The Aldo Group Inc. v. Moneris Solutions Corporation et al.

[Indexed as: Aldo Group Inc. v. Moneris Solutions Corp.]

Ontario Reports

Court of Appeal for Ontario,

Blair, Juriansz and Tulloch JJ.A.

November 29, 2013

118 O.R. (3d) 81 | 2013 ONCA 725

Case Summary

Conflict of laws — Choice of forum — Plaintiff bringing action in Ontario asserting various tort claims — Plaintiff pleading direct claims against defendants as stranger to agreements between defendants which contained forum selection clause in favour of New York — Plaintiff not bound by forum selection clause in agreements to which it was not party simply because its claim arose in context of another party's contractual relationship which included that clause — Application of New York forum selection clause to plaintiff's claim not foreseeable by plaintiff.

MasterCard signed licence agreements with BMO and Harris, financial institutions which issued its credit cards. The licence agreements incorporated a choice of forum clause in favour of New York. BMO and Harris contracted with Moneris, which acted as their service provider for processing MasterCard credit card transactions. Moneris expressly agreed to a choice of forum clause in favour of New York. Aldo, a merchant, was not a party to the licence agreements or processing agreement. Moneris and BMO contracted with Aldo, and their merchant agreement included a choice of forum clause in favour of Ontario. Aldo was the victim of a cybercrime attack on its computer system, and it was subsequently alleged to have failed to comply with its data security obligations. MasterCard debited the banks' accounts in the amount of approximately US$4.87 million, and Moneris then debited Aldo's account in the amount of US$4.929 million. Aldo brought an action against MasterCard and Moneris in Ontario pleading multiple tort claims, including negligence, interference with contractual relations and conspiracy. MasterCard moved for a stay of the action. The motion was dismissed. MasterCard appealed.

Held, the appeal should be dismissed.

The motion judge correctly concluded that Aldo was not bound by any New York forum selection clause. Aldo's claims could not be reduced to claims by a subrogee against MasterCard. Rather, Aldo's primary claims against MasterCard were direct claims which were asserted as a stranger to the licence agreements and the processing agreement. A plaintiff is not bound by a forum selection clause to which it did not agree simply because its claim arose in the context of another party's contractual relationship that includes the clause. Aldo's interests were not completely derivative of and directly related to the interests of any signatory to the New York forum selection clauses. It was not foreseeable by Aldo that MasterCard's New York forum selection clauses would apply to its claims.

Crown Resources Corp. S.A. v. National Iranian Oil Co., 2006 28334 (ON CA), [2006] O.J. No. 3345, 273 D.L.R. (4th) 65 (C.A.) [Leave to appeal to S.C.C. refused [2006] S.C.C.A. No. 412]; Kates v. Wyant, [2002] O.J. No. 503, [2002] O.T.C. 96, 27 B.L.R. (3d) 273, 112 A.C.W.S. (3d) 49 (S.C.J.); Momentous.ca Corp. v. Canadian American Assn. of Professional Baseball Ltd., [2012] 1 S.C.R. 359, [2012] S.C.J. No. 9, 2012 SCC 9, 290 O.A.C. 202, 428 N.R. 141, EYB 2012-203609, 2012EXP-1107, J.E. 2012-605, 342 D.L.R. (4th) 1, 15 C.P.C. (7th) 227, 211 A.C.W.S. (3d) 850, affg (2010), 103 O.R. (3d) 467, [2010] O.J. No. 4595, 2010 ONCA 722, 270 O.A.C. 36, 325 D.L.R. (4th) 685, consd [page82 ]

Dalimpex Ltd. v. Janicki (2003), 2003 34234 (ON CA), 64 O.R. (3d) 737, [2003] O.J. No. 2094, 228 D.L.R. (4th) 179, 172 O.A.C. 312, 35 B.L.R. (3d) 41, 35 C.P.C. (5th) 55, 123 A.C.W.S. (3d) 217 (C.A.); Donaldson International Livestock Ltd. v. Znamensky Selekcionno-Gibridny Center LLC, [2008] O.J. No. 5254, 2008 ONCA 872, 305 D.L.R. (4th) 432, 173 A.C.W.S. (3d) 37, distd

