M.J. Jones Inc. v. Kingsway General Insurance Company

M.J. Jones Inc. v. Kingsway General Insurance Company Collection Decisions of the Court of Appeal Date 2004-08-10 Docket numbers C40053, M31455 Judges Lang, Susan Elizabeth Subject Civil Decision Content DATE: 20040810 DOCKET: M31455 (C40053) COURT OF APPEAL FOR ONTARIO LANG J.A. (in chambers) BETWEEN: M.J. JONES INC. and MELVIN J. JONES Plaintiffs (Respondents) - and - KINGSWAY GENERAL INSURANCE COMPANY, DONALD FISH, D.E. FISH & ASSOCIATES LTD., GARAN, LUCOW, MILLER, P.C. and THOMAS W. EMERY Defendants (Appellants) (Respondents) John S. McNeil for the respondents M.J. Jones Inc. and Melvin J. Jones Victor T. Bulger for the respondent Kingsway General Insurance Company John G. Webster for the respondents Donald Fish and D.E. Fish & Associates Ltd. Heard: July 14, 2004 LANG J.A.: Overview [1] This court has decided that Ontario has jurisdiction simplicter over this action. This motion seeks a stay of the action pending disposition of an application for leave to appeal that decision to the Supreme Court of Canada and, if leave is granted, pending disposition of the subsequent appeal. [2] The facts in this case pose the question: If the request for a stay is refused, and Emery is ordered to file a statement of defence, would compliance with that order amount to an attornment to Ontario’s jurisdiction, thereby rendering the leave application to the Supreme Court of Canada moot? If so, this potential prejudice must be balanced against the prejudice a delay would cause the plaintiff, a company that, if a stay is granted, says that it faces potential bankruptcy. Such a bankruptcy would render a decision on the merits of the action, if not moot, then of no real value to the plaintiff. If the action is stayed only against the moving parties, the prejudice to the moving parties must be balanced against the potential prejudice this would cause the other defendants. Background [3] The moving parties, who are defendants in the action, are Thomas W. Emery, a Michigan lawyer, and Garan, Lucow, Miller, P.C., the Michigan law firm where Mr. Emery practises. I refer to those parties collectively as “Emery.” The plaintiffs M.J. Jones Inc. and Melvin J. Jones (“Jones”) respond to the motion, as do the defendants Kingsway General Insurance Company (“Kingsway”) and Donald Fish, D.E. Fish & Associates Ltd. (“Fish”). [4] The action arose because Emery unsuccessfully defended Jones in a 1998 Michigan negligence action brought by Contract Welding & Fabricating Inc. (“Contract”). That Michigan action against Jones, a transportation company, alleged damage caused during Jones’ negligent carriage of Contract’s equipment into Michigan. [5] The Michigan liability judgment against Jones was issued in May 2000, the damages judgment in November 2001, and that judgment was amended with respect to interest in February 2002. Jones was faced with a judgment of U.S. $596,973.53, of which Kingsway has paid U.S. $190,000. In August 2002, Contract sued to enforce its judgment in Ontario and obtained summary judgment in May 2003. A stay of execution of that judgment was also refused in May 2003 and an appeal from that decision was dismissed in February 2004. [6] In January 2002, in anticipation of Contract’s efforts to enforce its judgment, Jones sued its insurer, Kingsway, primarily in contract and negligence; its insurance broker, Fish, primarily in professional negligence; and its Michigan lawyer, Emery, also in professional negligence. Jones’ allegations against these defendants arise from coverage issues, and the failure of any defendant to inform Jones in a timely manner about those coverage issues. Kingsway and Fish each cross-claimed against each of the other defendants claiming contribution and indemnity. [7] Emery did not attorn to Ontario’s jurisdiction in this action. Instead it brought a motion under s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43 before the Superior Court of Justice seeking the action’s dismissal on the grounds that Ontario did not have jurisdiction (jurisdiction simpliciter) and, further, that Ontario was not the convenient forum (forum non conveniens) for the trial. In determining that Ontario did have jurisdiction simpliciter on the basis of the real and substantial connection test, the motions judge considered, among other factors, the multiplicity of parties and cross-claims and the potential consequences of inconsistent verdicts in separate Ontario and Michigan actions. The motions judge also found that Ontario was the convenient forum: M.J. Jones Inc. v. Kingsway General Insurance Co., [2003] O.J. No. 4409. The motions judge’s analysis, with one minor caveat, was upheld by this court: M.J. Jones Inc. v. Kingsway General Insurance Co., [2004] O.J. No. 1087. It is from this decision, released on March 17, 2004, that Emery, on May 11, 2004, sought leave to appeal to the Supreme Court of Canada with respect to the issue of jurisdiction simpliciter. [8] Emery argues that a refusal of a stay would render its proposed appeal to the Supreme Court of Canada moot, causing it irreparable harm. Jones argues that the granting of a stay may render its entire action futile. [9] This case