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Ontario Court of Appeal upholds "Strong" test for displacing Forum Selection Clause

by Gavin Magrath (Magrath's International Legal Counsel)

The Ontario Court of Appeal recently confirmed that parties who enter into contractual arrangements that include a forum selection clause must show strong cause why they should not be enforced if suit is brought in Ontario contrary to the agreement.

Here, the plaintiff corporation, domiciled in Ontario, had a sales agreement with the German corporate defendant, that provided for the application of German law and further provided for “any disputes” to be resolved by binding arbitration in Frankfurt. The defendant terminated the sales agreement without notice and the plaintiff brought their claim before the Ontario Superior Court seeking damages for breach of contract (and tortious misconduct).

The defendant brought a motion to stay the claim in favour of arbitration in Frankfurt pursuant to the contractual agreement in respect of forum and arbitration. The Court at first instance granted the stay, and the Court of Appeal upheld that decision, noting:

1) The law favours enforcement of selection clauses;
2) The stay should be granted unless the plaintiff shows “strong cause” that the case is “exceptional” and the clause should not be enforced;
3) The forum selection clause must be clear and must apply to the subject matter; and
4) The forum selection clause “pervades” the forum non conveniens analysis and “must be given full weight” in the consideration. (Brown JA at para 5).

The Court found that the clause was clear and applied to “all claims” – including both the claims in breach of contract as well as those framed in tort, and the fact that the termination without notice was outside the contemplation of the parties at the time of the agreement did not make it in any way exceptional.

Interestingly, the plaintiff had also chosen to frame claims against non-contracting parties (being particular officers or directors of the defendant) for their tortious conduct, and the Court was split on the issue of whether this clause should also apply to those additional, non-contracting defendants. The majority found that the claims against them arose from the same subject matter, raising common questions of fact and law, and were capture by the broad intent of the contractual selection governing “any disputes” arising out of the contract. Justice Feldman dissented from the Court’s decision on this point: he would not have upheld the stay against non-contracting parties, who had neither agreed to be bound by German law nor to arbitration.

Ref: Novatrax International Inc. v. Hagele Landtechnik GmbH et al, 2016 ONCA 771 (20 October 2016).

January 6, 2017

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