysis requires that the “strong cause” to overcome the clause has to involve something closely related or intrinsic to the clause itself.  The best explanation of this view is in Expedition Helicopters Inc. v Honeywell Inc., 2010 ONCA 351 (available here; see in particular para 24).  The problem is that courts, in their search for strong cause, frequently go beyond this and refer to factors that are well established under the forum non conveniens approach.

In its analysis, the court puts almost no emphasis on (and does not really even explain, in the way Expedition Helicopters does) how the separate approach differs from forum non conveniens in terms of how the clause gets displaced.  In places, it appears to actually be discussing forum non conveniens (see paras 29-30 and 155), in part perhaps due to its quite direct reliance on The Eleftheria, an English decision I think is more consistent with a unitary framework rather than a separate approach (a point noted in Expedition Helicopters at para 11).  In Douez, the plurality finds strong cause for two reasons: public policy and secondary factors (para 64).  Leaving public policy aside for the moment, it is telling that the secondary factors are “the interests of justice” and “comparative convenience and expense”.  These are the most conventional of forum non conveniens factors.  If this analysis is followed by lower courts, rather than that as explained in Expedition Helicopters, the separate analysis might end up not being very separate.

The Consumer Context

The majority (which is comprised of two decisions: a plurality by three judges and a separate solo concurrence) considers the unequal bargaining power and potential for the relinquishing of rights in the consumer context to warrant a different approach to the “strong cause” test (para 33).  In part, public policy must be considered to determine whether the clause is to be given effect.  As a matter of law, this may well be acceptable.  But one of the key features of the plurality decision is the basis on which it concludes that strong cause has been shown on the facts.  It reaches this conclusion because the contract is one of adhesion with notable inequality of bargaining power and because the claim being brought relates to “quasi-constitutional rights” (para 58), namely privacy.  If these factors are sufficient, then a great many exclusive jurisdiction clauses in standard form contracts with consumers are subject to being defeated on a similar basis.  Lots of consumer contracts involve unequal bargaining strength and are in essence “take it or leave it” contracts.  And it may well not be that difficult for claims to be advanced, alongside other claims, that involve some form of quasi-constitutional rights (the breadth of this is untested).  This possibility that many other clauses do not provide the protection once thought is likely the most notable dimension of the decision.

The Dissent

The dissent would not modify the “strong cause” test (paras 125 and 171).  It stresses the need for certainty and predictability, which are furthered by exclusive jurisdiction clauses (paras 124 and 159).  The dissent concludes the clause became part of the contract, is clear and is not unconscionable.  It reviews possible factors which could amount to strong cause and finds none of them present.  It is critical of the majority for its use of public policy as a factor in the strong cause analysis.  If the clause is enforceable – and in its view it is, even with the inequality of bargaining power – then it is wrong to rely on the factors used by the plurality to find strong cause (para 173).  In the immediate aftermath of the decision I think the dissent has the better of the argument on whether strong cause has been shown in this particular case.

Territorial versus Subject Matter Jurisdiction

The proposed class action relies on a statutory provision.  That statute contains a provision (section 4) that provides that the British Columbia Supreme Court must hear and determine claims under the statute.  The British Columbia Court of Appeal concluded that this provision addresses subject matter jurisdiction and not territorial jurisdiction (para 14).  The dissent agrees with that view (para 142).  In contrast, the plurality conflates the two types of jurisdiction.  While it accepts that the provision is not one which overrides jurisdiction clauses (para 41), in the public policy analysis it is concerned that in litigation in California the plaintiff class would have no claim (para 59).  But as the dissent points out, it is open to the California courts to apply the statute under its choice of law analysis (paras 165-66).  No evidence was adduced to the contrary.  Section 4, properly interpreted, does not prevent that.  Even more worrying is the analysis of Justice Abella in her solo concurring decision.  She concludes that section 4 deals with territorial jurisdiction and so overrides any jurisdiction clause to the contrary (paras 107-08).  This is a remarkable interpretation of section 4, one which would see many other provisions about subject matter jurisdiction instead read as though they addressed territorial jurisdiction (which she does in footnote 1 in para 109).

Conclusion

The split between the judges as to what amounts to strong cause sufficient to set aside an exclusive jurisdiction clause is the most dramatic aspect of the decision.  They see what is at stake very differently.  On one view, this is a case in which consumers should not be deprived of important statutory rights by a clause to which they did not truly agree.  On another view, this is a case in which contracting parties should be held to their agreement as to the forum in which any disputes which arise should be resolved because, even though the contract involves consumers, the agreement is not unfair and has not been shown to deprive them of any substantive rights.  This debate will now play out across a wide range of consumer contracts.