Other cases referred to

Aguas Lenders Recovery Group LLC v. Suez, S.A., No. 08-1589 (2nd Cir. 2009); Alberta (Treasury Branches) v. Baker Estate, [2002] A.J. No. 1055, 2002 ABQB 781, [2003] 1 W.W.R. 321, 7 Alta. L.R. (4th) 110, 3 R.P.R. (4th) 76, 116 A.C.W.S. (3d) 377; BTR Global Opportunity Trading Ltd. v. RBC Dexia Investor Services Trust, [2011] O.J. No. 3250, 2011 ONCA 518; Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3rd Cir. 1983); ECS Educational Consulting Services Canada Ltd. v. Al Nahyan, [2000] O.J. No. 4416, 3 C.P.C. (5th) 76, 103 A.C.W.S. (3d) 299 (C.A.), affg [2000] O.J. No. 211, 94 A.C.W.S. (3d) 471 (S.C.J.); Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., 1993 67 (SCC), [1993] 3 S.C.R. 206, [1993] S.C.J. No. 101, 107 D.L.R. (4th) 169, 157 N.R. 241, [1993] 8 W.W.R. 129, J.E. 93-1687, 32 B.C.A.C. 221, 83 B.C.L.R. (2d) 145, 11 B.L.R. (2d) 101, 17 C.C.L.T. (2d) 101, 12 C.L.R. (2d) 161, 43 A.C.W.S. (3d) 158; Expedition Helicopters Inc. v. Honeywell Inc. (2010), 100 O.R. (3d) 241, [2010] O.J. No. 1998, 2010 ONCA 351, 70 B.L.R. (4th) 60, 262 O.A.C. 195, 319 D.L.R. (4th) 316, 87 C.P.C. (6th) 210; Firefly Equities LLC v. Ultimate Combustion Co., 736 F. Supp. 2d 797 (S.D.N.Y. 2010); Haig v. Bamford, 1976 6 (SCC), [1977] 1 S.C.R. 466, [1976] S.C.J. No. 31, 72 D.L.R. (3d) 68, 9 N.R. 43, [1976] 3 W.W.R. 331, 27 C.P.R. (2d) 149; Harster Greenhouses Inc. v. Visser International Trade & Engineering B.V., [2011] O.J. No. 2395, 2011 ONSC 2608, 16 C.P.C. (7th) 206, 334 D.L.R. (4th) 481, 88 B.L.R. (4th) 216, 202 A.C.W.S. (3d) 278 (S.C.J.); Lipcon v. Underwriters at Lloyd's, London, 148 F.3d 1285 (11th Cir. 1998); Navionics Inc. v. Nautical Data International Inc., [2006] O.J. No. 5397 (S.C.J.); Ontario New Home Warranty Program v. Grant, 2002 45054 (ON CA), [2002] O.J. No. 3460, 167 O.A.C. 386, 4 R.P.R. (4th) 56, 116 A.C.W.S. (3d) 602 (C.A.), affg 2001 62794 (ON SC), [2001] O.J. No. 2972, [2001] O.T.C. 579, 30 C.C.L.I. (3d) 1, 10 C.L.R. (3d) 230, 43 R.P.R. (3d) 286, 106 A.C.W.S. (3d) 1124 (S.C.J.); Weber v. Ontario, 1995 108 (SCC), [1995] 2 S.C.R. 929, [1995] S.C.J. No. 59, 125 D.L.R. (4th) 583, 183 N.R. 241, J.E. 95-1482, 82 O.A.C. 321, 30 Admin. L.R. (2d) 1, 12 C.C.E.L. (2d) 1, 24 C.C.L.T. (2d) 217, 95 CLLC Â210-027, 30 C.R.R. (2d) 1, EYB 1995-67433, 56 A.C.W.S. (3d) 94; Weingrad v. Telepathy, Inc., 2005 WL 2990645 (S.D.N.Y. 2005); Z.I. Pompey Industrie v. ECU-Line N.V., [2003] 1 S.C.R. 450, [2003] S.C.J. No. 23, 2003 SCC 27, 224 D.L.R. (4th) 577, J.E. 2003-892, 30 C.P.C. (5th) 1, 121 A.C.W.S. (3d) 793

Statutes referred to

Courts of Justice Act, R.S.O. 1990, c. C.43, s. 106

APPEAL from the order of D.M. Brown J., [2012] O.J. No. 1931, 2012 ONSC 2581 (S.C.J.) dismissing an application for a stay of proceedings.

Chris G. Paliare and Robert A. Centa, for appellant.

George J. Pollack and Michael H. Lubetsky, for respondent The Aldo Group Inc. [page83 ]

Peter H. Griffin and Melanie K. Baird, for respondent Moneris Solutions Corporation.

The judgment of the court was delivered by

TULLOCH J.A.: —

I

Overview

[1] It is a well-established principle that a contract binds only the parties to the bargain. Yet in this appeal, the appellant MasterCard International Inc. asks that the respondent The Aldo Group Inc.'s claim against it be stayed pursuant to s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43 on account of forum selection clauses in agreements to which Aldo was not a party. Given the nature of Aldo's claim and the existing jurisprudence in Canada and the United States on the application of forum selection clauses to non-signatories, is the non-signatory Aldo bound by forum selection clauses in favour of New York? For the reasons that follow, I would not bind Aldo to MasterCard's forum selection clauses and would accordingly dismiss the appeal.

II

Facts

(1) The contractual matrix

[2] This appeal concerns several parties governed by multiple agreements. Together, these contracts support the way in which customers at Aldo stores conduct credit card transactions and govern the consequences of credit card transactions that give rise to fraud. Given the significance of the contractual relationships to the disposition of the appeal, it is necessary to review them in some detail.

[3] MasterCard is a credit card association incorporated in Delaware with its principal place of business in the State of New York and an office in Toronto. It is at the top of the contractual chain implicated in this appeal. MasterCard transacts with financial institutions which issue its credit cards ("issuing banks") and which acquire merchants willing to accept MasterCard's credit cards as a method of payment ("acquiring banks"). MasterCard enters into licence agreements with financial institutions ("members"), pursuant to which these institutions are entitled to use MasterCard trademarks and service marks provided they comply with MasterCard's standards. [page84 ]

[4] In this case, MasterCard entered into licence agreements with the Bank of Montreal ("BMO") and Harris National Association ("Harris") ("licence agreements"). The licence agreements require that BMO and Harris, as acquiring banks, comply with certain standards established by MasterCard, including the MasterCard rules. The MasterCard rules include the following choice of law and choice of forum provision in s. 3.4:

The substantive laws of the State of New York govern all disputes involving the Corporation, the Standards, and/or the Members and Activity without regard to conflicts. Any action initiated by a Member regarding and/or involving the Corporation, the Standards and/or any Member and Activity must be brought, if at all, only in the United States District Court for the Southern District of New York or the New York Supreme Court for the County of Westchester, and any Member involved in any action hereby submits to the jurisdiction of such courts and waives any claim of lack of personal jurisdiction, improper venue, and forum non conveniens.

