Friday, 31 May 2019

New Guidance from the Ont. C.A. re Forum Selection Clauses

     A recent decision of the Ontario Court of Appeal suggests that forum selection clauses (“FSC’s”) will be construed as non-exclusive unless they are clearly exclusive. 


     Let’s first review the differences between exclusive FSC’s, and non-exclusive FSC’s.   Exclusive FSC’s require the parties to litigate their disputes in the courts of a specified forum or jurisdiction.  Non- exclusive FSC’s mean only that if a party has commenced a proceeding in the specified forum/jurisdiction, the other side cannot challenge that court’s jurisdiction. If no party has yet commenced a proceeding there, the parties remain free to commence proceedings elsewhere.  

     To overcome an FSC, one must show “strong cause” why it should not be enforced (Z.I Pompey v. ECU Line NV [2003] 1 S.C.R. 450). That test (that presumption of enforceability) applies only to exclusive FSC’s.    However, if the court decides not to enforce the FSC, such that it is no longer a basis to stay the proceeding, the court can nonetheless stay the proceeding on forum non conveniens principles.   The FSC is then just one of many factors in that forum non-conveniens analysis. 

The Court Decision

     In that Court of Appeal case -- Forbes Energy Group v Parsian Energy Red Gas   2019 ONCA 372 -- the FSC was:  “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.”      The plaintiff commenced an action in Ontario. The defendant moved to dismiss the action on the grounds that it violated the FSC, and that on forum non conveniens principles England is a more appropriate jurisdiction.   The motion court held that the plaintiff had not shown “strong cause” that the FSC should not be enforced. That court then conducted a forum non conveniens analysis, held that England is the more appropriate forum, and stayed the Ontario proceeding.   The Defendant appealed. 

     The Court of Appeal held the motion judge erred in applying the strong cause test.  The test applies only to exclusive FSC’s, and the motion court had not determined that the FSC here was in fact exclusive.     Thus the Court of Appeal implicitly held that the FSC is non-exclusive, apparently because it uses the term “attorn” and does not explicitly bar proceedings other than in England.   This ruling suggests that FSC’s are to be interpreted as non-exclusive unless they are clearly exclusive. 
The Court of Appeal then carried out a new forum non-conveniens analysis and found that England is not the more appropriate forum.  In the result, the court reversed the order staying the Ontario proceeding.    

Take aways for Drafting FSC’s

      If one wants a clearly exclusive FSC, consider adopting the clause that the Supreme Court of Canada held to be “unambiguous and unqualified” in  Z.I. Pompey: “any claim or dispute arising hereunder or in connection herewith shall be determined by the courts of Antwerp and no other courts”.    

     Remember that the term “attorn” means to submit to or accept a court’s jurisdiction, generally in the context of an existing legal proceeding in that court.  The term does not convey exclusivity if no legal proceeding has yet been commenced.  

     Also, a clause stipulating the law of a certain country (here,  England) as the law of the contract does not make the FSC exclusive.   It is not uncommon for a contract to designate one country as the forum yet designate the laws of another country as the governing law of the contract.

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