DATE: 20060822
DOCKET: C44290 & C44291
B E T W E E N : |
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CROWN
RESOURCES CORPORATION S.A. and ATA OLFATI (in their capacity as Assignees
of the Bankruptcy Estate of Canadian Triton International Ltd. pursuant
to Section 38 of the BIA) |
Markus Koehnen and |
- and - |
|
NATIONAL
IRANIAN OIL COMPANY |
Keith M. Landy and |
A N D B E T W E E N: |
|
CROWN RESOURCES CORPORATION S.A. and ATA OLFATI (in their capacity as Assignees of the Bankruptcy Estate of Canadian Triton International Ltd. pursuant to Section 38 of the BIA) Plaintiffs (Respondents) |
|
| - and - | |
| NATIONAL IRANIAN DRILLING COMPANY Defendant (Appellant) |
|
| Heard: June 5 and 6, 2006 | |
On appeal from the orders of Justice Susan E. Greer of the Superior Court of Justice dated September 14, 2005.
[1] These appeals are from the orders of Greer J. dismissing the motions of the appellants/defendants, National Iranian Oil Company (NIOC) and National Iranian Drilling Company (NIDC), to stay these two separate but related actions for want of jurisdiction. The motions were heard together, one set of reasons was issued to cover both motions, and the appeals of both orders were heard as one appeal.
[2] The respondents/plaintiffs commenced the actions as a result of disputes arising from three contracts between the parties. The defendants moved for a stay of the actions on the basis of a forum selection clause, on the basis that that there was no real and substantial connection with Ontario and on the basis of forum non conveniens. They also argued that some of the plaintiffs’ claims were precluded from being heard in Ontario by the doctrines of sovereign immunity and the act of state.
[3] The motions judge concluded that the principle of fairness alone dictates that Ontario should assume jurisdiction over the claims. She declined to order a stay on the basis of forum non conveniens and held that sovereign immunity and the act of state doctrine did not apply. For the following reasons, I would allow part and dismiss the balance of the appeals.
[4] The facts of these actions have been fully described in the reasons of the motions judge, reported at [2005] O.J. No. 3871. The following summary is sufficient for the disposition of the appeals.
[5] Canadian Triton International Ltd. (“CTI”) was an Ontario corporation that contracted with NIOC to drill oil wells in Iran. Vladamir Katic was the president and principal shareholder of CTI. While the work was being carried out in Iran, CTI became bankrupt and PricewaterhouseCoopers (“PWC” or “PWL”) was appointed as its receiver.
[6] The plaintiff, Crown Resources Corporation (“Crown Resources”), is a Liberian corporation with offices in the Isle of Man. It was a creditor of CTI. The plaintiff, Ata Olfati, is a former officer and creditor of CTI. Both plaintiffs are assignees of the bankrupt estate of CTI pursuant to s. 38 of the Bankruptcy Act, R.S.C. 1985, c. B-3. The plaintiff, Olfati, is a Canadian citizen of Iranian origin. Katic emigrated to Canada from Saudi Arabia in 1966 and now resides in the United States.
[7] NIOC is an Iranian state owned corporation and NIDC is a wholly owned subsidiary of NIOC. The distinction between the two corporations is often blurred in the documentation. For example, as will be seen later, a contract between PWC and NIDC required approval of the boards of directors of both NIDC and NIOC and it is the board of NIOC that purported to cancel the contract on the joint letterhead of NIOC/NIDC. Moreover, in the statement of claim, in their factums and in argument, counsel often referred to both defendants although only one defendant was intended.
[8] The actions arise from three contracts, executed in 1990, 1996 and 1998, for oil drilling and related services.
[9] In the the action against NIOC, the plaintiffs seek damages for the unpaid balance under the 1990 contract, the seizure of CTI’s oil rigs, NIOC’s wrongful refusal to process the exportation from Iran of CTI’s property, and breach of NIOC’s fiduciary duty to CTI. The defendants submit that Ontario has no jurisdiction over the claims because the 1990 contract contains a forum selection clause in favour of Iran, because the claims have no real and substantial connection to Ontario, and because of sovereign immunity and the act of state doctrine.
