Court File and Parties

COURT FILE NO.: CV-10-004114700000
DATE: 20120706
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2249659 Ontario Ltd. and Rohwedder Canada Inc., Plaintiffs

AND:
Sparkasse Siegen and Thomas Magnete GmbH, Defendants

BEFORE: Carole J. Brown J.

COUNSEL: Douglas Gordon Garbig , for the Plaintiffs

P.A. Neena Gupta for Thomas Magtnete GmbH;

Evan Tingley for Sparkasse Siegen

HEARD: February 17, 2012

ENDORSEMENT

[ 1 ] The defendants, Sparkasse Seigen ("Sparkasse") and Thomas Magnete GmbH ("TMG") each bring motions seeking an order dismissing or permanently staying the action brought by the plaintiffs on the grounds that the Ontario Superior Court of Justice does not have jurisdiction and that Ontario is not the forum conveniens for the hearing of this action.

[ 2 ] The main action is brought by the two named plaintiffs, Rohwedder Canada Inc. ("RCI") and 2249586 Ontario Limited ("2249"). RCI was a subsidiary of Rohwedder North America Inc., which was a subsidiary of Rohwedder A.G., a German corporation. In July 2010, Rohwedder AG entered into bankruptcy proceedings and 2249 acquired all of the issued and outstanding shares of Rohwedder North America. 2249 thus became RCI’s secured creditor and parent company.

[ 3 ] The two named defendants, TMG and Sparkasse, are German corporations. TMG is a German manufacturer of automotive transmission parts. It is a subsidiary of Thomas Holding Deutscheland GmbH ("THD"). Thomas Magnete Canada Inc. ("TMC") is a subsidiary of Thomas Holding International GmbH ("THI"). TMC no longer carries on business. THD and THI have common ownership. Sparkasse is a financial institution based in Germany, which assisted in financing the background transaction.

Background

[ 4 ] In February 2006, TMG was approached to manufacture and supply solenoids to be used in manufacturing automotive transmissions in North America. TMG selected RCI to supply the assembly lines for the solenoids, to be installed in a plant in Cambridge, Ontario. Related to the negotiation of the supply agreement, TMG and Rohwedder AG, both German corporations, entered into a Confidentiality Agreement, which provided that disputes arising from the agreement would be subject to German law and determined by the courts in Betzdorf, Germany.

[ 5 ] The relevant provision of the Confidentiality Agreement provides:

10. Unless otherwise expressly prescribed by law, the sole place of jurisdiction for all disputes arising from this Agreement is Betzdorf, Germany. All disputes arising from or in connection with this Agreement, shall be subject to the law of the Federal Republic of Germany.

[ 6 ] In July of 2007, TMG provided to RCI by e-mail a copy of its General Business Conditions. This document provides that the place of jurisdiction is Herdorf, Germany. The relevant provisions are as follows:

XV General Provisions

4. If the parties have not agreed otherwise, the laws of the Federal Republic of Germany shall exclusively apply. The application of the Convention of the United Nations of 11.4.1980 on Contracts and International Sale of Goods is hereby excluded.

5. Place of performance is Herdorf. Concerning the shipments, the parties may agree otherwise.

6. The court at the place where the plaintiff is domiciled is Herdorf.

[ 7 ] In September 2007, RCI received an initial purchase order from TMG (the First Purchase Order), which was signed by both parties. This document stipulates that "[t]he order takes place on the basis of our “Standard Terms and Conditions", referencing the General Business Conditions.

[ 8 ] Related to the establishment of Ontario manufacturing facilities, the Magnete organization incorporated TMC in Ontario. In November 2007, Sparkasse agreed to provide financing to TMC for the purchase of the assembly lines from RCI, subject to a requirement that TMC be the legal owner of the assembly lines so that they would be included in the security granted to Sparkasse from TMC.

[ 9 ] As a result, in December 2007, a new or replacement purchase order (the Second Purchase Order) was delivered to RCI in the same terms as the existing purchase order, with the exception that it was issued by TMC rather than TMG. The Second Purchase Order was accepted by RCI on January 10, 2008 and was made subject to the same General Business Conditions.

