1. Service ex juris
Ecolab Ltd v Greenspace Services Ltd
STEELE J.: - The appellant Coopers & Lybrand (a United States partnership) ("C & L (U.S.)") appeals from the order of Wright J. which dismissed its motion to set aside service out of the jurisdiction under rule 17.02 of the Rules of Civil Procedure of the fresh statement of defence and counterclaim (the "counterclaim") or alternatively, to stay the counterclaim as against C & L (U.S.). Leave to appeal the order was granted by Borins J. In his reasons, Borins J. stated that the issue was what is the appropriate test for the court to apply when a challenge to service ex juris is made under rule 17.06 on the ground that the claim does not come within rule 17.02.
The applicable provisions of rule 17.02 are as follows:
17.02 A party to a proceeding may, without a court order, be served outside Ontario with an originating process or notice of a reference where the proceeding against the party consists of a claim or claims,
(f) in respect of a contract where,
(iv) a breach of the contract has been committed in Ontario, even though the breach was preceded or accompanied by a breach outside Ontario that rendered impossible the performance of the part of the contract that ought to have been performed in Ontario;
(g) in respect of a tort committed in Ontario;
(h) in respect of damage sustained in Ontario arising from a tort or breach of contract, wherever committed;
(o) against a person outside Ontario who is a necessary or proper party to a proceeding properly brought against another person served in Ontario;
(q) properly the subject matter of a counterclaim, crossclaim or third or subsequent party claim under these rules.
The applicable provisions of rule 17.06 are as follows:
17.06(1) A party who has been served with an originating process outside Ontario may move, before delivering a defence, notice of intent to defend or notice of appearance,
(a) for an order setting aside the service and any order that authorized the service; or
(b) for an order staying the proceeding.
(2) The court may make an order under subrule (1) or such other order as is just where it is satisfied that,
(a) service outside Ontario is not authorized by these rules;
(b) an order granting leave to serve outside Ontario should be set aside; or
(c) Ontario is not a convenient forum for the hearing of the proceeding.
(3) Where on a motion under subrule (1) the court concludes that service outside Ontario is not authorized by these rules, but the case is one in which it would have been appropriate to grant leave to serve outside Ontario under rule 17.03, the court may make an order validating the service.
(4) The making of a motion under subrule (1) is not in itself a submission to the jurisdiction of the court over the moving party.
The plaintiff Ecolab Ltd. sold its Canadian lawn franchise to Greenspace Services Ltd. in 1991. In 1992 Ecolab brought the present action to recover payment of sums allegedly owed by Greenspace and First Service Corporation (collectively Greenspace) and for a declaration as to the validity of the Master Franchise Agreement and damages. Greenspace delivered a statement of defence and counterclaim against Ecolab and its U.S. parent Ecolab Inc. (collectively Ecolab). In January 1996 Greenspace amended the counterclaim to add Coopers & Lybrand (a Canadian partnership) (C & L Canada) and C & L (U.S.) as defendants to the counterclaim. The counterclaim was served on C & L (U.S.) and as a result this motion was brought before Wright J.
In the present case only the pleadings and productions are before the court. There are no affidavits in support. There is also no dispute that Ontario is the convenient forum.
Wright J. found that Greenspace had a "probable cause of action" against C & L (U.S.) within rule 17.02 and dismissed the motion to set aside service. He referred to the case of Empire-Universal Films Ltd. v. Rank, [1948] O.R. 235, [1948] 3 D.L.R. 74 (C.A.), where such a term was used. He also dismissed the motion for a stay stating that rule 17.06(1)(b) only applies where the issue is a question of the convenient forum.
