COURT FILE NO.: 05-CV-283515PD 1
DATE: 20051019
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Skyway Canada Limited v. Clara Industrial Services Ltd. et. al.
BEFORE: MASTER MACLEOD
COUNSEL: Robert Kennaley for the defendant Safespan Systems Inc., moving party Ken Eccleston for the plaintiff
Matthew Alter & Cullen Price for the defendant Clara Industrial Services Ltd.
E N D O R S E M E N T
[1] The defendant, Safespan Systems Inc., (“Safespan”), an American corporation with its headquarters in Tonawanda, New York, moves to stay this proceeding as against it and also moves to stay the crossclaim by its co-defendant Clara Industrial Services Ltd., (“Clara”).1 This action, commenced in Toronto, is one of three actions currently pending as a result of the same construction dispute.
The Construction Project and the Bid
[2] By way of background Clara was a general contractor for the Niagara Falls Bridge Commission (“the Commission”) and was hired to clean, paint & metalize the Rainbow Bridge between Niagara Falls, Ontario and Niagara Falls, New York. As is well known to legions of tourists, the bridge spans roughly 1,000 feet of the Niagara Gorge at a height of over 200 feet above the water. One may readily imagine that carrying out bridge restoration work in such a location while complying with the occupational health and safety legislation in two jurisdictions requires fairly specialized equipment. Clara required subtrades to provide such equipment and to carry out the work associated with installation, operation and dismantling of it.
[3] Safespan is the distributor & licencee of certain patented technology including a platform system designed for working on bridges. Skyway Canada Limited (“Skyway”) is the Canadian distributor under an agreement with Safespan executed on March 2nd, 2001. That agreement
1 For the benefit of those not familiar with Ontario civil procedure, this may require a brief word of explanation. Under our rules, a defendant may assert a claim against the plaintiff by means of a counterclaim, against another defendant by means of a crossclaim and against someone who is not already a party by means either of the counterclaim, if there is a counterclaim, or a third party claim. In this proceeding, Clara counterclaimed against the plaintiff and also added the Commission and Clara’s consultant, Urban Tech, Inc. as defendants by counterclaim. Clara has “crossclaimed” against its co-defendant Safespan, which is the moving party. provides for payment of royalties when Skyway uses or distributes the system in Canada and also provides that Safespan and Skyway will jointly do work on international bridges. Significantly for this motion the distributorship agreement contains a choice of law and forum clause stating that the agreement “shall be governed and construed in accordance with New York state law and both parties agree to submit to the exclusive jurisdiction of the courts of New York.”
[4] On December 19, 2001 Skyway sent Clara a “Pre-Bid Quotation” announcing the formation of a joint venture between Skyway and Safespan. This was preparatory to Clara’s own bid on the bridge renovation project, which was submitted, to the Commission on December 21, 2001. Clara’s bid was accepted by the Commission on January 3rd, 2002 and Clara then advised the joint venture that Clara “intends to utilize your services as primary Sub-Contractor for the Safespan Platform System for the Rainbow Bridge Project”. The quote by the joint venture was communicated to Clara from Skyway’s office in Weston, Ontario and the letter of intent was handed to representatives of Safespan and Skyway at a meeting in Thunder Bay, Ontario on January 10th, 2002.
[5] In the letter of intent, Clara proposed to issue a purchase order to Skyway on behalf of the joint venture. Subsequently there were amendments to the structure of the bid and the purchase order eventually issued by Clara was issued to Safespan and directed to its office in Tonawanda. It appears this was sent by fax from Thunder Bay on March 13, 2002. By return fax sent to Thunder Bay, Safespan accepted the purchase order. As appears from Tabs E – I of the motion record there was a further change to the structure of the sub-contact so that rather than there being a joint venture, Skyway was to perform the Canadian portion of the work and Safespan was to perform the U.S. portion. It appears that Safespan retained the duty of subcontract administration and it is not absolutely clear whether Clara treated Skyway as a sub trade of Safespan or effectively split the original sub contract into two.2 In any event there is no forum clause in the agreements between Clara and any of the other parties. Only Skyway and Safespan are parties to the agreement containing the forum clause.
The “Skewback Issue”
[6] Actual work on the Bridge apparently began in April of 2002 and continued until November of 2003. The project ran into early difficulty because the anchors for the Safespan system that were to be used on the Canadian side of the bridge were problematic due to “voids” in the concrete “skewbacks”3 where the anchors were to be positioned. This – and I gather other factors – resulted in both delays and cost overruns. In turn these factors led to a dispute between Clara and the Bridge Commission and spawned the three court proceedings referred to below.
