Consent Must Have Consequences: Harster Greenhouses v. Visser International

Following in the wake of the Ontario Court of Appeal’s decision in Corporation v. Canadian American Association of Professional Baseball Ltd., 2010 ONCA 722 (CanLII), 2010 ONCA 722, 103 O.R. (3d) 467 (see my backgrounder here and here), the recent Ontario Superior Court of Justice decision in Harster Greenhouses v. Visser International, 2011 ONSC 2608 (CanLII) (“Harster”) further blurs the conceptual distinction between attornment and submission under consent-based jurisdiction. In doing so, it unnecessarily imputes the “strong cause” test into the jurisdictional equation.

In Harster, the plaintiff, Harster Greenhouses Inc. (“Harster”), an Ontario corporation, operates a greenhouse and flower distribution business near Dundas, Ontario.  Harster grows over 100 varieties of African Violets and produces over ten million violets annually for sale throughout North America. The co-defendant, Visser International Trade & Engineering B.V. (“Visser”) is a Dutch limited liability company involved in the design and manufacture of greenhouse equipment and related products. The co-defendant, Plantech Control Systems Inc. (“Plantech”), is an Ontario company which deals in greenhouse equipment and is Visser’s North American agent.

Harster sued Visser and Plantech in Ontario for breach of contract, breach of warranty and negligent misrepresentation, claiming that an automatic sleeving line, manufactured by Visser and sold to Plantech, which in turn sold to Harster, was defective and inoperable.

Visser delivered a notice of intent to defend Harster’s action, but did not deliver a statement of defence. Plantech delivered a statement of defence and a crossclaim against Visser, claiming contribution and indemnity from Visser for all amounts claimed against it by Harster and alleging that any damages sustained by Harster were the result of Visser’s negligence in the design, manufacture and commissioning of the equipment.

Visser then moved to dismiss or stay Plantech’s crossclaim, relying on a forum selection clause in their contract Clause 14 of their Distribution Contract which provides:

(a)   All disputes between parties [sic] arising from this Distribution Contract or being directly or indirectly connected to it shall in the first instance be judged by the competent court in The Hague.

(b)   This Distribution Contract shall be governed only by the law of the Netherlands. Notwithstanding governance by Netherlands laws, all terms of this Distribution Contract shall be construed in English and given their English meaning. The foregoing notwithstanding, patent enforcement issues shall be resolved under the Hague Convention of 1954, as amended.

 Visser sent Plantech an invoice  for the first instalment of the purchase price representing 40 per cent of the total purchase price of €134,345  The invoice was modified by Plantech to insert a pre-payment of 30 percent, as agreed between the parties. On the front page of the two-sided invoice, at the bottom, the following wording appears:

all our transactions are subject to our general conditions (please turn over)

Visser’s General Conditions appearing on the back of the invoice include a heading which reads:

SALES, DELIVERY AND PAYMENT CONDITIONS OF VISSER INTERNATIONALTRADE AND ENGINEERING B.V. (LTD.) established and located in ’s-Gravendeel as deposited with the Chamber of Commerce Rotterdam office Dordrecht, 29 June 1994.

The Dutch Law is applicable to all agreements concluded with us, and the competent court of law is the Dutch Court of Law at Dordrecht.

Based upon the foregoing, Justice Strathy  concluded that the parties agreed that “all disputes” arising from the Distribution Contract or “directly or indirectly connected to it” would be determined by the Court in The Hague, noting that “[t]his was consistent with the forum selection and choice of law provisions of the General Conditions under which the parties had operated for the preceding three years.” (at para. 25)

Strathy J. further notes that:

[39]           Counsel for Visser submitted an opinion from a Dutch lawyer concerning the legal effect, under Dutch law, of depositing the General Conditions with the Chamber of Commerce. This opinion was attached as an exhibit to an affidavit sworn by an assistant in the office of Visser’s counsel. It was filed and referred to without objection. It appears that, under Dutch law, a party to a contract may avoid general conditions if the other party has not given reasonable notice of those conditions. Where it is not possible to provide a copy of the general conditions, reference to the fact that the conditions have been deposited with the Chamber of Commerce and will be forwarded on request is sufficient.

