Court File and Parties
COURT FILE NO.: CV-14-512401 DATE: 20160930 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
PARQUE INDUSTRIAL AVANTE MONTERREY, S.A. de C.V. Plaintiff – and – 1147048 ONTARIO LTD. and ADVANTAGE ENGINEERING INC. Defendants
Marcos Cervantes LaFlamme, for Prodensa Servicios de Consultoria S.A. de C.V., Defendant by Counterclaim, Moving Party Pavle Masic, for the Defendants/Plaintiffs by Counterclaim, Respondents
AND BETWEEN:
1147048 ONTARIO LTD. and ADVANTAGE ENGINEERING INC. Plaintiffs by Counterclaim – and – PARQUE INDUSTRIAL AVANTE MONTERREY, S.A. de C.V. PRODENSA SERVICIOS de CONSULTORIA, S.A. de C.V. and CK TECHONOLOGIES, LLC. Defendants by Counterclaim
HEARD: August 2, 2016
LEDERMAN J.
NATURE OF MOTION
[1] This action was commenced in Ontario by the plaintiff (“Avante”), a Mexican corporation, against the Ontario based defendants (collectively, “Advantage”). The counterclaim was brought by Advantage against Avante, Prodensa Servicios de Consultoria, S.A. de C.V. (“Prodensa”), a Mexican corporation, and U.S. based CK Technologies, LLC (“CKT”). CKT and Avante have defended the counterclaim in Ontario.
[2] Prodensa brings this motion to stay the counterclaim against it on the ground that this court has no jurisdiction over the counterclaim, or, in the alternative, that Ontario is not a convenient forum for the hearing of this dispute; and in any event, the counterclaim ought to be stayed in favour of arbitration pursuant to an International Chamber of Commerce Rules of Arbitration clause.
BACKGROUND FACTS
[3] The action and counterclaim arise out of Advantage’s decision to expand its business operations into Mexico in 2009. Advantage engaged Prodensa to provide what are known in Mexico as “shelter services”. Shelter services is an umbrella term for various administrative and compliance related functions provided by companies such as Prodensa to facilitate foreign entrance into the Mexican market. Prodensa provides shelter services in organizing and operating companies to ensure that foreign factory operations comply with local Mexican laws and regulations. This is done through shelter companies, owned by Prodensa but funded entirely by the foreign corporation shelter services client. The shelter company is managed jointly for the foreign client’s benefit. The income to Prodensa comes from service fees.
[4] In April 2009, Advantage solicited Prodensa’s services in Mexico. In response, Prodensa e-mailed a detailed “Shelter Service Proposal”.
[5] On May 1, 2009, a long distance video conference meeting was held between representatives of Advantage in Ontario and representatives of Prodensa in Monterrey, Nuevo Léon, Mexico. An employee of Prodensa also travelled to Ontario to participate in person at the meeting.
[6] On May 26, 2009, the principals of Prodensa and Advantage met in Windsor, Ontario. The meeting lasted seven hours and was described in the minutes of the meeting as a “kick off meeting”. The minutes reveal that there was a wide ranging discussion of topics that covered all the aspects of the services Prodensa was to provide to Advantage as well as the timing of the implementation of such services. At or about this time, a Memorandum of Understanding (“the MOU”) was signed by both parties.
[7] Following the execution of the MOU, the parties entered into negotiations in respect of drafting a formal shelter services agreement. Although three drafts of such an agreement were circulated by Prodensa (the latest of which on its face was sent on or about July 14, 2009), the parties did not sign an agreement. In particular, there was an issue over a clause entitled “Guaranty Fund” to guarantee severance payments, which was never resolved. Notwithstanding the failure to enter into a signed shelter services agreement, the parties went forward together with their business relationship and Prodensa commenced providing consulting and shelter services for Advantage in respect of the set up and running of a car parts manufacturing plant in the state of Nuevo Léon, Mexico.
[8] Advantage Manufacturas de Mexico S. de R.L. de C.V. (“Manufacturas”) was established in early June 2009 as the shelter Mexican corporation wholly owned by Prodensa. It received from Advantage a first funding of over US $2 million.
