Archive for the ‘lex situs’ Category

Ontario Court of Appeal declines to stay execution of foreign judgment pending appeal

April 7, 2011

The Court of Appeal for Ontario in Tiernan v. Dietrich, 2011 ONCA 263 has declined to stay execution of a foreign judgment pending appeal. The matter involves an action to enforce a judgment obtained in Michigan against the defendant, a former Michigan attorney. (more…)

"Share and Share alike?": Subject-matter jurisdiction over foreign securities

July 30, 2010
The July 27th, 2010 decision in Brisbin v. Lunev, 2010 ONSC 1840 (CanLII) (“Brisbin“) highlights the conceptual confusion between personal jurisdiction and subject-matter jurisdiction within Canadian conflict of laws analysis. It also reinforces my view that the Van Breda test for assumed jurisdiction requires further clarification or reconsideration by the Supreme Court of Canada.

In Brisbin, the Plaintiffs on May 29, 2009 commenced an action seeking, inter alia, a declaration that they be issued shares in B & C Architects Limited (“B&C”), a Cypriot company; an accounting of B & C profits; a declaration that loan agreements between the Plaintiff, Brian Brisbin (“Brisbin”) and the Defendants SDS Group Ltd. (“SDS”) and West Group Capital Partners Inc. (“West Group”) are null and void, and damages from the Defendants in the amount of $1,000,000.00.

The Defendants moved for an order staying the Plaintiffs’ action on the grounds that Ontario did not have jurisdiction simpliciter, or, it was forum non conveniens. They also sought an order that service on the corporate Defendants be set aside and that all claims against the individual Defendants in this action be dismissed.

Following argument, the court entertained further written submissions in the wake of the release of the Court of Appeal’s decision in Van Breda v. Village Resorts Limited (2010) 98 O.R. (3d) 721 (Ont. C.A.) (see my earlier post: Supreme Court of Canada grants leave in Van Breda v. Village Resorts Limited appeal) .

The Plaintiffs, Brisbin and Beynon are Canadian citizens both residing in Toronto and are architects and co-principals of Brisbin Brook Beynon, Architects and BBB Architects Toronto Inc. (“BBB”), an internationally known architectural firm with its head office in Toronto. The Defendants Sergey Lunev (“Lunev”), Beynon Fridland (“Fridland”) and Dimitri Rogojanski (“Rogojanski”) all are Canadian citizens residing in Vaughan, Ontario. The Defendants, SDS and West Group are corporations incorporated under the laws of the British Virgin Islands.

For the purposes of this post, I will focus on subject-matter jurisdiction. Recall that the Plaintiffs sought a declaration for a transfer of the shares in B & C to them. It is noteworthy that B & C is a corporation incorporated under the laws of Cyprus. Brisbin is a principal of the the Plaintiff, 2113305 Ontario Inc. (“305”), a corporation incorporated under the laws of Ontario for the purpose of holding shares in B & C, along with each of its subsidiary and affiliate corporations. The Plaintiff, 2113304 Ontario Inc. (“304”) is a corporation incorporated under the laws of Ontario. Beynon is the principal of 304, said to have been incorporated for the same purpose as 305.

The Plaintiffs claimed that the individual Defendants are principals of West Group and SDS who, through West Group, collectively control B & C as essentially shell corporations incorporated in foreign jurisdictions primarily for tax purposes. In my view, this may or may not be true, but it is irrelevant to the jurisdictional analysis.

According to the motion judge:

“A draft Memorandum of Understanding (“MOU”) was prepared and exchanged by the parties and reviewed by their respective counsel. A final form of the MOU was never signed. However, clause 7(a) of one of the versions of the draft MOU provides that the agreement was to be construed, performed and enforced in accordance with the laws of the Province of Ontario.

[16] B&C was incorporated under the laws of Cyprus on October 18, 2006. The Plaintiffs say that B&C was incorporated to carry out the purposes of their agreement with the Defendants, and that all meetings of the board of directors of B&C occurred either at BBB or West Group’s offices in Toronto.

[17] The Plaintiffs claim that although Lunev, Fridland and Rogojanski were to cause West Group, the initial shareholder, to issue to each of 304 and 305 12.5% of the issued and outstanding shares of B&C, they did not do so. Despite repeated requests and demands by the Plaintiffs, no such shares have been issued to either 304 or 305. Their claims sound in contract and in tort, principally the tort of fraudulent misrepresentation.”

