Unifund Assurance Co. v. Insurance Corp. of British Columbia, 2003 SCC 40, [2003] 2 SCR 63

Unifund Assurance Co. v. Insurance Corp. of British Columbia, [2003] 2 S.C.R. 63, 2003 SCC 40

Insurance Corporation of British Columbia                                                    Appellant

v.

Unifund Assurance Company                                                                       Respondent

Indexed as:  Unifund Assurance Co. v. Insurance Corp. of British Columbia

Neutral citation:  2003 SCC 40.

File No.:  28745.

2002:  December 12; 2003:  July 17.

Present:  McLachlin C.J. and Iacobucci, Major, Bastarache, Binnie, LeBel and Deschamps JJ.

on appeal from the court of appeal for ontario

Constitutional law  — Extraterritorial limitation on provincial legislation  — Applicability of reimbursement provisions of Ontario regulatory scheme to out-of-province insurer.

Insurance  — Motor vehicles  — Interprovincial motor vehicle liability insurance  — Arbitrator  — Jurisdiction  — Ontario residents injured while travelling in British Columbia  — Ontario residents receiving statutory accident benefits under Ontario policy from Ontario insurer  — British Columbia law permitting insurer in that province to deduct from damages payable amount of benefits received by insured under automobile insurance “wherever” issued  — Ontario Insurance Act not permitting deduction but providing for indemnification of no‑fault insurer by tortfeasors’ insurer for benefits paid  — Jurisdiction of arbitrator appointed under Ontario Insurance Act to decide issues of jurisdiction simpliciter, forum conveniens and choice of law  — Insurance Act, R.S.O. 1990, c. I.8, s. 275.

Mr. and Mrs. B, Ontario residents, were injured when their rented car was struck by a tractor‑trailer in British Columbia.  All the vehicles involved in the accident were registered in British Columbia and insured by the appellant.  After their return to Ontario, both Mr. and Mrs. B received substantial statutory accident benefits (SABs) under their Ontario policy from their Ontario insurer, the respondent.  Subsequently they were awarded substantial damages in an action brought in British Columbia against the negligent truck owner, truck driver and truck repair shop, all of whom were insured by the appellant.  Pursuant to s. 25 of the British Columbia Insurance (Motor Vehicle) Act, the appellant deducted the no-fault benefits paid to the Bs from the award of damages in British Columbia. 

Both the Ontario insurer and the British Columbia insurer were parties to a Power of Attorney and Undertaking (the “PAU”) exchanged by motor vehicle insurers to denote compliance with minimum coverage requirements and to facilitate acceptance of service.  The PAU is part of a reciprocal scheme for the enforcement of motor vehicle insurance claims in Canada.

Under s. 275 of the Ontario Insurance Act, the payor of the SABs is entitled to seek indemnification from the insurer of any heavy commercial vehicle involved in the accident.  The respondent applied to the Ontario Superior Court of Justice for the appointment of an arbitrator to determine the question of indemnification.  The appellant made a cross-motion for a stay of proceedings on the basis, inter alia, that the Ontario insurance regulatory scheme could not constitutionally apply to it on the facts of this case, or, in the alternative, on the basis that British Columbia was the more convenient forum.  The motions court, applying forum non conveniens principles, granted the appellant’s cross‑motion to stay the proceedings.  The Court of Appeal reversed that decision, finding that the motions judge should have declined to hear the motion for a stay and proceeded with the appointment of an arbitrator who could then deal with any issues of jurisdiction and law, including the constitutional issue.

Held (Major, Bastarache and Deschamps JJ. dissenting):  The appeal should be allowed.

Per McLachlin C.J. and Iacobucci, Binnie and LeBel JJ.:  The principal issue is the constitutional applicability of the Ontario Insurance Act to the appellant on the facts of this particular case, and the motions court ought to have addressed it.  If the Ontario insurance scheme is wholly inapplicable to the appellant on the facts here, an arbitrator appointed under the Act is without any statutory or other authority to decide anything in this case. 

There is no doubt that an arbitrator or administrative tribunal can be vested with jurisdiction to determine questions of law, even questions of constitutional law going to its own jurisdiction, provided that the legislature has made plain that intention.  Assuming that the Ontario legislature intended s. 17(1) of the Arbitration Act, 1991 to be such a grant of jurisdiction, however, there is nothing in the Act to suggest that this jurisdiction was intended in all circumstances to be exclusive.  When the authority of a court is invoked to appoint an arbitrator under a statute which one of the parties contends cannot constitutionally apply to it, the court should deal with the challenge.

Section 275 of the Ontario Insurance Act is constitutionally inapplicable to the appellant because its application in the circumstances of this case would not respect territorial limits on provincial jurisdiction.  This territorial restriction is fundamental to our system of federalism in which each province is obliged to respect the sovereignty of the other provinces within their respective legislative spheres, and expects the same respect in return. 

The territorial limits on the scope of provincial legislative authority prevent the application of the law of a province to matters not sufficiently connected to it.  Different degrees of connection to the enacting province may be required according to the subject matter.  A “real and substantial connection” sufficient to permit the court of a province to take jurisdiction over a dispute may nevertheless not be sufficient for the law of that province to regulate the outcome.  What constitutes a “sufficient” connection depends on the relationships among the enacting jurisdiction, the subject matter of the legislation and the individual or entity sought to be regulated by it.  The applicability of an otherwise competent provincial regulatory scheme to an out‑of‑province defendant is conditioned by the requirements of order and fairness that underlie our federal arrangements. 

Under ordinary constitutional principles the Ontario Insurance Act is inapplicable to the out‑of‑province appellant in this case.  Not only is the appellant not authorized to sell insurance in Ontario, it does not in fact do so.  Its insured vehicles in this case did not venture into Ontario.  The accident did not take place in Ontario, and the appellant did not benefit from the deduction of the SABs by virtue of Ontario law but by the law of British Columbia.  If the respondent were correct, Ontario could attach whatever benefits it liked to an out-of-province accident and require the appellant to come to Ontario to reimburse the Ontario insurer irrespective of whether or not British Columbia law permitted any deduction in that respect from the judgment award.

The PAU signed by the appellant has no application to the facts of this case.  Its operation is explicitly limited to a proceeding “arising out of a motor-vehicle accident in any of the respective Provinces or Territories”.  The “respective Provinces or Territories” are those thereafter listed, namely (in this instance) provinces and territories other than British Columbia, whose name was crossed out on the standard form.  The interpretation that the PAU is directed to out-of-province accidents is confirmed by the wording of the undertakings set out in the PAU itself.  Moreover, even if the PAU could be interpreted to require the appellant’s appearance to defend the respondent insurer’s claim in Ontario, the appellant would not thereby be precluded from contesting the application of the Ontario Insurance Act to impose a civil obligation on an out‑of‑province insurer in respect of an out‑of‑province motor vehicle accident. 

The PAU should not be interpreted as a general attornment by the appellant to Ontario insurance law in respect of a motor vehicle accident that occurred in British Columbia.  The fact that the appellant has on occasion attorned to Ontario in defending British Columbia motorists involved in accidents in Ontario does not constitute a general attornment to Ontario in respect of all accidents wherever they take place and any consequent proceedings.

Since the Ontario regulatory scheme does not apply to the out‑of‑province appellant on the facts of this case, the issue of forum non conveniens is moot.  There is no statutory cause of action available to the respondent to sue upon in Ontario or in British Columbia.

Per Major, Bastarache and Deschamps JJ. (dissenting):  A superior court judge must decide the issues of jurisdiction simpliciter and forum conveniens.  Even though it may be difficult to isolate these two issues of jurisdiction perfectly, the Court of Appeal could not decide to submit the whole matter to an arbitrator without inferentially deciding that the Ontario Insurance Act applied, since the appointment of the arbitrator depends on the application of s. 275 of that Act.

A link with the subject matter of the claim is sufficient to establish the jurisdiction simpliciter of a forum given the flexible approach that has been endorsed by this Court.  On the facts of this case, the appellant has accepted the jurisdiction of Ontario in this matter by signing a PAU, which constitutes a sound foundation for the application of the Ontario Insurance Act to the parties in this case.  The insurers, by signing the PAU, have recognized the interrelationship of insurance regimes across Canada and accepted that insurers in one province will sometimes be sued in other provinces.  It is therefore reasonably foreseeable that the appellant will sometimes have to appear in Ontario to defend an action brought in that jurisdiction as a result of an accident having occurred in British Columbia.  The appellant is, at least notionally, an insurer in Ontario, or one carrying out business in that province.  It is not unfair that insurers involved in the interprovincial scheme underlying this appeal, and having accepted the risk of harm to extraprovincial parties to the agreement, be considered to have attorned to the jurisdiction of Ontario’s courts.  All of the reasons justifying a widened jurisdiction in Morguard apply in this case.  Most importantly, the demands of Canadian federalism strongly favour this result.  It is unreasonable, when deciding the issue of jurisdiction simpliciter, to enter into a piecemeal interpretation of the regime providing for the integration of insurance protection across Canada and to establish distinctions between benefits payable to the insured, on the one hand, and the indemnification of their insurers, on the other hand.  There are a number of considerations which, taken together with the general language of the PAU, indicate that the appellant is subject to Ontario’s jurisdiction.  The benefits paid by the respondent to an Ontario resident that were later deducted by the appellant, the general undertaking to appear by the appellant, and its limited undertaking not to present certain defences in Ontario actions all militate in favour of a finding that jurisdiction simpliciter is made out.

The same arguments that justify having a court of justice, not an arbitrator, decide the issue of jurisdiction simpliciter in this case apply to the issue of whether the former or the latter should determine whether there exists a more convenient forum.  The forum non conveniens inquiry is a preliminary one that must be raised at the earliest opportunity and its determination is necessary before the jurisdiction of an arbitrator can be effective in a case such as this.  The proper test is to ask whether the existence of a more appropriate forum has been clearly established to displace the forum selected by the plaintiff.  If neither forum is clearly more appropriate, the domestic forum wins by default.  The application of the balance of convenience by the motions judge constituted an error of law since a party whose case has a real and substantial connection with a forum has a legitimate claim to the advantages that that forum provides.  In staying the proceedings in part because he was not satisfied that there would result a loss of a juridical advantage to the respondent, the motions judge established an unduly high threshold.  Given the respondent’s real and substantial connection to Ontario, it has a legitimate claim to take advantage of the interinsurer indemnification scheme which Ontario provides. There is a fair possibility that the respondent will gain an advantage by prosecuting the action in Ontario.  The appellant did not provide any evidence that British Columbia was clearly the more appropriate forum.  This action is altogether independent of the one before the British Columbia court; it was started in Ontario on the basis of payments made under an insurance policy contracted in Ontario.  Many factors link the parties to Ontario.  Furthermore, the possibility of interinsurer indemnification is the product of an Ontario statutory regime.

Valid provincial laws can affect matters which are sufficiently connected to the province.  The respondent has shown that the subject matter which the Insurance Act covers, interinsurer indemnification, falls within provincial jurisdiction and is sufficiently connected to Ontario so as to render the statute applicable to the appellant.

Cases Cited

By Binnie J.

Distinguished:  Jevco Insurance Co. v. Continental Insurance Co. of Canada (2000), 132 O.A.C. 379, aff’g [1999] O.J. No. 2267 (QL); Broken Hill South Ltd. v. Commissioner of Taxation (N.S.W.) (1936‑1937), 56 C.L.R. 337; R.  v. Thomas Equipment Ltd., [1979] 2 S.C.R. 529; Union Steamship Co. of Australia Proprietary Ltd. v. King (1988), 166 C.L.R. 1; International Shoe Co. v. State of Washington, 326 U.S. 310 (1945); Allstate Insurance Co. v. Hague, 449 U.S. 302 (1981); referred to:  Brennan v. Singh (2000), 75 B.C.L.R. (3d) 93, 2000 BCCA 294; Ruckheim v. Robinson (1995), 1 B.C.L.R. (3d) 46; Potts v. Gluckstein (1992), 8 O.R. (3d) 556; Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96; Tolofson v. Jensen, [1994] 3 S.C.R. 1022; Douglas/Kwantlen Faculty Assn. v. Douglas College, [1990] 3 S.C.R. 570; Cuddy Chicks Ltd. v. Ontario (Labour Relations Board), [1991] 2 S.C.R. 5; Cooper v. Canada (Human Rights Commission), [1996] 3 S.C.R. 854; St. Anne Nackawic Pulp & Paper Co. v. Canadian Paper Workers Union, Local 219, [1986] 1 S.C.R. 704; Weber v. Ontario Hydro, [1995] 2 S.C.R. 929; Regina Police Assn. Inc. v. Regina (City) Board of Police Commissioners, [2000] 1 S.C.R. 360, 2000 SCC 14; Attorney General of Canada v. Law Society of British Columbia, [1982] 2 S.C.R. 307; Northern Telecom Canada Ltd. v. Communication Workers of Canada, [1983] 1 S.C.R. 733; Royal Bank of Canada v. The King, [1913] A.C. 283; Gray v. Kerslake, [1958] S.C.R. 3; Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077; Hunt v. T&N plc, [1993] 4 S.C.R. 289; Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R. 907, 2001 SCC 90; Spar Aerospace Ltd. v. American Mobile Satellite Corp., [2002] 4 S.C.R. 205, 2002 SCC 78; R. v. Jameson, [1896] 2 Q.B. 425; Pennoyer v. Neff, 95 U.S. 714 (1877); Attorney General for Ontario v. Scott, [1956] S.C.R. 137; Interprovincial Co‑Operatives Ltd. v. The Queen, [1976] 1 S.C.R. 477; Credit Foncier Franco‑Canadien v. Ross, [1937] 3 D.L.R. 365; Beauharnois Light, Heat and Power Co. v. Hydro‑Electric Power Commission of Ontario, [1937] O.R. 796; Kalenczuk v. Kalenczuk (1920), 52 D.L.R. 406; The Queen in Right of Manitoba v. Air Canada, [1980] 2 S.C.R. 303; Moran v. Pyle National (Canada) Ltd., [1975] 1 S.C.R. 393; Ladore v. Bennett, [1939] A.C. 468; Reference re Upper Churchill Water Rights Reversion Act, [1984] 1 S.C.R. 297; Global Securities Corp. v. British Columbia (Securities Commission), [2000] 1 S.C.R. 494, 2000 SCC 21; Ratych v. Bloomer, [1990] 1 S.C.R. 940; Cunningham v. Wheeler, [1994] 1 S.C.R. 359; Insurance Corp. of British Columbia v. Royal Insurance Co. of Canada, [1999] I.L.R. ¶I‑3705; MacDonald v. Proctor (1977), 86 D.L.R. (3d) 455, aff’d [1979] 2 S.C.R. 153; Healy v. Interboro Mutual Indemnity Insurance Co. (1999), 44 O.R. (3d) 404, leave to appeal refused, [2000] 1 S.C.R. xiii; Corbett v. Co‑operative Fire & Casualty Co. (1984), 14 D.L.R. (4th) 531.

