Ontario courts often consider whether they should take jurisdiction over a class action with foreign elements. In its most recent decision – Prince v. ACE Aviation Holdings Inc. – the Ontario Court of Appeal found that Ontario was not the most convenient forum to litigate a cross-border claim about U.S. taxes, and the Court stayed the proceeding until the class plaintiffs had exhausted their remedies in the United States. Defendants should be encouraged by the ruling, particularly in light of recent decisions by the Superior Court in class proceedings that have applied an expansive approach to their jurisdiction and to the appropriateness of their forum to litigate cross-border claims. The Court of Appeal’s decision reminds us that Ontario courts must respect fairness and comity and cannot be too quick to assume jurisdiction where a foreign court is best positioned to provide a remedy.


At issue in the case was whether Air Canada improperly collected transportation taxes levied under the United States Internal Revenue Code. The plaintiffs alleged that Air Canada was collecting U.S. taxes on tickets purchased in Canada and on air travel in Canada, thereby giving extra-territorial effect to U.S. tax law, and that Air Canada misapplied U.S. tax law by collecting taxes that were not lawfully exigible.

Air Canada moved to dismiss or permanently stay the action on the basis that Ontario did not have jurisdiction over the dispute and on the basis of forum non conveniens.

Plaintiffs Are Grounded

Writing for a unanimous court, Justice Strathy held that all of the claims should be stayed pending the resolution of the plaintiffs’ remedies in the U.S.

On the question of jurisdiction, Strathy J. found that Air Canada had “presence-based jurisdiction” in Ontario, as Air Canada was present and carried on significant business in the province.

Air Canada argued that its presence was not enough because the subject matter of the dispute concerned the interpretation of U.S. tax law and its application to U.S. and Canadian residents. Relying on the so-called “Revenue Rule” set out in United States of America v. Harden, it argued that the Ontario court could not consider any issues relating to the imposition and collection of U.S. taxes. Harden affirms that the Canadian courts will not entertain a suit by a foreign state to recover a tax.

Strathy J. disagreed, finding that it would be consistent with Harden for an Ontario court to assume jurisdiction. In this case, the plaintiffs asserted that Air Canada’s administrative practice gave extra-territorial reach to U.S. tax law and that Air Canada misapplied those laws. Strathy J. held: “Just as an Ontario court will not assist the direct or indirect enforcement of foreign revenue laws in Canada, so it has jurisdiction to restrain the application of foreign laws in its territory by a foreign state or its agent. I am therefore prepared to assume that an Ontario court has jurisdiction to determine whether a foreign law is being enforced extra-territorially and to grant appropriate relief.”

However, on the question of forum, Strathy J. held that Ontario should not consider the merits of the plaintiffs’ claims until they had exhausted their remedies in the United States. Fairness and comity requires this respect for the U.S. procedures.

In the U.S., a procedure exists for the recovery of taxes paid under error of law. The motions judge regarded this additional procedural step as a “juridical disadvantage” to the plaintiffs, thereby supporting the conclusion that Ontario was a more appropriate forum. But this approach failed to give sufficient weight to the principle of comity. Rather than regarding the administrative process as a juridical disadvantage, comity required that it be viewed in its context, as part of a complete system for the effective administrative of taxes in the U.S. The motion judge failed to give sufficient weight to the significant juridical advantage to Air Canada of proceeding in the U.S., namely, its statutory immunity from suit. As a matter of comity, the interpretation of a U.S. tax statute, including its intended scope, should be undertaken by agencies and courts in the U.S. The action was therefore stayed pending pursuit of the appellants’ remedies in the U.S.

Who’s Air Space?

In this case, the Court of Appeal grapples with the difficult jurisdictional issues posed by international commerce, and reminds us that the Courts, like air traffic controllers, must respect each other’s jurisdiction.