Who will hear me? And, what (law) should I speak? Jurisdiction and Choice of Law in Multinational Disputes

Dec 14

In disputes involving parties located in different nations, complex legal issues frequently arise as to which nation’s court has jurisdiction over the parties and their dispute and which body of law should be applied to resolving that dispute. Such legal questions are determined by principles of conflicts of law (otherwise known as private international law), a broad overview of which is the topic of this blog.

Jurisdiction - which court should hear the dispute?

In a dispute with an international component, the first question that should be asked is: what court has jurisdiction over the parties and the subject matter of the dispute? That is, which court should hear the dispute.

Broadly stated, the question of the Ontario courts’ jurisdiction over persons (individuals and juridical/legal persons such as corporations) can be divided into two general categories: (1) jurisdiction simpliciter (simple jurisdiction) – whether the court (a) has or (b) can assume jurisdiction over a defendant; and (2) if the court has or can assume jurisdiction, whether it should nevertheless decline to exercise that jurisdiction on the basis that there is a more convenient place (forum) to decide the dispute (based on the doctrine of forum non conveniens).

Simple Jurisdiction

The “real and substantial connection test” has been the dominant test used by Canadian courts to decide issues of the assumption of jurisdiction in recent years. However, the real and substantial connection test is not the exclusive test on issues of jurisdiction.[1] Jurisdiction may also be based on traditional grounds, including the defendant’s “presence” in the jurisdiction or consent to submit to the court’s jurisdiction[2] (including by contract – through a forum selection clause contained in a commercial agreement – or attornment).

In general terms, to meet the real and substantial connection test, a party arguing that a court should assume jurisdiction has the burden of identifying one or more presumptive connecting factors that link the subject matter of the dispute to the forum. These factors include but are not limited to: (i) the defendant’s presence (domicile or resident) in the jurisdiction; (ii) the defendant carries on business in the jurisdiction; (iii) a tort (legal wrong) was committed in the jurisdiction; and (iv) a contract connected with the dispute was made in the jurisdiction.[3]

On the fourth factor above, the Supreme Court of Canada has confirmed that assuming jurisdiction based on a contract connected with the dispute made in the jurisdiction is very broad indeed. It is not necessary that all defendants be a party to the contract, that there only be one contract, or that the defendant’s liability immediately flows from his or her contractual obligations.[4] All that is required is that “a defendant’s conduct brings him or her within the scope of the contractual relationship and that the events that give rise to the claim flow from the relationship created by the contract.”[5]

Moreover, the Court of Appeal for Ontario has held that where a case has an extra-territorial dimension, and where the core of the underlying claim is against a domestic defendant, assuming jurisdiction under the real and substantial connection test over a foreign defendant may be necessary to avoid a multiplicity of proceedings in different jurisdictions. This is the case even if the claim would fail the test if it were constituted as a separate action against the foreign defendant only.[6]

In some cases, a statute will govern which court has subject matter jurisdiction to hear a particular type of matter even if the court otherwise has territorial jurisdiction over a defendant. For example, this is the case with statutory claims for corporate oppression, which generally have to be brought before the courts in the jurisdiction in which the company is formed.[7]

Forum Non Conveniens

The doctrine of forum non conveniens is only relevant if the court’s jurisdiction is first established. If jurisdiction is established, and the defendant does not raise further objection, the litigation proceeds before the court of the forum. However, a defendant can invoke forum non conveniens and raise diverse facts to argue that there is another “clearly more appropriate” place to decide the dispute. These factors may 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 a conflicting judgement, problems related to recognition and enforcement of judgment, the relative strengths of the connections of the parties to the jurisdiction(s), and even the loss of juridical advantage.[8]

Unlike the question of jurisdiction, the determination of forum non conveniens is not necessarily permanent, and the court has inherent jurisdiction to lift a stay imposed under the doctrine of forum non conveniens where circumstances later develop that make it unjust to continue the stay of proceedings.[9]

Choice of Law - which body of law should apply to the dispute?

If jurisdiction is established, the second question to ask when dealing with a dispute with an international component is: what body of law applies to the dispute?

This topic can, in turn, be divided up into procedural and substantive law. With the former typically governed by the law of the forum (the lex fori) and the latter determined under conflicts of law principles.

In general, when dealing with disputes with an international component, the characterization of a legal claim (whether in tort, contract, bailment, under statute, or otherwise) has a significant bearing on the applicable choice of law applying to the dispute. In some cases, different substantive laws may apply to different causes of action asserted even in the same proceeding.

Tort Claims (Negligence and Wrongful Intentional Acts) – Proper Law of the Tort

Most tort claims require the analysis of whether or not there is a duty of care, whether there is a standard of care, what the duty and standard are; assuming there is a duty of care, whether the standard of care has been breached, by who, whether the breach caused a loss, and whether the loss is recognizable in law. In some cases, there may be contractual exclusions of liability in tort and limitation periods shorter than those imposed by statute.

Under Canadian conflict of law principles, the choice of law for tort claims is generally the place where the activity in question occurred (the lex loci delicti).[10]

Contract Claims – Proper Law of the Contract

Most contract claims require the analysis of whether a contract was formed, the parties to the contract (privity), the rights and obligations of the parties, whether there were representations that were not repeated in the express contract, whether there was a breach, the nature of the breach and its effect on the remainder of the contract, and especially exclusion clauses, limitations on liability, remedies and express limitations, whether there is a notice of claims provision, express choice of law and forum for dispute resolution, and importantly there is often a consideration if the opposing party made a representation or warranty, through words or conduct, which may result in either (i) a change to express terms of the contract, and/ or (ii) a collateral contract.

For claims in contract, if the parties have not chosen a governing law, the courts will apply the “proper law” of the contract, that is the system of law with which the transaction has its closest and most real connection.[11]

If Express Choice of Law Provisions

If the parties have expressly chosen a governing law in the contract (for example New York law), that law will govern the contract provided that the choice of law is bona fide, legal, and there is no reason for avoiding the choice on public policy grounds.

However, some courts have found that even where a contract contains a choice of law clause, that clause may not apply to tort claims related to or arising out of the contract.[12]

As the above analysis demonstrates, claims involving parties or dealings in multiple jurisdictions frequently raise complex questions that often require careful analysis.

[1] Airia Brands Inc. v. Air Canada, 2017 ONCA 792 at para. 52.

[2] Club Resorts Ltd. v. Van Breda, 2012 SCC 17 at para. 79.

[3] Club Resorts Ltd. v. Van Breda, 2012 SCC 17.

[4] Lapointe Rosenstein Marchand Melancon LLP v. Cassels Brock & Blackwell LLP, 2016 SCC 30.

[5] Lapointe Rosenstein Marchand Melancon LLP v. Cassels Brock & Blackwell LLP, 2016 SCC 30 at para. 44.

[6] McNichol Estate v. Woldnik, 2001 CanLII 5679 (ON CA) at paras. 11-16.

[7] Gould v. Western Coal C

orporation, 2012 ONSC 5184.

[8] Club Resorts Ltd. v. Van Breda, 2012 SCC 17 at paras. 101-112.

[9] Kaynes v. BP P.L.C., 2016 ONCA 601 at para. 11.

[10] Tolofson v. Jensen, [1994] 3 S.C.R. 1022.

[11] Imperial Life Assurance Co. of Canada v. Segundo Casteleiro Y Colmenares, [1967] S.C.R. 443.