Canada: The Long Arm Of The Law Is Not That Long: Court Declines Jurisdiction Over Document Production By Foreign Non-Party

In Lockwood Financial Ltd. v. China Blue Chemical Ltd., the British Columbia Supreme Court (BCSC) ruled that it does not have the territorial jurisdiction to order a foreign company to give documentary evidence in a proceeding in B.C. to which it is not a party. The decision provides reassuring guidance on the basis of jurisdiction relating to contractual obligations to be carried out in B.C. and the nature of carrying on business in B.C. In general, the BCSC's decision indicates a serious reservation to compel a non-resident who does not carry on business in B.C. to do something outside the province.

BACKGROUND

The decision's background relates to a proceeding brought by Lockwood Financial Ltd. (Lockwood), a Quebec company in the business of finding investors for natural resource companies.

On September 1, 2010, Lockwood entered into a contract with a Vancouver-based company (B.C. Company) whereby Lockwood agreed to seek third-party investors for the B.C. Company in exchange for certain fees (Finder Agreement).

Lockwood alleged that in January 2011 it introduced the B.C. Company to certain investors, including a Chinese company headquartered in Beijing that maintains a principal place of business in Hong Kong (Applicant).

Lockwood alleged that the B.C. Company breached the Finder Agreement by restructuring and delaying an investment opportunity with the Applicant in order to deprive Lockwood of its fees under the Finder Agreement. However, Lockwood did not bring an action against the B.C. Company, it said, because it did not know if there was any basis to the claim. Lockwood believes that certain documents in the Applicant's possession would enable it to determine whether it has an action against the B.C. Company. As such, Lockwood brought a petition in the BCSC for an order that the Applicant produce any and all documents exchanged with the B.C. Company over a period of four years concerning or relating to the financing of the B.C. Company. This type of order is commonly referred to as a Norwich Pharmacal order, after the British House of Lords' decision that recognized the remedy. A Norwich Pharmacal order or "equitable bill of discovery" allows a court to order a non-party to a proceeding to provide information where the information sought is necessary to identify wrongdoers, find and preserve evidence that may substantiate an action or determine whether an action exists, and trace and preserve assets.

The Applicant sought an order staying or dismissing Lockwood's petition on the basis that the BCSC did not have jurisdiction and, even if it did, the BCSC's jurisdiction should be declined as Hong Kong was clearly the more appropriate forum.

DECISION

Before the BCSC, Lockwood argued that the BCSC could assert territorial jurisdiction under the Court Jurisdiction and Proceedings Transfer Act on the basis of a real and substantial connection between B.C. and the dispute. Lockwood asserted that there were two grounds for such a connection. First, that the dispute "concerned" the Finder Agreement which, by its express terms, was governed by the law of B.C. Second, that the Applicant carried on business in the province based on the fact that: (a) it owned shares in a B.C. company, (b) its employees and directors held positions in a B.C. Company, (c) it retained lawyers in B.C., and (d) its representatives attended meetings in B.C.

The BCSC rejected both of Lockwood's arguments. The BCSC characterized the dispute as concerning the production of documents, not as concerning the Finder Agreement to which the Applicant was not a party. Only Lockwood's claims for document production mattered for the purposes of determining whether the BCSC had jurisdiction. 

The BCSC also rejected the idea that the Applicant could be said to have been carrying on business in B.C. based merely on the fact that it owned shares in a B.C. company, its employees and directors held positions in a B.C. company, and it had retained counsel in the province. Further, and importantly, the BCSC held that physically travelling to, conducting negotiations in and buying an asset in a foreign jurisdiction does not amount to carrying on a business in that jurisdiction. More is required. The BCSC characterized the Applicant as having a "passing presence" in the province, which was not enough for the B.C. courts to assert jurisdiction.

Although the BCSC concluded that it did not have jurisdiction over the matter, it went on to consider whether to exercise its discretion to hear Lockwood's petition if it did have jurisdiction. The BCSC would have declined to do so. The nature of the order sought was the most important factor here: Lockwood was seeking an order compelling an innocent, non-resident who does not carry on business in B.C., to assemble and provide documents to it. The Applicant was "innocent" in the sense that Lockwood did not accuse it of wrongdoing. In the BCSC's view, this was a serious and impermissible extension of the territorial jurisdiction of the B.C. courts, which would offend "fundamental notions of international comity" and exceed B.C. courts' constitutional limits. The BCSC concluded that Hong Kong was clearly the more appropriate forum for Lockwood to seek a Norwich Pharmacal order in these circumstances.   

ANALYSIS

The decision of the BCSC in Lockwood Financial Ltd. v. China Blue Chemical Ltd., provides international litigants with some assurance that B.C. courts will take a restrained approach to asserting jurisdiction where the connections between an innocent, non-resident party and B.C., or the dispute itself and B.C., are tenuous.

The most significant aspect of this decision is the BCSC's commentary on whether it ought to be the court to grant a Norwich Pharmacal order against an innocent, non-resident, non-party. As the BCSC noted, such a question had not previously been answered by a B.C. court. Thus, the decision of the BCSC will have significant persuasive impact on a party's ability to resort to extra-territorial discovery processes. The BCSC, in deciding this question for the first time, was quite forceful in declaring that the order sought by Lockwood was a significant expansion of the courts' power. Significantly, the BCSC rested its decision in part on the constitutional limitations on the BCSC's territorial jurisdiction. The BCSC stated in near categorical terms that it would not, even if given the discretion to do so, make a Norwich Pharmacal order against an innocent, non-resident without some connection to B.C.  

Another significant feature of this decision is the BCSC's interpretation of "carrying on business" in B.C. The BCSC had little time for the idea that merely having discussions and making an asset purchase in B.C. amounted to doing business in the province. However, international litigants should be mindful that consistent and repeated transactions within B.C. could culminate in a finding that they have carried on business in the province.

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