CITATION: Stubbs v. ATS International BV, 2010 ONCA 879
DATE: 20101221
DOCKET: C52273
COURT OF APPEAL FOR ONTARIO
Goudge, Gillese and Lang JJ.A.
BETWEEN
Michael John Stubbs a.k.a. John Stubbs and Deborah Lee Stubbs a.k.a. Deborah Kelly
Plaintiffs (Respondents)
and
ATS Applied Tech Systems Inc., ATS Applied Tech Systems LLC, ATS International BV and Foundation Applied Tech Systems
Defendants (Appellants)
Frank Cesario, for the appellants
Arie Gaertner, for the respondents
Heard: December 2, 2010
On appeal from the order of Justice Steven Rogin of the Superior Court of Justice dated May 14, 2010.
Gillese J.A.:
[1] ATS International BV and Foundation Applied Tech Systems (the appellants) are located in the Netherlands. They brought a motion to set aside service ex juris of the statement of claim in the present proceedings and to stay the action as against them.
[2] Justice Rogin dismissed the motion on the basis that both appellants have a “real and substantial” connection to Ontario.
[3] As I explain below, I see no basis for interfering with the motions judge’s decision. I would, therefore, dismiss the appeal.
BACKGROUND
[4] The following facts are taken from the statement of claim in the main action and the affidavit of John Stubbs.
[5] The four defendants in this action are closely related.
[6] ATS Applied Tech Systems Inc. (ATS Canada) is a Canadian company with its head office in Ontario. ATS Applied Tech Systems LLC (ATS US) is incorporated in Delaware in the United States, but carries on business in Michigan. Together, ATS Canada and ATS US are known as ATS Applied Tech Systems North America (ATS NA).
[7] Both ATS Canada and ATS US are wholly owned subsidiaries of ATS International BV (ATS International), a Dutch company with its head office in Haarlem, the Netherlands. All ATS companies are in the business of supplying controls and IT systems and providing training services to increase efficiency in their customers’ operations.
[8] ATS International is the sole shareholder of both ATS Canada and ATS US.
[9] Foundation Applied Tech Systems (Foundation) is also located in the Netherlands. It was formed to hold approximately 15% of the shares of ATS International on behalf of employees of the ATS companies, pursuant to the Employee Share Purchase Plan (the Plan).
[10] Mike James and Hans Damman each own 42.5% of ATS International. (As mentioned, the remaining 15% of the shares are held by Foundation, on behalf of ATS employees.) Messrs. James and Dammen are the directors and officers of ATS International, its subsidiaries and Foundation. Mr. James is the president of all three ATS companies. He is also the chairman of the Board of Foundation.
[11] In 2005, John Stubbs and his wife, Deborah Kelly (the respondents), were living and working in England. Mr. Stubbs was the head of manufacturing systems for Rolls-Royce Aerospace in the United Kingdom.
[12] Rolls-Royce Aerospace used ATS’s services. Through that, Mr. Stubbs became acquainted with Mr. James. In early 2005, the two men began discussing the possibility of launching a consulting/systems business in North America. Mr. James represented that in 2004, ATS International had profits of 200,000 euros.
[13] On April 17, 2005, based in part on that representation, Mr. Stubbs left his employment with Rolls-Royce Aerospace and began working for ATS. Also in reliance on Mr. James’ representation and using the ATS formula for valuing shares, Mr. Stubbs invested 100,788 euros to purchase 5% (90,800 shares) of ATS International. This investment was made through Foundation. Purchase of the shares was part of Mr. Stubbs’ employment agreement.
[14] Mr. Stubbs was first employed with ATS International on an expense-only consulting basis. He remained resident in England.
[15] On August 1, 2005, Mr. Stubbs started working for ATS International on a full-time with pay basis. His role was to fix the failing business systems used by ATS globally and then to take the helm of ATS’s North American business.
[16] At around this time, Mr. Stubbs learned that contrary to Mr. James’ representations, ATS International suffered a loss in 2004 of 34,000 euros. His investment of 100,788 euros had been critical to ATS International’s ability to continue in business.
[17] In February of 2006, Mr. Stubbs took control of the ATS North American operations.
[18] In late June of 2006, while Mr. Stubbs was still resident in England, ATS International substantially increased his duties: he became the Chief Executive Officer for ATS Canada and ATS US. Mr. Stubbs was officially transferred to the ATS NA payroll at that time and took full operational responsibility for both ATS Canada and ATS US.
