Insurable Interest

SCC Clarifies Law on Parallel Lawsuits: Race to Courthouse does not Determine Jurisdiction

In Teck Cominco Metals Ltd. v. Lloyd's Underwriters, released on February 20, 2009, the Supreme Court of Canada ("SCC") decided that a British Columbia insurance coverage lawsuit may continue even though a similar lawsuit was in progress before an American court. In making its decision, the SCC clarified British Columbian law on parallel lawsuits.

To better understand the SCC's decision, it helps to know the problems created by parallel lawsuits and how the law has evolved to deal with them. If a case has a substantial connection to a court’s geographical jurisdiction, the court may hear the case even if it also involves matters in other jurisdictions. If parties to the dispute prefer to litigate in different jurisdictions, this can result in parallel lawsuits. When that occurs, as it did in Teck Cominco, each court must decide whether to stop its case in deference to the other court. If both courts elect to proceed, various problems arise, including duplicate legal costs and the possibility of conflicting judgments. To minimize these problems, common law rules were created to discourage multiple lawsuits addressing the same dispute. Inevitably, some parties used the rules to secure a trial in their preferred location. They would race to start a lawsuit in the jurisdiction of their choice and then try to shut down a subsequent action their opponents commenced elsewhere, arguing the second action was an improper duplicate of the first.

In British Columbia, the common laws rules were codified in the Court Jurisdiction and Proceedings Transfer Act ("CJPT Act"). In Teck Cominco, the SCC relied upon the CJPT Act in ruling that a British Columbia court need not decline a case simply because a court in another jurisdiction made an earlier decision to proceed with a parallel action.

Teck Cominco Metals Ltd. ("Teck") operated various mining and smelting operations in British Columbia. Waste material discharged into adjoining rivers over several decades accumulated downstream in Washington State, resulting in the State government and several private State citizens suing Teck in a Washington court. Teck's liability insurers denied coverage and so Teck sued them in another Washington lawsuit. The same day, the insurers commenced a coverage action against Teck in British Columbia, asking the BC court to declare the insurers had no obligation to defend Teck in the original Washington action. In the Washington coverage action, the insurers applied to have the court to decline the case because it should properly be heard in British Columbia. The Washington court denied the insurers' application. Teck then made the same application in British Columbia, asking that court to decline the case because it should be heard in Washington. The British Columbia trial judge relied on the CJPT Act in denying Teck's application and so did the British Columbia Court of Appeal. Teck appealed again to the SCC, arguing that: (1) because the Washington court had already ruled that it would hear its case, the doctrine of comity (a common law principle that a court in one jurisdiction should respect the rulings of a court in another) should displace the CJPT Act; and (2), in any event, the trial judge had misapplied the CJPT Act.

The SCC dismissed Teck's argument that comity should trump the CJPT Act. Dealing with this, the SCC ruled first that the CJPT Act was itself a comity-based approach for determining whether a British Columbia court should hear a case that could be heard elsewhere. Second, the fact that a court in another jurisdiction had already decided to hear the case was only one factor to be considered under the CJPT Act. Third, British Columbia case law history contained several examples of judges hearing cases despite the existence of parallel actions in other jurisdictions. Fourth, employing a "first case filed decides the location" rule would be bad public policy, encouraging parties to race each other to the courthouse of their choice to gain jurisdictional advantage. Fifth, the SCC said a court should give more deference to other courts sharing a uniform and shared approach to the exercise of jurisdiction, such as those in Canadian provinces, than to those courts that do not, such as courts in different countries.

The SCC also rejected Teck's argument that the trial judge had misapplied the CJPT Act. The Act sets out six factors a judge must consider when deciding whether to hear a case that might also be heard in another jurisdiction: (1) the comparative convenience and expense for the parties and their witnesses; (2) the law to be applied to the issues in the proceeding; (3) the desirability of avoiding multiplicity of proceedings; (4) the desirability of avoiding conflicting decisions in different courts; (5) the enforcement of an eventual judgment; and (5) the fair and efficient working of the Canadian legal system as a whole.

Teck said that when applying the CJPT Act, the trial judge should have given further weight to the fact that the coverage action was in relation to damages claimed in Washington. The SCC rejected Teck's argument and instead agreed with the trial judge that the central issues in the coverage action were disclosure, risk assessment and policy interpretation which weighed in favour of applying British Columbia law. The SCC also agreed with the trial judge that, while most of the damage was sustained in Washington, some damage and all of the alleged wrongdoing occurred in British Columbia, again favouring the application of British Columbia law. Regarding the difficulties faced by Teck in fighting two parallel cases, the SCC expressed sympathy but said the difficulties could not overshadow the objective of the CJPT Act which was to ensure an action is tried in the jurisdiction that has the closest connection with the action and the parties.

The SCC declined to answer what are perhaps the most important questions: What would happen if the Washington court decided one way on the insurers' coverage obligations and the British Columbia court decided another way? Would the Washington decision be enforced in British Columbia? In response to these issues, the SCC referred to an academic paper that provided three possible approaches: (1) a race where the first judgment handed down prevails; (2) an absolute preference for local proceedings; or (3) a middle ground that adopts a general first-to-judgment rule but affords additional defences to enforcement in some circumstances. However, because the parties had not fully argued these issues, the SCC refused to say which approach would apply.

The Teck Cominco case should give Canadian insurers comfort that lawsuits against their insureds in other jurisdictions do not dictate the jurisdiction of related coverage actions. Nor can an insured set the jurisdiction for a coverage action simply by commencing the lawsuit in the courthouse of its choice.