February 19 2015 Martin Aquilina, Business Lawyer
There may be times in life where ignorance is bliss but this is definitely not the case when it comes to contractual relationships. For instance, it would be a big mistake not to include a choice of forum clause (which we will refer to in this article as a jurisdiction clause) in an international contract. For contracts between parties residing and operating in the same province, not having a jurisdiction clause may not seem like that big of a deal. Still, having a jurisdiction clause provides such parties with the comfort of knowing that a court in a particular district of the contracting parties’ choosing will adjudicate any disputes arising in the future. When it comes to transnational dealings, the importance of jurisdiction clauses is magnified as without them, factors such as the parties’ domicile or even nationality can determine the jurisdiction in which future contractual disputes will be adjudicated.
It is not only important to include a jurisdiction clause but also to clearly stipulate whether the chosen jurisdiction will be exclusive or non-exclusive. The distinction between the two and its practical implications is discussed below.
Exclusive Jurisdiction Clauses
An exclusive jurisdiction clause in a contract creates a binding legal obligation for the contracting parties to only resort to the courts of a particular jurisdiction when adjudicating any dispute. In most situations, both parties will adhere to the clause and bring a claim in the stated jurisdiction.
A typical exclusive jurisdiction clause could read like this: “The parties agree that only the courts of the Province of Ontario, Canada shall have jurisdiction to adjudicate any dispute arising under or in connection with this Agreement.”
In almost all cases, Canadian courts will enforce exclusive jurisdiction clauses. For example, if an exclusive jurisdiction clause stipulates that the courts in New York State will have jurisdiction and one of the parties brings a claim in a Canadian province, the Canadian court will enforce the clause and refuse to assume jurisdiction over the matter. Although rare, it is possible that Canadian courts will not enforce jurisdiction clauses if there is a “strong cause” against enforcement. This will be explained in detail later in this article.
Non-exclusive Jurisdiction Clauses
Unlike exclusive jurisdiction clauses, non-exclusive jurisdiction clauses only limit the contracting parties to resort to the courts of a particular jurisdiction if a claim is indeed brought in that jurisdiction. These clauses can be useful in situations where there are multiple jurisdictions that both parties do not find disadvantageous and they want the flexibility that is not provided by exclusive jurisdiction clauses. Although it provides more flexibility to the contracting parties to bring a claim in any other competent jurisdiction, such a clause leaves the door open for parallel proceedings.
A typical non-exclusive jurisdiction clause could read like this: “The parties agree that the courts of the Province of Ontario shall have non-exclusive jurisdiction to adjudicate any dispute arising under or in connection with this Agreement.”
When there is no clear wording conveying exclusive jurisdiction, the Canadian courts, at least in Ontario, are more likely to treat the jurisdiction clause as non-exclusive. This was the case in the Ontario Superior Court’s judgment in Hayes v Peer 1 Network Inc[i] where the jurisdiction clause between the parties stated that: “[t]his Agreement is governed by the law of the State of Washington and each party irrevocably attorns to the jurisdiction of the court system of the State of Washington.”[ii]
Jurisdiction Clauses in Practice
Although Canadian courts have the discretion to either accept or refuse jurisdiction, they will almost always respect the parties’ freedom to contract and therefore enforce jurisdiction clauses. However, Canadian courts might refuse to enforce the jurisdiction clause if the contract containing the clause is found to be invalid (as was the case in Check Group Canada Inc v Icer Canada Corp[iii]) or if the plaintiff can meet the onerous “strong cause” test.
The “strong cause” test, which was originally articulated in the British case, The Eleftheria[iv], was adopted by the Supreme Court of Canada in Z.I. Pompey Industrie v ECU-Line N.V.[v] The test is applied when a jurisdiction clause exists and takes into consideration factors similar to but distinct from those considered in a conventional forum non conveniens analysis, such as the parties’ connection to each country. Justice Bastarache in his reasoning stated that: “… the presence of a forum selection clause in the former is, in my view, sufficiently important to warrant a different test, one where the starting point is that parties should be held to their bargain, and where the plaintiff has the burden of showing why a stay should not be granted. I am not convinced that a unified approach to forum non conveniens, where a choice of jurisdiction clause constitutes but one factor to be considered, is preferable.”[vi] Hence, unlike in the forum non conveniens analysis where the burden rests on the defendant to establish the existence of a more convenient forum than the Canadian courts, where a jurisdiction clause has been agreed to, the burden rests on the plaintiff to establish that there is a “strong cause” for the Canadian courts to not enforce the clause.
In Expedition Helicopters Inc v Honeywell Inc[vii], the plaintiff brought a claim in Ontario despite an exclusive jurisdiction clause selecting Phoenix, Arizona. The Ontario Court of Appeal described some factors which might justify not enforcing the clause such as fraud and the unenforceability of the contract. Ultimately, given that the plaintiff did not meet the “strong cause” test, the court upheld the clause. In another case, Momentous.ca Corp v Canadian American Association of Professional Baseball[viii], the plaintiff brought a claim in Ontario despite the existence of a jurisdiction clause selecting North Carolina. The Supreme Court of Canada enforced the clause and again emphasized that jurisdiction clauses will be enforced unless the plaintiff can meet the “strong cause” test.
Most, if not all, boilerplate contracts will contain some form of jurisdiction clause. Needless to say, if you really want a particular jurisdiction to adjudicate any dispute, it is crucial that you convey that intention by including the word “exclusive” or other words to that same effect (such as “no other”) in the jurisdiction clause of the contract.
[i] Hayes v Peer 1 Network Inc (2007), 86 OR (3d) 475.
[ii] Ibid at para 8.
[iii] Check Group Canada Inc v Icer Canada Corp, 2010 NSSC 463.
[iv] The Eleftheria, [1969] 2 All ER 641.
[v] Z.I. Pompey Industrie v ECU-Line N.V., [2003] 1 SCR 450.
[vi] Ibid at para 21.
[vii] Expedition Helicopters Inc v Honeywell Inc, 2010 ONCA 351.
[viii] Momentous.ca v Canadian American Association of Professional Baseball, [2012] 1 SCR 359.
This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Martin today. 613-747-2459 ext.308, maquilina@hazlolaw.com