8 O.R.(3d) 282
Ash v. Corp. of Lloyd's
C. William Ash, Plaintiff v. Lloyd's Corp., Defendants
April 23, 1992
Judgment: April 23, 1992
Docket: Doc. Court File No. 91-CQ-3603
Counsel: Alan J. Lenczner Counsel for the Plaintiff
Bruce Smith Counsel for Canadian Imperial Bank of Commerce, Royal Bank of Canada and the Toronto-Dominion Bank
Martin Sclisizzi Counsel for the Bank of Nova Scotia
No one appearing for Lloyd's Corporation
Subject: International; Contracts
Conflict of Laws --- Contracts -- Choice of law -- Forum conveniens.
Defendants seeking stay of plaintiffs' Ontario actions for injunctions -- Ontario or England as forum conveniens -- Undesirability of having separate actions in different jurisdictions for different defendants with common connection to plaintiffs.
Plaintiffs sought a declaration that agreements between plaintiffs and defendant L. Corp. were void ab initio as having been induced by fraud. Plaintiffs also sought injunctions against defendant banks, restraining them from paying upon plaintiffs' letters of credit at L. Corp.'s instance. Defendant banks moved to stay or dismiss plaintiffs' action on the ground that exclusive jurisdiction lay in the Courts of England. The trial Court only allowed the motions for stay with respect to Canadian banks with no London branches, and dismissed the motion with respect to Canadian banks with London branches. The latter group of banks moved for leave to appeal. Held, the motion was allowed. The fraud allegations against L. Corp. were common to all banks, so it was undesirable to allow Ontario and English Courts to reach contrary conclusions or to force some banks to litigate in both jurisdictions. There was reason to doubt the correctness of the trial Court's decision and the proposed appeal involved matters of general importance, so leave to appeal was granted.
1 This endorsement also covers the motion of the other three moving banks - CIBC, Royal and TD aside from the BNS (collectively four Banks). This motion was adjourned part way through on January 7, 1992 on consent of the Plaintiffs to allow the four Banks to file additional material. On its resumption on April 20, 1992, the four Banks only proceeded pursuant to Rule 62.02(5)(b) - leave to appeal the order of McKeown J. on the basis that there was good reason to doubt the correctness of his decision and [conjunctive as per Greslik v. Ontario Legal Aid Plan (1988), 65 O.R. (2d) 110 (Div. Ct.) at p. 112] the proposed appeal involves matters of such importance that leave to appeal should be granted.
2 I confirm that as to the first prong I do not need to conclude that the decision was wrong or probably wrong (Canadian Egg Marketing Agency v. Sunnylea Foods Ltd. et al (1977), 3 C.P.C. 348 (Ont. H.C.J.)) or that I would if hearing the original motion have decided it otherwise. The threshold of this prong is that I be satisfied that the correctness of the order is open to very serious debate (Germond v. Avco Financial Services Canada Ltd., unreported decision of Misener J. dated August 5, 1991).
3 As to the second prong of the general importance question, it was said in Greslik at p. 113:
...that those words refer to matters of general importance, not matters of particular importance relevant only to the litigants. General importance relates to matters of public importance and matters relevant to the development of the law and the administration of justice ...
(citing inter alia Rankin v. McLeod, Young, Weir Ltd. (1986), 57 O.R. (2d) 569 (Ont. H.C.J.)). Catzman J. in Rankin at pp. 574-5 said:
...matters of general or public importance extending beyond the interests of the parties before the court ... [were] matters of such importance ... [and] while other cases approach the question from the broader standpoint of the litigating public as appears from the examples cited, there are instances where these two perspectives converge, in which the issue which arises is one of importance both to the individual litigants and to the general public ... In my view, the "importance" comprehended by the rule transcends the interests of the immediate parties to the litigation and contemplates issues of broad significance or general application that are felt to warrant resolution by a higher level of judicial authority.