By Bastarache J. (dissenting)

Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077; Spar Aerospace Ltd. v. American Mobile Satellite Corp., [2002] 4 S.C.R. 205,  2002 SCC 78; Brennan v. Singh, [1999] B.C.J. No. 520 (QL); Brennan v. Singh (2000), 75 B.C.L.R. (3d) 93, 2000 BCCA 294,  aff’g (1999), 70 B.C.L.R. (3d) 342; Brennan v. Singh (2001), 15 C.P.C. (5th) 17, 2001 BCSC 1812; Hunt v. T&N plc, [1993] 4 S.C.R. 289; Tolofson v. Jensen, [1994] 3 S.C.R. 1022; Canada Labour Relations Board v. Paul L’Anglais Inc., [1983] 1 S.C.R. 147; Moran v. Pyle National (Canada) Ltd., [1975] 1 S.C.R. 393; Muscutt v. Courcelles (2002), 60 O.R. (3d) 20; Long v. Citi Club, [1995] O.J. No. 1411 (QL); Brookville Transport Ltd. v. Maine (1997), 189 N.B.R. (2d) 142; Negrych v. Campbell’s Cabins (1987) Ltd., [1997] 8 W.W.R. 270; McNichol Estate v. Woldnik (2001), 150 O.A.C. 68; Oakley v. Barry (1998), 158 D.L.R. (4th) 679; O’Brien v. Canada (Attorney General) (2002), 210 D.L.R. (4th) 668; Pacific International Securities Inc. v. Drake Capital Securities Inc. (2000), 194 D.L.R. (4th) 716; Cook v. Parcel, Mauro, Hultin & Spaanstra, P.C. (1997), 143 D.L.R. (4th) 213; Insurance Corp. of British Columbia v. Royal Insurance Co. of Canada, [1999] I.L.R. ¶I‑3705; Berg (Litigation guardian of) v. Farm Bureau Mutual Insurance Co. (2000), 50 O.R. (3d) 109; Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897; Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R. 907, 2001 SCC 90; Avenue Properties Ltd. v. First City Development Corp. (1986), 32 D.L.R. (4th) 40; Reference re Upper Churchill Water Rights Reversion Act, [1984] 1 S.C.R. 297.

Statutes and Regulations Cited

Arbitration Act, 1991, S.O. 1991, c. 17, ss. 7(1), (2), (3), 8(2), (3), 10, 17, 48(1)(c).

Automobile Insurance Regulations, R.R.O. 1990, Reg. 664, s. 9.

Constitution Act, 1867, s. 92 .

Insurance Act, R.S.O. 1990, c. I.8, ss. 267.1(8)2(i) [ad. 1993, c. 10, s. 25], 268(1) [rep. & sub. idem, s. 26], (2), 275 [am. idem, ss. 1, 31].

Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231, ss. 18, 25.

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 17.06.

United States Constitution, art. IV, Fourteenth Amendment.

Authors Cited

Black, Vaughan.  “Interprovincial Inter‑Insurer Interactions:  Unifund v. ICBC” (2002), 36 Can. Bus. L.J. 436.

Castel, Jean‑Gabriel, and Janet Walker.  Canadian Conflict of Laws, 5th ed.  Markham, Ont.:  Butterworths, 2002 (loose‑leaf updated December 2002, Issue 3).

Fortier, L. Yves.  “Delimiting the Spheres of Judicial and Arbitral Power:  ‘Beware, My Lord, of Jealousy’” (2001), 80 Can. Bar Rev. 143.

Hogg, Peter W.  Constitutional Law of Canada, vol. 1, loose‑leaf ed.  Scarborough, Ont.:  Carswell, 1997 (updated 2002, release 1).

Sullivan, Ruth E.  “Interpreting the Territorial Limitations on the Provinces” (1985), 7 Supreme Court L.R. 511.

Tribe, Laurence H.  American Constitutional Law, vol. 1, 3rd ed.  New York:  Foundation Press, 2000.

United Nations.  Commission on International Trade Law.  UNCITRAL Model Law on International Commercial Arbitration, U.N. GAOR, 40th Sess., Supp. No. 17, U.N. Doc. A/40/17 (1985), Annex I, arts. 8(1), 16.

Watson, Garry D., and Frank Au.  “Constitutional Limits on Service Ex Juris:  Unanswered Questions from Morguard” (2000), 23 Advocates’ Q. 167.

APPEAL from a judgment of the Ontario Court of Appeal (2001), 204 D.L.R. (4th) 732, 146 O.A.C. 162, 28 C.C.L.I. (3d) 38, [2001] O.J. No. 1885 (QL), reversing a decision of the Superior Court of Justice (2000), 23 C.C.L.I. (3d) 96, [2000] O.J. No. 3212 (QL).  Appeal allowed, Major, Bastarache and Deschamps JJ. dissenting.

Avon M. Mersey, Alan L. W. D’Silva, Michael Sobkin and Sophie Vlahakis, for the appellant.

Leah Price and Gerald George, for the respondent.

The judgment of McLachlin C.J. and Iacobucci, Binnie and LeBel JJ. was delivered by

Binnie J. —

I.        Introduction

1                                   This appeal raises important questions regarding an alleged extraterritorial application of a provincial regulatory statute.  The respondent insurer seeks to recover in Ontario from the appellant British Columbian insurer about $750,000 under certain statutory provisions of Ontario insurance law. 

2                                   The dispute between these insurance companies stems from a serious motor vehicle accident in British Columbia.  The appellant, a British Columbia insurer,  responded there on behalf of the defendants.  The injured plaintiffs returned to Ontario and collected statutory no-fault benefits from the respondent, an Ontario insurer, which now seeks reimbursement by subjecting the appellant to the loss transfer provisions of the Ontario scheme.

3                                   The appellant says it does not have any real and substantial connection with Ontario and therefore Ontario insurance law cannot impose on it a civil obligation arising out of a British Columbia accident.  I agree that the respondent seeks to give the Ontario statute impermissible extraterritorial effect.  In my view, the appeal should be allowed.

II.      The Facts

4                                   Marcia and Ronald Brennan, who made their home in Cambridge, Ontario, flew to Vancouver in August 1995 for the wedding of one of their sons.  While in British Columbia, they rented a car.  Driving along the Upper Levels Highway in North Vancouver, the Brennans’ rental car was struck from behind by a tractor trailer driven by Baljinder Singh, the impact of which catapulted their car across the centre line concrete barrier into the path of oncoming traffic.  In a collision the trial judge described as “horrendous”, the Brennans, particularly Mrs. Brennan, suffered terrible injuries.  After their return to Ontario, the Brennans’ home needed to be extensively renovated, a modified vehicle was purchased, and 24-hour attendant care was provided to Mrs. Brennan, who eventually died from her injuries in March 2001.  The amount paid as statutory accident benefits (“SABs”) has yet to be finally quantified but is about $750,000.

5                                   Meanwhile, the Brennans brought an action for damages in the Supreme Court of British Columbia and, on March 4, 1999, were awarded approximately $2.5 million.

6                                   The respondent, Unifund Assurance Company (“Unifund”), had issued a motor vehicle insurance policy to the Brennans in Ontario.  The policy included the mandatory, no-fault coverage (or SAB) payments, for which the Brennans paid a premium.  The Ontario Insurance Act, R.S.O. 1990, c. I.8 (also referred to as the “Ontario Act”), provides that SABs are payable under an Ontario policy when insured persons are injured in motor vehicle accidents occurring anywhere in North America.  Unifund, a Newfoundland company, was licensed to carry on business in Ontario, but not, at the time of the accident, in British Columbia. 

7                                   The appellant Insurance Corporation of British Columbia (“ICBC”) insured the negligent truck owner, truck driver, and truck repair shop in British Columbia.  It is on the hook for the $2.5 million award of damages, but, under the law of that province, it is entitled to deduct any no-fault payments paid to the Brennans, even though it actually paid no part of that amount. 

8                                   Unifund understandably feels aggrieved that the appellant, having contributed nothing to the payment of the no-fault benefits, is nevertheless taking a $750,000 deduction created at Unifund’s expense.  Unifund contends that the appellant should pay it the $750,000.

III.    The Statutory Cause of Action

9                                   Unifund’s problem is to find a cause of action.  In this appeal, we are dealing only with Unifund’s quite separate and distinct claim under s. 275 of the Ontario Act, which provides a statutory mechanism for transferring losses between Ontario insurance companies arising out of the payment of SABs under the Ontario Act.

10                               It is important to emphasize that Unifund asserts no common law or equitable cause of action against the appellant, ICBC, in these proceedings.  In the case before us, Unifund either has a statutory cause of action against the British Columbia insurer under the Ontario Act or it has no cause of action at all.

11                               The deduction of about $750,000 claimed by the appellant, ICBC, is also a creature of statute.  Under s. 25(5) of the British Columbia Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231, the British Columbia court is directed to deduct from a damages award “benefits” which include “accident insurance benefits similar” to British Columbia’s no-fault benefits “provided under a contract . . . of automobile insurance wherever issued . . .” (s. 25(1) (emphasis added)).  The British Columbia Court of Appeal ordered the $750,000 to be deducted from the $2.5 million awarded to the Brennans, even though the appellant contributed nothing to the payment, because, in its view, the legislative purpose of s. 25(5) is to “prevent double recovery by allowing parties to deduct the ‘benefits’ that a claimant receives, or to which a claimant is entitled, from the award of damages”:  Brennan v. Singh (2000), 75 B.C.L.R. (3d) 93, 2000 BCCA 294, at para. 4; see also Ruckheim v. Robinson (1995), 1 B.C.L.R. (3d) 46 (C.A.), at paras. 50-54.  The deductibility approach was perhaps adopted in British Columbia because the appellant, ICBC, as the sole provider of motor vehicle insurance in the province, is generally the payor of both the no-fault benefits and the final award.  For the same reason, the British Columbia legislation does not contain a loss transfer provision similar to s. 275 of the Ontario Act to redistribute the cost of no-fault benefits amongst insurance companies.

12                               The Ontario insurance scheme, on the other hand, which regulates numerous competing motor vehicle insurers, adopts a different approach.  The non-pecuniary damages are calculated “without regard to” SABs (s. 267.1(8)2(i)).  However, the payor of the SABs (usually the victim’s insurer) is entitled by statute to indemnification from the insurer of any “heavy commercial vehicle” (Automobile Insurance Regulations, R.R.O. 1990, Reg. 664, s. 9) involved in the motor vehicle accident in question, “according to the respective degree of fault of each insurer’s insured as determined under the fault determination rules” (s. 275(2)), i.e., allocated not by general principles of tort but by the rules set out in Ontario regulations.  Section 275(4) of the Ontario Act provides that disputes about indemnification are to be resolved by arbitration, pursuant to the Ontario Arbitration Act, 1991, S.O. 1991, c. 17.  There is no doubt that if the appellant were an Ontario insurer, it would be required to arbitrate Unifund’s claim.

13                               It is perhaps important to emphasize that if the Ontario Act applies, the respondent would be entitled to recover even if the appellant were not permitted to deduct the $750,000 from the Brennans’ award.  This is because the two provincial regulatory schemes function independently of one another, and deductibility by one insurer is not a condition precedent to recovery by the other insurer under s. 275 of the Ontario Act.

14                               We are told that there is no legislation in British Columbia under which Unifund could pursue a statutory claim for reimbursement against the appellant in that province.  The constitutional question of whether the Ontario Insurance Act applies to provide Unifund with a statutory cause of action is therefore dispositive of the respondent’s claim. 

IV.     The Statutory Arbitration

15                               Unifund applied to the Ontario Superior Court of Justice for the appointment of an arbitrator pursuant to s. 275(4) of the Ontario Act.  The appellant, ICBC, responded with a motion for an order “staying or dismissing” the application on the basis, inter alia, that “Ontario law, specifically the Ontario Insurance Act, and any procedure under it is not applicable in this matter and does not define the relationship between the parties”.  In effect, the appellant’s motion alleged that Unifund’s application disclosed no cause of action against the out-of-province insurer on the facts of this case.

16                               The Ontario Court of Appeal directed the appellant to make its objection before an arbitrator appointed pursuant to the Ontario Act.  The appellant says that it ought not to be ordered to appear before an arbitrator appointed pursuant to the Ontario Act unless and until it is first determined that the appellant is subject to the Ontario Act with respect to the matters in dispute. 

17                               I think the appellant is correct on this procedural question as well as in objecting to the substantive application of the Ontario statute to this dispute.  If the Ontario insurance scheme is wholly inapplicable to the appellant on the facts here, an arbitrator appointed under the Ontario Act is without any statutory or other authority to decide anything in this case.  Practicality as well as principle required the constitutional issue raised by the appellant to be resolved by the superior court to which it was addressed, and it should have been answered, in my view, in the appellant’s favour.

V.  The Power of Attorney and Undertaking

18                               In order to assist motorists who travel outside their province or state of residence, all Canadian insurers of motor vehicles, and many insurers in the United States, have exchanged what is called a “Power of Attorney and Undertaking” (“PAU”) which denotes “compliance with minimum coverage requirements and facilitat[es] acceptance of service”.  The PAU is part of a “reciprocal scheme for the enforcement of motor vehicle liability insurance policies in Canadian provinces and territories”:  Potts v. Gluckstein (1992), 8 O.R. (3d) 556 (C.A.), at p. 557.  As the terms of the PAU are important to the respondent’s position, I set out its relevant terms hereunder:

                             POWER OF ATTORNEY AND UNDERTAKING

                         (Denoting compliance with minimum coverage requirements

                                         and facilitating acceptance of service)

                     INSURANCE CORPORATION OF BRITISH COLUMBIA

the head office of which is in the City of North Vancouver

in the . . . Province of British Columbia

In . . . Canada, hereby, with respect to an action or proceeding against it or its insured, or its insured and another or others, arising out of a motor-vehicle accident in any of the respective Provinces or Territories, appoints severally the Superintendents of Insurance of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland, Quebec, and Yukon Territory and the Northwest Territories, to do and execute all or any of the following acts, deeds, and things, that is to say:  To accept service of notice or process on its behalf.

