Commercial agreements frequently include forum selection clauses[1] to provide a measure of certainty and predictability with respect to the forum in which any disputes between the parties will be resolved. While the existence of a forum selection clause does not necessarily guarantee that the parties to an agreement will commence proceedings in the chosen jurisdiction, Canadian courts in non-selected jurisdictions are generally inclined to enforce forum selection clauses contained in commercial agreements absent the showing of a “strong cause” why the choice of forum clause should not prevail, especially when an agreement is entered into between sophisticated parties. Thus, even where one of the parties to a commercial agreement chooses to disregard the forum selection clause and commences its claim in a non-selected jurisdiction, a forum selection clause can be beneficial to the party arguing the claim should be heard in the jurisdiction set out in the forum selection cause.

The Court in O’Connor v Sivacoe Estate, 2024 ABKB 420 (“O’Connor”) recently upheld the enforceability of a forum selection clause to have a matter heard in the State of Washington, notwithstanding that Alberta may have, practically, been the more convenient forum.

Facts                                                                    

In June 1992, Orlande Wayne Sivacoe (the “Deceased”) incorporated D.D. Technology, Inc. (“DDT US”) in the State of Washington and, in July 1992, he was issued 100 shares in DDT US. In 1996, 400 additional shares were issued to the Deceased, and 500 DDT US shares were issued to the Plaintiff, Terry O’Connor (“Terry”). The consideration payable for Terry’s shares was $500.00.

In August 2015, Terry and DDT US entered into a written Recission Agreement, which provided that, as Terry had not paid the stipulated consideration of $500.00 for the 500 DDT US shares, his share purchase was rescinded retroactive to the original date of issuance. The Recission Agreement also stated that all rights and obligations of the parties to the agreement were to be governed by the laws of the State of Washington, and jurisdiction over the parties and the venue of any legal action would be in Skagit County, Washington.

The Plaintiff, Terry, filed a Statement of Claim in the Court of King’s Bench of Alberta alleging that, notwithstanding the Recission Agreement, he owned 50% of the issued DDT US shares. The personal representative of the Deceased’s estate (the “Defendant”) filed a Statement of Defence pleading that the court lacked jurisdiction to determine the matter and that he did not attorn to the jurisdiction by filing the defence. The Statement of Defence also included defences to the claim on its merits.

Issue

The Defendant filed an application seeking, in part, an order striking or staying the action pursuant to Rule 3.68(2)(a) of the Alberta Rules of Court, Alta Reg 124/2010 on the basis that the court lacked jurisdiction to hear the claim.

Decision

Attornment to the Jurisdiction by Defending the Claim

The Court first addressed whether the Defendant had attorned to the jurisdiction of the Alberta Court of King’s Bench (the non-selected forum) by filing a Statement of Defence in that Court, noting that:

  1. The Defendant was not required to file a Statement of Defence as a pre-condition to making an application under Rule 3.68 to strike the claim for lack of jurisdiction;
  2. Notwithstanding the pleas in the Statement of Defence that the Defendant did not attorn to the jurisdiction of the Alberta Court of King’s Bench by filing the defence in the action, the Court held that it was at least arguable the Defendant had attorned by filing the pleadings;
  3. In any event, attornment simply prevented the Defendant from arguing the question of jurisdiction simpliciter,[2] which he had already conceded;
  4. Attornment is not determinative; it is only relevant to the question of whether the court could take jurisdiction, not whether the jurisdiction ought to be exercised; and
  5. When the Court has or can assume jurisdiction, a second issues arises, namely whether the court should take jurisdiction. This is a matter of judicial discretion.

Judicial Discretion in Enforcing Contractual Jurisdiction Clauses

The Court adopted the decision in Momentous.ca Corp. v. Canadian American Assn. of Professional Baseball Ltd., 2010 ONCA 722, in which the Ontario Court of Appeal reviewed the onus, test and rationale for each of the two distinct classes of cases in which a court is asked to exercise its discretion: (a) forum non conveniens applications; and (b) cases where the parties have agreed to a forum to resolve their dispute. The Ontario Court of Appeal summarized the two different classes as follows:

  1. On a forum non conveniens application, the court must determine whether there is another more convenient or appropriate forum to try the claim. The defendant has the onus of showing a more convenient forum. The test invites the application of a well-recognized list of considerations, which assess the connections to the two competing forums.[3] The court’s discretion will also be guided by the rationales of efficiency and fairness.
  2. In a case where the parties have agreed to the forum in which to resolve their disputes, the onus is reversed and the plaintiff must show why the jurisdiction in which they have filed their pleadings should displace the forum chosen by the parties. The test is “strong cause” and requires the plaintiff to show why the choice of forum clause should not prevail. The court must also remain guided by the rationale that ordinarily parties should be held to the bargain they have made.

Strong Cause: The Two-Step Approach

In assessing “strong cause,” the Court applied the Supreme Court of Canada’s two-step test for courts to determine whether to enforce a forum selection clause and to stay an action that was brought contrary to it, as set out in Douez v. Facebook, Inc. (“Douez”):[4]

  1. Step One: The party seeking a stay based on the forum selection clause must establish that the clause is “valid, clear and enforceable and that it applies to the cause of action before the court.” In other words, the court must apply the principles of contract law to determine the validity of the forum selection clause.
  2. Step Two: Once the party seeking the stay establishes the validity of the forum selection clause, the onus shifts to the plaintiff. At this step, the plaintiff must show strong reasons why the court should not enforce the forum selection clause and stay the action. In exercising its discretion at this step of the analysis, a court must consider “all the circumstances” of the particular case, including the “convenience of the parties, fairness between the parties and the interests of justice“. Policy may also be a relevant factor.