[ 10 ] The events giving rise to the present litigation occurred in December 2007 and January 2008. RCI argues that it entered into the Second Purchase Order based on assurances from TMG of the financial viability of TMC. The letters which are the primary basis for the plaintiffs' claims were in evidence. A letter from Sparkasse to RCI dated December 21, 2007 states that "TMG, Herdorf, provided a guarantee in our favour regarding the project's financing scheme, thus accepting financial liability for the project," and an e-mail from TMG states "enclosed you'll find a confirmation of our bank". The plaintiffs claim that those letters constitute a promise by the defendants that the defendants guaranteed the project financing scheme and accepted financial liability for the project. The defendants take the position that the letter of December 21, 2007 from Sparkasse to RCI merely confirmed that Sparkasse financed the project and that TMG had provided a guarantee to Sparkasse, but did not make reference to, or constitute, any obligation from TMG to RCI.

[ 11 ] The plaintiffs' claim in the main action is that TMG expressly or impliedly guaranteed the debts of TMC and that the defendants' negligent misrepresentations induced RCI to accept the Second Purchase Order. The plaintiffs also claim that they suffered a loss due to an alleged negligent misrepresentation by Sparkasse. The plaintiffs have admitted that the purchase orders they received from TMG contained General Business Conditions which included the following terms:

1. If the parties have not agreed otherwise the laws of the Federal Republic of Germany shall exclusively apply;

2. Place of performance is Herdorf;

3. The court at the place where the plaintiff is domiciled is Herdorf.

[ 12 ] The defendants bring this motion for an Order dismissing the plaintiffs’ actions brought in Ontario on the basis that Germany, not Ontario, is the jurisdiction in which the action should be determined.

Issues

[ 13 ] The issues before this Court are:

1. Whether, even if this court has jurisdiction simpliciter, the plaintiffs can demonstrate that there is "a strong case" that the performance of this dispute should be Ontario rather than the contractually stipulated choice of Germany; and

2. Alternatively, whether the forum non conveniens factors indicate that Ontario is the most appropriate forum.

The Law and Analysis

Jurisdiction Simpliciter

[ 14 ] In Van Breda v. Village Resorts Limited , 2010 ONCA 84 [ Van Breda (OCA)], affirmed 2012 SCC 17 [ Van Breda (SCC)], at para. 109, the Court of Appeal reformulated the familiar Muscutt test for determining whether a real and substantial connection can be said to exist (Muscutt v. Courcelles (2002) , 60 O.R. (3d) 20 (C.A.)). The Court of Appeal’s test is as follows:

• First, the court should determine whether the claim falls under rule 17.02 (excepting subrules (h) and (o)) to determine whether a real and substantial connection with Ontario is presumed to exist. The presence or absence of a presumption will frame the second stage of the analysis. If one of the connections identified in rule 17.02 (excepting subrules (h) and (o)) 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 connection test is met.

• At the second stage, the core of the analysis rests upon the connection between Ontario and the plaintiff's claim and the defendant, respectively.

• The remaining considerations should not be treated as independent factors having more or less equal weight when determining whether there is a real and substantial connection but as general legal principles that bear upon the analysis.

• Consideration of the fairness of assuming or refusing jurisdiction is a necessary tool in assessing the strengths of the connections between the forum and the plaintiff’s claim and the defendant. However, fairness is not a freestanding factor capable of trumping weak connections, subject only to the forum of necessity exception.

• Consideration of jurisdiction simpliciter and the real and substantial connection test should not anticipate, incorporate or replicate consideration of the matters that pertain to the forum non conveniens test.

• Whether the case is interprovincial or international in nature, and comity and the standards of jurisdiction, recognition and enforcement prevailing elsewhere are relevant considerations, not as independent factors having more or less equal weight with the others, but as general principles of private international law that bear upon the interpretation and application of the real and substantial connection test.

• The factors to be considered for jurisdiction simpliciter are different and distinct from those to be considered for forum non conveniens . The forum non-conveniens factors have no bearing on real and substantial connection and, therefore, should only be considered after it has been determined that there is a real and substantial connection and that jurisdiction simpliciter has been established.

• Where there is no other forum in which the plaintiff can reasonably seek relief, there is a residual discretion to assume jurisdiction.

[ 15 ] On appeal, at para. 90, the Supreme Court substantially simplified the real and substantial connection test, and provided four presumptive factors that, prima facie , entitle a court to assume jurisdiction over a dispute:

(a) The defendant is domiciled or resident in the province;

(b) The defendant carries on business in the province;

(c) The tort was committed in the province; and,

(d) A contract connected with the dispute was made in the province.

Is There a Reason Why the Forum Selection Clause Should Not Be Enforced?

Can the Plaintiffs Establish a Strong Cause?

