2013 ONSC 5849

Patterson et al. v. EM Technologies, Inc. et al.: CV-12-462248

Motion heard by: Master Abrams

Date of Motion: June 17/13

In attendance: M.J. Foulds, for the plaintiffs

M. Saitua, for the defendants

By the court:

[1] The plaintiffs allege breach of contract, constructive dismissal and/or termination without cause as against the defendants. The defendants say that the plaintiffs’ action ought to be stayed as against all of them or, in the alternative, as against the defendants EM Technologies, Inc. (“EMT”) and Trevor Michael (“Mr. Michael”). They rely on the fact that Mr. Michael, a director of the Ontario corporate defendant xRM Global Inc. (“xRM”)--identified by them as a non-operating public vehicle for EMT--is resident in the United Arab Emirates and that EMT was incorporated pursuant to the laws of Barbados. The defendants also raise the issue of forum non conveniens, positing that Barbados is clearly the more appropriate forum.

[2] For their part, the plaintiffs submit that Ontario has jurisdiction over EMT and Mr. Michael, on the basis of presence-based jurisdiction. Alternatively, they say that the real and substantial test is met. For the reasons that follow, I agree with the plaintiffs and deny the defendants the relief that they are seeking.

[3] Jeffrey Patterson, one of the plaintiffs herein, is a resident of Ontario and the controlling shareholder, sole employee, director and officer of 1234660 Ontario Limited (the second plaintiff). The plaintiff numbered company is an Ontario company with a registered office in Ontario. Mr. Patterson was CFO of EMT and xRM. From October 2008 onward, all payments remitted to him by EMT and xRM were from bank accounts at a Toronto branch of HSBC (with EMT’s HSBC account becoming, as at then, its one active bank account, according to Mr. Patterson). The lion’s share of Mr. Patterson’s work was performed in Toronto, save for 15 days over the period 2007-2012, during which Mr. Patterson travelled for business.

[4] EMT, a technology company, was incorporated pursuant to the laws of Barbados, with Mr. Patterson attending to its incorporation while in Ontario. Its registered business address is located in Barbados. On the evidence before me, I accept that, while active, EMT did not carry out any business in Barbados and neither did it have an independent office in Barbados. It used the office address of its one director, DGM Trust Corporation. This director made no substantive decisions vis-à-vis EMT’s business. All substantive decisions for EMT were made by Mr. Patterson and Mr. Bartholomew (about whom more will be said below), both residents of Ontario, and were subject to the approval of the directors of xRM (about which more will be said below, also). EMT’s sole director acted on the instructions of Mr. Patterson, instructions provided from a base in Ontario.

[5] While not all of the initial investors in EMT were Canadian, some were. None of the initial investors was from Barbados. EMT’s employees included employees in Ontario employed pursuant to a Management Services Agreement executed in Toronto. One such employee was Sarah McKegney who, in 2010, filed an ESA claim in Ontario against EMT (and xRM). The Employment Standards Officer treated xRM and EMT as one entity and awarded Ms. McKegney $10,000 for unpaid wages. Throughout its currency, EMT employed the services of lawyers and accountants in Ontario.

[6] xRM is a company that was incorporated in Ontario. Its head and registered office address is in Toronto. xRM was a reporting issuer on the TSX Venture Exchange and, on October 20/09, acquired all of the shares of EMT—the consideration for which was shares in the capital of xRM. EMT’s assets included cash and intellectual property purchased from two companies based in Atlanta, Georgia. EMT’s intellectual property was kept both in Toronto and at the office of a subsidiary located in the United States (not in Barbados). The purchase agreement was executed by Mr. Patterson, on behalf of EMT, while in Ontario.