[19] Mr. Stubbs’ employment agreement took the form of various letters from Mr. James. The most crucial of those letters is dated July 18, 2006. It reads as follows:
Dear John,
I am please[d] to confirm your employment as CEO, ATS Applied Tech Systems Inc. based in Leamington Ontario and CEO, ATS Applied Tech Systems LLC based in Troy; jointly the role of VP Strategic Business Development for ATS operations across North America, with myself as President for both operations.
This to take effect from June 25, 2006.
Your employment will be based on the following:
Initial Salary
C$95,000 per annum, paid in 12 equal monthly payments.
Profit Share
7.5% of ATS North American after-tax profits payable annually following approval [by] Board of Directors.
Employment Service
Counted from 17th April, 2005
Initial Holiday Entitlement
20 days (pro rata)
Other terms of Employment
As set out in the Employee Handbook
Next Salary Review
1st January 2008
Relocation costs to Canada will be reimbursed as an increase in your share/certificate ownership in the Foundation Applied Tech Systems with shares in ATS International BV from euro 100,788 (90,800 shares) to euro 120,788 (108,818 shares); representing 6% of original issued share capital of the company.
Positions responsibility is to bring the North American operations to a profitable basis starting in Quarter 4 2006.
I hope that this meets with your approval and I ask that you [sign] and return confirmation of your agreement.
Yours sincerely,
Mike James
Group Managing Director
On behalf of:
ATS Applied Tech Systems Inc
ATS Applied Teach [sic] Systems LLC
ATS International BV
[20] Mr. James signed the letter. Mr. Damman signed next to Mr. James’ signature. Next to the words “Confirmation of Agreement” at the bottom of the letter, Mr. Stubbs signed the letter and dated July 20, 2006.
[21] In order to fulfill his employment duties, Mr. Stubbs and Ms. Kelly moved to Leamington, Ontario, in September 2006. Ms. Kelly was also an employee of ATS Canada and ATS US. ATS Canada operated from their home in Leamington.
[22] Under Mr. Stubbs’ leadership, ATV NA became profitable. However, at Mr. James’ direction, money from ATS NA was repatriated to ATS International.
[23] In April of 2009, Mr. James pushed for a different business focus for ATS NA. Mr. Stubbs disagreed with the new focus for a number of reasons, including that it required substantial sums of money.
[24] Mr. Stubbs was aware of the negative financial implications of the decisions that were being made by Messrs. James and Damman. He asked that his shares in ATS International, which were held through Foundation, be valued. Based on Mr. James’ earlier representation and method of valuing ATS shares, Mr. Stubbs believed that the oral valuation he was given was not fair.
[25] Throughout May and June of 2009, Messrs. James and Stubbs disagreed about, among other things, the valuation of his shares and the direction in which ATS NA was going.
[26] On June 26, 2009, each of Mr. Stubbs and Ms. Kelly received a letter terminating their employment. The letters were signed by Mr. James, as President and Group Managing Director of ATS Canada, ATS US and ATS International. The letter to Mr. Stubbs advised that his authority and right to act on behalf of ATS generally was removed and that his ATS International shares would be automatically offered for sale “according to the rules and regulations of the Foundation”.
[27] Mr. Stubbs and Ms. Kelly issued a statement of claim against all four defendants in which they sought damages for, among other things, wrongful dismissal, breach of contract and oppressive conduct. One element of the claim was that the defendants had conducted their affairs in a manner that improperly favoured their interests over those of Mr. Stubbs. They alleged that the defendants had managed the affairs of ATS Canada, ATS US and ATS International, so as to move profits out of ATS Canada, and that ATS International underfunded the ATS subsidiaries. They also sought an order directing Foundation to purchase Mr. Stubbs’ shares in ATS International for the Canadian equivalent of 390,000 euros.
[28] ATS Canada and ATS US filed statements of defence and counterclaim. Pursuant to art. 10.5 of the Plan, they claimed the right to set off any amounts they owed to Mr. Stubbs against the share sale proceeds.
[29] On September 4, 2009, Foundation advised Mr. Stubbs that his shares had been automatically offered for sale and that the sale proceeds totalled 116,435.26 euros. However, in a letter dated October 5, 2009, written on behalf of the Committee of Foundation, Mr. Damman advised that pursuant to art. 10.5 of the Plan, Foundation would hold the share sale proceeds until the parties’ competing claims in this proceeding had been determined. The letter stated that the request to Foundation to hold the share sale proceeds was made by ATS Canada and ATS US.
[30] The appellants moved to set aside the service ex juris of the statement of claim and to stay the action as against them. They claimed that there was no “real and substantial” connection between Ontario and them. To the extent that the claims in the action related to shares in ATS International, the appellants argued that the forum selection clause in art. 10.7 of the Plan should govern. Article 10.7 provides that any disputes relating to the Plan are to be governed by the laws of the Netherlands. It reads as follows:
This Plan shall be governed by and construed in accordance with the laws of The Netherlands. Any disputes relating to this Plan shall be settled by the competent Court in Amsterdam.