[10] The action against NIDC is based on a breach of the 1996 contract for the purchase of spare parts and materials for the oil drills located in Iran and on a breach of the 1998 contract for the purchase of drilling equipment located in Iran. The position of the defendants is that the 1996 contract has no connection to Ontario and although the 1998 contract contains a forum selection clause in favour of Ontario, the NIOC board of directors never approved the contract, as specifically required under the contract.
[11] At the outset, it is important to point out that the motions judge correctly, in my view, noted that the positions of the parties are based on conflicting evidence as to how the parties see the operation of these contracts and that the issues can only be resolved at trial. She stated that it was not necessary for her to analyze the various documents filed on the motions in order to reach a decision. She also stated that “the expert opinions provided by the parties are intriguing in their opposite views”. However, having said that, she chose to comment on the reports of the experts on Iranian law, where the conflict in their evidence is particularly apparent. In commenting on their reports, the motions judge stated:
I prefer the Report of Mr. Katirai [for the plaintiffs] over that of Dr. Hossein-Abadi [for the defendants], in that the Katirai Report gives the realities of what takes place in the judicial system in Iran and in its approach to how it structures its legal system. While the issues of human rights and freedom of speech are separate issues apart from strictly contract law, I do not think that the fears of Olfati and Katic are unfounded.
[12] This finding of the motions judge is not supported by the contents of the reports and the distinction drawn between the reports does not support her conclusion. Both reports deal with what takes place in the judicial system in Iran and its structure. Both experts have impressive credentials and each one clearly seeks to advance the position of the parties who retained him. In my view, at this stage of the proceeding, the conflict in the reports cannot be resolved any better than the conflicting evidence between the parties.
[13] In the following sections, after providing the factual context, I will summarize the reasons of the motions judge more fully as they relate to the issues raised on this appeal.
[14] After extended negotiations, CTI entered into a contract with NIOC on June 25, 1990, to drill fifty-three oil wells in Ahwaz, Iran, for $250 million U.S. The contract is in Farsi and English. It is two hundred and thirty-three pages in length and has eleven schedules attached to it. It was signed in Iran. The contract provided for NIOC to import CTI’s equipment into Iran and for CTI to export the equipment out of Iran as “temporary imported goods”, as a way to avoid duties. Also, at the end of the contract, NIOC had the option of purchasing six of the ten drilling rigs used by CTI, which it declined to do.
[15] The contract contains a forum selection clause in favour of Iran. It provides:
If any dispute…or difference of any kind shall arise between the Company and the Contractor in connection with or arising out of the Contract or the carrying out of the Works … and is not resolved through correspondence or negotiations … the case, as per the Laws of the Islamic Republic of Iran, shall be resolved by referring it to the Competent Iranian Court in Iran.
The Law governing the Contract shall be the laws of the Islamic Republic of Iran and relevant Iranian courts shall have complete competence and jurisdiction in all cases.
[16] In this action against NIOC, the plaintiffs claim $318 million U.S. for:
(a) damages for breach of contract for the unpaid balance of $17 million U.S. under the contract;
(b) the value of four rigs valued at $19 million U.S. confiscated by representatives of the Iranian Ministry of Security and Information (“IMSI”) and eventually transferred to NIOC and then to NIDC (conversion);
(c) damages for breach of fiduciary duty and breach of contract in the amount of $7 million U.S. arising from the seizure of two rigs to satisfy a tax assessment levied by the municipality of Ahwaz, which seizure was facilitated by NIOC (breach of contract and breach of fiduciary duty); and
(d) damages of $275 million U.S. for conspiracy by NIOC with Iranian officials to thwart the exportation of CTI property from Iran (conspiracy).
Two claims are based on the 1990 contract and the other claims are based in tort.
[17] Statements of Defence have not been filed. For the purpose of the motions, NIOC denies liability on the following bases:
(a) it denies owing any amount as it has paid $233 million U.S. under the contract and $23 million U.S. on account of taxes that CTI owed to the Iranian Social Security Office and to the Iranian Income Tax Office pursuant to garnishee notices;
(b) the four rigs were voluntarily transferred to the IMSI in an apparent settlement of police allegations that Katic had bribed NIOC employees in connection with the drilling contract and, eventually, NIDC purchased the rigs from the IMSI;
(c) the two rigs were seized by Ahwaz in payment of unpaid taxes; and
(d) any delay or obstruction in the exportation of CTI’s property was attributable to the presence of judgments and executions against CTI by its creditors.
