IN THIS ISSUE. Lago Agria Comes to Canada: A High-Profile Stress Test for the Principles in Beals v. Saldanha

VOLUME 1, NUMBER 3 Cited as 1 C.L.A.R. AUGUST 2012 IN THIS ISSUE Lago Agria Comes to Canada: A High-Profile Stress Test for the Principles in Beals v. Saldanha Be-Nazeer Damji, Gregory Sheppard, and Yousuf Aftab...37 Very Real and Very Substantial: The Supreme Court of Canada Reformulates the Common Law Test for Assumption of Jurisdiction in Club Resorts Ltd. v. Van Breda Pierre-Jérôme Bouchard and Nour Dib...43 Ontario Court of Appeal Limits Review of Arbitrator s Interlocutory Orders in Domestic Arbitrations Barry Leon and John Siwiec...48 U.S. Supreme Court Rules on Enforceability of Arbitration Clauses in Consumer Contracts Ron Podolny...52

VOLUME 1 NUMBER 3 COMMERCIAL LITIGATION AND ARBITRATION REVIEW Commercial Litigation and Arbitration Review The Commercial Litigation and Arbitration Review is published quarterly by LexisNexis Canada Inc., 123 Commerce Valley Drive East, Markham, Ont., L3T 7W8, and is available by subscription only. Web site: www.lexisnexis.ca Design and compilation LexisNexis Canada Inc. 2012. Unless otherwise stated, copyright in individual articles rests with the contributors. ISBN 0-433-47142-5 ISBN 0-433-47146-8 (print & PDF) ISBN 0-433- 47144-1 (PDF) Subscription rates: $265.00 (print or PDF) $405.00 (print & PDF) National Editor: Yousuf Aftab Dan Tan Law Tel.: (646) 580-0080 E-mail: yousuf@dantanlaw.com LexisNexis Editor: Boris Roginsky LexisNexis Canada Inc. Tel.: (905) 479-2665 Fax: (905) 479-2826 E-mail: clrv@lexisnexis.ca Editorial Board: Rahool Agarwal Norton Rose Canada LLP Pierre-Jérôme Bouchard McCarthy Tétrault LLP Tina Cicchetti Fasken Martineau DuMoulin LLP Robert Deane Borden Ladner Gervais LLP Stephen Drymer Norton Rose Canada LLP Barry Leon Perley-Robertson, Hill & McDougall LLP/s.r.l. Nicholas McHaffie Stikeman Elliott LLP Justin Necpal Torys LLP Megan Shortreed Paliare Roland Barristers John Terry Torys LLP Evan Thomas Osler, Hoskin & Harcourt LLP Maia Tsurumi Cohen Commission Note: This Review solicits manuscripts for consideration by the National Editor, who reserves the right to reject any manuscript or to publish it in revised form. The articles included in the Commercial Litigation and Arbitration Review reflect the views of the individual authors. This Review is not intended to provide legal or other professional advice and readers should not act on the information contained in this Review without seeking specific independent advice on the particular matters with which they are concerned. 38

COMMERCIAL LITIGATION AND ARBITRATION REVIEW VOLUME 1 NUMBER 3 VERY REAL AND VERY SUBSTANTIAL: THE SUPREME COURT OF CANADA REFORMULATES THE COMMON LAW TEST FOR ASSUMPTION OF JURISDICTION IN CLUB RESORTS LTD. V. VAN BREDA PIERRE-JÉRÔME BOUCHARD AND NOUR DIB Introduction On April 18, 2012, the Supreme Court of Canada released its long-awaited decision in Club Resorts Ltd. v. Van Breda 1 concerning the applicable principles for the assumption of jurisdiction (i.e., jurisdiction simpliciter) by Canadian common law courts over disputes in an international or interprovincial context. Van Breda is the culmination of two decades of conflicting case law following the Supreme Court s seminal Morguard 2 decision. In Morguard, the Court held that questions of jurisdiction had to be resolved in light of the principles of order and fairness, the necessity for jurisdictional restraint and the existence of a real and substantial connection between the subject matter of the dispute or the defendant and the forum. In the wake of 43

