Sears Canada Inc. v. C & S Interior Designs Ltd., 2012 ABQB 573

Court of Queen ’ s Bench of Alberta Citation: Sears Canada Inc. v. C & S Interior Designs Ltd., 2012 ABQB 573 Date: 20120918 Docket: 1001 00789 Registry: Calgary Between: Sears Canada Inc. Appellant - and - C & S Interior Designs Ltd., Shelley Jean Unser, and John Christian Boehm Respondents _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice C.A. Kent _______________________________________________________ I. Introduction [ 1 ] This is an appeal from a Master’s decision regarding the appropriate choice of forum for a claim under breach of contract.

The appellant seeks to have the order staying their action against the respondents in Alberta set aside on the basis that Alberta is the proper and more convenient jurisdiction to resolve this dispute. The respondents seek to have the order upheld so that the matter may be resolved in Ontario, the same jurisdiction where a related class action lawsuit is being pursued. II. Facts

[ 2 ] The respondents - C & S Interior Designs Ltd. (“C&S”), Shelley Jean Unser (“Unser”), and John Christian Boehm (“Boehm”) - are involved in the flooring business. C&S is incorporated under the laws of Alberta and conducts its business in Calgary. Its guarantors, Unser and Boehm, reside, respectively, in Calgary, Canada and Playa Del Carmen, Mexico. In 2003, 2005, and 2007 the respondents entered into various licensing agreements with the appellant - Sears Canada Inc. (“Sears”) - which granted them the right to operate four franchises under the “Sears Floor Covering Centre” name.

Sears is incorporated under the laws of Canada and conducts business across the country, including Alberta and Ontario, with its head office in Toronto. [ 3 ] At some point before November 2008, the business relationship broke down. At that time, Sears audited the books of C&S. Shortly thereafter, Sears terminated the licenses of all the “Sears Floor Covering Centre” retail locations operated by C&S. [ 4 ] In May 2009, class action proceedings were initiated in Ontario on behalf of various floor covering retailers, including C&S, against Sears (the “Ontario Class Action”).

The plaintiffs in this lawsuit allege that Sears breached the duty of good faith and fair dealing owed to its licensees. The retailers claim that Sears failed to disclose the existence of “paybacks” received from suppliers or to pass on these savings to its licensees, as required by provincial franchise legislation. [ 5 ] Sears commenced an action in Alberta against C&S, Unser, and Boehm in January 2010 to recover alleged unpaid fees and charges owed under the licensing agreements and damages for breach of contract (the “Alberta Action”).

These breaches allegedly include, among other things, the under-reporting of sales and the resulting failure to pay royalties and marketing levies. [ 6 ] The Ontario class action was certified by Justice Strathy of the Ontario Superior Court of Justice in August 2010. Strathy J noted that while Alberta franchise legislation did not preclude the Alberta licensees from being included in the Ontario class action, it could require Ontario courts to apply the law of Alberta to these plaintiffs.

To address this issue and other discrete facts pertaining only the Alberta members of the Ontario class action, Strathy J, on 15 October 2010, ordered the creation of an Alberta sub-class in the Ontario class action, which included C&S. [ 7 ] In a case management session in September 2010, Strathy J agreed to case manage three actions commenced by Sears against members of the Ontario Class Action, which raised the same allegations as those made against C&S, Unser, and Boehm in the Alberta Action.

The claims of Sears and the counterclaims of the retailers in these individual actions were stayed inasmuch as they duplicated the issues in the Ontario Class Action. Since then Sears has initiated several other individual actions against other flooring retailers, again making the same allegations as those made in Alberta. Strathy J has not indicated that he will case manage these other individual claims. [ 8 ] Unbeknownst to counsel for the respondents, Sears commenced an action in Ontario that was identical to the Alberta action, on 15 October 2010.

Sears claims it did so only to preserve its rights in Ontario and will pursue this claim only if the Alberta action is stayed. [ 9 ] On 19 May 2011, Master Hanebury of this Court heard an application by the respondents to stay or dismiss the Alberta Action pending the resolution of the related litigation in Ontario. Her decision, given on 19 July 2011, was to stay the Alberta Action on the grounds that Ontario was the most appropriate jurisdiction to resolve these matters. Sears appealed this decision. III.