In the majority decision in Frymer v. Brettschneider (1994), 19 O.R. (3d) 60 at p. 83, 28 C.P.C. (3d) 84 at p. 111 (C.A.), which was a case dealing with the convenient forum, Arbour J.A. stated that rule 17.06 applies to two different kinds of relief for two different kinds of problems. One is to set aside the service where there is a defect in the service itself because it was not authorized within rule 17.02, in which case such an order may be made without prejudice to the right of the plaintiff to effect a fresh service. The second is to stay the proceedings because Ontario is not the convenient forum. No mention was made of the test for setting aside a service. Based on this decision Wright J. was correct in refusing to stay the proceedings against C & L (U.S.).
The Test to be Applied in Setting Aside Service under Rule 17.06
Over the years the rules with respect to service outside Ontario have been revised. Prior to 1975 a plaintiff who wished to serve a claim out of Ontario was required to obtain an ex parte order supported by an affidavit stating that the plaintiff believed that there is a right to the relief claimed and the case was a proper one for service under the rules. The rules set out the various circumstances in which such service might be allowed. If the propriety of service was disputed a motion could be brought to set aside the ex parte order.
In 1975 the rules were significantly revised including the removal of the necessity to obtain a court order permitting service ex juris. However, the party served had the right to apply for an order setting aside the service on the ground that such service did not comply with the grounds for service permitted by the rules.
In 1984 the rules for service outside Ontario were again changed to what is now substantially set out in rule 17.02 and the right to challenge as set out in rule 17.06.
The pre-1975 rules were considered by the Court of Appeal in 1964 in Canadian Westinghouse Co. v. Davey, [1964] 2 O.R. 282, 45 D.L.R. (2d) 321. It is argued that the test of compliance with the rules was that of "a good arguable case". However, the entire decision should be looked at to understand what was meant by these words. I refer to the following extracts at p. 284:
The test to be applied by the Court as to whether the Court's discretion should be exercised in granting the order, is whether the plaintiff has demonstrated a good arguable case. The duty of the Court falls somewhere between:
(1) Asking no more of the applicant than that he allege that his proposed action is in respect of a breach in Ontario of a contract (which would be allowing the plaintiff, by his mere assertion, to qualify for the issue of the order) and
(2) asking the plaintiff to establish beyond a reasonable doubt by appropriate evidence that the breach complained of occurred in Ontario (which would be in effect trying the case ex parte before it has been heard).
The Court must look into the facts as they are alleged by the plaintiff to determine whether those facts, if proven, are capable of being construed at trial as a breach of the contract in Ontario. It is patent that if the facts the plaintiff alleges to exist would not, if proven, constitute proof of a breach of contract in Ontario, the rule should not be invoked in its favour: Maclean v. Dawson (1859), 27 Beav. 21, 54 E.R. 8.
On the other hand, before the Court will permit service ex juris it is not necessary that the plaintiff go so far as to satisfy the Court, beyond a reasonable doubt, that a breach has occurred within jurisdiction. This would amount to requiring the Court to arrive at a decision on the merits of the case before evidence is adduced by the parties, which would be requiring too much of the plaintiff: Vitkovice Horni A. Hutni Tezirstvo v. Korner, [1951] A.C. 869, [1951] 2 All E.R. 334.
And at p. 285 the court stated:
Where, as here, there is a substantial legal question arising out of the facts which the plaintiff wishes to have tried, and the defendant does not deny any of the facts alleged by the plaintiff but only denies the legal conclusion flowing from those facts, it cannot be said that it would be impossible for the plaintiff to make out the case it has put forward; that case, if proven, would establish the plaintiff's right to the order for service outside the jurisdiction. Therefore, I feel that the plaintiff has made out the strong, arguable case which is required and that it is entitled to the order for the service of the writ outside the jurisdiction.
It should be noted that the court at p. 285 refers to a "substantial legal question" and then to "the strong arguable case".
In the same case at pp. 283-84 the court referred to the exercise of the court's discretion in the following words:
The principles governing the exercise of the discretion of the Court in permitting service of a writ outside the jurisdiction have been fully discussed by the Chief Justice of the High Court in Jenner v. Sun Oil Co., [1952] 2 D.L.R. 526, [1952] O.R. 240, 12 Fox Pat. C. 184.
