CITATION: Precious Metal Capital Corp. v. Smith, 2008 ONCA 577

DATE: 20080807

DOCKET: C48657-C48666-C48670

COURT OF APPEAL FOR ONTARIO

DOHERTY, MOLDAVER and CRONK JJ.A.

BETWEEN:

PRECIOUS METAL CAPITAL CORP.

Plaintiff  (Respondent)

and

GREGORY CHARLES SMITH, TAGHMEN VENTURES LIMITED, NHG CAPITAL LIMITED, GREGORY JACK PEEBLES, HAVILAND MANAGEMENT INC., HAVILAND INTERNATIONAL RESOURCES INC. LIMITED aka HAVILAND INTERNATIONAL RESOURCES LIMITED, EURO AMERICAS SECURITIES LIMITED, INTERNATIONAL CONSOLIDATED MINERALS LIMITED, INTERNATIONAL CONSOLIDATED MINERALS (UK) LIMITED, INTERNATIONAL CONSOLIDATED MINERALS (PERU) LIMITED, COMPANIA MNERA ICM S.A.C., ICM MILLOTINGO S.A.C., ICM PACHAPAQUI S.A.C., ICM PROCESADORA S.A.C. and PLATINUM DIVERSIFIED MINING INC.

Defendants (Appellants)

J. Thomas Curry and Catherine Powell for the appellants, NHG Capital Limited, Gregory Charles Smith and Taghmen Ventures Limited

Susan Chapman for the appellants, Gregory Jack Peebles, Haviland Management Inc. and Haviland International Resources Limited Brad Berg and Katherine McEachern for the appellants, International Consolidated Minerals ( Peru ) Limited and Euro Americas Securities Limited Gary Sugar for the respondent, Precious Metal Capital Corp.

Heard: May 13 and 14, 2008

On appeal from the order of Justice S. Lederman of the Superior Court of Justice (commercial list), dated April 2, 2008, reported at [2008] O.J. No. 1236.

DOHERTY J.A.:

I.          OVERVIEW

[1]               This is an appeal from the order of Lederman J. (the motion judge) dismissing the defendants’ (appellants’) motion for an order dismissing or staying the action brought against them by the respondent (plaintiff).  The order further provided that the ex juris service on the non-Ontario defendants was valid under Rule 17.02(h).  The non-Ontario defendants also appeal this order. 

[2]               The order staying or dismissing the action was sought first on the basis that the Ontario court had no jurisdiction over the non-Ontario defendants and, second, on the basis that even if the Ontario court had jurisdiction, it was not the forum conveniens for the trial of the action.  In addition, the non-Ontario defendants argued that the ex juris service should be set aside on the basis that the plaintiff did not allege damages suffered in Ontario as a consequence of the defendants’ misconduct. 

[3]               The appellants contend that the motion judge erred in law in holding that an Ontario court could assume jurisdiction over the non-Ontario defendants.  They further argue that even if the finding that Ontario had jurisdiction did not constitute an error in law, the motion judge erred in holding that Ontario was an appropriate forum in which to litigate the claims.  Lastly, the non-Ontario defendants argue that the trial judge misapplied Rule 17.02(h) when he concluded that it authorized ex juris service in respect of these claims. 

[4]               I would dismiss the appeals substantially for the reasons given by the motion judge, although I arrive at the same result on the jurisdictional question by a somewhat different route.

II.        BACKGROUND

[5]               The reasons of the motion judge are reported at [2008] O.J. No. 1236.  I will not repeat his careful summary of the factual background.  These reasons should be read in conjunction with the motion judge’s reasons.   

[6]               There are nine defendants, seven of which are not Ontario residents (one of the non-Ontario residents is effectively controlled by one of the Ontario defendants).  None of the non-Ontario defendants are present in Ontario and none have attorned to this jurisdiction.  Assumed jurisdiction is the only potential basis upon which an Ontario court has jurisdiction over the non-Ontario defendants.

[7]               The plaintiff alleges that it hired the Ontario defendant, Gregory Peebles, and his company, Haviland Management Inc., to procure financing to develop certain mining projects in Peru .  The plaintiff claims that the Ontario defendants then solicited the assistance of Gregory Charles Smith, a Texan, and his companies to secure the necessary financing through sources in the United Kingdom .  According to the plaintiff, Peebles and his company were to work with Smith and his companies to procure the financing.  The plaintiff understood that Peebles and Smith would receive shares in the plaintiff’s Ontario corporation as compensation for their efforts on the plaintiff’s behalf. 

[8]               The plaintiff contends that Peebles and his company, and Smith and his companies, owed a fiduciary duty and a duty of confidentiality to the plaintiff.  The plaintiff further contends in his claim that, through a series of events and transaction, Peebles, Smith and various corporate entities controlled by them breached those duties, allowing Smith and companies he controlled eventually to take the mining opportunities in Peru for themselves to the exclusion of the plaintiff. 