Issues [ 10 ] This appeal concerns only one issue: did Master Hanebury err in her decision to stay the Alberta action pending the disposition of related litigation in Ontario? [ 11 ] The parties agree that the applicable standard of review for an appeal of a Master’s order is correctness: Bahcheli v. Yorkton Securities Inc. , 2012 ABCA 166 at para 30 , [2012] 524 AR 382. IV. Law

[ 12 ] The Supreme Court of Canada recently clarified the Canadian choice of forum test for disputes over jurisdiction in Club Resorts Ltd. v. Van Breda , 2012 SCC 17 (“ Van Breda ”). Although neither side referred to this case on appeal, it is directly on point and my analysis will be conducted using this framework. [ 13 ] The test consists of two components. The first is the jurisdiction simpliciter component, which asks whether sufficient grounds exist upon which a court can assume jurisdiction.

The second is the forum non conveniens component, which asks, given the existence of at least two possible jurisdictions, whether a court should exercise its discretion and assume jurisdiction over the matter. [ 14 ] In Van Breda the Supreme Court adopted an objective approach to determining the jurisdiction simplicter question using presumptive connecting factors. The party arguing for the assumption of jurisdiction must be able to point to a factor that presumptively indicates a real and substantial connection between the dispute and that jurisdiction.

Justice LeBel, speaking for a unanimous Court, stated: [90] To recap, in a case concerning a tort, the following factors are presumptive connecting factors that, prima facie , entitle a court to assume jurisdiction over a dispute: (

a) the defendant is domiciled or resident in the province; (

b) the defendant carries on business in the province; (

c) the tort was committed in the province; and (

d) a contract connected with the dispute was made in the province. While the Supreme Court did not expressly extend this reasoning to contractual disputes, there appears to be no reason that they cannot be applied more generally. [ 15 ] Furthermore, this list of presumptive factors is open to expansion. LeBel J went on to state: [91] As I mentioned above, the list of presumptive connecting factors is not closed. Over time, courts may identify new factors which also presumptively entitle a court to assume jurisdiction.

In identifying new presumptive factors, a court should look to connections that give rise to a relationship with the forum that is similar in nature to the ones which result from the listed factors. Relevant considerations include: (

a) Similarity of the connecting factor with the recognized presumptive connecting factors; (

b) Treatment of the connecting factor in the case law; (

c) Treatment of the connecting factor in statute law; and (

d) Treatment of the connecting factor in the private international law of other legal systems with a shared commitment to order, fairness and comity. [92] When a court considers whether a new connecting factor should be given presumptive effect, the values of order, fairness and comity can serve as useful analytical tools for assessing the strength of the relationship with a forum to which the factor in question points. These values underlie all presumptive connecting factors, whether listed or new. All presumptive connecting factors generally

point to a relationship between the subject matter of the litigation and the forum such that it would be reasonable to expect that the defendant would be called to answer legal proceedings in that forum. Where such a relationship exists, one would generally expect Canadian courts to recognize and enforce a foreign judgment on the basis of the presumptive connecting factor in question, and foreign courts could be expected to do the same with respect to Canadian judgments. The assumption of jurisdiction would thus appear to be consistent with the principles of comity, order and fairness.

After the existence of a presumptive connecting factor has been established, it is open to the challenging party to rebut the presumption on the facts. If presumptive factors are lacking, or are successfully rebutted, the court must dismiss or stay the action, subject to the possible application of the forum of necessity doctrine (not an issue in the present case).

Likewise, once a presumptive factor is established, and no rebuttals are successful, the court must exercise its jurisdiction, unless the defendant invokes forum non conveniens . [ 16 ] In order to raise a forum non coneniens argument, a defendant must first establish that another jurisdiction has jurisdiction simpliciter using that same test. It is then within the discretion of the court to refuse jurisdiction if the defendant is able to show that it would be fairer and more efficient to have the matter adjudicated elsewhere. [ 17 ] The court should be flexible in its consideration of the facts at this stage.

They may be different from case-to-case and from province-to-province. In Van Breda , LeBel J noted at para 105 : Despite some legislative attempts to draw up exhaustive lists, I doubt that it will ever be possible to do so. In essence, the doctrine [focuses] on the contexts of individual cases, and its purpose is to ensure that both parties are treated fairly and that the process for resolving their litigation is efficient. The factors cited in Master Hanebury’s decision as summarized in Norex Petroleum Ltd. v.

