Canadian courts are taking an increasingly expansive view of jurisdiction and the trend is that disputes which involve workers with a nexus to Canada are suitable for litigation in the Canadian courts. The increasing deference to a plaintiff's choice of venue is of potential concern to Canadian multinationals and international companies operating in Canada. Companies are therefore best served if they review jurisdictional issues and applicable Canadian law on an ongoing basis.

Marsland: background

Copper has been mined in eastern Serbia for over a century, and over the last few years the once-shuttered Cerovo mine attracted significant investment from both Serbian and international companies. One of the early players in the Cerovo project was a Serbian company controlled by Laurence Marsland, an Australian mining executive based out of Bulgaria.

Prior to founding his Serbian company, Marsland had been COO with Toronto-based Dundee Precious Metals Inc. ("Dundee"), overseeing the development of mining assets in Serbia. When Marsland left to form his own company, Dundee became suspicious, and in 2010 filed a Statement of Claim in the courts in Toronto, alleging that Marsland had breached his duties to the company and was improperly using Dundee's confidential information.

Marsland: Superior Court decision

When word of the action reached Marsland, he retained counsel in Ontario, who quickly moved for an order to dismiss on the basis that the Ontario courts had no jurisdiction to hear the matter. Marsland, after all, was not a Canadian national. He had never lived, worked, or paid taxes in Canada. The mine was in Serbia, his company was based in Serbia, and he had only worked in Europe for Dundee. He had no office or staff or files in Toronto, and had only ever come to the city for quarterly meetings.

The Ontario Superior Court agreed with Marsland,1 and Dundee's action was dismissed. In reaching its decision, the Court applied the "real and substantial connection" test, which requires that the Court "be satisfied that there is a real and substantial connection to Ontario"2 before there is jurisdiction.

Van Breda and the real and substantial connection test

For the past several decades, Canadian courts have found jurisdiction where there is a "real and substantial connection" between the subject matter of the action and the place where suit is filed. Where such a connection exists, they had jurisdiction simpliciter to hear a matter. Typically a court would then consider whether another forum was more appropriate than Ontario to hear the matter under the doctrine of forum non conveniens. Where the Ontario court (a) had jurisdiction and (b) decided that no other forum was more appropriate, then the action could proceed.

The Superior Court in Marsland applied the Van Breda3 test and concluded that it had no jurisdiction to hear the matter. Having found no jurisdiction, the Court had no reason to determine whether another jurisdiction might more appropriately hear the matter under forum non conveniens. Finally, the Court observed that while there were governing law clauses between Marsland and Dundee providing that contracts where governed by the laws of Ontario and Canada, there was no forum selection clause mandating that matters must be heard in Ontario. Thus, while the parties had agreed to govern themselves by Ontario law, they had not agreed to resolve disputes under Canadian law.

Dundee strongly wished to proceed in Ontario, and appealed the Marsland decision to the Ontario Court of Appeal.

Marsland: Court of Appeal decision

The Ontario Court of Appeal disagreed with the Superior Court's ruling on the connection between Dundee's claim and Ontario, and on the application of the forum non conveniens test. The Court ruled that as the Chief Operating Officer of an Ontario company, Marsland took on fiduciary duties and duties of confidentiality under Ontario law. While he operated overseas, he took direction from the Board and other executives in Toronto, with whom he had a daily telephone call, and he came to the city for quarterly in-person meetings.

The Court also ignored the distinction the Superior Court had drawn between choice of governing law and choice of forum. Without ruling on the nature of this distinction, the Court indicated that signed agreements stipulating the preeminence of Ontario law are a factor in finding a strong connection between Dundee's claim and Ontario.

While the Marsland decision provides some clarity on when Ontario courts may assume jurisdiction in an international dispute with a former employee, the ground shifted slightly since the decision was reached. In 2012, leave to appeal Van Breda was obtained, and the matter was heard by the Supreme Court of Canada.

the current test for jurisdiction

The Supreme Court of Canada's ruling in Van Breda4 sought to bring greater clarity to the test for jurisdiction. While considerable uncertainty remains, the Court did formulate a test with clearer language and provided some useful direction.

To meet the real and substantial connection test, a party asking a Canadian court to assume jurisdiction over a dispute must first identify a connecting factor between the action and the jurisdiction. The Court identified a list of the following four "presumptive connecting factors that, prima facie, entitle a court to assume jurisdiction":5

  • The defendant lives or resides in the province;
  • The defendant carries on business in the province;
  • The tort was committed in the province; and
  • A contract connected with the dispute was made in the province.6  

This list of presumptive factors is not intended to be exhaustive or definitive, and could be added to at any time based on the values of "order, fairness and comity".7 Once jurisdiction is established, the litigation must proceed before the court, unless the defendant successfully invokes forum non conveniens.

The forum non conveniens doctrine was reviewed at some length by the Supreme Court of Canada in Van Breda. Their analysis focused not on whether a court may assume jurisdiction, but whether it ought to. If a party can show that another jurisdiction is clearly more appropriate to hear the matter, then a court may exercise its discretion to decline jurisdiction. It is not sufficient for a party to show that a comparable or preferable forum exists, but rather that this other forum is better suited to hear the matter, and that it would be "fairer and more efficient" for the plaintiff to be deprived of the forum it had initially selected. A court's discretion to decline jurisdiction is to be exercised "exceptionally", as the "normal state of affairs is that jurisdiction should be exercised once it is properly assumed."8 By requiring clear evidence of the superiority of another jurisdiction to displace a plaintiff's selection, it could be argued that Canadian courts have taken an expansive view of jurisdiction.

Finally, on the court's articulation of the forum non conveniens doctrine, it may now be more difficult to convince a court that a matter is more appropriately heard elsewhere.

impact on extra-territorial employees

American and other foreign employers of Canadian workers will not be surprised that Canadian courts take an interest in employment disputes with Canadian employees. However, employers should recognize possible impacts between provinces as well. Employees working primarily in a different province from head office may be accorded some latitude to bring actions in either jurisdiction. Of course, employers may have the same opportunity.

There will also be implications for Canadian employers of workers abroad since it appears that increased deference may be accorded to the plaintiff's selection of jurisdiction, so long as a real and substantial connection is established. The Supreme Court explicitly left open the possibility that new prima facie connections would be recognized to enable a court to define jurisdiction.

forum selection

While the written agreements between Dundee and Marsland were explicitly governed by Ontario law, the parties did not include a forum selection clause. While the Court of Appeal was willing to consider the choice of governing law as a factor in finding jurisdiction, a properly drafted forum clause may have ended the litigation at a much earlier stage.

The inclusion of a clause indicating the preferred forum for dispute resolution is often advisable to help resolve disagreements over jurisdiction, and to guide the court should jurisdiction be challenged at court. Forum selection clauses are not enforced automatically or universally, but Courts will generally enforce such clauses in the absence of a good reason why they should not.

key points for employers

As we have seen, Ontario courts are willing to take an expansive view of their own jurisdiction in respect of events that take place outside of Ontario's borders. This evolving law has important impacts on foreign employers and on employers with workers outside of Ontario. Tests at all stages are discretionary, filled with principles and factors rather than rules. Careful attention to jurisdiction at the drafting stage will help ensure that employers are not caught off guard by jurisdictional challenges, and do not find themselves fighting a battle in an inhospitable legal system. Particular attention should be paid by international (and interprovincial) employers to situations where employees are working or are based in other jurisdictions, and standard employment agreements should be reviewed as case law in this arena evolves.

Tim Hughes