Characterization of Unfunded Pension Liability Claims

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In Re Walter Energy Canada Holdings, Inc, 2017 BCSC 709 (available here) the British Columbia Supreme Court had to consider the validity of a large claim (over $1 billion) filed in restructuring proceedings underway in the province under federal legislation.  The claim was for unfunded pension liabilities and was based on an American statute, the Employee Retirement and Income Security Act of 1974, 29 U.S.C. § 1001.  So the court had to consider whether that statute could apply to a claim in British Columbia against entities organized in Canada (mostly in British Columbia).

Starting at para. 93 the court considered whether the claim against the entities being restructured was governed by Canadian or American law (in each case the relevant law was either federal rather than provincial or state or did not vary as between provinces).  This is a choice of law question which raises the issue of the characterization of the claim.  Canadian courts do not often analyze characterization in detail, but the court did so in this case, making the decision notable.  The claimant argued that the claim was one in the law of obligations and sought to identify the proper law of the obligation.  The entities being restructured in contrast argued the claim went to a point of corporate law, namely their separate existence from other entities in an international corporate group.  The court referred to several of the main general authorities about the characterization process but considered the specific issue before it to be one of first instance.  It sided with the entities being restructured – the claim went to the issue of separation of corporate personality and status.  The American statute was imposing liability by “lifting the corporate veil” (paras. 137-38) between international corporate entities.

Having characterized the issue, the court then had to identify the connecting factor for the choice of law rule.  It held:

[160] The issue as to whether the Walter Canada Group’s separate legal personalities can be ignored is subject to the Canadian choice of law rule that the status and legal personality of a corporation is governed by the law of the place in which it was incorporated, namely British Columbia and Alberta. Here, as with the corporations within the Walter Canada Group, both with limited liability and unlimited liability, it is admitted that all of the partnerships were organized under British Columbia law. Accordingly, the choice of law analysis leads to the same result in relation to the partnerships, namely British Columbia law, including under the Partnership Act, R.S.B.C. 1996, c. 348.

[161] The place of incorporation or organization is a matter of public record and all persons who would do business with or otherwise deal with the Walter Canada Group entities would or should be well aware of that fact.

[162] I agree that, under Canadian choice of law rules, the place of incorporation or organization of the Walter Canada Group entities is the appropriate “connecting factor” in relation to the issue arising from the 1974 Plan’s claim.  As a result, British Columbia and Alberta law determine whether the separate legal personalities of the Walter Canada Group entities can be ignored.

Given that the American statute is not part of British Columbia or Alberta law, the court concluded that the claim failed (paras. 177-78).

 I want to reflect more on the decision, but at this point I am not certain I agree with the characterization analysis.  It is true that the only way the American statute makes the Canadian entities liable is by imposing liability on others within a larger corporate group.  But to me it does not follow that the statute is a matter of corporate status and not of obligation.  The statute imposes an obligation and extends that obligation to various entities.  I think there is room to debate that the primary element of the statute is the obligation it imposes.

However, support for the decision could lie in Macmillan Inc v Bishopsgate Investment Trust (No 3), [1996] 1 WLR 387 (CA), which the court does mention (see for example para. 126), which stresses the possibility of characterizing a specific legal issue within the context of a broader claim.  The analysis could be that there is a nested issue – that of corporate separation or status – within the broader question of liability for an unfunded pension.

New International Commercial Arbitration Statute for Ontario

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Ontario has enacted and brought into force the International Commercial Arbitration Act, 2017, SO 2017, c 2, Sched 5 (available here) to replace its previous statute on international commercial arbitration.  The central feature of the new statute is that it provides that BOTH the 1958 New York Convention and the 1985 Model Law have the force of law in Ontario.  Previously, when Ontario had given the Model Law the force of law in Ontario it had repealed its statute that had given the New York Convention the force of law in Ontario.  This made Ontario an outlier within Canada since the New York Convention has the force of law in all other provinces (as does the Model Law).

The previous statute did not address the issue of the limitation period for enforcing a foreign award.  The new statute addresses this in section 10, adopting a general 10 year period from the date of the award (subject to some exceptions).   Section 8 deals with the consolidation of arbitrations and section 11 deals with appeals from arbitral decisions on jurisdiction.