Moreover, the motion judge notes that choice of law and choice of forum clauses stipulating the United Kingdom were executed by Brisbin and West Group and SDS, although the Plaintiffs alleged in the Ontario action “that the ‘loan agreements’ are shams, were procured by fraudulent representations by the Defendants and that there was never any intention on the part of the Defendants that they be repaid by Brisbin.” (at para. 23)

Furthermore, in a “race to the courthouse”, on May 28th, 2009, the Defendants SDS and West Group commenced an action in England against Brisbin with respect to the loan agreements alleging default in re-payment of loans. According to Madam Justice Stewart:

“…On May 28, 2009, an application was made to the Master of the Royal Courts of Justice in London, England (the “Master”) to serve Brisbin outside of England. Permission was granted, and on July 22, 2009 Brisbin was served with the documentation relating to the English action. In essence, the actions were commenced virtually simultaneously.

[25] No motion to dispute the jurisdiction of the English court has been made by the Plaintiffs. However, the action in England is suspended pending the determination of this motion. The Defendants take the position that the launching of this action is a response to the English action. The Plaintiffs say they took steps to initiate this action before they came aware of the English action.”

While the motion judge bravely forges into the conflict of laws forest, it appears that the subject-matter jurisdiction is lost for the trees.

At paragraph 40 of the decision, under the heading of “Convenience of Forum”, Madam Justice Stewart writes,

“[40] The Defendants do not appear to advance any particular jurisdiction or forum as being a clearly more convenient one in which to conduct the hearing and make an adjudication upon the totality of the Plaintiffs’ claims. Although they assert that the proceedings to enforce the disputed loan agreements should take place in England, they have not expressed any position regarding where the Plaintiffs’ claim for an order directing B&C to issue shares to them or their other claims should be brought. As noted above, B&C is incorporated pursuant to the laws of Cyprus, and West Group and SDS are incorporated pursuant to the laws of the British Virgin Islands.”

Whether or not the learned motion judge properly applied the “strong cause” test remains debatable. However, the issue of “where the Plaintiffs’ claim for an order directing B&C to issue shares to them or their other claims should be brought” is clear cut. It is an issue not of discretionary forum non conveniens analysis, but, rather of jurisdiction simpliciter; namely, subject-matter jurisdiction.

As Professors Castel and Walker in Canadian Conflict of Laws 6th ed., Loose-leaf (LexisNexis: Butterworths) at pp. 22-4 notes:

“e. Property for Which Title Depends on Registration

Where title to a chose in action, such as a share in a company or some domestic or foreign government stock depends on registration, the chose in action in situated in the place where the appropriate register is kept. In the case of a register maintained in two or more places, the situs of the register is the place where the transfer would be registered in the ordinary course of business. [citations omitted]”

Hence, the applicable law relating to the declaratory relief relating to the B&C shares is the law of Cyprus. Furthermore, the proper test is not the forum non conveniens test, but the Van Breda (formerly Muscutt) factor relating to “Comity and the Standards of Jurisdiction, Recognition and Enforcement Prevailing Elsewhere”.

In a pre-Van Breda decision, Mr. Justice Spence in Galustian v. The SkyLink Group of Companies, Inc., 2010 ONSC 292 (CanLII), identified the critical importance of subject-matter jurisdiction relating to a claim for declaratory relief for transfer of foreign company shares. In considering the Muscutt factors, Spence, J. concludes,

“[62] The common law has developed strict rules regarding the assumption of jurisdiction where the remedy sought by the plaintiff affects foreign real estate or other property rights that are based on records maintained in foreign registers, such as securities. According to Professors Castel and Walker in Canadian Conflict of Laws 6th ed., Loose-leaf (LexisNexis: Butterworths) at pp. 10-52 and 10-53:
It is widely accepted that only the court of the place where an immovable is located may determine a dispute over title to it …

Similar principles apply to other property rights that are based on records maintained in public registers …

It has been regarded as well established that courts will not issue orders purporting to direct or regulate the internal affairs or governance of a corporation incorporated in another jurisdiction and that the courts of that corporation’s domicile will have exclusive jurisdiction to do so.

[63] In Precious Metal Capital Corp. v. Smith 2008 ONCA 577 (CanLII), (2008), 92 O.R. (3d) 701 (C.A.), paras. 17, 21 and 22, the Ontario Court of Appeal recently held that the real and substantial connection test was the exclusive test for assumed jurisdiction in Ontario, and that remedy-based considerations, as set out in older case law, are now subsumed within the Muscutt analysis. In reforming the law in this area, the Court of Appeal made it clear that a foreign Court’s unwillingness to enforce an Ontario order was a highly relevant factor in the Muscutt analysis:

The nature of the remedy sought in the action, particularly if the remedy relates to a foreign immovable such as land, will play an important and sometimes even determinative role in the application of the real and substantial connection test.

… Muscutt is fully capable of taking into account the factors relating to the nature of the remedy sought and identified in [the older case of] Catania. For example, factors three and four in Catania provide:

The jurisdiction cannot be exercised if the local court cannot supervise the execution of the judgment; and

The court will not exercise jurisdiction if the order would have no effect in the situs.