4 In summary McKeown J. determined that the U.K. Courts would be better suited to deal with the fraud allegations against Lloyd's vis-a-vis Lloyd's based on his determination of forum conveniens and the twenty various factors favouring England. He also determined that it would similarly be appropriate to have the U.K. Courts deal with these fraud allegations against Lloyd's vis-a-vis the three financial institutions Canada Trust, Hong Kong Bank of Canada and Citibank Canada ("3 FI") since the 3 FI had no presence in the U.K. and were therefore forced to deal with confirming banks concerning letters of credit issued in favour of Lloyd's. However he concluded that it would be appropriate to deal with fraud allegations against Lloyd's as to the four Banks in Ontario since they did not have to deal with confirming banks in the U.K. as they had U.K. offices since an injunction in Ontario would effectively prevent these institutions from paying on the letters of credit. In contrast an Ontario injunction would not prevent the English confirming banks from paying.
5 The key to the injunctions is the aspect of the functional commercial linking of the four relationships in a letter of credit arrangement (see United City Merchants (Investments) Ltd. and Glass Fibres and Equipments Ltd. v. Royal Bank of Canada,  2 W.L.R. 1039 (H.L.) at pp. 1044-5) and the doctrine of "fraud unravels all". Of course, it is the alleged fraud of Lloyd's - not anything that is alleged against the four Banks. One therefore in a question of fair play would not wish to see the four Banks put at a disadvantage. An injunction against the four Banks paying Lloyd's (in the relationship combined of No. 3 and No. 4) would prevent a collection/enforcement by these institutions against the Plaintiffs in relationship No. 2. An injunction against the 3 FI would not be effective to prevent the confirming bank in relationship No. 4 from paying Lloyd's and then claiming against the 3 FI in relationship No. 3. The 3 FI could be hung out to dry in such event.
6 There of course is the question of whether the confirming banks in the U.K. would by now have sufficient notification that they would pay out at their peril. but the test in the U.K. appears to be the same for both (i) notification stoppage and (ii) interlocutory injunctions - clearly established fraud (see Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. ,  1 Q.B. 159 (C.A.)) discussed at pp. 78-9 of Bank of Nova Scotia v. Angelica-Whitewear and Angelica Corporation,  1 S.C.R. 59. In Canada the test for notification stoppage is the higher one of clearly established fraud while for an interlocutory injunction it is the lesser one of a strong prima facie case fraud. (Angelica at pp. 84-5).
7 McKeown J. at p. 5 of his reason commented that in Angelica there was no question of jurisdiction but "In this case, on the other hand jurisdiction has been put in issue." That is of course the point here in this leave application. He then proceeded to deal with jurisdiction pursuant to the forum non conveniens test discussed in MacShannon v. Rockwear Glass Limited,  A.C. 795 (H.L.) at p. 812. In this respect see Ecco Heating Prod Ltd. v. J.K. Campbell and Assoc. Ltd. (1990), 48 B.C.L.R. (2d) 36 (C.A.) at p. 42 and BP Canadian Holdings Ltd. et al v. Westmin Resources Ltd. (1983), 32 C.P.C. 300 (Ont. H.C.) at p. 304.
8 It must be recognized that the fraud allegations against Lloyd's are a common thread to all defendants (Lloyd's, 3 FI and four Banks). As well "fraud unravels all". In my view it would be highly undesirable if notwithstanding this common thread an English court were to conclude that the thread was red in the warf and an Ontario court would conclude that the thread were green in the woof - in other words at direct cross purposes. As well there is the concern that not only would the four Banks have to deal with the allegations against Lloyd's in Ontario (where Lloyd's does not have to now respond) but they would also have to be involved in English litigation in this regard. I think that there is a question of very serious debate to be addressed as to the possibility of conflicting decisions being reached in Ontario and the U.K. and as well the question of additional cost to the four Banks in having to fight a two front war rather than a single battle in the main theatre. While McKeown J. said at p. 8 of his reasons:
Even though the letters of credit issued by the [4 Banks] were confirmed, advised and payable at their branches in England in pounds sterling and in spite of the fact English law may govern, I am not convinced that justice would be done either more conveniently or less expensively in England.
9 After indicating at p. 7 previously:
In my view, given that an Ontario injunction could effectively prevent Lloyd's from being paid on the letters of credit issued by the [4 Banks] and because the Plaintiffs and the [4 Banks] reside in Ontario, Ontario and not England is the form conveniens.
