Khan Resources Inc. et al. v. W M Mining Company, LLC et al. [Indexed as: Khan Resources Inc. v. W M Mining Co, LLC]

79 O.R. (3d) 411

[2006] O.J. No. 845

Docket: C43427

Court of Appeal for Ontario,

Borins, Feldman and Armstrong JJ.A.

March 7, 2006

Conflict of laws -- Jurisdiction -- Real and substantial connection -- Applicants bringing application in Ontario for declaration that assignments of mining licences relating to Mongolian mining properties were null and void and for injunction restraining respondents from dealing with assigned assets -- Connection between claim and Ontario weak -- Any order obtained in application would not be enforceable in jurisdiction where it would need to be effective -- Motion judge not erring in staying application on ground that there was no real and substantial connection between relief claimed and jurisdiction of Ontario Superior Court of Justice.

The respondent M was a Colorado resident, and the respondent WMM Co. was a Colorado corporation in which M held the offices of president and CEO. In order to raise equity financing in Ontario for the development of certain mining properties in Mongolia, M incorporated KR Ontario in Ontario. Rights to exploit the mining interests (consisting of mining licences and exploration licences) were assigned to WMM Co. by two Mongolian companies and a British Virgin Islands company, wholly owned subsidiaries of KR Bermuda, which was also owned by M. KR Ontario acquired all of the issued shares of KR Bermuda. The applicants brought an application in Ontario for a declaration that the assignments of the mining interests were null and void and an injunction restraining the respondents from dealing with the assigned assets. The motion judge stayed the application on the basis that there was no real and substantial connection between the relief claimed by the applicants and the jurisdiction of the Ontario Superior Court of Justice. The applicants appealed. [page412]

Held, the appeal should be dismissed.

The strongest factor militating against an Ontario court assuming jurisdiction was that the connection between the claim, as framed, and Ontario was very weak. Furthermore, even though it would be convenient for KR Ontario to litigate in Ontario, the usefulness of any order obtained in Ontario in allaying the concerns of the equity market as to the ownership of the mining interests was dubious. The licences appeared to be in the nature of a profit à prendre, an interest in land that entitles the holder to enter onto the land of another and exploit a natural resource there. That is, the licences involved rights to land. The general rule is that the courts of any country have no jurisdiction to adjudicate on the right and title to lands not situate in such country. In accordance with that rule of private international law, the unchallenged expert evidence in the record was to the effect that a Mongolian court would not recognize an Ontario judgment that purported to deal with those mining interests. There was no in personam claim for damages that might bring the application within the jurisdiction of the Superior Court. Another difficulty that arose related to the rule of private international law that to be enforceable, the order of a foreign court must be for a fixed sum of money. In this case, the applicants sought only declaratory and injunctive relief. Again, the unchallenged expert evidence was to the effect that neither Mongolia nor the British Virgin Islands would enforce an Ontario order for a declaration or an injunction as claimed in this application. It was the comity factor that effectively dictated the result in this case.

APPEAL from the order of Pepall J. of the Superior Court of Justice, dated April 19, 2005, staying an application.

