Canada: Forum Selection Clauses Apply To Non-Signatories In Limited Circumstances

The Court of Appeal for Ontario recently affirmed a decision of the Ontario Superior Court of Justice (Commercial List) dismissing an application for a stay of proceedings on the basis of a forum selection clause in favour of New York.

In Aldo Group Inc v Moneris Solutions Corporation¹, the court considered when this type of clause binds a non-signatory. Forum selection clauses are common contractual mechanisms that establish the proper forum and method for dispute resolution. The Court of Appeal took the opportunity in Aldo Group to speak to the policy and business objectives of forum selection clauses. Specifically, it described the global economy as requiring business to be conducted across different judicial systems, and noted that business people must properly assess which judicial system they wish to attorn to—if any.

The contractual matrix

The case involved a series of transactions that formed the basis for MasterCard's stay application. Initially, MasterCard entered into license agreements with two banks that included a forum selection clause in favour of New York state. The banks then entered into third-party contracts with Moneris to support their MasterCard activities, and these also included choice of law and forum selection clauses in favour of New York. The third-party contracts required any subsequent agreement Moneris entered into to contain certain terms, but did not require the inclusion of any forum selection clauses.

Moneris then entered into a merchant agreement with Aldo, which included a forum selection clause in favour of Ontario. The agreement with Aldo also included a data security provision, holding the merchant responsible for any unauthorized access to account data and obligated it to reimburse the issuer of MasterCard's credit cards for any resulting losses.

The dispute

A series of transactions occurred at a number of Aldo stores resulting in MasterCard debiting the banks in the amount of the assessment. Moneris then debited Aldo's account.

Aldo initiated an action in Ontario against MasterCard and Moneris on the grounds that MasterCard wrongfully collected the amounts from the banks, and that Moneris wrongfully debited its accounts. Aldo pleaded multiple tort claims against MasterCard, including negligence, interference with contractual relations, interference with economic relations, and conversion.

The Commercial List decision

MasterCard argued Aldo was subject to the forum selection clause in the license agreements with the banks. Although Aldo was not a signatory to those agreements, MasterCard submitted that since Aldo pleaded that MasterCard was not entitled to impose the loss assessments on the banks under the license agreement, Aldo could only assert these claims as an equitable subrogee of the banks because it was not privy to the license agreements. In turn, Aldo argued that its causes of action were grounded in tort and unjust enrichment, rather than contract or the doctrine of equitable subrogation. Therefore, the court was tasked first with characterizing Aldo's claim in order to determine whether or not the forum selection clause applied.

The court considered when forum selection clauses apply to non-signatories. Although the court recognized that non-signatories are bound in some cases, it emphasized that MasterCard did not require the merchant agreement to contain a clause in favour of New York. That, in conjunction with the agreement containing a clause explicitly in favour of Ontario, led the court to dismiss MasterCard's motion.

The Court of Appeal upheld the Commercial List's decision

MasterCard argued on appeal that the motion judge mischaracterized its claim, in part due to the motion judge's failure to consider the facts underlying the dispute. The court rejected this argument, and found that although the underlying conduct that gave rise to Aldo's claim occurred in the context of a contractual relationship between the parties, MasterCard had nonetheless failed to establish that Aldo's pleading was an "essentially contractual" claim. Moreover, the Court of Appeal found that Aldo pleaded direct claims against MasterCard as a stranger to the license agreements.

The court also reviewed the appellant's argument that the motion judge failed to apply the "closely related" test to a forum selection clause's relationship to a non-signatory. According to this doctrine, where a claim is "so intertwined" with the contract or other claims bound by the forum selection clause, it is appropriate for a court to bind a non-signatory to the clause. However, in this case, the court found that the doctrine did not apply, and emphasized that the impetus is to limit forum selection clauses to those parties who have bargained for their application.

The author wishes to thank Dana Carson, articling student, for her help in preparing this legal update.

Footnote

^{1. 2013 ONCA 725 [Aldo Group].}

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