1673332 Ontario Limited v. Habonim Industrial Valves & Actuators Ltd. (Ont. SCJ)

In 1673332 Ontario Limited v. Habonim Industrial Valves & Actuators Ltd., 2011 ONSC 4973 (CanLII), the Defendant, Habonim Industrial Valves & Actuators Ltd., an Israeli company, moved for an order dismissing or staying this action based on a contractual forum selection provision. The Defendant also submitted that there was no real and substantial connection between the subject matter of the action and Ontario, and Ontario is forum non conveniens. In addition, they sought an order setting aside service of the Statement of Claim.

In 2005, the Plaintiffs entered a distribution agreement (“the 2005 Agreement”) with Habonim Cast Products (“HCP”), an Israeli company, to become the exclusive distributors of HCP’s products in Canada and the U.S. for a five year term. On expiry or termination of the Agreement, HCP was bound to purchase all of the inventory owned by the Plaintiffs and the purchase was to be completed within 15 days of expiration or termination of the Agreement. The 2005 Agreement contained an Ontario governing law and forum selection provision. Although not pleaded, it also contained a provision stating that neither the agreement nor any right nor obligations thereunder were to be assigned without the prior written consent of the other party and any attempt at assignment without prior written consent would be null and void. It further provided that the agreement would enure to the benefit of and be binding upon the parties and their successors and permitted assigns.

In 2007, HCP advised the Plaintiffs of its interest in assigning substantially all of its assets to the Defendant. Both HCP and the Defendant represented that the assignment was part of a reorganization of a kibbutz in Israel. The Plaintiffs pleaded their consent to the assignment. On September 27, 2007, the Defendant assumed the obligations of HCP under the 2005 Agreement and the parties conducted themselves on the understanding that the Defendant had assumed all of HCP’s obligations under the 2005 Agreement.

The parties conducted business based on the 2005 Agreement from 2006 to early 2008,during which time the Plaintiffs bought and built up their inventory.

Relying on the 2005 Agreement, the Plaintiffs, Mississauga Ontario based companies, sued the Defendant for breaches of contractual and fiduciary duties to act in good faith and to abide by representations made and undertakings given to effect the 2005 Agreement. The Plaintiffs pleaded that the Defendant was responsible for any prior wrongful acts or omissions of HCP. Furthermore, the Plaintiffs relied on representations and undertakings made by the Defendant to their detriment relating to modest sized shipments, attendance by a representative of the Defendant in Mississauga to review and approve inventory and the promise of a long term relationship with the Plaintiffs. These breached collateral warranties were separate and apart from the terms of the 2005 Agreement. The Plaintiffs claimed that the Defendant’s request to enter a new Distribution Agreement in 2008 was a ruse designed to convince the Plaintiffs that they would have a long-term relationship with the Defendant. The Plaintiffs pleaded that the representations made and the undertakings given induced them to act in a manner which caused them significant loss.

Justice Pepall held that the subject matter of the Plaintiffs’ claim against the Defendant was not the subject matter of the 2008 Agreement. Furthermore, only one of the Plaintiffs was a party to the 2008 Agreement. In these circumstances, the forum selection clause contained in the 2008 Agreement did not govern this dispute for the purposes of this motion. Accordingly, the “strong cause” test in The Eleftheria was not applied.

Pepall, J. applying the modified “real and substantial connection” test in Van Breda v. Village Resorts Limited (sub nom. Charron Estate v. Village Resorts Ltd. (2010), 98 O.R. (3rd) 721 (Ont. C.A.) writes,

[34]           Turning to the second part of the Charron test, I should consider the connection of the Plaintiffs’ claims to the forum and the connection of the Defendant to the forum. The Plaintiffs were selling products in the US and Canada and the business of both Plaintiffs was located in Mississauga, Ontario, from where the products were sold. The claims asserted by the Plaintiffs arise from the sale and return of those products and the parties dealings relating to those sales and returns. They do not relate to sales and returns under the 2008 Agreement nor its subject matter. In my view, there is a real and substantial connection between the Plaintiffs’ claims and Ontario.

[35]           As to the Defendant’s connection to the forum, the Defendant is an Israeli company who chose to have business dealings with the Ontario based Plaintiffs that predated the 2008 Agreement and which did not comprise its subject matter. The allegations asserted by the Plaintiffs are that, amongst other things, the Defendant made misrepresentations to the Plaintiffs and encouraged them to build up their inventory and to return inventory through modest sized shipments. While the Defendant did have a contract with one of the Plaintiffs that had a forum selection provision and an entire agreement provision, these provisions were limited in their application to the subject matter of the 2008 Agreement. The Defendant did not confine itself and its activities to Israel. Its representatives were physically present in Ontario. In that regard, it is alleged that they came out to meet with the Plaintiffs’ representatives in Ontario in April, 2008 and in April, 2011 to deal with issues relating to the termination of the 2005 Agreement. Furthermore it is alleged that the Defendant was to send its representatives to Mississauga, Ontario to inspect inventory. If the allegations asserted by the Plaintiffs are established, it would have been reasonably foreseeable that the Defendant’s impugned conduct would cause harm within Ontario. I am satisfied that there is a real and substantial connection between the Defendant and Ontario.

[36]           Turning to the issue of fairness, according to the Court of Appeal in Charron, the fairness of assuming or refusing jurisdiction bears upon the real and substantial connection test. It is an analytic tool to assess the relevance, quality and strength of the connection between the Plaintiffs’ claims and Ontario and the Defendant and Ontario.

Justice Pepall adds,

[40]           A consideration of the circumstances of this case would cause any reasonable and objective person to conclude that it would be fair to assert jurisdiction over the Defendant. Fairness supports the assumption of jurisdiction in Ontario.

[41]            As to other considerations in the assessment of the real and substantial connection test, there is no evidence to suggest that an Ontario court would not recognize and enforce an Israeli judgment against an Ontario defendant rendered on the same jurisdictional basis. The international nature of the case and principles of comity also support the assumption of jurisdiction in this case.

[42]           In my view, the real and substantial connection test is met and I decline to grant the Defendant’s motion on that basis.

In rejecting the defendants’ forum non conveniens argument, Justice Pepall notes,

[47] While some of these factors favour Israel, it is not clearly the more appropriate forum.

[48] The Defendant also submits that the Plaintiffs do not come to court with clean hands in that they have admitted to receiving and converting approximately $34,000 intended for a subsidiary of the Defendant. The Plaintiffs respond that they were owed funds and the Defendant cashed cheques intended for them. Mr. Terry of the Plaintiffs also testified that the Defendant owed the Plaintiffs money and they believed that it would credit the payment of those customers against the money the Defendant owed the Plaintiffs. At this stage in the proceeding, it is not possible to make a definitive determination of this issue and in my view it would be inappropriate to grant the Defendant’s motion on this basis.