Canada: Governing Law And Choice Of Forum Clauses

Last Updated: February 15 2016
Article by Jordan Otrhalek and Larissa Roche

When two companies based in different provinces enter into a commercial contract and a dispute occurs, the question often arises as to which province's laws will govern. This can be a significant issue since laws vary from jurisdiction to jurisdiction and such variations can have significant impacts on how disputes are resolved. A "governing law" clause allows the parties to a commercial contract to choose the "proper law of the contract" i.e. the system of law by which the parties intend the contract to be governed.1

An example of provincial law differences exists in variations in limitation periods across the provinces. These differences could mean that a claim could be statute barred under Alberta law if it is not commenced within 10 years while still valid in Ontario for an additional 5 years. In light of such differences, there are serious implications of one jurisdiction's laws being chosen over another as the governing law of a commercial contract.

A governing law clause may or may not include a "choice of forum" component. A choice of forum clause allows the parties to choose the court or jurisdiction that will hear an action relating to the contract. 2

Where the governing law and choice of forum are not expressly specified in the contract, courts will look to other terms of the agreement and relevant surrounding circumstances to determine the appropriate law and forum. If the parties to an agreement wish to have certainty as to the governing law and choice of forum, they must clearly and precisely indicate this in the agreement.

The Absence of a Governing Law Clause

The proper law of the contract is the law that the parties intended to apply at the time the contract was created. As a rule, if the choice of governing law in a contract is bona fide and legal, and if there is no reason for avoiding the choice on public policy grounds, the choice of law specified by the parties in a governing law clause will be upheld by the courts as the proper law of the contract. 3

Where the parties have not expressly chosen a governing law in the agreement, the proper law of the contract will be established by the courts by determining the system of law with which the transaction has the "closest and most substantial connection." 4 Courts will evaluate the following factors to determine the "closest and most substantial connection":

  • the domicile and residence of the parties;
  • the national character of a corporation and the place where its principal place of business is situated;
  • the place where the contract is made and the place where it is to be performed;
  • the style in which the contract is drafted, as, for instance, whether the language is appropriate to one system of law, but inappropriate to another;
  • the fact that a certain stipulation is valid under one law but void under another;
  • the economic connection of the contract with some other transaction;
  • the nature and subject matter of the contract;
  • the location of the head office of a corporation; and
  • any other fact which serves to localize the contract. 5

In the absence of a clearly chosen governing law, there is a possibility that a court may determine that the proper law of the contract is a law that the parties never intended to apply, exposing the parties to the risk that the court's determination may have negative or unforeseen consequences should a dispute arise.

Including the Federal Jurisdiction

In Canada, parties often draft governing law clauses by citing the laws of one specific province, followed by the phrase "and the laws of Canada applicable therein." There is some debate whether this phrase is necessary. The phrase implies the possibility that certain federal laws of Canada may not be applicable in a province. Elderkin and Doi suggest the door is open for federal laws of Canada that do not apply in each province and, therefore, recommend the phrase should be used to provide certainty when drafting governing law clauses. 6

The Choice of Forum

Governing law and choice of forum are separate issues that can be dealt with in one clause, as in the example below, or in separate provisions. Parties may specify a forum that does not correspond with the choice of law for the contract. For example, the parties may choose the laws of the province of Alberta to govern the contract while submitting to the jurisdiction of the courts of British Columbia. Parties may choose that arrangement if they prefer the benefit of applying a particular province's laws to substantive matters, while taking advantage of the procedural rules or convenient location of another province's courts.

A choice of forum provision will generally be upheld by the courts unless one of the parties can show "strong cause" that the parties should not be bound by the clause. 7 The burden is on the party arguing against the choice of forum to prove its case. In the absence of a strong cause, courts will strive to promote certainty and fairness in commercial transactions by holding contracting parties to the terms of their agreements.

In a choice of forum provision, the parties may choose whether a specific court has "exclusive" or "non-exclusive" jurisdiction. While it may be possible to confer exclusive jurisdiction without express use of the term "exclusive", parties are advised to explicitly state that the chosen jurisdiction has "exclusive" or "non-exclusive" jurisdiction, as the case may be, in order to provide greater certainty.

Drafting the Clauses

When drafting governing law and choice of forum clauses, it is important to ensure the parties' intention is properly captured. For example, the terms "submit" and "attorn" are often used interchangeably. However, in Naccarato v Brio Beverages Inc.8 the Court held that use of the word "submit" in a choice of forum clause meant the clause was permissive and non-mandatory. This allowed the Court to find it had concurrent jurisdiction to hear the matter. The need for precision and the use of mandatory language, where intended, applies equally to the choice of governing law clause.

An example of a governing law clause that includes choice of forum is as follows:

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 hereby irrevocably and unconditionally attorn to the exclusive jurisdiction of the courts of the Province of Ontario and all courts competent to hear appeals therefrom. 9

Concluding Thoughts

When drafting commercial contracts, drafters should clearly and precisely provide for both choice of law and choice of forum, keeping in mind the forum does not have to correspond to the governing law. Issues of substantive law will be determined by the proper law of the contract, while issues of procedure will be determined by the law of the forum. In complex agreements, the parties may wish to have different parts of the agreement governed by different systems of law and the governing law and choice of forum clauses can be drafted accordingly.

If the parties wish to confer exclusive jurisdiction to a specific court, the term "exclusive" as well as other mandatory language should be used to ensure that no other court has concurrent jurisdiction to determine issues under the contract. If the parties wish to confer concurrent jurisdiction, then the term "non-exclusive" should be used. 10

Footnotes

1 Cynthia L. Elderkin & Julia S. Shin Doi, Behind and Beyond Boilerplate: Drafting Commercial Agreements, 3d ed (Toronto: Carswell, 2011) at 81. [Elderkin and Doi]

2 Ibid.

3 Vita Food Products Inc. v Unus Shipping Co. Ltd., [1939] 1 All ER 513 (PC).

4 Imperial Life Assurance Co. of Canada v Colmenares, [1967] SCR 443 at 448.

5 Lilydale Cooperative Limited v Meyn Canada Inc., 2015 0NCA 281 at para 10, citing GC Cheshire, Private International Law, 7th ed, (London: Butterworths, 1965) at 190.

6 Elderkin and Doi, Supra note 1 at 85.

7 Z.I. Pompey Insustrie v ECU-Line N.V., [2003] 1 SCR 450.

8 1998 ABQB 1.

9 Elderkin and Doi, supra note 1 at 81.

10 Elderkin and Doi, supra note 1 at 91.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions