The traditional structure of the analysis of cases with
geographically complex facts, i.e., cases that fall into the
category of Conflict of Laws or Private International Law, says
that a contract is "governed" by its "proper
law". It is further said that the parties may choose the law
to "govern" their arrangement, the transaction they are
effecting or the relation they are creating. A choice of law clause
will be the method used to identify the proper law.
Notwithstanding the almost universal acceptance of the structure
of conflict of laws and the function of the proper law, it is much
more useful to stand further back and consider what it is that a
drafter wants when she or he "chooses" a governing
When a solicitor uses a choice of law clause, she or he is
saying to any court that may consider the contract, "When you
look at this contract to interpret it or give it effect, keep in
mind that when it was drafted, the drafter was working in the
context of or under the law we have chosen".
A choice of law clause cannot prevent a court from applying any
rule that is mandatory. A Canadian court will, for example, apply
section 347 of the Criminal Code (criminal interest rate),
notwithstanding that the drafter may have chosen New York law. A
New York court will do the same for its mandatory rules. In other
words, a choice of law clause has no more effect than any other
clause in an agreement. It cannot avoid the application of any rule
that a court believes should be applied; it can deal only with
those matters that the parties can deal with.
The very recent decision of McEwen J. in Trillium Motor World
Ltd. v. General Motors of Canada Limited gives a far wider effect
to a choice of law clause than most drafters of commercial
agreements would expect. McEwen J. relied on the decision of the
Ontario Court of Appeal in 405341 Ontario Ltd. v. Midas Canada Inc., 2010 ONCA 478, 322
D.L.R. (4th) 177, to impose on the defendant, General Motors of
Canada Limited ("GMCL"), the obligations on a franchisor
under the Arthur Wishart Act (Franchise Disclosure), 2000.
choice of law clause in Trillium Motor World is fairly
This Agreement is governed by the laws of the Province of
Ontario. However, if performance under this Agreement is illegal
under a valid law of any jurisdiction where such performance is to
take place, performance will be modified to the minimum extent
necessary to comply with such law.
The one in Midas Canada is very different:
10.11. Controlling Law. This Agreement, including all matters
relating to the validity, construction, performance and enforcement
thereof, shall be governed by the laws of the Province of Ontario.
It is well established that contracting parties can incorporate the
terms of a statute into their agreement, as they can the terms of
some other agreement or document. The Court of Appeal in Midas
Canada held that Midas had done just that, the effect being that
its franchisees who were outside Ontario were entitled to the
benefits of the Arthur Wishart Act. McEwen J. held that the choice
of law clause in Trillium Motor World had the same effect. He did
not pay any attention to the very differently worded language in
the two clauses. In the end, it did not matter what effect the
choice of law clause had as GMCL was held to have behaved properly
vis-ŕ-vis its dealers, the franchisees.
The wholesale importation of Ontario law into an agreement by a
choice of Ontario law may well catch clients by unpleasant surprise
and gives such clauses a much larger significance than they are
usually understood to have.
Given what a choice of law clause actually does, it is, in my
opinion, necessary to use different, safer and more accurate
This agreement was drafted against the background of Ontario law
and is to be interpreted in accordance with that law.
This language sets out what a choice of law clause actually does
and should eliminate the risks that the unusual clause in Midas
Canada and the ordinary clause in Trillium Motor World created for
Midas and GMCL.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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