Viroforce Systems Inc. v. R&D Capital Inc.: Is the “strong cause” test discretionary?

In Viroforce Systems Inc. v. R&D Capital Inc., 2011 BCCA 260 (CanLII), the British Columbia Court of Appeal has expressly endorsed Justice Laskin’s analytical approach to consent-based jurisdiction in Momentus.ca Corp. v. Canadian American Assn. of Professional Baseball Ltd., 2010 ONCA 722 (CanLII),2010 ONCA 722 at paras. 35 to 39, 325 D.L.R. (4th) 685, leave to appeal granted [2010] S.C.C.A. No. 473.

 Tysoe, J.A. (Hall and Garson JJ.A. concurring) considered an appeal by the plaintiffs/appellants of the motion judge’s order dated August 25, 2009 staying the underlying action on the basis that jurisdiction simpliciter had not been established or, alternatively, that the Quebec court was the more convenient forum. The parties had entered into a term loan agreement dated February 27, 2008 in connection with the financing, which contained the following two provisions:

7.7      Governing Law and Jurisdiction

            This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the Province of Quebec. Each Party hereby expressly and irrevocably attorns and submits to the exclusive jurisdiction of the courts of the Province of Quebec, in respect of all matters arising out of or in connection with this Agreement.

7.8      Choice of Venue

            The parties agree, in respect of any claim or legal proceedings for any purposes whatsoever, in connection with the Agreement, to elect the judicial district of Montreal, province of Quebec.

The defendant brought on an application for an order staying the action. The plaintiffs argued that the Supreme Court of British Columbia had territorial competence under the Court Jurisdiction and Proceedings Transfer Act, S.B.C. 2003, c. 28 (the “CJPTA”) on the basis that the defendant had a place of business in British Columbia and, therefore, it was ordinarily resident in British Columbia at the commencement of the action within the meaning of sections 3(d) and 7 of the Act.

Tysoe, J.A. writes,

[12]           The Act does not specify how forum selection clauses are to be treated in the analysis of determining whether the British Columbia court should take jurisdiction. The only reference to forum selection clauses in the Act is contained in s. 3(c), but that deals with the situation where the parties have agreed that the British Columbia courts will have jurisdiction.

[13]           The decision in Momentus.ca Corp. v. Canadian American Assn. of Professional Baseball Ltd., 2010 ONCA 722 (CanLII), 2010 ONCA 722 at paras. 35 to 39, 325 D.L.R. (4th) 685, leave to appeal granted [2010] S.C.C.A. No. 473, contains a useful discussion of the manner in which forum selection clauses fit into the jurisdictional analysis. It is first determined whether the court in question has or can assume jurisdiction. If so, the question becomes whether the court should take jurisdiction. In this regard, the court will decline jurisdiction for one of two reasons – the enforcement of a forum selection clause or a determination of forum non conveniens.

[14]           In my opinion, the Act does not alter the general approach to be taken when the parties agree to a forum selection clause. If it is determined or assumed that the British Columbia court has territorial competence, the issue is whether the court should decline jurisdiction, either because the forum selection clause ought to be enforced or a consideration of the factors contained in s. 11 of the Act leads to the conclusion that a court in another jurisdiction is a more appropriate forum. The existence of a forum selection clause can, by itself, be sufficient reason for a court to decline jurisdiction, and it is not simply one of the factors to consider in making a determination under s. 11. It will not be necessary in all cases to first determine whether there is territorial competence because it may be clear that the forum selection clause will govern the outcome of the matter. [emphasis added]

The foregoing analysis implies that the court retains a discretion to decline jurisdiction and stay or dismiss an action, but must first determine whether it has territorial jurisdiction (i.e. jurisdiction simpliciter).

Note that section 3 of the CJPTA reads:

Proceedings against a person

3  A court has territorial competence in a proceeding that is brought against a person only if

(a) that person is the plaintiff in another proceeding in the court to which the proceeding in question is a counterclaim,

(b) during the course of the proceeding that person submits to the court’s jurisdiction,

(c) there is an agreement between the plaintiff and that person to the effect that the court has jurisdiction in the proceeding,

(d) that person is ordinarily resident in British Columbia at the time of the commencement of the proceeding, or

(e) there is a real and substantial connection between British Columbia and the facts on which the proceeding against that person is based.

Justice Tysoe concludes,

[16]           The chambers judge quoted from Z.I. Pompey Industries with respect to the “strong cause” test. Since her decision, the Ontario Court of Appeal has commented further on the “strong cause” test in its decision in Expedition Helicopters Inc. v. Honeywell Inc., 2010 ONCA 351 (CanLII), 2010 ONCA 351, 319 D.L.R. (4th) 316, leave to appeal refused [2010] S.C.C.A. No. 258, where Mr. Justice Juriansz said the following:

[24]     A forum selection clause in a commercial contract should be given effect. The factors that may justify departure from that general principle are few. The few factors that might be considered include the plaintiff was induced to agree to the clause by fraud or improper inducement or the contract is otherwise unenforceable, the court in the selected forum does not accept jurisdiction or otherwise is unable to deal with the claim, the claim or the circumstances that have arisen are outside of what was reasonably contemplated by the parties when they agreed to the clause, the plaintiff can no longer expect a fair trial in the selected forum due to subsequent events that could not have been reasonably anticipated, or enforcing the clause in the particular case would frustrate some clear public policy. Apart from circumstances such as these, a forum selection clause in a commercial contract should be enforced.

[17]           In the present case, the only evidence regarding the forum selection clause was that Viroforce did not engage legal counsel to review the term loan agreement and R&D Capital did not emphasize or bring Viroforce’s attention to the clause. This is not evidence that Viroforce was induced to agree to the clause by fraud or improper inducement, and it does not make the term loan agreement unenforceable. In my opinion, this type of evidence does not constitute strong cause for a court to refuse to enforce a forum selection clause.

[18]           The chambers judge was correct in her conclusion that the action should be stayed because even if the Supreme Court of British Columbia has territorial competence, it should decline to exercise the jurisdiction because the forum selection clause ought to be enforced. I would dismiss the appeal.

The B.C.C.A.’s reasoning appears to be that in provincial jurisdictions where the CJPTA has been enacted (with or without modifications), a court must first determine territorial competence by applying the “real and substantial connnection” test (or factors) as set forth in s.10 of the CJPTA. This approach adds an unnecessary layer of complexity to the overall jurisdictional analysis. Rather than considering all of the factors relied upon by the plaintiff to establish a rebuttable presumption of territorial competence under s.10 of the CJPTA, would it not be preferable to simply consider the enforceability of an exclusive jurisdiction clause based upon the “strong cause” test?  If the plaintiff is unable to discharge the onus that there is “strong cause” to oust the exclusive jurisdiction clause, then no further inquiry is necessary.

Further, section 11 of the CJPTA is meant to be codification of the “forum non conveniens” doctrine: see, Uniform Law Conference of Canada, Uniform Court Jurisdiction and Proceedings Transfer Act, Commentary to section 11,  and Teck Cominco Metals Ltd. v. Lloyd’s Underwriters, 2009 SCC 11, [2009] 1 S.C.R. 321 “Section 11 of the CJPTA thus constitutes a complete codification of the common law test for forum non conveniens. It admits of no exceptions.” at para. 22, per McLachlin C.J.

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