Chubb Insurance Co of Canada , 2008 ABQB 442 at para 93 , [2009] 444 AR 102, may be taken as the guiding standard in Alberta.

For ease of reference I list them here: (1) where each party resides; (2) where each party carries on business; (3) where the cause of action arose; (4) where the loss or damage occurred; (5) any juridical advantage for the plaintiff in this jurisdiction; (6) any juridical disadvantage for the defendant in this jurisdiction; (7) convenience or inconvenience to potential witnesses; (8) the cost of conducting the litigation in this jurisdiction; (9) applicable substantive law; and (10) difficulty in proving foreign law, if necessary.

These factors should be considered together and weighed holistically, in accordance with the flexibility and discretion granted to courts at this stage. V. Analysis A. Jurisdiction Simpliciter [ 18 ] Master Hanebury was correct in finding jurisdiction simplicitor in Alberta. The defendants, for the most part, are domiciled in Alberta and carry on their business there. The alleged wrongs occurred in Alberta. The licensing agreements were concluded in Alberta.

These presumptive connecting factors were not rebutted by C&S. [ 19 ] With jurisdiction simpliciter established, barring a successful forum non conveniens argument, this Court must assert its jurisdiction over the Alberta Action. B. Forum Non Conveniens [ 20 ] The question of whether Ontario has jurisdiction simpliciter is more complex. Sears carries on its business in both provinces but as their head office is located in Toronto, they must be considered to be domiciled in Ontario. In addition, C&S argues the forum selection clause is determinative of Ontario’s jurisdiction.

In the framework of Van Breda , I accept this argument as an attempt to establish the presence of a forum selection clause as a new presumptive factor. [ 21 ] The concept of forum selection clauses is well established in case law, statute law, private international law textbooks, and is similar to the factors listed in Van Breda . The case of ZI Pompey Industrie v. ECU-Line NV , 2003 SCC 27 , [2003] 1 SCR 450, stands for the proposition that contractual agreements on jurisdiction generally should be given effect unless strong cause for not doing so is shown.

Sears argues that strong cause exists by way of pre-emptive local legislation. [ 22 ] On this basis, I accept the existence of a forum selection clause as a new presumptive connecting factor. I also accept that applicable preemptive legislation could constitute a strong cause for not enforcing such a clause. [ 23 ] Under the licensing agreements between Sears and C&S, Ontario is given as the exclusive jurisdiction for resolving contractual disputes.

Clause 40.1 of these agreements states: 40.1 This Agreement shall be interpreted and governed by the laws of Ontario and the laws of Canada applicable therein, and the parties hereby irrevocably submit to the exclusive jurisdiction of the courts of Ontario and all courts competent to hear appeals therefrom. Although there was some initial confusion, it is now clear that all parties accept the applicability of the Franchises Act , RSA 2000, c F-

Section 16 of that statute requires that the law of Alberta applies to all franchise agreements made in Alberta. This was not disputed by the parties and was one of the reasons cited by Strathy J for the creation of an Alberta sub-class in the Ontario class action. [ 24 ] The parties dispute the applicability of

section 17 of the Franchises Act . It states: 17. Any provision in a franchise agreement restricting the application of the law of Alberta or restricting jurisdiction or venue to any forum outside Alberta is void with respect to a claim otherwise enforceable under this Act in Alberta.

The operation of this

section to void an otherwise valid contractual provision governing jurisdiction requires that a claim must properly fall under claims and remedies of the Franchises Act . [ 25 ] Sears relies on

section 2(c), which states: 2. The purpose of this Act is ... (

c) to provide a means by which franchisors and franchisees will be able to govern themselves and promote fair dealing among themselves. Although this provision is broadly worded, the Franchises Act goes on to provide an indication of what is covered by the promotion of fair dealing. [ 26 ] As I explained in Bad Ass Coffee Co of Hawaii Inc. v. Bad Ass Enterprises Inc. , 2008 ABQB 404 , [2009] 450 AR 344: [26] The next issue [is] the

interpretation of s. 17 of The Franchises Act . The Franchises Act contains provisions all of which are intended for the protection of the parties, but particularly the franchisees. Indeed, s. 2 provides that the purpose of the Act is to assist prospective franchisees in making decisions and to ensure fair dealing between franchisees and franchisors. The Act then deals with obligations of disclosure, franchisees’ right to associate and misrepresentation. Then it provides remedies with respect to breaches of the provisions regarding the issues listed above.

