A "Momentous" Decision on Consent-Based Jurisdiction

The eponymous title of this post refers to the recent Court of Appeal for Ontario decision in Momentous.ca Corporation v. Canadian American Association of Professional Baseball Ltd., 2010 ONCA 722 [“Momentous.ca”].

In a sense, this decision is indeed momentous for Canadian conflict of laws jurisprudence. While the appeal decision confirms that consent still forms a basis for establishing jurisdiction simpliciter; it now appears that some forms of consent are more important than others.

In Momentous.ca, the defendants/moving parties, Canadian American Association of Professional Baseball, Ltd. (the “League”), Inside the Park, LLC. (“Park”), Greg Lockard (“Lockhard”), Dan Moushon (“Moushon”) and Bruce Murdoch (“Murdoch”)brought a motion for stay or dismissal of the plaintiffs’ action against them and the other defendants, City of Ottawa (the “City”) and Miles Wolff (“Wolff”) pursuant to Rule 21.01(3)(a) of the Rules of Civil Procedure, R.R.O. 1990, regulation 194 (the “Rules”) on the ground that the court has no jurisdiction over the subject matter of the action or alternatively, to have the plaintiffs’ claim struck pursuant to Rule 21.01(1)(b) on the ground that it discloses no reasonable cause of action.  The dispute arose following the demise of the plaintiffs’ Can-Am Baseball League team, the Ottawa Rapidz  which, after two seasons, became insolvent and asked for permission to voluntarily withdraw from the League.  The League refused and instead, triggered an automatic termination of membership for the plaintiffs and called on a letter of credit obligation under the Lease Agreement and the Bylaws. The League Affiliation Agreement and the League’s by-laws stipulated that any dispute between Rapidz Baseball and the League would be resolved by arbitration (or the League’s internal dispute resolution process) and could be litigated only in the courts of North Carolina.

The motion judge framed the issues as follows:
“The Issues
[2]               The moving parties’ principal argument is the jurisdictional issue, namely, that the plaintiffs’ claims arise out of various contracts governing their operation within the League of a professional baseball team in Ottawa called the Ottawa Rapidz.  Those contracts select the applicable law as that of the State of North Carolina and also select alternative dispute resolution procedures and forums and waive access to any state, federal or Canadian legal system (collectively, the “forum selection clauses”).
[3]               The plaintiffs’ respond that as the moving parties have attorned to the jurisdiction of this court by defending their statement of claim on the merits, the jurisdictional argument must fail. 
[4]               The moving parties respond that while they have defended the claim on its merits to avoid being deemed to admit causes of action not pleaded to, at the same time they have raised the jurisdictional argument in the statement of defence and to do both should not bar their jurisdictional arguments when Rule 21.01 is the only mechanism in the Rules allowing a challenge to jurisdiction.
[5]               I have determined that the moving parties cannot be deemed to have attorned to the jurisdiction of Ontario, notwithstanding their defending the claim against them on its merits.  Firstly, they have raised the jurisdictional issue in their statement of defence and pursuant to Rule 21.01, so that they have done all they could so as not to attorn to the jurisdiction.  Secondly, this is not a conflict of laws situation but rather, it is a motion to enforce the forum selection clauses in the contracts governing the parties.

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!

Relying upon the “strong cause” test (see my previous posts : “Strong Cause” or “Weak Effect”?: Exclusive Jurisdiction Clauses and Inter-Provincial Litigation;

and Consent-based jurisdiction: forum selection, choice of law and the Arthur Wishart Act) the motion judge granted the defendants’ motion and dismissed the plaintiffs’ action.

The Court of Appeal affirmed. According to Laskin, J.A. (Gillese and Juriansz JJ.A. concurring):
“[34]          I agree that an Ontario court has jurisdiction, but, in my opinion, the motion judge correctly found that an Ontario court should not take jurisdiction.  Both the choice of forum and arbitration clauses dictate this result.  I will deal first with the effect of the choice of forum clauses, and then with the effect of the arbitration or internal dispute resolution clauses.  
[35]          Questions about the jurisdiction of an Ontario court over a claim typically raise two separate issues.  The first issue is whether an Ontario court has or can assume jurisdiction.  Attornment is relevant to this issue.  An Ontario court has jurisdiction if the defendant consents to its jurisdiction or is present in Ontario, and can assume jurisdiction on being satisfied of “a real and substantial connection” to Ontario:  see Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 (C.A.), at para. 19.   One of the ways that a defendant consents to the jurisdiction of an Ontario court is by attornment – for example, as in this case, by delivering a statement of defence responding to the merits of the plaintiffs’ claim:  see Clinton v. Ford (1982), 37 O.R. (2d) 448 (C.A.).  Therefore, as the non-Ontario defendants attorned to the jurisdiction of the Ontario court and the Ontario defendants are present in the province, an Ontario court has jurisdiction over the plaintiffs’ claim.  But that does not end the matter.  
[36]          When an Ontario court has, or can assume jurisdiction, a second issue arises:  whether an Ontario court should take jurisdiction.  Decisions on whether a court should take jurisdiction are discretionary.  