[18] As pointed out by the motions judge, there is conflicting evidence regarding all these issues, which can only be resolved at trial.
[19] On the motion below, NIOC argued that the plaintiffs’ action should be stayed and the forum selection clause in favour of Iran enforced, since the plaintiffs had failed to satisfy the strong cause test. As will be discussed later, in Z.I. Pompey Industries v. ECU-Line N.V., [2003] 1 S.C.R. 450, the Supreme Court made it clear that a forum selection clause should be enforced unless the plaintiff show strong cause not to enforce it.
[20] In her analysis on the forum selection clause, the motions judge reviewed, without comment, the position of the plaintiffs who relied on the following factors in arguing that there was strong cause not to enforce the forum selection clause: the lawsuit was started in Ontario, the bankruptcy took place in Ontario and the trustee is in Ontario. In addition she noted that CTI is an Ontario corporation and “both NIOC and NIDC were aware that any dealing with respect to the contracts would be viewed in light of the Ontario laws, given that the damages occurred to the Ontario company.”
[21] I cannot accept that those factors assist the plaintiffs in arguing that there is strong cause not to enforce the forum selection clause in the 1990 contract. If the lawsuit had not been started in Ontario there would be no action. The bankruptcy proceeding and the residence of the trustee, who is not a party to these proceedings, have nothing to do with the contract. It would be more logical, in my view, to say that any dealings with respect to the contract should be viewed in light of Iranian laws since both defendants are Iranian companies, the contract specifies the forum, and the alleged breaches and the damages occurred in Iran.
[22] The motions judge refused to apply the forum selection clause in the contract because of the following:
1. It was a breach of CTI’s reasonable expectations not to be paid for its work.
2. Iran’s legal system puts more emphasis on written evidence and provides little in the way of discovery. She also made reference to expert evidence to the effect that the system lets judges question witnesses rather than lawyers.
3. Iran’s legal system does not have the same independence as Ontario’s.
4. The Revolutionary Courts would “quite probably” assume jurisdiction over the case.
5. The plaintiffs’ status as assignees under a s. 38 bankruptcy order would prejudice them in Iran.
6. CTI’s two key witnesses, Katic and Olfati, fear for their lives if they return to Iran. As they will not go back, they allege that no trial would take place.
[23] In my view, the reasons relied upon by the motions judge do not support her conclusion not to enforce the forum selection clause:
1. Regarding CTI’s reasonable expectation to be paid for the work, the motions judge was in error when she stated and repeated in her reasons that CTI had only been paid one-half of the contract. CTI is claiming that only $17 million U.S. has not been paid out of the $250 million U.S. The reasoning of the motions judge suggests that a forum selection clause need not be enforced when the parties have a dispute over the payment under the contract. This cannot be correct. It is precisely when there is a dispute that the forum clause is sought to be enforced. The reasonable expectation is about the choice of forum, not about payment.
2. The focus on written evidence and the fact that judges rather than lawyers question witnesses are hallmarks of most civil law systems. Clearly this cannot be a factor on forum selection. That argument was rejected in Z.I. Pompey Industries at page 457.
3. The contention that Iran’s system is not as independent as Ontario’s, again, cannot be relevant to the issue. This reasoning would again suggest that every forum selection clause would be open to attack as it could always be argued that no other system is as independent as Ontario’s (or Canada’s). Here, the plaintiffs agreed to the forum and an important question to be addressed is whether the Iranian legal system had deteriorated since the contract was entered into in 1990, a relevant factor in the “strong cause” test: see Carvalho v. Hull Blyth (Angola) Ltd., [1979] 3 All E.R. 280 at 285 (C.A.). In fact, the motions judge appeared to accept the relevance of this factor when she stated:
While I am told that the legal system in Iran has not gone through a fundamental change for the worse since the 1990 Contract was entered into, there is nothing in the materials before me that leads me to believe that it has the same independence from government that the Ontario system has.
Moreover, our courts have previously recognized Iran as an appropriate jurisdiction in which to try claims even in the absence of forum selection clauses and in non-commercial circumstances. See Bouzari v. Islamic Republic of Iran (2004), 71 O.R. (3d) 675 (C.A.). There was also expert evidence that foreigners have succeeded in actions brought against state owned companies.