[31] The motions judge dismissed the motion on the basis that both ATS International and Foundation have a real and substantial connection to Ontario.
THE REASONS FOR DECISION BELOW
[32] In respect of ATS International, the motions judge began by noting that all of the correspondence initiating the respondents’ employment was signed by Mr. James on behalf of ATS International, ATS Canada and ATS US. Further, the letters of termination to both respondents were signed by Mr. James on behalf of all of the companies. The motions judge next noted that by attorning to the jurisdiction, ATS Canada and ATS US effectively conceded that if there had been a breach of the employment contract, it occurred in Ontario. He noted, as well, that the respondents’ pleadings allege that ATS International directed certain acts by ATS Canada and ATS US, both of whom counterclaimed against the respondents.
[33] The motions judge found that these facts indicate that the employment contracts could have been breached in Ontario and “compel” the appearance of ATS International in Ontario under rule 17.02(f)(iv).
[34] Moreover, the motions judge found that ATS International is a necessary and proper party to a proceeding properly brought against the other defendants, who had been properly served in Ontario under rule 17.02(o). In this regard, the motions judge observed that: (1) para. 36(b) of the Statement of Claim alleges that ATS International underfunded ATS Canada and ATS US thereby causing the acts complained of in their counterclaim; and (2) paras. 36(a) and (c) allege that ATS International profited to Mr. Stubbs’ detriment. Accordingly, the motions judge found that ATS International had a real and substantial connection to Ontario.
[35] The motions judge further found that the factors considered in relation to forum non conveniens favour the respondents. He concluded that it was in the interest of justice to avoid a multiplicity of proceedings and that all of the defendants should be heard at the same time in the same forum.
[36] In deciding whether the Ontario courts should assume jurisdiction over Foundation, the motions judge accepted that the choice of law and forum agreed to by the parties was a dominant factor. However, relying on the recent decision of this court in Expedition Helicopters Inc. v. Honeywell Inc. (2010), 2010 ONCA 351, 100 O.R. (3d) 241, he noted that the court has the discretion to assume jurisdiction, depending on the circumstances of the case.
[37] In considering the circumstances of this case, the motions judge noted that Mr. Stubbs bought ATS shares from Foundation as part of his employment contract and the Plan requires the shares to be resold to Foundation when his employment ended. While Foundation repurchased the shares, it held them as security for the counterclaim brought against Mr. Stubbs.
[38] In paras. 17 to 19 of his reasons, the motions judge explains why Foundation has a real and substantial connection to Ontario, such that the court should assume jurisdiction:
In my view, although the Foundation may have originally had no real and substantial connection to Ontario, its withholding of the proceeds of the shares to the potential benefit of [ATS Canada and ATS US], on their counterclaim and to the disadvantage of the plaintiff, gives the Foundation a real and substantial connection to Ontario.
While I must concede that each corporate entity is separate from each of the other corporate entities, the companies themselves must also recognize the concept. When the Foundation withholds the proceeds of the sale of Mr. Stubbs’ shares, where there is no provision in the contract to do so, it becomes aligned with [ATS Canada and ATS US]. The Foundation appears to be attempting to execute against the plaintiffs’ assets before either of [ATS Canada or ATS US] is successful in their respective counterclaims. This is contrary to paragraph 5 of the [Plan] which appears to govern this situation, and there is no provision that I can see in that paragraph to allow this type of execution before judgment.
Fairness therefore dictates that by its actions in injecting itself into the counterclaim between the plaintiffs and the North American companies, it could reasonably foresee that Ontario would assume jurisdiction over it. (See Van Breda v. Village Resorts Limited, supra, at para. 89.) Assuming that the plaintiff is correct in his claim that the Foundation undervalued his shares, it would be unfair to force him into another jurisdiction to relitigate the issue. (Van Breda, p. 93) Bringing the Foundation into this jurisdiction on that issue would also avoid the possibility of inconsistencies in the final result, and bind the Foundation to the Ontario judgment. [emphasis added]
THE ISSUE
[39] The appellants raise a single issue on appeal: did the motions judge err in concluding that there is a real and substantial connection to Ontario such that the court has jurisdiction over both ATS International and the Foundation?