Cases referred to Bank of Montreal v. Dynex Petroleum Ltd., [2002] 1 S.C.R. 146, [2001] S.C.J. No. 70, 208 D.L.R. (4th) 155, 281 N.R. 113, 2002 SCC 7, 19 B.L.R. (3d) 159, 1 R.P.R. (4th) 1; Canadian Aero Service Ltd. v. O'Malley, 1973 23 (SCC), [1974] S.C.R. 592, 40 D.L.R. (3d) 371, 11 C.P.R. (2d) 206; Catania v. Giannattasio, 1999 1930 (ON CA), [1999] O.J. No. 1197, 174 D.L.R. (4th) 170, 28 C.P.C. (4th) 207 (C.A.); Duke v. Andler, 1932 32 (SCC), [1932] S.C.R. 734, [1932] 4 D.L.R. 529; Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189; Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, [1997] S.C.J. No. 51, 115 Man. R. (2d) 241, 146 D.L.R. (4th) 577, 211 N.R. 352, 139 W.A.C. 241, [1997] 8 W.W.R. 80, 31 B.L.R. (2d) 147, 35 C.C.L.T. (2d) 115; Lemmex v. Bernard (2002), 2002 44962 (ON CA), 60 O.R. (3d) 54, [2002] O.J. No. 2131, 213 D.L.R. (4th) 627, 13 C.C.L.T. (3d) 203, 26 C.P.C. (5th) 259 (C.A.); Mountain West Resources Ltd. v. Fitzgerald, [2002] B.C.J. No. 2402, 2002 BCCA 545, 6 B.C.L.R. (4th) 97, 117 A.C.W.S. (3d) 242 (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.); Phillips v. Avena, [2006] A.J. No. 33, 2006 ABCA 19, 21 E.T.R. (3d) 194 (C.A.); Pro Swing Inc. v. ELTA Golf Inc. (2004), 2004 870 (ON CA), 71 O.R. (3d) 566, [2004] O.J. No. 2801 (C.A.) [Leave to appeal to S.C.C. granted [2004] S.C.C.A. No. 420] Authorities referred to Castel, J.G., and J. Walker, Canadian Conflict of Laws, 6th ed. (Markham, Ont.: Butterworths, 2005) Ziff, B.H., Principles of Property Law, 3rd ed. (Scarborough, Ont.: Carswell, 2000)

Gustavo F. Camelino, for appellant. David A. Hausman and Brad Moore, for respondents. [page413]

The judgment of the court was delivered by

FELDMAN J.A.:--

Introduction

[1] The issue in this appeal is whether the motion judge erred by staying this application on the ground that there is no real and substantial connection between the relief claimed by the appellants and the jurisdiction of the Ontario Superior Court of Justice.

Facts

[2] Wallace Mays resides in Colorado, in the United States of America. His company, W M Mining Company, LLC is a Colorado corporation in which he holds the offices of president and CEO.

[3] The underlying assets in issue in the application are mining interests in three properties in Mongolia. Certain rights to exploit the mining interests were assigned to the respondent W M Mining Company, LLC. The assignments were executed by the respondent, Wallace Mays, in various corporate capacities, from Ikh Tokhoirol Ltd. (a Mongolian corporation), Altangol Exploration Ltd. (a Mongolian corporation) and CAUC Holding Company Limited (a British Virgin Islands corporation). The applicants seek a declaration that the assignments are null and void and an injunction restraining the respondents from dealing with the assigned assets.

[4] Mr. Mays was the driving force behind the acquisition and development of the mining interests in Mongolia. He owned Khan Resources Bermuda Ltd., a Bermuda corporation, of which the three assignor companies are wholly owned subsidiaries. He also incorporated Khan Resources Inc. in Ontario in order to raise equity financing in Ontario for the development of the mining properties in Mongolia.

[5] Pursuant to a share exchange agreement, Khan Ontario acquired all of the issued shares of Khan Bermuda. Mr. Mays was the president, secretary-treasurer and a director of Khan Ontario until January 8, 2003, and the director of international development until October 3, 2004. It is the position of Khan Ontario that after its Board of Directors met in Toronto on October 3, 2004, Mr. Mays, who was in attendance at that meeting, executed the assignments transferring the assigned assets to his own company, W M Mining Company, LLC to satisfy a debt alleged to be owed to it by Khan Ontario. It is the position of the appellants in this application that these assignments were unauthorized and of no force or effect. [page414]

[6] The assignment from Ikh Tokhoirol Ltd. purported to assign a Licence Purchase and Escrow Agreement involving the transfer of two exploration licences and one mining licence. The assignment from Altangol Exploration Ltd. purported to assign a Letter of Intent and Letter Agreement involving the transfer of two exploration licences and two mining licences. The assignment from CAUC Holding Limited purported to assign its 58 per cent share interest in Central Asian Uranium Company, Ltd., a Mongolian corporation that owns a mining licence.