[ 16 ] The jurisprudence is clear that a court should not assume jurisdiction where parties have contractually stipulated a different forum for the adjudication of disputes, unless the plaintiff can demonstrate that there is "strong cause" or "exceptional circumstances" why the forum selection clause should not be enforced.

[ 17 ] The issue was recently considered by the Supreme Court of Canada in Momentous.Ca Corporation v Canadian American Association of Professional Baseball Limited , 2012 SCC 9 . At para. 9, the Court stated as follows:

In Z. I. Pompey Industry v ECU-Line N.V . , 2003 SCC 27 , [2003] 1 S. C. R. 450, this Court confirmed that, in the absence of specific legislation, the proper test in determining whether to enforce a forum selection clause is discretionary in nature. It provides that unless there is a "strong cause" as to why a domestic court should exercise jurisdiction, order and fairness are better achieved when parties are held to their bargains.

[ 18 ] The Supreme Court recognized the principle that it is essential that courts give full weight to the desirability of holding contracting parties to their agreement regarding choice of forum for deciding disputes and that, in exercising its discretion, the court is to be guided by the rationale that ordinary parties should be held to the bargain they have made. It recognized the burden on the plaintiff to satisfy the court that there is a good reason it should not be bound by the forum selection clause. In Pompey, supra , Justice Bastarache, writing for the Supreme Court, emphasized the policy reasons for upholding forum selection clauses, stating at para. 20 that "These clauses are generally to be encouraged by the courts as they create certainty and security in transaction, derivatives of order and fairness, which are critical components of private international law".

[ 19 ] The "strong cause" test requires that the court apply a different test than that used in tort cases or where there is no forum selection clause. As opposed to tort cases like Van Breda , the "strong cause" test recognizes the specific significance of the intent of the contracting parties in commercial law cases. The forum selection clause pervades the analysis and must be given full weight in the consideration of other factors. It is not enough for the plaintiff to establish a "strong" case that Ontario is the more convenient forum. The plaintiff must show "strong cause" that the case is exceptional and that the forum selection clause should not be enforced: Expedition Helicopters Inc v Honeywell Inc ., 2010 ONSC 351, at para. 11 .

[ 20 ] The factors that may justify departure from the "strong cause" test are well recognized, and include:

1. the court in the selected forum does not accept jurisdiction or otherwise is unable to deal with the claim;

2. the claim or the circumstances that have arisen are outside of what was reasonably contemplated by the parties when they agreed to the clause;

3. the plaintiff was induced to agree to the clause by fraud or improper inducement, or the contract is otherwise unenforceable;

4. the plaintiff can no longer expect a fair trial in the selected forum due to subsequent events that could not have been reasonably anticipated; and

5. enforcing the clause in the particular case would frustrate some clear public policy.

[ 21 ] Jurisprudence recognizes that an alleged breach of contract should be dealt with under the law and forum chosen by the parties: Momentous.ca v Canadian American Association of Professional Baseball Limited, supra.

Forum Non Conveniens

[ 22 ] Where the "strong cause" test is not applicable, it must still be determined whether forum non conveniens applies. If jurisdiction simpliciter has been established, and Ontario is found to be the appropriate forum, it must still be determined whether the court should exercise its discretion to decline jurisdiction. The test is whether there is a more appropriate forum than the domestic forum chosen by the plaintiff in which the case should be tried.

[ 23 ] To determine whether Ontario is the jurisdiction that has the closest connection with the action and the parties and is the forum conveniens , relevant factors provided by the Supreme Court in Van Breda (SCC) include, but are not limited to:

1. the comparative convenience and expense for the parties to the proceeding and for their witnesses, in litigating in the court or in any alternative forum;

2. the law to be applied to issues in the proceeding;

3. the desirability of avoiding multiplicity of legal proceedings;

4. the desirability of avoiding conflicting decisions in different courts;

5. the enforcement of an eventual judgment; and,

6. the fair and efficient working of the Canadian legal system as a whole [s. 11(2)].

[ 24 ] The parties argued the issue of forum conveniens based on the factors provided by the Court of Appeal in Van Breda , as the Supreme Court decision was released after this case was heard. The factors listed by the two courts are similar, and the Supreme Court did not substantially alter the test. The parties’ arguments are outlined below.