. . .

Insurance Corporation of British Columbia aforesaid hereby undertakes:-

A.   To appear in any action or proceeding against it or its insured in any Province or Territory in which such action has been instituted and of which it has knowledge:

B.    That upon receipt from any of the officials aforesaid of such notice or process in respect of its insured, or in respect of its insured and another or others, it will forthwith cause the notice or process to be personally served upon the insured:

C.   Not to set up any defence to any claim, action, or proceeding, under a motor-vehicle liability insurance contract entered into by it, which might not be set up if the contract had been entered into in, and in accordance with the laws relating to motor-vehicle liability insurance contracts or plan of automobile insurance of the Province or Territory of Canada in which such action or proceeding may be instituted, and to satisfy any final judgement rendered against it or its insured by a Court in such Province or Territory, in the claim, action or proceeding, in respect of any kind or class of coverage provided under the contract or plan and in respect of any kind or class of coverage required by law to be provided under a plan or contracts of automobile insurance entered into in such Province or Territory of Canada up to the greater of

(a)                                                                              the amounts and limits for that kind or class of coverage or coverages provided in the contract or plan, or

(b)       the minimum for that kind or class of coverage or coverages required by law to be provided under the plan or contracts of automobile insurance entered into in such Province or Territory of Canada, exclusive of interest and costs and subject to any priorities as to bodily injury or property damage with respect to such minimum amounts and limits as may be required by the laws of the Province or Territory.  [Emphasis added.]

(Note that the words “British Columbia” in the lead paragraph are crossed out in the original PAU.)

VI.    Judicial History

A.     Ontario Superior Court of Justice (2000), 23 C.C.L.I. (3d) 96

19                               Campbell J. had before him the respondent’s motion to appoint an arbitrator and the appellant’s cross-motion to stay the proceedings for want of jurisdiction, or, in the alternative, for forum non conveniens.  In his view the purpose of the arbitration under the Ontario Act “is to deal with matters that are clearly in issue within the rules applicable in Ontario” (para. 43).  It is not, he concluded, designed to resolve legal issues that may arise because of conflict in the legislation in two different provinces.  However, he did not dismiss the Ontario action.  He applied forum non conveniens principles and ruled that “the balance favours the stay of the Ontario arbitration” (para. 43).  While he did not specifically make a finding with respect to jurisdiction simpliciter, he stayed Unifund’s action rather than dismissing it.  This disposition presupposed that, while the Ontario court had jurisdiction, it would not be appropriate in all the circumstances to exercise it. 

B.     Ontario Court of Appeal (2001), 204 D.L.R. (4th) 732

20                               The Ontario Court of Appeal reversed the motions judge on the basis that “he should have declined to hear the motion [for a stay] and proceeded with the appointment of the arbitrator who could then deal with any issues of jurisdiction and law” (para. 3).  Feldman J.A. approached the appeal as one relating to procedure. It was within the jurisdiction of the arbitrator appointed under the Ontario Act to make the initial determination of jurisdiction.  In her view, the appellant’s execution of the PAU obliged it to participate in the Ontario arbitration.  Further, an arbitrator appointed under the Ontario legislation is empowered to decide issues of forum non conveniens.  The appeal was allowed on those procedural grounds.

VII.   Relevant Statutory Provisions

21                               The relevant provisions of the Insurance Act, R.S.O. 1990, c. I.8, and the Arbitration Act, 1991, S.O. 1991, c. 17, are set out in the Appendix.

VIII. Constitutional Question

22                               On August 27, 2002, the Chief Justice stated the following constitutional question:

Is s. 275 of the Insurance Act, R.S.O. 1990, c. I.8, as amended, constitutionally inapplicable to the appellant because its application in the circumstances of this case would not accord with territorial limits on provincial jurisdiction?

IX.    Analysis

23                               It is well established that motor vehicle insurance within a province is a matter within provincial legislative competence:  Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96 (P.C.).  Since 1881, of course, the mobility of Canadians has increased exponentially.  Tractor-trailer trucks rumble across the country.  Holiday makers are enticed to take their holidays in distant provinces and many travel by car.  Other Canadians, like the Brennans, fly to their destination and rent a car upon arrival.  Still others regularly drive south to Florida or Arizona for some respite from winter.

24                               People assume that their insurance follows them and their car wherever they go, and so it does.  If the Brennans had taken their car instead of an airplane to British Columbia, and become involved in the same accident, the PAU scheme would have ensured that their Ontario insurer, Unifund, could have been served with a British Columbia Statement of Claim through the Superintendent of Insurance, and could not have raised in the resulting British Columbia proceedings a defence not open to a British Columbia insurer in the same circumstances.

25                               Similarly, if Baljinder Singh had driven the tractor-trailer east to Ontario and collided with the Brennans on Highway 401 near their home in Cambridge, the PAU would have permitted the appellant, ICBC, to be served through the Superintendent of Insurance.  In that case, the appellant could not have raised any defence not open to an Ontario insurer under comparable coverage.  Moreover, Ontario law would apply as the law of the place where the accident happened:  Tolofson v. Jensen, [1994] 3 S.C.R. 1022.  The PAU would have facilitated service on, and the holding responsible of, the out-of-province tortfeasors and their out-of-province insurer.

26                               In this case, the accident and all the lawsuits arising directly from the accident took place in British Columbia.  It is only the quite separate statutory procedure initiated by Unifund against the appellant that is brought in Ontario.

27                               The constitutional question stated by the Chief Justice identifies the dispositive issue: 

Is s. 275 of the Insurance Act, R.S.O. 1990, c. I.8, as amended, constitutionally inapplicable to the appellant because its application in the circumstances of this case would not accord with territorial limits on provincial jurisdiction?

While at one level, the argument is about which court has jurisdiction over the dispute (and if more than one court qualifies, then whether Ontario is the convenient forum for its resolution), the underlying issue is whether, in light of the territorial limitation on provincial legislation, the respondent, Unifund, has a viable cause of action at all against the out-of-province appellant.  If it is concluded, as the constitutional question asks, that s. 275 of the Ontario Act is “constitutionally inapplicable to the appellant . . . [because of] territorial limits on provincial jurisdiction”, then Unifund’s action under the Ontario Act should be stopped irrespective of where it is brought.

28                               The general policy objectives of order and fairness that underlie territorial limits were discussed by La Forest J. in Tolofson, supra, at pp. 1050-51, as follows:

Ordinarily people expect their activities to be governed by the law of the place where they happen to be and expect that concomitant legal benefits and responsibilities will be defined accordingly.  The government of that place is the only one with power to deal with these activities.  The same expectation is ordinarily shared by other states and by people outside the place where an activity occurs.  If other states routinely applied their laws to activities taking place elsewhere, confusion would be the result.  In our modern world of easy travel and with the emergence of a global economic order, chaotic situations would often result if the principle of territorial jurisdiction were not, at least generally, respected.  [Emphasis added.]

29                               The respondent, as stated, asserts only an Ontario statutory cause of action.  Its request for the appointment of an arbitrator could only be granted if the loss transfer scheme of the Ontario Act applies.  Section 275(4), to repeat for convenience, provides that “[i]f the insurers are unable to agree with respect to indemnification under this section, the dispute shall be resolved through arbitration under the Arbitrations Act” (emphasis added).

30                               Under our federal structure, different provinces are quite free to adopt different statutory schemes for their respective motor vehicle insurance industries.  British Columbia decided to confer a monopoly on the appellant to sell motor vehicle insurance in that province.  British Columbia does not provide for claims for indemnification amongst rival motor vehicle insurance companies in the province because there are none.  Of course, the appellant is not thereby immunized from common law causes of action arising elsewhere, as in the hypothetical case mentioned above of one of its insureds taking his or her motor vehicle to Ontario and getting into an accident:  Potts, supra, at p. 560.  The appellant remains contractually bound to its insured and the PAU is designed to facilitate its appearance and the discharge of its contractual responsibilities in the province where the accident occurred.

31                               The respondent has identified two potential grounds on which Ontario law might apply to its claim for reimbursement:  firstly, that the appellant does business in Ontario, and is therefore in general subject to the law of the Ontario insurance market place, and, secondly, that under the terms of the PAU, the appellant has in any event undertaken by reciprocal agreement to be bound by Ontario’s insurance scheme, including the loss transfer provisions applicable to competing Ontario insurance companies. 

32                               Neither of these issues was resolved by the Ontario Court of Appeal because, in its view, their determination should be left, in the first instance, to the arbitrator. 

33                               Accordingly, the following are the principal legal issues:

(i)  Was the Ontario Court of Appeal correct that an arbitrator appointed under the Ontario Act was the appropriate forum for the determination as to whether the Ontario Act did or did not apply to the appellant in the circumstances of this case (“the arbitration issue”)?

(ii)  If not, should the motions judge have determined that s. 275 of the Ontario Act was constitutionally applicable to the appellant having regard to the alleged “real and substantial connection” between the appellant and Ontario on the facts of this case, and/or the terms of the Power of Attorney and Undertaking (PAU) (“the constitutional issue”)?

(iii)  If so, should the motions judge have dealt with the further issue of forum non conveniens, or, having found jurisdiction simpliciter, should the issue of forum non conveniens have been referred to the arbitrator, as held by the Court of Appeal (“the forum non conveniens issue”)?

34                               I propose to deal with each of these issues in turn.

(i)       Was the Ontario Court of Appeal Correct that an Arbitrator Appointed Under the Ontario Act Was the Appropriate Forum for the Determination as to Whether the Ontario Act Did or Did Not Apply to the Appellant in the Circumstances of This Case (“the Arbitration Issue”)?

35                               The Court of Appeal concluded that “the scheme of the Arbitration Act, 1991” is that “it is the role of the arbitrator and not of the court, at least initially, to decide questions of jurisdiction, applicable law and questions of law including whether a party is an ‘insurer’ for the purposes of s. 275” (para. 19 (emphasis added)).  The court thus dispatched all the jurisdictional and related legal issues to the arbitrator on the basis of s. 17(1) of the Arbitration Act, 1991 (which applies by virtue of s. 275 of the Ontario Act) and which reads as follows:

17.—(1)  An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement.

36                               Section 17 is based on art. 16 of the UNCITRAL model law which reflects the principle of “Kompetenz - Kompetenz”, i.e., that an arbitral tribunal ought to be competent to rule on its own competence.  The concept is said to be “fundamental”:  L. Y. Fortier, “Delimiting the Spheres of Judicial and Arbitral Power:  ‘Beware, My Lord, of Jealousy’” (2001), 80 Can. Bar Rev. 143, at p. 145.

37                               There is no doubt that an arbitrator or administrative tribunal can be vested with jurisdiction to determine questions of law, even questions of constitutional law going to its own jurisdiction, provided that the legislature has made plain that intention:  see, e.g., Douglas/Kwantlen Faculty Assn. v. Douglas College, [1990] 3 S.C.R. 570, Cuddy Chicks Ltd. v. Ontario (Labour Relations Board), [1991] 2 S.C.R. 5, and Cooper v. Canada (Human Rights Commission), [1996] 3 S.C.R. 854, at para. 61.

38                               Assuming in the respondent’s favour that the Ontario legislature intended s. 17(1) to be such a grant of jurisdiction, I do not think there is anything in the Arbitration Act, 1991 to suggest that this jurisdiction was intended in all circumstances to be exclusive.  Here, we are dealing with a constitutional challenge before the arbitrator has been appointed.  The challenge is raised as a preliminary objection in front of the very court that is asked to make the appointment.

39                               The respondent’s argument that the arbitrator’s jurisdiction should be regarded as exclusive in the first instance rests largely on a series of labour relations cases where this Court held that courts should defer to labour arbitrators in disputes which, in their essential character, arise out of a collective agreement:  St. Anne Nackawic Pulp & Paper Co. v. Canadian Paper Workers Union, Local 219, [1986] 1 S.C.R. 704; Weber v. Ontario Hydro, [1995] 2 S.C.R. 929; Regina Police Assn. Inc. v. Regina (City) Board of Police Commissioners, [2000] 1 S.C.R. 360, 2000 SCC 14, at para. 24. 

40                               Those cases, however, are based on the Court’s interpretation of the legislative intent expressed in labour relations legislation in favour of exclusivity (see St. Anne, supra, at pp. 718-19, and Weber, supra, at para. 41).  The Court was not being asked to defer to the very arbitrator whose constitutional root of authority was being challenged. 

41                               There is nothing in the Insurance Act of Ontario, which was the Court of Appeal’s springboard into the Arbitration Act, 1991, to suggest that the legislature intended an arbitrator appointed under that Act, usually an insurance specialist, to have exclusive jurisdiction (even in the first instance) to determine the constitutional applicability of that Act under the division of legislative powers in the Canadian Constitution.

42                               The respondent also relies on Jevco Insurance Co. v. Continental Insurance Co. of Canada (2000), 132 O.A.C. 379 (C.A.), aff’g [1999] O.J. No. 2267 (QL) (S.C.J.), but that case turns on a different point.  There, the issue sought to be raised before the arbitrator was whether the Workers’ Compensation legislation relieves an insurer of responsibility for statutory no-fault benefits.  All of the parties were in Ontario and subject to the laws of that province.  It was open to the Ontario legislature to confer on an arbitrator the determination in the first instance of that legal point, and the Ontario Court of Appeal held that the legislature had done so.  Here, by contrast, the issue is whether the laws passed by the Ontario legislature have any application at all to this dispute.

43                               Legislative attempts to distance the provincial superior courts from issues of constitutional applicability as well as validity have generally proven to be unsuccessful.  See, e.g.,  Attorney General of Canada v. Law Society of British Columbia, [1982] 2 S.C.R. 307, at pp. 328-29.  In my view, when the authority of a court is invoked to appoint an arbitrator under a statute which one of the parties contends cannot constitutionally apply to it, the court should deal with the challenge.  As observed by Estey J. in Northern Telecom Canada Ltd. v. Communication Workers of Canada, [1983] 1 S.C.R. 733, at p. 741, the courts are “the authority in the community to control the limits of the respective sovereignties of the two plenary governments, as well as to police agencies within each of these spheres to ensure their operations remain within their statutory boundaries”.