is unusual in its presenting facts. Jones says it does not have the financial means to satisfy Contract’s judgment. All the defendants accept that, if a stay is granted, Jones is faced with potential bankruptcy at Contract’s hands. The catastrophe of bankruptcy would clearly prejudice Jones. Contract, on the other hand, I am told, may bide its time if it sees the action proceeding towards a successful disposition. Contract, however, does not appear in this action. [10] Emery recognizes Jones’ jeopardy, and would be willing to participate in the merits of the litigation but for the potential effect of attornment on its leave to appeal. Indeed, Emery’s counsel has instructions to attorn to Ontario’s jurisdiction if its Supreme Court of Canada appeal is unsuccessful. Requested Relief [11] This motion is brought under s. 65.1(1) of the Supreme Court Act, R.S.C. 1985, c. S-26, as amended: The Court, the court appealed from or a judge of either of those courts may, on the request of the party who has served and filed a notice of application for leave to appeal, order that proceedings be stayed with respect to the judgment from which leave to appeal is being sought, on the terms deemed appropriate. [12] While s. 65.1(1) gives both this court and the Supreme Court of Canada jurisdiction over the granting of such a stay, it is the Supreme Court of Canada’s practice to require such a motion to be brought first to the court from which the appeal originates: Pacifica Papers Inc. (Re), [2001] S.C.C.A. No. 400. [13] In determining whether to grant a stay, this court may grant any interim relief: […] that preserves the matters between the parties in a state that will prevent prejudice as far as possible pending resolution by the [Supreme] Court of the controversy, so as to enable the Court to render a meaningful and effective judgment. The Court must be able to intervene not only against the direct dictates of the judgment but also against its effects. This means that the Court must have jurisdiction to enjoin conduct on the part of a party in reliance on the judgment which, if carried out, would tend to negate or diminish the effect of the judgment of this Court. (RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 at para. 30, 111 D.L.R. (4th) 385 at 397; M & D Farm Ltd. v. Manitoba Agricultural Credit Corp. (1998), 165 D.L.R. (4th) 83 at 86 (S.C.C.).) [14] Applying that case to this motion, this court has jurisdiction to grant the necessary relief to avoid negating the effect of the Court of Appeal’s ruling and to avoid negating argument of the issues raised before the Supreme Court of Canada. Test for a Stay [15] To be granted a stay, the moving party must establish that: 1. The application involves a serious issue; 2. The balance of convenience favours granting a stay; and 3. Irreparable harm will result if the relief is not granted. (RJR-MacDonald Inc. v. Canada (Attorney General), supra, at paras. 78-80; Zanzibar Tavern Inc. v. Las Vegas Restaurant and Tavern Ltd., [1996] O.J. No. 1826 (C.A.).) 1. Serious Issue [16] On the first question, all parties acknowledge that the application for leave to appeal before the Supreme Court of Canada raises a serious issue for a number of reasons, including inconsistencies in the law between decisions of the Ontario and the British Columbia Courts of Appeal. In its leave application, Emery has argued that this court’s decision on jurisdiction simpliciter is inconsistent with Cook et al. v. Parcel, Mauro, Hultin & Spaanstra, P.C. (1997), 143 D.L.R. (4th) 213 (B.C.C.A.) and Marren v. Echo Bay Mines Ltd. (2003), 226 D.L.R. (4th) 622 (B.C.C.A.). 2. Irreparable Harm [17] As the question of serious issue favours the granting of a stay, I turn to the issue of irreparable harm. [18] In support of its position that a stay is required to avoid the consequences of filing a statement of defence, Emery relies on rule 17.06, which requires that a motion to stay or to dismiss an action for lack of jurisdiction must be brought before delivery of a Statement of Defence. Emery therefore argues that it should not be forced to file a Statement of Defence. It is not necessary, however, to comment on the effect of rule 17.06 because Emery clearly abandoned its argument under that rule before the motions judge. Instead, Emery chose to proceed under the Courts of Justice Act, supra, s. 106, as it is entitled to do: see Gariepy v. Shell Oil Co. (2000), 51 O.R. (3d) 181 (Ont. S.C.J.). [19] Even though Emery proceeded under s. 106, as a foreign defendant it may be taken to have attorned to Ontario’s jurisdiction if it engages on the merits of the litigation. By engaging on the merits, such a defendant is seen to have consented to or submitted to Ontario’s jurisdiction. In that case, such a defendant will be precluded from disputing jurisdiction simpliciter. [20] A foreign defendant is also precluded from contemporaneously disputing jurisdiction simpliciter and defending on the merits. Otherwise, litigants would incur unnecessary litigation costs in a claim which, as it may turn out, the court did not have jurisdiction to determine in the first place. [21] Further, if foreign defendants were permitted to defend contemporaneously