4. It is not clear on what basis the motions judge concluded that it was “quite probable” that the Revolutionary Courts in Iran would take jurisdiction over the claim. The expert evidence was in conflict on this issue. The evidence of the plaintiffs’ expert was that the allegations of bribery (which Katic described as forced charitable donations) surrounding CTI “may” or “could” enable the appellants to refer the claim to the Revolutionary Courts. The expert evidence for the defendants was that the Revolutionary Courts have no jurisdiction in this case as they only have jurisdiction over the bribe-taker and not the bribe-giver.
In any event, the appellants have undertaken that they will not try to move any claim by the respondents to the Revolutionary Courts.
5. The motions judge was concerned that the respondents would be prejudiced because of their status as assignees in the bankruptcy of CTI. Once again, the expert evidence on this issue was conflicting and the appellants have again undertaken not to challenge the respondents’ standing to bring these actions.
6. Reports from Amnesty International, the International Commission of Jurists and the United States Department of State Travel were included in the material. On the basis of the reports the motions judge noted that human and legal rights abuses were perpetrated in Iran. She stated: “While many of the abuses relate to the criminal law system, it cannot be said with any certainty that the civil law system operates any better or fairer than the criminal law system.” There was conflicting evidence on this issue, which she appeared to recognize when she noted that issues of human rights and freedom of speech are separate issues from strictly contract law. It is not disputed that Katic has returned to Iran three times to negotiate the difficulties between the parties without suffering any harm.
The appellants have argued that, in any event, the witnesses need not go to Iran as they can tender documentary evidence and letters rogatory.
[24] In the leading case of Z.I. Pompey, the Supreme Court, in the context of a stay of proceedings to uphold a forum selection clause in a bill of lading, confirmed the application of the “strong cause” test as set out by Brandon J. in The “Eleftheria”, 1 Lloyd’s Rep. 237 (Adm. Div.). In para. 19, Bastarache J., writing for the Court, cited the “strong cause” test from p. 242 of The “Eleftheria”:
(1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign Court, and the defendants apply for a stay, the English Court, assuming the claim to be otherwise within the jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. (2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (3) The burden of proving such strong cause is on the plaintiffs. (4) In exercising its discretion the Court should take into account all the circumstances of the particular case. (5) In particular, but without prejudice to (4), the following matters, where they arise, may be properly regarded: (a) 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 English and foreign Courts. (b) Whether the law of the foreign Court applies and, if so, whether it differs from English law in any material respects. (c) With what country either party is connected, and how closely. (d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages. (e) Whether the plaintiffs would be prejudiced by having to sue in the foreign Court because they would (i) be deprived of security for that claim; (ii) be unable to enforce any judgment obtained; (iii) be faced with a time-bar not applicable in England; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial [emphasis added].
In other words, when determining whether there is strong cause to not grant a stay, the court must take into account all the circumstances of the particular case.
[25] At para. 20, Bastarache J. described the importance of forum selection clauses, emphasizing that the courts should give full weight to the desirability of upholding such clauses:
These [forum selection clauses] are generally to be encouraged by the courts as they create certainty and security in transaction, derivatives of order and fairness, which are critical components of private international law: [citations omitted]…. In the context of international commerce, order and fairness have been achieved at least in part by the application of the “strong cause” test. This test rightly imposes the burden on the plaintiff to satisfy the court that there is good reason it should not be bound by the forum selection clause. It is essential that courts give full weight to the desirability of holding contracting parties to their agreements [emphasis added].
[26] In dealing with The “Eleftheria” test, this Court has held in Mobile Mini Incorporated v. Centreline Equipment Rentals Limited (2004), 190 O.A.C. 149 at para. 5, that while a forum selection clause will play a dominant role in deciding the appropriate forum for contract based claims it is not determinative of the issue. In this case there is much more. CTI was an experienced international player on the world oil scene that did business where American companies would not. Its president, Katic, and Olfati had extensive international business and extensive experience in Iran. Both were instrumental in negotiating the contract. CTI sought business in Iran. It was represented by experienced Iranian advisers and knew the risks of doing business in Iran. It was required to obtain insurance by its financiers for the very risks that are now being alleged. CTI knew or ought to have been aware of every issue they now allege makes Iran an unfair jurisdiction in which to litigate. It was prepared to take the risk of the Iranian legal system in exchange for a $250 million U.S. contract, fully aware of the possible consequences. And, there is no evidence to suggest that the Iranian system has deteriorated since the contract was entered into.