S. 17, which limits jurisdictional choice, contains the words “with respect to a claim otherwise enforceable under the Act.” Hawaii’s claims are not claims under The Franchises Act . Accordingly, the Master’s conclusion that s. 17 is irrelevant to this claim is correct. [ 27 ] The appellant’s claims do not fall within these exhaustive categories. Therefore, the Franchises Act does not pre-empt the operation of clause 40.1 of the licensing agreement between Sears and C&S.

I accept the forum selection clause as contracted between Sears and C&S as a presumptive factor sufficient to establish the jurisdicition simpliciter of Ontario. Strong cause to not enforce this forum selection clause may still be found at the forum non conveniens stage. [ 28 ] Sears advances four reasons why it is not fairer and more efficient for this matter to be heard in Ontario and as strong cause to not enforce their own contractual forum selection clause. These reasons are:

a) difficulty in applying foreign law;

b) there would not be conflicting or duplicated proceedings;

c) The Alberta Rules of Court suggest Alberta as the appropriate jurisdiction, and;

d) Sears would be prejudiced if forced to advance their claim in Ontario. I will address each of these concerns in turn. [ 29 ] Master Hanebury’s conclusion that differences between Alberta and Ontario law are not so great as to create difficulty in proving was correct. To the extent that any difficulty arises, C&S benefits from being a member of the Alberta sub-class in the Ontario class action. As Lebel J noted at para 25 of Van Breda : The creation of the Canadian federation established an internal space within which exchanges should occur more freely than between independent states.

The principle of comity and the principles of fairness and order applicable within a federal space required that the rules of private international law be adjusted.

Although it is true that some case law establishes that the application of one jurisdiction’s law by a foreign court should be avoided where possible, this remains only one several factors. That the applicable law is Albertan is also only one factor of several. I am satisfied that Master Hanebury conducted a proper balancing and accorded these factors their proper weight. [ 30 ] Sears argues that the Ontario class action and the Alberta Action are separate and unrelated and therefore do not risk creating conflicting or duplicative proceedings. Like Master Hanebury, I do not find this argument compelling.

In each action the opposite side counterclaims with substantially the same arguments and allegations as their original claims.

All matters originate from related facts and franchise relationships in both provinces. [ 31 ] The Alberta Rules of Court cited by Sears (Rule 3.3 and Rule 3.5) address the issue of the appropriate judicial centre with respect to initiating a claim, and have nothing to do with determining the appropriate forum in the face of competing jurisdictions. [ 32 ] Finally, Sears submits that it would be prejudiced by having to pursue its action in Ontario because it would involve unfair additional effort and cost.

On the contrary, I accept Master Hanebury’s assessment that from the viewpoint of cost-effectiveness and expediency, the Alberta Action should be heard in Ontario. This applies to all parties, including Sears, who could presumably use one Ontario law firm to handle all related matters. I find no error in Master Hanebury’s finding that the disadvantages of requiring the proof and

interpretation of Alberta law in Ontario, and the registration by Sears of any ultimate judgment in Alberta to be slight compared to the advantages having the action heard in Ontario. VI. Conclusion [ 33 ] Although the correctness standard of review requires rigourous accuracy as to the application of the law, I am unable to find any error in Master Hanebury’s decision. My only addition is to put the choice of forum analysis argued before me into the framework provided in Van Breda . [ 34 ] Appeal dismissed. Heard on the 15 th day of August, 2012. Dated at the City of Calgary, Alberta this 18 th day of September, 2012. C. A. Kent J.C.Q.B.A.

Appearances: James Early Parlee McLaws LLP for the appellant Sears Canada Inc. R Brickard Ratcliffe R Brickard Professional Corporation for the respondents C & S Interior Designs Ltd. and John Christian Boehm Cass Lintott YSL Lawyers LLP for the respondent Shelley Jean Unser