Club Resorts Ltd. v. Van Breda: Where Are We Now

On March 21, 2011, the Supreme Court of Canada heard oral argument in the matters of Club Resorts Ltd. v. Van Breda and Club Resorts Ltd. v. Charron. The following day, the Court heard oral argument in Breeden v. Black, and on March 25 in Editions Ecosociete Inc. v. Banro Corp., both involving libel actions. The Court released its decisions in all four appeals on April 18, 2012. I had the privilege of representing OTLA in the Van Breda and Charron appeals. This paper will set out the reasons of the Court in light of the arguments made on the Appellants’ and OTLA’s behalf. Before doing so, some background is in order.

The Van Breda and Charron appeals were argued together in the Court of Appeal in April, 2009. During the hearing of the appeals, no one questioned the appropriateness of the eight part test for the assumption of jurisdiction found in Muscutt v. Courcelles (2002), 60 O.R. (3d) 20. While the decisions were under reserve, the Court took the unusual step of contacting counsel and advising that a five judge panel would be convened to hear re-argument of the appeals. The purpose was to consider whether the Muscutt test should be retained, modified or discarded. The impetus, primarily, was academic criticism that the Muscutt test was too flexible and gave too much discretion to judges in an area where certainty was important. It was said that litigants need to know whether a Court will assume jurisdiction before they commence an action.

OTLA became involved at that point and obtained leave to intervene in the Court of Appeal. The Tourism Industry Association of Ontario had also been granted intervenor status. The Court of Appeal released its decision in February, 2010: see 98 O.R. (3d) 721. From OTLA’s perspective, the most significant aspect of the decision was the Court’s move away from fairness, identified as Factors 3 and 4 in Muscutt. The Court had held in Muscutt that part of the jurisdictional analysis involved weighing unfairness to the defendant in assuming jurisdiction against unfairness to the plaintiff in not assuming jurisdiction. As part of this analysis, a Court might take into account considerations such as the cost and inconvenience to the plaintiff of litigating outside the jurisdiction and the availability of insurance to the defendant.

In Van Breda, the Court of Appeal moved away from this, stating that the core of the real and substantial connection test was the connection the parties have to the forum. Fairness would no longer be an independent factor to consider, but rather would be an analytical tool to assess the nature, quality and strength of the connections. The Court, however, dismissed the appeals and held that, as a result of advertising carried out by Club Resorts and contracts with local businesses, there was sufficient connection with Ontario to justify the assumption of jurisdiction. The Appellants sought and were granted leave to appeal to the Supreme Court of Canada.

The position the Appellants put forward on the appeal was that jurisdiction should be tied to the categories of claims found in the Rules of Civil Procedure or statutes such as the Court Jurisdiction and Proceedings Transfer Act, enacted in Nova Scotia, Saskatchewan, British Columbia and Yukon. They argued that if a claim fell within a category provided for in the Rules or statute, there would be a very strong presumption of jurisdiction. If a claim did not fall within such a category, there would be a very strong presumption against jurisdiction. Since the Court of Appeal held in Van Breda that Rule 17.02(h), a tort wherever committed, and Rule 17.02(o), a necessary or proper party to a proceeding brought against another person served in Ontario, did not create a presumption of jurisdiction, the Appellant’s position, if accepted, could have the effect of limiting these classes of claims from assumed jurisdiction.

OTLA addressed these and other points in its Memorandum of Argument. It was argued that: (a) the real and substantial connection test has been treated by the Court as a flexible test, whereas the Appellants proposed test focused rigidly on defined categories; (b) the Muscutt test was preferable to the refinements made in Van Breda. Considering fairness only at the forum non conveniens stage overlooked the fact that, if jurisdiction was refused, the Court would not need to consider forum non conveniens, thereby leaving fairness out of the equation. This would be inconsistent with decisions of the Court emphasizing the need for order and fairness in private international law; (c) there was no need for uniform jurisdictional standards throughout Canada. Judges could be trusted not to overreach and assume jurisdiction where unwarranted to do so.

It is apparent from this brief overview that, underlying the debate between the parties was a much broader issue: the importance in our legal system of the need for certainty as opposed to flexibility. OTLA expanded on this point in oral argument, indicating that our common law legal traditions are rife with judicial discretion. Examples were given of child custody issues in family law cases, and the exclusion of evidence obtained contrary to the Charter of Rights in criminal cases. Clearly, litigants in those cases would want to know the likely outcome before they make critical life decisions, yet the Court has set out flexible, multi-factored tests in those and other equally important matters. The Court of Appeal did the same thing in Muscutt.