[27] Furthermore, business people are deemed to have informed themselves about the risks of foreign legal systems and are deemed to accept those risks when they agree to a forum selection clause. In this respect, the words of Nordheimer J. in ECS Educational Consulting Services Canada Ltd. v. Al Nahyan (2000), 44 C.P.C. (4th) 111 at para. 51 (S.C.J), aff’d (2000), 3 C.P.C. (5th) 76 (Ont. C.A.) are appropriate:
In this age of the “global economy”, business will increasingly be faced with the prospect of dealing with different judicial systems in different parts of the world. I assume that business people accept that fact as a consequence of doing business in different parts of the world. I also assume that business people assess those different judicial systems before agreeing to attorn to their jurisdiction or that the are prepared to take the risks, if such be the case, of so doing. In any event, I believe that it would send entirely the wrong message if our courts were to permit Canadian business, after the fact when problems arise, to then try and resile from those agreements by permitting them, essentially, to retreat to this country. Such would hardly be in accordance with the principle of international comity….
[28] The motions judge was sympathetic to the plaintiffs’ difficulties, but in my view, her reasons taken individually or cumulatively do not support the “strong cause” test for avoiding the forum selection clause. She failed to give full weight to the desirability of holding contracting parties to their agreement. Every argument to escape the agreed forum was known or was foreseeable at the time the parties entered into the contract. In these circumstances, enforcing an agreement to litigate in Iran cannot be unfair. The action against NIOC based on the 1990 contract ought to have been stayed.
[29] I referred earlier to the undertakings given by the defendants with respect to the possibility of referring the claim to the Revolutionary Courts and any prejudice that could be suffered by the plaintiffs as assignees in bankruptcy for CTI. In closing on this issue, I note that counsel for the plaintiffs questioned the value of the undertakings given by the defendants. If the defendants were to fail to live up to their undertakings, it would be open to the respondents to move to have the stay, if granted, set aside. In ECS Educational Consulting Service, an action in contract brought against members of the Royal Family of the United Arab Emirates, this court noted, with approval in my view, an undertaking by the foreign defendants not to rely on a limitation period.
[30] The plaintiffs allege that the seizure of CTI’s oil rigs by IMSI and the Municipality of Ahwaz, and NIOC’s refusal to permit CTI to export its property from Iran give rise to claims for the torts of conversion and conspiracy, for breach of fiduciary duty, and for breach of contract. The defendants submit that the doctrines of sovereign immunity and act of state deprive Ontario of jurisdiction over any claims arising from the seizure of the oil rigs and the refusal to permit the exportation of CTI’s property. I have already dealt with the issue of jurisdiction over claims for breach of 1990 contract. I turn now to the issue of jurisdiction over the remaining claims against NIOC.
[31] The motions judge concluded that the doctrines of sovereign immunity and act of state did not apply because the rigs did not end up in the hands of the government, the Iranian government did not pass legislation in relation to the equipment, no Canadian court has adopted the act of state doctrine and, in any event, the doctrines did not apply when examining “the whole matrix” in which the rigs went into NIOC’s possession: Kuwait Airways Corporation v. Iraqi Airways Co. (Nos. 4 and 5), [2002] 2 A.C. 883 (H.L.). Based on my conclusions on the effect of the forum selection clause in the 1990 contract, in my view the doctrines need not be considered.
[32] It is important to keep the following alleged facts in mind:
(a) the oil rigs were imported into Iran in furtherance of the contract;
(b) the oil rigs and other physical assets of CTI were used for the drilling operation which were the subject of the 1990 contract;
(c) at the conclusion of the drilling project all physical assets were housed and stored at a base camp in Ahwaz manned by NIOC’s security guards, while awaiting exportation as contemplated by the contract;
(d) equipment was removed from the Ahwaz base camp which forms the basis of the conversion claims;
(e) pursuant to the contract, the physical assets were to be exported from Iran but NIOC refused to sign the necessary permit;
(f) the alleged conspiracy deprived CTI of daily standby rates for its rigs and equipment payable under the terms of the contract;
(g) the seizure of two rigs by the Municipality of Ahwaz arose as a result of a disagreement over the rate of exchange provided in the contract;
(h) NIOC breached the contract by ordering its security guards to allow the Municipality to remove the rigs from the base camp; and
(i) the allegations of bribery against CTI and Katic were specifically dealt with by the contract, which expressly prohibited bribery.
