Matrix Integrated Solutions Limited v. Naccarato et al. [Indexed as: Matrix Integrated Solutions Ltd. v. Naccarato]
97 O.R. (3d) 693
Court of Appeal for Ontario,
Laskin, Sharpe and LaForme JJ.A.
July 28, 2009
Conflict of laws -- Choice of forum -- Plaintiff and defendant entering into agreement whereby plaintiff became authorized reseller of defendant's products in Ontario -- Agreement containing forum selection clause which provided that Texas would have exclusive jurisdiction over all disputes arising out of or in connection with agreement -- Two former employees of plaintiff leaving and forming competing company [page694] -- Defendant terminating its agreement with plaintiff and entering into agreement with that company -- Plaintiff bringing action in Ontario alleging that employees breached their fiduciary duties to plaintiff and that defendant participated in those breaches and conspired with employees -- Forum selection clause not applying as claims did not arise out of or in connection with agreement.
The plaintiff and the defendant entered into a "Reseller Agreement" (the "RA") whereby the plaintiff became an authorized reseller of the defendant's products in Ontario. The RA contained a forum selection clause which provided that Texas would have exclusive jurisdiction over all disputes "arising out of, or in connection with" the RA. The plaintiff commenced an action in Ontario alleging that two of its former employees who held positions of trust and confidence left its employ to form a competing company, that they breached their common-law trust and fiduciary duties to the plaintiff, and that the defendant, which terminated the RA and entered into an agreement with the former employees' company, knew of and participated in those breaches, violated its duty of good faith owing to the plaintiff and conspired with the former employees. The motion judge, holding that the forum selection clause governed, stayed the action against the defendant. The plaintiff appealed.
Held, the appeal should be allowed.
The claims for breach of fiduciary duty and conspiracy could not fairly be described as "contractual in nature". They were in pith and substance centred on a fiduciary relationship and the allegation that the defendant conspired with and knowingly assisted the former employees to breach their fiduciary obligations. The RA was merely part of the factual background that explained the existence and nature of the relationship that existed between the plaintiff and the defendant prior to the alleged wrongs that formed the basis of the action. The elements of the causes of action asserted did not depend upon the RA, and the RA could be removed from the picture without undermining those claims. The defendant could not bring the case within the reach of the forum selection clause by asserting that it would rely on the RA in defending the claims advanced.
APPEAL from the order of Spence J. of the Superior Court of Justice dated January 23, 2009, staying an action.
Cases referred to Precious Metal Capital Corp. v. Smith (2008), 92 O.R. (3d) 701, [2008] O.J. No. 4368, 2008 ONCA 577, 169 A.C.W.S. (3d) 779, 297 D.L.R. (4th) 746, apld 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.); Kaverit Steel and Crane Ltd. v. Kone Corp., 1992 ABCA 7, [1992] A.J. No. 40, 87 D.L.R. (4th) 129, [1992] 3 W.W.R. 716, 85 Alta. L.R. (2d) 287, 120 A.R. 346, 4 C.P.C. (3d) 99, 40 C.P.R. (3d) 161, 8 W.A.C. 346, 30 A.C.W.S. (3d) 1105 (C.A.) [Leave to appeal to S.C.C. refused [1992] 2 S.C.R. vii, [1992] S.C.C.A. No. 117, 93 D.L.R. (4th) vii, 144 N.R. 242n, [1992] 6 W.W.R. lvii, 4 Alta. L.R. (3d) xli, 141 A.R. 314n, 11 C.P.C. (3d) 18n, 43 C.P.R. (3d) v]; Mantini v. Smith Lyons LLP (2003), 2003 20875 (ON CA), 64 O.R. (3d) 505, [2003] O.J. No. 1831, 228 D.L.R. (4th) 214, 174 O.A.C. 138, 34 B.L.R. (3d) 1, 123 A.C.W.S. (3d) 219 (C.A.); Woolcock v. Bushert, 2004 35081 (ON CA), [2004] O.J. No. 4498, 246 D.L.R. (4th) 139, 192 O.A.C. 16, 50 B.L.R. (3d) 85, 36 C.C.E.L. (3d) 211, 3 C.P.C. (6th) 25, 134 A.C.W.S. (3d) 756 (C.A.), consd
Other cases referred to 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 [page695]
Margaret L. Waddell, for appellant. Peter J. Pliszka and Sarah J. Armstrong, for respondent.
