CITATION: Farrell v. Kavanagh, 2017 ONSC 4776

COURT FILE NO.: CV-13-10369-00CL

DATE: 20170809

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: THOMAS PATRICK FARRELL et al., Plaintiffs

AND:

JOHN KAVANAGH, et al., Defendants

AND:

ROCCO COMMISSO, et al., Third Parties

BEFORE: HAINEY J.

COUNSEL: Daniel Urquhart, for the Defendant, Bank of Montreal

Reeva Finkel and Aaron Grossman, for the Defendants, Cosa Nova Fashions Ltd., B & M Handleman Investments Limited Comfort Capital Inc., 693651 Ontario Ltd., E. Manson Investments Limited, Natme Holdings Ltd., Francie Storm, Barsky Investments Ltd., Stephen Handleman, Rosewill Investment Corporation, Thomas Brock, The Bank of Nova Scotia Trust Company and Canada Investment Corporation

Julian Heller and Katie Sammon, for the Third Party/Moving Party, P.W. Vroon

HEARD: May 17, 2017

ENDORSEMENT

Background

[1] This is a motion to:

(a) stay or dismiss the Third Party Claim against Pieter Willem Vroon (“Vroon”);

(b) set aside service of the Third Party Claim; and

(c) require that any action commenced against Vroon be commenced in the Netherlands, or in the alternative, in Ireland.

[2] The grounds for the motion stem from a loan agreement dated March 16, 2009 between Vroon as lender and Midas Investment Corporation (“Midas”), John Kavanagh (“Kavanagh”), and Thomas Farrell (“Farrell”) as borrowers (“Loan Agreement”).

[3] The Loan Agreement, which was not entered into in Ontario, is governed by the laws of the Netherlands and the parties involved are resident in either the Netherlands or Ireland.

[4] The Loan Agreement was executed by Vroon, who is 86 years old, and resides in the Netherlands and, on behalf of Midas, by Kavanagh and Farrell, who reside in Ireland. Kavanagh and Farrell are each 50% shareholders in Midas.

[5] In 2009, Vroon advanced one million euros pursuant to the Loan Agreement, to the borrowers’ lawyer, Neil Breheny (“Breheny”), in Ireland.

[6] The loan proceeds were used, in part, by Farrell to satisfy a judgment against him in Ireland.

[7] Vroon is not domiciled and does not carry on any business in Ontario.

[8] The main action involves two commercial properties located in Toronto. The properties were purchased by Midas in 2007 and 2008. No mortgages were placed on the properties at the time they were purchased.

[9] In the main action, Farrell and Midas allege that Kavanagh fraudulently secured a $5 million mortgage against one of the properties located at 205 Yonge Street, Toronto. (the “Mortgage”). They further allege that Kavanagh improperly directed the proceeds from the Mortgage for purposes unrelated to Midas or Farrell.

[10] In March 2013, CDN$1.5 million from the Mortgage proceeds was wired to Vroon’s bank account in the Netherlands to repay the amount owing under the Loan Agreement.

[11] Vroon did not know that the money he received in the Netherlands to repay his loan came from the Mortgage.

[12] The Third Party claim against Vroon is in essence a claim arising from an allegation that the Loan Agreement is invalid.

Issues

[13] The issues that I have to determine are the following:

(a) Is there a real and substantial connection between Ontario and the Third Party Claim against Vroon?

(b) Is Ontario the forum where the Third Party Claim can be disposed of in the most efficient and fair manner?

(c) Was service of the Third Party Claim valid under the Rules of Civil Procedure?

Positions of the Parties

[14] Vroon submits that there is not a real and substantial connection between the Third Party Claim against him and Ontario. Therefore, he maintains that an Ontario court does not have jurisdiction over the Third Party Claim. Further, Vroon submits that the Netherlands is clearly the more appropriate forum to determine the claim. Finally, Vroon submits that service of the Third Party Claim should be set aside because it falls outside of the enumerated categories under Rule 17.02 of the Rules of Civil Procedure.