[7] The directors and officers of xRM are insured under a directors’ and officers’ liability insurance policy, issued to xRM in Toronto from the insurer’s Toronto office. None of the officers and directors of xRM and none of the officers of EMT ever travelled to Barbados for xRM and/or EMT business; and, it is the evidence of Mr. Patterson that, at the peak of the operation of the EMT business, none of the people working for EMT worked in Barbados. Mr. Patterson’s advises that EMT was incorporated as a shell corporation in the form of an international business company, created in order to gain the tax advantages afforded by the Canada Barbados Tax Treaty. During Mr. Patterson’s involvement with EMT, EMT’s business was conducted from a (residential/commercial) condominium in Ontario, the address of which was identified in emails and a PowerPoint presentation as providing the base for EMT’s activities. Exhibit “F” to the affidavit of Mr. Patterson’s affidavit sworn April 30/13 is a PowerPoint presentation for EMT which represents that EMT’s Executive Team is “located in Toronto”. Expense claims were submitted to EMT for reimbursement of a portion of the rental costs for EMT’s Toronto condominium/office and for office supplies purchased in Toronto (see: Exhibit “E” to Mr. Patterson’s April 30/13 affidavit).

[8] Efforts were made to sell EMT software in Canada. Then too, negotiations were undertaken in Toronto for EMT to acquire two companies based in Toronto. Mr. Patterson’s work for xRM and EMT was intertwined, with the business, strategy and management of EMT and xRM being interrelated. At weekly meetings in Toronto, the business of xRM and EMT was discussed. A number of employees, including Mr. Bartholomew and Mr. Patterson, attended the meetings in person. Others, including the defendant Mr. Michael, participated in the Toronto meetings by teleconference or Skype.

[9] Gary Bartholomew, CEO of EMT and of xRM and a director of xRM, resides in Ontario.

[10] William Beynon, a director of xRM, resides in Ontario.

[11] Mr. Michael, a director of xRM, is a Canadian citizen. He maintains a residence in Dubai; but, as Mr. Patterson points out, and I accept, his connections with Ontario are real and substantial.

[12] The plaintiffs argue that Ontario has jurisdiction on the basis of presence-based jurisdiction or, alternatively, should assume jurisdiction on the basis of the real and substantial connection test. Further, they say, the defendants have failed to meet their burden to show that Barbados is clearly a more appropriate forum. I agree with the plaintiffs.

[13] A company carrying on business in Ontario has a presence in Ontario such that it may be subject to the jurisdiction of the Ontario courts (see: Incorporated Broadcasters Ltd. et al. v. Canwest Global Communications Corp. et al., 2003 52135 (ON CA), [2003] O.J. No. 560 (C.A.), at para. 36). What does “carrying on business” mean? “The notion of carrying on business requires some form of actual, not only virtual, presence in the jurisdiction, such as maintaining an office there or regularly visiting the territory of the particular jurisdiction” (Club Resorts Ltd. v. Van Breda et al., 2012 SCC 17, [2012] 1 S.C.R. 572, at para. 87). The plaintiffs point to ABN Amro Bank N.V. v. BCE Inc., 2003 64276 (ON SC), [2003] O.J. No. 5418 (S.C.J.), affirmed at [2003] O.J. No. 2890 (Div. Ct.), a case which predates the Van Breda case, as providing guidance in determining what ‘actual presence’ means. Though BCE had its registered head office in Quebec and was but a holding company for operating subsidiaries, the court found that BCE had sufficient presence in Ontario for the assumption of jurisdiction in that it had an office in Ontario, employed people in Ontario, promoted its business interests in Ontario and held a number of shareholders’ meetings and directors’ meetings in Ontario.

[14] In the case at bar, EMT was incorporated in Barbados and maintained a presence (albeit a tenuous on) in Barbados. That said, and having regard to the factual matrix set out above, substantiated by the evidence adduced on this motion, I accept that EMT has/had a significant presence in Ontario.

[15] Specifically: EMT represented that it had a Toronto address and used Toronto facilities as an office (i.e. 36 Blue Jays Way, Suite 1129); most of the decisions in respect of EMT’s dealings and operations were made by Messrs. Bartholomew and/or Patterson, both of whom reside in Ontario; Mr. Patterson’s work for EMT was conducted in Ontario; members of EMT’s executive team, including the CEO and CFO, resided and worked in Ontario (and not in Barbados); meetings for the conduct of EMT’s business were conducted in Ontario; a number of EMT’s agreements were executed in Ontario; a number of press releases for EMT and xRM were drafted and released in Ontario; EMT had Management Services Agreements with persons and entities who resided in Ontario; EMT employed staff who worked in Toronto (see paragraph 41 of Mr. Patterson’s April 30/13 affidavit); the Management Services Agreement with Mr. Patterson provided that notice to EMT was to be delivered to persons located in Ontario; EMT had its primary bank account at a Toronto bank branch; EMT employed the services of a number of professional consultants in Ontario (see the listing at paragraph 42 of Mr. Patterson’s April 30/13 affidavit); and EMT actively tried to recruit customers in Canada.

