When the directing mind is abroad

Foreign law firms advising clients in Ontario from overseas may be sued in the province. That is the main takeaway from a Court of Appeal of Ontario ruling upholding a decision to assume jurisdiction over a law firm in India in an action by a client in Ontario for breach of contract and tort. In doing so, it sent out a clear signal to foreign law firms and other professionals that it would not sit back merely because a professional is not in, and is not governed by the professional standards in, Ontario.  

Kyko Global Inc. v. M/S Crawford Bayley & Co. involved an action by Kyko Global Inc, a corporation in Brampton which lent funds to a corporation in India against a guarantee procured from a publicly-traded Indian company. Before accepting the guarantee, Kyko procured a legal opinion from an Indian law firm confirming that the guarantee was enforceable in India. The law firm failed to disclose the loan was being brokered by a cousin of one of its partners.

After the loan went into default, the guarantee turned out to be forged. After obtaining a default judgment against the guarantor in Ontario, Kyko sued the Indian law firm in Ontario for negligence, misrepresentation, and breach of contract. In response, the law firm brought a motion challenging Ontario’s jurisdiction while contending that the dispute ought to be agitated in India — not Ontario. That motion was denied. The law firm appealed on the grounds that the motion judge had misapplied the test for establishing jurisdiction and the analysis for forum non conveniens laid down by the Supreme Court of Canada in Club Resorts Ltd. v. Van Breda.

According to Van Breda, a Canadian court is to employ a two-staged “real and substantial connection” test to establish jurisdiction over a dispute. First, a plaintiff must identify factual aspects that presumptively connect the dispute to the province. The court presumes jurisdiction if one or more “connecting factors” are identified. Second, the burden shifts to the defendant to rebut the presumption by identifying factual aspects that point to a weak relationship between the dispute and the province. A failure to rebut leads to the assumption of jurisdiction, in which case the action proceeds. 

Regarding forum non conveniens, Van Breda says that courts having jurisdiction over a dispute may stay the proceeding in favour of an alternative forum that is “clearly more appropriate” and “in a better position to dispose fairly and efficiently of the litigation.” It is a purely discretionary power, and the court is not under any compulsion to stay even if the defendant establishes there is a more  appropriate jurisdiction.

In Kyko, the Ontario Court of Appeal dismissed the law firm's appeal and concluded that the motion judge had properly applied Van Breda when he dismissed the jurisdiction motion.

While considering whether Van Breda was properly applied in Kyko, the court agreed with the motion judge that for a presumption of jurisdiction to arise, the plaintiff' need only establish a “good arguable case” on the facts pleaded connect the dispute to Ontario. This will happen if the defendant does not deny the allegations in the statement of claim or is unable to contradict them.

The court also held that for misrepresentation to have occurred in Ontario, it is sufficient that the legal opinion was faxed and sent to Kyko’s lawyer in, and was relied in, Ontario. Its “directing mind” need not have received the legal opinion for it to be delivered to Kyko.

The court rejected the law firm’s forum non conveniens argument that a trial in Ontario would be inconvenient and expensive for foreign witnesses while highlighting the convenience and cost-efficiency of obtaining testimony by video conferencing. The court also disagreed that it is unfair to require an Indian law firm who provided an opinion to a client in Ontario on Indian law about the enforceability of a guarantee in India to defend an action in Ontario. Like Sincies Chiementin S.p.A. (Trustee of) v. King the court deemed it fair for “sophisticated legal professionals” like the Indian law firm to account for their conduct in Ontario.

The principles of Kyko affect foreign law firms, just as it may affect any other foreign professional overseas in a similar situation. Since Van Breda is followed by courts across all Canadian provinces, Kyko could be taken up as precedent to hold accountable foreign legal or other professionals rendering services to Canadian clients.