[5] BMO and Harris, as acquiring banks, entered into agreements with a third party processor, Moneris Solutions Corporation, to support their MasterCard activity. BMO and Harris effectively used Moneris as their service provider for processing MasterCard credit card transactions. MasterCard permits such arrangements provided the third party processor agrees to comply with MasterCard's standards. In this case, Moneris agreed, in a third party processing agreement with MasterCard ("third party processing agreement" or "TPP agreement"), to comply with all applicable MasterCard standards. The TPP agreement between Moneris and MasterCard contained the following choice of law and choice of forum clause in s. 10:

This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, United States of America. Any dispute between MasterCard and Processor arising in connection with this Agreement shall be resolved in federal or state court in New York court, or Westchester county, New York.

[6] Moneris entered into a contract with Aldo, an international footwear retailer with its head office in Montreal and a substantial retail presence in Ontario (the "merchant agreement"). Moneris entered into the merchant agreement for itself and on behalf of BMO. MasterCard was not a party to the merchant agreement, but MasterCard required that agreements between acquiring banks and merchants incorporate certain terms, including compliance with data security standards called the Payment Card Industry Data Security Standards ("PCI DSS"). The terms which MasterCard required to be included in the merchant agreement did not include a forum selection clause. The merchant agreement nevertheless contained, in s. 11.9 of [page85 ]Schedule A, the following choice of forum and choice of law clause in favour of Ontario:

This Agreement will be governed by the laws of the province of Ontario. The parties agree that the courts of the province of Ontario will have exclusive jurisdiction over any matters arising from this agreement.

[7] The contractual network can be summarized as follows. MasterCard signed licence agreements with BMO and Harris, and these incorporated a choice of law and choice of forum clause in favour of New York. BMO and Harris contracted with Moneris; Moneris agreed to comply with MasterCard's standards and expressly agreed to a choice of law and choice of forum clause in favour of New York. Aldo was not a party to the licence agreements or third party processing agreement. Finally, Moneris and BMO contracted with Aldo, and their merchant agreement included a choice of law and choice of forum clause in favour of Ontario.

(2) The underlying dispute

[8] The merchant agreement between BMO, Moneris and Aldo imposed on Aldo the following data security obligations, which form the basis of the dispute:

3.6 Data Security, Protection of Cardholder Information and Card Association Rules and Regulations

You are responsible for complying with the Data Security Standards and all applicable laws related to Cardholder and Transaction Information. It is your responsibility to ensure that you obtain and are in compliance with the most recent version of the PCI DSS[.]

You and any of your third party service providers will adhere to the Card Association Rules and Regulations from time to time in effect. You must obtain all publicly available Card Association Rules and Regulations[.]

You are responsible for any fines, fees, assessments, costs, including Card re-issuing costs and charges levied by the Card Associations, the Bank and/or us as a result of your non-compliance with the Data Security Standards and all other Card Association Rules and Regulations applicable to you.

[9] According to Aldo, the objective of the data security obligations is the prevention of theft of account data, which can be used to facilitate fraudulent transactions. Also according to Aldo, merchants must undergo annual PCI DSS compliance assessments by an independent party. When a merchant breaches the PCI DSS, the acquiring bank is accountable to MasterCard. In the event of unauthorized access to, or disclosure of, account data, which is classified as an account data compromise event ("ADC event"), the MasterCard security rules provide that an acquiring bank responsible for the ADC event may have to reimburse the issuer [page86 ]of MasterCard's credit cards for their resulting costs and fraud losses. MasterCard's security rules therefore appear to be directed at preventing the compromise of account data, which may in turn result in fraudulent transactions.

[10] Aldo's claim against Moneris and MasterCard arises from transactions at Aldo stores which allegedly resulted in fraudulent transactions. According to Aldo, it successfully completed PCI DSS compliance assessments in 2007 and 2008. It was alerted by Moneris in April 2010 that Visa and MasterCard had identified a potential breach of its computer system that allegedly led to fraudulent transactions. An initial report by Verizon Business found that Aldo had been the victim of a cybercrime attack on its computer system. The report also found that Aldo had failed to comply with one of its data security obligations. Subsequent versions of the report found that Aldo had failed to comply with multiple of its obligations. In March 2011, despite Aldo's objections, MasterCard confirmed its preliminary position that it considered the security breach an ADC event. The banks' financial liability was approximately US$4.87 million (the "Assessments"). On April 4, 2011, Moneris informed Aldo that it intended to debit Aldo's account to reimburse the banks the amounts to be debited by MasterCard. On April 17, 2011, MasterCard debited the banks' accounts in the amount of the Assessments and, two days later, Moneris debited Aldo's account in the amount of US$4.929 million.

