"After the storm: the impact of the financial crisis on private international law": jurisdiction.

• Author: McEvoy, John P.
• Position: Canada

In her 2010 Rand Lecture, Catherine Walsh drew attention to the impact of the world financial crisis on individual autonomy and choice of law in contract, particularly in relation to contracts of adhesion in the contexts of consumer and insurance law. (1) Choice of law is one of the three principal concerns of private international law or conflict of laws; the other two are jurisdiction simpliciter (2) and recognition and enforcement of foreign judgments. (3) In times of financial instability and a global economic downturn, greater certainty in jurisdictional matters promotes efficiencies in the legal system and significant cost-savings for litigants, particularly if enhanced by confidence that the eventual judgment will be recognized and enforced, if need be, elsewhere. Differently expressed, transaction costs for litigants are reduced by greater certainty on issues of jurisdiction. Litigation on issues of jurisdiction are essentially wasted judicial and litigant resources on the path to eventual adjudication on the substantive merits of the legal dispute, though litigation of jurisdictional issues may lead to settlement.

This modest contribution to the collection of opinion pieces on private international law focuses on the jurisdictional questions that have so occupied Canadian jurists since the Supreme Court of Canada's decision in Morguard Investments' Ltd. v. De Savoye. (4) Along the way, the Court of Appeal for Ontario took what it now acknowledges as a misstep in Muscutt v. Courcelles, (5) a widely referenced and influential decision in some Canadian courts but resisted by others. In 2010, the Court of Appeal for Ontario in Van Breda v. Village Resorts" Ltd. revisited its approach to jurisdiction simpliciter in Muscutt but has it achieved a satisfactory result? (6)

That is the subject of this contribution.

MORGUARD AND THE "REAL AND SUBSTANTIAL CONNECTION"

The Supreme Court of Canada's decision in Morguard, per La Forest J., established the "real and substantial connection" standard for the exercise of jurisdiction simpliciter by Canadian common law courts and linked that standard with the concept of "full faith and credit," which the Court found to be inherent in a federal state. Thus, jurisdiction simpliciter and international sense jurisdiction became mirrored, in that existence of a real and substantial connection justified the exercise of jurisdiction simpliciter to adjudicate a matter and grounded jurisdiction to support full faith and credit recognition and enforcement of the resulting judgment in another province or territory of Canada. The scope of jurisdiction simpliciter was limited by the "principles of order and fairness ... [which] must underlie a modem system of private international law." (7) La Forest J. addressed application of the fairness principle rather bluntly: "fairness to the defendant requires that the judgment be issued by a court acting through fair process and with properly restrained jurisdiction." As to the proper restraint, he identified the real and substantial connection standard supplemented by forum non conveniens (FNC). (8)

La Forest J. did not define "real and substantial connection" in Morguard, preferring that it develop on a case-by-case basis. He was also imprecise about the nature of the requisite connection was it between the forum and the parties, the forum and the cause of action, or both? La Forest J. variously referred to "a connection 'between the subject-matter of the action and the territory where the action is brought,' 'between the jurisdiction and the wrongdoing,' 'between the damages suffered and the jurisdiction,' 'between the defendant and the forum province,' 'with the transaction or the parties,' and 'with the action."' (9) Though inconsistent with phrases to describe the content of a real and substantial connection, La Forest J. was decidedly clear that the real and substantial connection standard was satisfied by the traditional bases of jurisdiction simpliciter grounded on territorial jurisdiction over a defendant present within the forum, or who submitted to the exercise of that jurisdiction by a contractual agreement, or who attorned to the jurisdiction by taking procedural steps to defend the action. (10) For La Forest J. in Morguard, concern about the limits of a real and substantial connection related to service ex juris, that is, when a foreign defendant is served a notice of an action commenced in the forum and must either defend on the merits (or challenge the exercise of jurisdiction itself) or face possible recognition and enforcement of a default judgment. (11) In Muscutt, Sharpe J.A. used the label "assumed jurisdiction" for service ex juris and I shall do likewise.