The judgment of the court was delivered by
[1] SHARPE J.A.: -- The issue on this appeal is whether the claims advanced by the appellant Matrix Integrated Solutions Limited ("Matrix") are governed by a forum selection clause. Matrix and the respondent, Radiant Hospitality Systems Ltd. ("Radiant"), agreed that Texas would have exclusive jurisdiction over all disputes "arising out of, or in connection with" their agreement. Matrix argues that as it asserts claims against Radiant for conspiracy and for knowingly assisting Matrix's former employees in breaching their fiduciary duties, the claims are not governed by the contractual forum selection clause. The motions judge held that the forum selection clause governed and stayed the action against Radiant unless the Texas court declines to accept jurisdiction over all the defendants.
[2] For the following reasons, I conclude that the claims advanced do not arise out of or in connection with the agreement, that the forum selection clause does not apply, and that the appeal should be allowed and the stay set aside.
Facts
[3] Matrix is an Ontario company that sells and installs point-of-sale and other equipment for restaurants. Radiant is a Texas limited partnership that carries on business in Canada and the United States as a supplier of point-of-sale hardware and software to the hospitality industry.
[4] In 2007, the parties entered a "Reseller Agreement" (the "RA") whereby Matrix became an authorized, non-exclusive reseller of the respondent's products in Ontario. The RA contains a clause providing that it is to be governed by the laws of Texas and that the courts of Texas shall have exclusive jurisdiction over suits arising out of or in connection with the agreement:
This Agreement shall be governed by and construed in all respects in accordance with the laws of the State of Texas, U.S.A. In any civil action by either party relating to this Agreement, the prevailing party shall recover from and be reimbursed by the other party for all costs, reasonable attorneys' fees and related expenses. [Matrix] hereby consents and submits to the exclusive jurisdiction and venue over any action, suit or other legal proceeding that may arise out of, or in connection with this Agreement, by any state or federal court located in Tarrant County in the State of Texas, U.S.A. Reseller [page696] shall bring any action, suit or other legal proceeding to enforce, directly or indirectly, this Agreement or any right based upon it only in Tarrant County in the State of Texas, U.S.A. The parties agree that the United Nations Convention for the International Sale of Goods shall not apply to this Agreement. (Emphasis added)
[5] Matrix commenced this action alleging that Frank Naccarato and Gus Markou, two of its former employees who held positions of trust and confidence, had left Matrix to form Radeon Technologies Ltd. ("Radeon") and to carry on business in competition with Matrix. At the same time, Radiant terminated the RA and entered an agreement with Radeon.
[6] In the original statement of claim, Matrix alleged and claimed damages for breach of contract against Radiant. However, when Radiant moved to stay the action on the basis of the forum selection clause, Matrix obtained an order from the motion judge permitting it to amend the statement of claim and remove any claim for damages for breach of contract against Radiant.
[7] Matrix claims damages for the costs it incurred training employees and marketing Radiant products, as well as for its loss of profits due to customers stolen from it by Naccarato and Markou. It also seeks punitive damages. The essential allegations contained in the amended statement of claim that were considered by the motion judge and that govern this appeal may be summarized as follows: -- Naccarato and Markou, both senior management employees holding positions of trust and confidence, resigned from Matrix and immediately incorporated Radeon to carry on business in competition with Matrix. -- Radiant invoked the termination clause to end the Reseller Agreement with Matrix, alleging Matrix's failure to achieve quota. -- In breach of their contractual, common law and fiduciary obligations to Matrix, Naccarato and Markou have: -- misappropriated proprietary and confidential information; -- solicited Matrix employees to leave Matrix and join Radeon; -- solicited Matrix customers; -- misappropriated corporate opportunities; and [page697] -- used the benefit of these breaches to obtain a significant "springboard" competitive advantage for Radeon. -- Radiant knew of and participated in these breaches of common law, trust and fiduciary duties. -- All of the defendants "have violated the duty of good faith owing to Matrix". -- Naccarato and Markou conspired with Radiant to set up their business in competition with Matrix.
Decision of the Motion Judge
[8] The motion judge found that, by alleging a violation of a duty of good faith, Matrix was relying on the RA. He also noted that in affidavits filed on the motion, Radiant had identified several provisions in the RA it intended to rely on in its defence. These were provisions making the relationship with Matrix non-exclusive, reserving Radiant's right to appoint other resellers, limiting Radiant's liability for damages under the agreement and allowing Radiant to terminate the RA if Matrix failed to meet its quota. He concluded that "[b]ecause the RA will be relied upon to support the claims and to defend against them, it must be concluded that the claims, and the action in which Matrix asserts them 'arises out of or is in connection with' the RA", the forum selection clause applied unless Matrix could show "strong cause" why it should not: Z.I. Pompey Industrie v. ECU Line N.V., 2003 SCC 27, [2003] 1 S.C.R. 450, [2003] S.C.J. No. 23, at paras. 20-21.