ANALYSIS
The Relevant Legal Principles
[40] This court recently reconsidered the question of when Ontario courts should assume jurisdiction over out-of-province defendants. In Van Breda v. Village Resorts Limited (2010), 2010 ONCA 84, 98 O.R. (3d) 721, Sharpe J.A., writing for the court, described a two-stage analysis that courts are to follow. First, the court should determine whether the claim falls within a connection specified in rule 17.02 – excepting subrules (h) and (o) – to determine whether a real and substantial connection with Ontario should be presumed to exist. If one of the connections is made out, the defendant bears the burden of showing that a real and substantial connection does not exist. If one of those connections is not made out, the burden falls on the plaintiff to demonstrate that, in the particular circumstances of the case, the real and substantial test is met.[^1]
[41] At the second stage, in determining whether there is a real and substantial connection the “core” of the analysis rests on the connection between Ontario and the plaintiff’s claim and the defendant, respectively. The remaining considerations are not to be treated as independent factors having more or less equal weight when determining whether there is a real and substantial connection but, rather, as general legal principles that bear on the analysis. Consideration of the fairness of assuming or refusing jurisdiction is a necessary tool in assessing the strength of the connections between the forum and the plaintiff’s claim and the defendant. However, fairness is not a free-standing factor capable of trumping weak connections, subject only to the forum of necessity exception.[^2]
[42] When assessing the connection between the forum and the defendant, the primary focus is on things done by the defendant within the jurisdiction. Where the defendant confines its activities to its home jurisdiction, it will not ordinarily be subject to the jurisdiction of the forum. However, physical presence or activity within the jurisdiction is not always required. Where a defendant could reasonably foresee that its conduct would cause harm within the forum, jurisdiction may be assumed.[^3]
[43] This court also recently considered the principles that apply when considering whether to enforce a forum selection clause: see Expedition Helicopters Inc. v. Honeywell Inc. At para. 24, Juriansz J.A., writing on behalf of the court, stated:
A forum selection clause in a commercial contract should be given effect. The factors that may justify departure from that general principle are few. The few factors that might be considered include the plaintiff was induced to agree to the clause by fraud or improper inducement or the contract is otherwise unenforceable, the court in the selected forum does not accept jurisdiction or otherwise is unable to deal with the claim, the claim or the circumstances that have arisen are outside of what was reasonably contemplated by the parties when they agreed to the clause, the plaintiff can no longer expect a fair trial in the selected forum due to subsequent events that could not have been reasonably anticipated, or enforcing the clause in the particular case would frustrate some clear public policy. Apart from circumstances such as these, a forum selection clause in a commercial contract should be enforced.
[44] I turn now to consider these principles as they apply to ATS International and Foundation.
Application to ATS International
[45] Although not phrased in precisely these terms, the motions judge found that presumptive jurisdiction over ATS International was established because the action falls within a connection specified in rule 17.02(f)(iv), a breach of contract committed in Ontario. I agree.
[46] The facts alleged by the respondents are that ATS International was a party to the employment contracts and those contracts have been allegedly breached in Ontario. Mr. James, as a directing mind of ATS International, was the individual who initially hired the respondents. It was Mr. James who offered Mr. Stubbs the position of CEO of the North American ATS subsidiaries. It was Mr. James who signed all of the correspondence initiating the respondents’ employment on behalf of ATS International, as well as ATS Canada and ATS US. And it was Mr. James, on behalf of ATS International, ATS Canada and ATS US, who terminated the respondents’ employment.[^4] Furthermore, in the termination letter to Mr. Stubbs, “M.P. James, President and Group Managing Director, ATS Applied Tech Systems Inc., ATS Applied Tech Systems LLC, ATS International BV” stated that:
The shareholders and Directors of ATS International BV have subsequently replaced your position as Vice President Strategic Business Development for both of the above organizations and removed all authorities and rights to act on behalf of any of these companies or act in the name of ATS generally. [emphasis added]
[47] Indeed, art. 10.2 of the Plan gives the “Company” the right to terminate an employee’s employment and “Company” is defined as ATS International.
[48] In my view, it was open to the motions judge to also have found that ATS International, through its employee Mr. Stubbs and its subsidiaries, was carrying on business in Ontario. Accordingly, jurisdiction could have been presumed also because the case falls within a connection specified in rule 17.02(p).
[49] In any event, even if ATS International does not carry on business in Ontario, I agree with the motions judge that ATS International is a necessary and proper party to this proceeding based on rule 17.02(o). While that subrule does not give the court presumptive jurisdiction, in my view, the respondents proved a real and substantial connection between ATS International and Ontario under the second stage of the Van Breda analysis. ATS International’s actions are a critical aspect of Mr. Stubbs’ oppression claim, his claim as to the causes of the financial difficulties experienced by the ATS NA companies, and his reply and defence to the counterclaims made by ATS Canada and ATS US. Further, the respondents are residents of Ontario and worked under an employment contract allegedly breached in Ontario. Thus, the claim against ATS International for wrongful dismissal relates to damages suffered in Ontario.