It is clear from the reasons in the Van Breda/Charron appeals, 2012 SCC 17, that the Court came down squarely on the side of order over fairness and certainty over flexibility. The Court held that there was an “emerging consensus” that jurisdiction should be tied to objective connecting factors linking the parties to the legal situation before the Court. LeBel J. stated: “In my view, identifying a set of relevant presumptive connecting factors and determining their legal nature and effect will bring greater clarity and predictability to the analysis of the problems of assumption of jurisdiction, while at the same time ensuring consistency with the objectives of fairness and efficiency that underlie this branch of the law.” He went on to say that “Abstract concerns for order, efficiency or fairness in the system are no substitute for connecting factors that give rise to a ‘real and substantial connection’ for the purposes of the laws of conflicts.”

Similar to what the Court of Appeal had held, LeBel J. stated that the connections found in Rule 17.02 of the Rules of Civil Procedure served as a reliable guide for the assumption of jurisdiction. Thus, if a claim falls within a category provided for in Rule 17.02, there would be a presumption that the Court can assume jurisdiction over the dispute. It will be recalled that Rule 17.02 includes claims such as those in respect of property in Ontario, contracts made in Ontario, a tort committed in Ontario or a claim against a person ordinarily resident or carrying on business in Ontario. Reliance on this latter point, however, requires caution since advertising in the jurisdiction or the fact that a website can be accessed in the jurisdiction “would not suffice to establish that the defendant is carrying on business there. The notion of 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.”

Difficult questions arise in respect of Rule 17.02(h), which permits service outside the jurisdiction “in respect of damage sustained in Ontario arising from tort, breach of contract, breach of fiduciary duty or breach of confidence wherever committed.” The Court of Appeal did not give presumptive effect to claims falling within Rule 17.02(h), nor did the Supreme Court of Canada. LeBel J. stated as follows in this regard: “The problem with accepting unreservedly that if damage is sustained at a particular place, the claim presumptively falls within the jurisdiction of the courts of the place, is that this risks sweeping into that jurisdiction claims that have only a limited relationship with the forum. An injury may happen in one place, but the pain and inconvenience resulting from it might be felt in another country and later in a third one. As a result, presumptive effect cannot be accorded to this connecting factor.” Similarly, the presence of the plaintiff in the jurisdiction would not, by itself, “create a presumptive relationship between the forum and either the subject matter of the litigation or the defendant.”

With those considerations in mind, the Court identified the connecting factors that would presumptively accord jurisdiction over a tort claim: (a) the defendant is domiciled or resident in the province; (b) the defendant carries on business in the province; (c) the tort was committed in the province; (d) a contract connected with the dispute was made in the province. Faced with one of these connecting factors, a defendant would bear the burden of showing it would nevertheless be inappropriate for the Court to assume jurisdiction over the dispute.

The list of presumptive connections is not closed. Over time, Courts may identify new connecting factors which would presumptively entitle the Court to assume jurisdiction. In identifying new connections, the Court would consider: (a) the similarity of the new connecting factor with recognized ones; (b) treatment of the connecting factor in the case law; (c) treatment of the connecting factor in statute law; (d) treatment of the connecting factor in the private international law of other legal systems with a shared commitment to order, fairness and comity.

Thus, it is in the identification of new presumptive connecting factors that considerations such as fairness and comity might come into play, as they would “serve as useful analytical tools for assessing the strength of the relationship with a forum to which the factor in question points. These values underlie all presumptive connecting factors, whether listed or new. All presumptive connecting factors 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.”

The end result is that, if the claim does not come within a presumptive category, whether listed or new, “the effect of the common law real and substantial connection test is that the court should not assume jurisdiction. In particular, a court should not assume jurisdiction on the basis of the combined effect of a number of non-presumptive connecting factors. That would open the door to assumptions of jurisdiction based largely on the case-by-case exercise of discretion and would undermine the objectives of order, certainty and predictability that lie at the heart of a fair and principled private international law system.”