[9]               The characterization of the plaintiff’s claim was an important step in the determination of whether the Ontario court had jurisdiction.  The appellants argued on the motion and again on appeal, that the plaintiff’s claims, in their essence, alleged breaches of a series of agreements between the plaintiff and various defendants.  Many of those agreements contained provisions giving the English courts exclusive jurisdiction over disputes arising out of the agreements.  The appellants argued that these exclusive-jurisdiction provisions applied to the plaintiff’s action.  On the appellants’ submissions, the exclusive jurisdiction provisions provided a strong argument both against the assumption of jurisdiction and, if jurisdiction was taken, the further determination that Ontario was the most appropriate forum:  see Z.I. Pompey Industrie v. E.C.U.-Ligne N.A., [2003] S.C.J. No. 23 at para. 20.

[10]          The characterization of the claims depends in large measure on the contents of the statement of claim.  That document is long and in some respects unclear.  The motion judge reviewed the claim and the additional material filed on the motion.  He did not accept the appellants’ contention that the plaintiff’s lawsuit was in essence a series of claims based on alleged breaches of the contracts.  He characterized the claim in this way at paras. 19-20:

I accept the plaintiff’s characterization of this claim as, in pith and substance, centering on the fiduciary relationship between PMCC and Peebles and Smith.  The allegation is that the two deliberately orchestrated events to put PMCC at a disadvantage, to ultimately pursue the Peruvian opportunities in their own interests.  The objects of an agency relationship should not be the sole determinant of that relationship’s character.

This alleged orchestration included improprieties in preparing and executing the loan advance documents and the Asset Purchase Agreement.  However, this case is not about Smith’s loans to PMCC or the Asset Purchase Agreement: it is about an allegedly abusive course of conduct by fiduciaries.  The suit is not contractual in substance.  Although PMCC has specifically pleaded a breach of the Asset Purchase Agreement, on a review of the Amended Statement of Claim as a whole, I am satisfied that the references to the loan advances and Asset Purchase Agreement serve as illustrations or iterations of the defendants’ breaches of their duties of confidence, loyalty and good faith and as part of a broader narrative of abusive conduct. [Emphasis added.]

[11]          I agree with the motion judge’s characterization of the claim.

[12]          The other significant feature of the claim for jurisdictional purposes arises out of the remedies sought by the plaintiff.  In essence, the plaintiff seeks orders in the nature of disgorgement of the profits the defendants gained as a result of the alleged breaches of their duties to the plaintiff.  The disgorgement takes the form of a constructive trust over any interest any of the defendants have in the Peruvian properties, or a constructive trust over the shares in various foreign corporate defendants. 

III.       THE JURISDICTIONAL QUESTION

[13]          The motion judge set out his reasons for holding that the Ontario court had jurisdiction with his usual clarity.  He approached the jurisdictional question in two stages.  First, he determined whether the Ontario court had jurisdiction to grant the remedies sought by the plaintiff even though those remedies potentially affected property (shares and land) in foreign jurisdictions (paras. 22-34).  At this stage of the inquiry, he considered and applied the four-part test set out in Catania v. Giannattasio (1999), 174 D.L.R. (4th) 170 (Ont. C.A. ).  He concluded that the remedies sought did not preclude the Ontario court from taking jurisdiction. 

[14]          Having determined that the Ontario court had jurisdiction over the remedies, the motion judge turned to the question of whether the court should assume jurisdiction over the non-Ontario defendants (paras. 35-53).  In making that determination, he considered and applied the factors identified in Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 ( C.A. ).  The motion judge concluded that the action did have a real and substantial connection to Ontario warranting the assumption of jurisdiction by an Ontario court. 

[15]          I take a somewhat different approach to the jurisdictional question, but arrive at the same result.  I do not favour the two-stage analysis engaged in by the motion judge in which he first considered jurisdiction based on the nature of the remedy sought and then turned to the broader question of the sufficiency of the connection of the action to Ontario to justify the assumption of jurisdiction over non-Ontario defendants.

[16]          Catania was not a case of assumed jurisdiction.  The respondents in Catania were present in Ontario.  Catania also predates Muscutt in which Sharpe J.A. continued the efforts began in Morguard Investments Ltd. De Savoye, [1990] 3 S.C.R. 1077 to bring various jurisdictional rules together within the real and substantial connection framework.  Where an Ontario court is asked to assume jurisdiction over a non-Ontario defendant, the real and substantial connection inquiry should be the exclusive means used to determine jurisdiction. 