New Canadian Reference on Conflict of Laws

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Halsbury’s Laws of Canada (first edition) has published a reissue (September 2016) of its volume on Conflict of Laws.  It is written by Professor Janet Walker, the author of the leading Canadian textbook in the field.  The reissue is highly detailed with over 260 pages of tables (cases, conventions, legislation), an index and a glossary.  The substantive content runs to over 600 pages including lengthy footnotes.  The reissue can be purchased as a stand-alone reference (without buying the entire Halsbury’s collection) for conflict of laws in Canada (publisher information available here).

Supreme Court of Canada Allows Courts to Sit Extraterritorially

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In Endean v British Columbia, 2016 SCC 42 (available here) the Supreme Court of Canada has held that “In pan-national class action proceedings over which the superior court has subject-matter and personal jurisdiction, a judge of that court has the discretion to hold a hearing outside his or her territory in conjunction with other judges managing related class actions, provided that the judge will not have to resort to the court’s coercive powers in order to convene or conduct the hearing and the hearing is not contrary to the law of the place in which it will be held” (quotation from the court’s summary/headnote).

The qualifications on the holding are important, since some of the earlier lower court decisions had been more expansive in asserting the inherent power of the superior court to sit outside the province (for example beyond the class proceedings context).  I am concerned about any extraterritorial hearings that are not expressly authorized by specific statutory provisions, but I do appreciate the utility (from an efficiency perspective) of the court’s conclusion in the particular context of this dispute.  It remains to be seen if attempts will be made to broaden this holding to other contexts.

The court has also held that “A video link between the out-of-province courtroom where the hearing takes place and a courtroom in the judge’s home province is not a condition for a judge to be able to sit outside his or her home province. Neither the [class proceeding statutes] nor the inherent jurisdiction of the court imposes such a requirement. The open court principle is not violated when a superior court judge exercises his or her discretion to sit outside his or her home province without a video link to the home jurisdiction” (quotation from the court’s summary/headnote).

This aspect of the decision concerns me, since my view is that the open court principle requires that members of the Ontario public and the media can see the proceedings of an Ontario court in an Ontario courtroom.  It is a hollow claim that they can fly to another province to watch them there.  The separate concurring decision appreciates this aspect of the case more than the majority decision, though it too stops short of requiring a video link.  In its view, “While the court should not presumptively order that a video link back to the home provinces be set up where the court sits extraprovincially, members of the public, the media, or counsel can request that a video link or other means be used to enhance the accessibility of the hearing. If such a request is made, or the judge considers it appropriate, a video link or other means to enhance accessibility should be ordered, subject to any countervailing considerations” (quotation from the court’s summary/headnote).

Conflicts Conference in Toronto

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The following information is provided by the conference organizers.  Given how rare conflict of laws conferences are in Canada, I am delighted to pass this along.

The CJPTA: A Decade of Progress

In 2016, the Court Jurisdiction and Proceedings Transfer Act marks its tenth year in force.  Adopted in British Columbia, Saskatchewan and Nova Scotia, the CJPTA has clarified and advanced the law of judicial jurisdiction. This symposium will assess the progress made by the CJPTA across the range of issues addressed and critically evaluate the capacity of the CJPTA: to provide leadership for the law in other parts of Canada; to enable further development in the law; and to meet the needs of Canadians in the years ahead in a world of increasing cross-border dealings.

Details:

Friday, October 21, 2016 (expected to run from 9am to 4:30pm)

University Club of Toronto (380 University Avenue, just north of the American consulate)

Co-chaired by Professor Janet Walker (Osgoode) and Lisa Munro (Lerners LLP) with the assistance of Dr. Sagi Peari and Gerard Kennedy

We are excited to bring you a fantastic lineup of speakers and panelists discussing a wide range of topics pertaining to CJPTA and judicial jurisdiction.

Space is limited. Kindly RSVP to

Sagi Peari (SPeari@osgoode.yorku.ca)
or
Gerard Kennedy (GerardKennedy@osgoode.yorku.ca)

by October 3, 2016.

New Edition: Canadian Textbook on Conflict of Laws

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Irwin Law has published (August 2016) the second edition of Conflict of Laws by Stephen Pitel (Western University) and Nicholas Rafferty (University of Calgary).  This treatise aims to explain and analyze the rules of the conflict of laws in force in common law Canada in a clear and concise manner.  For the second edition, the chapter on jurisdiction has been rewritten in light of the Supreme Court of Canada’s decision in Club Resorts Ltd v Van Breda (2012) and the evolving jurisprudence under the Court Jurisdiction and Proceedings Transfer Act.  In addition, a new chapter on matrimonial property division has been added.  All chapters have been updated to reflect new decisions, legislative changes and recent scholarship.

The first edition (2010) was shortlisted for the Walter Owen Book Prize and has been cited in decisions of courts across Canada including the Supreme Court of Canada.