44                               The jurisdiction of the courts in Ontario to appoint the arbitrator was itself dependent on the application of s. 275 of the Ontario Insurance Act.  If the Act could not constitutionally apply to this dispute, then an appointment of an arbitrator pursuant to the Act would be ineffective. 

45                               Section 48(1)(c) of the Arbitration Act, 1991 provides that the court may set aside an arbitral award on the basis that “the subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law”.  I can think of no practical reason to compel the parties to go through a doomed arbitration, where the very issue is the constitutional availability of the statutory cause of action being invoked, rather than having the court determine the issue in the first instance.

46                               If, as the appellant contends, an arbitration would be unconstitutional, then issues of cost, delay and inconvenience all argue for judicial euthanasia at the outset.

47                               I note, as well, that s. 8(2) of the Arbitration Act, 1991 speaks of the arbitrator’s jurisdiction to decide “any question of law that arises during the arbitration” (emphasis added).  If the appellant is correct, there is no constitutional basis for the arbitration to come into existence in the first place.

48                               The Ontario courts had jurisdiction to determine the constitutional applicability of the Ontario Insurance Act in this case.  It involved a claim to reimbursement of a payment made in Ontario to an Ontario insured by an Ontario insurance company.  By notice of motion dated July 28, 2000, under Rule 17.06 of the Ontario Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the appellant sought various rulings all of which related to the constitutional applicability of the Ontario Insurance Act.  There was no objection taken to the Ontario court dealing with the constitutional question.  On the contrary, it was of the essence of the appellant’s notice of motion.

49                               I conclude, therefore, that the motions court ought to have addressed the issue of the constitutional applicability of the Ontario Act raised by the appellant.

(ii)      Is the Ontario Act Constitutionally Applicable to the Appellant on the Facts of This Case Having Regard to the Alleged “Real and Substantial Connection” Between the Appellant and Ontario and/or the Obligations Undertaken in the Power of Attorney and Undertaking (“PAU”) (“the Constitutional Issue”)?

50                               It is well established that a province has no legislative competence to legislate extraterritorially.  If the Ontario Act purported to regulate civil rights in British Columbia arising out of an accident in that province, this would be an impermissible extraterritorial application of provincial legislation:  Royal Bank of Canada v. The King, [1913] A.C. 283 (P.C.); Gray v. Kerslake, [1958] S.C.R. 3; P. W. Hogg, Constitutional Law of Canada (loose-leaf ed.), vol. 1, at pp. 13-4 to 13-25; R. E. Sullivan, “Interpreting the Territorial Limitations on the Provinces” (1985), 7 Supreme Court L.R. 511, at p. 531.

51                               This territorial restriction is fundamental to our system of federalism in which each province is obliged to respect the sovereignty of the other provinces within their respective legislative spheres, and expects the same respect in return.  It flows from the opening words of s. 92  of the Constitution Act, 1867 , which limit the territorial reach of provincial legislation:  “In each Province the Legislature may exclusively make Laws in relation to” the enumerated heads of power (emphasis added).  The authority to legislate in respect of insurance is founded in s. 92(13) , which confers on each legislature the power to make laws in relation to “Property and Civil Rights in the Province” (emphasis added).

52                               Unifund does not take issue with these basic propositions.  Its contention is that it seeks only to enforce its Ontario civil rights in Ontario, namely the right to indemnification created by s. 275 of the Ontario Act.  It says it is entitled to do so under ordinary constitutional law principles because there is “a real and substantial connection” between the appellant and Ontario, or, alternatively, under the PAU.

53                               I therefore turn to the first of the two grounds on which the respondent alleges the Ontario statutory scheme applies.

(a)   The respondent says that there is a “real and substantial connection” between the appellant and Ontario that makes it appropriate for Ontario law to regulate the outcome of their dispute.

54                               The “real and substantial connection” test has been adopted and developed by this Court in Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, at pp. 1103 and 1109; Hunt v. T&N plc, [1993] 4 S.C.R. 289, at p. 328; and Tolofson, supra, at p. 1049; followed and applied more recently in cases such as Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R. 907, 2001 SCC 90, at para. 71, and Spar Aerospace Ltd. v. American Mobile Satellite Corp., [2002] 4 S.C.R. 205, 2002 SCC 78.

55                               In this case, however, we are asked to apply the “real and substantial connection test” in the different context of the applicability of a provincial regulatory scheme to an out-of-province defendant.  The issue is not just the competence of the Ontario court to entertain the appointment of an arbitrator (as in the choice of forum cases) but, as the constitutional question asks, whether the “connection” between Ontario and the respondent is sufficient to support the application to the appellant of Ontario’s regulatory regime.

56                               Consideration of constitutional applicability can conveniently be organized around the following propositions:

1.  The territorial limits on the scope of provincial legislative authority prevent the application of the law of a province to matters not sufficiently connected to it;

2.  What constitutes a “sufficient” connection depends on the relationship among the enacting jurisdiction, the subject matter of the legislation and the individual or entity sought to be regulated by it;

3.  The applicability of an otherwise competent provincial legislation to out-of-province defendants is conditioned by the requirements of order and fairness that underlie our federal arrangements;

4.  The principles of order and fairness, being purposive, are applied flexibly according to the subject matter of the legislation.

57                               I propose to address each of these elements to the extent necessary to resolve this aspect of the appeal.

1.  The Sufficient Connection

58                               The territorial limits on the scope of provincial legislative authority prevent  the application of the law of a province to matters not sufficiently connected to it:   J.-G. Castel and J. Walker, Canadian Conflict of Laws (5th ed. (loose-leaf)), at p. 2.1.  As will be seen, a “real and substantial connection” sufficient to permit the court of a province to take jurisdiction over a dispute may not be sufficient for the law of that province to regulate the outcome.

59                               In Tolofson, La Forest J. observed:  “It seems to me self evident, for example, that State A has no business in defining the legal rights and liabilities of citizens of State B in respect of acts in their own country . . . it would lead to unfair and unjust results if it did.  The same considerations apply as between the Canadian provinces” (p. 1052). 

60                               Territorial limits is an ancient doctrine developed in the context not of provinces but of sovereign states, as discussed by Lord Russell of Killowen C.J. in R. v. Jameson, [1896] 2 Q.B. 425, at p. 430:

One other general canon of construction is this ^__ that if any construction otherwise be possible, an Act will not be construed as applying to foreigners in respect to acts done by them outside the dominions of the sovereign power enacting.  That is a rule based on international law by which one sovereign power is bound to respect the subjects and the rights of all other sovereign powers outside its own territory.

61                               A similar concern for state comity, or reciprocal respect, was internalized within the federal structure of the United States as early as Pennoyer v. Neff, 95 U.S. 714 (1877), at p. 722:

. . . no State can exercise direct jurisdiction and authority over persons or property without its territory. . . .  The several States are of equal dignity and authority, and the independence of one implies the exclusion of power from all others.

62                               These early formulations conceive of the territorial limitation in very physical terms, as was still the case in 1913 in Royal Bank of Canada, supra, where the court struck down an Alberta statute which purported to direct monies raised for a failed railway project to be paid over to provincial government coffers instead of having the monies returned to the lenders, most of whom resided in the United Kingdom.  Viscount Haldane L.C. considered it notable that “[n]o money in specie was sent to the branch office” in Alberta (p. 294).  He concluded that the debts were recoverable by the bondholders at the Bank’s head office in Montréal.  Accordingly, the right of the foreign bondholders to receive back their money

was a civil right which had arisen, and remained enforceable outside the province.  The statute was on this ground beyond the powers of the Legislature of Alberta, inasmuch as what was sought to be enacted was neither confined to property and civil rights within the province nor directed solely to matters of merely local or private nature within it.  [p. 298]

See also Attorney General for Ontario v. Scott, [1956] S.C.R. 137, at p. 141; Interprovincial Co-Operatives Ltd. v. The Queen, [1976] 1 S.C.R. 477, at p. 521; Credit Foncier Franco-Canadien v. Ross, [1937] 3 D.L.R. 365 (Alta. S.C.A.D.); and Beauharnois Light, Heat and Power Co. v. Hydro-Electric Power Commission of Ontario, [1937] O.R. 796 (C.A.).

2.    What Constitutes a “Sufficient Connection” Depends on the Relationship Among the Enacting Jurisdiction, the Subject Matter of the Law, and the Persons Sought To Be Regulated By It.

63                               Later formulations of the extraterritoriality rule put the focus less on the idea of actual physical presence and more on the relationships among the enacting territory, the subject matter of the law, and the person sought to be subjected to its regulation.  The potential application of provincial law to relationships with out-of-province defendants became more nuanced.  The evolution of the rule was perhaps inevitable given the reality, as La Forest J. commented in Morguard, that modern states “cannot live in splendid isolation” (p. 1095).  The focus on the relationship, as something that did not necessarily require actual physical presence within the jurisdiction, was identified by Dixon J., speaking for the High Court of Australia in Broken Hill South Ltd. v. Commissioner of Taxation (N.S.W.) (1936-1937), 56 C.L.R. 337, at p. 375, who said it was

also within the competence of the [state] legislature to base the imposition of liability on no more than the relation of the person to the territory.  The relation may consist in presence within the territory, residence, domicil, carrying on business there, or even remoter connections.

64                               Viewed in this way, the problem in Royal Bank of Canada, supra, was not physical presence as such but that there was insufficient connection between the province of Alberta, on the one hand, and the out-of-province bondholders and their money on deposit with the bank’s head office in Quebec, on the other hand, to justify the regulation of the debt by Alberta. 

65                               It appears from the case law that different degrees of connection to the enacting province may be required according to the subject matter of the dispute.  Broken Hill was a tax case.  In divorce matters, mere residence of the parties in the jurisdiction was regarded, at common law, as an insufficient “relationship”.  Actual domicile was required, e.g., Kalenczuk v. Kalenczuk (1920), 52 D.L.R. 406 (Sask. C.A.).  In another context, “[m]erely going through the air space over Manitoba” was an insufficient “relation” or connection with the province to support imposition of a provincial tax “within the Province”:  The Queen in Right of Manitoba v. Air Canada, [1980] 2 S.C.R. 303, at p. 316, per Laskin C.J. Yet in a products liability case, the presence of the defendant manufacturer in the jurisdiction is considered unnecessary.  The relationship created by the knowing dispatch of goods into the enacting jurisdiction in the reasonable expectation that they will be used there is regarded as sufficient:  Moran v. Pyle National (Canada) Ltd., [1975] 1 S.C.R. 393, at p. 409.  In yet another context, in R. v. Thomas Equipment Ltd., [1979] 2 S.C.R. 529, the “relation” requirement was satisfied for regulatory purposes where the accused, a non-resident, not only sold its products (which were not defective) in the enacting jurisdiction, but had hired a local agent to promote their sale.  In each case, the court assessed the relationship between the enacting jurisdiction and the out-of-province individual or entity sought to be regulated by it in light of the subject matter of the legislation to determine if the relation was “sufficient” to support the validity or applicability of the legislation in question.

66                               In Ladore v. Bennett, [1939] A.C. 468 (P.C.), Ontario legislation that reduced the rate of interest on out-of-province bondholders was upheld.  Purchasers, wherever situated, of Ontario municipal bonds had created a relationship between themselves and Ontario which was sufficient to ground jurisdiction in respect of the particular subject matter of the legislation.  On the facts, Ladore is difficult to distinguish from Royal Bank of Canada.  The different result can only be explained, from the perspective of the out-of-province parties, by an evolving sophistication in respect of the true scope of the territorial limitation.  Ladore was expressly approved by this Court in Reference re Upper Churchill Water Rights Reversion Act, [1984] 1 S.C.R. 297. 

67                               A further complication arises when the issue is not the validity of provincial legislation, but its applicability to out-of-province entities.  In this case, the appellant does not at all challenge the validity of the Ontario Insurance Act which on its face regulates an aspect of “Property and Civil Rights in the Province” (emphasis added) (Constitution Act, 1867, s. 92(13) ).  The appellant says only that the Ontario Act must be confined to its proper constitutional sphere, and its reach cannot validly be extended to an out-of-province insurer to govern the outcome of the present dispute.

3.    The Applicability of an Otherwise Competent Provincial Legislation to Out-of-Province Defendants is Conditioned by the Requirements of Order and Fairness that Underlie Our Federal Arrangements.

68                               The more flexible view of extraterritorial application evident in the later cases will, at least to some extent, increase the potential among the provinces for conflict.  In Hunt, supra, an organizing principle of the federation was found in the requirements of order and fairness, described by the Court as “constitutional imperatives” (p. 324).  Within the Canadian federation, comity requires adherence to “principles of order and fairness, principles that ensure security of transactions with justice” (Morguard, supra, at p. 1097).  As La Forest J. explained in Tolofson, supra, at p. 1051:

Many activities within one state necessarily have impact in another, but a multiplicity of competing exercises of state power in respect of such activities must be avoided.

69                               To similar effect is the concern expressed by La Forest J. in Tolofson, supra, at p. 1066:

. . . it is arguable that it is not constitutionally permissible for both the province where certain activities took place and the province of the residence of the parties to deal with civil liability arising out of the same activities.  Assuming both provinces have legislative power in such circumstances, this would open the possibility of conflicting rules in respect of the same incident.

70                               The issue in Hunt was whether a Quebec statute, which purported to prohibit the removal from Quebec of business records required by judicial process outside the province, excused compliance in a British Columbia court with documentary production.  Noting (at p. 330) that this approach would effectively immunize the business concerns located in Quebec from ever having to produce documents sought for the purposes of litigation in other provinces, La Forest J. held that the Quebec “blocking statute” was “constitutionally inapplicable [in British Columbia] because it offends against the principles enunciated in Morguard” (p. 331).

71                               Similarly, in my view, order in the federation would be undermined if every provincial jurisdiction took it upon itself to regulate aspects of the financial impact of the British Columbia car crash in relation to its own residents at the expense of the British Columbia insurer.  The Brennans’ accident, for example, might have occasioned a multi-vehicle pile-up on the Upper Levels highway.  On the respondent’s theory, each of the injured parties and their insurers could have imposed the varying insurance arrangements of their home jurisdictions on the appellant, ICBC.  The problem is not at all fanciful.  All it would take is a collision involving Mr. Singh’s truck and one 58-passenger tourist bus filled with out-of-province skiers heading along the Upper Levels Highway towards Whistler.  Such “competing exercises” of regulatory regimes “must be avoided”.  The cost of such regulatory uncertainties undermines economic efficiency.