Morguard itself presented the troubling service ex juris scenario. The defendant, De Savoye, had become mortgagor of lands in Alberta while a resident of Alberta. He later relocated to British Columbia and allowed the mortgages to fall into default. The mortgagee commenced proceedings in Alberta to foreclose on the mortgaged lands and claimed for the deficiency after the judicial sale. Though served notice of the Alberta proceedings by registered mail to his home in British Columbia, De Savoye did not defend the action in Alberta and a default judgment followed. Critically, he was not resident in Alberta when the Alberta proceedings began. Thus, the British Columbia rules governing recognition of foreign judgments, which reflected the common law international sense jurisdictional rules, were not satisfied. (12) On appeal, the Supreme Court of Canada applied the real and substantial connection standard to the facts of the case. The mortgaged lands were in Alberta, the contractual relationship of the parties arising from the mortgages was created in Alberta by then-residents of Alberta, and the foreclosure proceedings that resulted in the deficiency and thus the deficiency action occurred in Alberta. As expressed by La Forest J., "[a] more 'real and substantial' connection between the damages suffered and the jurisdiction can scarcely be imagined." (13)

The phrase used by La Forest J. at that critical point in Morguard is telling, for it alludes to the foundational decision in Moran v. Pyle National (Canada) Ltd., (14) the dangerous light bulb case, in which Dickson C.J.C. held for a unanimous Court that the "arbitrary and inflexible" theories to localize a tort in the place of acting or place of harm must give way to a more flexible real and substantial connection test in which a tort is considered "as having occurred in any country substantially affected by the defendant's activities or its consequences and the law of which is likely to have been in the reasonable contemplation of the parties." Dickson C.J.C. then held that a tort was committed in Saskatchewan when damage (death) was caused there by the ordinary use of a light bulb manufactured in Ontario that entered into the normal channels of trade to the knowledge or expectation of the manufacturer and arrived in Saskatchewan. Rules of civil procedure were then amended to include "damage sustained in [the province] arising from a tort or breach of contract wherever committed" as an alternative ground of service ex juris to the more traditional "in respect of a tort committed [in the province]." (15) Alberta did not adopt this amendment.

Morguard and Moran v. Pyle are informative because both involved a finding of a real and substantial connection when a plaintiff suffered damage in the forum due to the conduct of a defendant resident in another province of Canada. In both cases, the Court assessed that connection contextually, including consideration of the risk taken by the defendant that damage would occur in that country. To step back a bit, this approach is consistent with that of public international law on the jurisdiction of states. The territorial principle finds expression in the first two of Huber's three maxims (1689) which, though not expressly credited, can be read as informing the approach of La Forest J. in Morguard:

1st. The laws of every empire have force within the limits of that government, and are obligatory upon all who are within its bounds.

2d. All persons within the limits of a government are considered as subjects, whether their residence is permanent or temporary.

3d. By the courtesy of nations, whatever laws are carried into execution, within the limits of any government, are considered as having the same effect everywhere, so far as they do not occasion a prejudice to the rights of the other governments, or their citizens. (16)

In addition to jurisdiction over persons within its territory, the nationality principle permits a state to exercise jurisdiction over its nationals abroad. What the real and substantial connection standard, as applied in Morguard and Moran v. Pyle, really alludes to is the "effects test" for the exercise of state jurisdiction at public international law. If accepted for present purposes as a handy compendium of relevant principles, the Restatement (3d) of the Foreign Relations Law of the United States, article 421(2)(j), states that jurisdiction to adjudicate exists where: "the person, whether natural or juridical, had carried on outside the state an activity having a substantial, direct, and foreseeable effect within the state, but only in respect of such activity." (17) To those familiar with U.S. jurisprudence, this rule addresses what is known as specific jurisdiction, as opposed to the general jurisdiction associated with the territorial principle--and is a subject to which I will return later.

Returning to Morguard, the Uniform Law Conference of Canada took concrete action by adopting the Uniform Court Jurisdiction and Proceedings Transfer Act in 1994. (18) The Act was the product of an effort by the Alberta Commissioners in conjunction with Professor Joost Blom, who served as principal researcher. The ULCC Uniform Act defines "territorial...