"Strong Cause" or "Weak Effect"?: Exclusive Jurisdiction Clauses and Inter-Provincial Litigation

A recent Ontario decision highlights the confusing state of jurisdictional analysis in Canada in respect of exclusive jurisdiction clauses and parallel proceedings involving the same inter-provincial parties.

In Epoxy Solutions Inc. v. Polymer Science Corporation, 2009 CanLII 46657 (ON S.C.), the Ontario court considered a motion for dismissal or stay of the action on the basis of an exclusive jurisdiction/dispute resolution clause specifying all litigation be resolved in the province of Alberta. The plaintiff, Epoxy Solutions Inc., [“Epoxy”] an Ontario corporation, purchased industrial coating material from the defendant manufacturer, Polymer Science Corporation [“Polymer”] for use in construction in Ontario. Epoxy alleged defective product due to a change in product formulation. After Epoxy refused to pay, Polymer commenced an action in Alberta and obtained default judgment for $25,726.98, which Epoxy had yet moved to set aside. Epoxy subsequently commenced an action in Ontario claiming damages for breach of express and implied warranties and for negligence.
Madam Justice Low focused on the terms of a credit agreement entered into between the parties, consisting of the Polymer’s form of application for credit, signed by Epoxy’s president, Mr. Hillebrand, together with a three page document titled “Terms and Conditions of Sale”, the last page of which also bears Mr. Hildebrand’s signature, which provided, at paragraph 8, as follows:
General Provisions.

(a) Applicable Law. The validity, performance and construction of this Agreement shall be governed by the laws of the Province of Alberta.

(b) Exclusive Jurisdiction. The provincial and federal courts of the Province of Alberta shall have exclusive jurisdiction over any lawsuit or other legal proceeding arising out of this Agreement or in connection with the Products, or the purchase, resale, application of the Products, and the parties hereto consent to the jurisdiction of such courts.

(c) Modification and Waiver. No addition to or modification of any provision hereof shall be binding upon PSC, and PSC shall not be deemed to have waived any provision hereof or any remedy available to it, except pursuant to a written document signed by a duly authorized officer of PSC.

[6] At the end of the third page of the Terms and Conditions of Sale, above the spaces provided for insertion of date and place and signature of the applicant, the following words appear:

“I/we understand and agree to above three pages of Terms and Conditions.”

Low, J. offers the following approach to proof of jurisdictional facts in the context of a preliminary motion challenging jurisdiction:
[8] In my view, while the court should avoid making factual findings which are the subject of or integral to the claim or defence (see Young v. Tyco International of Canada Ltd. 2008 ONCA 709 (CanLII), (2008), 92 O.R. (3d) 161 (C.A.), there are factual findings which are necessary to be made on preliminary motions challenging jurisdiction – for example, whether the moving party resides in the jurisdiction, where service was effected, where losses were incurred, where the witnesses reside, or where the agreement was made. These are all facts relevant to the issue of whether there is a substantial connection with this jurisdiction and to the issue of forum conveniens. Whether there was an agreement as to exclusive jurisdiction is clearly a factual issue falling into this category.
Here is where the jurisdictional analysis becomes somewhat murky. Firstly, the learned motions judge does not appear to undertake any preliminary inquiry on the issue of jurisdiction simpliciter: whether the court can assume jurisdiction over the lis (subject-matter of the dispute) or the defendant, concluding simply that “I am satisfied that Ontario has jurisdiction simpliciter… (at ¶13). The reasons are silent on whether the defendant, Polymer, had previously attorned by delivering a Notice of Intent to Defend or a Statement of Defence. Rule 17.06 of the Rules of Civil Procedure) provides:
17.06 (1) A party who has been served with an originating process outside Ontario may move, before delivering a defence, notice of intent to defend or notice of appearance,

(a) for an order setting aside the service and any order that authorized the service; or

(b) for an order staying the proceeding. R.R.O. 1990, Reg. 194, r. 17.06 (1).

(2)The court may make an order under subrule (1) or such other order as is just where it is satisfied that,

(a) service outside Ontario is not authorized by these rules;

(b) an order granting leave to serve outside Ontario should be set aside; or

(c) Ontario is not a convenient forum for the hearing of the proceeding. R.R.O. 1990, Reg. 194, r. 17.06 (2). [emphasis added]

Having concluded that Epoxy’s president had direct authority to sign the credit agreement, Epoxy was bound by the “Terms and Conditions of Sale”, including the exclusive jurisdiction clause in favour of Alberta. (at ¶’s 7-9). The court then proceeds to apply the “strong cause” test, first established by Brandon J. in The “Eleftheria”, [1969] 1 Lloyd’s Rep. 237 (at 242) as cited with approval in Z.I. Pompey Industrie v. ECU-Line N. V., 2003 SCC 27 (CanLII), [2003] 1 S.C.R. 450, quoting Bastarche J., in part, as follows:
“19….. Brandon J. set out the test as follows in The “Eleftheria”, at p. 242:

(1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign Court, and the defendants apply for a stay, the English Court, assuming the claim to be otherwise within the jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. (2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (3) The burden of proving such strong cause is on the plaintiffs. (4) In exercising its discretion the Court should take into account all the circumstances of the particular case. (5) In particular, but without prejudice to (4), the following matters, where they arise, may be properly regarded: (a) In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and foreign Courts. (b) Whether the law of the foreign Court applies and, if so, whether it differs from English law in any material respects. (c) With what country either party is connected, and how closely. (d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages. (e) Whether the plaintiffs would be prejudiced by having to sue in the foreign Court because they would (i) be deprived of security for that claim; (ii) be unable to enforce any judgment obtained; (iii) be faced with a time-bar not applicable in England; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial.