72                               Fairness to the out-of-province defendant is also an important factor in the federation.  Here, if the respondent is correct, the appellant would be obliged to respond to insurance regimes in each province or state claiming some sort of insured interest in the financial fall-out from the British Columbia accident arising out of whatever financial obligations those other provincial or state legislatures have seen fit for whatever reason to impose on their own insurance companies.

73                               Adoption of the principles of order and fairness as a mechanism to regulate extraterritoriality concerns differentiates Canada somewhat from Australia (where s. 2 of the Constitution specifically confers extraterritorial jurisdiction on the several states, which, in some circumstances, can include the off-shore:  Union Steamship Co. of Australia Proprietary Ltd. v. King (1988), 166 C.L.R. 1 (Aust. H.C.), at p. 12) and the United States, where the jurisprudence is governed by the Due Process Clause of the Fourteenth Amendment and the Full Faith and Credit Clause of Article IV of the Constitution. 

74                               In Broken Hill, for example, Dixon J. went on to say, “If a connection exists, it is for the legislature to decide how far it should go in the exercise of its powers” (p. 375).  We would say, after Morguard, Hunt and Tolofson, that, within our federal structure, it is not only the view of the enacting legislature that must be considered, but the collective interest of the federation as a whole in order and fairness.  The same caveat should be placed at the door of the United States’ “minimum contacts” doctrine, endorsed by its Supreme Court in International Shoe Co. v. State of Washington, 326 U.S. 310 (1945).  In that country, as well, state laws are given generous application to disputes with limited connections to the enacting jurisdiction (see, e.g., Allstate Insurance Co. v. Hague, 449 U.S. 302 (1981)) to the point where Professor Laurence Tribe has commented:

There is much to be said for the view that the current state of the Supreme Court’s personal jurisdiction and choice-of-law doctrines is precisely backwards.  It is easy for a state to apply its law (which is by definition outcome-determinative) to a case, but relatively difficult for it to obtain jurisdiction over a dispute, even though jurisdiction is never directly outcome-determinative.  Jurisdictional issues are unpredictable and endlessly litigated; choice-of-law matters are largely unregulated.

(L. H. Tribe, American Constitutional Law (3rd ed. 2000), vol. 1, at p. 1292)

75                               Cases dealing with extraterritorial application from the courts of Australia and the United States should therefore be read with an eye to the differences in our constitutional arrangements.

76                               Returning to the Canadian jurisprudence, a striking illustration of the applicable principles of extraterritoriality is found in Thomas Equipment, supra.  In that case, a New Brunswick manufacturer of farm machinery (Thomas Equipment), which had contracted with an Alberta dealer to sell and promote its machinery in Alberta, was held to have committed an offence under the Alberta Farm Implement Act, R.S.A. 1970, c. 136.  That statute, which regulated aspects of the farm equipment business in Alberta, provided that, on termination of a dealership, the supplier was required to repurchase unsold equipment and parts.  There was no such obligation written into the dealership contract, which was expressly stated to be governed by the law of New Brunswick.  The manufactured goods were not defective.  Thomas Equipment refused to make the repurchase and was prosecuted in Alberta under The Farm Implement Act for this refusal.  A majority of this Court, per Martland J., approved, at p. 544, a dictum from one of the Alberta judges:

If a manufacturer wants to have his farm implements sold here he must comply with the rules of the game, as it were, established by the legislature of Alberta.  One of these rules clearly covers the manufacturer’s responsibility when his agreement with a dealer is terminated.

77                               Martland J. considered it important that Thomas Equipment had done more than make a “simple contract for the sale of goods” (p. 542) for resale in Alberta.  It had hired a local dealer to promote its products and goodwill within the province.  Its “relationship” with Alberta was more than just that of an out-of-province vendor.  In that sense, Thomas Equipment had itself (in addition to its machinery) entered the Alberta marketplace.

78                               Even so, Martland J. was careful to point out, at p. 545, that no constitutional question had been raised by the accused, Thomas Equipment.  The majority decision was therefore based solely and expressly on “the proper construction of the [Alberta] statute in respect of the facts of the case”.

79                               Laskin C.J., dissenting, squarely addressed the constitutional issue.  He stated that the prosecution was “to me an attempt to give Alberta law an extra-provincial application” (p. 533).  He referred in particular to Gray, supra, where Ontario law was held incompetent to direct a New York insurer to pay the benefits of an annuity, after the annuitant’s death, to his lawful widow (pursuant to Ontario law) instead of to his former common law wife (as required by New York law).  As Laskin C.J. explained, “Ontario could not change the terms of the [New York annuity] contract because it would be purporting to deal with civil rights outside the province” (p. 535).  Similarly, in Thomas Equipment itself, the relationship between the New Brunswick manufacturer and the province of Alberta did not, in the view of Laskin C.J., properly expose Thomas Equipment to Alberta’s regulatory regime.  Although he did not, of course, apply the Morguard analysis as such, Laskin C.J. clearly considered Alberta’s assertion of jurisdiction to be disruptive of good order among the provinces, and unfair to the New Brunswick manufacturer having regard to the choice of law provision in its dealer contract.

4.    The Principles of “Order and Fairness”, Being Purposive, Are Applied Flexibly.

80                               The required strength of the relationship varies with the type of jurisdiction being asserted.  A relationship that is inadequate to support the application of regulatory legislation may nevertheless provide a sufficient “real and substantial connection” to permit the courts of the forum to take jurisdiction over a dispute.  This happens regularly.  The courts, having taken jurisdiction, then apply the law of the other province applying rules of conflict resolution governing choice of law issues.  Thus, in Tolofson itself, there was a sufficient relationship between British Columbia and the parties for the British Columbia courts to hear the case, but it was determined that Saskatchewan law should apply to determine the outcome of the dispute.

81                               It would be unwise in this case to embark on a general discussion of “order and fairness”.  The question before us is quite specific:  Does the respondent have a statutory cause of action against the appellant given the constitutional limitations on the reach of the Ontario Insurance Act? 

5.    Application of These Principles to the Facts of This Case

82                               The respondent, Unifund, points to the fact that the payments for which reimbursement is claimed were paid in Ontario by an Ontario insurer to an Ontario resident.  This is true, but it leaves out of consideration the relationship between Ontario and the party sought to be made to pay, the out-of-province appellant.  Not only is the appellant not authorized to sell insurance in Ontario, it does not in fact do so.  Its insured vehicles in this case did not venture into Ontario.  The accident did not take place in Ontario, and the appellant did not benefit from the $750,000 deduction by virtue of Ontario law but by the law of British Columbia.

83                               The most that can be said for the respondent in this case is that the fact of a motor vehicle accident in British Columbia triggered certain payments in Ontario under Ontario law.  However, the fact the Ontario legislature has chosen to attach legal consequences in Ontario to an event (the motor vehicle accident) taking place elsewhere does not extend its legislative reach to a resident of “elsewhere”.  It can also be said that these payments in Ontario, in turn, triggered a deduction of an equivalent amount under the laws of British Columbia.  Again, however, the decision of the British Columbia legislature to attach legal consequences (the deduction) in that province to an event that occurred in Ontario (the SAB payments) does not bring the appellant (beneficiary under the British Columbia legislation) into the orbit of the Ontario legislature for the purpose of taking away the British Columbia benefit in favour of an Ontario insurance company.

84                               Here, unlike Thomas Equipment, supra, the appellant had not hired anyone in Ontario to promote its products.  It was not in the Ontario marketplace and, in my view, it was not required to “comply with the rules of the [Ontario] game”.  The decision of the Ontario legislature to impose no-fault benefits on Unifund could not be bootstrapped into legislative jurisdiction to impose a corresponding debt on the appellant, which (leaving aside the PAU argument) was beyond the territorial jurisdiction of the province.

85                               More recently, in Global Securities Corp. v. British Columbia (Securities Commission), [2000] 1 S.C.R. 494, 2000 SCC 21, the Court upheld a legislative scheme that permitted the British Columbia securities regulator to exchange information with out-of-province securities regulators.  The decision was based squarely on the proposition that statutory authorization of voluntary cooperation with foreign securities regulators “does not attempt to extend the reach of provincial legislation outside its borders” (para. 38).  That decision is of no help to the respondent.

86                               There are two other matters urged by the respondent that require brief comment.

87                               Firstly, Unifund contends that in deducting a no-fault benefit from the court award to the Brennans, the appellant obtained the benefit of the Ontario legislation.  Arguing that the appellant, ICBC, cannot be permitted to accept the benefit while avoiding the burden of the Ontario legislation, the respondent puts its position as follows (at para. 12 of its factum):

By claiming the deduction under section 25 of the BC Act in the litigation with the Brennans, ICBC sought and obtained the benefit of the Ontario legislation.  In its argument in this litigation, ICBC is seeking to avoid the burden of the Ontario legislation, and to thereby obtain a massive windfall.

88                               I do not think this analysis is correct.  Private insurance is normally a collateral benefit that is not ordinarily deductible by a defendant from the damages it must pay a successful plaintiff:  see Ratych v. Bloomer, [1990] 1 S.C.R. 940, at pp. 945 and 974; Cunningham v. Wheeler, [1994] 1 S.C.R. 359.  The Brennans had paid for their Unifund policy, including the SABs, and would not ordinarily be deprived of the benefit for which they contracted.  The deductibility benefit to the appellant was not conferred by the Ontario Act but by s. 25 of the British Columbia Insurance (Motor Vehicle) Act.

89                               Secondly, Unifund points out that on other occasions, the appellant has itself applied (successfully) for an order that it is entitled under s. 268(2) of the Ontario Act to claim indemnity from an Ontario insurer under s. 275:  Insurance Corp. of British Columbia v. Royal Insurance Co. of Canada, [1999] I.L.R. ¶I-3705 (C.A.).  That, however, was a case of a motor vehicle accident in Ontario where Ontario law applied. 

90                               It is true that the appellant has participated in litigation in Ontario from time to time, and on some occasions has “benefited” from the Ontario Act.  However, the appellant’s sporadic entries into Ontario were the result of motor vehicle accidents in Ontario involving motor vehicle policies issued in British Columbia, and were case-specific.  Nothing in the appellant’s activities in those cases gave rise to the obligation sought to be imposed in this case. 

91                               I therefore conclude that under ordinary constitutional principles, the Ontario Act is inapplicable to the out-of-province appellant in this case.  I turn, then, to the second string of the respondent’s bow, the appellant’s alleged “attornment” to Ontario law under the terms of the PAU.

(b)  Under the Power of Attorney and Undertaking

92                               The PAU system is an interprovincial (and interstate) web of interlocking arrangements for substitutional service and undertakings designed to ensure that travelling motorists are financially responsible for their actions in other provinces and participating states, by confirming that their insurers will respond to claims in respect of an accident which occurs outside of the insured’s home jurisdiction.  It tracks the ordinary law.  An out-of-province motorist can be required to defend an action in the jurisdiction where the accident occurred, and an insurer is contractually bound to the defendant to provide a defence in that place, whether there is a PAU in place or not.

93                               Under the terms of the PAU, which the appellant executed on September 22, 1988, the appellant agreed to appoint the Superintendent of Insurance in other provinces to accept service on its behalf “with respect to an action or proceeding against it or its insured . . . arising out of a motor-vehicle accident in any of the respective Provinces or Territories” (emphasis added).

94                               The PAU in this case does not extend to all provinces and territories.  I interpret the phrase “respective Provinces or Territories” to be those thereafter listed, namely provinces and territories other than British Columbia, whose name was crossed out on the standard form.

95                               The appointment is followed by three undertakings:

firstly, the signatory undertakes “[t]o appear in any action or proceeding against it or its insured in any Province or Territory in which such action has been instituted and of which it has knowledge”;

secondly, to “forthwith cause the notice or process to be personally served upon the insured”; and,

thirdly, not to set up any defence “under a motor-vehicle liability insurance contract entered into by it, which might not be set up if the contract had been entered into in, and in accordance with, the laws relating to motor vehicle liability insurance contracts or plan of automobile insurance of the Province or Territory of Canada in which such action or proceeding may be instituted”.

96                               It is my view that the PAU has no application to the facts of this case.

97                               Moreover, even if the PAU could be interpreted to require the appellant’s appearance to defend the claim in Ontario, I do not think the appellant would be precluded by the PAU in general or its third undertaking in particular from contesting the application of the Ontario Insurance Act to impose a civil obligation on an out-of-province insurer in respect of an out-of-province motor vehicle accident.  Such a defence does not arise under its “motor vehicle liability insurance contract”.  

98                               In MacDonald v. Proctor (1977), 86 D.L.R. (3d) 455 (Ont. C.A.), a Manitoba driver was involved in an accident in Ontario.  An Ontario action ensued, in which the Manitoba insurer, pursuant to the terms of a PAU, appeared.  Under Manitoba law, the Manitoba insurer was obliged to pay statutory benefits.  The Ontario tortfeasor attempted to deduct the SABs from the Ontario award of damages as allowed by the Ontario Act, but the deduction was disallowed.  In the Ontario Court of Appeal, Zuber J.A. observed that the issue in dispute there (as here) was “the applicability of the Ontario Insurance Act” (p. 456).  In his view, notwithstanding the PAU, the deductibility provisions of the Ontario Act did not apply.  He noted that, where the insurers wished to incorporate Ontario statutory provisions in the PAU (as in the case of policy limits), they did so expressly (at pp. 457-58):

I am unable to read the undertaking as an agreement to incorporate into extraprovincial policies all those items that the Ontario Insurance Act obliges an Ontario policy to include. . . . 

Although we have not been provided with the details of the Manitoba policy, it appears that it must contain benefits very similar to (or perhaps the same as) those set out in Sch. E.  However, the coverage providing those benefits is included in the policy by the Manitoba Public Insurance Corporation in the fulfilment of its own responsibilities; not because those benefits have been impressed into the policy by Ontario legislation.

. . . an undertaking by the Manitoba Public Insurance Corporation to, in effect, observe Ontario rules to a certain extent, where its insured is involved in Ontario proceedings, does not render the Manitoba policy one that is “made in Ontario”.  [Emphasis added.]