VOLUME 1 NUMBER 3 COMMERCIAL LITIGATION AND ARBITRATION REVIEW Morguard, courts struggled with the status and substance of the real and substantial connection test. In 2002, the Ontario Court of Appeal attempted to give it content in Muscutt 3 by identifying factors that could be considered relevant. In Van Breda, the Court reformulates the Muscutt test with a view to restoring greater certainty and predictability in the context of growing jurisdictional dilemmas. The Court reiterates that the assumption of jurisdiction requires a significant nexus between the subject matter of the litigation or the defendant and the forum and cautions against the creation of a universal jurisdiction for certain tort claims. Van Breda is clearly important in common law provinces. But it may also have an impact in Quebec, where the Civil Code [CCQ] governs the private international law regime. Justice LeBel s acknowledgment of the similarities between the policies underlying the rules of private international law in both systems, and his holding that the real and substantial connection test has a constitutional dimension, suggests that Quebec s private international law regime may also be shaped by Van Breda. Background The Van Breda decision arose out of two separate claims brought by tourists from Ontario who were injured while on vacation in Cuba and sued foreign defendants in Ontario courts upon their return. In both cases, some of the defendants brought motions to dismiss the action on the grounds that Ontario courts lacked jurisdiction or, alternatively, should decline to exercise jurisdiction on the basis of forum non conveniens. In both actions, the Superior Court of Justice found that Ontario courts had jurisdiction and that they constituted the appropriate forum. The two cases were heard together by the Ontario Court of Appeal. After the hearing before a threejudge panel, the Court referred the case to a fivejudge panel and invited the parties and interveners to present submissions with a view to reconsidering the Muscutt test in light of the myriad developments since 2002 (seminal Supreme Court decisions, 4 the adoption by a number of provinces of a uniform jurisdictional statute model, the Court Jurisdiction and Proceedings Transfer Act [CJPTA] drafted by the Uniform Law Conference of Canada, 5 the development of the forum of necessity doctrine, etc.). The Court of Appeal affirmed the conclusion reached by the Superior Court and revisited the Muscutt test by, inter alia, creating rebuttable, category-based presumptions for jurisdiction simpliciter, moving the test closer to that of the CJPTA. Supreme Court Decision The Supreme Court, in a unanimous opinion written by LeBel J., 6 substantially modified the test developed by the Ontario Court of Appeal, while agreeing with the creation of rebuttable categorybased presumptions of jurisdiction. The Court s formulation of the test has two steps. First, the plaintiff has the burden of establishing a presumptive factor connecting the defendant or the dispute to the forum. In cases involving tort claims, the Supreme Court recognizes the following factors as presumptive connecting factors that afford a court prima facie jurisdiction over a dispute: (a) the defendant is domiciled or resident in the province; (b) the defendant carries on business in the province; (c) the tort was committed in the province; (d) a contract connected with the dispute was made in the province. 7 Importantly, Van Breda leaves the door open for courts to identify new presumptive connecting factors over time and issues guiding principles regarding the recognition of new factors. 8 Second, if the plaintiff successfully establishes that a presumptive connecting factor applies, the burden shifts to the defendant to rebut the presumption of jurisdiction by showing that the presumptive factor points only to a weak relationship between the subject matter of the dispute and the forum. 9 The Court s reasons emphasize two key principles: (i) the need for a relatively strong connection between the dispute and the forum; and (ii) the need to achieve order and predictability in the resolution of jurisdictional disputes. 44

COMMERCIAL LITIGATION AND ARBITRATION REVIEW VOLUME 1 NUMBER 3 1. Guiding principle: connection to the forum a constitutional imperative Justice LeBel acknowledges a lack of clarity in the Court s jurisprudence concerning the relationship between constitutional limits on the assumption of jurisdiction by provincial courts and provincial private international law or conflicts rules. 10 Is the real and substantial connection test a simple conflicts rule or a constitutional principle? Both, says the Court. To remedy the confusion, LeBel J. draws a distinction between the constitutional and private international law dimensions of the test. 11 In its constitutional dimension, the real and substantial connection test places limits on the reach of provincial conflicts rules and the assumption of jurisdiction by provincial courts to interprovincial or international situations. 