[16] As for Mr. Michael, I accept that he too has a presence in Ontario--sufficient for the court’s assumption of jurisdiction. While he maintains a residence in Dubai, he also has received some mail addressed to him at EMT’s office: 36 Blue Jays Way, Suite 1129; he was sued in a prior matter in Ontario; he was previously involved as a director in a Toronto company named Gold Run Inc., in respect of which the corporate documents (i.e. a prospectus dated May 14/07) listed Mr. Michael’s residence as being a Toronto street address; he is currently a managing partner and founder of Galt Capital Inc., a company with an Ontario mailing address; he is co-owner of 2120315 Ontario Inc., for which the corporate profile report lists his address as a Toronto address and identifies him as a “resident Canadian”; he holds a valid Ontario driver’s licence; he has admitted that as a director of xRM, he accepted all of the legal obligations of being a director of an Ontario corporation, including, potentially, being liable for unpaid wages of employees; he has had funds wire transferred to him, on at least six separate occasions, to an account controlled by him at a financial institution (TD Canada Trust) in Toronto--for which account his residence is listed as Suite 1129, 36 Blue Jays Way, Toronto; and, he performed some work and attended some meetings of EMT and xRM in Toronto, both at the Blue Jays Way address and at an Adelaide Street address.

[17] Even if I am wrong on the issue of presence in Ontario, I accept, as has been posited, that this court should assume jurisdiction over EMT and Mr. Michael on the basis of a real and substantial connection with Ontario. While the court in Van Breda did not set out presumptive connecting factors for a contract claim, it nonetheless gave guidance as to presumptive connecting factors, generally. “All presumptive connecting factors…point to a relationship between the subject matter of the litigation and the forum such that it would be reasonable to expect that the defendant[s] would be called to answer legal proceedings in that forum” (Van Breda, supra, at para. 92). While acknowledging that, since Van Breda, there has been a paucity of jurisprudence outlining the presumptive connecting factors involving contract claims, the plaintiffs point to Leone v. Scaffidi, [2013] O.J. 1428 (S.C.J.), as a case which sheds light on the issue. The court in Leone considered the location of the parties, where the contract was entered into, where the breach occurred, where the subject matter of the contract was located, where the witnesses were located and where actions were taken on the contract.

[18] In the case at bar, the evidence indicates that the Management Services Agreement was executed in Ontario, with Mr. Patterson deposing that the Agreement was executed in Toronto at a meeting on April 1/08. The other signatory to the agreement, Mr. Bartholomew, stated on cross-examination that he did not recall when or where he executed the agreement. I note that he has provided no documentary evidence to refute Mr. Patterson’s contention.

[19] Then too, in the context of his employment with EMT and XRM, almost all of Mr. Patterson’s work time (save 15 days) was spent in Ontario. Payment for Mr. Patterson’s work was made from EMT’s bank in Toronto. Any breach of Mr. Patterson’s employment agreement occurred in Ontario. Mr. Patterson received his termination letter in Ontario—mailed by Mr. Bartholomew in Ontario. Further, he participated in conference calls with Mr. Bartholomew, in Ontario, including one during which he was told that he would not be paid and in respect of which both he and Mr. Bartholomew (and, perhaps, others) were in Ontario. Mr. Patterson’s wage claims herein are brought pursuant to the OBCA and ESA. And the termination letter received by him referenced the “Company” (see: Exhibit “N” to Mr. Patterson’s April 30/13 affidavit)--being both xRM and EMT (two interrelated companies with consolidated financial statements: see Exhibit “R” to the April 5/13 affidavit of Gary Bartholomew) for which he was CFO. Mr. Patterson’s evidence is that his work for xRM and EMT was completely interwoven and that, by virtue of xRM being resident in Ontario, his common employer (see: Newton v. Larco Hospitality Management Inc., 2004 25032 (ON SC), [2004] O.J. No. 1408 (S.C.J.), at paras. 5 and 8; aff’d 2005 3197 (ON CA), [2005] O.J. No. 479 (C.A.)) is present in Ontario.