[15] The defendants submits that there is a real and substantial connection between the Third Party Claim and Ontario and, therefore, the Ontario court has jurisdiction. Further, the defendants submit that Ontario is the most convenient and appropriate forum for the action as a whole and for the Third Party Claim. Finally, the defendants submit the Third Party Claim was validly served pursuant to Rule 17.02.

Analysis

(a) Does Ontario have jurisdiction over the Third Party Claim?

[16] The question of whether an Ontario court has jurisdiction over the Third Party Claim involves a consideration of whether there is a real and substantial connection between Ontario and the issue in dispute in the Third Party Claim. The Supreme Court of Canada in Club Resorts Ltd. v. Van Breda, 2012 SCC 17, held that in determining whether there is a real and substantial connection between a claim and Ontario, the court should consider a non-exhaustive set of presumptive connecting factors to determine whether a connection exists. The party arguing that the court should assume jurisdiction has the burden of identifying a presumptive connecting factor that links the subject matter of the litigation to the forum.

[17] Jo Goosen, who is the Corporate Secretary of Vroon B.V., a company associated with Vroon, swore an affidavit in support of the motion. I accept Mr. Goosen’s characterization of the issue in dispute in the Third Party Claim as “an allegation that the Loan Agreement was not valid” for the reasons set out at paras. 28-30 of his affidavit sworn February 20, 2017. I must, therefore, determine whether there is a real and substantial connection between Ontario and the question of the validity of the Loan Agreement.

[18] I have considered all the connecting factors relied upon by the defendants and I have concluded that they have not met the burden of identifying a presumptive connecting factor that links the question of the validity of the Loan Agreement to Ontario. I have concluded that Ontario does not have jurisdiction because there is not a real and substantial connection between the Third Party Claim and Ontario for the following reasons:

If the claim is contractual the circumstances surrounding the contract are the following:

• The Loan Agreement is between Vroon, a Dutch resident, and a company whose two principals reside in Ireland;

• The execution of the loan documentation was by email between Vroon, in the Netherlands, and the borrowers’ lawyer in Ireland;

• The specified law of the contract is the law of the Netherlands;

• The choice of jurisdiction clause specifies the Netherlands on a non-exclusive basis;

• The domicile and residence of the parties are the Netherlands and Ireland;

• The contract was made in the Netherlands or between the Netherlands and Ireland;

• The contract was performed by funds being forwarded from the Netherlands to Ireland. The loan was repaid in the Netherlands;

• The loan was for “general funding purposes” and was not tied to a specific transaction; and

• The source of the repaid funds was unknown to Vroon.

[19] The only connecting factors that relate to Ontario are that Midas’ head office is in Ontario and the borrowers’ property that secured the loan is in Ontario. This is, in my view, insufficient to found jurisdiction of the Third Party Claim in Ontario. The clear “centre of gravity” of the Loan Agreement is in the Netherlands or in Ireland and the Netherlands and the fact that Midas owns property in Ontario is immaterial to the true nature of the transaction that is the subject matter of the Third Party Claim.

If the Third Party Claim is a tort claim, the factors that determine that Ontario does not have jurisdiction are the following:

• Vroon is not domiciled or resident in Ontario;

• Vroon does not carry on business in Ontario;

• The tort, if any, by Vroon was only capable of being committed in the Netherlands when he received the repayment of the loan in 2013. Vroon never entered Ontario or had any communications with anyone in Ontario regarding the Loan Agreement or the repayment of the loan.

• The Loan Agreement was not made in Ontario and is not governed by Ontario law.

[20] My conclusion that Ontario does not have jurisdiction with respect to the Third Party Claim is supported by the Court of Appeal for Ontario’s decision in Galaxy Dragon Ltd. v. Topwater Exclusive Fund IV LLC, 2012 ONCA 382, in which the Court upheld the motion judge’s ruling that Ontario lacked jurisdiction in a case where the defendant was in a similar position as Vroon. The Court came to the conclusion that Ontario lacked jurisdiction because “here the conversion pleaded takes place outside Ontario and the defendant played no part in moving funds out of Ontario.” The same can be said of Vroon. The conversion by Vroon of the CDN$1.5 million, if any, took place in the Netherlands and Vroon played no part in moving the funds outside of Ontario.