[33] In my view, those factors demonstrate that the claims founded on the seizure of the rigs and associated assets, and the refusal to permit the exportation of the remaining assets fit within the broad language in clause 52 of the contract, cited earlier, that if “any dispute or difference of any kind” arose between CTI and NIOC “in connection with or arising out of the Contract or the carrying out of the Works” it shall be resolved by referring it to the competent Court in Iran. The language used is extremely broad and was likely intended by the parties to encompass the disputes over the seizure of the oil rigs and the exportation of the assets. I would adopt the reasoning of the British Columbia Court of Appeal, which held in two cases that similar language in a contractual forum selection clause applied to related tort claims: see Sarabia v. Oceanic Mindore (The) (1996), 26 B.C.L.R. (3d) 143 and Scalas Fashions Ltd. v. Yorkton Securities Inc. (2003), 17 B.C.L.R. (4th) 6.
[34] Although only two of the five claims against NIOC are for breach of the contract containing the selection clause, the three remaining claims arising from the seized rigs and the refusal to permit exportation of the assets are so intertwined with the contract so as to justify that they be heard together in the same forum.
[35] The reasons of the Supreme Court in Z.I. Pompey indicate that where there is a forum selection clause in favour of a foreign jurisdiction and the court concludes that the plaintiff has not shown “strong cause”, the stay must be granted and it is not necessary to engage in an analysis of the real and substantial connection test. Similarly, because the proceeding must be stayed on the basis of the forum selection clause, there is no need to address the issue of sovereign immunity or the act of state doctrine. Therefore the above analysis of the forum selection clause is sufficient to dispose of the appeal of the action against NIOC.
[36] However, I would add that if I had concluded that the tort claims did not fall within the scope of the forum selection clause, I would still have reached the same conclusion. As confirmed by this court in Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 at para. 19, there are three ways in which jurisdiction may be asserted against an out-of-province defendant: (1) presence-based jurisdiction; (2) consent-based jurisdiction; and (3) assumed jurisdiction on a real and substantial connection.
[37] Clearly, Ontario cannot exercise its jurisdiction to hear this action on the basis of either (1) or (2). NIOC was not present in Ontario and was served outside the province pursuant to Rule 17.02 of the Rules of Civil Procedure R.R.O. 1990, Reg. 194. Further, NIOC has not attorned to the jurisdiction and the forum selection clause in the contract in favour of Iran implies the very opposite of consent to Ontario’s jurisdiction. Thus, the only basis upon which Ontario could exercise jurisdiction over the defendant is through assumed jurisdiction based on a real and substantial connection between the action and the forum.
[38] The plaintiffs have essentially no connection to Ontario except that Olfati is an Ontario resident and CTI is an Ontario corporation that has suffered damages, although arguably, the damages have been suffered in Iran.
[39] The defendants also have no connection with Ontario. Further, the initial contract was to be performed entirely in Iran; the property was and is still located in Iran; the seizures happened in Iran; the attempts to export from Iran involved Iranian officials and the parties agreed in the contract to have any dispute submitted to Iranian courts and Iranian law. All the claims and defences under this contract relate to events that occurred exclusively in Iran and a large number of witnesses are living in Iran.
[40] When the real and substantial connection test is applied, it is, in my view, clear that the claims arising from the seizure of the rigs and the refusal to permit exportation – and indeed the action as a whole – have essentially no connection with Ontario.
[41] On the basis of the forum selection clause, the breach of contract claim must be heard in Iran. In the interests of avoiding a multiplicity of proceedings and inconsistent results, and because the five claims in the action against NIOC are so interrelated, the claims should all be heard as part of the same action, in the same forum.
[42] Having concluded on the basis of the forum selection clause and also on the basis of the real and substantial connection test that this action cannot proceed in Ontario, it is unnecessary to consider the sovereign immunity or act of state doctrines. The remedy sought by the defendants is granted and the first action against NOIC is stayed.