MacDonald looked at the present problem through the opposite end of the telescope, i.e., from the perspective of the court of the forum where the accident occurred and where the litigation took place.  However, the principled limitation on extraterritoriality is the same.  As Laskin C.J. stated in affirming this judgment from the bench ([1979] 2 S.C.R. 153, at pp. 153-54):

The main point argued by counsel for the appellant concerned the right of his client to have the advantage, as a deduction from his liability for damages, of disability benefits to which the plaintiff was entitled under her Manitoba contract with the Manitoba Public Insurance Corporation, as if s. 237(2) of the Ontario Insurance Act applied. Neither the undertaking filed by the Manitoba insurer, taken alone or in association with s. 25 of the Ontario Insurance Act, avails the appellant on this point. We do not agree that the disability benefits are deductible from the damages assessed against the appellant.

99                               The Court thus recognized the limited effect of the PAU, and did not accept as correct the theory of interprovincial integration urged in this case by the respondent.  The importance of the PAU in this respect is as stated in Healy v. Interboro Mutual Indemnity Insurance Co. (1999), 44 O.R. (3d) 404 (C.A.), per Goudge J.A., at p. 409:

[The PAU] assures the same statutory guarantees to someone injured in an automobile accident in Ontario whether the relevant automobile insurance contract was made in Ontario or another participating jurisdiction.

100                           The PAU is about enforcement of insurance policies, not about helping insurance companies, which have been paid a premium for the no-fault coverage, to seek to recover in their home jurisdictions their losses from other insurance companies located in a different jurisdiction when the accident took place in that other jurisdiction, and where the claims arising out of the accident were litigated there.  The appellant referred us to the observation of Professor Black:

The reciprocal system, of which the PAU is a key part, thus has what might loosely be described as a pro-compensation, consumer-protection function.

(V. Black, “Interprovincial Inter-Insurer Interactions:  Unifund v. ICBC” (2002), 36 Can. Bus. L.J. 436, at p. 444)

101                           I agree.  I am reinforced in that conclusion by several considerations: 

Firstly, as stated, the opening language of the PAU, which sets the framework for the rest of the document, talks about a proceeding “arising out of a motor-vehicle accident in any of the respective Provinces” which, in this PAU, excluded British Columbia where this accident took place.

Secondly, s. 275 of the Ontario Act is an indemnity provision that does not arise out of the motor vehicle policy itself.  SABs, as their name suggests, are “statutory accident benefits” required by the Ontario legislation.  If the respondent is correct, Ontario could attach whatever benefits it liked to an out-of-province accident and require the appellant to come to Ontario to reimburse the Ontario insurer irrespective of whether or not British Columbia law permitted any deduction in that respect from the judgment award.  As the Court pointed out in Hunt, supra, at p. 327, “[a] province undoubtedly has an interest in protecting the property of its residents within the province, but it cannot do so by unconstitutional means.”

Thirdly, the fact the PAU is aimed at litigation arising directly out of the motor vehicle accident itself is confirmed by the nature of the three undertakings:

(1) The first undertaking (to appear) is triggered by proper substituted service on the Superintendent.  If the accident had occurred in Ontario, the travelling tortfeasors from British Columbia could (quite apart from the PAU) have been served under the rules ex juris and the appellant would have been contractually bound to provide a defence.  In that sense, the PAU merely facilitates the inevitable.

(2)  The second undertaking requires the insurer to effect personal service on the insured.  The insured is not, of course, named as a party to the proposed arbitration.  This is because this proceeding does not affect the Brennans.  As stated, it is an attempt by Unifund to access an Ontario statutory scheme to reimburse itself for the payments it had paid pursuant to its Ontario policy, and in respect of which it had received a premium.  The irrelevance of this undertaking to Unifund’s action reinforces the conclusion that this dispute is not one contemplated by the PAU.

(3)  The third undertaking is not to raise a defence “under a motor-vehicle liability insurance contract entered into by it”.  The reference to “insurance contract” must necessarily be to the British Columbia policies issued to the truck, trucker and repair shop.  This makes perfect sense in seeking to harmonize an out-of-province motor vehicle policy with the laws of the jurisdiction where the accident took place.  The Ontario Court of Appeal has itself held that the defences which an insurance company may raise “are dictated by the laws of the province in which the motor vehicle accident occurred” (emphasis added):  Potts, supra, at p. 562, citing Corbett v. Co-operative Fire & Casualty Co. (1984), 14 D.L.R. (4th) 531 (Alta. Q.B.), at p. 535.  In the cases relied upon by the respondent, Unifund, the motor vehicle accident had occurred within the territorial jurisdiction of the court which “harmonized” the out-of-province policy with the local rules pursuant to the term of the PAU:  see Royal Insurance, supra, and Healy, supra, leave to appeal to this Court denied, [2000] 1 S.C.R. xiii.  All of this, however, has little relevance to an action between insurance companies commenced in a province where the accident did not occur.

(4)  The third undertaking goes on to require the signatory to satisfy any final judgment rendered against it “in the claim, action or proceeding, in respect of any kind or class of coverage provided under the contract or plan and in respect of any kind or class of coverage required by law to be provided under a plan or contracts of automobile insurance entered into in such Province” up to certain limits.  In other words, actions contemplated by the PAU involve the dollar amounts and “kind or classes of coverage” contained in the original motor vehicle policy itself.  This has nothing to do with the interinsurer indemnification procedure under s. 275 of the Insurance Act of Ontario.

Fourthly, the appellant, on December 16, 1997, filed a further undertaking with the Ontario Insurance Commission (called the “Protected Defendant Undertaking”) which provides in part:

THE INSURER UNDERTAKES AND AGREES that motor vehicle liability policies issued by the Insurer will include at least the Ontario Coverages, as set out above, when automobiles insured by the Insurer are operated in Ontario. . . .

                                                                  . . . 

THE INSURER ALSO AGREES to appear and to be bound by the laws of Ontario in defending any claim under its motor vehicle liability policy.  [Emphasis added.] 

While the Protected Defendant Undertaking operates in addition to the PAU, which remains in full force and effect, its terms seem to me to reinforce the nature of the arrangements between the appellant and Ontario, which have to do with defending claims under the appellant’s insurance policies, not defending a claim under the Ontario Act to re-allocate the cost of payments required by the Ontario Act amongst insurance companies subject to the Ontario Act. 

102                           As stated earlier, the fact that the appellant, ICBC, has on occasion attorned to Ontario in defending British Columbia motorists involved in accidents in that province does not constitute a general attornment to Ontario in respect of all accidents wherever they take place and any consequent proceedings.

103                           The courts should strive to give full effect to voluntary, interprovincial arrangements that seek to overcome some of the practical difficulties inherent in our federal structure.  The danger, however, is that if the courts overstate the effect of these voluntary arrangements, and thereby impose on the parties obligations that were never in their contemplation, cooperation may no longer be forthcoming.  In my view, the respondent’s argument attempts to push the PAU beyond its intended scope.  Acceptance of its argument would undermine rather than enhance voluntary interprovincial cooperation in the field of motor vehicle insurance.  If the insurers wish to expand their voluntary cooperation, the PAU can be amended to achieve this purpose.

104                           If, as I concluded earlier, the appellant is not otherwise within the legislative jurisdiction of Ontario, the PAU does not put it there by agreement. 

105                           In any event, as noted earlier, even if the PAU were interpreted (wrongly, in my view) to require the appellant to litigate Unifund’s claim in Ontario, there is nothing in the PAU that would prevent the appellant from contesting the purported extraterritorial assertion of s. 275 of the Ontario Insurance Act.  For the reasons already discussed, such an objection would succeed.  However one looks at this case, the respondent’s claim should be dismissed. 

(iii)    Should the Judge Have Dealt with the Issue of Forum Non Conveniens, or, Having Found the Ontario Act Constitutionally Applicable, Should the Issue of Forum Non Conveniens Have Been Referred to the Arbitrator (“the Forum Non Conveniens Issue”)?

106                           Having concluded, in response to the constitutional question, that the Ontario regulatory scheme does not apply to the out-of-province appellant on the facts of this case, the issue of forum non conveniens is moot.  There is no statutory cause of action available to the respondent to sue upon in Ontario or in British Columbia.  Unifund’s application rests on a faulty constitutional basis and must be dismissed.

X.     Conclusion

107                           I would allow the appeal with costs throughout and dismiss the respondent’s application.

108                           The constitutional question should be answered as follows:

Q.      Is s. 275 of the Insurance Act, R.S.O. 1990, c. I.8, as amended, constitutionally inapplicable to the appellant because its application in the circumstances of this case would not accord with territorial limits on provincial jurisdiction?

A.      Yes.

The reasons of Major, Bastarache and Deschamps JJ. were delivered by

Bastarache J. (dissenting)  —

I.       Introduction   

109                           This appeal involves two insurers which are parties to a reciprocal scheme for the enforcement of motor vehicle claims. They disagree on the effect of that scheme and on the extraterritorial application of the Ontario Insurance Act, R.S.O. 1990, c. I.8, notably s. 275, which provides for the indemnification of a no-fault insurer, here Unifund Assurance Company (“Unifund”), by a tortfeasors’ insurer, here the Insurance Corporation of British Columbia (“ICBC”), for benefits paid over $2,000.  Also at issue in this appeal is the jurisdiction of an arbitrator to be appointed pursuant to s. 275(4) of the Ontario Insurance Act to decide the issues of jurisdiction simpliciter, forum conveniens and choice of law.

110                           For the reasons that follow, I am of the view that a superior court judge must decide the issues of jurisdiction simpliciter and forum conveniens.  I am also of the view that, on the facts of this case,  ICBC has accepted the jurisdiction of Ontario in this matter by signing a “Power of Attorney and Undertaking” (“PAU”).  That instrument, interpreted in light of the principles of private international law set out in Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, recently affirmed in Spar Aerospace Ltd. v. American Mobile Satellite Corp., [2002] 4 S.C.R. 205, 2002 SCC 78, constitutes a sound foundation for the application of the Ontario Insurance Act to the parties in this case.  By virtue of the fact of attornment through the PAU, amongst other factors, I conclude that the subject matter which the Insurance Act covers is sufficiently connected to Ontario so as to render the Act applicable to ICBC.

II.     Factual Background

111                           Mr. and Mrs. Brennan, Ontario residents, were injured while visiting British Columbia in 1995. They were struck by a tractor-trailer while travelling in a car rented in British Columbia and Mrs. Brennan was rendered quadriplegic.  Following the accident, the Brennans returned to Ontario.  All of the vehicles involved in the accident were registered in British Columbia and insured by the appellant, ICBC, which provides mandatory insurance in that province.  Both Mr. and Mrs. Brennan received substantial statutory accident benefits (SABs) from their insurer, the respondent, Unifund. 

112                           The Brennans were awarded substantial damages as a result of an action brought in British Columbia against the owner and driver of the tractor-trailer, and against the garage that had repaired the said tractor-trailer.  The trial judge only dealt with the quantum of damages as all three defendants, insured by the appellant, admitted joint liability: Brennan v. Singh, [1999] B.C.J. No. 520 (QL) (S.C.).  The three defendant tortfeasors, in accordance with s. 25 of the British Columbia Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231, sought to deduct from the damages the amount of money that the Brennans had received from the respondent in the form of SABs.  The British Columbia Court of Appeal confirmed that the ICBC policy which insured the garage was automobile insurance within the meaning of the British Columbia Insurance (Motor Vehicle) Act and that the tortfeasors were entitled to deduct the benefits received from the respondent pursuant to its s. 25: Brennan v. Singh (2000), 75 B.C.L.R. (3d) 93, 2000 BCCA 294, aff’g (1999), 70 B.C.L.R. (3d) 342 (S.C.).  An action is continuing in the Supreme Court of British Columbia to determine the amount of the benefits that will be ordered to be deducted from the damage award: Brennan v. Singh (2001), 15 C.P.C. (5th) 17, 2001 BCSC 1812.

113                           The parties were unable to agree with respect to indemnification under s. 275 of the Ontario Insurance Act, the appellant, ICBC, taking the position that the Act did not apply.  Consequently,  the respondent, Unifund, brought an application before the Ontario Superior Court for the appointment of an arbitrator pursuant to s. 10 of the Ontario Arbitration Act, 1991, S.O. 1991, c. 17.  The appellant took two steps in response.  First, it brought an application in the British Columbia Supreme Court for a declaratory order that the law of British Columbia (and not that of Ontario) applies to the rights of the two insurers, and that the respondent has no right of subrogation under British Columbia law.  Second, it brought an application returnable before a judge in Ontario for an order staying the arbitration.

114                           The “Power of Attorney and Undertaking” (“PAU”), titled “Canada Non-Resident Inter-Province Motor Vehicle Liability Insurance Card”, provides that when an insured is sued in another province or territory, the Superintendent of Insurance of that province will accept service on behalf of the insurer or its insured, and that the insurer undertakes to appear in the action.  As a signatory to the PAU, the insurer further undertakes not to set up any defence in respect of any action under a motor vehicle liability contract which might not be set up in the province in which the action is instituted, and to satisfy judgment up to the greater of the amounts and limits of coverage provided for in the contract, or the minimum for that kind or class of coverage provided for by the laws of the province or territory in which the action is filed.  This reciprocal scheme provides a uniform basis for the enforcement of motor vehicle insurance claims in Canada and, to a lesser extent, in North America.

III. Relevant Statutory Provisions

115                           Insurance Act, R.S.O. 1990, c. I.8

275.—(1) The insurer responsible under subsection 268(2) for the payment of statutory accident benefits to such classes of persons as may be named in the regulations is entitled, subject to such terms, conditions, provisions, exclusions and limits as may be prescribed, to indemnification in relation to such benefits paid by it from the insurers of such class or classes of automobiles as may be named in the regulations involved in the incident from which the responsibility to pay the statutory accident benefits arose.

(2) Indemnification under subsection (1) shall be made according to the respective degree of fault of each insurer’s insured as determined under the fault determination rules.

(3) No indemnity is available under subsection (2) in respect of the first $2,000 of statutory accident benefits paid in respect of a person described in that subsection.

(4)   If the insurers are unable to agree with respect to indemnification under this section, the dispute shall be resolved through arbitration under the Arbitrations Act.

(5) No arbitration hearing shall be held with respect to indemnification under this section if, in respect of the incident for which indemnification is sought, any of the insurers and an insured are parties to a mediation under section 280, an arbitration under section 282, an appeal under section 283 or a proceeding in a court in respect of statutory accident benefits.