(3) The pleadings

[11] Aldo initiated an action against MasterCard and Moneris. The motion judge summarized Aldo's allegations, at para. 33, as essentially falling into two categories of complaint:

First, Aldo alleges that MasterCard "wrongfully imposed and collected from the Banks" assessments "in connection with the Intrusion". Aldo contends that the Assessments were illegal, invalid and directly violated the MasterCard Standards and were not authorized by the MasterCard 2010 Security Rules. Second, the plaintiff contends that "Moneris, acting as processor, wrongfully imposed and collected from Aldo" such assessments "allegedly pursuant to terms of the [Merchant Agreement]" and that "Moneris was not entitled under the [Merchant Agreement] to debit Aldo . . ." That is to say, in its claim as pleaded, Aldo seeks a judicial determination of the legality of the conduct of MasterCard in imposing the Assessments and the conduct of Moneris in collecting them. The primary thrust of Aldo's claim is that both MasterCard and Moneris acted wrongfully in imposing and collecting the Assessments.

[12] The nature of Aldo's claims against MasterCard is critical to the outcome of this appeal. Aldo pleads multiple tort claims against MasterCard, including claims in negligence, interference [page87 ]with contractual relations and conspiracy. In its fresh as amended statement of claim served after the motion judge's decision, Aldo also pleads unlawful interference with economic relations and conversion.

[13] With respect to its negligence claim, Aldo pleads that MasterCard owes a duty to merchants such as Aldo in imposing and calculating assessments under its standards; that MasterCard could foresee that its failure to exercise reasonable care in imposing assessments would result in a merchant having to make unwarranted payments; and that MasterCard breached its duty in imposing the Assessments.

[14] With respect to interference with contractual relations, Aldo pleads that, by imposing the Assessments, MasterCard wrongfully interfered with Aldo's rights under its merchant agreement with Moneris. Aldo pleads that MasterCard knew or ought to have known that, when the acquiring banks were debited, Moneris would in turn debit Aldo.

[15] Aldo pleads an unjust enrichment claim, alleging that MasterCard unjustly enriched itself by imposing the Assessments, to which it was not entitled. The imposition of the assessments caused Aldo to be wrongfully deprived of US$4.929 million. Aldo also seeks a variety of declaratory relief, including a declaration that MasterCard was not entitled, under its rules, policies and procedures, to impose the Assessments; a declaration that certain of MasterCard's security rules are illegal and constitute an unenforceable penalty clause; a declaration that the Assessments constitute an illegal and unenforceable penalty against the acquiring banks; a declaration that MasterCard was not entitled to retroactively apply its 2010 security rules to the security breach; and a declaration that the security breach did not constitute an ADC event for the purposes of MasterCard's standards.

[16] Finally, Aldo pleads an alternative claim seeking the following declaration:

In the further alternative, in the event that it is held that Moneris is entitled to the Debit under the [merchant agreement], a declaration that Aldo is subrogated to the rights of the Banks and/or Moneris and is entitled to assert whatever causes of action that the Bank and/or Moneris have against MasterCard by reason of its having wrongfully debited the Banks as a result of the Intrusion.

[17] In support of its pleaded causes of action, Aldo alleges that it did not violate the PCI DSS. Aldo alleges that there is no evidence that the security breach resulted in the theft of account data or the use of the data in fraudulent transactions. According to Aldo, MasterCard retroactively applied to the 2008 security [page88 ]breach standards that were amended in 2010. Aldo also alleges that Visa intervened, on MasterCard's encouragement, in the investigation by Verizon Business and directed Verizon Business to reach conclusions about Aldo's PCI DSS compliance that Verizon Business would not otherwise have reached.

III

The Motion Judge's Reasons

[18] MasterCard moved before Brown J. for a stay of Aldo's Ontario action pursuant to s. 106 of the Courts of Justice Act. MasterCard submitted that Aldo's claim pleads that MasterCard was not entitled to impose the assessments on BMO and Harris under the licence agreements. Because Aldo lacks privity of contract with MasterCard, Aldo could only assert its claims as an equitable subrogee of the acquiring banks. However, as an equitable subrogee of the acquiring banks, Aldo would be subject to MasterCard's applicable contractual rights, including the licence agreements' choice of law and choice of forum clause. Similarly, to the extent that Aldo asserts claims against MasterCard as an equitable subrogee of Moneris, it would be subject to the choice of law and choice of forum clause in the third party processing agreement between MasterCard and Moneris. On this basis, MasterCard submitted that Aldo should be bound by the New York forum selection clauses.

[19] Aldo opposed the requested relief on the basis that its causes of action were grounded in tort and unjust enrichment rather than contract or the doctrine of equitable subrogation. Aldo also argued that BMO and Harris, along with any of their equitable subrogees, were not bound by the forum selection clause contained in the licence agreements. Aldo further submitted that, in any event, the forum selection clause in the licence agreements did not extend to claims asserted by an equitable subrogee.