[9] Manufacturas entered into a lease of the premises with the plaintiff in this action, Avante, for the purpose of operating its plant. The terms of the lease provided that the landlord, Avante, would look to Prodensa if Manufacturas defaulted on the lease. Accordingly, Prodensa required that Advantage provide a lease guarantee for unpaid rent to the landlord. A dispute over that lease guarantee is the subject of the main action brought by Avante against Advantage in Ontario.
[10] The Manufacturas venture ran fairly smoothly for four years until 2013 when Advantage lost both of the clients serviced by the Manufacturas operation with no advance notice. Cash flow problems resulted. At that time, equipment belonging to Advantage was located at the Manufacturas plant. In part, the counterclaim relates to allegations in respect of what was done to that equipment by Prodensa and Avante. Advantage alleges that Prodensa, either alone or in concert with Avante, wrongfully withheld the equipment in order to convert it. In addition, Advantage alleges in the counterclaim that Prodensa obtained money from it under false pretenses. Specifically, Advantage asserts that it was induced to remit funds to Prodensa to facilitate the return of the equipment when Prodensa either had no intention of returning the equipment or knew that it was impossible to do so.
[11] Eventually, Advantage and Avante agreed upon the release of the equipment by Avante in or about February, 2015. Much of the equipment was damaged and Advantage alleges that it failed to recoup any money from the returned equipment.
JURISDICTION SIMPLICITER
[12] A Canadian court may only assume jurisdiction over a dispute if there is a “real and substantial” connection between the dispute and the jurisdiction Van Breda v. Village Resorts Ltd., 2012 SCC 17, [2012] 1 S.C.R. 572. In Van Breda, the Supreme Court of Canada established the governing test for determining whether there is a real and substantial connection. At para 90, the Supreme Court held that a court will have jurisdiction simpliciter if any of the following connecting factors apply:
(1) The defendant is domiciled or a resident in the province; (2) The defendant carries on business in the province; (3) The tort was committed in the province; or (4) A contract connected with the dispute was made in the province.
[13] These factors are referred to as presumptive connecting factors. In order to establish a presumptive connecting factor, the plaintiff by counterclaim must demonstrate that there is a “good arguable case” for their application Shah v. LG Chem, Ltd, 2015 ONSC 2628, 125 O.R. (3d) 773. Finally, the connecting factors are non-exhaustive and in the absence of a connecting factor, a court may identify new presumptive connecting factors.
[14] Advantage argues that the court has jurisdiction simpliciter in this case because:
(a) The defendant carries on business in Ontario; (b) The torts pleaded in the counterclaim were committed in Ontario; and (c) A contract connected with the dispute was entered into in Ontario.
(a) Carrying on Business in the Province
[15] Advantage claims that the moving party, Prodensa, carries on business in Ontario for the purpose of the court’s jurisdiction. It submits that members of Prodensa travelled to Ontario for a “kick off meeting” and that Prodensa has worked for one or two other Canadian corporations.
[16] In response, Prodensa argues that it is not incorporated, registered or licensed to do and does not carry on business anywhere in Canada. It does not maintain any office or branch anywhere in Canada. It does not have employees, real or personal property or bank accounts anywhere within Canada and Prodensa has had only one other Canadian corporation as a customer in over 400 projects.
[17] The fact that Prodensa has intermittently visited the forum and has done business with a Canadian based company is insufficient to establish that it has been carrying on business in Ontario. In Yemec v. Atlantic Lottery Corp., 2012 ONSC 4207, 2012 CarswellOnt 10464, the court held that an isolated visit to Ontario was insufficient to establish jurisdiction. Similarly, in Van Breda, the Supreme Court noted at para 87, that “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” (emphasis added). The facts of this case do not indicate anything more than a transient business connection with Ontario, and as a result, Advantage has not demonstrated that Prodensa has carried on business in Ontario for the purpose of jurisdiction.
