COURT FILE NO: CV-19-79561 DATE: 2020/04/17 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Best Theratronics Ltd., Plaintiff -and- The ICICI Bank of Canada and The Republic of Korea, Defendants
BEFORE: Mr. Justice Robert Riopelle
COUNSEL: Samuel E. Schwisberg and K. Scott McLean, Counsel for the Plaintiff Alyssa Tomkins, James Plotkin and Anthony R. Daimsis, Counsel for the Defendant The Republic of Korea No one present, for the Defendant The ICICI Bank of Canada
HEARD: October 17, 2019
Decision ON MOTIONS
The Motions
[1] The Republic of Korea (“South Korea”) requests an order dismissing Best’s breach of contract action and an order setting aside an injunction preventing the Bank from disbursing $1,335,000 USD to South Korea.
[2] Best’s motion is a request to extend the injunction to the date of trial or to such other time as the Court deems fit.
[3] For the reasons that follow the action is stayed and the injunction is continued.
Background
[4] Best manufactures in Ottawa highly sophisticated medical devices in the field of nuclear medicine, including cyclotrons. South Korea, through its Public Procurement Services (the “PPS”), issued a solicitation inviting sealed bids for the provision of a cyclotron. Best responded to this solicitation and was awarded a $13,550,000 USD contract.
[5] The contract consists of a Contract Sheet and a General Provisions of Contract (the “GPC”). The GPC speaks of two different types of bonds. With respect to the first bond the GPC states that the supplier “shall” establish a performance bond in the amount of “not less than 10%” of the contract value. Best has satisfied that requirement by means of a Standby Letter of Credit (the “SBLC”) issued by the Bank with PPS as beneficiary. This is the bond which is the subject of the injunction.
[6] The second bond referred to in the GPC is a contract guarantee of payment in favour of Best. The GPC provides that PPS “will” apply for a letter of credit in favour of the supplier in the amount of the total contract value. PPS has satisfied that requirement by means of a letter of credit (the “Letter of Credit”).
[7] The reference to a third bond is found in the Contract Sheet where it is called a counter guarantee bond. Its purpose is to secure the payment of a refund to PPS of any advances paid to Best should Best fail to meet its contractual obligations. The requirement for a counter guarantee was first introduced in PPS’s bid solicitation document titled Summary of Bidding. In that document article 10.2.1 associates the counter guarantee to articles 9.1 and 9.2 of the Summary of Bidding which only deal with shipping dates. In the Contract Sheet there is no association to shipping dates in the provisions dealing with the counter guarantee bond. Rather the provisions of the Contract Sheet associate the counter guarantee to the first two installments due under the contract.
[8] The Contract Sheet provides that the contract is to be paid in four installments. The first two installments totalling $8,677,500 USD represent 65% of the contract price and are to be paid to Best upon reaching certain benchmarks. The Contract Sheet provides that, with respect to each of these two advances, a counter guarantee bond in the amount of “more than 110%” of the advance payment “should” be established.
[9] That provision of the Contract Sheet was incorporated in the Letter of Credit as requiring Best to provide a counter guarantee for 110% of each advance payment, payable to PPS (as a refund of any advance payment already made by PPS) upon presentation of a statement from PPS that Best had not complied with the terms and conditions of the contract.
[10] It is not disputed that Best has not obtained a counter guarantee bond. It argues that it does not have to, for several reasons, including that the clause in the Contract Sheet is void for uncertainty because it sets the amount of the bond as being for “more than” 110% of the advance payment. It also argues that the use of the word “should” in the Contract Sheet when referring to the counter guarantee is only permissive and not mandatory, unlike the mandatory language of the GPC where “shall” is used in the case of the SBLC to be supplied by Best and “will” is used in the case of the Letter of Credit to be supplied by PPS. Best therefore argues that, even if it is not able to draw on the Letter of Credit because of its mandatory language with respect to the provision of the counter guarantee bond, it is nonetheless entitled to be paid for the advances by PPS because there is no such mandatory requirement in the GPC as a result of the permissive nature of the clause in the Contract Sheet.
[11] The issuer of the Letter of Credit and PPS have both denied payment of Best’s invoices for the two advances. PPS has since made a demand for payment by the Bank of the $1,335,000 USD guaranteed by the SBLC. After learning of the demand Best obtained a time-limited temporary injunction from this Court preventing the Bank from making this payment to PPS. To protect its injunction Best started this action in Ontario and was thus able to obtain from this Court extensions of the injunction from time to time.
