In its ruling, the Appeal Court rejected a lower court decision that Mehdi Hashemi Bahremani should have to defend himself in Canada.
Hashemi, the fourth son of former president Akbar Hashemi Rafsanjani, is currently incarcerated in Iran for security and financial crimes.
"The only factor that connects this proceeding to Ontario is that the (plaintiffs) reside here," the Appeal Court said.
"Hashemi, however, has no connection whatsoever to Ontario or Canada, and once he is able to leave Iran, he will have no ability to enter this country."
In their claim, Houshang Bouzari and his family allege that Hashemi — also known as Mehdi Hashemi Rafsanjani — was responsible for his kidnapping, detention and torture in Iran in the early 1990s.
Bouzari, a former Iranian citizen, claims the "extraordinary acts of violence" followed his refusal to pay a commercial bribe. Among other things, he says he was whipped with steel cables and subjected to electric shocks, and was only released after his family paid more than $3 million.
Hashemi, 45, denies the claims and has said he plans to defend himself in court.
In an email from the U.S. where he is travelling, Bouzari said the decision "tarnishes the spirit of Canadian values" by depriving him and his family of his ability to fight their battle in Ontario.
"Canada, my home since 1998, was a proud vanguard in protecting the much cherished values of humanity and human rights," Bouzari said.
"I have no intention to sit idle and watch the very endeared notion of human rights in this country that I proudly belong to…perish at the altar of discretion or politics."
His lawyer Mark Arnold also expressed disappointment at a "baffling" Appeal Court decision, saying it effectively ends the litigation given the problems around pursuing the claim in Britain.
Hashemi participated in the jurisdiction proceedings remotely, Arnold said, and could have done so for a Canadian trial.
"I don't know why they did this — I honestly don't know why," he said.
The family, which came to Canada in 1998, first sued Iran in Ontario in 2000, but lost because state immunity barred the action. The Supreme Court of Canada refused to hear their appeal in 2004. They then sued Hashemi in 2005, winning a default judgment worth almost $13 million in 2011.
In granting that judgment — subsequently set aside — the judge found Ontario Superior Court had jurisdiction because it would have been unreasonable to expect Bouzari to sue abroad, especially in Iran.
Hashemi said he became aware of the Canadian proceedings in November 2011, when the statement of claim and related materials were deposited at the University of Oxford where he was a graduate student, and journalists asked for his comment.
He challenged the Ontario court's jurisdiction but Superior Court Justice Andra Pollak rejected his motion in December 2013, prompting him to take the case to the Court of Appeal.
Both sides agreed litigation in Iran would be impossible but Hashemi argued the Canadian action should be stayed in favour of proceeding in Britain, saying he had no connection to Canada. The Court of Appeal agreed.
Among other things, the court said Pollak was wrong to conclude that Hashemi would have been able to come to Canada to defend himself when Ottawa repeatedly refused to allow his entry.
Bouzari, who lived in England for three years before coming to Canada, still has business and property interests there. Hashemi has also agreed to defend the suit in the U.K.
"England is the more appropriate forum for the litigation," the Appeal Court ruled.