The court’s analysis of the forum selection clause and the “strong cause” test is correct and requires no further elaboration.

However, on the issue of attornment, the court’s analysis is on less stable footing.  Strathy, J. writes,

[44]           Counsel for Plantech submits that by delivering a notice of intent to defend Harster’s action, requesting particulars of the plaintiff’s claim and bringing a motion for particulars, Visser has attorned to the jurisdiction and cannot dispute the court’s jurisdiction over the crossclaim. The crossclaim, she says, is specifically authorized by rule 28.01 of the Rules of Civil Procedure, R.R.O. 1990, reg. 194.

[45]           Counsel for Visser submits that the crossclaim is a separate action, relying on the definition of “action” under rule 1.03, s. 1(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 and Lucas et al. v. Gagnon et al., reflex, [1992] O.J. No. 2727, 11 O.R. (3d) 422 (C.A.) at 434-5.

[46]           There is certainly an argument, which I do not find necessary to resolve, that a foreign defendant who appears and defends an action in Ontario can be taken to attorn to the jurisdiction of the Ontario courts for the purposes of that action and any crossclaim made by a co-defendant. However, the court’s jurisdiction over a defendant, whether as a result of its presence in the jurisdiction, its attornment, or the existence of a real and substantial connection, is separate from the question of whether the court should exercise that jurisdiction: Corporation v. Canadian American Association of Professional Baseball Ltd., 2010 ONCA 722 (CanLII), 2010 ONCA 722, 103 O.R. (3d) 467 (“Momentous”) at paras. 33-37, 44. I will return to Momentous shortly.

[47]           While I am prepared to assume, for the purpose of the balance of the analysis, that Visser has attorned to the jurisdiction of this court, this is not the end of the inquiry. The court must still determine whether it should exercise its jurisdiction. That depends on whether the forum selection clause was a term of the relevant contract, whether the dispute falls within the clause and, if there are affirmative answers to both questions, whether Plantech can show “strong cause” why the parties’ bargain should not be enforced. I turn to those questions.

With all due respect, this reading of is incorrect. Once jurisdiction simpliciter is established, the court need not go further by considering whether it “should” assume jurisdiction, if the court has concluded that it has subject-matter jurisdiction over the lis and personal jurisdiction over the defendants.

In Muscutt v. Courcelles, Justice Sharpe identified three avenues to establish jurisdiction simpliciter:

There are three ways in which jurisdiction may be asserted against an out-of-province defendant: (1) presence-based jurisdiction; (2) consent-based jurisdiction; and (3) assumed jurisdiction. Presence-based jurisdiction permits jurisdiction over an extra-provincial defendant who is physically present within the territory of the court. Consent-based jurisdiction permits jurisdiction over an extra-provincial defendant who consents, whether by voluntary submission, attornment by appearance and defence, or prior agreement to submit disputes to the jurisdiction of the domestic court. Both bases of jurisdiction also provide bases for the recognition and enforcement of extra-provincial judgments.

. . . Assumed jurisdiction is initiated by service of the court’s process out of the jurisdiction pursuant to Rule 17.02. Unlike presence-based jurisdiction and consent-based jurisdiction, prior to Morguard and Hunt, assumed jurisdiction did not provide a basis for recognition and enforcement.

Attornment constitutes consent to the receiving jurisdiction by a positive act. In most Canadian provinces, this is triggered by a defendant delivering a Notice of Intent to Defend or Statement of Defence. Consent-based jurisdiction will also be found where the parties have contractually agreed to have any disputes adjudicated in a specific forum through an enforceable forum-selection or arbitration clause. The “real and substantial connection” test must always be contextualized in light of the prevailing customary international law principles of uniformity, harmonization of international rules, comity and reciprocity.

As I remarked in my previous post on the decision,

“…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.

