Contracts and jurisdiction

The Supreme Court of Canada ruled that foreign companies can’t be dragged into Canadian courts without a strong, direct connection to the dispute.

If you do business abroad, this decision sets a clear limit: a weak link to Canada isn’t enough for Canadian courts to claim jurisdiction.

The Supreme Court of Canada’s (SCC) decision in Sinclair v. Venezia Turismo, is of interest to individuals and businesses outside of Canada who may become defendants in Canada.

KPMG Law’s breakdown of the decision and insights can be found below:

1. The importance of pleadings
   Unless the existence of a contract is obvious and undisputed, parties relying on the fourth presumptive connecting factor in the test for jurisdiction must plead material facts that establish the contract’s formation, its connection to the dispute, and, crucially, where it was formed
2. The strength of a contract’s connection to each defendant matters
   Jurisdiction is determined on a case-by-case basis, focusing on each defendant’s specific connection to the forum. The Court will consider the defendant’s reasonable expectations when determining the strength of connection between a contract and the defendant. A weak connection between a contract and a defendant may rebut the presumption even when the contract is connected to the forum and the dispute
3. Uncertainty regarding the Standard of Proof
   Unlike the dissent, the majority of the SCC refused to apply a specific standard of proof in the test for jurisdiction, which will continue to be a point of uncertainty until it is addressed in future cases

Mr. Sinclair held an American Express Centurion credit card with Amex Canada Inc. (Amex Canada) and used the concierge and travel agent service to book a trip to Europe for himself, his wife and their son from Ontario. While in Italy, Mr. Sinclair contacted the Amex Canada concierge service to book a water taxi ride from the airport in Venice to their hotel. Amex Canada then made the necessary arrangements with a third-party provider. The water taxi crashed, causing serious injuries to Mr. Sinclair and his wife (Sinclairs). The Sinclairs commenced a tort action in Ontario seeking damages from several defendants including Amex Canada and the Italian companies (the Italian Defendants) that operated the water taxi.

In 2012, the SCC set out a two-stage test (Van Breda Test) for establishing jurisdiction in tort cases in Club Resorts Ltd. v. Van Breda. The first stage requires the plaintiff to establish one or more of the following non-exhaustive presumptive connecting factors:

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; or
d)     a contract connected with the dispute was made in the province.

If the plaintiff is able to establish one of the presumptive connecting factors, the defendant has the opportunity to rebut the presumption by showing there is no real and substantial connection between the dispute and the jurisdiction where the claim is filed. This case dealt with the fourth factor: whether a contract connected with the dispute was made in Ontario.

The Italian Defendants brought a motion to dismiss the action against them on the basis that the Ontario Court lacked jurisdiction over them. The motion judge found that the Sinclairs had established a “good arguable case” that multiple contracts related to the dispute were sufficiently connected to Ontario and dismissed the Italian Defendants’ motion.

The Court of Appeal for Ontario reversed the decision and unanimously held that Ontario lacked jurisdiction as there was no real and substantial connection between the Italian Defendants and the cardmember agreement with Amex Canada (Amex Credit Card Agreement).

In a 5-4 split, the majority of the SCC sided with the Italian Defendants and held that the Ontario courts do not have jurisdiction over the dispute as it relates to them. At the first stage of the Van Breda Test, the majority found that a presumptive connecting factor was established, as the Amex Credit Card Agreement was entered into in Ontario and was connected to the dispute. However, the majority concluded the Italian Defendants had successfully rebutted the presumption of jurisdiction. The majority stated the connection between the Amex Credit Card Agreement and the tort that occurred in Italy was weak, if not non-existent. The only connection the majority found between the Amex Credit Card Agreement and the dispute was that Mr. Sinclair made a non-binding reservation by way of Amex Canada through a third-party service. The Court found an even weaker connection between the Amex Credit Card Agreement and the Italian Defendants.

The dissent would have allowed the appeal and sided with the motion court judge on the basis that the Italian Defendants had not rebutted the presumption of jurisdiction.

The SCC’s decision provides important guidance on when a Canadian court should assert jurisdiction over foreign defendants. The SCC confirms that a weak or tenuous connection is not sufficient for Canadian courts to assert jurisdiction over foreign defendants. Each case will be assessed individually, focusing on each defendant’s connection to the forum.

For more information or if you have questions about the article, please contact the KPMG Law team.