The Positions of the Parties

TMG

[ 25 ] It is the position of TMG that, while the plaintiffs claims are tort-based or they have drafted them as such, the claims arise from the same factual and contractual matrix as the First and Second Purchase Orders and the Confidentiality Agreement, each of which contained clauses expressly directing that the jurisdiction in which related disputes were to be decided is Germany. TMG argues that, given the inclusion of these jurisdictional clauses in the relevant documentation, the plaintiffs must show "strong cause" or "exceptional circumstances" that the forum of dispute should be Ontario and not Germany, which was the contractually stipulated forum for resolution of disputes. TMG takes the position that the plaintiffs cannot meet either the "strong cause" or "exceptional circumstances" test, and that the contractually-stipulated forum should be respected.

[ 26 ] Alternatively, TMG submits that, having consideration for the forum non conveniens factors, it cannot be established that Ontario is the more appropriate forum. TMG submits that having regard to the forum non conveniens doctrine, Germany is the most appropriate jurisdiction for the determination of this dispute.

Sparkasse

[ 27 ] Sparkasse takes the position that Ontario does not have jurisdiction simpliciter , and second, that the forum non conveniens factors do not direct that Ontario assume jurisdiction. With respect to jurisdiction simpliciter , Sparkasse argues that it is based in Germany and has not attorned to the jurisdiction of Ontario. It submits that this Court will only have jurisdiction simpliciter if there is a real and substantial connection between Ontario and either Sparkasse or the subject matter of the dispute. Sparkasse relies on and argues that the only connection pursuant to R. 17.02 that could potentially be advanced by the plaintiffs is under R. 17.02 (g), regarding claims "in respect of a tort committed in Ontario". It submits, however, that this provision is not applicable, as the plaintiffs have not pled all of the elements of a tort in respect of their claim against Sparkasse and, particularly, have failed to allege that they and Sparkasse were in a special relationship such that Sparkasse owed the plaintiffs a duty of care. Moreover, Sparkasse argues that the alleged misrepresentation claimed to be made by Sparkasse was not made to RCI or 2249. They note that the December 21, 2007 letter, in which the misrepresentation was alleged to have been made, was sent to TMG in Germany and there is no evidence that the representation was ever made to RCI or 2249. As any possible negligent conduct of Sparkasse could only have taken place in Germany, the place of any alleged tort is Germany and, therefore, R. 17.02 is not applicable. In such circumstances, Sparkasse argues that the burden falls on the plaintiffs to demonstrate that, in the circumstances of this case, the real and substantial connection test is met.

[ 28 ] Sparkasse argues that the plaintiffs have not established any reason, either "strong cause" or "exceptional circumstances", that would permit this Court to take jurisdiction. Sparkasse cites the forum selection clause in the subject agreements, and argues that the forum selection clause should be honored and enforced.

[ 29 ] Sparkasse argues that the only connection between Ontario and the plaintiffs' claim is that the plaintiffs suffered damages in Ontario, which does not automatically confer jurisdiction on Ontario. Sparkasse is a German bank, with no offices in Ontario. It does not carry on business in Ontario.

[ 30 ] Sparkasse submits that having regard to the forum non conveniens factors, it cannot be established that Ontario is the more appropriate forum. Sparkasse submits that based on the forum non conveniens doctrine and the factors to be considered in determining forum conveniens , Germany is the most appropriate jurisdiction for the determination of this dispute.

2249

[ 31 ] The plaintiffs rely on the case of Van Breda , supra, and argue that where a claim falls under one of the subrules of R. 17.02 of the Rules of Civil Procedure , a real and substantial connection to the forum – for purposes of Ontario assuming jurisdiction – is presumed to exist. It argues that, in the circumstances of this case, given the allegations made in its Statement of Claim regarding the tort of negligent representation, the tort was committed in Ontario and therefore a breach of contract was committed in Ontario pursuant to R. 17.02(f).

[ 32 ] However, as submitted by Sparkasse, 2249 has failed to allege all of the key elements of a tort in its Statement of Claim. I accept Sparkasse’s argument in this regard and, as a result, I find that 2249’s argument fails.

[ 33 ] 2249 emphasizes its own connection to Ontario and argues that pursuant to R. 17.02(f) the contract was made with RCI in Ontario and breached in Ontario and, therefore, there is a real and substantial connection to Ontario. However, I note that 2249 acquired its interest in RCI, which was simply a subsidiary of Rohwedder AG, a German corporation, when the contract between it and TMC was entered into. In fact, the agreement was in the German language, between two German corporations, relating to their Canadian subsidiaries. The agreements contained forum selection clauses which stipulated Germany as the jurisdiction in which disputes would be resolved. 2249 was subrogated into the position of RCI in respect of its relationship with TMG when it purchased RCI.