Further, under the Uniform Court Jurisdiction and Proceedings Transfer Act (UCJPTA) (upon which the newly modified “real and substantial connection” test in Van Breda v. Village Resorts Ltd. is based), the concept of “jurisdiction simpliciter” is subsumed under the term “territorial competence” which is established in a proceeding brought against a person on five grounds, namely:

Proceedings in personam

3 A court has territorial competence in a proceeding that is brought against a

person only if:

(a) that person is the plaintiff in another proceeding in the court to which the proceeding in question is a counterclaim;

(b) during the course of the proceeding that person submits to the court’s jurisdiction;

(c) there is an agreement between the plaintiff and that person to the effect that the court has jurisdiction in the proceeding;

(d) that person is ordinarily resident in [enacting province or territory] at the time of the commencement of the proceeding; or

(e) there is a real and substantial connection between [enacting province or territory] and the facts on which the proceeding against that person is based.

Sub-sections 3(a) to 3(c) reflect consent-based jurisdiction. Sub-section 3(d) relates to presence-based jurisdiction. Sub-section 3(e) incorporates the “real and substantial connection” test and replaces existing rules relating to service ex juris. The UCJPTA distinguishes the concepts of “subject matter competence” and “territorial competence”. “Subject matter competence” means the aspects of a court’s jurisdiction that depend on factors other than those pertaining to the court’s territorial competence, but is otherwise, undefined. Hence, any rules limiting a court’s jurisdiction by reference to the amount or subject matter of the claim or any other non-territorial factors, are unaffected. Conversely, “territorial competence” is “to be determined solely by reference to this Part” , thereby abrogating the common law jurisdiction rules that the UCJPTA replaces. “Territorial competence” means the aspects of a court’s jurisdiction that depend on a connection between:

(a) the territory or legal system of the state in which the court is established; and

(b) a party to a proceeding in the court or the facts on which the proceeding is based.

A “proceeding” is defined as “an action, suit, cause, matter or originating application and includes a procedure and a preliminary motion”, the latter of which would include interlocutory injunctive proceedings in the form of “Anton Piller” and “Mareva” injunctions. This would appear to not include a cross-claim per se.

The list of non-exclusive factors for presumed “real and substantial connection” reflects the existing grounds for service ex juris in the rules of court of most provinces, with a few exceptions. Sub-section 10(e) provides that a “real and substantial connection” is presumed to exist if the proceeding:

10. (e) concerns contractual obligations, and:

(i) the contractual obligations, to a substantial extent, were to be performed in [enacting province or territory];

(ii) by its express terms, the contract is governed by the law of [enacting province or territory]; or

(iii) the contract:

(A) is for the purchase of property, services or both, for use other than in the course of the purchaser’s trade or profession; and

(B) resulted from a solicitation of business in [enacting province or territory] by or on behalf of the seller.

Sub-section 10(e)(i) emphasizes the place of performance (the “lex solutionis”) over the place of contracting (the “locus contractus”), while sub-paragraph 10(e)(ii) stipulates choice of law as a prominent factor. Sub-section 10(f) further includes restitutionary claims. Section 11 is a codification of the forum non conveniens doctrine and the language used reflects the Supreme Court of Canada decision in Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), 1993 CanLII 124 (SCC), [1993] 1 S.C.R. 897(S.C.C.)

The fundamental analytical problem with both the Harster and decisions is that the defendants in either of these cases could simply have brought a preliminary jurisdictional challenge before filing a defence by moving under Rule 17.06 of the Rules of Civil Procedure. Further, 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).

Consent must have consequences. In, the defendants’ attornment by defending on the merits constituted waiver and estoppel.  In Harster, the co-defendant’s attornment by defending on the merits and filing a cross-claim against the other co-defendant should have the same legal effect. In other words, while the co-defendants may have consented to another jurisdiction contractually, the deliberate act of one litigant defending the plaintiffs’ action in Ontario, and then cross-claiming against another co-defendant, equates to waiver of that co-defendant’s original choice.

As I concluded in my previous post:

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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