Both of these factors can be addressed under Muscutt’s sixth and/or eighth factors:

The court’s willingness to recognize and enforce an extra provincial judgment rendered on the same jurisdictional basis.

Comity and the standards of jurisdiction, recognition and enforcement prevailing elsewhere.

[64] In the present case, the uncontradicted evidence is clear that a Dubai court would refuse to enforce any Ontario order that purported to declare rights in the securities of a Dubai corporation. Indeed, on the evidence, no Ontario order in this proceeding would be enforceable in Dubai, because the Dubai court would consider itself the appropriate forum and Ontario’s assumption of jurisdiction improper. As the Ontario Court of Appeal has held in Sinclair v. Cracker Barrel Old Country Store, Inc. 2002 CanLII 44955 (ON C.A.), (2002), 60 O.R. (3d) 76 (C.A.) at para. 23 “[i]f an Ontario judgment would not be enforceable in [the defendant’s home jurisdiction], there would be little or no advantage in allowing the Ontario plaintiffs to litigate their claims here”.

[65] Similarly, in Khan Resources Inc. v. W M Mining Co, LLC 2006 CanLII 6570 (ON C.A.), (2006), 79 O.R. (3d) 411 (C.A.) at paras. 15 and 24, the Ontario Court of Appeal held that Ontario’s courts lacked jurisdiction over a claim for proprietary relief on the basis that the order sought by the Plaintiff would be unenforceable in the jurisdiction where the property was located. Although Khan involved real property, rather than personal property, foreign securities are regulated property rights. For this reason, they raise similar concerns to foreign real estate.

[66] For the above reasons, this factor strongly militates against the Court’s assumption of jurisdiction. [emphasis added]

It will be interesting to see whether the Defendants in Brisbin decide to appeal to the Court of Appeal.

PRACTICE TIP
: An order dismissing a motion to dismiss or stay an action on the ground that an Ontario court lacks jurisdiction over a foreign defendant or on ground of forum non conveniens is a final order: M.J. Jones Inc. v.Kingsway General Insurance Co. 2003 CanLII 37356 (ON C.A.), [2003] O.J. No. 4388, 68 O.R. (3d 131 (Ont. C.A.)

Staking Claims Against Foreign Defendants in Canada-Advocates’ Quarterly article

August 26, 2009
For blog readers with an interest in conflict of laws, I have another article on SSRN entitled: Staking Claims Against Foreign Defendants in Canada: Choice of Law and Jurisdiction Issues Arising from the in Personam Exception to the Mocambique Rule for Foreign Immovables (2009) 35 Adv. Q. 230 (the downloadable version is a pre-publication draft, but the published version is available on Quicklaw).

Here is the abstract:

Canadian courts have struggled in distinguishing between in personam jurisdiction and subject-matter jurisdiction (and specifically the Mocambique rule). In particular, they appear to overlook the two-fold jurisdictional requirement that in order to proceed in a given case they must have both types of jurisdiction – in personam and subject-matter – and that when jurisdictional challenges arise due to the fact that the dispute deals with foreign immovables Canadian courts, influenced by the post-Morguard focus on in personam jurisdiction, are dealing with the foreign land question under the rubric of in personam jurisdiction, not under the traditional heading of subject-matter jurisdiction. Part of the problem stems from a judicial preference to apply the Mocambique rule as exclusively a legal rule, while allowing for the in personam exception as a corollary to the “real and substantial connection” test and the Muscutt factors. Professor McLeod’s four pre-requisites for the in personam exception from his seminal text “The Conflict of Laws” remain a relevant doctrinal basis for establishing jurisdiction simpliciter over foreign defendants in claims involving foreign immovables. While Professor McLeod was writing about the four pre-requisites for the in personam exception in 1983, his doctrinal approach remains relevant for determining subject-matter jurisdiction over claims involving foreign immovables.

However, since Professor McLeod’s first pre-requisite only addresses presence-based and consent-based jurisdiction, the court’s have sometimes resorted to the Muscutt factors to assume jurisdiction over property-based claims, which offend the Mocambique rule. The Muscutt factors for assuming jurisdiction should be limited to traditional non-property claims in lieu of service-based or consent-based jurisdiction. The process of characterization is ultimately discretionary. However, the determination of jurisdiction simpliciter is not.

Part I introduces the key components of judicial jurisdiction in the context of Canadian private international law. Part II provides an overview of the nature and scope of the in personam exception. Part III considers the utility of the real and substantial connection test by analyzing the in personam exception through the prism of recent Canadian case law where jurisdictional challenges raised relating to claims involving foreign real property led to divergent results. In Part IV, I conclude by proposing a three-factored test for jurisdiction simpliciter, which integrates the in personam exception in respect of foreign immovables


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