[ 34 ] However, the issue is the relationship of the parties when the contract was entered into. RCI was a subsidiary of the German corporation, which contracted with another German corporation. 2249 had notice of this fact when it acquired its interest in RCI. The plaintiffs argue that TMG litigated in Ontario in a separate security dispute between the parties and therefore recognized Ontario as having the relevant jurisdiction. I do not agree. I find that this is not relevant to the present dispute, as the security dispute was related to property in Ontario registered under the Ontario PPSA and, as such, Ontario was the appropriate jurisdiction for the resolution of that dispute. That has no bearing on the present dispute.

[ 35 ] 2249 has not addressed the defendants’ primary argument with respect to the forum selection clauses.

[ 36 ] The defendants argue that there is no jurisdiction simpliciter , as the claim does not fall under any of the provisions of R. 17.02. I have considered all of the materials before me, including the claims, the evidence, case law, and the submissions of the parties, and agree with the submissions of the defendants. I find that there is no jurisdiction simplicite r with respect to the claims made by the plaintiffs against the defendants and that there is no real and substantial connection with Ontario.

[ 37 ] I am guided by the cases of Momentous.ca and Pompey, cited above. Where forum selection clauses have been included in agreements between the parties, such clauses are to be recognized as critical components of private international law and are to be encouraged and upheld by the courts, except in exceptional circumstances. In the circumstances of this case, I do not find that the plaintiffs have established either a "strong cause" or "exceptional circumstances" to justify departing from the principle that parties should be held to their agreements. The relevant agreements in this case contain a forum selection clause and designate Germany as the forum for resolution of disputes arising from the agreements. This selection of forum as between sophisticated, multi-national corporations should be honored and enforced.

[ 38 ] I must still consider the issue of forum non conveniens and whether Ontario is a more appropriate forum than Germany. As I noted earlier in these reasons, this case was heard before the Supreme Court decision in Van Breda . As a result, the parties’ arguments on this issue were based on the Court of Appeal decision in Van Breda . However, I have considered the relevant factors set forth at paragraph 24, supra , as well as the corresponding factors that were provided by the Court of Appeal at para. 49 in Van Breda (OCA). In my view, as discussed below, using either the Supreme Court or the Court of Appeal factors, the result is the same.

[ 39 ] The defendants argue that both TMG and Sparkasse are located in Germany, do not carry on business in Ontario, and have no offices in Ontario. While 2249 is a Canadian corporation, its interests in the litigation, as previously noted, were acquired from Rohwedder AG, a German corporation, operating in Germany. Further, they argue that the interest of 2249 in this claim was acquired only months prior to commencement of litigation as a result of the German bankruptcy proceedings. With respect to the location of witnesses, all of Sparkasse’s key witnesses reside in Germany and speak German. Of TMG's six key witnesses, five reside in Germany. Of the plaintiffs' four witnesses, three reside in Ontario and one in Russia. Accordingly, the balance of the witnesses to be called at trial reside in Germany. The defendants argue that the evidence to be used in this matter largely consists of business records, which are located in Germany. They submit that the business records from Rohwedder AG, while it was still operating, are likely located in Germany, as are the business records of Sparkasse, and that the business records of 2249 are likely not significantly relevant to the dispute, given that it acquired the interest of RCI shortly before the litigation commenced. While the plaintiffs argue that this factor either weighs in favour of Ontario or is evenly split, I find that the balance is in favour of Germany. While the plaintiffs maintain that the jurisdiction in which the factual matters arose is Ontario, the defendants maintain that the factual matters arose in Germany where the First Purchase Order originated. They argue that the Second Purchase Order was a replacement of the First Purchase Order. The plaintiffs have agreed that the laws of Germany apply, and that the place of performance and the court at the place where the plaintiffs are domiciled is Hersdorf. I agree with the defendants’ submissions regarding the relevant factors. There is, further, no juridical advantage for either party as to whether the action is pursued in Germany or Ontario.

[ 40 ] Based on the foregoing, I find that Ontario is not the more appropriate forum. Given all of the factors considered above, Germany is the more appropriate forum.

[ 41 ] Accordingly, I grant the defendants' motion, and dismiss the plaintiffs' action.

Costs

[ 42 ] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown J.

Date: July 6, 2012