IV. Judicial History

A. Ontario Superior Court of Justice (2000), 23 C.C.L.I. (3d) 96

116                           Campbell J. determined that the case dealt with the narrow issue of the indemnification between two insurers pursuant to the Ontario Insurance Act.  He decided that his task was not to determine with finality the applicable law with respect to the resolution of the dispute but rather to consider the balance of convenience with regard to a motion for a stay on the basis of forum non conveniens.  The question of jurisdiction simpliciter was not explicitly considered by the applications judge.

117                           In the circumstances, the applications judge was not satisfied that there would be a loss of a juridical advantage, as feared by the respondent, Unifund, were a stay to be granted. The reciprocal nature of the scheme and the need for consideration by a court in one province of the applicability of the rules in another province led him to conclude that it was not simply a matter for a court in Ontario to apply Ontario law, or a court in British Columbia to apply British Columbia law.  Rather, it was for each court to consider the nature of the reciprocal scheme as effected by the legislation in both provinces.  The applications judge found the factors for granting a stay of proceedings in this case to be: (1) an absence of evidence of any serious or substantial prejudice to the plaintiff if a stay were granted; (2) the need to provide an opportunity for an expeditious determination of the issues raised by the plaintiff; and, (3) a serious prospect for inconsistent findings if both proceedings moved forward concurrently.  The applications judge concluded that the balance favoured the stay of the Ontario arbitration as he was of the view that the arbitration procedure instituted under s. 275 of the Ontario Insurance Act was not enacted to resolve legal issues that arise as a result of the operation of an interprovincial scheme which poses problems of conflicting provincial laws.  Because everything that gave rise to the dispute between the insurers commenced with an accident and an action in British Columbia, that province’s courts were deemed to be the appropriate forum for the resolution of the dispute.

B.     Court of Appeal for Ontario (2001), 204 D.L.R. (4th) 732

118                           Feldman J.A., for a unanimous court, held that when a statute provides that a matter is to be decided by arbitration under the Ontario Arbitration Act, 1991, it is for the arbitrator to decide questions of jurisdiction, applicable law and questions of law, subject to the right to appeal that decision to a court of justice.  The Court of Appeal considered the issue of forum non conveniens and found that the applications judge was in error when he stated that an arbitrator appointed to determine issues under s. 275 of the Ontario Insurance Act could only decide “intra-Ontario” issues.  First, the applications judge’s conclusion was found to be inconsistent with s. 275 when read in conjunction with the PAU to which British Columbia and Ontario are signatories.  Paragraph A of the PAU states that the signatory company undertakes “[t]o appear in any action or proceeding against it or its insured in any Province or Territory in which such action has been instituted and of which it has knowledge”.  The Court of Appeal held that, in part because of the presence of the PAU, there is no basis to conclude that s. 275(4) of the Ontario Insurance Act is to operate fully only in those circumstances where all parties and issues are confined to Ontario.  Second, the applications judge’s conclusion was held to be contrary to the scheme of the Ontario Arbitration Act, 1991 and the powers accorded to an arbitral tribunal under this same Act, namely to initially decide all questions of law and jurisdiction, unless the arbitrator or the parties consent to a referral to a court of justice.

V. Analysis

A.      The Procedural Issues

119                           The law of interprovincial jurisdiction and enforcement was changed drastically in Morguard, supra, where the Court held that the principles of order and fairness require limits on the reach of provincial legislation facilitating the enforcement of an extraprovincial judgment, but that extraprovincial jurisdiction can nevertheless be asserted on the basis of a real and substantial connection.  The territoriality issue arose again in Hunt v. T&N plc, [1993] 4 S.C.R. 289; in that case, the Court considered whether a provincial statute preventing documents relating to any business concerns in Quebec from being sent out of the province was ultra vires the province as being in relation to a matter outside the province, or constitutionally inapplicable to judicial proceedings in other provinces.  In Tolofson v. Jensen, [1994] 3 S.C.R. 1022, this Court dealt with the question of which law should govern in cases involving the interests of more than one jurisdiction, specifically as it concerns automobile accidents involving residents of different provinces.  However, the principles developed in Hunt and Tolofson are of little help in the case at bar as it concerns consent-based jurisdiction in the context of a conflict between insurers.  The difficulty with this appeal is that there is a disagreement between the parties about the effect of the PAU and whether signing it constituted attornment by the parties to Ontario’s jurisdiction.  The preliminary question, however, is whether these issues should be decided by a superior court judge or by an arbitrator, as held by the Court of Appeal for Ontario.

120                           In its reasons, the Court of Appeal relied on paragraph A of the PAU, the undertaking to appear, and on the fact that the determination of forum non conveniens by the applications judge would be inconsistent with the provisions of the Ontario Insurance Act.  The appellant, ICBC, submits that if there is any doubt about the application of the Ontario Insurance Act or the appropriateness of Ontario as a forum, that doubt should not be resolved by an arbitrator appointed under the very legislation whose application is questioned.  The appellant  submits that Ontario’s Arbitration Act, 1991 does not confer exclusive jurisdiction on an arbitrator to construe legislation to determine its constitutional applicability.  It argues that a party should not be required to submit to a tribunal whose fundamental existence, authority and jurisdiction are challenged, but should be able to first ask a court of justice to rule on this important threshold question.

121                            The respondent, Unifund, agrees with the Court of Appeal that the determination of the preliminary question of whether an insurer is an insurer within the meaning of s. 275 of the Ontario Insurance Act should be made in the first instance by an arbitrator.  It argues that the characterization of this issue by the appellant as jurisdictional and constitutional does not transform the nature of the inquiry or remove from the arbitrator the power to make such a decision.  The respondent submits that the mandatory arbitration clause in s. 275(4) of the Act confers exclusive jurisdiction on an arbitrator to deal with all the issues raised by the appellant, in the first instance.

122                           I think that the first issue presented to the applications judge was that of jurisdiction simpliciter, and that in any event he was required to deal with it before addressing the question of forum conveniens.  Even though it may be difficult to perfectly isolate these two issues of jurisdiction, I am of the view that the Court of Appeal could not decide to submit the whole matter to an arbitrator without inferentially deciding that the Ontario Insurance Act applied.  The reason for this is that the appointment of the arbitrator depends on the application of s. 275 of the Ontario Insurance Act.  With respect, I find the decision of the Court of Appeal inconsistent as it orders the appointment of an arbitrator while remitting to this same arbitrator the question of whether or not his or her jurisdiction is constitutional.

123                           The argument that an arbitrator is mandated to decide questions of law and therefore must do so before these questions are to be decided by a court of justice is not persuasive in this case because of the very nature of the appellant’s claim, namely that the Ontario legislation imposing arbitration is constitutionally inapplicable.  I fail to see how an arbitrator can have any jurisdiction if the procedure under which he or she is empowered to decide questions of law is ultra vires the legislature.  This reasoning is consistent with the principles that govern the Model Law on International Commercial Arbitration, adopted by the United Nations Commission on International Trade Law in 1985, on which the Ontario Arbitration Act, 1991 is based.  The former’s Article 8(1) reads:

A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

The territorial application of the Ontario Insurance Act is an issue that is distinct from those considered in cases dealing with the power of administrative tribunals to determine their own jurisdiction.  This is, in my opinion, consistent with the opinion of La Forest J. in Morguard, supra, at pp. 1099-1100:

The Canadian judicial structure is so arranged that any concerns about differential quality of justice among the provinces can have no real foundation. All superior court judges — who also have superintending control over other provincial courts and tribunals — are appointed and paid by the federal authorities. And all are subject to final review by the Supreme Court of Canada, which can determine when the courts of one province have appropriately exercised jurisdiction in an action and the circumstances under which the courts of another province should recognize such judgments.

The same point is made forcefully in Canada Labour Relations Board v. Paul L’Anglais Inc., [1983] 1 S.C.R. 147, at pp. 162-63.

B. Jurisdiction Simpliciter

124                           The first issue to be decided is therefore that of jurisdiction simpliciter.  Morguard determined that, given considerations of comity, the exercise of extraterritorial jurisdiction depends on the existence of a real and substantial connection to the forum that assumed jurisdiction and gave judgment.  In Hunt, supra, at pp. 324-28, the Court gave these considerations the force of constitutional principles, acknowledging that their meaning and limits had not been fully defined.  In Spar Aerospace, supra, at para. 52, LeBel J., for a unanimous Court, insisted that a flexible approach is to be adopted when the “real and substantial connection” criterion is applied, finding support in La Forest J.’s discussion in Morguard, at p. 1106 (thereby agreeing with Dickson J.’s approach in Moran v. Pyle National (Canada) Ltd., [1975] 1 S.C.R. 393, at pp. 408-9) of the requisite “inherently reasonable” character of any finding of jurisdiction.  Later, at para. 56 of Spar Aerospace,  LeBel J. is of the opinion that each ground listed at art. 3148(3) of the  Civil Code of Quebec, namely fault, injurious act, damage and contract, taken on its own, is an example of a real and substantial connection between a province and an action for the purposes of jurisdiction simpliciter.  Approving a number of cases where damage suffered in a province was judged sufficient to establish a real and substantial connection (in the majority of cases, enabling the plaintiff’s chosen forum to assume jurisdiction), he concludes that a broad basis for jurisdiction, based on a less stringent real and substantial connection, is all the more favourable where inappropriate exercises of jurisdiction can be moderated by way of the application of the doctrine of forum non conveniens: Spar Aerospace, at paras. 58-61.

125                           Obviously, jurisdiction simpliciter and forum non conveniens are related and the factors determining the latter inquiry will overlap with those applicable in the former.  Nevertheless, the jurisdictional issue is a legal rule, not a discretionary one, as pointed out by Sharpe J.A. for a unanimous Court of Appeal for Ontario in Muscutt v. Courcelles (2002), 60 O.R. (3d) 20, at para. 43.  The first jurisdictional inquiry consists in establishing whether there exists a sufficient connection between the forum and the action, not whether the said connection is stronger than those existing between the action and other forums.  The jurisdiction simpliciter inquiry is one based on order, fairness and efficiency in the context of the needs of modern federalism.

126                           In Muscutt, Sharpe J.A. held at para. 53 that Ontario’s Rule 17.02(h) of the  Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which permits service outside Ontario, is a procedural device that is constitutionally valid and does not interfere with the ability of the party served to move to set aside the service or stay the proceeding.  The Court of Appeal held that personal subjection is not a necessary component to establish jurisdiction simpliciter, but that a substantial connection to the subject matter of the litigation will suffice.  This, I believe, is consistent with this Court’s reasons in Spar Aerospace.  I note, however, that several trial level decisions, perhaps finding inspiration in the American “minimum contacts” doctrine, have made of contact between the defendant and the forum a de facto prerequisite for the assumption of jurisdiction simpliciter: Muscutt, at paras. 59-62; see for instance: Long v. Citi Club, [1995] O.J. No. 1411 (QL) (Gen. Div.), at para. 7, Brookville Transport Ltd. v. Maine (1997), 189 N.B.R. (2d) 142 (Q.B.), at para. 23; Negrych v. Campbell’s Cabins (1987) Ltd., [1997] 8 W.W.R. 270 (Man. Q.B.), at para. 6.  I do not endorse this reasoning.  Indeed, it was rejected by more than one court of appeal, including that of Ontario (Muscutt, at para. 74; McNichol Estate v. Woldnik (2001), 150 O.A.C. 68, at paras. 12-16), of Nova Scotia (Oakley v. Barry (1998), 158 D.L.R. (4th) 679, at pp. 691-92 and 698-99; O’Brien v. Canada (Attorney General) (2002), 210 D.L.R. (4th) 668, at paras. 20-21), and of British Columbia (Pacific International Securities Inc. v. Drake Capital Securities Inc. (2000), 194 D.L.R. (4th) 716, at paras. 15-17; Cook v. Parcel, Mauro, Hultin & Spaanstra, P.C. (1997), 143 D.L.R. (4th) 213, at para. 20).  In any event, I agree with Sharpe J.A.’s conclusion on the preferability of an approach broader than personal subjection and his approval of G. D. Watson and F. Au’s position in “Constitutional Limits on Service Ex Juris: Unanswered Questions from Morguard” (2000), 23 Advocates’ Q. 167, as explained at para. 73 of his reasons in Muscutt:

On the basis of these objections, Watson and Au conclude that the real and substantial connection test should be interpreted as requiring a connection either between the forum and the defendant or between the forum and the subject matter of the action.  In their view, the defendant’s connection with the forum should not determine the choice of forum.  Rather, the defendant’s connection should simply be a relevant factor to be weighed together with other factors.

127                           The present appeal does not revolve around the question of attornment by simple admission of service; it is based on the meaning of the PAU with regard to the interconnectedness of the various provincial motor vehicle insurance regimes. This does not diminish the relevance to the determination of this appeal of the previous discussion of the requirement of a personal connection in establishing jurisdiction simpliciter, which is not required in the post-Morguard case law.

128                            The appellant,  ICBC, submits that as a matter of statutory interpretation, the Ontario Insurance Act does not apply to this case.  The arbitration model endorsed by that Act is not engaged, it argues, because the appellant is not an “insurer” within the meaning of the Act as it is not licensed to, and does not in fact, carry on business in Ontario.  Nothing in the Ontario Insurance Act, the appellant submits, can be construed as extending the Ontario loss-allocation scheme to non-resident insurers who do not insure Ontario residents and whose obligations arise from accidents outside Ontario.  According to the appellant, the PAU does not alter the conclusion that Ontario law does not apply to the facts of this case.  It submits that the object of the reciprocal scheme to which insurers in North America have subscribed is to protect insureds and those entitled to recover damages from them.  The appellant therefore takes the position that the respondent’s attempt to impose Ontario’s loss allocation regime in a case arising out of an accident in British Columbia has nothing to do with the object of the PAU or of the reciprocal scheme.  The appellant submits that the PAU does not include a general or comprehensive submission to the law of Ontario for all purposes and in all circumstances.

129                           In the present case, the underlying tort claim is not a relevant factor in determining whether Ontario has jurisdiction simpliciter.  What is relevant is the fact that the insurers, by signing the PAU, have recognized the interrelationship of insurance regimes across Canada and accepted that insurers in one province will sometimes be sued in other provinces.  In my opinion it is therefore reasonably foreseeable that the appellant will sometimes have to appear in Ontario to defend an action brought in that jurisdiction as a result of an accident having occurred in British Columbia.  The appellant is, at least notionally, an insurer in Ontario, or one carrying out business in that province.  In fact, the appellant has facilitated service and agreed, in limited circumstances, not to raise certain defences in Ontario courts.  I do not find it unfair that insurers involved in the interprovincial scheme underlying this appeal, and having accepted the risk of harm to extraprovincial parties to the agreement, be considered to have attorned to the jurisdiction of Ontario’s courts.  I think that all of the reasons justifying a widened jurisdiction in Morguard apply in this case.  Most importantly, the demands of Canadian federalism strongly favour this result.  I wish to clarify at this juncture that my conclusion does not interfere with the right of the appellant in this case to argue that Ontario is forum non conveniens, or that the law of Ontario should not apply.

