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Note: To assure payment of construction loans and credit facilities in favor of Canada Ashrod (Borrower), Towne Meadow Development Corp. Inc. (Applicant), a company associated with a shareholder of Ashrod, caused Toronto Dominion Bank (Issuer) to issue a Standby LC in favor of the lender, Israel Development Bank (Beneficiary).

After the undertaking was made, Beneficiary did not seek an amendment to the LC to add Jack Kojfman Ltd. as a party despite having earlier caused the LC to be amended to change the original wording to "secure general banking facilities by way of loans granted or to be granted by [Beneficiary] to [Borrower]." The LC was issued in connection with a building boom in Israel. Beneficiary later called on the LC, at a time when "[Borrower's] debt was 'functionally' if not absolutely at a zero balance."

Applicant sued in Canada to restrain Beneficiary from calling on the LC, alleging fraud. The Ontario Superior Court of Justice, Somers, J., granted an interlocutory injunction restraining Beneficiary from drawing on the LC pending trial. This order was extended twice: by Dilks, J., and again by Himel, J. Beneficiary moved to stay Applicant's motion for permanent injunctive relief, claiming Ontario was forum non conveniens and that the appropriate forum was Israel. The Ontario Superior Court of Justices, Hoilett, J., agreed and granted the motion. The ruling was appealed to the Ontario Court of Appeal, where Cronk and Juriansz, JJ.A., agreed with the trial court and dismissed the appeal. Goudge, J.A., dissented, contending that Ontario was the appropriate forum.

The trial court summarized Beneficiary's argument that Ontario is the improper forum as follows:

the parties, corporeal and corporate, lived, and moved and had their being in Israel; they were all closely related and engaged in the same enterprise, namely taking advantage of the building boom then extant in Israel. ... Overwhelmingly, [Beneficiary] contends, the fundamental issue to be resolved has its 'real and substantial connection' to Israel. Accordingly, Israel is the proper forum before which the issues between the parties should be resolved.

The trial court noted that while Applicant's principal shareholder, "resides in Ontario ... [he] frequently travels to and does business in Israel and has done so over many years". It also noted that:

[c]entral to the proper interpretation of the letter of credit and the significance, if any, of the Undertaking, is [Applicant's] allegation of fraud. The issue of fraud, [Beneficiary] contends, may only be reasonably addressed in the context of the dealings, over time, between the parties. All or most of the witnesses material to that issue are located in Israel.

The trail court then stated that deciding that Israel would be the appropriate forum would not be unfair to Applicant, even though it is an Ontario corporation that chose Ontario as the forum, because "to ignore the active engagement of its principal in the Israeli business milieu would be to constitute the corporate veil an iron curtain and to deny its transparency." The trial court concluded that "applying the 'real and substantial connection' test to the present circumstance, the Israeli court is the proper forum."

Applicant argued that, in the course of the litigation, Beneficiary had availed itself of Ontario as the forum and waived its right to argue forum non conveniens. The trial court described the argument as "starting with the adjournment before Somers J. and the subsequent course of conduct, including consent to subsequent adjournments, is estopped from now challenging the inference of a waiver, reasonably to be drawn from that course of conduct." It did not find this argument persuasive, and stated:

There is no conduct on the part of [Beneficiary], however, which, in my opinion, reasonably invites the inference that it had attorned to the Ontario court's jurisdiction or that it had waived its right to challenge that court's jurisdiction. Routine adjournments in the preliminary stages of a proceeding cannot, in my opinion, form the basis for such an inference, and, particularly where there was the consistent waving of a red flag, as was the case here.

On appeal, the appellate court agreed that the Ontario Courts had jurisdiction over the case because

The action relates to a demand made in Toronto by Beneficiary for payment pursuant to a letter of credit granted in Ontario by a Canadian bank operating in Ontario on the application of an Ontario corporation. The letter of credit must be interpreted according to the laws of Ontario. The action clearly has a real and substantial connection to Ontario.

The issue is, therefore, "whether the motion judge erred in concluding that Israel is the more convenient forum in which the action should proceed."

The majority of the appellate court stated that the central question regarding the appropriate forum for the case was whether "the letter of credit issued by [Issuer] extends to the debts of Kojfman to [Beneficiary]." They noted that the trial court had "decided Israel was the more convenient forum" and decided that it "was entitled to reach that conclusion on the record before [it]."

In a dissenting opinion, Goudge JA, argued that "the Ontario courts could properly assume jurisdiction over this action", but stated that "the motion judge erred in finding that Israel is the convenient forum."

The dissent stated that the central issue concerned "'general banking facilities by way of loans and or credit facilities' granted to [Borrower] by [Beneficiary] include loans granted to Kojfman Ltd. (Kojfman) by [Beneficiary]" The dissent also states that "the convenient forum analysis of the motion judge proceeds on a false premise because he treats the alleged liability of [Borrower] to the [Beneficiary] for [Beneficiary] loans to Kojfman as the substantial dispute in this action", and that "the issue in this action is the meaning of the letter of credit: as between [Applicant] and [Beneficiary], did [Applicant] agree that the general banking facilities by way of loans and or credit facilities granted by [Beneficiary] to [Borrower] should include [Beneficiary] loans to Kojfman."

The dissent concluded by stating that this "is a dispute between an Ontario company and an Israeli bank about the meaning of an Ontario letter of credit. It does not seem ... that in these circumstances Israel is clearly the more appropriate jurisdiction."

[JEB/lhd]

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