The Four Issues
[12] The four issues are:
(1) Does the Ontario court have jurisdiction over the subject-matter of the litigation?
(2) If the Ontario court does not have jurisdiction, is there a strong cause for it to nonetheless assert jurisdiction?
(3) Even if the Ontario court has jurisdiction, should it decline jurisdiction on the grounds that Ontario is not the most convenient forum for the litigation?
(4) If the Ontario court does not have jurisdiction or if it declines jurisdiction, should the court nonetheless extend the temporary injunction?
ISSUE 1: DOES THE ONTARIO COURT HAVE JURISDICTION OVER THE SUBJECT MATTER OF THE LITIGATION?
[13] Paragraph 21.01(3)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 permits a defendant to request an order that an action be stayed or dismissed on the ground that the Court has no jurisdiction over the subject-matter of the litigation.
[14] Best and PPS agree that there are triable issues raised in the Claim, including issues surrounding the posting of a counter guarantee bond and allegations that PPS has breached the contract as a result of its failure to deliver critical scientific specifications in a timely manner or at all.
[15] Best and PPS also agree that that this Court has jurisdiction s impliciter over litigation involving breaches of contract. However, PPS says that the Ontario courts have been dispossessed of jurisdiction because the forum selection clause in the contract grants exclusive jurisdiction to the courts of South Korea over any litigation arising under this contract. PPS has the onus of establishing that the forum selection clause, found at Article 31 of the GPC, is valid, clear and enforceable. Best’s position is that the forum selection clause is defective and so it can proceed with litigation against PPS in Ontario. Article 31 of the GPC reads as follows:
Article 31. JURISDICTION OF THE LITIGATION AND ARBITRATION
When legal proceedings are deemed to be necessary for the rights and obligation (sic) in connection with this contract, the First Trial Court for the concerned litigation shall be the court chosen by PPS among the competent courts by the law and one of the following courts:
- Seoul Central District Court;
- the Competent Court where the head office of PPS belongs.
However, the dispute may be settled by arbitration in Korea (sic –“without”?) the necessity of court proceedings, in accordance with the International Arbitration Rules of the Korean Commercial Arbitration Board and under the Laws of Korea only if an agreement is made between the parties to the dispute.
[16] Best argues that the forum selection clause is operationally defective because the process by which Best is to secure PPS’s decision as to which of the two named-courts it selects as the venue for the litigation is not described. Best interprets this as meaning that PPS may initiate litigation at will but Best is precluded from doing so until PPS advises it of its selection. Best’s concern is that there is no timeframe within which PPS must advise Best of its selection and so Best’s right to pursue litigation or to request urgent injunctive relief could be frustrated by PPS’s delay or refusal to select a venue in a timely manner or at all.
[17] Nothing in the forum selection clause suggests that Best needs PPS’s permission before it can sue PPS. The forum selection clause does not impose a qualification that Best must first obtain PPS’s decision on which of the two named-courts it selects as the venue. Nothing prevents Best from commencing the litigation in either of the two named venues as it might select. PPS could then attorn to that venue or exercise its option to have the matter transferred to the other named-court on consent or by contested motion if necessary.
[18] In its Claim Best says that Article 31 does not circumscribe its choice of forum and “applies only and exclusively to the choice of forum” to be made by PPS. There is nothing in Article 31 suggesting that the litigation can be heard anywhere else but in South Korea or that the selection of South Korea as the proper forum does not apply equally to both parties. PPS’s right to select the venue of the litigation between the two competent named-courts does not oust the parties’ forum selection.
[19] Best’s interpretation would require PPS to bring any litigation arising from the contract only in South Korea but permit Best to sue PPS in whatever jurisdiction it desires. It is not logically or commercially reasonable to interpret the forum selection clause to mean that PPS restricts its ability to sue Best exclusively in South Korea, a jurisdiction where Best likely has no substantial assets, and at the same time expose itself to be sued in whatever foreign jurisdiction Best selects. In addition, that raises the possibility of two actions proceeding in separate jurisdictions: PPS v. Best in South Korea and Best v. PPS elsewhere. Two parallel proceedings on the same subject-matter proceeding in two different jurisdictions enhances the risk of inconsistent findings of fact and of conflicting decisions.
[20] Indicia in the GPC which support that any adjudication, whether by litigation or by arbitration, must occur in South Korea, include:
(1) the heading of Article 31 announces that it is addressing “the jurisdiction of the litigation and arbitration” and South Korea is the only country referred to in the article; and
(2) the heading of Article 34 of the GPC addresses “Governing laws” and at 34(2) provides that “the formation, validity, construction, and the performance of the contract shall be governed by the laws of the Republic of Korea.”
