Towne Meadow Development Corporation Inc. v. The Israel Discount Bank Ltd. et al.

[Indexed as: Towne Meadow Development Corp. v. Israel Discount Bank Ltd.]

77 O.R. (3d) 761

[2005] O.J. No. 5042

Docket: C43022

Court of Appeal for Ontario,

Goudge, Cronk and Juriansz JJ.A.

November 28, 2005

Application for leave to appeal to the Supreme Court of Canada was dismissed with costs to the respondent Israel Discount Bank Ltd. April 13, 2006 (Binnie, Deschamps and Abella).

Conflict of laws -- Forum conveniens -- Plaintiff bringing action in Ontario seeking to enjoin Israeli bank from drawing upon letter of credit issued in Ontario by Canadian bank in respect of loans granted to A -- Israeli bank taking position that loans it made to B were covered by letter of credit as A and B were closely related and jointly carried on same construction business in Israel -- Case raising issue of interpretation of letter of credit in course of dealings and relationships among parties -- Ontario not convenient forum for action.

Conflict of laws -- Jurisdiction -- Plaintiff bringing action in Ontario seeking to enjoin Israeli bank from drawing upon letter of credit issued in Ontario by Canadian bank in respect of loans granted to A -- Israeli bank taking position that loans it made to B were covered by letter of [page762] credit as A and B were closely related and jointly carried on same construction business in Israel -- Action having real and substantial connection to Ontario -- Ontario courts having jurisdiction over action.

A letter of credit was issued in Ontario by the TD Bank on the instructions of T Inc. in favour of the IDB, an Israeli bank, securing general banking facilities by way of loans and/ or credit facilities granted to or to be granted by the IDB to C Ltd. The IDB took the position that loans it made to K Ltd. were covered by the letter of credit as C Ltd. and K Ltd. were closely related and jointly carried on the same construction business in Israel. T Inc. brought an action in Ontario seeking to enjoin the IDB from drawing upon the letter of credit. On an application by the IDB to stay the Ontario action, the motion judge found that the Superior Court of Justice did not have jurisdiction over the subject matter of the action and that Ontario was not the convenient forum in which it should proceed. T Inc. appealed.

Held, the appeal should be dismissed.

Per Juriansz J.A. (Cronk J.A. concurring): The Ontario courts had jurisdiction over the action, as the action clearly had a real and substantial connection to Ontario.

The key question in the action was whether, in all the circumstances, the letter of credit extended to K Ltd.'s debts to the IDB. The determination of that issue required interpretation of the letter of credit in the context of, among other things, the course of dealings and the nature of the corporate and business relationships among the parties. The majority of the relevant witnesses, including key witnesses, resided in Israel; the bulk of the evidence was located in Israel; the factual matters in dispute arose in Israel; the IDB's principal home was in Israel and it would work no inconvenience to the other parties were they required to appear before an Israeli court; and there would be no loss of juridical advantage to T Inc. were the trial to proceed in Israel. The motion judge was entitled to conclude that Israel was the more convenient forum.

Per Goudge J.A. (dissenting): This was a dispute between an Ontario company and an Israeli bank about the meaning of an Ontario letter of credit which was governed by Ontario law. Israel was not clearly a more appropriate forum so as to displace T Inc.'s right as plaintiff to choose Ontario as the forum.

APPEAL from an order of Hoilett J., [2005] O.J. No. 549, 137 A.C.W.S. (3d) 82 (S.C.J.) staying an action because Ontario was not the convenient forum.

Cases referred to

Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp. (2003), 2003 52135 (ON CA), 63 O.R. (3d) 431, [2003] O.J. No. 560, 223 D.L.R. (4th) 627, 31 B.L.R. (3d) 161, 30 C.P.C. (5th) 282 (C.A.); Muscutt v. Courcelles (2002), 2002 44957 (ON CA), 60 O.R. (3d) 20, [2002] O.J. No. 2128, 213 D.L.R. (4th) 577, 13 C.C.L.T. (3d) 161, 26 C.P.C. (5th) 206 (C.A.), supp. reasons 2002 9432 (ON CA), [2002] O.J. No. 2734, 213 D.L.R. (4th) 661, 13 C.C.L.T. (3d) 238, 26 C.P.C. (5th) 203 (C.A.)

Counsel

Martin Teplitsky, Q.C., and Stephen Brunswick, for appellant. William J. Burden, for respondent The Israel Discount Bank Ltd. David Braunstein, for respondent The Toronto-Dominion Bank. [page763]

[1] JURIANSZ J.A. (CRONK J.A. concurring):-- The appellant, Towne Meadow Development Corporation Inc. ("Towne Meadow"), appeals from the order of Hoilett J. dated January 31, 2005, finding that the Superior Court of Justice does not have jurisdiction over the subject matter of the action, and permanently staying the action because Ontario is not the convenient forum in which it should proceed.