on the merits and to dispute jurisdiction, then, in addition to the possibility of unnecessary expense, a defendant could retreat if it appeared that the success of their defence was in jeopardy. [22] Accordingly, it is well-accepted law that a foreign defendant that engages on the merits of the action will be taken to have “attorned” to the domestic court’s jurisdiction. Most cases, however, have considered actions taken voluntarily by the defendant to be attornment to the jurisdiction. They have not addressed a defendant forced to submit by court order. [23] The question therefore arises as to whether a foreign defendant can be said to have attorned to a court’s jurisdiction when it participates on the merits of the litigation only because ordered to do so. If it can be said that compliance with a court-ordered engagement on the merits is attornment, then the harm caused to Emery by refusing a stay would be irreparable. Its leave application before the Supreme Court of Canada would be moot. [24] Emery cites Clinton v. Ford (1982), 37 O.R. (2d) 448 (C.A.) as authority for the proposition that even a “forced” attornment will disqualify the foreign defendant from disputing Ontario’s jurisdiction. In that case, however, the foreign defendant was found to have attorned to the domestic court’s jurisdiction because it did not simply confine itself to the issues of jurisdiction and preservation of its property, but went further and entered a defence on the merits. The filing of material raising a defence on the merits was held to be a clear attornment to the jurisdiction of the foreign court. [25] Attornment was similarly found in Gourmet Resources International Inc. (Trustee of) v. Paramount Capital Corp. (1992), 5 C.P.C. (3d) 140 (Ont. Gen. Div.). The motions judge said [at 148] “it is clear that the simple entering of an appearance to protest jurisdiction is not to be treated as a voluntary submission.” In that case the defendant’s lawyers, in addition to protesting jurisdiction, had filed material on the merits, but without the authority of their client. Even though the engagement on the merits was unauthorized, and arguably unintentional, and even though the defendant had vigorously contested jurisdiction throughout, it was held that, through its lawyers, it had voluntarily submitted to the court’s jurisdiction. [26] The case before me is somewhat different from both Clinton and Gourmet Resources. Here Emery has not engaged on the merits and objects to doing so. [27] Counsel were unable to find direct authority on the ramifications of court-ordered participation in an action. The point was directly considered in Imperial Oil Ltd. v. Lloyd, [1999] A.J. No. 906 (Alta. C.A.) where a group of employees disputed issues surrounding Imperial Oil’s pension plans. Alberta’s jurisdiction had been challenged and the jurisdictional decision was under appeal. The appellate court chambers judge was satisfied that there was a serious issue to be considered on that appeal. [28] The question before her was whether, if the applicant was ordered to engage on the merits (including filing a Statement of Defence, submitting to examinations for discovery, producing documents, and so on), the applicant would be taken to have attorned to Alberta’s jurisdiction. [29] The chambers judge came to the conclusion that, absent clear authority on the point [at para. 9], “the risk involved to the applicant in carrying on with the litigation pending the determination of the appeal is sufficiently grave to satisfy the second branch of the test.” The chambers judge held that the risk was sufficiently serious even though the respondent’s counsel had been prepared to undertake not to assert that any such steps taken would amount to attornment. This concession, it was found, might be insufficient to preclude a subsequent finding of attornment, which would render the appeal moot. Accordingly, the chambers judge granted the stay. [30] The situation in Imperial Oil is similar to this case. On the authorities given to me, there is no clear answer as to whether court-ordered involuntary participation on the merits will be an attornment sufficient to render Emery’s leave application moot. In this case too, the other parties are prepared to agree that any such involuntary participation would be without prejudice to Emery’s pending leave application to the Supreme Court of Canada. [31] I agree with the Chambers judge in Imperial Oil that there is no clear answer. It may be telling that even if I had refused a stay, and even if I had ordered Emery to file a defence, Emery would still have been faced with the choice of whether to comply with that order. If it had complied, it risked a subsequent finding of voluntary attornment. It also would have the further choice of, at least for the time being, submitting to the granting of default judgment. If a default judgment were granted, it might then itself seek a stay of that judgment’s execution. In other words, a refusal of the stay does not provide a clear resolution to the problem. Emery still would have a choice, and could make a voluntary decision as to which option it chose. [32] It seems that the refusal of a stay may cause Emery