[20] Moneris also opposed the requested stay. Moneris submitted that MasterCard has no contractual relationship with Aldo, so MasterCard cannot limit Aldo's choice of forum. Aldo and Moneris agreed, in their merchant agreement, that the Ontario courts would have exclusive jurisdiction over any matters arising from the merchant agreement. Moneris also submitted that MasterCard is a necessary and proper party for the resolution of the dispute, that the court had jurisdiction simpliciter and that Ontario is the most convenient forum. [page89 ]

(1) Characterization of Aldo's claims

[21] The motion judge considered whether Aldo's claim, with "an eye to its essential character", is based on equitable subrogation: Weber v. Ontario Hydro, 1995 108 (SCC), [1995] 2 S.C.R. 929, [1995] S.C.J. No. 59. Recognizing the fair and liberal reading to which Aldo's pleading was entitled on a s. 106 stay motion, and the limited scope of argument available to MasterCard without submitting to the court's jurisdiction, the motion judge found that Aldo's plea involving subrogation is not its primary plea. Aldo's claims could not be reduced to claims by a subrogee against MasterCard. Rather, Aldo's primary claims against MasterCard are asserted as a stranger to the licence agreements and third party processing agreement.

[22] The motion judge stated as follows, at paras. 83, 85:

In sum, I do not read Aldo's Claim as reducing itself to claims by a subrogee against MasterCard. Quite the contrary. Aldo's primary claims against MasterCard are made by it as a stranger to the License Agreement and TPP Agreement. Whether those claims as a stranger are tenable at law or on the facts is a matter for adjudication on the merits. I think it clear that Aldo has cast itself as a stranger to contracts to which MasterCard is privy and advances its direct claims against MasterCard on that basis.

I therefore conclude that the "essential character" of the claims pleaded by Aldo is not one of equitable subrogation, but they are direct claims advanced by a stranger to the contracts to which MasterCard is privy, although some claims for declaratory relief arguably rest on the incorporation by reference of the Security Rules in the [merchant agreement].

(2) Application of forum selection clauses to non-signatories

[23] Having characterized Aldo's claims, the motion judge proceeded to consider whether Aldo was bound by the forum selection clause contained in the licence agreements or third party processing agreement.

[24] In the absence of Canadian authority squarely on point, the motion judge reviewed three strands of U.S. cases dealing with the application of a forum selection clause to a non-signatory to the contract. The first strand of cases, dealing with equitable subrogation, generally supported the proposition that a non-signatory asserting a subrogated claim would be bound by a forum selection clause in the primary contract. However, given the motion judge's conclusion that Aldo's claim is not one of subrogation, these cases were of no application.

[25] The second strand of cases arose in the context of a successor in interest. The motion judge noted the United States [page90 ]Second Circuit Court of Appeals' holding in Aguas Lenders Recovery Group LLC v. Suez, S.A., No. 08-1589 (2nd Cir. 2009) that where an entity stands as a successor in interest to a contractual arrangement, it is bound by a forum selection clause in the original contract. This principle was also of limited relevance given that Aldo did not stand as a successor in interest to any contract with MasterCard.

[26] Finally, the motion judge considered MasterCard's submission that the court should adopt the "closely related" doctrine applied by courts in New York and elsewhere. According to this doctrine, a forum selection clause may be applied to a non-signatory to a contract if the non-signatory is so closely related to the dispute that enforcement of the forum selection clause against it is foreseeable. The motion judge focused in particular on Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3rd Cir. 1983), in which Coastal Steel contracted with Farmer Norton, a British corporation. Their contract contained an arbitration clause in favour of New Jersey. Farmer Norton executed a supply contract with Tilghman, also a British corporation, and that agreement contained an English forum selection clause. Farmer Norton went bankrupt and Coastal Steel subsequently sued Tilghman and its parent company alleging defects in the material supplied. Tilghman moved to dismiss on the basis of the English forum selection clause in its contract with Farmer Norton. The court enforced the English forum selection clause:

Coastal chose to do business with Farmer Norton, an English firm, knowing that Farmer Norton would be acquiring components from other English manufacturers. Thus it was perfectly foreseeable that Coastal would be a third-party beneficiary of an English contract, and that such a contract would provide for litigation in an English court.

[27] The court rejected Coastal Steel's argument that the forum selection clause did not extend to its claims sounding in tort. The Tilghman-Farmer Norton contract was the basic source of any duty to Coastal Steel. The court held that where the relationship between the parties is contractual, the pleading of alternative non-contractual theories of liability should not prevent enforcement of the contractual bargain.

[28] The motion judge declined to follow the "closely related" doctrine as applied in Coastal Steel. He noted that Coastal Steel did not describe in detail the claims asserted by the plaintiff, even though forum selection clauses turn on their specific facts. In addition, the court in Coastal Steel found no evidence to suggest that the forum selection clause was not intended to apply to all claims arising out of the contractual relationship. The motion [page91 ]judge could not reach a similar conclusion in this case, since MasterCard did not cause the merchant agreement to incorporate a New York forum selection clause, and the merchant agreement in fact contained a broad forum selection clause in favour of Ontario. Accordingly, it was not foreseeable to Aldo that some other forum selection clause would apply to its claims.

[29] The motion judge dismissed MasterCard's stay motion.

IV

Analysis

(1) Standard of review

[30] Section 106 of the Courts of Justice Act provides that a court may stay any proceeding on such terms as are just. In general, the discretion to stay proceedings should be exercised sparingly, in the clearest of cases: Navionics Inc. v. Nautical Data International Inc., [2006] O.J. No. 5397 (S.C.J.), at para. 29. The court should interfere with a decision under s. 106 only if the exercise of the motion judge's discretion is based on a wrong principle, a failure to consider a relevant principle or a misapprehension of the evidence: BTR Global Opportunity Trading Ltd. v. RBC Dexia Investor Services Trust, [2011] O.J. No. 3250, 2011 ONCA 518, at para. 3.