Having before me what the learned Chief Justice there said, I approach the decision of this matter with the full realization that the service of a writ ex juris entails an encroachment on the sovereignty of the jurisdiction where service is to be effected and I agree that, if there is any doubt as to whether the discretion should be exercised, it should be resolved in favour of the foreigner. On both these accounts such an order is not to be made unless the Court is satisfied that the case is one in which it should be made.
In Singh v. Howden Petroleum Ltd. (1979), 24 O.R. (2d) 769, 100 D.L.R. (3d) 121 (C.A.), it was held that the same principles which governed the scrutiny by the court of process issued under the old rules (pre-1975) applied to the 1975 rules (see p. 780). The decision primarily related to whether or not the amendments altered the principles underlying the application of the rules. I do not interpret this case as changing the test for compliance.
In Empire-Universal Films, supra, McRuer C.J.H.C. at p. 236 held that there was a discretion in the court to be exercised for a good reason and not arbitrarily. He also referred to the court being satisfied that there was a "probable cause of action". The Court of Appeal allowed the appeal on the facts of the case. The Court of Appeal clearly stated that there was a discretion in the court but it did not specifically adopt the above words of McRuer C.J.H.C. nor did it set out any specific test. However, at pp. 250-51 Robertson C.J.O. stated as follows:
This does not mean that there is to be something in the nature of a trial and determination of the applicant's rights, but there should be a frank disclosure of the material facts necessary to enable the judge or officer to whom application for leave is made to exercise his discretion judicially in determining whether the case is a proper one for service out of Ontario under the Rules.
Upper Lakes Shipping Ltd. v. Foster Yeoman Ltd. (1993), 14 O.R. (3d) 548, 17 C.P.C. (3d) 150 (Gen. Div.), dealt primarily with the issue of convenient forum. However, Borins J. at p. 560 stated that where the defendant challenged that the claim as pleaded was not within rule 17.02 the onus was on the defendant to so persuade the court. He stated that where there was conflicting evidence the court must consider all of the evidence and be satisfied that there appears "reasonable evidence" that the claim is authorized by rule 17.02. In the present case there is no evidence so I do not consider that Upper Lakes is applicable on this point. I do not believe that there is any appreciable onus on either party with regard to falling within rule 17.02. It is for the court to decide whether or not the pleadings define a cause of action falling within the rule. In the rare case where the court is unable to come to a conclusion, then the court should exercise its discretion in keeping with various decisions, including Canadian Westinghouse, supra, at p. 283, to strike out the service on the basis of favouring the foreigner. I do not believe that the decision in Amchem Products Inc. v. British Columbia (Workers' Compensation Board), [1993] 1 S.C.R. 897, [1993] 3 W.W.R. 441, has altered this proposition of law.
This still leaves the question of the degree of certainty that the court should have in determining that a case has been made out.
In Gilmour v. Barry-Wehmiller Co. (1996), 34 O.R. (3d) 304 (Gen. Div.), a case in which affidavit and other evidence was available, Wilkins J. adopted the test of "good arguable case". He followed the decision in Nantais v. Telectronics Proprietary (Canada) Ltd. (June 29, 1995, Brockenshire J.). In the Nantais case reference was also made that service out of the jurisdiction should not be lightly granted. In both the Gilmour and Nantais cases it was held that the onus was on the plaintiff to show that the claim fell within rule 17.02. As I have stated I do not believe that there is any onus other than deference to a foreigner.
In order to properly interpret the leading case of Canadian Westinghouse, supra, it is appropriate to consider the evolution of the law in other areas that deal with preliminary tests for exercising jurisdiction.