It can be seen that convincing a Court to assume jurisdiction over a claim where the tort occurred elsewhere but the damages are suffered in Ontario will be difficult. Such claims do not fall within a presumptive category and creating new presumptive categories will be challenging. It is apparent that new presumptive categories of jurisdiction must be based on broad, structural reasons which lend assurance that it would be reasonable for the defendant to be called upon to answer the claim in the jurisdiction.

One such category might be product liability claims, where the defendant places a product into the jurisdiction’s stream of commerce, even though it may not carry on business there. In my view, another such category, which has found some acceptance in the case law, are motor vehicle accidents occurring in another province or in the United States. The Standard Automobile Policy provides coverage for claims throughout North America, accident benefits are payable for accidents throughout North America and U.S. insurers are required to sign a Power of Attorney and Undertaking giving effect to Ontario law if they wish to do business in Ontario. The Muscutt decision itself involved a car accident in Alberta, in which the Court of Appeal held that Ontario Courts could assume jurisdiction. A similar result was reached in Doiron v. Bugge (2005), 258 D.L.R. (4th) 716, involving a car accident in New York state. It will be interesting to see how the Courts deal with such cases in light of the principles set out in Van Breda/Charron.

All of that said, there are in my view troubling aspects of the Supreme Court of Canada’s decision. In Muscutt and again in Van Breda, the Court of Appeal recognized the importance of damages sustained in the jurisdiction as Factor 1, the connection between the forum and the plaintiff’s claim. The Court had held that, focusing on the defendant’s contacts with the jurisdiction would be “unduly restrictive” and contrary to the Supreme Court of Canada’s emphasis on the need for flexibility. The Court also referred in this context to the comments made by Dickson J. (as he then was) in Moran v. Pyle National Canada Ltd., [1975] 1 S.C.R. 393, at p. 409, regarding the “important interest a state has in injuries suffered by persons within its territory” and “the purpose of negligence as a tort is to protect against carelessly inflicted injury and thus that the predominating element is damage suffered.” Although these comments were made in a product liability claim, it seems to me they have broader application. They are not referred to in the Van Breda/Charron decision.

Similarly, in a number of previous cases, the Court had emphasized that the real and substantial connection was meant to be flexible. For example, in Hunt v. T & N plc, [1993] 4 S.C.R. 289, at p. 325, the Court stated the real and substantial connection test “was not meant to be a rigid test, but was simply intended to capture the idea that there must be some limits on the claim to jurisdiction.” In Pro Swing Inc. v. Elta Golf Inc., [2006] 2 S.C.R. 612, at p. 628, the Court stated that the test was “flexible and its formulation has allowed it to be applied in various and evolving circumstances.” These comments are also not referred to.

In Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, at p. 1103, the Court had said: “Why should a plaintiff be compelled to begin an action in the province where the defendant now resides, whatever the inconvenience and costs this may bring, and whatever degree of connection the relevant transaction may have with another province.” In Tolofson v. Jensen, [1994] 3 S.C.R. 1022, at pp. 1048-1049, the Court had said: “As Morguard and Hunt also indicate, the courts in the various states will, in certain circumstances, exercise jurisdiction over matters that may have originated in other states. And that will be so as well where a particular transaction may not be limited to a single jurisdiction. Consequently, individuals need not in enforcing a legal right be tied to the courts of the jurisdiction where the right arose, but may choose one to meet their convenience. This fosters mobility and a world economy.” These important comments are not referred to in the Van Breda/Charron decision.

It seems to me these sentiments have particular application in tort actions, where there are often multiple defendants, some within the jurisdiction and some not. As the Court of Appeal had said in the earlier decision in McNichol Estate v. Woldnik (2002), 13 C.P.C. (5th) 61, at p. 64: “I do not agree that where an action has some claims with an extra-territorial dimension, and others which have none, the former must be separated and tested in isolation. To do so would, in my opinion, be contrary to the direction set by Morguard and Hunt. It would be a step backwards, towards a focus on territoriality and away from the recognition of the increasingly complex and interdependent nature of the modern world community which lies at the heart of La Forest J’s reasoning. Moreover, it would introduce a rigidity to a test clearly designed to be flexible.” This decision was not referred to by the Court of Appeal or the Supreme Court of Canada.

My fear is that the Court has introduced unnecessary rigidity into the assumption of jurisdiction, and has thereby sacrificed the interests of fairness to order. I hope I’m wrong.