[43] As the 1996 contract is silent with respect to jurisdiction or applicable law, I find it convenient to deal with the 1998 contract before addressing the earlier contract. The 1998 contract contains a forum selection clause in favour of Ontario.
[44] The March 1998 contract is between the trustee, PWC, and NIDC. Important meetings were held in Toronto at PWC’s offices and the contract was signed in London, England. It provides for the sale of CTI’s equipment in Iran by PWC as trustee in bankruptcy of CTI. The plaintiffs claim $13 million U.S. in damages arising from a breach of the contract for the purchase of drilling equipment located in Iran and for looting of CTI’s equipment.
[45] The contract provides that:
23. GOVERNING LAW
This agreement shall be governed and construed in accordance with the laws of Ontario, and the parties irrevocably attorn to the jurisdiction of the Court in Toronto, Ontario, Canada.
This contract was approved by the Superior Court in Ontario in the bankruptcy proceedings.
[46] Here, the position of the defendants is that there was no valid contract since it was never approved by the NIOC board, a condition precedent to the validity of the contract. If there is no valid contract, there can be no enforceable forum selection clause.
[47] Paragraph 5 of the document states:
This Agreement shall not be binding on PWL or NIDC unless the boards of directors of each of NIDC and [NIOC] have approved of and authorized the entering into and performance of this Agreement by NIDC, and NIDC has given PWL satisfactory evidence of such approval.
[48] The plaintiffs argued that the approval had been confirmed to PWC by letter dated June 30, 1998, which stated that the NIOC board of directors had “principally” agreed to the contract, subject to discussion of the final agreement. This letter would need to be interpreted in the context of the evidence of the negotiation between the parties.
[49] More importantly, by letter dated November 2, 1998, NIOC/NIDC wrote:
Further to our previous correspondences we regret to advise that due to circumstances and low price of oil N.I.O.C. Board of Directors has reconsidered and dropped its approval for purchase of C.T.I.’s assets in Iran, therefore we would like to inform you to consider our purchase agreement as cancelled [emphasis added].
[50] The letter could certainly be interpreted as supporting the contention that here was an approved contract. It could be said that the board’s approval had been reconsidered and dropped and that the agreement was being cancelled. How could it be reconsidered and dropped if it had not been given approval as strongly advanced by the plaintiffs? It is arguable that the contract was unilaterally cancelled because of the low price of oil.
[51] The issue of whether the contract was concluded and thus whether there is a valid forum selection clause on which Ontario may assume jurisdiction must be determined in light of the relevant evidence at trial under the law and by the court chosen by the parties. In this case, the defendants voluntarily agreed to the forum selection clause in favour of Ontario. As was the case for CTI in the 1990 contract, NIOC was represented by experienced advisers and was fully aware of the consequences of agreeing to attorn to Ontario. As was argued by the defendants with respect to the 1990 contract, it is what the parties expressly agreed to in the 1998 contract. It is interesting to note the complete reversal of position taken by counsel between the 1990 and 1998 contracts. The very same arguments that favoured their client in the first are rejected in the second. However, as it is sometimes stated in the vernacular “what is good for the goose is good for the gander”.
[52] As stated earlier, “[I]t is essential that courts give full weight to the desirability of holding contracting parties to their agreements.” On the facts of this case, no “strong cause” or any other basis has been demonstrated (or argued) to avoid the forum selection clause in favour of Ontario, to which the defendants voluntarily agreed. The defendants did not challenge the effect of the forum selection clause if it was found that there was a valid contract.
[53] The motions judge was correct in refusing to stay this part of the second action based on the 1998 contract.
[54] The parties to the two-page December 1996 contract are CTI and NIDC. The contract was negotiated and signed in Iran at a time when CTI had two offices in Iran. The amount of the contract is in Iranian currency. Under this contract, NIDC agreed to purchase the spare oil rig parts that CTI had in Iran. The contract has a face amount of 2.25 billion Iranian Rials and there has been part performance of the contract in Iran as the parties agree that 1.32 billion Iranian Rials remain notionally owing on the contract.
[55] Unlike the 1990 contract, which specifies Iran, and the 1998 contract, which specifies Ontario, the 1996 contract is silent with respect to jurisdiction.
[56] CTI claims that NIDC has failed to pay for the purchase of spare parts for drilling equipment located in Iran and claims $18 million U.S. in damages arising from the breach of the contract.