Application to Foundation
[50] Foundation stands in a different position than ATS International. As Foundation is located in the Netherlands, never engaged in any direct conduct in Ontario, is not a party to any contract with the respondents and has never carried on business in Ontario, there is no presumption of a real and substantial connection in respect of Foundation that arises at the first stage of the Van Breda analysis. Moreover, the claim against Foundation relates to the shares that Mr. Stubbs owned in ATS International and which are governed by the Plan. It will be recalled that art. 10.7 of the Plan contains a forum selection clause in favour of the Netherlands.
[51] Nonetheless, I would not disturb the motions judge’s determination that there is a real and substantial connection that empowers the court to take jurisdiction over Foundation. Why? In a nutshell, because the shares play a critical role in this lawsuit and Foundation plays a critical role in respect of the shares.
[52] Mr. Stubbs purchased the shares in ATS International as part of his initial employment with ATS International. Those shares were held through Foundation. They are clearly linked to Mr. Stubbs’ employment with ATS International, ATS Canada and ATS US. However, the shares are not a discrete, severable aspect of his employment or his compensation. Rather, the shares have played a critical role throughout the parties’ relationship: before, during, at the end and afterwards.
[53] Before the employment relationship – It appears that as a condition of employment, Mr. Stubbs was required to purchase the shares. He says that he purchased them based on untrue representations and that his investment, by means of purchasing the shares, was critical to the continued existence of ATS International. However, Foundation’s role in the share purchase is unclear. Who set the price of the shares initially? Foundation, ATS International or the directing minds of ATS International, who also appear to be the Committee running Foundation?
[54] During the employment relationship – The valuation of the shares continued to play a part in the employment relationship. In 2009, when Mr. Stubbs asked that his shares be valued, he was given a valuation that he believed was unfair. Tensions between him and Mr. James over the valuation of the shares contributed to the breakdown of the employment relationship. Part of Mr. Stubbs’ claim relates to his allegation that the valuation was wrongly manipulated by the defendants, including Foundation, over the course of his employment. How was the valuation done and who performed it? Was it Foundation, ATS International or the directing minds of ATS International, who also appear to be the Committee running Foundation?
[55] At the end of the employment relationship – The dispute over the valuation of the shares is clearly linked to the termination of Mr. Stubbs’ employment. It is also a critical component of his rights on termination. When ATS terminated Mr. Stubbs’ employment, it advised him that his shares would be automatically offered for sale by Foundation. Apparently that process has already occurred but it is unclear how the share price was determined. Was it by Foundation, ATS International or the directing minds of ATS International, who also appear to be the Committee running Foundation?
[56] After the employment relationship – At the request of ATS Canada and ATS US, Foundation has retained the share sale proceeds, pending the disposition of this action. Foundation’s involvement in withholding the sale proceeds is a connecting factor supporting the assumption of jurisdiction over Foundation.
[57] I agree with the motions judge that fairness considerations in assessing the strength of the connections also support the assumption of jurisdiction against Foundation. As he noted, forcing the respondents to relitigate issues relating to the shares in another jurisdiction creates the possibility of inconsistent results. More significantly, in the circumstances of this case, it would be like trying to unscramble an egg because the shares are enmeshed in the relationship among these parties. Finally, it is worth noting that the forum selection clause did not originate in Mr. Stubbs’ employment contract. The clause is contained in the Plan, a document that predates his employment with ATS International.
[58] If the respondents were required to show “strong cause” for why the forum selection clause should not be enforced, they have met that test. Having said that, I question whether the “strong cause” test applies without modification because the clause in this case arises in an employment context, rather than a commercial situation where the parties are assumed to have equal bargaining power.
DISPOSITION
[59] Accordingly, I would dismiss the appeal with costs to the respondent fixed at $5000, inclusive of disbursements and all applicable taxes.
RELEASED: DEC 21 2010 (“S.T.G.”)
“E. E. Gillese J.A.”
“I agree. S. T. Goudge J.A.”
“I agree. S. E. Lang J.A.”
[^1]: At para. 109. [^2]: Ibid. [^3]: At para. 89. [^4]: The motions judge stated that Mr. James signed the termination letters on behalf of “all four defendants”. In fact, the letter shows him as signing only on behalf of the three ATS companies, not on behalf of Foundation. However, this makes no difference to the analysis in respect of ATS International.