A Triumph of Form Over Substance: Momentous.ca Corp. v. Canadian American Association of Professional Baseball Ltd.

Supreme Court of Canada

The Supreme Court of Canada released its decision this morning in Momentous.ca Corp. v. Canadian American Association of Professional Baseball Ltd.2012 SCC 9 (SCC). A copy of my brief case comment entitled “A “Momentous” Decision on Consent-Based Jurisdiction“, OBA Civil Litigation Section “Keeping Tabs” Volume 19, No. 2 January/Janvier 2011, is available here.

Here is the Court’s brief endorsement:

The following is the judgment delivered by

                          THE COURT —

[1]                              Shortly after filing a statement of defence, the respondents Canadian American Association of Professional Baseball Ltd., Inside The Park LLC, Greg Lockard, Dan Moushon and Bruce Murdoch (the “Can-Am respondents”)  moved under Rule 21.01(3)(a) of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to dismiss the claim on the ground that Ontario Courts had no jurisdiction because the appellants had  signed agreements providing that disputes would be arbitrated or litigated in North Carolina.  The motion judge dismissed the action against all the respondents on the basis of these arbitration and forum selection clauses (2009 CanLll 65823 (Ont. S.C.J.)).  The Court of Appeal for Ontario upheld the decision (2010 ONCA 722, 103 O.R. (3d) 467).

[2]                              The parties to this appeal did not contest the finding of the Court of Appeal that certain respondents had attorned to the jurisdiction, although the motion judge had found that there had been no attornment.  As a result, we do not comment on that issue.  Nor did the appellants suggest that the dispute falls outside of the ambit of the choice of forum or arbitration clauses to which they had agreed.

[3]                              At issue in this appeal is whether the Can-Am respondents could move under Rule 21.01(3)(a) to seek dismissal of the action based on the arbitration and forum selection clauses in the agreements, notwithstanding the delivery of a statement of defence.  The appellants submit that a party that delivers a statement of defence on the merits is precluded from relying upon a forum selection clause, even where the statement of defence explicitly seeks to enforce the clause.  We disagree.

[4]                              The Ontario Rules of Civil Procedure provide two rules under which a party may challenge whether an Ontario court can or should hear an action.

[5]                              Rule 17.06 permits a party who has been served with an originating process outside Ontario to move for an order setting aside the service or staying the proceeding on the grounds that service is not authorized by the Rules or that Ontario is not a convenient forum for the hearing of the proceeding.  This rule requires that the motion be brought before the party delivers a defence, notice of intent to defend or notice of appearance.

[6]                              The Can-Am respondents did not proceed under Rule 17.06.  They did not argue that there was no real and substantial connection to Ontario or that there was a more convenient forum.

[7]                              Rule 21.01(3)(a) permits a defendant to seek a stay or dismissal of the action on the basis that the court has “no jurisdiction over the subject matter of the action”.  Thus, when another forum ― an arbitration panel, a tribunal or another court ― has the exclusive jurisdiction to deal with the claim, the Ontario Superior Court of Justice will not take jurisdiction, based upon agreement or statute.

[8]                              We agree with Laskin J.A. that the Can-Am respondents were entitled to bring a motion under Rule 21.01(3)(a) to ask the court to dismiss the action  because the parties had agreed to arbitrate and litigate disputes in another forum.  Although the motion must be brought promptly, we agree with Laskin J.A. that there is nothing in Rule 21.01(3)(a) that requires it to be brought before delivery of a statement of defence. Within the framework provided by the Ontario Rules of Civil Procedure, a statement of defence that specifically pleads a foreign forum selection clause does not amount to consent that Ontario assume jurisdiction so as to preclude consideration on the merits of whether to enforce the clause.

[9]                              In Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27, [2003] 1 S.C.R. 450, this Court confirmed that, in the absence of specific legislation, the proper test in determining whether to enforce a forum selection clause is  discretionary  in nature.  It provides that unless there is a “strong cause” as to why a domestic court should exercise jurisdiction, order and fairness are better achieved when parties are held to their bargains.

[10]                          The appellants did not argue that there was any reason, apart from the delivery of a statement of defence, for the court to determine that there was “strong cause” for Ontario to displace the forum that the parties have agreed should resolve their disputes.  We agree with the Court of Appeal that the motion judge did not err in the exercise of her discretion to dismiss the action under Rule 21.01(3)(a).