Issues and Analysis

(a) Question of law

[7] The determination of whether a provincial superior court has jurisdiction over a matter is a question of law. Therefore, although the court is required to address a list of factors in order to determine whether there is a real and substantial connection between the subject matter of an action and the jurisdiction of the court, the decision is not an exercise of judicial discretion. Consequently, on appellate review, the standard of review is correctness: see Muscutt v. Courcelles (2002), 2002 44957 (ON CA), 60 O.R. (3d) 20, [2002] O.J. No. 2128 (C.A.), at para. 43; Lemmex v. Bernard (2002), 2002 44962 (ON CA), 60 O.R. (3d) 54, [2002] O.J. No. 2131 (C.A.), at para. 29; and Phillips v. Avena, [2006] A.J. No. 33, 2006 ABCA 19 (C.A.), at para. 60.

[8] In determining whether there is a real and substantial connection between the applicants' claims and Ontario, the motion judge considered the factors set out by this court in Muscutt, supra.

[9] After reviewing each of the eight Muscutt factors, the motion judge concluded that the real and substantial connection test was not met, that the application should be stayed and that the Ontario court should therefore not take jurisdiction.

[10] I agree with the conclusion reached by the motion judge. She articulated the test properly, considered the relevant factors and was correct in her determination that the Ontario court should not take jurisdiction in this case. That conclusion is driven by the specific nature of the relief claimed in the application.

(b) Nature of the Case

[11] The mining promotion in this case involved an initial public offering in Ontario by Khan Ontario. Prima facie, when a person or a corporation comes to Ontario to raise money in the Ontario equity market, one would expect that if problems arise, the problems could, and in most cases would, be resolved by litigation in Ontario. In this case, however, the relief claimed is not an award of damages, but rather a declaration that assignments [page415] of rights to exploit lands in Mongolia were of no force or effect and an injunction restraining the assignees from dealing with those rights in Mongolia.

[12] The applicants wish to have these issues resolved so that they can proceed with the initial public offering in Ontario in order to raise money here to develop the mining interests in Mongolia. However, if the issues are resolved by Ontario court orders that under the rules of private international law would not be enforceable in the foreign jurisdiction where the assets are located, the basis for seeking the resolution in the Ontario courts is effectively undermined. Furthermore, if the orders of an Ontario court were ineffective to resolve the issue of whether Khan Ontario has the right to exploit the mining interests in Mongolia, obtaining such orders in Ontario could be misleading to the investing public there.

[13] Information in the record on the exact scope of the Mongolian mining licences is limited. However, the licences appear to be in the nature of a profit à prendre, an interest in land that entitles the holder to enter onto the land of another and exploit a natural resource there: see Bank of Montreal v. Dynex Petroleum Ltd., 2002 SCC 7, [2002] 1 S.C.R. 146, [2002] S.C.J. No. 70, at para. 9; Bruce H. Ziff, Principles of Property Law, 3rd ed. (Scarborough, Ont.: Carswell, 2000) at 285. Since the licences in this case involve rights to land, the general rule is that "the courts of any country have no jurisdiction to adjudicate on the right and title to lands not situate in such country": Duke v. Andler, 1932 32 (SCC), [1932] S.C.R. 734, [1932] 4 D.L.R. 529, at p. 738 S.C.R.

[14] In Catania v. Giannattasio, 1999 1930 (ON CA), [1999] O.J. No. 1197, 174 D.L.R. (4th) 170 (C.A.), at para. 11, Laskin J.A. explained the policy underlying this general rule as follows:

The courts of most countries insist on the exclusive right to decide disputes over their own lands. Thus, ordinarily a judgment by a Canadian court on a disputed title to foreign land would be ineffective. If Canadian courts cannot grant an effective judgment or an enforceable remedy concerning land in a foreign country, they should decline jurisdiction to decide these disputes.

[15] In accordance with this rule of private international law, the unchallenged expert evidence in the record is to the effect that a Mongolian court would not recognize an Ontario judgment that purported to deal with these mining interests.

[16] In contrast, had the appellants sought the remedy of damages against the respondents based on an allegation that they breached a contractual or equitable obligation associated with the impugned assignments, even though the underlying asset is rights in foreign lands, an Ontario court could exercise in personam jurisdiction over the respondents by enforcing a personal [page416] obligation rather than purporting to determine the rights to mining interests in a foreign jurisdiction.