irreparable harm. 3. Balance of Convenience [33] I turn then to a consideration of the balance of convenience, which is addressed in the context of the four possible outcomes: 1) the action is not stayed; 2) the action is stayed against all parties; 3) the action is stayed against Emery only; and 4) the action is stayed against all defendants, but only with respect to the trial of the action. [34] Addressing the first scenario, if the action is not stayed, the parties have agreed to proceed with the litigation in a manner that maximizes convenience and minimizes harm. [35] In accordance with that agreement, Jones, which has already noted Emery in default in order to be able to proceed against Kingsway and Fish, agrees to set aside that noting of default if Emery is unsuccessful in the Supreme Court of Canada. In turn, Emery has given its counsel instructions to attorn to Ontario’s jurisdiction if it is unsuccessful in the Supreme Court of Canada. Jones has further agreed that, in the absence of a stay, it would continue the litigation through the completion of pleadings, production, and discovery, but not through to a disposition on the merits. Counsel are to be commended for reaching this proposed case management plan, which is in the interests of each of their clients. It ensures the progress of the litigation, while minimizing the inconvenience to the parties. [36] Even so, it does not eliminate inconvenience. As Emery points out, if it is successful in the Supreme Court of Canada, it would have unnecessarily incurred the expense of pleadings, production and discovery. [37] This however, is not a case where refusing a stay will cause undue expense. It is not a complicated case that will entail a protracted discovery process. On the contrary, it is a case where pleadings could be completed, documentary production exchanged and oral discovery finished during the appeal process, assuming that leave is granted. Apart from the relatively reasonable cost that Emery would incur, no party would be prejudiced. Indeed, counsel quite rightly conceded that, but for the attornment issue, this would be the preferred position. [38] The second option would be to stay the litigation in its entirety. This option would continue the status quo as all parties have voluntarily refrained for more than two years from proceeding with the action while the original jurisdiction motion and appeal were pending. A blanket stay would also ensure that the litigation proceeded against all parties at the same time. The only disadvantage to this option, apart from the usual risks of delay, would be to prevent Jones from moving the case towards disposition, with the consequences to Jones that I have already addressed. [39] The third option is, as requested by Emery, to stay the action as against it only. This obviously conveniences Emery and inconveniences Jones. It also inconveniences Kingsway and Fish. [40] An examination of the merits of the claim and defences reveals that the positions of Emery, Kingsway, and Fish are inextricably intertwined. The consequences of their conduct respectively as Jones’ lawyer, insurer, and insurance broker are interrelated and interdependent. On the facts, Emery is central to the defence of the other two defendants. The outcome of the allegations against one will impact on the result against any other. In those circumstances, it would unnecessarily complicate the litigation to allow Emery to sit on the sidelines while the litigation proceeded against the other two defendants. [41] Emery argues that pending a stay of its participation in the litigation, the other parties could proceed through production and discovery. If it (Emery) later lost in the Supreme Court of Canada and rejoined the litigation, the other parties would, at most, be forced to return for a few further hours of discovery. [42] But this argument does not address the inherent interdependence of the claims and cross-claims. A stay granted only to Emery would mean that Emery would have the advantage given by the disclosure of the strengths and the vulnerabilities of the case for and against the plaintiff and the other defendants. In turn, the plaintiff and the other defendants would suffer a corresponding disadvantage. As the defences and cross-claims are so interconnected, if I grant Emery a stay of these proceedings, I would also grant a stay to the other defendants. Further, Emery has no real objection to filing a statement of defence and affidavit of documents, and participating in the examinations for discovery, as long as it does not thereby lose its jurisdictional argument. [43] The final option is to stay the action against all defendants, but only insofar as staying the trial of the action. This option would allow the action to proceed through the closure of pleadings, production, discovery, and related motions, but would stay substantive disposition pending Emery’s Supreme Court of Canada application. [44] If the discovery stage of the litigation proceeded, Jones may be in a stronger position to negotiate with Contract regarding the enforcement of its judgment pending clarification of its chances of success against these more solvent defendants. [45] Further, this