When negotiating contractual terms, two of the most critical decisions parties must make are which jurisdiction's laws will govern the interpretation and enforcement of the contract (commonly known as the "choice of law" provision) and which jurisdiction's courts will hear any future disputes (commonly known as a "jurisdiction clause").
In doing so, it is incumbent on parties to consider which jurisdictions provide them with the most reliable, efficient, and capable means of resolving any future disputes1.
There are, ultimately, several compelling reasons to choose a Canadian jurisdiction.
This bulletin provides an overview of those reasons.
Benefits of Choosing a Canadian Jurisdiction
Stability, Reliability, and Predictability
Canada is known for its stable, reliable, and predictable legal system. The Canadian legal framework is based on common law principles, similar to those in the United States and the United Kingdom2. The Canadian judiciary is also known for its independence, impartiality, and adherence to the rule of law, principles which are constitutionally entrenched and have legal force3. Accordingly, companies can operate with greater confidence, knowing that their legal rights and obligations will be upheld consistently.
Orderly and Transparent Process
Each Province and Territory in Canada maintains a robust procedural framework for dispute resolution in the civil courts, administrative proceedings, or arbitration. In addition, generally speaking, the transparency of the Canadian legal system ensures all parties have access to relevant information and can participate fairly in the process.
Cost-Effectiveness
Litigation costs in Canada are generally lower than in the United States. Even adjusting for the weakness of the Canadian dollar, Canadian legal practitioners generally charge less than their comparable U.S. counterparts without any reduction in the quality of legal service.
Nevertheless, the current disparity between the U.S. dollar and Canadian dollar itself has a material impact on cost. For parties outside of Canada, the current currency exchange rates, which are expected to persist for the foreseeable future, provide an immediate and lasting discount on the costs of litigation in Canada. For Canadian businesses, meanwhile, the inverse is true. On account of the currency exchange rates, engaging in litigation outside of Canada is even costlier.
Structural Advantages
In certain Canadian provinces, the losing party may be required to pay at least a portion of the legal fees of the successful party. The possibility of being responsible for a counterparty's legal fees can serve as a deterrent to unnecessary or otherwise frivolous litigation and encourages early resolution of legal claims, resulting in significant cost savings.
International Recognition and Enforcement
Judgments from Canadian courts are widely recognized and enforceable in many jurisdictions around the world. In addition, Canada is a signatory to several international treaties and conventions, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Support for Alternative Dispute Resolution
In addition to its court system, Canada maintains a strong framework for arbitration, which is often preferred by companies for its flexibility, confidentiality, and speed. Many Canadian provinces have adopted arbitration legislation based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, providing a supportive environment for domestic and international arbitration. Further, leading arbitration centers in various cities, such as Toronto, Vancouver, and Montreal, offer state-of-the-art facilities and access to experienced arbitrators and counsel.
Other juridical advantages
There are other juridical advantages to selecting Canada as the applicable forum and law governing your contractual relationship. Civil trials in Canada are almost always conducted before a judge alone; jury trials are rare. Canadian jurisdictions also have limits on damages. For example, while Canada has general damages for pain and suffering, the common law caps that amount at a few hundred thousand (Canadian) dollars. In addition, Canadian courts are very conservative in granting aggravated or punitive damages.
If Considering a Canadian Choice of Law and/or Jurisdiction
In the absence of a choice of law provision, parties are at the whim of a court or arbitrator to select the law they deem to have the closest connection to the parties or the transaction.
Accordingly, the vast majority of international contracts contain an explicit choice of law provision. Such provisions typically read:
This Agreement shall be governed by and construed in accordance with the laws of the [applicable Province] and the laws of Canada applicable therein, without regard to conflict of law principles4.
Similarly, in the absence of an exclusive jurisdiction clause, parties are at the whim of the party initiating the dispute to select the jurisdiction they prefer. The lack of jurisdictional clarity can also result in lengthy and costly procedural challenges to the jurisdiction selected.
Accordingly, incorporating a clear and exclusive jurisdiction clause in international contracts is essential to ensure both parties agree on the forum for resolving disputes. A common exclusive jurisdiction provision reads:
The courts of the [applicable Province] shall have exclusive jurisdiction over any issues or disputes arising from this contract or related in any way to it, and the parties hereto specifically attorn to the [applicable Provincial court] for any such disputes.
For international contracts contemplating dispute resolution outside of the courts, such as arbitration, a similar jurisdiction clause may read:
Any dispute, controversy or claim arising out of or relating to this Agreement, whether sounding in contract, tort, or otherwise, or the formation, performance or breach thereof or concerning the provisions of this Agreement or their application to any state of facts or the rights or equities of any of the parties hereto shall be resolved by final, non-appealable and binding arbitration conducted in English by one arbitrator in [applicable city]5.
Conclusion
Selecting a Canadian jurisdiction and choice of law for dispute resolution in international contracts offers numerous benefits. Those benefits, as outlined above, collectively make Canada an attractive and reliable choice for businesses seeking to resolve their contractual disputes efficiently and fairly.
Footnotes
1 Note that a choice of law provision can be rejected by the courts if there is no bona fide connection to the selected jurisdiction. In sum, parties to a contract need to have a reasonable explanation for the choice.
2 Although, Quebec is a civil law jurisdiction whose substantive law relies heavily on the Quebec Civil Code, Quebec's procedural, evidentiary, and public, law are rooted in common law traditions.
3 According to the World Justice Project, Canada ranks 12 out of 142 countries on its rule of law index. The Supreme Court of Canada has repeatedly confirmed that the rule of law is "a fundamental postulate of our constitutional structure": Roncarelli v. Duplessis, [1959] S.C.R. 121, at p. 142, per Rand J. See also, Toronto (City) v. Ontario (Attorney General), 2021 SCC 34 at paras. 49-50. Equally, the courts have regularly reinforced that judicial independence is a cornerstone of Canada's legal system and essential to the rule of law itself: Reference re Remuneration of Judges of the Provincial Court of Prince Edward Island, [1997] 3 S.C.R. 3. https://worldjusticeproject.org/rule-of-law-index/country/Canada
4 Where an international contract is for the sale of goods, parties who wish to avail themselves of a Canadian choice of law should consider adding an express exclusion of the UN Convention on Contracts for the International Sale of Goods to their choice of law clause, the UN Convention on the Limitation Period in the International Sale of Goods, and any applicable implementing legislation.
5 This example provides for ad hoc arbitration as no arbitral institution is named. If parties wish to conduct their arbitration pursuant to the rules of an arbitral institution, that institution would typically be referenced in a clause of this type. Such a clause would also typically be paired with a choice of law provision.
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.