[7] Clara contends there is money owing under the prime contract and it is also due money for extras including its costs on the “skewback issue”. The Commission rejects this claim as it is of the view that the skewback issue is Clara’s responsibility. According to the Commission, 2 The relationship is also unclear to the president of Safespan as appears from paragraph 23 of his affidavit. 3 A “skewback” is a sloping surface on which the ends of an arch abut. The girders of a steel span arch rest on the concrete skewbacks, which are in turn part of the bridge abutments. Clara’s fixed price bid should not have been based on the assumption the skewbacks could be used to anchor the platform cables. In simplest terms, the Commission asserts that the fact that the skewback caps were not adequate to support anchors should have been apparent from the information in the bid documents. The Commission asserts that delays and cost overruns are all the responsibility of Clara and on that basis, and on the basis of incomplete or deficient work, it not only denies Clara’s claims for extra work on the skewback issue but also asserts it will not, and need not, pay the outstanding balance of the original contract price.4
[8] Clara does not accept this view but if the bid documents do disclose the problem then Clara blames the subtrades who are the experts in deploying the Safespan system for not detecting the problem when they put in their own bids. Thus Clara believes that if the Commission avoids paying Clara, Clara should be relieved of its obligation to pay the subtrades and should be indemnified for its losses arising from the skewback problem. There are other elements of the dispute between Clara and the Commission that do not involve these subtrades but the skewback issue and the resulting delay claims clearly form the heart of the dispute. Certainly it is the skewback issue that is the focus of the Toronto action.
The litigation
[9] Three separate court actions were commenced as a result of these disputes. They are as follows:
A) Action 792/04 was commenced in Welland by Clara against the Commission on May 18, 2004. (“the Welland action”) That is a claim for $ 1.3 million owing under the contract and $3.6 million for extra work including the skewback issue. The action also includes delay and other breach of contract damages of $5 million and a claim for punitive damages.
The Commission defends on the basis that the structural problem with the skewback caps was disclosed and should have been known to Clara. The Commission also takes the view the work done by Clara was incomplete. The defence resulted in a demand for particulars and, after receipt of particulars, a Reply was delivered by Clara on July 30th, 2004.
The Commission also third partied the American consulting Engineers who prepared the bid packages. The third party “G.P.I.” has defended the main action and the third party claim. The third party claim was issued on January 11, 2005.
B) Action 119806 was commenced in the Supreme Court of New York on June 21, 2004 in Niagara County. (“the New York action”) That is an action by Safespan against Clara as well as against Clara’s labour and material bonding company – United States Fire Insurance Company (“U.S. Fire”). This claim apparently includes the work done by Skyway. 4 See defence in action no. 792 / 04 (Welland) Clara has disputed the New York claim on the basis of forum non conveniens and jurisdiction. Clara also pleads an implied “pay when paid” clause & it counterclaims on the basis that Safespan was negligent in not ascertaining that the voids existed in the concrete. In the counterclaim, Clara seeks damages against Safespan including delay damages.
C) This action 05-CV-283515PD 1 (“the Toronto action”) was commenced on February 4th, 2005. In the statement of claim, Skyway seeks payment from Clara for $175,837.65 owing under the contract for work not related to the Safespan system, from either defendant the sum of $150,050.00 said to be due under the contract in relation to the Safespan work and a further $332, 844.28 in compensation for the work on the Skewback anchoring & design issues. In this proceeding Clara counterclaims against the plaintiff and the Commission and it crossclaims against Safespan. Clara also counterclaims against Urban Tech – a U.S. consulting firm. From these parties, Clara claims contribution & indemnity and damages of $2.9 million. Clara, while denying that the tender documents should have alerted the parties to the Skewback problem alleges that all of the subcontractors were negligent in not recognizing and detecting the problem.
[10] While the Welland action contains other claims against the Commission besides the claim for the Skewback work it is apparent that the action can only be determined by deciding who should bear responsibility for the extra costs and delays occasioned by the forced redesign of the platform system. There are therefore three proceedings involving overlapping but not identical parties all of which proceedings involve this central and highly contested issue. The question is whether or not this last action should be stayed against Safespan? None of the other U.S. parties have contested the jurisdiction or the venue.