[9] The motion judge found that there was a real and substantial connection between Ontario and the claim against Radiant. No appeal is taken against that finding. Matrix argued that if forced to sue in Texas, it would lose the ability to allege that Radiant had conspired with the other defendants, over whom the Texas courts would have no jurisdiction. The motion judge agreed that if Matrix could not join all parties in Texas, the denial of that right could constitute strong cause. However, no evidence as to Texas law was adduced to support the joinder argument. The motion judge ruled that the appropriate order was to stay the action against Radiant, unless and until the courts in Texas decided not to assume jurisdiction over the Ontario defendants.
Issues
(1) Should the action be stayed on the ground that the claims advanced arise out of or in connection with the RA, and that the forum selection clause governs? [page698] (2) Even if the forum selection clause governs, should Ontario take jurisdiction on the ground that there is strong cause to do so?
Analysis
1. Should the action be stayed on the ground that the claims advanced arise out of or in connection with the RA, and that the forum selection clause governs?
[10] The motion judge did not have the benefit of this court's decision in Precious Metal Capital Corp. v. Smith (2008), 2008 ONCA 577, 92 O.R. (3d) 701, [2008] O.J. No. 4368 (C.A.) ("Precious Metal"). Precious Metal dealt with the application of forum selection clauses in a series of agreements to claims for breach of fiduciary duty similar to those advanced in the present case. Writing for the court, Doherty J.A. held that in order to determine whether the claims for breach of fiduciary duty fell within the reach of the forum selection clauses, an important first step was to characterize the nature of the claims as they were in the statement of claim. Doherty J.A., at paras. 10-11, agreed with the conclusion of the motion judge that the claims "in pith and substance" centred on a fiduciary relationship and the allegation that two of the defendants "deliberately orchestrated events" to put the plaintiff at a disadvantage and to misappropriate to themselves a commercial opportunity. As the case was "not contractual in substance" but rather about "an allegedly abusive course of conduct by fiduciaries", the forum selection clauses in those agreements did not apply (emphasis removed).
[11] Applying a similar analysis to this case, the claims for breach of fiduciary duty and conspiracy advanced in the amended statement of claim cannot fairly be described as "contractual in substance". As in Precious Metal, they are "in pith and substance" centred on a fiduciary relationship and the allegation that Radiant conspired with and knowingly assisted Naccarato and Markou to breach their fiduciary obligations. The RA is merely part of the factual background that explains the existence and nature of the relationship that existed between Matrix and Radiant prior to the alleged wrongs that form the basis of this action. In my view, the claims for conspiracy and knowing assistance do not arise out of or in connection with the provisions of the RA. The elements of the causes of action asserted do not depend upon the RA, and the RA can be removed from the picture without undermining those claims.
[12] I respectfully disagree with the motion judge's conclusion that Matrix relied upon the RA in advancing this claim. The [page699] motion judge focused on the ambiguous reference to a "breach of a duty of good faith" in paras. 37-38 of the amended statement of claim:
Each and all of the defendants have violated the duty of good faith owing to Matrix as a result of the circumstances set out above.
In particular, Naccarato and Markou owed a duty of good faith in the performance of all obligations arising from their employment with Matrix.
[13] These paragraphs must be read in the context of the amended statement of claim as a whole. The allegation that Radiant owed Matrix a duty of good faith under the RA was deleted when the claim was amended. It is not at all clear to me how, when read in context, para. 37 can be construed as referring to any duty arising under the RA. It refers to the duty of good faith owed by all of the defendants and appears to me to be a rather inapt and imprecise reference to the equitable and fiduciary duties that ground the claim.