[21] The test is whether the forum selection clause is “valid, clear and enforceable”: Douez v. Facebook, Inc., 2017 SCC 33, 2017 S.C.C. 33, para. 28. The person seeking to establish the validity of the forum selection clause bears the onus: Douez, supra, para. 29.
[22] Article 31 is inelegant but not unintelligible. The intent is clear: South Korea is to have exclusive jurisdiction over any disputes, whether resolution is sought by litigation or by arbitration. Distilling 31(1) to its ordinary grammatical meaning produces the following:
When legal proceedings are deemed to be necessary...the First Trial Court for the concerned litigation shall be the court chosen by PPS…among…one the following courts…
[23] The only two courts referred to are both in South Korea. The forum is South Korea. The venue is one of the two named-courts in South Korea. Article 31(2) provides that, if the parties agree, the dispute may settle without the necessity of court proceedings by way of arbitration “in Korea” conducted in accordance with international arbitration rules and “under the laws of Korea.”
[24] PPS has satisfied its onus of establishing that the forum selection clause is “valid, clear and enforceable”: Best and PPS agreed that any adjudication relating to this contract is to occur exclusively in South Korea and, if by litigation, before one of two named-courts or, if by arbitration, before an arbitral tribunal in South Korea. The courts of Ontario therefore do not have jurisdiction over the subject-matter of this litigation as between Best and PPS.
ISSUE 2: IF THE ONTARIO COURT DOES NOT HAVE JURISDICTION, IS THERE A STRONG CAUSE FOR IT TO NONETHELESS ASSERT JURISDICTION?
[25] Best has sued in Ontario in breach of the forum selection clause granting exclusive jurisdiction to the courts of South Korea. The Ontario court is not bound to grant a stay but has a discretion to do so or not. The discretion should be exercised by granting a stay unless the plaintiff can prove a strong cause for not doing so. Z.I. Pompey Industrie v. Ecu-Line N.V., 2003 SCC 27, [2003] 1 S.C.R. 450, quoting at para. 19 from the British case the “Eleftheria”, [1969] 1 Lloyd’s Rep. 237, at p. 242.
[26] Pompey is the governing authority in Canada regarding the enforcement of a forum selection clause: Expedition Helicopters Inc. v. Honeywell Inc., 2010 ONCA 351, 100 O.R. (3d) 241 (O.C.A.), at para. 6. According to the Court of Appeal, at para. 8, the central thrust of the Pompey decision is that the law favours the enforcement of forum selection clauses. At para. 23, the court says that the presumption is that a plaintiff should be held to the bargain it made. In Pompey, at para. 9, the Supreme Court states that the starting point should be that the parties should be held to their bargain. A departure from this presumption is only justified if the plaintiff shows a strong cause that the case is exceptional and that therefore the forum selection clause should not be enforced: Expedition, (supra), at para. 11. The parties’ agreement as to a forum selection clause should be given effect in all but “exceptional circumstances”: Pompey, (supra), at para. 21.
[27] The Court in Expedition sets out at para. 24 a useful list of factors that may amount to strong cause. This list highlights, as does the list in the “Eleftheria”, that the threshold for establishing that a case is exceptional or that exceptional circumstances exist is very high and will only rarely be satisfied. These lists are illustrative only and not exhaustive.
[28] Best’s focus at this stage was on having the forum selection clause set aside and then deal with PPS’s anticipated request, which would naturally arise as a result of such a finding, to have the proceedings transferred to South Korea under the doctrine of forum non conveniens. There is a similarity between a number of the factors of the strong cause test in the “Eleftheria” and those considered when applying the forum non conveniens doctrine in the ordinary cases that are without a forum selection clause: Expedition, supra, at para. 9. One of those factors is the following:
In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the [domestic] and foreign Courts.
[29] Pompey makes it clear that a forum selection clause pervades the analysis and must be given full weight in the consideration of the other factors: Expedition, (supra), at para. 11. Best was aware from the bidding documents and the GPC that the contract would contain this forum selection clause. Best must be deemed therefore to have weighted the potential inconvenience and additional expenses it would experience in having to assert or defend its interests in South Korea and to have concluded that it was still in its interest to enter into this bargain. The evidentiary record does not support a finding that the inconvenience and additional expenses are exceptional so as to allow Best to resile from its agreement. By signing that contract Best accepted the risk of inconvenience and additional expenses. It should be held to the bargain it made.