More information is available here.

 

Supreme Court of Canada Evolves Test for Taking Jurisdiction

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The Supreme Court of Canada has released its decision in Lapointe Rosenstein Marchand Melancon LLP v Cassels Brock & Blackwell LLP, 2016 SCC 30 (available here).  The decision builds on the court’s foundational decision in Club Resorts Ltd v Van Breda, 2012 SCC 17, which altered the law on taking jurisdiction in cases not involving presence in the forum or submission to the forum.

In Club Resorts the court held that to take jurisdiction in service ex juris cases the plaintiff had to establish a presumptive connecting factor (PCF) and it identified four non-exhaustive PCFs for tort claims.  The fourth of these was that a contract connected with the dispute was made in the forum.  This was viewed as unusual: there was very little precedential support for considering such a connection sufficient to ground jurisdiction in tort cases.  Commentators expressed concern about the weakness of the connection, based as it was on the place of making a contract, and about the lack of a clear test for determining whether such a contract was sufficiently connected to the tort claim.  Both of these issues were squarely raised in Lapointe Rosenstein.

The majority (6-1) agreed with the motions judge and the Court of Appeal for Ontario that this PCF was established on the facts of this case.  Justice Cote dissented, concluding both that the contract was not made in Ontario and that it was not sufficiently connected with the tort claim.

The facts are somewhat complex.  After the 2008 financial crisis the Canadian government bailed out General Motors of Canada Ltd (GM Canada).  In return for this financial support, GM Canada agreed to close dealerships (ultimately over 200) across Canada.  Each dealership being closed was compensated under a Wind-Down Agreement (WDA) between GM Canada and the dealer.  The WDA was governed by Ontario law and contained an exclusive jurisdiction clause for Ontario.  The WDA required each dealer to obtain independent legal advice (ILA) about the consequences of signing the WDA.

Some time after the dealerships closed over 200 dealers brought a class action in Ontario against GM Canada disputing the legality of the WDAs.  They also sued Cassels Brock & Blackwell, the lawyers for the Canadian Automobile Dealers Association, for negligent advice to the dealers.  In turn, Cassels Brock brought third-party claims against 150 law firms which had provided the ILA to the dealers.  Many of the law firms, including those in Quebec, challenged the court’s jurisdiction over the third-party claim.  Cassels Brock argued that the WDAs were contracts made in Ontario and that the WDAs were connected with the tort claim Cassels Brock was advancing in the third-party claim (which was for negligence in providing the ILA).

The court had the chance to adjust or move away from this PCF, given the criticism which it had attracted (see para 88).  But it affirmed it.   Worse, the Court of Appeal for Ontario had at least expressed a willingness to be flexible in determining the place of making of the contract (which in part got around the central weakness in this PCF).  In contrast the majority stresses the “traditional rules of contract formation” (para 31).  Insisting on the traditional rules is what gives rise to the core difference between the majority (Ontario: paras 42-43) and the dissent (Quebec: paras 74-80) on where the WDAs were made.  Those rules mean the dissent is right to point out (para 81) that related connections between the WDAs and Ontario (such as the applicable law and the jurisdiction clause: see para 48) do not, strictly speaking, have anything to do with where the contract is made and so must be ignored on that issue.  The more robust approach of the Court of Appeal allows more to be assessed and thus for an easier (more consensual) conclusion that the WDAs were “made” in Ontario.  There is reason to be quite concerned that the Supreme Court of Canada’s approach will lead to more disputes about where a particular contract has been made, focusing on technical rules, which is unwelcome.

The court also splits on whether the contract, if made in Ontario, is connected to the tort claim.  I am inclined to think the majority gets it right when it finds that it is.  Note, though, that I think it is wrong to claim, as the majority does (para 47 last sentence), that somehow the law firms were brought “within the scope of the contractual relationship” by providing the advice about it.  The best part of the dissent is the demolition of that claim (para 86).  The real problem is that a close enough connection should be available to be found even in the absence of bringing the defendant “within” that contractual relationship.  This PCF, if the misguided narrow focus on place of contracting could be overcome, can be broader than that and thus broader than the dissent would make it (para 87).

Here a local Quebec law firm is asked by its local client to provide it with advice about the client’s entering into the WDA.  The terms of the WDA expressly say that to so enter into it the client has to get that advice.  The WDA is clearly very connected to Ontario.  It seems to me right to say that the WDA is a contract related to any subsequent negligent advice claim the client would advance against the firm.  The WDA is not just context, bearing peripherally on the advice.  The advice entirely centers on the WDA and whether the client should enter into it.  The WDA is what the advice is about.  The majority gets all of this right in para 47 except for its last sentence.  Of the 11 judges who addressed this issue in the three levels of court, only Justice Cote finds the connection between the contract and the tort claim to be insufficient.