[21] Further, the Court in Galaxy Dragon held as follows:

Here the only connection with Ontario is that the funds were transferred out of Ontario by the appellant. Given that tenuous connection, it is not reasonable in the language of Van Breda to expect that the respondent, that is the defendant, would be called to answer legal proceedings in Ontario.

In my view this conclusion applies equally to Vroon in this case. It is not reasonable that he should have to answer legal proceedings in Ontario.

(b) Forum Non Conveniens

[22] In Van Breda the Supreme Court stated at para. 105 that:

A party applying for a stay on the basis of forum non conveniens may raise diverse facts, considerations and concerns. … In essence, the doctrine focusses on the contexts of individual cases, and its purpose is to ensure that both parties are treated fairly and the process for resolving their litigation is efficient.

[23] I have concluded that the Netherlands is the more appropriate forum to resolve the Third Party Claim for the following reasons:

• The Loan Agreement contains a choice of law clause specifying that the law of the Netherlands applies;

• The Loan Agreement specifies the Netherlands as a non-exclusive jurisdiction;

• Vroon resides and is domiciled in the Netherlands;

• The loan was repaid to Vroon’s bank in the Netherlands;

• Vroon is 86 years old;

• The expense and inconvenience of requiring Vroon to come to Ontario to testify would be unfair and prejudicial;

• The other witnesses to the execution of the Loan Agreement all reside in Ireland (i.e., Farrell, Kavanagh and Breheny);

• Because Ireland and the Netherlands are part of the European Union, it will be easier to arrange for Breheny, Kavanagh and Farrell to attend and participate in legal proceedings in the Netherlands than in Ontario;

• A judgment in the Third Party Claim obtained in the Netherlands would be directly enforceable against Vroon;

• The application of Dutch law that governs the Loan Agreement can be determined by a Dutch court without the need for expert testimony;

• It would be unfair to require Vroon to litigate outside of the Netherlands as he would lose a juridical advantage under circumstances where he advanced funds in the Netherlands on the strength of a contract governed by Dutch law and signed in the Netherlands and Ireland; and

• The issue of the validity of the Loan Agreement has nothing to do with the central issue in the Main Action which is the validity of the $5 million mortgage on 205 Yonge Street. The issue as to where the funds from that mortgage went will only be relevant if that mortgage is found to be invalid. There is, therefore, no risk of conflicting decisions from different courts.

(c) Should service of the Third Party Claim pursuant to Rule 17.02 be set aside?

[24] Where a claim is not squarely within the options set out in Rule 17.02, service ex juris is not proper and will be set aside.

[25] The Third Party Claim essentially involves the validity of the Loan Agreement which is a foreign contract that I have determined is not subject to the jurisdiction of an Ontario court. It is not one of the options listed under Rule 17.02.

[26] I disagree with the defendants’ submission that the Third Party Claim is properly served under Rule 17.02(a), (c) and (e). It is not a claim related to property in Ontario or the interpretation of a contract in respect of real property in Ontario or the foreclosure or any other remedy concerning real property in Ontario.

[27] For these reasons, service of the Third Party Claim ex juris pursuant to Rule 17.02 was not proper and should be set aside.

Conclusion

[28] The motion is granted. The Third Party Claim against Vroon is dismissed. The appropriate forum for the Third Party Claim is the Netherlands. Service of the Third Party Claim ex juris is set aside.

Costs

[29] If the parties cannot settle costs they may schedule a 9:30 a.m. attendance with me to determine the issue. Counsel should bring their costs outlines to the 9:30 a.m. attendance.

HAINEY J.

Date: August 9, 2017