In considering the second step, the Court looked to the following factors set out in Expedition Helicopters Inc. v. Honeywell Inc., 2010 ONCA 351:

  1. Whether the plaintiff was induced to agree to the clause by fraud or improper inducement;
  2. Whether the court in the selected forum does not accept jurisdiction or otherwise is unable to deal with the claim;
  3. Whether the claim or the circumstances that have arisen are outside of what was reasonably contemplated by the parties when they agreed to the clause;
  4. Whether the plaintiff can no longer expect a fair trial in the selected forum due to subsequent events that could not have been reasonably anticipated by the parties; or
  5. Whether enforcing the clause would frustrate some clear public policy.

The Court determined that none of the factors from Expedition Helicopters were present in the case at issue. The Court further acknowledged that the parties were both sophisticated businessmen who were well-versed in commercial dealings at the relevant time and there was no power imbalance between them. The Court then turned its mind to the various connections to Alberta, including that the parties were Alberta residents, the Recission Agreement was executed in Alberta, DDT US’ head office was located in Alberta, the Deceased was ordinarily resident in Alberta at the time of his passing and the Deceased’s Will was probated in Alberta.

The Court held that Alberta might well have been a convenient forum for the resolution of the dispute, however, the Alberta connections were insufficient to oust the operation of the forum selection clause. Accordingly, the Court struck the claims as pertaining to the DDT US shares.

Other Legal Issues Raised by O’Connor: Application of the SCC’s “Strong Cause” Test

Notwithstanding that the Court in O’Connor applied the SCC’s two-step approach for determining “strong cause,” which, at the second step, requires the court to consider all circumstances, including convenience of the parties, it appears that convenience might not be a driving factor, especially where the contract at issue is between two sophisticated parties. In fact, in O’Connor, the Court appears to have focused on different considerations when applying the “strong cause” test due to the sophistication of the parties.

The Court in O’Connor wrote that “[t]he ‘strong cause’ test does not necessarily apply to all categories of contract containing a choice of forum clause. For example, it may not apply in the family law context or in the cause of a contract of adhesion. It does, however, apply to commercial contracts entered into by sophisticated commercial parties” [references omitted].[5] However, these comments appear to be a deviation from the current state of the law as set out by the Supreme Court of Canada in Douez. In Douez:

  1. The majority justices (Karakatsanis, Wagner and Gascon JJ.) applied the “strong cause” test to the contract of adhesion at issue, but held that, at the second stage, the strong cause factors ought to be modified in the consumer context and a court should consider public policy issues relating to the gross inequality of bargaining power between the parties.
  2. Abella J., in her concurring reasons, found the forum selection clause to be unenforceable at the first stage of the test on the basis that it was unconscionable due to the inequality of bargaining power. Accordingly, the test did not need to be modified.
  3. The dissenting justices (McLachlin C.J., Côté J. and Moldaver J.) found the forum selection clause to be enforceable and disagreed that the “strong cause” test should be modified for consumer contracts. The dissent took a different position regarding public policy considerations, finding that forum selection clauses serve an important role of increasing certainty and predictability in transactions that take place across borders.

At this time, the “strong cause” test appears to apply in all cases where a forum selection clause is being challenged. However, there may be different considerations when applying the test in situations where there is unequal bargaining power between the parties.

PRACTICAL TAKEAWAYS

Parties should be aware that, in agreements between sophisticated commercial parties, a forum selection clause will likely be enforced, even if another jurisdiction might be more practical or convenient, absent very narrow circumstances, such as issues with the enforceability of the clause due to fraud or inducement, the existence of circumstances that the parties could not have reasonably contemplated at the time of the agreement, or certain public policy considerations.

It is less clear, however, how courts will apply the “strong cause” test when assessing the enforceability of forum selection clauses in contracts where “less sophisticated” parties are involved. Parties hoping to rely on a forum selection clause would be wise to ensure that their contracts take into consideration any potential enforceability and public policy concerns, especially when contracting with parties who may not be deemed “sophisticated” by the courts.

Miller Thomson’s Commercial Litigation group is experienced in a variety of disputes, including with respect to the applicability and enforceability of forum selection clauses. If you require assistance or advice in this area, please reach out to our legal team.

[1] Forum selection clauses are provisions included in contractual agreements that designate the specific jurisdiction where any potential disputes relating to the contract will be resolved.

[2] Jurisdiction simpliciter is a question of whether a court can take jurisdiction over the matter.

[3] Factors include the location where the parties reside, the location of the proposed witnesses, the location of the records, the applicable law, the location of the property in dispute, relative costs, and timing: see Daytona Power Corp v Hydro Company, Inc, 2020 ABQB 723 at para 53.

[4] See Douez v. Facebook, Inc., 2017 SCC 33; see also Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27.

[5] O’Connor v Sivacoe Estate, 2024 ABKB 420 at para 35.