[17] For example, in Mountain West Resources Ltd. v. Fitzgerald, 2002 BCCA 545, [2002] B.C.J. No. 2402, 6 B.C.L.R. (4th) 97 (C.A.), a British Columbia corporation brought a claim for breach of fiduciary duty against its president and director, a resident of Arizona, for taking mining claims in Nevada in his own name rather than in the name of the corporation. The Supreme Court of British Columbia motion judge originally declined jurisdiction on the basis that the claim involved real property outside the jurisdiction. However, the B.C. Court of Appeal referred the matter back to the motion judge to reconsider the case as an in personam claim for appropriation of a corporate opportunity, similar in nature to the claim made in Canadian Aero Service Ltd. v. O'Malley, 1973 23 (SCC), [1974] S.C.R. 592, 40 D.L.R. (3d) 371.

[18] In this case, however, there is no in personam claim for damages that might bring the application within the jurisdiction of the Superior Court.

[19] Another difficulty that arises relates to the rule of private international law that to be enforceable, the order of a foreign court must be for a fixed sum of money: see Jean- Gabriel Castel & Janet Walker, Canadian Conflict of Laws, 6th ed. (Markham, Ont.: Butterworths, 2005) at 14-20 [See Note 1 at the end of the document]. In this case, the applicants seek only declaratory and injunctive relief, and again, the unchallenged expert evidence filed on the application gives the opinion, confirming the ordinary rule, that neither Mongolia nor the British Virgin Islands would enforce an Ontario order for a declaration or an injunction as claimed in this application.

[20] A separate issue that was considered by the motion judge was whether this application must fail as disclosing no cause of action because it runs afoul of the rule in Foss v. Harbottle (1843), 2 Hare 461, 67 E.R. 189, that only the corporation and not its shareholders can claim redress for a wrong to the corporation: see Hercules Management Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, [1997] S.C.J. No. 51. As Khan Ontario, the only Ontario entity, is merely the shareholder of Khan Bermuda, the owner of the assignor corporations, the argument is that Khan Ontario cannot seek any relief in respect of the assignments and therefore there is no Ontario connection to found jurisdiction. [page417]

[21] The appellants argue in response that Khan Ontario has itself suffered damage in terms of moneys it has paid for the mining interests and, as well, it has lost potential investors as a result of the impugned assignments. Consequently, they say, this action is for personal damages and not just for derivative relief.

[22] Although the action as currently framed does not claim damages, on this motion to determine jurisdiction it is my view that, based on these competing arguments, it would be premature to determine that Khan Ontario has no cause of action and to decline jurisdiction for that reason.

[23] In summary, it appears that the strongest factor militating against an Ontario court assuming jurisdiction is that the connection between the claim, as framed, and Ontario is very weak. Furthermore, even though it would be convenient for Khan Ontario to litigate here, the usefulness of any order obtained in Ontario in allaying the concerns of the equity market as to the ownership of the mining interests is dubious because it appears that any such order would not, by the ordinary rules of private international law, be enforceable in Mongolia in respect of the licences, or in the British Virgin Islands in respect of the majority share interest of CAUC Holding Company Limited in Central Asian Uranium Company, Ltd.

[24] Therefore, although Mr. Mays came to Ontario from Colorado to raise money here to fund his Mongolian mining venture, because the relief the appellants seek in the action relates directly to enforcing rights with respect to foreign land and is declaratory and injunctive in nature, the relief would likely not be enforceable in the jurisdiction where it would need to be effective. Accordingly, I agree with the motion judge that it is the comity factor that effectively dictates the result in this case.

[25] I would therefore dismiss the appeal.

[26] The appellants brought a motion to admit fresh evidence. We considered the fresh evidence during the argument but at the end of the day, it did not assist in persuading us that we should interfere with the order of the motion judge.

[27] The respondents are entitled to their costs on the partial indemnity scale, fixed in the amount of $10,000 including disbursements and GST.

Appeal dismissed.

[page418]

Notes

Note 1: It should be noted that the issue of the enforceability of foreign non-monetary judgments in Canada is presently before the Supreme Court of Canada: see Pro Swing Inc. v. ELTA Golf Inc. (2004), 2004 870 (ON CA), 71 O.R. (3d) 566, [2004] O.J. No. 2801 (C.A.), leave to appeal to S.C.C. granted [2004] S.C.C.A. No. 420, appeal heard and reserved on December 15, 2005.