[20] As for the witnesses herein, four of five primary witnesses reside in Ontario: Messrs. Patterson, Bartholomew, Beynon (a director of xRM) and Broughton. They are best poised to make comment on the Management Services Agreement, the decision to stop payments to Mr. Patterson and the decision to send the termination letter to Mr. Patterson. While I agree that the court in Van Breda did not elevate “necessary and proper parties” as a presumptive connecting factor in a tort claim, this factor does carry weight in my consideration of the real and substantial connection test.

[21] Three of the defendants have attorned to Ontario by entering a defence. Mr. Michael is a director of one of those defendants (xRM); and EMT is a subsidiary of xRM. If the action were stayed against EMT and Mr. Michael, it would result in the splitting of the plaintiffs’ case with the potential for inconsistent verdicts. Adding to the notion of Ontario being convenient, all of the defendants are defended under the same Ontario policy of insurance and all of the defendants are represented by the same Ontario counsel.

[22] As for the choice of law, the applicable law must be determined on a full record (see: Newton v. Larco Hospitality Management Inc. 2004 25032 (ON SC), [2004] O.J. No. 1408 (S.C.J.), at paras. 6 and 13, affirmed at 2005 3197 (ON CA), [2005] O.J. No. 479 (C.A.)). In an excerpt from Janet Walker’s chapter on conflict of laws in Halsbury’s Laws of Canada (HCF-136), Professor Walker comments that “…the court will reject an express choice [of law] designed to evade the mandatory rules of the law that would otherwise govern the contract… …[T]he courts will have regard to the employment laws in the place where the employee habitually carries out the work, as well as the location of the place of business through which the employee was hired”: all this to say that the application of the laws of Barbados is not a certainty.

[23] Counsel for the plaintiffs said it best when he commented that “[t]his is not a case of a defendant being called upon to answer a claim in a jurisdiction in which he/she has no connection…Both EMT and Michael have strong connections to Ontario…and [neither has] provided sufficient evidence to rebut any presumed connecting factor”.

[24] I accept that jurisdiction simpliciter has here been established. The question remains as to whether “…it would be fairer and more efficient” to look to Barbados as the appropriate jurisdiction for addressing the parties’ dispute.

[25] I say that it would not. I accept that, besides EMT being incorporated in Barbados, this action has no real connection to Barbados. None of the six witnesses identified by the defendants as being necessary to the action resides in Barbados. Four of the five main witnesses reside in Ontario. And none of Messrs. Patterson, Bartholomew, Beynon and Michael has ever travelled to Barbados for activities relative to xRM and EMT. Five of the seven parties to the litigation reside in Ontario and both EMT and Mr. Michael maintain a presence in Ontario. Having the action proceed in Ontario would obviate the necessity of travel to Barbados and save the five parties resident in Ontario the expense of litigating in Barbados. Further, it would obviate the necessity of Barbados counsel being retained and instructed.

[26] That the Management Services Agreement is to be governed by the law of Barbados is not a forgone conclusion, as set out above. The laws of Ontario (i.e. the ESA and the OBCA) could apply here. But if not, and as noted by the court in Newton v. Larco Hospitality Management Inc., 2004 25032 (ON SC), [2004] O.J. No. 1408 (S.C.J.), at para. 6; aff’d at 2005 3197 (ON CA), [2005] O.J. No. 479 (C.A.)), an Ontario court could apply Barbados law, if required.

[27] That said, and in any event, there is no evidence before me to support the defendants’ contention that the parties expected that litigation relative to the Management Services Agreement would be conducted in Barbados.

[28] With clear connections to Ontario and a lack of any real or viable connection to Barbados, the defendants fail in their burden of satisfying the court that Barbados “…is in a better position to dispose fairly and efficiently of the litigation” (Van Breda, supra, at para. 109).

[29] I have received costs outlines from the parties. If the parties are able to themselves settle the issue of costs or if the parties wish to supplement their costs outlines with brief oral or written submissions, I am to be notified by October 7/13—after which date, unless I hear from counsel, I will rule on the costs issue, without more.

September 17/13 __________________________