130                           With respect, I cannot agree with the interpretation of Binnie J. that the phrase “respective Provinces or Territories” in the first paragraph of the PAU operates in a way that excludes the province of British Columbia from its reach.  British Columbia is one of the respective provinces participating in the PAU interprovincial system.  Given that, as indicated at the very top of the PAU, the appellant’s head office is in the city of North Vancouver in the province of British Columbia, it need not appoint the superintendent of insurance of that province to accept service of notice or process on its behalf.  The province of British Columbia was crossed out in the PAU only with regard to the fact that the appellant is bound by the ordinary rules of service to respond to claims against it in British Columbia.

131                           The appellant  submits that the PAU is designed only to protect the insured and those entitled to recover damages from those insured, and does not constitute a general submission to jurisdiction by it.  Submission to jurisdiction with regard to motor vehicle accidents entered into by its insured, the appellant argues, has nothing to do with the indemnification of insurers between themselves.  Faced with a PAU whose wording, notably in paragraph A, is general, the appellant refers to s. 18 of the British Columbia Insurance (Motor Vehicle) Act, which speaks of its ability to execute such undertakings, in order to limit their scope.  The appellant also alleges that the undertaking to appear in an action refers to an action properly instituted, and that its appearance is not to be interpreted as restricting its right to raise issues of jurisdiction.  The respondent submits that a real and substantial link between Ontario and the action is established by the fact that it has paid SABs to its insured pursuant to the Ontario Insurance Act, and that those payments will be deducted by the appellant from payments it owes to the respondent’s insured.  The respondent argues that the appellant is in fact carrying out business in Ontario, though it does not sell insurance products there, by the very fact that it has responsibilities with regard to insured persons there as a result of the PAU.  It submits that the terms of the PAU are sufficiently broad to establish jurisdiction simpliciter because in signing this document the appellant appointed the Superintendent of Insurance of Ontario to accept service of notice or process on its behalf “with respect to an action or proceeding against it or its insured, or its insured and another or others, arising out of a motor-vehicle accident in any of the respective Provinces or Territories” (emphasis added).  The respondent further submits that the appellant undertook “[t]o appear in any action or proceeding against it or its insured in any Province or Territory in which such action has been instituted and of which it has knowledge” (emphasis added).

132                           I accept that s. 275 of the Ontario Insurance Act, the indemnification provision at issue in this appeal, is not directly related to the protection of the insured and those injured by them, or to facilitating the mobility of persons in Canada.  That said, I do not think that it is reasonable, when deciding the issue of jurisdiction simpliciter, to enter into a piecemeal interpretation of the regime providing for the integration of insurance protection across Canada and to establish distinctions between benefits payable to the insured, on the one hand, and the indemnification of their insurers, on the other hand.  I think it is interesting, when dealing with some claims coming under the PAU and others not, to note the similar holistic approach taken by Goudge J.A. in his analysis of jurisdiction simpliciter in McNichol Estate, supra, at paras. 11-13.  There is no valid reason to give the PAU a restrictive interpretation at this point in order to overcome the principled approach developed in Morguard.

133                           In light of the foregoing, wherein I accept that a link with the subject matter of the claim is sufficient to establish the jurisdiction simpliciter of a forum given the flexible approach that has been endorsed by this Court, I think that it is fair to say that there are a number of considerations which, taken together with the general language of the PAU, indicate that the appellant is subject to Ontario’s jurisdiction.  I accept the position of the respondent that the benefits it paid to an Ontario resident which were later deducted by the appellant, the general undertaking to appear by the appellant, and its limited undertaking not to present certain defences in Ontario actions, all militate in favour of a finding that jurisdiction simpliciter is made out.  I also find the reasoning of Goudge J.A., for a unanimous Court of Appeal for Ontario in Insurance Corp. of British Columbia v. Royal Insurance Co. of Canada, [1999] I.L.R. ¶I-3705, to be applicable here.  In that case, the trial judge had concluded at trial that the entitlement to indemnification found at s. 275(1) of the Ontario Insurance Act only applied to insurers responsible under s. 268(2) of the Act for the payment of SABs.  The trial judge was of the opinion that s. 268 of the Act could only apply to contracts made in Ontario.  The Court of Appeal disagreed and held at p. 5759 “that an extra-provincial insurer that has chosen to participate in the reciprocal scheme is obliged to pay those SABs mandated by s. 268(1) of the Insurance Act as if its policy were a valid Ontario motor vehicle liability policy.  By filing the PAU, that insurer [in that case, ICBC] has undertaken to comply with the no-fault coverage required by s. 268(1) and (2).”  The issue before us is not, at this stage, whether a different result was justified in Royal Insurance on the basis of the choice of law; it is that the integration of the provincial regimes is real and substantially made out by the obligation to pay SABs in another province under the PAU.  As mentioned earlier, the determination of jurisdiction simpliciter is a preliminary issue, distinct from the issues of forum non conveniens and choice of law.  I reject the idea that the latter inquiries into forum conveniens and choice of law should have any influence over the determination of jurisdiction simpliciter.  This is consistent with the approach taken by a unanimous Court of Appeal for Ontario in Berg (Litigation guardian of) v. Farm Bureau Mutual Insurance Co. (2000), 50 O.R. (3d) 109, and I think that it is the appropriate one.

134                           Having found that jurisdiction simpliciter is established, I must decide whether the question of forum non conveniens should be decided by the court or remitted to an arbitrator, as ordered by the Court of Appeal.  In my view, the same arguments that justify that a court of justice, not an arbitrator, decide the issue of jurisdiction simpliciter in this case apply to that of whether the former or the latter should determine whether there exists a more convenient forum in this case.  The forum non conveniens inquiry is a preliminary one that must be raised at the earliest opportunity and its determination is necessary before the jurisdiction of an arbitrator can be effective in a case such as this.

C.     Review of the Decision on Forum Conveniens

135                           The Court of Appeal did not deal with this issue, holding that an arbitrator should first decide whether there was a clearly more appropriate forum for the action.  The applications judge had decided to grant a stay on the basis that he was not satisfied that there would result a loss of a juridical advantage to the respondent, that s. 275 of the Ontario Insurance Act was not meant to deal with issues arising in the context of an interprovincial scheme, and that the underlying dispute between the parties was a civil action in British Columbia concerning an automobile accident that occurred in that province.

136                           The appellant submits that British Columbia has clearly been established as the “natural forum” for the determination of the respondent’s indemnification claim because all of the facts giving rise to the claim, and all legal proceedings resulting from those facts, occurred in British Columbia.  It adds that British Columbia courts are quite capable of deciding which law applies and of applying the law of another province, should it be necessary to do so.  The respondent replies that the applications judge incorrectly applied the onus of proof by not requiring that the appellant show that British Columbia is clearly the more appropriate forum, and by only requiring that the respondent prove that it would suffer the loss of a juridical advantage if the action were stayed.  The other factors that should have been considered, the respondent submits, are the fact that its insureds, the Brennans, are residents of Ontario, the fact that the SABs were paid in Ontario under the terms of a contract concluded in that province, that the right of indemnification arises in Ontario under Ontario law, that the key documents and witnesses required to determine the claimed right to indemnification are in Ontario, that the right of indemnification is unconnected to the tort action in British Columbia, that the appellant, in signing the PAU, appointed the Superintendent of Insurance of Ontario as agent of service and undertook to appear in any action or proceeding against it, and that the respondent is not a licensed insurer in British Columbia.

137                           I agree with the respondent that the proper test to a forum non conveniens inquiry is to ask whether the existence of a more appropriate forum has been clearly established to displace the forum selected by the plaintiff: Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897, at pp. 920-21; affirmed by the Court in Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), [2001] 3 S.C.R. 907, 2001 SCC 90, at para. 89.  If neither forum is clearly more appropriate, the domestic forum wins by default: Amchem, at p. 931. The application of the balance of convenience by the applications judge constituted an error of law since “a party whose case has a real and substantial connection with a forum has a legitimate claim to the advantages that that forum provides”: Amchem, at p. 920.

138                           With regard to the loss of a juridical advantage, I am of the view that, in staying the proceedings in part because he was not satisfied that there would result a loss of a juridical advantage to the respondent, the applications judge established an unduly high threshold.  As the Court explained in Amchem, at p. 920:

The weight to be given to juridical advantage is very much a function of the parties’ connexion to the particular jurisdiction in question . . . [A] party whose case has a real and substantial connection with a forum has a legitimate claim to the advantages that that forum provides. The legitimacy of this claim is based on a reasonable expectation that in the event of litigation arising out of the transaction in question, those advantages will be available. [Emphasis added.] 

Put another way, all that a party has to show is “a fair possibility of gaining an advantage by prosecuting the action in the desired jurisdiction”: Avenue Properties Ltd. v. First City Development Corp. (1986), 32 D.L.R (4th) 40 (B.C.C.A.), at pp. 46-47.  Given the respondent’s real and substantial connection to Ontario, I am of the view that it has a legitimate claim to, and it is reasonable to expect that it will, take advantage of the interinsurer indemnification scheme which Ontario provides.  There is a fair possibility that the respondent will gain an advantage by prosecuting the action in Ontario.  Other factors also matter: consideration must be given to matters of public policy, where relevant, the places where the parties carry on their business, the convenience and expense of litigating in one place or the other, the discouragement of forum shopping (Holt Cargo Systems, at para. 91), as well as other relevant factors that may appear.

139                           In my view, ICBC did not provide any evidence that British Columbia was clearly the more appropriate forum. It is totally irrelevant that the underlying action was launched in British Columbia, given the issues in the case at bar.  This action is altogether independent of the one before the British Columbia court; it was started in Ontario on the basis of payments made under an insurance policy contracted in Ontario.  Many factors previously mentioned link the parties to Ontario.  Furthermore, the possibility of interinsurer indemnification is the product of an Ontario statutory regime.  I would think that it is obvious that there is a juridical disadvantage to the respondent in having this action proceed in British Columbia.  Obviously, both parties are concerned that the choice of the forum will have an impact on the choice of law.  The question of the choice of law, in my view, is a separate issue and should be dealt with, in the first instance, by an arbitrator appointed pursuant to s. 275(4) of the Ontario Insurance Act, his or her decision being subject to appeal in the normal course of things.

D.      The Constitutional Issue

140                           I do not propose to deal at any length with the question of the permissible reach of Ontario’s Insurance Act.  In Reference re Upper Churchill Water Rights Reversion Act, [1984] 1 S.C.R. 297, the Court opined that valid provincial legislation can affect extra-provincial rights in an “incidental” manner.  I am of the view that valid provincial laws can affect “matters” which are “sufficiently connected” to the province.  See J.-G. Castel and J. Walker, Canadian Conflict of Laws (5th ed. (loose-leaf)), at p. 2.1.  In my view, the respondent has shown that the subject matter which the Insurance Act covers, interinsurer indemnification, falls within provincial jurisdiction and is sufficiently connected to Ontario so as to render the statute applicable to the ICBC.

VI.     Disposition

141                           I would dismiss the appeal, with costs, and affirm the decision of the Court of Appeal to refer the matter back to the applications judge to appoint an arbitrator under s. 10 of the Arbitration Act, 1991, to deal with the question of the choice of law and consider the substantive issues raised by the parties. The constitutional question should be answered in the negative.

                                                           APPENDIX

Insurance Act, R.S.O. 1990, c. I.8 (prior to amendment by S.O. 1996, c. 21)

Statutory accident benefits

268.—(1)  Every contract evidenced by a motor vehicle liability policy, including every such contract in force when the Statutory Accident Benefits Schedule is made or amended, shall be deemed to provide for the statutory accident benefits set out in the Schedule and any amendments to the Schedule, subject to the terms, conditions, provisions, exclusions and limits set out in that Schedule.

                                                                   . . .

Indemnification in certain cases

275.—(1)  The insurer responsible under subsection 268(2) for the payment of statutory accident benefits to such classes of persons as may be named in the regulations is entitled, subject to such terms, conditions, provisions, exclusions and limits as may be prescribed, to indemnification in relation to such benefits paid by it from the insurers of such class or classes of automobiles as may be named in the regulations involved in the incident from which the responsibility to pay the statutory accident benefits arose.

Idem

(2)  Indemnification under subsection (1) shall be made according to the respective degree of fault of each insurer’s insured as determined under the fault determination rules.

                                                                   . . .

Arbitration

(4)  If the insurers are unable to agree with respect to indemnification under this section, the dispute shall be resolved through arbitration under the Arbitrations Act.

Arbitration Act, 1991, S.O. 1991, c. 17

Stay

7.—(1)  If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

Exceptions

(2)  However, the court may refuse to stay the proceeding in any of the following cases:

                                                                   . . .

3.  The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.

8. . . . 

Questions of law

(2)  The arbitral tribunal may determine any question of law that arises during the arbitration; the court may do so on the application of the arbitral tribunal, or on a party’s application if the other parties or the arbitral tribunal consent.

Appeal

(3)  The court’s determination of a question of law may be appealed to the Court of Appeal, with leave.

. . .

Appointment of arbitral tribunal

10.—(1)  The court may appoint the arbitral tribunal, on a party’s application, if,

                                                                   . . .

(b)       a person with power to appoint the arbitral tribunal has not done so after a party has given the person seven days notice to do so.

No appeal

(2)  There is no appeal from the court’s appointment of the arbitral tribunal.

. . .

Arbitral tribunal may rule on own jurisdiction

17.—(1)  An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement.

                                                                   . . .

Declaration of invalidity of arbitration

48.—(1)  At any stage during or after an arbitration, on the application of a party who has not participated in the arbitration, the court may grant a declaration that the arbitration is invalid because,

                                                                   . . .

(c)                                                                              the subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law. . . .

Appeal allowed with costs, Major, Bastarache and Deschamps JJ. dissenting.

Solicitors for the appellant:  Fasken Martineau DuMoulin, Vancouver.

Solicitors for the respondent:  Fogler, Rubinoff, Toronto; Samis & Company, Toronto.