[2] Towne Meadow sought to enjoin The Israel Discount Bank Ltd. (the "Bank") from drawing upon a letter of credit issued by The Toronto-Dominion Bank with respect to Canada Ashdod Projects and Construction Ltd. ("Canada Ashdod"). The letter of credit was issued on the appellant's application. The appellant is an Ontario corporation.

[3] In my view, the Ontario courts have jurisdiction over the action. The action relates to a demand made in Toronto by the Bank for payment pursuant to a letter of credit granted in Ontario by a Canadian bank operating in Ontario on the application of an Ontario corporation. The letter of credit must be interpreted according to the laws of Ontario. The action clearly has a real and substantial connection to Ontario.

[4] Accordingly, the issue is whether the motion judge erred in concluding that Israel is the more convenient forum in which the action should proceed.

[5] The letter of credit, as amended September 14, 1995, secures "general banking facilities by way of loans and/or credit facilities granted or to be granted by [the Bank] to Canada Ashdod". The appellant submits that the letter of credit is not enforceable in that the demand on it was a "fraud" because Canada Ashdod had no loans outstanding to the Bank when payment was demanded.

[6] The Bank's position in the action is that loans it made to Kojfman Ltd. ("Kojfman"), another Israeli company, are covered by the letter of credit relating to Canada Ashdod. The Bank submits that the two companies are closely related and jointly carry on the same construction business in Israel, that each company executed account operation agreements in Israel in favour of the Bank in relation to the financing of their construction activities, and that each executed an undertaking to the Bank pledging all of its "collateral of every type and kind whatsoever" would stand in support of payment of the debts of the other. The Bank also relies on all the surrounding circumstances, including the nature of the relationship of these two companies to each other and to the appellant and a shareholders' agreement to which the principal of the appellant is said to be a party.

[7] The appellant responds by pointing out that neither it nor The Toronto-Dominion Bank was asked to sign the undertaking [page764] that Canada Ashdod gave to the Bank and they are not parties to it. The appellant submits that the letter of credit is autonomous and can only be amended by the issuing bank and that it was never amended to include the undertaking or to otherwise refer expressly to any indebtedness of Kojfman.

[8] In oral argument, the appellant did not press the submission in its factum that the Bank attorned to the jurisdiction of the Ontario courts.

[9] The Toronto-Dominion Bank supports the appellant's position.

[10] The key question in the action is whether, in all the circumstances, the letter of credit issued by The Toronto- Dominion Bank extends to the debts of Kojfman to the Bank. On the facts asserted in this case, the determination of this question requires interpretation of the letter of credit in the context of the undertaking given by Canada Ashdod and Kojfman, the fraud allegation advanced by the appellant, and the course of dealings and the nature of the corporate and business relationships among the parties.

[11] It is significant, in this regard, that the Bank does not rely on the undertaking alone. It also relies on evidence of the nature and history of the relationship between the three companies, their common shareholders and the joint enterprise of Canada Ashdod and Kojfman. The Bank also claims that the appellant's controlling shareholder, who it says is the manager of Kojfman, pledged the letter of credit to secure Kojfman's indebtedness and that the letter of credit was renewed on several occasions thereafter, including at times when Canada Ashdod had no direct indebtedness to the Bank. As the motion judge recognized, the Bank is attempting, in effect, to pierce the corporate veil between Canada Ashdod and Kojfman.

[12] Against this backdrop, the question whether the loans granted by the Bank to Kojfman are to be considered "general banking facilities by way of loans and/or credit facilities" granted to Canada Ashdod is not a matter for determination on a preliminary motion regarding the most convenient forum. Rather, it is a question for trial.

[13] In considering the most convenient forum for the trial, the motion judge observed that the prima facie purport of the letter of credit, the interpretation of which is governed by Ontario law, was not a serious issue in the overall dispute. He said that the "substantial dispute rests in Israel". In applying the factors set out in Muscutt v. Courcelles (2002), 2002 44957 (ON CA), 60 O.R. (3d) 20, [2002] O.J. No. 2128 (C.A.), he observed that virtually all the criteria weighed in favour of Israel. He noted that the majority of the relevant witnesses, including key witnesses, reside in Israel; the bulk of the evidence is [page765] located in Israel; the factual matters in dispute arose in Israel; the Bank's principal home is in Israel and it would work no inconvenience to the other parties were they required to appeal before an Israeli court; and there would be no loss of juridical advantage to the appellant were the trial to proceed in Israel. He decided Israel was the more convenient forum. In my view, he was entitled to reach that conclusion on the record before him.