option would permit the litigation to continue with all parties apace, and one would not have an advantage over the other. While it might also entail Emery’s participation unnecessarily – that is if it is ultimately fully successful in the Supreme Court of Canada – it would not involve an undue amount of expense and inconvenience for Emery, unless Emery is thereby taken to have attorned to the jurisdiction of the Ontario courts. [46] This is not a case where the defendant it attempting to gain an advantage by contemporaneously disputing jurisdiction and defending on the merits. It is not a case where the other parties will be lulled into a belief that Emery has submitted to Ontario’s jurisdiction. It is not a case where any party will be prejudiced by Emery’s participation, if participation is limited to the pleadings and discovery phases of the proceeding. It is not a case where Emery’s participation would cause any of the parties to incur undue litigation costs if, in the end, it was held that Ontario did not have jurisdiction. Rather, this is a case where the plaintiff, and the other defendants, want Emery to participate, even if, in the end result, Emery is successful in its jurisdictional argument. Subject to the critical caveat about its jurisdictional appeal, Emery is prepared to provide the plaintiffs with its defence and with the appropriate productions and discovery. [47] There is one relevant additional factor, however, including one participant that is not before the court, either as a direct litigant or as a deponent giving evidence. Contract successfully opposed Jones’ motion for a stay of the Michigan judgment that was subsequently incorporated into an Ontario judgment: Contract Welding & Fabricating Inc. v. M.J. Jones, Inc., [2003] O.J. No. 1754 (Ont. S.C.J.). Jones’ appeal of that decision was dismissed by this court: [2004] O.J. No. 295 (Ont. C.A.). [48] In refusing the stay, the motions judge found that Jones had given insufficient particulars about its financial situation to support its application for a stay and, further, that those particulars would not likely be determined until an examination in aid of execution, which was held in July 2004. While Jones’ current evidence is that it is unable to satisfy Contract’s judgment, it failed to satisfy the motions judge on the earlier stay application. It cannot now re-litigate that issue under the guise of seeking a stay of this proceeding. [49] In considering the balance of convenience, this court must be careful not to retry indirectly the refusal of Jones’ stay application of the Contract execution. Indeed, absent representations from Contract, this court cannot even be certain that the refusal of a stay would have the intended effect of persuading Contract to stay execution of its judgment and thereby buy time for Jones. [50] These facts give Jones’ request for a stay a different dimension. If the potential harm for Jones is Contract executing judgment, then Jones’ remedy was to pursue a stay of execution. It did so unsuccessfully. In that circumstance, it may not now be open to Jones to rely on its allegedly precarious financial situation for the purposes of this motion. In any event, the refusal of the stay would not ensure that Contract did not proceed to execution. Indeed, as evidenced by its opposition to the earlier stay motion, it is proceeding to execution. In those circumstances, it cannot be said that the refusal of a stay will achieve the result desired by Jones. [51] If less significance is given to the potential harm that may befall Jones, as is appropriate given the refusal of its earlier stay motion, the balance of convenience then favours the granting of a stay against all parties. In addition, the potential irreparable harm to Emery favours the granting of a stay. Accordingly, in the result, I conclude that a stay of this action must be granted against all parties. [52] This disposition does not necessarily preclude all parties to this action cooperating by exchanging documents and answering questions about the merits of the disputes between them. Such exchange, if done outside the formal bounds of these court proceedings, would, in my view, not be considered an attornment to Ontario’s jurisdiction. It would simply be an efficient exchange of information that, with the agreement of the parties, could later be used either in the Ontario proceeding, or in any subsequent Michigan proceeding. Conclusion [53] Emery has met the three branches of the test for a stay of proceedings. Further, given the interdependence of the claims, the stay must also be granted with respect to the other defendants in order to avoid unfairly burdening them. [54] The request for a stay of the action is granted against all parties pending the disposition of the leave application by the Supreme Court of Canada, and continuing thereafter if leave is granted. [55] Counsel asked to leave their submissions on costs until the release of these reasons. If counsel are unable to agree on costs, they may make brief written submissions directed through the court’s Senior Legal Officer, Mr. John Kromkamp, by September 6, 2004. Released: AUG 10 2004 Signed: “Susan E. Lang J.A.”