[11]                          With respect to the second issue, whether the claims against the respondents the City of Ottawa and Mr. Wolff could be dismissed, we agree with the reasons of Laskin J.A.

[12]                          Accordingly, we would dismiss the appeal, with costs.

Well, less “momentous” and more “anticlimactic” is my read of the decision. The Court chose to side-step the issue of attornment as a basis for jurisdiction simpliciter based upon consent-based jurisdiction. However, in my view, attornment is now dead (at least when it comes to forum selection and arbitration clauses where the “strong cause” test now reigns supreme)

The Momentous.ca decision is a triumph of form over substance. Procedural justice and substantive justice both require order and fairness, but the Momentous.ca decision reinforces the Court’s view that order trumps fairness. While the parties should be “held to their bargains”, when one party’s post-contractual conduct fundamentally alters the bargain, then the bargain is undone.

Filing a defence on the merits is a deliberate, unilateral decision made by one party to the detriment reliance of the other party, that should operate as a waiver and estoppel by conduct. Disappointingly, the Court chose not to address the implications of the doctrines of waiver and estoppel vis-à-vis consent-based jurisdiction. The upshot is that that defendants are now at liberty to deliver their defences carte blanche and challenge the court’s jurisdiction ex post facto, relying on forum selection or arbitration clauses at any time; albeit without undue delay. The Court also ignored the ramifications of acceptance of service by counsel on behalf of a foreign defendant. Does this mean that presence-based jurisdiction is also irrelevant where a forum selection clause or arbitration clause exists?

Paragraphs 5 and 6 of the Momentous.ca decision effectively render Rule 17.06 of the Ontario Rules of Civil Procedure obsolete. The purpose behind Rule 17.06 is to allow a defendant to challenge the court’s jurisdiction before filing a Notice of Intent to Defend or Statement of Defence ,thereby avoiding attornment.

This decision will only add another layer of legal costs through the exchange of pleadings and demands for particulars, hence,  creating more, not less, uncertainty for litigants.

We will have to wait and see whether the Court’s pending decision under reserve in Van Breda v. Village Resorts Ltd. (argued last year on March 21, 2011) will clarify the law of jurisdiction in this area.

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5 Responses to “A Triumph of Form Over Substance: Momentous.ca Corp. v. Canadian American Association of Professional Baseball Ltd.”

  1. Ted Folkman Says:

    Antonin, thank you for bringing this case to light. I am curious why the outcome seems unfair to you. Is it the length of time between the filing of the statement of defense and the motion to dismiss, and the possibility that the plaintiffs may have incurred litigation costs in that interim? I read the court’s decision simply as a rejection of a per se rule that a motion to dismiss on forum selection clause grounds must be made before a statement of defense is filed. Given what the court says in paragraph 8 (“Although the motion must be brought promptly, we agree with Laskin J.A. that there is nothing in Rule 21.01(3)(a) that requires it to be brought before delivery of a statement of defence”), is it not the case that a court could reject an unduly dilatory motion?

  2. Antonin I. Pribetic Says:

    Ted, my issue with this decision is that it renders moot the assertion of jurisdiction by attornment, not by submission. In the former case, delivery of a notice of intent to defend or a statement of defence constitutes attornment. In the latter case, prior agreement on forum or arbitration constitutes submission.

    As I wrote in my earlier post comment on the Court of Appeal’s decision in Momentous.ca:

    “There are a number of analytical problems with the issue-framing which obscure the jurisdictional picture.

    First, arbitration clauses are not forum selection clauses.

    Second, consent-based jurisdiction is not about “subject-matter jurisdiction”; rather, it is about “personal (or in personam) jurisdiction” when a non-resident defendant— by prior agreement or subsequent conduct—brings itself within the domestic court’s jurisdictional embrace, which then allows the domestic court to exert its adjudicatory jurisdiction over the non-resident defendant by making an order that will be binding and enforceable, inter partes. There are different means to establish consent-based jurisdiction: voluntary submission, attornment by appearance and defence, or by prior agreement to submit disputes to the jurisdiction of the domestic court. In this peculiar instance, the plaintiff attorned to a foreign jurisdiction (North Carolina), while the defendants voluntarily submitted to the Ontario jurisdiction.