12 These limits exist to safeguard the legitimate exercise of state power, both legislative and adjudicative. A legitimate exercise of state power requires an appropriate relationship or connection between the state and the persons who are brought under its authority. 13 The constitutional dimension of the test, therefore, imposes territorial limits on provincial power to ensure the existence of the connection that is required to give it legitimacy. Not any connection to the forum will satisfy the constitutional imperative. A weak or hypothetical connection would not satisfy the constitutional test, as it would cast doubt on the legitimacy of the exercise of state power over the persons affected by the dispute. 14 The constitutional dimension of the real and substantial connection test is distinct from private international law or conflicts rules. It does not establish the content of those rules, nor does it require that they be uniform in all provinces. 15 The constitutional territorial limits are concerned with setting the outer boundaries within which a variety of appropriate conflicts rules can be elaborated and applied. 16 What the Ontario Court of Appeal did in Muscutt, and later in Van Breda, was to set out the content of the private international law dimension of the real and substantial connection test. No court has yet elaborated the content of the test in its constitutional dimension. This exercise, LeBel J. leaves for a future case, in which a conflicts rule is challenged on the basis of inconsistency with constitutionally imposed territorial limits. 17 The need for a strong connection between the dispute and the forum is evident in both the first and second steps of the real and substantial connection test as formulated in Van Breda. In the first step, the Court stresses that the common thread underlying all the listed presumptive factors is that they generally point to a relationship between the subject matter of the litigation and the forum such that it would be reasonable to expect that the defendant would be called to answer legal proceedings in that forum. 18 For instance, regarding the second presumptive connecting factor, i.e., carrying on business in the jurisdiction, the Court cautioned against creating what would amount to forms of universal jurisdiction in respect of tort claims arising out of certain categories of business or commercial activity. 19 Advertising or accessibility of a website in the jurisdiction would not suffice to establish that a defendant is carrying on business there. The notion of carrying on business requires some form of actual, not only virtual, presence in the jurisdiction, such as maintaining an office there or regularly visiting the territory of the particular jurisdiction. 20 Similarly, central to the Court s discussion of the second step is the concept of the sufficiently strong nexus between a dispute and the forum. To rebut the presumption of jurisdiction, a defendant has the burden of establishing facts which demonstrate that the presumptive connecting factor does not point to any real relationship between the subject matter of the litigation and the forum or points only to a weak relationship between them such that it would not be reasonable to expect that the defendant would be called to answer proceedings in that jurisdiction. 21 For example, in a situation where the presumptive connecting factor is the fact that the defendant is carrying on business in the province, the presumption can be rebutted by showing that the subject matter of the litigation is unrelated to the defendant s business activities in the province. 22 2. Guiding principle: order and predictability In Morguard, the Supreme Court had formulated the real and substantial connection test in general 45