[17]          The nature of the remedy sought in the action, particularly if the remedy relates to a foreign immovable such as land, will play an important and sometimes even determinative role in the application of the real and substantial connection test.  However, remedy related considerations, such as those identified in the four-part test in Catania, should be considered within the broader context of the various factors identified as relevant to the real and substantial connection test: see Khan Resources Inc. v. W.M. Mining Company (2006), 79 O.R. (3d) 411 at paras. 7-10 ( C.A. ).

[18]          I see no analytical advantage, where as in this case and Catania in personam jurisdiction is asserted, in conducting a discrete jurisdictional inquiry based upon the nature of the remedy sought.  Furthermore, treating the criteria in Catania as distinct from the broader jurisdictional inquiry mandated by the real and substantial connection test creates a problem.  The first of the four criteria set down in Catania provides:

The court must have in personam jurisdiction over the defendant.

[19]          I agree with the appellants’ contention that Lederman J. erred at para. 28 in holding that for the purpose of the Catania inquiry, a court had in personam jurisdiction if ex juris service could be effected on the defendant under the Rules.  As Sharpe J.A. stated in Muscutt, supra, at para. 48:

I agree with the motion court judge that Rule 17.02(h) is procedural in nature and does not by itself confer jurisdiction.

[20]          In personam jurisdiction, which is not based on the presence of the defendant (as it was in Catania) or the defendant’s attornment to the jurisdiction, can exist only where there is a sufficient connection between the action and Ontario to warrant assumption of jurisdiction over that action by the Ontario court.  The real and substantial connection test measures the sufficiency of that connection.  Consequently, in cases of assumed jurisdiction, what is described in Catania as the first of four prerequisites to jurisdiction in fact requires a determination of whether on the totality of the circumstances there is a real and substantial connection between Ontario and the action so as to justify the assumption of in personam jurisdiction.  In other words, the first criterion identified in Catania calls for the much broader inquiry mandated by the real and substantial connection so clearly explained in Muscutt. 

[21]          The comprehensive approach to the determination of whether an Ontario court should assume jurisdiction outlined in Muscutt is fully capable of taking into account the factors relating to the nature of the remedy sought and identified in Catania.  For example, factors three and four in Catania provide: 

·        The jurisdiction cannot be exercised if the local court cannot supervise the execution of the judgment; and

·        The court will not exercise jurisdiction if the order would have no effect in the situs.

[22]          Both of these factors can be addressed under Muscutt’s sixth and/or eighth factors:

·        The court’s willingness to recognize and enforce an extra provincial judgment rendered on the same jurisdictional basis.

·        Comity and the standards of jurisdiction, recognition and enforcement prevailing elsewhere.

[23]          Recognizing that the real and substantial connection test is the single test for determining whether an Ontario court can assume jurisdiction over out of province defendants in no way diminishes the relevance of the Catania factors where the remedy sought affects foreign immovables.  Performing the entire jurisdictional analysis within the real and substantial connection framework does, however, best achieves the flexibility and holistic inquiry favoured by Muscutt.   

[24]          Although the motion judge treated the real and substantial connection inquiry as discrete from and following upon the consideration of the Catania factors, there is no reason to think that his analysis would have been any different had he merged the two under the real and substantial connection banner.  I find no error in his analysis of the factors identified in Catania.  In challenging his conclusion that the remedies sought did not preclude the assumption of jurisdiction in Ontario, the appellants contended that an Ontario court would have no ability to supervise the execution of the judgment, as that judgment related to the transfer of foreign shares or foreign land to the plaintiff.  Like the motion judge, I do not agree that the assumption of in personam jurisdiction depends on the Ontario court’s actual ability to order the transfer ownership of foreign property.  The motion judge put it correctly at para. 29:

There is no barrier to this court’s supervising the execution of the judgment.  It bears emphasizing, in light of the defendants’ arguments, that this factor does not require the local court to facilitate or carry out the judgment.  The transfers must be carried out according to the requirements of foreign law, whatever they may be in order to comply with the Ontario court order.  [Emphasis added.]

[25]          I also see no error in the motion judge’s analysis of the Muscutt factors.  I would, however, make one observation, that in my view fortifies the correctness of the decision reached by the motion judge.  At para. 38 of his reasons, the motion judge described Smith’s connection with Ontario as “more tenuous”.  There can be no quarrel with this description insofar as it compares Smith’s connection to Ontario with that of Peebles.  I do not, however, think that this comparison is particularly germane to the jurisdictional inquiry. 

[26]          Smith had a potentially significant connection to Ontario.  On the plaintiff’s allegations, he received confidential information from the plaintiff, an Ontario corporation.  He agreed to work with Peebles on of the business affairs of that Ontario corporation.  Smith knew that Peebles, an Ontario resident, was the Ontario corporation’s agent and was in a fiduciary relationship with that Ontario corporation.  Although Smith was never in Ontario, it is fair to say that he became involved in a business relationship that he knew originated in and was centered in Ontario.  Smith could well have foreseen an action in Ontario if the obligations and duties arising out of the business relationship to which he became a party were not honoured.

