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Canadian courts' jurisdiction: How long is the "long arm of the law"?

Author(s): Jacqueline Code, Larry Lowenstein, Laura Fric

Dec 9, 2015

In 2015, Canadian courts continued to consider their role in adjudicating disputes that have significant foreign elements. This issue arises with increasing frequency as global commercial activity expands and takes new forms, making it critical for both local and foreign entities to appreciate the ramifications of the courts’ decisions.

Cases confronting Canadian courts in the past year grapple with “big picture” questions such as: Should Canada’s laws extend to companies with no physical presence in Canada? What are or should be the limits on Canada’s willingness to defer to foreign legal systems? To what extent should Canada extend legal assistance to litigants who experience the impact of foreign business activity in Canada? When should Canadian courts decline to become involved in matters that are best addressed in a foreign court or that may place undue strain on Canadian judicial resources?

Key cases decided in 2015 show how Canadian courts are also faced with the need to adapt traditional legal concepts to non-traditional facts – such as Internet search engines with only a cyber-presence in Canada and social media sites with potentially onerous terms of use that may or may not be read by users.

The Most Influential Cases of 2015

Some of the leading cases exploring these issues in 2015 include

  • Equustek Solutions Inc. v. Google Inc. – In this case, the British Columbia Court of Appeal upheld an injunction requiring Google to remove an entire website from its world-wide global search index – not just search results found through Google.ca. The decision was in aid of the plaintiff’s ongoing litigation in B.C. against the defendant for misuse of confidential information and unlawful use of trade secrets. Google was not a party to this litigation. The Canadian court asserted jurisdiction over the global search giant, even though Google did not maintain any physical presence in B.C., on the basis that Google carried on business in B.C. The Court relied on facts such as Google selling advertising to B.C. residents, including the defendants, and indexing websites located in B.C. and/or owned by B.C. residents.The case is potentially good news for businesses seeking to expand the arsenal of remedies against unfair competition from counterfeit goods or illegally copied content sold or distributed online by individuals that are seeking to evade court orders.

But the case also sounds a cautionary note for companies that provide Internet technical or business infrastructure, even if they have no physical place of business in Canada. The extent of activity in Canada that may justify the assumption of jurisdiction by a Canadian court and the scope of the available remedies against an Internet business will no doubt be explored in future cases. (For more information, refer to our Update entitled “B.C. court of appeal upholds injunction over global search results.”)

  • Douez v. Facebook, Inc. – By contrast, the British Columbia Court of Appeal declined to take jurisdiction over a proposed class proceeding commenced against Facebook by B.C. residents. These residents alleged that the appearance of their names or photographs in a Facebook advertising feature was in violation of British Columbia’s Privacy Act. However, Facebook’s terms of use required all disputes to be adjudicated in the courts of California.The Court of Appeal held that this forum selection clause was clear and enforceable, despite provisions of the B.C. Privacy Act stating that actions under the legislation were to be heard in the B.C. Supreme Court. This provision of B.C. law could not bind the California courts, nor could it take away jurisdiction from a foreign court that the foreign court would otherwise have under its own laws. The California court would therefore have to consider the effect of this provision under its own law.

Although the Court of Appeal would have considered evidence from the plaintiffs of “strong cause” not to enforce the forum selection clause, the plaintiffs did not adduce any such evidence.

This case confirms that Canadian legislatures are limited in their ability to reserve to Canadian courts the right to adjudicate on matters arising out of their own legislation. However, participants in online commerce, including social media, may be reassured that terms of use that are clear will be given effect, even if they require a Canadian resident to litigate a dispute in a foreign jurisdiction such as California. (For more information, refer to our Update entitled “B.C. court of appeal stays a proposed privacy class action against Facebook based on a forum selection clause.”)

  • Kaynes v. BP plc – On March 26, 2015, the Supreme Court of Canada denied leave to appeal from the Ontario Court of Appeal’s determination that a securities class action should not be litigated in Ontario.The plaintiffs were Canadian residents who purchased securities of BP on the NYSE and European exchanges. BP had ceased to be a reporting issuer under Ontario securities laws, but remained under an obligation to provide investor documents to securityholders in Canada.The plaintiffs alleged that some of these documents contained certain misrepresentations made before and after the Deep Water Horizon oil spill in the Gulf of Mexico that affected the price of their shares. A similar class proceeding had been commenced in the United States by those who purchased their shares on the NYSE.

The Ontario Court of Appeal confirmed that there were sufficient connecting factors to Ontario (i.e., the fact that the plaintiffs received disclosure from BP in Canada) to permit the Ontario Court to assume jurisdiction over the class action. However, the Ontario Court of Appeal agreed with BP that Ontario was not the preferable forum (forum non conveniens) to determine the plaintiffs’ claims, thereby confirming that even when the Ontario court could adjudicate a particular dispute involving foreign elements, there is an additional question as to whether it should assume carriage of the dispute.

The United States and Europe were clearly more appropriate forums for a number of reasons. The U.S. class action covered a similar time period and applied to all BP shareholders, including the plaintiffs, who purchased their shares on the NYSE. U.S. securities laws conferred exclusive jurisdiction on U.S. courts to adjudicate secondary market misrepresentation claims involving trades on a U.S. securities exchange. Given that the plaintiffs’ claim related to a large degree to U.S. securities law disclosure requirements (BP was no longer a reporting issuer in Ontario), it was appropriate for the Canadian court to defer to this jurisdiction as a matter of comity. By the same token, Canadian residents who purchased shares on the London or German stock exchanges had a reasonable expectation that any claims they had would be governed by the securities laws of those jurisdictions.

Finally, the Court was motivated by a concern to avoid a multiplicity of proceedings in more than one jurisdiction over the same claims of the same parties. This decision, therefore, not only promoted order and fairness but also economic use of Canadian judicial resources.

  • Chevron Corp. v. Yaiguaje – The plaintiffs seek recognition and enforcement in Canada of what the Southern District of New York (SDNY) called a “fraudulent judgment” in the amount of approximately US$9 billion. The plaintiffs obtained this judgment in Ecuador for purported environmental damage allegedly caused by a corporate predecessor of Chevron Corporation. On September 4, 2015, the Supreme Court of Canada determined that a plaintiff who has obtained a judgment in a foreign jurisdiction does not have to demonstrate that the foreign defendant (in this case, Chevron Corporation) has any connection to Ontario – either through its presence or owning assets in Ontario – in order for an Ontario court to consider whether the foreign judgment should be recognized and enforced in Ontario.The Supreme Court of Canada decision only allowed the plaintiffs to “get in the door.” It permits the Canadian court to assume jurisdiction over the dispute as to whether Canada should recognize and enforce the judgment. The judgment has been found after a lengthy trial in the SDNY to have been obtained through a massive fraud, including by bribing and threatening Ecuadorian judges. The SDNY held that the plaintiffs’ lawyers violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO), committing extortion, money laundering, wire fraud, Foreign Corrupt Practices Act violations, witness tampering and obstruction of justice in obtaining the Ecuadorian judgment and in trying to cover up their crimes.

The next chapters in the Chevron story in Canada remain to be told. At least some part of this story will come before the courts in 2016.

These cases suggest that, as business activity takes on an increasingly global character and becomes less anchored in physical territory, courts will continue to be faced with new and complex situations. The limits of traditional concepts such as “jurisdiction” and “convenient forum” will continue to be tested. This will have consequences for everyone involved. In particular, businesses with only a “cyber presence” in Canada will need to pay close attention to legal developments in this area to assess when the Canadian legal system may be brought to bear on their activities.

Note: Osler acts for Facebook, BP and Chevron.

Key legal developments

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