[14] A decision of a motion judge as to the convenient forum for the resolution of a dispute is a discretionary one that is entitled to deference on appeal. In the absence of demonstration that the motion judge erred in principle, this appeal must fail.

[15] I would dismiss the appeal with costs on the partial indemnity scale in favour of The Israel Discount Bank Ltd., fixed in the amount of $20,000, inclusive of disbursements and G.S.T.

[16] GOUDGE J.A. (dissenting):-- I have had the benefit of reading the reasons of my colleague Juriansz J.A., and with respect, while I agree that the Ontario courts could properly assume jurisdiction over this action, I think that the motion judge erred in finding that Israel is the convenient forum.

[17] In my view, the central issue in this action concerns the meaning of the letter of credit issued by the Toronto- Dominion Bank ("TD Bank") on the instructions of Towne Meadow Development Corporation Inc. ("Towne") in favour of the Israel Discount Bank ("IDB").

[18] In particular, as between Towne and IDB, do "general banking facilities by way of loans and or credit facilities" granted to Canada Ashdod Projects and Construction Ltd. ("Canada Ashdod") by IDB include loans granted to Kojfman Ltd. ("Kojfman") by IDB?

[19] Towne argues that on its face the letter of credit does not extend to IDB loans to Kojfman and that Towne has never agreed otherwise. If, as between Canada Ashdod and IDB, Canada Ashdod is liable for IDB loans to Kojfman, that is irrelevant to the central issue in this lawsuit.

[20] IDB argues first that as between Canada Ashdod and IDB, loans by IDB to Kojfman must be treated as loans by IDB to Canada Ashdod because of the undertaking of December 1994 between Canada Ashdod and IDB. It does not contest that Towne is not a party to the undertaking. Second, it argues that Mr. Libfield agreed on behalf of Towne that this is so.

[21] Most of the material filed by IDB addresses the first argument. The limited IDB material on the second argument suggests that Mr. Libfield, the principal of Towne, knew of the undertaking when he instructed TD Bank to renew the letter of credit and because Canada Ashdod had essentially no direct borrowings from [page766] the IDB at the time, Towne must be taken to have agreed that the letter of credit as reissued encompasses IDB loans to Kojfman.

[22] In my view, the convenient forum analysis of the motion judge proceeds on a false premise because he treats the alleged liability of Canada Ashdod to the IDB for IDB loans to Kojfman as the substantial dispute in this action. That is between Canada Ashdod and IDB. The parties to this action are the main protagonists Towne and IDB, together with TD Bank.

[23] Rather the issue in this action is the meaning of the letter of credit: as between Towne and IDB, did Towne agree that the general banking facilities by way of loans and or credit facilities granted by IDB to Canada Ashdod should include IDB loans to Kojfman. The undertaking on its own is irrelevant to this. It only matters if the respondent can bring it home to Towne somehow.

[24] The forum conveniens factors set out in Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp. (2003), 2003 52135 (ON CA), 63 O.R. (3d) 431, [2003] O.J. No. 560 (C.A.), at p. 453 O.R. are:

(a) the location where the contract in dispute was signed,

(b) the applicable law of the contract,

(c) the location in which the majority of witnesses reside,

(d) the location of key witnesses,

(e) the location where the bulk of the evidence will come from,

(f) the jurisprudence in which the factual matters arose, . . .

(g) the residence or place of business of the parties, [and]

[(h) loss of juridical advantage.]

[25] If one applies these to my view of the action, I cannot find Israel to be clearly a more appropriate forum so as to displace Towne's right as plaintiff to choose Ontario as the forum.

[26] The contract in dispute, namely the letter of credit, was made and renewed in Ontario and is governed by Ontario law. While the majority of both the witnesses and the evidence concerning the issue between Canada Ashdod and IDB are apparently in Israel, the evidence and witnesses concerning the central issue, the renewal of the letter of credit and Mr. Libfield's alleged knowledge of and agreement with the undertaking on behalf of Towne is partly in Ontario and partly in Israel. In the same way, the residence or place of business of Towne and IDB [is] a neutral factor. Finally, judicial advantage does not appear to be an issue in this case.

[27] In summary, the real issue in this action is whether Towne is bound by the knowledge and actions of Mr. Libfield, an [page767] Ontario resident, to treat IDB loans to Kojfman as covered by the letter of credit. In the vernacular, what did Mr. Libfield know, when did he know it and what did he do as a result? It is a dispute between an Ontario company and an Israeli bank about the meaning of an Ontario letter of credit. It does not seem to me that in these circumstances Israel is clearly the more appropriate jurisdiction.

[28] I would allow the appeal.

Appeal dismissed.