[27]          I agree with the motion judge’s finding that the Ontario court could assume jurisdiction over the non-Ontario defendants.

IV.       THE FORUM NON CONVENIENS ISSUE

[28]          Having determined that an Ontario court could assume jurisdiction over the action, the motion judge turned to whether Ontario was the appropriate jurisdiction in which to try the claim (paras. 54-61).  He concluded at para. 61:

In sum, this action has connections to Ontario, Peru , and the U.K.   Though both Peru and the U.K. might also have jurisdiction to hear the action, neither forum is clearly more appropriate than Ontario.

[29]          Unlike the jurisdictional determination, which raises a question of law reviewable on a correctness standard, the motion judge’s determination that Ontario was the convenient forum for this litigation, involves the exercise of judicial discretion to which this court owes deference:  B.N.P. Paribas (Canada) v. B.C.E. Inc., [2007] 227 O.A.C. 102 at para. 4 ( C.A. ). 

[30]          The appellants could succeed before the motion judge on the forum non conveniens argument only if by clearly establishing that some other jurisdiction, presumably England, was a more appropriate forum than Ontario, the forum chosen by the plaintiff:  Achem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897 at 920-21. On appeal, the appellants must show that the motion judge erred in principle, misapprehended material evidence, or reached an unreasonable result:  B.N.P. Paribas ( Canada ), supra, at para. 32.

[31]          Not surprisingly, the appellants’ submissions in support of their forum non conveniens argument track some of their jurisdictional arguments.  The appellants placed considerable reliance on the submission that the motion judge mischaracterized the plaintiff’s action when he failed to appreciate that, in essence, it involved an allegation of breaches of a number of contracts, most of which contained provisions giving the English courts exclusive jurisdiction over disputes arising out the agreements. 

[32]          As indicated above, I agree with the trial judge’s characterization of the claim as framed by the plaintiff.  The claim alleged breaches by Peebles and Smith of fiduciary duties owed to the plaintiff.  According to the plaintiff, some of these breaches are made manifest in various documents, including some of the agreements relied on by the appellants.  The exclusive jurisdiction provisions in those contracts do not, however, apply to this action as it was characterized by the trial judge.  The appellants’ reliance on Z.I. Pompey Industrie, supra, is misplaced. 

[33]          The appellant’s other arguments on this issue invite this court to re-examine the factors the motion judge considered and redo the motion judge’s weighing and balancing process.  That is no part of this court’s function. 

[34]          The appellants have not shown any basis upon which to interfere with the motion judge’s exercise of his discretion and his determination that the appellants failed to demonstrate that some other jurisdiction was a more appropriate forum for this litigation than Ontario.

V.        THE SERVICE EX JURIS ISSUE

[35]          Rule 17.02(h) permits service ex juris

In respect of damage sustained in Ontario arising from a tort, breach of contract, breach of fiduciary duty or breach of confidence wherever committed.

[36]          The plaintiff seeks damages by way of an alternative remedy.  The damage claimed is not as thoroughly articulated in the statement of claim as are the plaintiff’s other claims.  The damage claim is, however, essentially a claim for the money equivalent of the potential profits lost to the plaintiff when, according to its allegation, the defendants misappropriated the various mining opportunities in Peru . 

[37]          The plaintiff, as indicated above, is an Ontario corporation with a registered office in Ontario, carrying on business in Ontario.  It is a reasonable inference that its financial records and infrastructure are maintained in Ontario. 

[38]          The motion judge held that damages flowing from the alleged breaches constituted damages sustained in Ontario, thereby bringing the claim within rule 17.02(h).  I agree with that conclusion.  As held by Osler J. in Skyroters Ltd. v. Carriere Technical Industries Ltd. (1979), 26 O.R. (2d) 207 at 209–210 (H.C.J.):

In my view, the corporations here bringing action to the extent that they have suffered a loss of profits and a loss of use of the machine, were disadvantaged and were so disadvantaged at the place where their financial records were kept and where they did business, namely at their head office in Ontario.  The damage sustained was so sustained, in my view, within Ontario…

[39]          I think the damage claim brings the action within rule 17.02(h).

VI.       CONCLUSION

[40]          I would dismiss the appeals.  If the parties cannot agree on costs they should exchange and file their submissions on costs within 30 days.  Those submissions should not exceed four pages. 

RELEASED: “DD”  “AUG 07 2008”

“Doherty J.A.”

“I agree M.J. Moldaver J.A.”

“I agree E.A. Cronk J.A.”