10 It does not appear that he canvassed the 20 points vis-a-vis the four Banks situation as he did vis-a-vis Lloyd's as a party at pp. 21-24, many of which would appear to have relevance as to the four Banks. It would also seem to me that an English injunction against the four Banks would have the same desired effect vis-a-vis relationship No. 2 as does an Ontario injunction.
11 I conclude for the foregoing reasons that there is good reason to doubt the correctness of the subject order.
12 As to the importance test, I note that the four Banks have filed affidavits of three well qualified and experienced persons (their qualifications were unchallenged) in the field of international letters of credit who address the importance of McKeown J's decision from varying perspectives - the Canadian banking sector (Wren), the English (or foreign) banking sector (Barlow) and the Canadian international trade sector (Aronstam). Only Wren was cross examined on his affidavit. In Financial Trust Co. v. Caisse Populaire Ste Anne d'Ottawa Inc., Pollon et al., Third Parties (1987), 61 O.R. (2d) 538 (H.C.J.), McRae J. said at p. 542 (adopting Craig, J's adoption in Rosen et al. v. Pullen et al. (1981), 126 D.L.R. (3d) 62 (Ont. H.C.) of Kerr J's words in RD Harbottle (Mercantile) Ltd. et al. v. National Westminster Bank Ltd. et al.,  Q.B. 146 : "[Letters of Credit] are the life blood of international commerce." While Canada conducts most of its international trade with its Southern neighbour the U.S.A. without much involvement of letters of credit, international trade involving letters of credit is quite significant for Canada involving about $6.5 billion each way. The cost competitiveness of letters of credit affect in Canada two groups -
(i) Canadian companies involved in foreign businesses wish to remain cost competitive with their foreign adversaries and in this regard wish to obtain letter of credit financing at the lowest cost. Having to pay a higher amount for a letter of credit because of foreign bank confirmation fees would either raise financing costs generally or turn these companies away from foreign bank letters of credit to foreign bank letters of credit
(2) In the latter event the Canadian banking sector would be penalized whereas presently Canadian banks are apparently quite favourably regarded for letters of credit, there being no perception generally that Canadian bank letters of credit require foreign reconfirmation.
13 It was indicated that the general perception was (and given the general absence of exclusive jurisdiction clauses) that if a Canadian bank letter of credit were dishonoured, the foreign beneficiary could sue in his own courts and under his own law. The general consensus of the three individuals was that the McKeown J. decision would be eventually be disseminated throughout the world market place in time and it would be perceived as an unexpected jurisdictional outreach of a Canadian court. This is contrasted with the 3 FI treatment where McKeown J. concluded that an Ontario court would not take jurisdiction where the letter of credit is confirmed abroad. It was suggested by Aronstam that it would be more likely to result in foreign confirmation than exclusive jurisdiction clauses (which are poorly regarded as being the resort of emerging nations) with the further possibility that Canadian customers would tend to be more exposed to the risk of fraud as it would lessen the prospects of a Canadian customer being able to claim fraud successfully to be able to stop payment. It is not apparent from the two Platinum decisions that jurisdiction was argued: see Platinum Communication Systems Inc. v. Aimax Corporation and Bank of Nova Scotia (1988), 31 B.C.L.R. (2d) 64 aff'd (1989), 41 B.C.L.R. (2d) 175 (C.A.).
14 It was also indicated that this was a matter of first instance as to the question of jurisdiction vis-a-vis Canadian bank letters of credit which would be a matter therefore relevant to the development of Canadian law and justice. I note that in HB Willis (1974) Inc. v. Bank of Montreal (Le Ministere de L'Agriculture et de la Revolution Agraire interpleaded) Quebec Superior Court Final Judgment and Order for Permanent Injunction, February 25, 1982 neither the bank nor the Algerian agency contested the matter.
15 As well for the foregoing reasons it seems to me that while the four Banks are dominant players in the Canadian banking industry, it is clear that "private" and "public" matters of importance may merge (see Rankin p. 575). I see the question as being important to the Canadian banking industry generally - a sector of our economy of some significant importance - and to our international trade business sector. I find the importance test also met.
16 Costs were agreed to be in the event on a party and party basis.
17 Leave to appeal the order of McKeown, J. dated November 15, 1991 granted.