(2) The motion judge's characterization of Aldo's claim

[31] MasterCard argues that the motion judge erred in his characterization of Aldo's claim. According to MasterCard, the motion judge was required, by virtue of Weber, to characterize Aldo's claim by examining the facts underlying the dispute rather than the legal characterization of the alleged wrongs. Had the motion judge done so, MasterCard submits, he would have concluded that the essential, contractual character of Aldo's claim requires that it be governed by the New York forum selection clauses. Aldo does not appear to take issue with MasterCard's reliance on the test set out in Weber, which decided whether a claim arose under a collective agreement for the purposes of determining whether it should be heard by a labour tribunal or the courts.

[32] In my view, the motion judge did not err in his approach to the characterization of Aldo's claim. The motion judge expressly stated and applied the Weber test, adapted to the circumstances. He began with a plain reading of Aldo's pleading. Consistent with Weber, having considered the alleged wrongs as [page92 ]pleaded, the motion judge also considered the underlying factual dispute. The motion judge specifically acknowledged that Aldo's claim engages the imposition and collection of the Assessments by MasterCard. He considered that Aldo's claim against Moneris engages the question of whether the security breach constituted an ADC event for the purposes of the Assessments, and that the claim against MasterCard draws on the same events. In so doing, the motion judge turned his mind to the contractual context giving rise to the conduct Aldo impugns. It is true that the motion judge did not consider the underlying facts in a vacuum, but I do not believe that the essential character of Aldo's claim can be discerned solely by reference to the facts; some attention must also be paid to the legal context.

[33] The motion judge was also alive to the concern of artful pleading, which, according to MasterCard, is addressed by a consideration of the underlying dispute rather than the legal wrongs as pleaded. The motion judge stated, at para. 61, that the court "must remain alive to any attempt by the plaintiff to plead in a manner simply designed to get around the terms of a forum selection clause to which it had agreed". The motion judge considered and rejected the possibility that Aldo had pleaded claims in tort, unjust enrichment and for declaratory relief in order to circumvent a forum selection clause. Aldo was not privy to any contract with MasterCard containing a forum selection clause, meaning it was not subject to any clause that it had to avoid using artful pleading.

[34] In any event, the motion judge's approach led to an accurate characterization of Aldo's claim. There can be no doubt that the underlying conduct giving rise to Aldo's claim occurred in the context of a contractual relationship between MasterCard, the acquiring banks and Moneris. However, MasterCard has not established that this context transforms Aldo's pleading into an "essentially contractual" claim. Plaintiffs have long been entitled to maintain an action in tort even when the underlying facts involve a contract to which the plaintiff is not party: see, e.g., Haig v. Bamford, 1976 6 (SCC), [1977] 1 S.C.R. 466, [1976] S.C.J. No. 31 and Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., 1993 67 (SCC), [1993] 3 S.C.R. 206, [1993] S.C.J. No. 101. The possibility, in general, of concurrent liability in contract and tort demonstrates that a claim is not necessarily grounded in contract even when it relates to a contractual relationship.

[35] I agree with the motion judge that Aldo pleads direct claims against MasterCard as a stranger to the licence agreements and third party processing agreement. Aldo is not a party to these agreements and does not purport to assert any [page93 ]contractual claim against MasterCard. Whether Aldo's pleaded claim succeeds is a matter for merits adjudication, but its essential character does not require that it be litigated in accordance with the New York forum selection clauses.

[36] For the same reason, I would reject MasterCard's related argument that Aldo brings its claim as an equitable subrogee. MasterCard submits that, if Aldo's claim is contractual and it is not privy to any contract with MasterCard, it must rely for its standing on the doctrine of equitable subrogation. Equitable subrogation allows one party to stand in the shoes of another and advance any claims held by the original party: Alberta (Treasury Branches) v. Baker Estate, [2002] A.J. No. 1055, 2002 ABQB 781, at para. 46; and Ontario New Home Warranty Program v. Grant, 2001 62794 (ON SC), [2001] O.J. No. 2972, 10 C.L.R. (3d) 230 (S.C.J.), affd 2002 45054 (ON CA), [2002] O.J. No. 3460, 4 R.P.R. (4th) 56 (C.A.). According to MasterCard, if Aldo pleads as an equitable subrogee, it must accept the original party's limitations, including the New York forum selection clause. However, because the essential character of Aldo's claim is not contractual, Aldo does not require an exception to the doctrine of privity, such as equitable subrogation, in order to bring its claims against MasterCard. Nor does Aldo purport to rely on such an exception. Aldo alleges that it was harmed in its own right by MasterCard's imposition of the Assessments. It seeks to avail itself of causes of action grounded in tort, unjust enrichment and declaratory relief. To do so, it need not wear any shoes but its own.

[37] I would therefore reject MasterCard's position as it relates to the motion judge's characterization of Aldo's claim.

