Canada: The Importance Of Forum Selection Clauses In Contracts: A Comment On We Serve Health Care LP v. Onasanya

Last Updated: April 9 2018
Article by Chloe A. Snider

Private international law and conflicts of laws rules give litigation counsel many tools to argue over the proper jurisdiction for a legal dispute. This is particularly so when contracting parties do not include a forum selection or jurisdiction clause in their agreement. A failure to include a forum selection clause can leave the door open to motions challenging jurisdiction once a proceeding has been commenced and to making technical (albeit interesting) arguments on such a motion. Fun for litigators, not for clients.

A recent example of the risks associated with not including a forum selection clause in a contract is the decision in We Serve Health Care LP v. Onasanya, 2018 ONSC 1758 [We Serve]. We Serve concerned a dispute about a franchise agreement. The franchise agreement did not contain a forum selection clause, although it did contain a choice of law clause selecting Ontario law as the applicable law.

In We Serve, the applicant brought an application in Ontario against the respondents, who were domiciled in Saskatchewan, seeking a declaration that their franchise agreement had expired and a mandatory order that the respondents comply with their post expiry obligations under the agreement. The respondents moved to stay the Ontario application for lack of jurisdiction or on the basis that Ontario was not the most convenient forum for the hearing of the dispute. The respondents were successful.

On the issue of jurisdiction, Master McGraw outlined the four presumptive connective factors that establish jurisdiction, as set out in Club Resorts Ltd. v Van Breda, 2012 SCC 17: (1) that the defendant is domiciled or resident in Ontario, (2) that the defendant carried on business in Ontario, (3) that the tort was committed in Ontario, and (4) that a contract connected with a dispute was made in Ontario. These factors apply where the parties have not otherwise attorned, including through a forum selection clause, to the jurisdiction.  It was not disputed that the only potential applicable factor in this case was factor (4), a contract made in Ontario.

The applicant relied on the operation of the postal acceptance rule to argue that the franchise agreement was made in Ontario. The postal acceptance rule determines where a contract is made when a contract is concluded by post. It provides that the place of mailing of the acceptance is to be treated as the place where the contact was made. This is to be distinguished from the rule that when acceptance of a contact is delivered by email, the contact is made in the jurisdiction where the email communicating acceptance is received. However, Master McGraw found that the email acceptance rule did not apply in this case.

In this case, at the time of contract formation, the applicant sent a standard form franchise agreement from Ontario to counsel in Saskatchewan on August 6, 2006, enclosing documents for execution by the respondents. By letter dated September 6, 2006, counsel for the respondents sent the required documents, including four original signed copies of the franchise agreement, to the applicant's counsel by courier. By further letter dated October 19, 2006, counsel for the applicant sent back copies of the agreement signed by the applicant. The applicant argued that this final transmission constituted the acceptance, such that the contract was made in Ontario (the place of mailing of the October 19, 2006 letter). The respondents argued that the September 6, 2006 letter constituted acceptance, such that the contact was made in Saskatchewan (the place of mailing of the September 6, 2006 letter).

Master McGraw agreed with the respondents: the September 6, 2006 letter (sent with the signed copies of the agreement) constituted acceptance and this acceptance was mailed from Saskatchewan. Accordingly, Saskatchewan was the place of the formation of the contract. Importantly, no amendments had been made in signing back the contract on September 6, 2006, allowing the master to distinguish from prior case law.

All of this may sound technical, and that's precisely the point: while the postal and email acceptance rules are interesting and provide litigation counsel with various arguments on motions challenging jurisdiction, there is risk associated with relying on these rules. This risk and associated time and cost can be avoided (at least to some extent) through the inclusion of a forum selection clause. Doing so can also bring greater certainty to the contracting parties.

Master McGraw went on to find that, in any event, Ontario was not the most convenient forum for the hearing of the dispute, given the location of the parties, the jurisdiction where the factual matters arose, the location of the evidence, the comparative convenience and expense to the parties and the avoidance of a multiplicity of proceedings. While Master McGraw held that the choice of law clause favoured Ontario, he noted that it was not a strong factor, given that a Saskatchewan court was fully capable of interpreting and applying the underlying statutes and legal principles. This case is an important reminder that choice of law clauses and forum selection clauses are not synonymous and that a choice of law clause will not necessarily determine the outcome of a jurisdiction motion.

This case highlights the importance of forum selection clauses and the fact that choice of law clauses are different from forum selection clauses. Paying attention to forum selection clauses while contract drafting (and perhaps speaking with litigation counsel) will help add certainty about jurisdictional issues and perhaps avoid an expensive and risky jurisdiction motion.

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