Ontario appeal court’s latest decision on jurisdiction: Stubbs v. ATS International BV

The December 21st, 2010 Court of Appeal for Ontario decision in Stubbs v. ATS International BV, 2010 ONCA 879 (CanLII) (Ont. C.A.) (“Stubbs”) provides a useful summary of the application of the modified Van Breda test for jurisdiction simpliciter involving a counterclaim and confirms that the “strong cause” test likely does not apply in the employment context.

In Stubbs, the four defendants were closely related. All ATS companies are in the business of supplying controls and IT systems and providing training services to increase efficiency in their customers’ operations.  ATS International is the sole shareholder of both ATS Canada and ATS US. Foundation Applied Tech Systems (Foundation) is also located in the Netherlands and holds approximately 15% of the shares of ATS International on behalf of employees of the ATS companies, pursuant to the Employee Share Purchase Plan (the Plan).

Stubbs and Kelly then sued all four defendants in Ontario claiming, inter alia, wrongful dismissal, breach of contract and oppressive conduct, including preferential treatment and stripping the assets or value of ATS NA for the benefit of ATS International. They also sought an order directing Foundation to purchase Stubbs’ shares in ATS International for the Canadian equivalent of 390,000 euros.   ATS Canada and ATS US delivered statements of defence and counterclaim.  Pursuant to art. 10.5 of the Plan, they claimed the right to set off any amounts they owed to Mr. Stubbs against the share sale proceeds.  On September 4, 2009, Foundation advised Stubbs that his shares had been put up for sale and that the sale proceeds totalled 116,435.26 euros.  However, in a letter dated October 5, 2009, written on behalf of the Committee of Foundation, Damman advised that pursuant to art. 10.5 of the Plan, Foundation would hold the share sale proceeds until the parties’ competing claims in this proceeding had been determined.  The letter stated that the request to Foundation to hold the share sale proceeds was made by ATS Canada and ATS US.

On the motion, the defendants argued (to the extent the claims related to ATS International shares) that the forum selection clause in art. 10.7 of the Plan should govern which reads:

This Plan shall be governed by and construed in accordance with the laws of The Netherlands.  Any disputes relating to this Plan shall be settled by the competent Court in Amsterdam.

Justice Rogin dismissed the motion on the basis that both ATS International and Foundation had a “real and substantial” connection to Ontario, noting that by attorning to the jurisdiction, ATS Canada and ATS US effectively conceded that if there had been a breach of the employment contract, it occurred in Ontario.  In my view, attornment establishes consent-based jurisdiction, so the Van Breda factors are irrelevant. In any event,  the motion judge further held that the defendants’ pleadings alleged that ATS International directed certain acts by ATS Canada and ATS US, both of whom counterclaimed against the plaintiffs. The motions judge concluded that these facts indicated that the employment contracts could have been breached in Ontario and “compel” the appearance of ATS International in Ontario under rule 17.02(f)(iv) of the Rules of Civil Procedure. Moreover, the motions judge found that ATS International was a necessary and proper party to a proceeding properly brought against the other defendants, who had been properly served in Ontario under rule 17.02(o) based upon alleged facts in the Statement of Claim.  The motions judge further found that the factors considered in relation to forum non conveniens favoured the plaintiffs in the “interest of justice to avoid a multiplicity of proceedings” and that all of the defendants should be heard from at the same time in the same forum.

The Court of Appeal affirmed. Goudge, J.A., writing for the unanimous court, upheld the motion judge’s analysis of the recent decision of this court in Expedition Helicopters Inc. v. Honeywell Inc. (2010), 100 O.R. (3d) 241 (see my previous post here), where he noted that the court has the discretion to assume jurisdiction, depending on the circumstances of the case, noting:

[37]         In considering the circumstances of this case, the motions judge noted that Mr. Stubbs bought ATS shares from Foundation as part of his employment contract and the Plan requires the shares to be resold to Foundation when his employment ended.  While Foundation repurchased the shares, it held them as security for the counterclaim brought against Mr. Stubbs.

Applying the reformulated test for assumed jurisdiction in Van Breda v. Village Resorts Limited (2010), 98 O.R. (3d) 721, (currently pending appeal to the Supreme Court of Canada), and the “strong cause” test discussed in Expedition Helicopters, supra, Justice Goudge agreed with the motions judge that there was a “real and substantial connection” between both ATS International and Foundation, on the one hand, and Ontario, on the other. The Court of Appeal’s focus was on characterization of the employment relationship and share purchase arising from the employment agreement  (at para. 45-56). Interestingly, Goudge, J.A. emphasizes fairness as an important factor in assuming jurisdiction in this case and questioned the applicability of the “strong cause” test vis-à-vis an employment context, noting:

[57]         I agree with the motions judge that fairness considerations in assessing the strength of the connections also support the assumption of jurisdiction against Foundation.  As he noted, forcing the respondents to relitigate issues relating to the shares in another jurisdiction creates the possibility of inconsistent results.  More significantly, in the circumstances of this case, it would be like trying to unscramble an egg because the shares are enmeshed in the relationship among these parties.  Finally, it is worth noting that the forum selection clause did not originate in Mr. Stubbs’ employment contract.  The clause is contained in the Plan, a document that predates his employment with ATS International.

[58]         If the respondents were required to show “strong cause” for why the forum selection clause should not be enforced, they have met that test.  Having said that, I question whether the “strong cause” test applies without modification because the clause in this case arises in an employment context, rather than a commercial situation where the parties are assumed to have equal bargaining power. [emphasis added]

 

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