Canada: Governing Law Clauses: Just Jurisdiction, An Evolving Area Of Law In Ontario - Updated 2011, Presented To The CCLA Solicitors' Conference, May 2011

Table of Contents

I INTRODUCTION

II GOVERNING LAW CLAUSE CONSIDERATIONS

III. JURISDICTION ANALYSIS

IV. CONCLUSION

I. INTRODUCTION

So, you have your contract negotiated and drafted and you may even have a jurisdiction clause, choice of law clause or both; but what will happen if disputes arise down the road? Will the court really hold the parties to their agreement? The conflict of laws case law has been evolving and the tests have not been consistently applied. The Ontario Court of Appeal recently tried to simplify the analysis, but even this new simplification leads to further questions as to how the test should be applied.

In this paper, originally presented at the 2010 CCLA Solicitors Conference¹, reviewed particular factors that drafters must consider when including forum clauses in contracts as well as the tests the courts have used when jurisdiction has been disputed and how they have been recently changed by the Ontario Court of Appeal in the Van Breda² decision. In so doing, we indicated where the tests and applications of the test remain unclear.

Since the paper was presented last year there have been two significant decisions by the Ontario Court of Appeal in Expedition³ and Momentous⁴ which elaborate the factors which constitute strong cause not to enforce a foreign jurisdiction clause which are outlined in detail below. The Supreme Court of Canada heard an appeal of the Van Breda decision on March 21, 2011 but has yet to render judgment. The Momentous decision the Court of Appeal departs from the traditional analysis of jurisdiction simpliciter and recognizes two different classes of cases in which the court is asked to exercise its discretion as outlined in detail below and an application for leave to appeal to the Supreme Court of Canada is pending.

II. GOVERNING LAW CLAUSE CONSIDERATIONS

Boilerplate clauses may need to be amended in certain circumstances. Before accepting a choice of law or forum clause parties should consider the purpose, meaning and suitability of the clause

Why have a governing law clause?

As a starting point, courts have been instructed by the Supreme Court of Canada to hold parties to their contracted terms. Parties should consider having a forum clause in their contract because this will lead to increased certainty and predictability in interpreting the contract in the future. Where there is a forum clause the burden will then be on the party trying to resolve the dispute in a forum not stipulated in the contract to show strong cause why the court should not uphold the forum clause.

When should I have a governing law clause?

When the parties are negotiating a contract they should first consider whether it is necessary to have a forum selection clause. In the event that parties do not choose to have a forum selection clause, the court will look for a real and substantial connection to Ontario so that the courts may take jurisdiction and then determine whether there is another more appropriate forum.

However, it is preferable to have a forum selection clause in a contract when one of the following occurs:

When parties are in different jurisdictions;

When transactions occur in different jurisdictions;

When a problem will be more effectively dealt with in one jurisdiction over another; and

When there is a jurisdiction that would be more convenient for the parties.

How should I draft a governing law clause?

Parties may word their forum selection clause in a number of different ways when drafting a contract. Various wording will be interpreted differently and should be understood before selecting an appropriate clause.

Different Types of Clauses

The first distinction that must be made is between choices of law and choice of forum clause.

Choice of Law

A choice of law clause indicates the law under which the parties have chosen to interpret their potential dispute. The choice of law does not indicate that the parties have chosen to have their disputes heard in the same place as the chosen law. If, for example, the parties chose the law of England and the dispute was before the Ontario Courts the Ontario Court may take jurisdiction and the parties would need to prove the law in England as a matter of fact to the trial Judge.⁵ Elderkin and Shin Doi recommend that the choice of law clause should provide "that the agreement is to be both 'constituted' and 'interpreted' in accordance with the choice of law"⁶ so that the rules of construction and the meaning of words and phrases are determined according to the chosen law.

Choice of Forum

A choice of forum clause, on the other hand, indicates in which jurisdiction or jurisdictions the parties agree to have the dispute heard. Depending on the wording of the clause, the parties may give exclusive, non-exclusive or concurrent jurisdiction to a particular forum.

Exclusive jurisdiction: The best way to indicate that the parties would like to resolve disputes in one and only one jurisdiction is to indicate that they choose to give 'exclusive' jurisdiction to a particular forum. For example, the parties could agree that "all disputes arising in connection with the Agreement shall be determined exclusively by courts in Ontario."

Some courts have found that indicators, other than using the word 'exclusive,' such as using mandatory language and indicating that the parties choose a specific forum and "no other courts,"⁷ indicates exclusivity of forum. However, in order to maintain certainty, including the word 'exclusive' ensures that the intention of the parties is clear.

Non‐exclusive jurisdiction: Parties may also want to agree to one forum but not to the exclusion of others. The following clause is an example of where the Court held that Ontario Courts were not given exclusive jurisdiction and a Newfoundland Court, therefore, could have concurrent jurisdiction:⁸

However, in order to strive for certainty, it is preferable to include whether the jurisdiction specified in the contract gives exclusive or non-exclusive jurisdiction to a particular forum.

Concurrent jurisdiction: as a subset of a non-exclusive jurisdiction clause, parties may want to allow disputes to be heard in more than one forum. The Ontario High Court of Justice found that the following clause made a choice of law and provided for concurrent jurisdiction:

The Court said "this paragraph grants concurrent jurisdiction to any other court in which the matter is otherwise properly brought. Therefore, this case is properly before this court."¹¹

Again, in order to strive for certainty, it is preferable to indicate clearly whether the parties would like to give jurisdiction to one or more fora in the contract from the outset as opposed to waiting for the Court to interpret the forum clause.

Exceptions

It is important to note that the ability of a Court to take jurisdiction may be limited in some circumstances. For example, matters relating to real and personal property within the jurisdiction is a matter for the courts in which the property is located.¹² In addition, statutes may also affect the ability of the court to take jurisdiction.¹³

Examples

Behind and Beyond the Boilerplate

Authors Elderkin and Shin Doi provide the following examples of governing law clauses in their book:

1. This Agreement is governed by the laws of the Province of Ontario and the laws of Canada applicable therein.

2. This Agreement and each of the documents contemplated by or delivered under or in connection with this Agreement are governed by and are to be construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and treated in all respects as an Ontario contract. The parties to this Agreement hereby irrevocably and unconditionally attorn to the [exclusive or non‐exclusive] jurisdiction of the courts of the Provence of Ontario and all courts competent to hear appeals therefrom.

3. This Agreement is conclusively deemed to be a contract made under the laws of the Provence of Ontario, and for all purposes is to be construed in accordance with the laws of the Province of Ontario, without regard to principles of conflicts of law.¹⁴

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