Jurisdiction and the nature of the proceedings
[11] All parties concede that this court has jurisdiction simpliciter. Both Clara and Skyway are Ontario corporations. The Commission is incorporated in Ontario and in the U.S. and it maintains offices in both jurisdictions. The work in question was done on the Ontario side of the bridge – or at least that is where the problems arose and the re-engineering was implemented. The contract with Clara was formed in Ontario and the subcontract between Safespan and Clara was formed in Thunder Bay, Ontario either when the letter of intent was handed to representatives of the joint venture at a meeting or when Clara received the fax accepting the purchase order.5 Clearly there is a real & substantial connection between the subject matter of the 5 see Eastern Power Limited v. Azienda (1999) 178 D.L.R. (4th) 409 (C.A.) at para. 27 in which the court holds that a contract accepted by facsimile transmission is formed where the fax is received and is not subject to the “postal acceptance exception” . dispute and the Province of Ontario within the meaning of the decisions in Morguard6 and Muscutt.7
[12] The issue then is not jurisdiction but forum. Should the court decline to exercise jurisdiction in favour of the courts of New York ? It is relevant that there is already a proceeding in Welland, Ontario. Although the moving defendant is not a party to that proceeding at this time, it is the evidence of Clara that it would have amended its pleading to join the subtrades as defendants in light of the defence delivered by the Commission and pursuant to the Negligence Act.8 It did not take this step, it is deposed, due to settlement discussions and then the commencement of the other actions and this motion. Those subtrades and the Commission are now parties to the Toronto action by virtue of the counterclaim and crossclaim.
[13] At the hearing of the motion, Clara brought its own motion for an order that this action (the Toronto action) be consolidated with the Welland action or tried together with it. This order was not opposed as all parties agree whatever the outcome of the motion for a stay, there should not be two separate proceedings in Ontario. As noted, the parties have previously agreed the Toronto action should be moved to Welland. The consent order for consolidation, trial together or trial one after the other in the discretion of the trial judge at Welland was signed at the hearing.
[14] It is also important to consider that nothing I determine has any effect in the American proceeding. The Supreme Court of New York will make its own determination as to whether or not to assume jurisdiction over Clara and to allow the litigation in New York State to continue. While it is conceivable that what I decide here may have some influence on the other court, I cannot assume that will be so. It appears that there may be parallel litigation in both jurisdictions whatever I decide.
[15] Were these actions to be sequenced, and were it possible to separate them, the logical order would be to determine the issues between Clara and the Commission, then to determine what Clara owes Safespan and/or Skyway, then to determine what Safespan owes Skyway (assuming what it recovers from Clara includes Skyway’s claims). Only if Safespan obtains judgment against Clara and Clara is unable to pay, would the action against Clara’s bonding company be necessary. Finally, although it is not in evidence and there is no action at present, I take notice of the fact that labour and material bonds are normally secured by personal guarantees so to bring the matter full circle, the bonding company in all probability would claim over against the principal of Clara. This would be confusing enough if the actions were all in one jurisdiction and if the findings of fact could be made independently. It appears to me however that the issue of whether or not the bid documents should have put Clara and its subtrades on notice of the skewback problem, apportionment of fault amongst the principal actors and the various consultants and the related issues of misrepresentation would be most efficiently determined in an action in which all necessary parties are present. As this stands this 6 Morguard Investments Ltd. v. De Savoye [1990] 3 S.C.R. 1077 7 Muscutt et. al. v. Courcelles et. al. (2002) 60 O.R. (3d) 20 (C.A.) 8 R.S.O. 1990, c. N.1 is the case with the combined Ontario actions. The bonding company is not a party but bond actions normally await determination of liability in the main action and proceed separately.
[16] Safespan argues that the dispute between Clara and the Commission is broader than the dispute involving the subtrades and it does not wish to be dragged into the big dispute for what is its much smaller subtrade claim. There is some truth to this but unfortunately this is a common feature of construction litigation in which subtrades become tied up with a broader dispute between the contractor and the owner. There are various solutions to this if the subtrade issues can be hived off and tried separately but most of them would require either consent of all affected parties or vigorous management of the issues by a judge having jurisdiction over all necessary parties and issues. Given Clara’s counterclaim or cross claim against the subtrades, there is nothing so discrete about Safespan’s claim against Clara that it may be said to be improperly joined to the other issues in the Ontario action.
[17] As a consequence of this analysis, this court has jurisdiction over the dispute and the claim against Safespan is not artificially grafted onto it or improperly joined. Unless there is a powerful argument in favour of deferring to the action in New York State, the motion to stay part of this proceeding ought not to be granted.