    Third, it is incorrect to suggest that the defendants “…have done all they could so as not to attorn to the jurisdiction.” They could simply have brought a preliminary jurisdictional challenge before filing a defence by moving under Rule 17.06 of the Rules of Civil Procedure. Also, section 106 of the Courts of Justice Act retains the court’s inherent jurisdiction to stay a proceeding on the ground that it lacks subject-matter jurisdiction over the lis. However, in no case is the court’s adjudicatory (or judicial) jurisdiction affected when a defendant voluntarily submits (by admission of service of process within the court’s jurisdiction) or attorns (by delivering a defence on the merits).

    Finally, forum selection clauses and arbitration clauses are about conflict of laws because they are about jurisdiction!”

    Historically, after the UK double-actionability rule was abolished in 1990 by the Supreme Court of Canada in Morguard v. de Savoye, the “real and substantial connection” test for assertion of jurisdiction over foreign defendants has taken a circuitous journey through our Canadian courts.

    However, in the Ontario Court of Appeal decision in Muscutt v. Courcelles, Justice Sharpe reaffirmed the three bases of adjudicatory jurisdiction: 1. presence-based jurisdiction, 2. consent-based jurisdiction and 3. assumed jurisdiction. Only in the latter case, was the “real and substantial connection” test intended to apply, in lieu of the defendant’s physical presence or the defendant’s prior submission to the court’s jurisdiction. Yet, even the “real and substantial connection” test has been modified by the Ontario Court of Appeal in Van Breda v. Village Resorts Ltd. (currently under reserve by the Supreme Court of Canada). Many Canadian practitioners hoped that the Supreme Court of Canada would clarify the question of the effect of a defendant’s attornment contrary to a prior agreement on a different forum. Now that the Supreme Court of Canada has affirmed the Ontario Court of Appeal’s view of the primacy of forum selection and arbitration clauses (unless the plaintiff can demonstrate “strong cause” under the test in Z.I. Pompey (which approved the UK decision in The Eleftheria)), the effect of the Momentous.ca decision is to further complicate the existing jurisdictional tests: one for assumed jurisdiction; one for consent-based jurisdiction; and one for forum non conveniens.

    The net effect is that the positive act of filing a defence on the merits no longer constitutes attornment or submission by way of consent-based jurisdiction. As I stated in my post, Rule 17.06 of the Ontario Rules of Civil Procedure is now rendered superfluous, except in non-contractual cases.

    The timing of the motion is also a problem. While a court can dismiss a motion if not brought promptly, the court does not provide a bright-line rule as to what constitutes undue delay. Is it before documentary discovery, oral discovery, mediation, setting the action down for trial, pre-trial or trial?

    Best,

    N.

  3. Ted Folkman Says:

    Nino, thanks, that is a clear statement of the view. It’s interesting to me that forum selection clauses are apparently thought to have jurisdictional effects in Canada. Here I think the tendency is to say that they do not divest the court of its subject-matter jurisdiction. So for example, when a federal court remands a case to state court on forum-selection-clause grounds, the decision is appealable, even though a remand for lack of subject-matter jurisdiction is not appealable, because the forum selection clause is not thought to be jurisdictional in nature. Similarly, motions to dismiss on forum-selection-clause grounds are not thought to be jurisdictional, which has important implications for the timing of such motions and for waiver. (More particularly: if the forum selection clause issue were truly jurisdictional, then the defendant could move to dismiss at any time prior to trial and could not waive its right to do so, at least in federal court). So what seems to be a puzzle in Canada would be quite routine here, I think.

  4. Case of the Day: Momentous.ca v. Canadian American Ass’n of Professional Baseball | Letters Blogatory Says:

    [...] Canadian American Association of Professional Baseball, Ltd., 2012 SCC 9. HT to Stephen Pitel and Antonin Pribetic for bringing the case to [...]

  5. Case of the Day: Momentous.ca v. Canadian American Ass’n of Professional Baseball | Letters Blogatory Says:

    [...] Canadian American Association of Professional Baseball, Ltd., 2012 SCC 9. HT to Stephen Pitel and Antonin Pribetic for bringing the case to [...]

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