20 Forum selection clauses are common components of international commercial transactions, and are particularly common in bills of lading. They have, in short, “been applied for ages in the industry and by the courts”: Décary J.A. in Jian Sheng, supra, at para. 7. These clauses are generally to be encouraged by the courts as they create certainty and security in transaction, derivatives of order and fairness, which are critical components of private international law: La Forest J. in Morguard Investments Ltd. v. De Savoye, 1990 CanLII 29 (S.C.C.), [1990] 3 S.C.R. 1077, at pp. 1096-97; Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), 2001 SCC 90 (CanLII), [2001] 3 S.C.R. 907, 2001 SCC 90, at paras. 71-72. The “strong cause” test remains relevant and effective and no social, moral or economic changes justify the departure advanced by the Court of Appeal. In the context of international commerce, order and fairness have been achieved at least in part by application of the “strong cause” test. This test rightly imposes the burden on the plaintiff to satisfy the court that there is good reason it should not be bound by the forum selection clause. It is essential that courts give full weight to the desirability of holding contracting parties to their agreements. There is no reason to consider forum selection clauses to be non-responsibility clauses in disguise. In any event, the “strong cause” test provides sufficient leeway for judges to take improper motives into consideration in relevant cases and prevent defendants from relying on forum selection clauses to gain an unfair procedural advantage.

the presence of a forum selection clause in the former is, in my view, sufficiently important to warrant a different test, one where the starting point is that parties should be held to their bargain, and where the plaintiff has the burden of showing why a stay should not be granted. I am not convinced that a unified approach to forum non conveniens, where a choice of jurisdiction clause constitutes but one factor to be considered, is preferable. As Peel, supra, notes, at p. 190, I fear that such an approach would not ensure that full weight is given to the jurisdiction clause since not only should the clause itself be taken into account, but also the effect which it has on the factors which are relevant to the determination of the natural forum. Factors which may otherwise be decisive may be less so if one takes into account that the parties agreed in advance to a hearing in a particular forum and must be deemed to have done so fully aware of the consequences which that might have on, for example, the transportation of witnesses and evidence, or compliance with foreign procedure etc.
In my view, a separate approach to applications for a stay of proceedings involving forum selection clauses in bills of lading ensures that these considerations are properly taken into account and that the parties’ agreement is given effect in all but exceptional circumstances…”
While laudable, it is quixotic to attempt to engraft the “strong cause” test onto inter-provincial litigation, particularly in light of the fact that the ‘strong cause’ test derives from an international bill of lading dispute. In any event, Bastarache J.’s words bear repeating: “I am not convinced that a unified approach to forum non conveniens, where a choice of jurisdiction clause constitutes but one factor to be considered, is preferable.
However, after having reviewed the pleadings, the learned motions judge then undertakes a somewhat novel “fairness” analysis (perhaps under the rubric of the twin pillars of “order and fairness” espoused by the Supreme Court of Canada in Morguard Investments Ltd. v. De Savoye, 1990 CanLII 29 (S.C.C.), [1990] 3 S.C.R. 1077, at pp. 1096-97 and Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), 2001 SCC 90 (CanLII), [2001] 3 S.C.R. 907, 2001 SCC 90, at paras. 71-72. and their progeny) . For example, whether or not the plaintiff would be deprived of security for its claim (at ¶23), whether a limitation period has lapsed (at ¶24), or whether or not the plaintiff will not receive a fair trial (at ¶25), are all issues which are relevant to forum non conveniens analysis involving a foreign defendant, based upon the principles of comity. However, under section 23 of the Ontario Limitations Act, 2002: S.O. 2002, c. 24, Sch. B.:

23. For the purpose of applying the rules regarding conflict of laws, the limitations law of Ontario or any other jurisdiction is substantive law. 2002, c. 24, Sched. B, s. 23.
Moreover, there were parallel and/or concurrent proceedings previously commenced by the defendant, Polymer in Alberta. One would safely assume that the Ontario plaintiff, Epoxy, would likely deliver a defence and counterclaim to the Alberta action.
Madam Justice Low continues by finding that while the evidence where the plaintiff’s loss was alleged to have been incurred is in Ontario, the majority of the evidence is located in Alberta where the alleged defective product was said to be negligently manufactured and marketed. As for choice of law, the court also notes that “[i]f there are differences between the Ontario law and the Alberta law relating to any of the causes of action asserted in the statement of claim, the Alberta law would have to be proved at trial in the Ontario action. If the action is in Alberta, there would be no such requirement. It is not apparent on the materials filed whether there are differences in the relevant law of the two jurisdictions.” This begs the question as to why Canadian courts continue to characterize extra-provincial laws, albeit Canadian laws, as “foreign laws” which must be proved through expert evidence. Perhaps, someday, judicial notice may be taken of the laws of all provinces and territories within the entire Canadian federation.
Furthermore, despite the settled law that the enforceability of an exclusive jurisdiction clause is a distinct jurisdictional inquiry which obviates forum non conveniens analysis, the court, nevertheless, refers to loss of juridical advantage (one of a number of factors in the forum non conveniens test), and concludes that the plaintiff would not be subject to a plea of res judicata by reason of the defendant’s default judgment against it, stating:
“That argument is not valid. If a plea of res judicata is available to the defendant on the facts, it is available regardless of whether or not the court granting the first judgment is in the same jurisdiction as that in which the current action is brought, provided that it was a court of competent jurisdiction.” [at ¶26]
Finally, Low, J. rejects Epoxy’s procedural fairness arguments that it would be deprived of the benefit of examination of non-party witnesses in Ontario under Rule 31.10 of the Rules of Civil Procedure if required to litigate in Alberta or having to post security for costs in Alberta based upon having insufficient assets.
Antonin I. Pribetic

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