[30] Another “Eleftheria” factor is the following:
Whether the law of the foreign Court applies, and, if so, whether it differs from [domestic] law in any material respects.
[31] The parties have agreed that the contract is to be interpreted in accordance with the laws of South Korea. Expert evidence on relevant aspects of the South Korean legal system was presented to the court:
- South Korea is a civil law country.
- In breach of contract disputes, specific performance is preferred over an award of damages but both are available.
- Injunctive relief is also available, even against government entities such as PPS.
- A successful party can enforce a judgment, even against a government entity like PPS, and, practically speaking, government judgment debtors voluntarily make payment of the damages to avoid incurring the 12% judicial interest rate.
- South Korea is a democratic country and legal, administrative and judicial powers are constitutionally separate.
- The general statutory limit for breach of contact is 10 years.
[32] Both Ontario and South Korea are signatories to the United Nations Convention on the International Sale of Goods (the “CISG”). Best’s position is that the contract’s choice of law clause does not specifically exclude the CISG and therefore the applicable law would be the same whether the matter was heard in Ontario or in South Korea. Best also says that the CISG may be a comprehensive code. PPS submits that the CISG is not a comprehensive code and that the court may therefore be required to have recourse to the laws of South Korea for any matters that are outside of the CISG. In its Reply Factum, at para. 24, PPS quotes the following from Franco Ferrari and Marco Torsello, International Sales Law in a Nutshell, (St. Paul: West, 2014):
… the CSIG does not constitute a ‘comprehensive code’. As the CISG’s scope of application is limited, resort to private international law is necessary to identify the law applicable to issues not governed by the CSIG… - underlining is mine
The Reply Factum contains other references to the same effect.
[33] There is no reason, in all the circumstances of this case, to depart from the presumption that Best should be held to the bargain it made. There is nothing in the evidentiary record that makes this an exceptional case. There is no strong cause to infirm the forum selection clause and therefore the Ontario courts should not assert jurisdiction over the subject-matter of this litigation.
ISSUE 3: EVEN IF THE ONTARIO COURT HAS JURISDICTION, SHOULD IT DECLINE JURISDICTION ON THE GROUNDS THAT ONTARIO IS NOT THE MOST CONVENIENT FORUM FOR THE LITIGATION?
[34] This question is moot. Because of the forum selection clause, Ontario courts do not have jurisdiction over the subject-matter of the litigation. Therefore, a forum non conveniens analysis is not required. “Whether Ontario is the convenient forum is not the proper question in a case with a forum selection clause”: Expedition, (supra), at para. 19. At para. 11 the court said:
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 the forum selection clause should not be enforced.
Best has been unable to that in this case.
ISSUE 4: IF THE ONTARIO COURT DOES NOT HAVE JURIDICTION OR IF IT DECLINES JURISDICTION, SHOULD THE COURT NONETHELESS EXTEND THE TEMPORARY INJUCTION?
[35] PPS requests an order setting aside the temporary injunction referred to in para. [11]. Best requests an order extending the injunction. The Bank takes no position on any issue.
[36] The SBLC referred to in para. [5] provides that it shall be interpreted in accordance with the laws of Ontario. It does not contain a forum selection clause. Therefore, an order staying the proceedings in Ontario as between Best and PPS because of their forum selection only binds them vis-à-vis each other. It has no application to their respective relationships with the Bank. South Korea does not have exclusive jurisdiction in any litigation between the Bank and Best or the Bank and PPS.
[37] The only relief sought against the Bank by Best in its Claim is for the injunction. No other relief is requested, not even costs. The Claim does not set out any triable issue limited exclusively to a conflict between the Bank and Best. The decision on whether or not to grant an injunction will have a serious impact on PPS. It should therefore be allowed to participate in that decision-making process. Section 106 of the Courts of Justice Act, R.S.O. 1990, CHAPTER C.43 allows for that because it provides that a court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding in the court on such terms as are considered just. Best’s claim against the Bank will not be allowed to proceed in Ontario independently of the underlying litigation between Best and PPS which must be conducted in South Korea.
[38] A stay on terms and transfer to the South Korean court is appropriate for several other reasons:
- the facts with respect to the alleged breaches of the contract are still very much in dispute;
- the litigation process to deal with these disputes is only now getting under way;
- the risk of duplication of proceedings, and inconsistent findings of fact, will be avoided;
- the courts of South Korea are competent to deal with injunctive relief, even against government entities like PPS; and
- if, as Best alleges, the South Korean courts might not enjoin the Bank because injunctive relief is in personam and the Bank has no presence in South Korea and may have no assets there, injunctive relief is still available as against the PPS and maybe even the Keb Hana Bank.