(3) The motion judge's analysis of the application of the forum selection clauses

[38] MasterCard submits that the motion judge erred in failing to rely on relevant and analogous case law regarding the application of forum selection clauses to non-signatories. MasterCard's primary argument is that the U.S. cases dealing with this issue are persuasive and should have been applied. As the motion judge recognized, the U.S. cases relied on by MasterCard set out a "closely related" test to determine whether a non-signatory to a contract is nevertheless bound by that contract's forum selection clause based on its foreseeable application to the non-signatory. In other words, for a non-party to be bound by a forum selection clause, it must be "closely related" to the dispute such that it becomes foreseeable that it will be bound: Weingrad v. Telepathy, Inc., 2005 WL 2990645 (S.D.N.Y. 2005). MasterCard also shepherds a number of Canadian cases in support of [page94 ]its submission that the New York forum selection clauses apply to Aldo on the facts of this case.

(a) The Canadian authorities

[39] I begin with a review of the Canadian authorities relied on by MasterCard in support of its argument that Aldo is bound by the New York forum selection clauses. Consideration of these authorities reveals that none is dispositive of this case.

[40] Kates v. Wyant, [2002] O.J. No. 503, 27 B.L.R. (3d) 273 (S.C.J.) involved a forum selection clause to which the plaintiff had agreed. Certain of the defendants were not party to the subscription agreement containing the forum selection clause, but do not appear to have objected to its application. The plaintiff argued that the action did not arise out of the subscription agreement, but the court concluded otherwise. The court held that the forum selection clause applied to all of the defendants; the issues in dispute were interrelated and best addressed by the same court. Unlike the plaintiff in Kates, Aldo is not a signatory to any forum selection clause the defendant seeks to enforce. Unlike the non-party defendants in Kates, Aldo strenuously objects to the application of the New York forum selection clauses.

[41] Crown Resources Corp. S.A. v. National Iranian Oil Co., 2006 28334 (ON CA), [2006] O.J. No. 3345, 273 D.L.R. (4th) 65 (C.A.), leave to appeal to S.C.C. refused [2006] S.C.C.A. No. 412, involved claims of breach of contract, breach of fiduciary duty and tort against two Iranian state-owned corporations. The relevant agreement contained a forum selection clause in favour of Iran. Although the plaintiffs -- creditors and assignees in bankruptcy of one of the parties to the agreements -- pleaded claims other than in contract against one of the Iranian corporations, these claims were "so intertwined" with the contract so as to justify them being heard together. This result was in the interests of avoiding a multiplicity of proceedings and inconsistent results. The court did not specifically address the issue of whether the plaintiffs, as creditors and assignees in bankruptcy rather than signatories to the original agreement, should be bound by the forum selection clause. In the present case, Aldo does not plead breach of contract along with its other claims. Moreover, adopting MasterCard's use of Crown Resources would promote, rather than avoid, a multiplicity of proceedings since Aldo is entitled to proceed against Moneris in Ontario.

[42] Momentous.ca Corp. v. Canadian American Assn. of Professional Baseball Ltd. (2010), 103 O.R. (3d) 467, [2010] O.J. No. 4595, 2010 ONCA 722, affd [2012] 1 S.C.R. 359, [2012] S.C.J. No. 9, 2012 SCC 9, concerned claims in contract and tort against [page95 ]a baseball league, its principals and the City of Ottawa. The plaintiffs' agreements with the league required disputes to be arbitrated and enforced in the courts of North Carolina. Laskin J.A. considered whether the plaintiffs' claims should be allowed to proceed in Ontario against two defendants who were not party to these agreements. Laskin J.A. concluded that, given the plaintiffs' pleading that these defendants were necessary parties and that joinder would promote the convenient administration of justice, the plaintiffs could not proceed separately against them in Ontario. The claims against these defendants were so intertwined with the claims against the league that the forum was governed by "[t]he choice of forum clause agreed to by the plaintiffs" (emphasis added). Unlike the plaintiff in Momentous.ca, Aldo has not agreed to litigate in the forum advanced by the defendant MasterCard.

[43] MasterCard's Ontario cases dealing with arbitration clauses -- Donaldson International Livestock Ltd. v. Znamensky Selekcionno-Gibridny Center LLC, [2008] O.J. No. 5254, 2008 ONCA 872, 305 D.L.R. (4th) 432 and Dalimpex Ltd. v. Janicki (2003), 2003 34234 (ON CA), 64 O.R. (3d) 737, [2003] O.J. No. 2094 (C.A.) -- are distinguishable on the same basis. In each, the court stayed proceedings against multiple defendants notwithstanding that not all were parties to the particular arbitration clause at issue. Notably, and in contrast to the present case, each involved an arbitration clause to which the plaintiff had agreed.

[44] Taken together, the Canadian cases stand for the proposition that, where a plaintiff has accepted a forum selection clause, it will not necessarily escape its bargain by pleading causes of action other than in contract or against multiple parties only some of which are subject to the clause. Courts are properly vigilant in ensuring that pleadings do not defeat contractual provisions, exclusions or limitations to which the plaintiff has agreed. An important motivating factor in these cases is the convenient administration of justice -- if a plaintiff must proceed elsewhere in respect of some of its claims, allowing it to proceed in Ontario in respect of others wastes judicial resources and violates the principle of comity. In my view, these authorities do not compel the conclusion that a plaintiff is bound by a forum selection clause to which it did not agree simply because its claim arises in the context of another party's contractual relationship that includes the clause.

(b) The "closely related" doctrine

[45] The "closely related" doctrine operates to bind non-signatories to a forum selection clause where they are so closely [page96 ]related to the dispute that it is foreseeable that they would become bound by the clause. A non-party is "closely related" to a dispute if its interests are completely derivative of and directly related to, if not predicated upon, the signatory party's interests or conduct: Weingrad.

