Tax & Trade Blog
Your Legal Jurisdiction Clause may be Ineffective in Canada!
A recent Ontario Court of Appeal case serves as a reminder that legal jurisdiction clauses (also referred to as "forum selection") must use express language if they intend to provide a forum with exclusive jurisdiction to hear contractual disputes.
Forum selection clauses are often used in commercial agreements to ensure that disputes are held in a particular jurisdiction as agreed to by the parties. For example, a US-based direct selling company might wish to specify its home state (e.g., Utah, Texas, etc.) as the jurisdiction where contractual disputes are to be heard.
Canadian courts have generally upheld these clauses, particularly in contracts between commercial parties (e.g., B2B relationships like those that a direct selling company has with its independent distributors).
Forum selection clauses are to be distinguished from "choice of law" clauses, which select the laws of a particular jurisdiction as the ones that should be applied to a dispute. A Canadian court can apply foreign law, and vice versa.
In Forbes Energy Group Inc. v. Parsian Energy Rad Gas, 2019 ONCA 372, the Ontario Court of Appeal considered the following clause:
“This term sheet shall be governed by and construed in accordance with the laws of England and the Parties agree to attorn to the courts of England”.
It was not disputed that the choice of law was the law of England. However, there was a question as to whether this clause amounted to an exclusive jurisdiction clause.
The Ontario Court of Appeal held that the language used in the clause (“attorn to the courts of England”) was not sufficient to provide the English courts with exclusive jurisdiction.
While not expressly articulated by the Court of Appeal, inherent in this conclusion is the following interpretation of the forum selection clause: To “attorn to” the courts of England is to submit to their jurisdiction. If the action was started in England, the parties could not argue that the English courts had no jurisdiction. However, the forum selection clause does not exclude the jurisdiction of other courts, such as that of the Ontario courts where the action is commenced in Ontario.
In the result, the Court of Appeal allowed the action to proceed in Ontario.
It is probably a good time for direct selling companies operating in Canada to review their agreements, to ensure that where they intend to establish exclusive jurisdiction, the language in their forum selection clauses appropriately reflects this intention.
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