VOLUME 1 NUMBER 3 COMMERCIAL LITIGATION AND ARBITRATION REVIEW terms, referring extensively to the somewhat contradictory principles of order and fairness. While order required that litigants be able to foresee and predict the forum in which their dispute would be heard, fairness imported a measure of flexibility and discretion into the real and substantial connection analysis. Morguard was, therefore, followed by decisions in which flexibility and discretion were sometimes privileged at the expense of predictability. Van Breda seeks to remedy the uncertainty left by Morguard by focusing on predictability and order. Commenting on the long-standing tension between the search for flexibility, with its concerns about fairness, and the search for predictability and consistency in the judicial process, the Court favours the latter: the framework for the assumption of jurisdiction cannot be an unstable, ad hoc system made up on the fly on a case-by-case basis ; [p]arties must be able to predict with reasonable confidence whether a court will assume jurisdiction in a case with an international or interprovincial aspect. 23 Justice LeBel situates the real and substantial connection test, as reformulated by the Ontario Court of Appeal, within a broader trend, exemplified in the CCQ, provincial statutes and case law, including Muscutt. 24 This trend favours relying on specified connecting factors to establish the presence of a real and substantial connection over broad judicial discretion to decide whether a real and substantial connection exists. 25 Possible Impact on Quebec Private International Law Whether the Van Breda decision will have an impact in Quebec is an open question. On the one hand, the real and substantial connection test has no direct application in the province where, as LeBel J. pointed out, art. 3148 of the CCQ provides a list of factors that must be considered in order to determine whether a Quebec authority has jurisdiction 26 over a dispute. On the other hand, according to LeBel J., art. 3148 of the CCQ is an example of legislative action subsequent to Morguard and Hunt 27 that seeks to introduce greater certainty by setting out specific connections linking Quebec courts to the matter and parties. 28 As such, Quebec should not be immune from the guiding principles enunciated by the Supreme Court. The specific connections provided by art. 3148 of the CCQ closely resemble the presumptive connecting factors enunciated in Van Breda. Article 3148(1) of the CCQ foresees jurisdiction based on a connection between the defendant s domicile and Quebec (must be a head-office for a corporate defendant). Article 3148(2) of the CCQ couples the presence of an establishment (office) with the requirement that the defendant be carrying on activities in Quebec that have a relationship with the dispute. Article 3148(3) of the CCQ foresees jurisdiction where an element of the claim occurred in Quebec, be it the fault or the damage or, in the case of a contractual claim, where an obligation under the contract was to be performed in Quebec. A question arises, however, as a result of the new two-step approach adopted by the Supreme Court, which permits a defendant to rebut the presumption of jurisdiction. Given that the Court clearly said in an earlier decision, Spar, 29 that art. 3148 of the CCQ did not need to be supplemented by the real and substantial connection common law test, will a defendant sued in Quebec be in a worse position, i.e., precluded from arguing that a connection deemed sufficient pursuant to art. 3148 of the CCQ is too tenuous? 30 Another question is whether a given interpretation of art. 3148 of the CCQ could result in a case in which a conflicts rule is inconsistent with constitutionally imposed territorial limits, 31 as LeBel J. suggested in Van Breda. A judgment rendered by the Quebec Court of Appeal a few months before Van Breda illustrates the types of issues that might arise in the application of art. 3148(1) of the CCQ after Van Breda. In Anvil Mining Ltd. v. Association canadienne contre l'impunité (ACCI), 32 ACCI sought to file a class action in Quebec based on events that took place in October 2004 in the Democratic Republic of the Congo (the DRC ), where Anvil Mining, a company headquartered in Australia, was operating a mine. The allegations centered on the role allegedly played by Anvil during the DRC military s repression of an insurrection in October 2004. The 46

