Ontario Court of Appeal Rejects Ontario Jurisdiction over Foreign Defendants Where No “Actual” Presence in the Province

In its seminal decision in Club Resorts Ltd. v. Van Breda, 2012 SCC 17 (CanLII) the Supreme Court of Canada set out four factors, which if established, lead to a presumption that the Court in question has taken jurisdiction legitimately. The Court set out these factors succinctly at paragraph 90 of its decision:

[90]  To recap, in a case concerning a tort, the following factors are presumptive connecting factors that, prima facie, entitle a court to assume 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; and

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

Since the Van Breda decision was handed down, there have been numerous cases where the lower courts have explored the applicability of these factors to a variety of factual situations.  In one of the most recent of such cases, Sgromo v. Scott, 2018 ONCA 5 (CanLII), the Court of Appeal for Ontario had the opportunity to examine the applicability of presumptive factors (b) “the defendant carries on business in the province”, and (d) “a contract connected with the dispute was made in the province”.  In both instances, the Court ultimately held that the presumptive factor had not been made out.  The reasons are instructive:

The Appeal:  Sgromo v. Scott, 2018 ONCA 5 (CanLII)

The Sgromo case involved four related actions which arose out of various business dealings between the Plaintiffs (Appellants) and the Defendants (Respondents).  The Plaintiff, Mr. Sgromo, was a citizen of Thunder Bay, Ontario at the time of the Appeal, but at the times relevant to the actions, he was a resident of the United States.  The actions of the Defendants (Respondents) which were the subject of the various actions, occurred in the United States.

At first instance, the Defendants brought motions for an order setting aside the Statement of Claim and staying or dismissing the action based on the position that the Superior Court of Justice (Ontario) lacked jurisdiction, or, in the alternative that Ontario was not a proper forum for the action.  The Defendants had intentionally not attorned to the Ontario jurisdiction.  The Motion judge dismissed the Action, holding that there was no “real and substantial connection” with Ontario.  (see the reported decision: Sgromo v Imperial Toy, LLC et al, 2017 ONSC 3978 (CanLII))

On Appeal the Court concentrated on whether a Real and Substantia Connection had been established based on the applicable presumptive factors:

Were Contracts Connected with the Disputes Made in Ontario?

The Court of Appeal had no difficulty disposing of the Appellants’ argument that there were contracts connected with the disputes which were made in Ontario.  In this respect Mr. Sgromo relied on two applications made by two of the Respondents to homeland security at the Toronto Airport, requesting that Mr. Sgromo act as their consultant in the United States.  The Court found that, “Neither application is a contract”, and that “Any consulting arrangement or other business relationship between the parties took place in California” and thus did not establish a real and substantial connection to Ontario.

Did the Defendants Carry on Business in the Province of Ontario?

The Appellant’s other main argument was that a Real and Substantial Connection with Ontario was established because the Respondents carried on business in Ontario on the basis that some of their products were, “…advertised, marketed, and distributed in Ontario”.  The Court of Appeal rejected this argument and expressly agreed with the motion judge, who adverted to the Supreme Court of Canada’s caution in the Van Breda decision:

Mr. Sgromo submits that the Bestway companies are carrying on business in Ontario because their products are sold at retailers in Ontario. In Van Breda, at para. 87, the Supreme Court of Canada stated that caution must be exercised in considering whether an entity is carrying on business in the jurisdiction, to avoid what would amount to assuming universal jurisdiction in respect of tort claims arising out of certain categories of business or commercial activity. “The notion of carrying on business requires some form of actual, not only virtual, presence in the jurisdiction, such as maintaining an office or regularly visiting the territory of the particular jurisdiction.” (underlining added)

There is no evidence that the Bestway companies had such an actual presence in Ontario, even if their products were sold in the province by third party retailers, as alleged by Mr. Sgromo

In conclusion, it appears that the courts will continue to apply the presumptive factors established in Van Breda fairly strictly as appears to have been the intention of the Supreme Court of Canada in that case.

Jon-David Giacomelli is a founding partner in Cambridge LLP and the Chair of the Cross-Border and Business Litigation Groups. His practice encompasses a wide range of complex cross-border litigation and alternative dispute resolution, with an emphasis on private international law, conflict of laws, jurisdictional disputes, enforcement of foreign orders, shareholders rights and injunctive relief. Jon-David has represented clients from around the world and is recognized in Canada, the U.S. and abroad as a leading practitioner in the area of cross-border litigation and arbitration.​​​​​​​

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