The forum test
[18] Various cases were cited to me decided by this court and by various levels of appellate court. It may safely be said that there has been some evolution in thinking on the issue of forum non conveniens and the importance of forum selection clauses. In part this has been influenced by the evolution in the case law concerning recognition of foreign judgments. In the Morguard9 decision, the Supreme Court of Canada adopted the “real and substantial connection” test as the standard for enforcing judgments of other provinces in Canada. In so doing it embraced the principle of “comity” and altered the old common law tests of territoriality, sovereignty, independence and attornment. In Beals v. Saldanha 10 the Supreme Court upheld the Ontario Court of Appeal decision extending this test to recognition of foreign judgments arising in jurisdictions outside Canada. That case involved a default judgment obtained in Florida against residents of Ontario for damages in connection with a sale of Floridian land. Subject to certain limited defences, foreign judgments issued by courts of competent jurisdiction in the United States and elsewhere will be recognized and enforced in Canada based on there being a significant connection between the cause of action and the foreign court. This approach to recognition of jurisdiction over the dispute has implications for determining if it is appropriate to stay a domestic action in favour of a foreign proceeding.
[19] Ontario courts ought to defer to the courts of another jurisdiction in cases involving a foreign defendant if the other jurisdiction is a more appropriate and convenient forum for the action and for securing the ends of justice. This was the principle reiterated by the Supreme 9 note 5, supra. In Morguard, the Supreme Court of Canada adopted the “real and substantial connection” test as the standard for enforcing judgments of other provinces in Canada and altered the old common law tests of territoriality, sovereignty, independence and attornment.
10 [2003] 3 S.C.R. 416
Court of Canada in Amchem Products Inc. v. British Columbia (Workers’ Compensation Board)11 The implications of Amchem and other recent decisions were fully reviewed by the Ontario Court of Appeal in Muscutt v. Courcelles.12 In applying the principles of comity and real and substantial connection, it will no longer serve a resident of Ontario to ignore a foreign proceeding on the basis there has been no attornment to that jurisdiction. Providing there is a real and substantial connection with the other jurisdiction, the judgment of the foreign court will be recognized on the basis of comity. Conversely an Ontario action will not be stayed simply because there is a foreign proceeding or because the foreign defendant has not attorned. The appropriate procedure is therefore to appear in the jurisdiction and to seek a stay on the basis of forum non conveniens. Such motions as a result are occurring with some frequency.
[20] The leading case in Ontario setting out the factors to be considered on a forum non conveniens application remains Eastern Power Limited v. Azienda.13 In that decision the Court of Appeal approved the general test enunciated by Arbour J.A. in an earlier decision14 to the effect that the choice of the appropriate forum is designed to ensure that the action is tried in the jurisdiction that has the closest connection with the action and the parties and that all factors pertaining to making this determination must be considered. While the Court of Appeal therefore did not endorse a closed catalogue of relevant factors, the following factors were considered to be relevant:
a) the location where the contract in dispute was signed,
b) the applicable law of the contract,
c) the location in which the majority of the witnesses reside,
d) the location of key witnesses
e) the location where the bulk of the evidence will come from
f) the jurisdiction in which the factual matters arose,
g) the residence or place of business of the parties, and,
h) loss of juridical advantage.
[21] In the case at bar, as in many of the cases cited, most if not all of these factors are neutral as between Ontario and New York. Since litigation was first commenced in Ontario, since the contracts and sub contracts appear to have been formed in Ontario, since the facts are marginally more connected with Ontario than New York and since there are other parties involved in the Ontario litigation that are necessary parties but are not presently parties to the New York litigation, the motion would fail on a forum non conveniens test. Counsel for the defendant was frank in conceding that but for the forum selection clause, the motion would probably not have been launched.
11 [1993] 1 S.C.R. 897 Amchem dealt with an anti-suit injunction which is an extraordinary remedy in which a party is restrained from pursuing the suit in the foreign jurisdiction but it restated the law in connection with forum non conveniens.
12 note 6, supra
13 (1999) 178 D.L.R. (4th) 409 (C.A.), leave to appeal denied, [1999] S.C.C.A. No. 542 and see Kuhlkamp v. Apera Technologies Inc .[2004] O.J. No. 3064 (C.A.)
14 Frymer v. Brettschneider (1994) 19 O.R. (3d 60 (C.A.)
The forum selection clause and the strong cause test
[22] In Ash et al v. Corporation of Lloyd’s et al 15 the Ontario Court of Appeal affirmed the policy in this jurisdiction of giving great weight to forum selection clauses. The existence of a forum selection clause places a heavy burden on the party seeking to avoid it. The courts will generally give effect to such an agreement unless there are overwhelming reasons not to do so. See Di Paolo Machine Works Ltd. v. Prestige Equipment Corp16.