(b) A Tort Committed in Ontario
[18] Advantage alleges torts of conversion, conspiracy, fraud and fraudulent misrepresentation based on the transmission of allegedly false or fraudulent information to Advantage in Ontario. It is alleged that the harm to Advantage occurred in Ontario. Advantage alleges that Prodensa extorted approximately $55,000 U.S. from it. Advantage alleges that it sent this money to Prodensa for the purpose of recovering its equipment, but instead Prodensa misappropriated these funds. Advantage alleges that the information given to it in Ontario was in fact false and was a ruse designed by Prodensa in order to obtain the funds.
[19] Prodensa asserts that significant delays in returning the equipment arose because of a labour strike that took place in Mexico. It led evidence of a Labour Dispute Order as well as photographs of alleged union representatives and their trucks blocking the relevant loading gate. However, Advantage indicates that as soon as Prodensa received the $55,000, it said the equipment was blocked because of the labour strike and Advantage provided evidence that there was nobody at the premises except a security guard.
[20] A tort occurs in the jurisdiction “substantially affected by the defendant’s activities or its consequences”: Gulevich v. Miller, 2015 ABCA 411, 609 A.R. 329 at para 46.
[21] In Central Sun Mining Inc. v. Vector Engineering Inc., 2013 ONCA 601, 117 O.R. (3d) 313, the Ontario Court of Appeal held that the location of a tort is the place where important elements of the tort were committed.
[22] The major elements of the tort of conversion of chattels occurred in Mexico. Consequently, that tort may not operate as a presumptive connecting factor.
[23] With respect to the wrongful conversion of funds or misappropriation, it is unclear whether the wrongful act lies in the removal of the funds from Canada or in their wrongful allocation in Mexico.
[24] Further, Prodensa argued that the location of the tort of conspiracy, like other torts, is determined by the forum, which is “substantially affected”, not necessarily where the harm is suffered. It submits that the acts occurred in Mexico, and in any event, the damage sustained would have been to Advantage’s Mexican operations.
[25] Nevertheless, jurisdiction in Ontario can be founded upon the tort of fraudulent misrepresentation. This tort is based on the transmission of allegedly false information (in this case the labour dispute and the intention to use the money to transport the goods), and it occurs in the jurisdiction in which the information was received or relied upon: Cannon v. Funds For Canada Foundation, 2010 ONSC 4517, 2010 CarswellOnt 5935; Central Sun. In the instant case, the allegedly false information was relied on in Ontario, thereby situating the tort in Ontario.
[26] Given that the alleged false misrepresentation was committed in Ontario, it is unnecessary to decide whether the situs of the other tort claims was Ontario. When jurisdiction is taken over one tort claim, the court has jurisdiction to entertain all the other tort claims as well.
(c) Contract Connected With the Dispute Made in Ontario
[27] Having found that there is jurisdiction simpliciter because, arguably, a tort was committed in Ontario, it is unnecessary to consider whether any other presumptive connecting factor exists. Nevertheless, I would also find that a contract connected with the dispute was made in Ontario for the reasons that follow.
[28] The arrangement between Prodensa and Advantage must be looked at in context. The main action relates to the lease guarantee provided by Advantage to Avante. Although that document has not been produced in this proceeding, it is alleged in the main action that the guarantee is governed by the law of Ontario and Avante has not taken issue with that assertion in the main action.
[29] The lease guarantee was entered into by Advantage in order to protect Prodensa and Prodensa required it. Further, the MOU arose out of the meetings between the principals of the two companies which took place in Windsor, Ontario. Advantage signed the MOU in Ontario and alleges that the facts indicate that Prodensa signed it at the May 26th meeting in Windsor. Although Prodensa asserts that it did not sign the MOU in Ontario but rather in Mexico, the MOU on its face indicates that the document was signed by both parties in Ontario.
[30] The MOU provided that it terminated the earlier of July 2009, or the signing of a shelter services agreement. As no formal shelter services agreement was ever entered into, the MOU is no longer operative. However, it was the foundational agreement between the parties and it is connected with the dispute.
[31] Although a series of draft shelter services agreements were circulated, no such agreement was ever signed.
[32] The parties therefore governed their relationship that existed for a number of years based on an oral agreement informed by both the Shelter Service Proposal, the minutes of the kick off meeting and the MOU.