In interlocutory injunction cases the preliminary test of the merits has been clarified by the Supreme Court of Canada in RJR-Macdonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385, particularly at p. 335:
Prior to the decision of the House of Lords in American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396, an applicant for interlocutory relief was required to demonstrate a strong prima facie case on the merits in order to satisfy the first test. In American Cyanamid, however, Lord Diplock stated that an applicant need no longer demonstrate a strong prima facie case. Rather it would suffice if he or she could satisfy the court that "the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried". The American Cyanamid standard is now generally accepted by the Canadian courts, subject to the occasional reversion to a stricter standard: see Robert J. Sharpe, Injunctions and Specific Performance (2nd ed. 1992), at pp. 2-13 to 2-20.
In addition at p. 337 the following statement was made:
What then are the indicators of "a serious question to be tried"? There are no specific requirements which must be met in order to satisfy this test. The threshold is a low one. The judge on the application must make a preliminary assessment of the merits of the case. The decision of a lower court judge on the merits of the Charter claim is a relevant but not necessarily conclusive indication that the issues raised in an appeal are serious.
The threshold test is low. The claim must not be frivolous or vexatious.
Reference should also be made to a motion for summary judgment under Rule 20 where the test is stated in Irving Ungerman Ltd. v. Galanis (1991), 4 O.R. (3d) 545, 83 D.L.R. (4th) 734 (C.A.). The rule provides that summary judgment may be granted where the court is satisfied that there is "no genuine issue for trial". At p. 551 Morden A.C.J.O. stated as follows:
It would be convenient if the term "genuine issue" could be expressed in a precise formula for the ease of its application. Having regard, however, to the varied and unpredictable ways in which issues under Rule 20 may arise, it cannot -- and the experience with Rule 56(c) in the United States has shown that it can be harmful to gloss the wording of the rule with expressions that fail to capture its meaning. (See Wright, Miller and Kane, supra, at vol. 10A, pp. 97-107 and 176-77.)
It is safe to say that "genuine" means not spurious and, more specifically, that the words "for trial" assist in showing the meaning of the term. If the evidence on a motion for summary judgment satisfies the court that there is no issue of fact which requires a trial for its resolution, the requirements of the rule have been met. It must be clear that a trial is unnecessary.
Reference should also be made to a motion under Rule 21, where a motion may be made to strike out a pleading on the ground that it discloses no reasonable cause of action. On a motion considered under a similar rule Dickson J. speaking for the majority in the Supreme Court of Canada in Operation Dismantle Inc. v. R., [1985] 1 S.C.R. 441 at pp. 449-50, 18 D.L.R. (4th) 481 at pp. 486-87, reviewed the law as follows:
The most recent and authoritative statement of the principle applicable to determine when a statement of claim may be struck out is that of Estey J. in A.-G. Can. v. Inuit Tapirisat of Canada et al. (1980), 115 D.L.R. (3d) 1 at p. 5, [1980] 2 S.C.R. 735 at p. 740, 33 N.R. 304:
As I have said, all the facts pleaded in the statement of claim must be deemed to have been proven. On a motion such as this a Court should, of course, dismiss the action or strike out any claim made by the plaintiff only in plain and obvious cases and where the Court is satisfied that "the case is beyond doubt": Ross v.Scottish Union and National Ins. Co. (1920), 53 D.L.R. 415, 47 O.L.R. 308 (App. Div.).
Madame Justice Wilson in her reasons in the present case summarized the relevant principles as follows [p. 515, post]:
The law then would appear to be clear. The facts pleaded are to be taken as proved. When so taken, the question is: do they disclose a reasonable cause of action, i.e., a cause of action "with some chance of success" (Drummond- Jackson v. British Medical Ass'n, [1970] 1 All E.R. 1094) or, as Le Dain J. put it in Dowson v. The Queen (1981), 124 D.L.R. (3d) 260 at p. 268, 37 N.R. 127 (sub nom. Dowson v. Government of Canada) (F.C.A.) at p. 138, is it "plain and obvious that the action cannot succeed"?