[57] NIDC accepts that it has not paid the full amount, but it asserts a right of set-off and counterclaim on the basis that it had to pay garnishment orders for unpaid CTI employees, taxes and enforcement costs, all of which exceed the amount owing on the contract.
[58] Again, the positions of the parties are based on conflicting evidence.
[59] The 1996 contract contains the following clause:
8. It is agreed that this contract is not modified or added to by any agreement not expressly stated in this agreement. This contract shall not be changed or modified in any respect unless a written memorandum embodying such changes or modifications, duly stated, signed by both parties, and bearing distinct date reference to this contract be attached to and made part of this agreement.
[60] The motions judge disposed of the forum issue by simply stating that the competing clause in the 1998 contract “encompasses” the 1996 contract. In support of her conclusion she stated:
This 1998 contract has an interesting clause in it, which is connected to the 1996 contract and the debt under it still owing by NIOC to CTI. It calls for NIDC to:
“… use its best efforts to provide assistance to PWC in connection with the documenting, settling and collecting of the accounts receivable from the NIOC and the settlement of all disputes or matters with any person, firm, company, government or agency relating to CTI in Iran.”
This asset purchase agreement was approved by our court, and it is the position of the plaintiffs that the 1996 contract was encompassed by the 1998 contract, and is therefore subject to the jurisdiction of the Ontario Court of Justice and the laws of Ontario.
[61] Later in her reasons, the motions judge appears to have accepted the plaintiffs’ position and held that the 1998 contract “encompassed” the 1996 contract because it calls for NIDC to use its best efforts to provide assistance to PWC in connection with the account receivable between NIOC and CTI. This reasoning cannot be correct.
[62] An undertaking to use best efforts to help collect money from NIOC cannot be an agreement to have an earlier contract with NIDC become subject to the jurisdiction of Ontario courts. Where the parties have not included a forum selection clause in their contract, a forum will have jurisdiction where it has a real and substantial connection to the contract. See: Janet Walker, Castel & Walker Canadian Conflict of Laws, Vol. 2 (Markham: Butterworth, 2005, at §11.5). This is even more so when the parties are experienced international dealers and know to specify the forum if they wish to do so, as they did for the other two contracts. The parties must have assumed that forum would be decided on the basis of recognized principles of law.
[63] The circumstances surrounding this contract include the following:
(a) the contract was negotiated and signed in Iran;
(b) it is between an Iranian corporation and CTI which had two registered offices and some 1600 employees in Iran at the time;
(c) it is for the purchase of equipment located in Iran;
(d) the contract is denominated in Iranian currency; and
(e) any breach took place in Iran.
[64] All the circumstances surrounding the contract point to a connection with Iran and the application of Iranian law. The claims, as framed, have no connection to Ontario. The real and substantial connection test determines that Ontario does not have jurisdiction over the 1996 contract dispute.
[65] Accordingly, I would also stay the action relating to the 1996 contract.
[66] In the result, in the first action against NIOC and the part of the second action against NIDC based on the 1996 contract, the appeals are allowed and the actions are stayed. The balance of the appeals are dismissed and the action against NIDC based on the 1998 contract is allowed to proceed.
[67] Success on the appeal has been divided. The first action, which has been stayed, was by far the more important one and one-half of the second has also been stayed. I estimate that, in the circumstances, the ratio of success and loss should be 75% - 25% in favour of the defendants.
[68] The defendants have submitted a bill of costs in the amount of $92,928.95. The plaintiffs have also submitted a bill of costs in the amount of $107,438.00. These costs appear reasonable in the circumstances.
[69] I would fix the costs payable to the defendants at 75% of the amount submitted, namely in round figures, $69,700.00. However, I would order that if the action on the 1998 contract proceeds in Ontario, payment of the costs cannot be enforced until judgment in the action is rendered or the expiration of twelve months from the date of this judgment, whichever happens first, or further order of this court.
[70] The costs of the motions below have not been dealt with. This Court is not in a position to properly fix these costs. I would order that the costs be assessed and become payable (and enforced) on the same basis as the costs of the appeal, namely, 75% of the costs assessed in favour of the defendants.
JML “I agree J.I Laskin J.A.”
“I agree Robert P. Armstrong J.A.”