COMMERCIAL LITIGATION AND ARBITRATION REVIEW VOLUME 1 NUMBER 3 only factor connecting Anvil to Quebec was that it had opened a small office in Montreal in 2005, six months after the DRC events. ACCI was, therefore, seeking to commence an action (i) on behalf of foreign nationals; (ii) against a foreign defendant; (iii) based on alleged faults committed exclusively outside Quebec at the time when the foreign defendant had neither an establishment nor carried on any activities in Quebec; and (iv) in reparation of harm suffered entirely abroad. The Quebec Superior Court denied Anvil s motion to dismiss the action for lack of jurisdiction. 33 The Court concluded that the jurisdiction test of art. 3148(2) of the CCQ (defendant established in Quebec and dispute relate[d] to its activities in Quebec ) was satisfied even where all the alleged facts of the dispute occurred abroad at the time when the defendant had no activities in Quebec. The Superior Court held that Anvil s subsequent Quebec activities were necessarily linked to the exploitation of a mine in the DRC and, therefore, to the events at issue, since mining was Anvil s only, or main, activity. On appeal, Anvil contended that the Superior Court had neglected to consider the policy underlying art. 3148(2) of the CCQ and the need for a nexus between the dispute and the jurisdiction in which the case is heard. The Quebec Court of Appeal agreed with Anvil and dismissed the action filed against it for want of jurisdiction. 34 The Court held that art. 3148(2) of the CCQ could not be satisfied in this case given the lack of an establishment and of any activities in Quebec at the time of the events giving rise to the dispute. 35 The Anvil case illustrates the potential issues that might arise in Quebec as a result of Van Breda. Faced with a conflict in the interpretation of one of the rules for the assumption of jurisdiction, should Quebec courts refer to the policy discussion of the Supreme Court in Van Breda and to its strong statement that jurisdiction should not be recognized in the presence of a weak or hypothetical connection? To do so would arguably not constitute a departure from previous interpretations of Quebec private international law rules. Even pre-van Breda, Quebec litigants could rely on Spar, which expressly recognized that the system of private international law, embodied in art. 3148 of the CCQ, was designed to ensure that there is a real and substantial connection between the action and the province of Quebec and to guard against the improper assertion of jurisdiction. 36 When interpreting art. 3148 of the CCQ, courts should, therefore, look to the policy underlying the provision and the need for a nexus between the dispute and the jurisdiction. 37 Finally, and with respect to the second question raised above, it is fair to say that the Supreme Court went much further in Van Breda than in Spar in insisting on a strong connection, and holding that the real and substantial connection test had a constitutional dimension. Given this statement by the Court, and in circumstances where one of the connections provided by art. 3148 of the CCQ is clearly satisfied but where the result conflicts with the Supreme Court s views in Van Breda, one can envision that the provision, although relating to Quebec private international law, could be challenged on the basis of inconsistency with constitutionally imposed territorial limits. [Editor s note: Pierre-Jérôme Bouchard and Nour Dib practice litigation in the Montreal office of McCarthy Tétrault. The views expressed are the personal opinions of the authors and not those of their employer.] 1 [2012] S.C.J. No. 17, 2012 SCC 17 [Van Breda]. The Court s reasons dispose of another appeal captioned Club Resorts Ltd. v. Charron. The Van Breda judgment was released as part of a trilogy. The other two decisions, Éditions Écosociété Inc. v. Banro Corp, [2012] S.C.J. No. 18, 2012 SCC 18, and Black v. Breeden, [2012] S.C.J. No. 19, 2012 SCC 19, involved defamation claims brought before Ontario courts against foreign defendants. In both, Justice LeBel, writing for a unanimous Court, applied the Van Breda tests for jurisdiction simpliciter and forum non conveniens and ruled that Ontario courts did have jurisdiction and rightly declined to stay the actions on the ground of forum non conveniens. 2 Morguard Investments Ltd. v. De Savoye, [1990] S.C.J. No. 135, [1990] 3 S.C.R. 1077 [Morguard]. 3 Muscutt v. Courcelles, [2002] O.J. No. 2128, 60 O.R. (3d) 20 (C.A) [Muscutt]. 4 Spar Aerospace Ltd. v. American Mobile Satellite Corp., [2002] S.C.J. No. 51, 2002 SCC 78 [Spar]; Beals v. Saldhana, [2003] S.C.J. No. 77, 2003 SCC 72 [Beals]. 5 The CJPTA model has been adopted in four Canadian jurisdictions: Saskatchewan, the Yukon Territory, Nova 47