[46] It bears mention that there are good reasons to limit the scope of forum selection clauses to those parties who have bargained for their application. Litigating in a particular forum has real consequences that parties must evaluate, as the court recognized in Crown Resources, at para. 27, quoting ECS Educational Consulting Services Canada Ltd. v. Al Nahyan, [2000] O.J. No. 211, 94 A.C.W.S. (3d) 471 (S.C.J.), affd [2000] O.J. No. 4416, 3 C.P.C. (5th) 76 (C.A.):

In this age of the "global economy", business will increasingly be faced with the prospect of dealing with different judicial systems in different parts of the world. I assume that business people accept that fact as a consequence of doing business in different parts of the world. I also assume that business people assess those different judicial systems before agreeing to attorn to their jurisdiction or that they are prepared to take the risks, if such be the case, of so doing.

[47] Sophisticated parties are deemed to have informed themselves about the risks of foreign legal systems and are deemed to have accepted those risks in agreeing to a forum selection clause: Crown Resources, at para. 27. It is precisely because signatories to a forum selection clause have weighed and accepted the forum and its risks that these clauses should be enforced. Non-signatories have not necessarily engaged in this weighing exercise.

[48] Of course, the foreseeability component of the "closely related" doctrine attempts to accommodate this concern. The doctrine only operates to bind a non-signatory where it is foreseeable that the non-party would become bound. Arguably, this protects against the binding of those who truly failed to assess the advantages and disadvantages of litigating in the forum. Yet, the foreseeability inquiry is uncertain. It injects significant flexibility into the scope of application of forum selection clauses. In so doing, it runs contrary to well-established policy rationales for enforcing forum selection clauses, including certainty and security in commercial transactions: Z.I. Pompey Industrie v. ECU-Line N.V., [2003] 1 S.C.R. 450, [2003] S.C.J. No. 23, 2003 SCC 27, at para. 20.

[49] That is not to say that the doctrine should be rejected wholesale by Ontario courts. The U.S. cases illustrate a number of circumstances in which the "closely related" doctrine has been sensibly applied. For example, in [page97 ]Firefly Equities LLC v. Ultimate Combustion Co., 736 F. Supp. 2d 797 (S.D.N.Y. 2010), the court applied the doctrine to bind the corporate defendant's president, who had signed, on the company's behalf, an agreement containing a New York forum selection clause. In Lipcon v. Underwriters at Lloyd's, London, 148 F.3d 1285 (11th Cir. 1998), the court applied the doctrine to bind guarantor plaintiffs whose spouses had signed an agreement containing English forum selection and choice of law clauses. The interests of the guarantors were completely derivative of the interests of their spouses.

[50] Although the U.S. experience suggests that there may well be circumstances in which an Ontario court would seek to apply the "closely related" doctrine to a non-signatory plaintiff, the present case is not one of them. In this case, the application of the "closely related" doctrine would not assist MasterCard. Given the substance of its claim as pleaded, Aldo's interests are not completely derivative and directly related to the interests of any signatory to the New York forum selection clauses. Moreover, the motion judge found that MasterCard exercised significant control over the contractual terms governing the issuance and processing of its credit cards. MasterCard surely contemplated that the banks with which it contracted would, in turn, contract with processors and merchants outside of the State of New York. In fact, MasterCard required that certain terms be included in the acquiring banks' downstream contracts with processors and merchants. It was open to MasterCard to do the same for forum selection, yet it did not. Moneris was permitted to enter into an agreement with Aldo that contained a broad forum selection clause in favour of the Ontario courts. On this basis, the motion judge found that it was not foreseeable to Aldo that MasterCard's New York forum selection clauses would apply to its claims, and I see no reversible error in this regard. Accordingly, it is unnecessary at this juncture to determine the availability, in general, of the "closely related" doctrine.

(4) The motion judge's approach to the strong cause test

[51] To succeed in displacing an applicable forum selection clause, a plaintiff must show "strong cause" that it should not be enforced: Harster Greenhouses Inc. v. Visser International Trade & Engineering B.V., [2011] O.J. No. 2395, 2011 ONSC 2608, 334 D.L.R. (4th) 481 (S.C.J.), at para. 67; and Expedition Helicopters Inc. v. Honeywell Inc. (2010), 100 O.R. (3d) 241, [2010] O.J. No. 1998, 2010 ONCA 351, at paras. 6, 11. MasterCard submits that if Aldo is bound by a New York forum selection clause, the clause [page98 ]should be enforced absent strong cause not to enforce. However, the motion judge correctly concluded that Aldo is not bound by any applicable New York forum selection clause. Accordingly, there is no clause to displace, and the motion judge did not err in failing to conduct a "strong cause" analysis.

[52] In light of my conclusion that Aldo is not bound by either of the New York forum selection clauses, it is unnecessary to consider Aldo's further submission that the language of the forum selection clause in the licence agreements does not extend to its claims because it is limited to claims "initiated by a Member", and Aldo is not a member of the MasterCard credit card association.

[53] In all the circumstances, I would dismiss the appeal.

[54] The respondents are entitled to the costs of this appeal. If the parties cannot agree on the quantum of costs, they may make brief written submissions within 15 days of the release of these reasons.

Appeal dismissed.

End of Document