Forum Selection Clauses in Contracts
When drafting an employment agreement it is important to include a forum selection clause where the parties agree to the appropriate jurisdiction for hearing any dispute between them. These provisions, while not critical in every case, can prove tremendously valuable where it is not clear which of two jurisdictions is appropriate for hearing the dispute.
The Supreme Court of Canada in the recent case of Momentous.ca Corp. v. Canadian American Association of Professional Baseball Ltd. considered the issue in a non-employment context. Shortly after filing a statement of defence, the respondent moved to dismiss the claim on the ground that “Ontario Courts had no jurisdiction because the appellants had signed agreements providing that disputes would be arbitrated or litigated in North Carolina”.
The Court held that the Ontario Rules of Civil Procedure provide two rules under which a party may challenge whether an Ontario court can or should hear an action:
Rule 17.06 permits a party who has been served with an originating process outside Ontario to move for an order setting aside the service or staying the proceeding on the grounds that service is not authorized by the Rules or that Ontario is not a convenient forum for the hearing of the proceeding. This rule requires that the motion be brought before the party delivers a defence, notice of intent to defend or notice of appearance.
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Rule 21.01(3)(a) permits a defendant to seek a stay or dismissal of the action on the basis that the court has “no jurisdiction over the subject matter of the action”. Thus, when another forum ― an arbitration panel, a tribunal or another court ― has the exclusive jurisdiction to deal with the claim, the Ontario Superior Court of Justice will not take jurisdiction, based upon agreement or statute.
An issue arose in this case about whether a moving party could bring a motion under Rule 21.01(3)(a) where it had delivered a statement of defence (the argument being that you attorn to the jurisdiction once you file the statement of defence). The Court disposed of this by noting:
. . . there is nothing in Rule 21.01(3)(a) that requires it to be brought before delivery of a statement of defence. Within the framework provided by the Ontario Rules of Civil Procedure, a statement of defence that specifically pleads a foreign forum selection clause does not amount to consent that Ontario assume jurisdiction so as to preclude consideration on the merits of whether to enforce the clause.
The Court then summarized its earlier decision in In Z.I. Pompey Industrie v. ECU-Line N.V by noting “in the absence of specific legislation, the proper test in determining whether to enforce a forum selection clause is discretionary in nature. It provides that unless there is a “strong cause” as to why a domestic court should exercise jurisdiction, order and fairness are better achieved when parties are held to their bargains.”
In this case, other than the delivery of a statement of defence, there was no “strong cause” argued for Ontario to displace the forum that the parties agreed should resolve their disputes (North Carolina). As such, the Court concluded that Ontario Courts had no jurisdiction to decide the case.
From an employment law perspective, including an appropriate forum clause goes a long way in resolving issues about jurisdiction. Further, care should be taken about the timing of the motion to have the issue determined and whether this should be done before or after the delivery of the defence and, if after, what should be plead in the defence about the contractual foreign forum selection clause.
The Court of Appeal judgment is also worth reading.