VOLUME 1 NUMBER 3 COMMERCIAL LITIGATION AND ARBITRATION REVIEW Scotia and British Columbia. The Alberta Law Institute recommended enactment of the Uniform Court Jurisdiction and Proceedings Act, as did the Manitoba Law Reform Commission. 6 Justices Binnie and Charron did not participate in the judgment as they respectively retired and resigned from the Court before the decision was released. 7 Van Breda, supra note 1 at para. 90. 8 Ibid. at para. 91. 9 Ibid. at paras. 95-97. 10 Private international law rules, or conflicts rules, include the rules that have been chosen for deciding when jurisdiction can be assumed over a dispute, what law will govern a dispute or how a decision from another jurisdiction will be recognized and enforced. 11 Van Breda, beginning at para. 22. 12 Ibid. at para. 23; the territorial limits on provinces legislative competence and judicial authority derive from the text of s. 92 of the Constitution Act, 1867 (Van Breda, at para. 31). 13 Ibid. at para. 31. 14 Ibid. at para. 32. 15 Ibid. at para. 23. 16 Ibid. at para. 33. 17 Ibid. at para. 34. 18 Ibid. at para. 92. 19 Ibid. at para. 87. 20 Ibid. 21 Ibid. at paras. 95-97 (emphasis added). 22 Ibid. at para. 96. 23 Ibid. at para. 73. 24 Ibid. at paras. 35-39. 25 Ibid. at para. 35. 26 Ibid. at para. 77. 27 Hunt v. T&N plc, [1993] S.C.J. No. 125, [1993] 4 S.C.R. 289 [Hunt]. 28 Ibid. at para. 39. 29 Spar, supra note 4. 30 This difference in treatment is arguably widened by the express recognition in the CCQ that Quebec courts can hear a case over which they would not normally have jurisdiction based on the forum of necessity doctrine (see art. 3136, CCQ, which provides that Quebec can be forum of necessity in situations where the dispute has a sufficient connection with Quebec and where a demonstration is made that proceedings cannot possibly be instituted outside Quebec" or cannot reasonably be required ). Although the Ontario Court of Appeal in Van Breda recognized the possibility of such a doctrine in the common law, the Supreme Court expressly declined to address the issue. 31 Van Breda, supra note 1 at para. 34. 32 [2012] J.Q. no 368, 2012 QCCA 117 [Anvil]. 33 Association canadienne contre l'impunité (ACCI) c. Anvil Mining Ltd., [2011] J.Q. no 4382, 2011 QCCS 1966. 34 Motion for leave to appeal before the Supreme Court of Canada pending, No. 34733. 35 The Court of Appeal also held that on the facts of the case, i.e., the absence of any link whatsoever between the dispute and Quebec and the existence of previous proceedings related to the same events against Anvil in two different jurisdictions, ACCI had failed to meet its burden under the forum of necessity doctrine of art. 3136 of the CCQ. 36 Spar, at para. 55. 37 Based on a similar reasoning and on concerns of, inter alia, creating a universal jurisdiction, Quebec courts have generally held that a pure financial loss in Quebec is insufficient to satisfy the basis for jurisdiction described as damage suffered in Quebec in art. 3148(3) of the CCQ. See, e.g., Richelieu Projects inc. v. Western Rail inc., [2006] J.Q. no 5806, J.E. 2006-1282 (Q.C.C.A.); Bank of Montreal v. Hydro Aluminum Wells inc., [2004] J.Q. no 2202, J.E. 2004-679 (Q.C.C.A.); Ace/Clear Defense Québec inc. v. Clear Defense inc. and Donald Martin, [2002] J.Q. no 9321, J.E. 2002-1017 (Q.C.C.S.); Quebecor Printing Memphis inc. v. Regenair inc., [2001] J.Q. no 1901, J.E. 2001-958 (Q.C.C.A.). A recent Court of Appeal case rendered prior to Van Breda casts uncertainty on this outcome. See Option Consommateurs v. Infineon Technologies AG, [2011] Q.J. No. 16769, 2011 QCCA 2116 (leave to appeal to the Supreme Court of Canada granted, No. 34617). 48