I agree with Madame Justice Wilson that, regardless of the basis upon which the appellants advance their claim for declaratory relief -- whether it be s. 24(1) of the Charter, s. 52 of the Constitution Act, 1982, or the common law -- they must at least be able to establish a threat of violation, if not an actual violation, of their rights under the Charter.
In short then, for the appellants to succeed on this appeal, they must show that they have some chance of proving that the action of the Canadian Government has caused a violation or a threat of violation of their rights under the Charter.
Bearing in mind the clarification and evolution of the law in the above referred to instances, I now return to the wording of the decision in Canadian Westinghouse, supra. In my opinion, the words "good arguable case" mean no more than "those facts, if proven, are capable of being construed at trial as a breach of contract in Ontario".
The court must not blindly accept the plaintiff's assertion that there is a cause of action, nor should it require the plaintiff to prove its case beyond a reasonable doubt. The court itself must decide whether or not a proper cause of action has been alleged. In my opinion, the threshold test is low. A "good arguable case" is no higher than a "serious question to be tried" or a "genuine issue" or "with some chance of success".
I believe that the various words used in connection with rule 17.02 and its predecessors whether they are "probable cause of action" (as in the present case), "good arguable case" (as in Canadian Westinghouse, supra) or "reasonable evidence" (as in Upper Lakes Shipping, supra) all mean the same. It is a question of semantics. In every case it is a question of whether or not there is a serious question to be tried.
For these reasons Wright J. did not err in applying the wrong test.
Merits
In his reasons Wright J. stated as follows:
Greenspace alleges that in its contract with Ecolab the C & L firms were to cooperate in the post-closingreview. It alleges that C & L (U.S.) refused to participate in the post- closing review and when C & L (Can.) produced the Revised Closing Statement and its report, C & L (U.S.) acted improperly by putting pressure on C & L (Can.) to withdraw the report. Greenspace submits that the improper actions of C & L (U.S.) are in respect of a tort committed in Ontario. It also submits that it was the improper actions of C & L (U.S.) which caused C & L (Can.) to withdraw the report and, therefore, C & L (U.S.) is a proper party to Greenspace's counterclaim against C & L (Can.).
He then held that Greenspace has a probable cause of action under rule 17.02. He had particularly referred to rule 17.02(g) and (o). Counsel for C & L (U.S.) argued before this court that the only reference to C & L (U.S.) was contained in paras. 57-66 of the counterclaim and that they showed no cause of action. He also argued that no cause of action was specifically pleaded -- such as "inducing breach of contract" or that C & L owed a duty to Greenspace which was breached.
Counsel for Greenspace argued that the entire counterclaim must be looked at and not just paras. 57-66 and that only the alleged facts need be pleaded that show a cause of action. He submits that it is not necessary to specifically plead the alleged legal cause of action. I agree with this submission.
While it is desirable that the specific cause of action be pleaded, it is not necessary to come within rule 17.02. Any refinement of the pleadings, if necessary, may take place in the normal course within the action at a later time.
Rule 25.06 requires a concise pleading of material facts on which the party relies. It is not necessary to raise points of law. In addition rule 26.01 requires the court to grant leave to amend pleadings upon such terms as are just unless prejudice would result that could not be compensated for by costs or an adjournment. Rule 1.04 requires that the rules be liberally construed to secure the just, most expeditious and least expensive determination of the proceeding on its merits. Bearing these rules in mind a court should not lightly set aside service out of the jurisdiction where it is satisfied that facts are pleaded that, in its opinion, show a cause of action.
Based on the reasons of Wright J. and having reviewed the counterclaim I am satisfied that a serious question to be tried relating to an alleged tort committed in Ontario has been pleaded.
In my opinion the appeal should be dismissed with costs to the respondents fixed at $12,000. By agreement with counsel this award of costs covers the costs before Wright J., Borins J. and before this court.
The time for C & L (U.S.) to deliver its defence to the counterclaim is extended to March 13, 1998.