[39] Best’s decision to seek injunctive relief in Ontario as opposed to South Korea is best understood by considering the context in which that decision was made. Best was advised on a Friday that a demand had been made for the $1,335,000 USD guaranteed under the SBLC and that the Bank was under an obligation to disburse on that day or the next banking day. Best’s evidence on the motion was that such a payment would “radically” impair its ability to access credit and cripple its ability to pay its suppliers given that it had already invested millions of dollars into this contract. Time was of the essence. Presumably Best was concerned that it might not have enough time to retain and instruct counsel in South Korea, obtain from PPS its decision as to which of the two venues it would select, satisfy itself with certainty that South Korean courts would issue an injunction given that the Bank had no presence or assets in South Korea and, even if it did, there was no certainty that the South Korean injunction would be received on time to prevent disbursement by the Bank in Ontario.
[40] By Monday Best had obtained and served the injunction on the Bank. It had filed a notice of its intention to sue (a necessary step before a request for an injunction can be heard), filed motion materials sufficient to persuade a judge of this court that it was just or convenient that an injunction issue and given the court the usual undertaking to abide by any order concerning damages that the court might make if it ultimately appeared that the granting of the order caused damage to Best or PPS or either of them.
[41] Best in its Factum and its submissions made several suggestions as to how the court should exercise its discretion if it were to find, as it did, that the courts of South Korea do have exclusive jurisdiction over the subject-matter of this litigation between Best and PPS:
- at para. 7(iii), to extend the injunction for a period of time sufficient to permit Best to file a claim in South Korea;
- at para. 21(f), to extend it until such time as the matter can be brought before a judge in South Korea;
- at para. 46, to extend it to six months beyond such time as PPS selects a venue with a right to seek a further extension as may be necessary and just; and
- also at para. 46, the injunction should remain in force should a South Korean court decide that it lacks jurisdiction to grant injunctive relief against the Bank.
DISPOSITION
[42] An order shall issue that:
(a) As to the subject-matter of the litigation involving Best and PPS’ rights and obligations under the contract (the “main action”):
- the Ontario courts do not have jurisdiction over the main action;
- there is no strong cause for the Ontario courts to assert jurisdiction over the main action; and
- the proceedings involving the main action are stayed.
(b) As to the subject-matter of this action involving Best’s and the Bank’s rights and obligations under the SBLC (the ‘guarantee claim”), the proceedings referred to as the guarantee claim is stayed on the following terms:
The prohibition referred to in para. 1 of Justice Williams’ March 11, 2019 Order, as amended by this order, is extended as follows:
The ICICI Bank of Canada is prohibited from making any payment to the Republic of Korea or its Public Procurement Service under the SBLC 8891BG00001617 issued on July 12, 2017 and its various iterations.
Best’s Undertaking as found in para. 3 of Justice Williams’ Order which reads as follows is also extended:
The Plaintiff shall undertake to abide by any order concerning damages that the court might make if it ultimately appears that the granting of this order caused damage to the respondent parties or either of them.
PPS shall have the right, on 14 days’ notice to Best and to the Bank, to bring a motion or a series of motions, on or after August 4, 2020, to argue for the dismissal of the temporary injunction and the Undertaking and for leave from the court at the hearing of that motion to re-apply for a dismissal at some future date to be determined by the court if the temporary injunction and Undertaking are not dismissed or set aside at that motion.
The extension of the temporary injunction and Undertaking shall end on the first of the following events to occur;
(i) the time and date being noon on Friday, December 20, 2020 local time in Ottawa; (ii) a dismissal order being issued under 3 above and the appeal period having expired without an appeal; (iii) 35 days after the day on which a competent South Korean court has rendered its decision on whether to enjoin PPS, KEB Hana Bank or the Bank from receiving or disbursing funds under the SBLC or the next day on which the court to which that original decision was appealed renders its decision.
The injunction will remain in force should a South Korean court decide it lacks or does not accept jurisdiction to grant injunctive relief in these circumstances until such time as it is dismissed by this court.
Costs
[43] At the conclusion of the hearing counsel advised the court that they were on the cusp of resolving the issue of costs as between themselves. If the parties have been unable to agree on costs, then they are to arrange with the trial coordinator for a telephone conference with me at which time the matter may be dealt with or a timetable set for the exchange of written submissions.
The Honourable Mr. Justice Robert Riopelle Date: April 17, 2020