[33] In Lapointe Rosenstein Marchand Melançon LLP v. Cassels Brock & Blackwell LLP, 2016 SCC 30, 2016 CarswellOnt 10977 the Supreme Court set out a two-step test for applying the connecting factor of a contract made in Ontario (paras 37-40). The first step is to identify the nature of the dispute. The second is to identify whether there was a contract made in the forum that relates to that dispute. Although this case is complicated by the existence of multiple potential contracts, all that is necessary for this factor to apply is that there be one contract “connected with the dispute” [Lapointe at para 1].
[34] The dispute here can be characterized as a tortious dispute based on conversion and/or misappropriation. As for the second step, it is unnecessary to examine whether any of the draft shelter services agreements were followed, as the MOU constitutes a contract made in Ontario; and it, along with the earlier Proposal made in Ontario, formed part of the contractual matrix between the parties.
[35] Accordingly, there is a contract connected with the dispute that was formed in Ontario and that presumptive connecting factor is established.
OTHER JURISDICTIONAL ISSUES
[36] As a result of the findings above, it is unnecessary to consider whether the court should assert jurisdiction pursuant to the doctrine of necessity on the basis that the principals of Advantage would fear for their security if they had to attend for proceedings in Monterrey, Mexico.
FORUM NON CONVENIENS
[37] The Court of Appeal, in Silvestri v. Hardy, 2009 ONCA 400, 95 O.R. (3d) 555, set out certain principles to be taken into account in the exercise of judicial discretion concerning forum non conveniens (at para 7):
(1) to displace the plaintiffs’ choice of forum, a more appropriate forum must be clearly established; (2) the balancing of the relevant factors typically used to assess the connections to each forum should aim to achieve the twin goals of efficiency and justice; and (3) the motion judge should not adopt an aggressive approach to fact finding. Where the more convenient forum cannot be decided by relying exclusively on uncontested or agreed-upon facts and the motion judge must address the competing version of the facts, the judge should accept the plaintiffs’ version so long as it has a reasonable basis in the record.
[38] The choice of forum here is as between Ontario and Nuevo Léon, Mexico.
[39] The number of necessary witnesses is about the same for each party. However, the witnesses for Prodensa have been educated in the United States and have been examined in English on this motion; whereas, it has not been shown that the Ontario-based witnesses for Advantage are fluent in Spanish. The majority of relevant documents are in English. That being so, interpretation and translation costs would be significant if this matter was tried in Mexico.
[40] If Ontario retains jurisdiction, Prodensa argues that it will have to demonstrate under Mexican law that it was impossible to remove the equipment from the plant and show the effect of labour and government legal actions. To do so, will require translation of documents from Spanish to English at considerable expense. Further, the lawfulness and reasonableness of Prodensa’s conduct should be assessed through the laws and standards of Mexico and that would be best judged by the Mexican courts.
[41] The allegations in the counterclaim are closely inter-related with the claims made by Avante in the main action. The conspiracy allegation in the counterclaim relates to Avante. Bifurcating the proceedings between Ontario and Mexico would cause Advantage to lose a judicial advantage with respect to this claim, quite apart from the resulting multiplicity of proceedings and risk of conflicting judgments that would arise.
[42] I find this latter consideration the most significant and I must conclude that Prodensa has not clearly demonstrated that Nuevo Léon is a more appropriate forum for deciding the dispute. Accordingly, jurisdiction should not be declined on the basis of forum non conveniens.
ARBITRATION AGREEMENT
[43] As to whether the court should stay the proceeding and refer the matter to arbitration, the arbitration clause is set out in one of the draft versions of the shelter services agreement. Other drafts contained dispute resolution clauses which changed from arbitration to a civil suit in Mexico, back to arbitration. The draft containing the arbitration clause was never executed and accordingly, there was never an agreement to submit disputes to arbitration and there is no arbitration clause which governs the relationship between these parties.
CONCLUSION
[44] The motion is therefore dismissed. If the parties cannot otherwise agree as to costs, they may make written submissions: Advantage’s submissions are to be made within 30 days; Prodensa’s submissions within 15 days thereafter; and reply by Advantage, if any, within 7 days thereafter.
Lederman J.