The Supreme Court of Canada denied leave to appeal this week from one appeal of interest to Canadian businesses and professions.

The decision in Amtim Capital Inc. v. Appliance Recycling Centers of America  (2014 ONCA 62) indicates that pre-emptive declaratory relief in one jurisdiction may not be effective to prevent subsequent litigation elsewhere.

Appliance Recycling Centers of America (“ARCA”), a Minnesota company, was involved in a contract dispute with Amtim. ARCA instituted proceedings in Minnesota for a declaration that it owed nothing to Amtim. Amtim then began proceedings in Ontario claiming amounts owed under the contract. While Amtim unsuccessfully challenged the jurisdiction of the Minnesota courts, it did not defend the action and ACRA obtained a default judgment.

The issue before the Ontario courts leading to the present decision was whether ARCA should succeed in having the Ontario case dismissed on the basis of res judicata.

The Ontario Court of Appeal confirmed the decision of the motions judge not to dismiss or stay the Ontario action. Res judicata did not apply because the U.S. and Ontario litigation were not based on the same cause of action – declaratory relief versus a claim in damages. There was a real and substantial connection between the litigation and Ontario. More importantly, the discretion of the motions judge was exercised in a manner consistent with the orderly administration of justice. The U.S. default judgment did not consider the merits of the case. The case had a minimal connection to Minnesota. The U.S. court was not informed of the Ontario litigation. Ultimately, the Ontario Court of Appeal confirmed that it should not recognize “negative declaratory relief where the purpose of the proceeding is to bar the natural plaintiff’s claim in the jurisdiction with the closest connection to the litigation”, particularly where it would deprive the plaintiff of a hearing on the merits.