[23] There was some debate in the cases as to whether or not a forum selection clause is merely a factor to be considered in the forum non conveniens test or whether forum selection cases are in a different category.17 This has recently been resolved by the Supreme Court of Canada in Pompey Industrie v. ECU-Line N.V.18 In that decision the Court contrasted cases in which a stay is sought based on a forum selection clause and cases based on the forum non conveniens doctrine. “In the latter inquiry”, said Bastarache J., “the burden is normally on the defendant to show why a stay should be granted, but the presence of a forum selection clause … is sufficiently important to warrant a different test, one where the starting point is that the parties should be held to their bargain.” This does not mean that such a clause will be determinative. A forum selection clause will not induce a court to take jurisdiction if the action has no real and substantial connection with the jurisdiction.19 On the other hand in the face of the clause, the party resisting it must show “strong cause” why it should not be bound by the forum selection clause.
[24] In the circumstances of this case, there are in my view several persuasive reasons why the forum clause ought not to result in staying of these proceedings:
1. There are other parties to this dispute that are not bound by the forum selection clause. Were this a free standing dispute between the parties to the distributorship agreement, there would be a much stronger argument in favour of enforcing the forum clause.
2. The primary document to be interpreted in this proceeding is the prime contract and the tender documents between the Commission and Clara that are said to have disclosed the skewback problem. Those documents do not contain a forum clause or a choice of law provision.
3. Although the relationships between Skyway and Safespan as first joint ventures and then as co-subcontractors or as sub trade and sub-sub trade may have been effected by amendment & expansion of their distribution agreement containing the forum clause, the dispute that must now be adjudicated has little if anything to do with the 15 (1992) 9 O.R. (3d) 755 (C.A.) 16 (1996) 5 C.P.C. (4th) 175 (Gen. Div.) 17 The tendency to assimilate these considerations was discussed by Cullity J. in Texserv Inc. v. Incon Container USA Ltd. (2000) 48 O.R. (3d) 427 (S.C.J.) 18 [2003] 1 S.C.R. 450 @ para. 21. 19 Shekdar v. K. & M. Engineering and Consulting Corporation (2004) 71 O.R. (3d) 475 (S.C.J.) interpretation of the agreement or the payment of royalties. It is far from clear that the choice of law or forum clause was intended to encompass claims for negligence.
4. The breaches of contract on which the claims are based are primarily breaches of contract between Clara & the Commission or between Clara and the sub trades. The disputes between Skyway and Safespan are primarily subsidiary claims for extra work dealing with who gets paid for the extra work if Clara fails to pay or which if either should indemnify Clara if Clara is found to have suffered a loss over the skewback issue.
5. The claims are so intertwined that it seems impossible to efficiently adjudicate the issues between these parties without also dealing with all of the issues as between the other parties.
[25] I am therefore of the view that even if the forum clause applies to the claims between Safespan and Skyway, a determination that may have to await trial, there is powerful and persuasive reason not to divide the action by staying only part of it. This would create an unnatural division of issues. Conversely it would be unfair to require the other parties to litigate in New York simply because there is a forum clause in the agreement between two of the sub- trades.
[26] There was no evidence before me to suggest that the law of New York is in any way different from the law of Ontario in respect of the issues in dispute. If however, there is some difference that affects the outcome as between the parties to the distributorship agreement, the domestic court can be asked to apply New York law. Refusal to enforce the forum selection clause, in other words, need not deprive either party of the benefit of the choice of law provision assuming any such benefit exists.
Conclusion and order
[27] In conclusion, the motion to partially stay this proceeding is dismissed. As noted, I have granted the order for the Toronto action to be tried together with the Welland action in Welland.
[28] The defendant shall have 30 days from the release of these reasons, or in the event of an appeal, 30 days from disposition of the appeal, to deliver its defences to the claim and the cross claim.
Costs
[29] Cost of an interlocutory motion will ordinarily follow the event and be fixed and payable forthwith on a partial indemnity scale. Counsel are invited to agree on costs. If counsel are unable to agree and they wish to make submissions regarding the quantum of costs, the scale of costs or whether a different order would be more just, they may agree amongst themselves to a schedule for written submissions or I may be spoken to for directions.
[30] Arrangements to deal with costs, if any, are to be made with my office within 30 days.
Master Calum U.C. MacLeod
DATE: October 19, 2005