[37]          The case law recognizes two different classes of cases in which the court is asked to exercise its discretion.  One arises on a forum non conveniens motion; the other where the parties have agreed to a forum to resolve their disputes.  Each class of case has its own onus, test and rationale. 

[38]          On the more usual forum non conveniens motion, a court must determine whether there is another more convenient forum to try the claim.  The defendant has the onus of showing a more convenient forum.  The test invites the application of a now well-recognized list of considerations, which assess the connections to the two competing forums.  And the court’s discretion is guided by the twin rationales of efficiency and fairness:  see, for example, Young v. Tyco International of Canada Ltd. (2008), 92 O.R. (3d) 161 (C.A.). 
[39]          In the other class of case, of which the present appeal is an example, the parties have agreed to a forum to resolve their disputes.  In this class of case, the onus is reversed.  The plaintiff must show why Ontario should displace the forum chosen by the parties.  The test is “strong cause” – the plaintiff must show strong cause why the choice of forum clause should not prevail.  And in exercising its discretion, the court is guided by the rationale that ordinarily parties should be held to the bargain they have made. In the present context, if a team wants to play in a league, it must adhere to the league’s rules:  see Pompey
[40]          The motion judge was therefore correct in analyzing the motion before her under the strong cause test.  And she was also correct in finding that the plaintiffs had not shown strong cause to displace the choice of forum clause agreed to by the parties.
In addition to Juriansz J.A.’s list of “strong cause” factors in Expedition Helicopters Inc. v. Honeywell Inc. (2010), 100 O.R. (3d) 241 (C.A.) at para. 24, Laskin J.A. adds the factor of “inordinate delay” in bringing its jurisdiction motion (citing, Mobile Mini Inc. v. Centreline Equipment Rentals Ltd. (2004), 190 O.A.C. 149 (C.A.) and Sault College of Applied Arts and Technology v. Agresso Corp., 2007 ONCA 525.). In the Momentous.ca case, the defendants brought their motion eight months after the plaintiffs started their action.
The Court of Appeal  concludes,
“[44]          The sole ground the plaintiffs rely on to show strong cause is the defendants’ attornment to the jurisdiction of the Ontario court.  Attornment, however, is relevant only to the question whether an Ontario court has jurisdiction.  It has little or no relevance to the question whether an Ontario court should exercise that jurisdiction.
[45]          Motions challenging the jurisdiction of an Ontario court may be brought under s. 106 of the Courts of Justice Act, rule 17.06 and rule 21.01(3)(a) of the Rules of Civil Procedure.  The Can-Am defendants brought their motion under rule 21.01(3)(a).  A motion under that rule, unlike a motion under rule 17.06, may be brought after the delivery of a notice of intent to defend and a statement of defence.  Nothing in rule 21.01(3)(a) suggests that a defendant is precluded from contesting jurisdiction because its statement of defence responds to the merits of a plaintiff’s claim.  The defendant is required only to bring its motion “quickly after the commencement of the suit”:  see Pompey at paras. 21 and 35.  The Can-Am defendants met that requirement. 
[46]          Moreover, the plaintiffs agreed not only to a choice of forum provision, but as well to arbitration or internal dispute resolution provisions.  This court has stated more than once that when the parties agree to arbitration, the court shall favour giving effect to their agreement and preclude them from litigating in the courts:  see, for example, Mantini v. Smith Lyons LLP (2003), 64 O.R. (3d) 505 (C.A.); Dancap Productions Inc. v. Key Brand Entertainment Inc. (2009), 246 O.A.C. 226 (C.A.).
[47]          And where, as in the present case, the parties have agreed to both choice of forum and arbitration (or internal dispute resolution) provisions, the court has an even firmer basis to preclude the plaintiffs from suing in Ontario:  see GreCon Dimter Inc. v. J.R. Normand Inc., [2005] 2 S.C.R. 401 at para. 22.  The motion judge therefore made no error in concluding that an Ontario court should not entertain the plaintiffs’ action.  I would not give effect to this ground of appeal.”

The balance of Justice Laskin’s reasons briefly address and then dismiss the plaintiffs’ fundamental breach and privity arguments.

What is remarkable about the Momentous.ca appeal decision is not the result. The arbitration and forum selection clauses were both valid and enforceable and the plaintiffs should have litigated in North Carolina. Rather, the Court of Appeal’s reasoning is quixotic when minimizing the defendants’ attornment. Consent may be explicit or implicit; voluntary or involuntary; informed or uninformed.

In any case, giving consent has consequences. In Momentous.ca, the defendants’ attornment by defending on the merits constituted waiver and estoppel. In other words, while the defendants may have consented to another jurisdiction contractually, the deliberate act of defending the plaintiffs’ action in Ontario equates to waiver of its original choice.

The implications are two-fold.

First, when a defendant consents to the Ontario jurisdiction by submission or attornment, it concedes jurisdiction simpliciter. It should not be permitted to rely upon a forum selection/exclusive jurisdiction clause or arbitration clause based upon its post-contractual conduct.

Second, the defendant may still move to stay the proceedings based upon forum non conveniens.

In this way, the contractual principles which inform consent-based jurisdiction remain intact.

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