[14] Nor do I agree with the motion judge that Radiant can bring the case within the reach of the forum selection clause by asserting that it will rely on the RA in defending the claims advanced. At this stage, Radiant has not filed its statement of defence and, as held in Precious Metal, at para. 10, "[t]he characterization of the claims depends in large measure on the contents of the statement of claim". The provisions in the RA making the relationship with Matrix non- exclusive, reserving Radiant's right to appoint other resellers, limiting Radiant's liability for damages under the agreement and allowing Radiant to terminate the RA should Matrix fail to meet its quota form part of the context and explain the nature of the relationship between Radiant and Matrix, but they have no direct bearing on the claims of conspiracy or knowing assistance of a breach of fiduciary relationship. These claims do not rest on the assertion that Matrix has exclusive rights under the RA or that Radiant does not have the right to enter contracts with other parties. The claim is that Radiant knew that the former employees were in breach of their fiduciary duties and conspired with them and assisted them in that regard. While the RA may have given Radiant the right to contract with the former employees if they had not been fiduciaries of Matrix, or if Radiant had not known that the employees had breached their fiduciary duties, that has no bearing on the claims that Matrix advances. As Matrix does not claim damages under the RA or with respect to goods or services provided by Radiant, the limitation of damages clause has no application. Finally, Matrix does not dispute Radiant's right to terminate the RA for failure to meet quota. [page700]
[15] Radiant relies on the line of authority construing arbitration clauses which hold that words such as "relating to", "respecting", "in connection with" or "concerning" are expansive terms, and reflect an intention of the parties to embrace claims beyond those that may be brought "under" the contract or that are founded "upon" the contract: see, e.g., Mantini v. Smith Lyons LLP (2003), 2003 20875 (ON CA), 64 O.R. (3d) 505, [2003] O.J. No. 1831 (C.A.), at para. 19; Woolcock v. Bushert, 2004 35081 (ON CA), [2004] O.J. No. 4498, 246 D.L.R. (4th) 139 (C.A.) ("Woolcock"), at para. 22.
[16] I am not persuaded that the interpretive approach reflected by those authorities goes so far as justify the stay granted by the motion judge. In Dalimpex Ltd. v. Janicki (2003), 2003 34234 (ON CA), 64 O.R. (3d) 737, [2003] O.J. No. 2094 (C.A.) ("Dalimpex"), at paras. 41-43, this court adopted and applied the test for applying a contractual provision which employs the words "disputes arising out of or in connection with" the parties' contract used by the Alberta Court of Appeal in Kaverit Steel and Crane Ltd. v. Kone Corp., 1992 ABCA 7, [1992] A.J. No. 40, 87 D.L.R. (4th) 129 (C.A.) ("Kaverit Steel"), at p. 135 D.L.R., leave to appeal to S.C.C. refused [1992] 2 S.C.R. vii, [1992] S.C.C.A. No. 117. According to that test, a dispute is caught by the provision "if either claimant or defendant relies on the existence of a contractual obligation as a necessary element to create the claim, or to defeat it". See, also, Woolcock, at para. 23, holding that a claim is one "relating to" a contract "[s]o long as the matter in dispute is referable to the interpretation or implementation of some provision of the Agreement" (emphasis added).
[17] In Kaverit Steel, the plaintiff advanced a conspiracy claim that relied upon a breach of the contract as the source of the unlawfulness to ground the conspiracy and that was held to fall within the scope of the arbitration clause. Likewise, in Dalimpex, the claims for conspiracy and breach of fiduciary duty were mingled with claims for breach of contract and, in any event, in that case, this court declined to express any definitive view on the reach of the arbitration clause holding that determination should be left for the arbitrator.
[18] The present case is not one where "either claimant or defendant relies on the existence of a contractual obligation as a necessary element to create the claim, or to defeat it" or where the "matter in dispute is referable to the interpretation or implementation of some provision in the agreement". The RA is simply part of the factual background. I see this case as being much closer to Precious Metal, where the pleadings was characterized as advancing a non-contractual claim for breach of fiduciary duty that did not fall within the reach of the forum [page701] selection clause. I do not agree with Radiant that Matrix has simply relabelled what remains essentially a claim in contract to avoid the forum selection clause and that to allow the action to proceed in Ontario would be a triumph of form over substance.
[19] Accordingly, it is my view that the motion judge erred by characterizing the claim as being contractual in nature and thus subject to the forum selection clause.
2. Even if the forum selection clause governs, should Ontario take jurisdiction on the ground that there is strong cause to do so?
[20] As I have found that the forum selection clause does not govern, it is unnecessary for me to consider this issue.
Conclusion
[21] Accordingly, I would allow the appeal and set aside the order staying the action. The appellant is entitled to costs of this appeal fixed at $10,000, inclusive of disbursements and GST. If the parties are unable to agree as to the appropriate disposition of the costs of the motion, they may address that issue in brief written submissions.
Appeal allowed.