So I think the decision is right but the majority errs by stressing the traditional rules of contract formation for assessing the place of making and by using the “within the scope of the contractual relationship” test for the requisite connection.

Some smaller points:

1.  I am somewhat puzzled by the idea (para 31) that parties would expressly think about how they would go about making their contracts so as to have them made in a particular place so as to get to subsequently take advantage of this PCF.  Do parties think like that?  Did they before this PCF was created?  I suppose it is easier to say they now do think like that since they are being told to do so by the court.

2.  For future debates about where contracts are made, I worry about some of the court’s language.  One example is para 40’s reference to where the acceptance “took place”.  Is that compatible with the postal acceptance rule which looks, for some contracts, at the place of posting rather than place of receipt?  Would we say the acceptance in such a case “took place” at the place of posting?  See in contrast para 73.

3.  Justice Cote’s dissent could be seen as a covert attempt to eliminate this PCF.  She insists on a very tight connection between the contract and the tort claim.  She refers to circumstances in which “the defendant’s breach of contract and his tort are indissociable” (para 95; emphasis in original) and states that this PCF “only provides jurisdiction over claims where the defendant’s liability in tort flows immediately from the defendant’s own contractual obligations” (para. 90).  In such cases, this PCF (tied to the place of contracting) might safely be abolished and replaced with other, better PCFs relating to tort and contract claims (especially in light of para 99 of Club Resorts).  It would not be needed for the court to be able to take jurisdiction, as it was on the facts of Club Resorts and Lapointe Rosenstein.  I am sympathetic to a desire to eliminate this PCF, but I think that result needed to be confronted directly rather than indirectly.  In the wake of the majority decision, it is now unlikely to happen at all.

 

Ontario Court Enforces American Judgments Against Iran

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Under the State Immunity Act, foreign states are generally immune from being sued in Canada.  This includes being sued on a foreign judgment.  However, in 2012 Canada enacted legislation to give victims of terrorism the ability to sue a foreign state that sponsored the terrorism.  It also made it easier for foreign judgments against such a state to be enforced in Canada.

In Tracy v The Iranian Ministry of Information and Security, 2016 ONSC 3759 (released June 9, 2016; likely to be posted in the week of June 13, 2016, in CanLII) the Ontario Superior Court of Justice had to consider these legislative reforms and how they applied to a series of American judgments rendered against Iran in favour of American victims of terrorist acts which Iran was found to have sponsored.  The court held that Iran was not immune from the enforcement proceedings and that accordingly the American judgments were enforceable against certain assets of Iran in Ontario.

The decision is reasonably detailed.  It involves interpretation of the State Immunity Act and the Justice for Victims of Terrorism Act.  It also considers issues relating to the limitation period and the enforcement of punitive damages awards (in this case, in the hundreds of millions of dollars).  Not all of the analysis resonates as convincing and there is considerable scope for a possible appeal.  For example, Iran’s argument that the loss or damage suffered by the victim had to have been, on the language of s 4(1) of the JVTA, suffered after January 1, 1985, did not prevent the enforcement of American decisions in respect of acts of terror which happened before that date because, the court held, the victims continued to suffer harm on an ongoing basis.  This seems vulnerable to challenge.  In addition, the court’s reasoning as to why the enormous punitive damages awards were not contrary to public policy is extremely brief.

However, on any appeal, Iran does have a significant procedural problem to overcome.  It did not defend the enforcement actions when they were initially brought in Ontario.  All of the immunity arguments were canvassed by the court as part of Iran’s motion to have the resulting default judgments set aside, on the issue of whether Iran might have a viable defence on the merits.  But at no point did Iran offer any explanation for the initial failure to defend.  While not conclusive, this weighs against setting the judgments aside even if Iran can show merit to its position on immunity.

The timing of the court’s decision against Iran could pose challenges for the current Canadian government, which is currently working to re-engage with Iran after the previous government cut ties in 2012 (see news story here).  In addition, a Montreal-based professor has recently been jailed in Iran and this has caused considerable concern in Canada (see news story here).

Video From 2015 Journal of Private International Law Conference

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As many will know, in September 2015 the University of Cambridge hosted the Journal of Private International Law Conference (see here).  Video of the four plenary sessions has now been uploaded to YouTube.  The videos can be accessed through these links: first plenary, second plenary, third plenary, fourth plenary.