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Ontario Court of Appeal Refuses to Apply Forum Clause
Published in the August 2007 issue of Transportation Notes - View Article
On July 10, 2007, the Ontario Court of Appeal released a decision declining to enforce a forum selection clause in a commercial dispute.
The facts of the case arose as follows: In 1999 Agresso Corporation (a software developer domiciled in British Columbia) made a proposal for the implementation of certain software at the Sault College of Applied Arts and Technology, located in the province of Ontario. There was a follow-up presentation at the College in July 2000 (which was later alleged to have included numerous misrepresentations).
The proposal was accepted, and by October 2000, software licensing, maintenance and implementation agreements were signed. Work began on the project in November 2000, involving 33 site visits by Agresso and some 123 implementation days. Locally stationed project managers were deployed. Every department in the College was involved. Four full-time employees of the College were assigned to the implementation team and hardware was ordered from New York. Needless to say, the work contemplated was a major undertaking, the vast majority of it taking place in Ontario.
Unfortunately, the project did not unfold as expected. Numerous problems arose which resulted in a list of 34 functional deficiencies.
In 2003, the College made a decision, through its executive committee, to abandon the Agresso project. The first lawyer’s letter from the College to Agresso was delivered in June 2003. Discussions ensued thereafter with the objective of reaching a non-litigious resolution to the problems arising from the aborted project.
During those discussions, the College maintained that the appropriate forum for the resolution of the matter was Ontario. Agresso consistently took the position that British Columbia was the proper forum because the agreements governing the project contained a forum selection clause identifying British Columbia as the applicable jurisdiction for resolving disputes.
As the negotiations began to break down, the College threatened litigation, only to be advised by Agresso that any action must be commenced in British Columbia.
Nevertheless, the College commenced an action in Ontario seeking damages for breach of contract, fundamental breach and misrepresentation. The claim was served on August 4, 2004.
Agresso served a Notice of Intent to Defend in September, followed by a Statement of Defence (which contained a paragraph contesting the jurisdiction of the Ontario Court), and, thereafter, an Affidavit of Documents. Around this time, Agresso advised the College that it was no longer interested in mediation, and notified the College that it had retained a law firm to contest the jurisdiction of the Ontario Court to deal with the case.
Agresso proceeded, in any event, with examinations for discovery in British Columbia in May 2005 (without prejudice to its position that the matter should be heard by the B.C. courts).
By the time Agresso got around to setting a date for a motion requesting an order enforcing the jurisdiction selection clause it was December 2005 — 1½ years after the action was commenced — and nearly one year after settlement negotiations had broken down.
The motions judge found that by filing the Notice of Intent, Statement of Defence and by serving an Affidavit of Documents, Agresso had attorned to the jurisdiction of the Ontario Courts, notwithstanding the forum selection clause in the agreements governing the transactions in question. The Court also commented critically on the delay incurred by Agresso in actually scheduling the motion to deal with the jurisdiction issue. In ordering that the matter could proceed in Ontario, the motions judge held that parties in these circumstances must act diligently and not “sleep on their rights.”
Agresso appealed to the Ontario Court of Appeal, arguing that, although the motions judge referenced the “strong cause” test (created by the Supreme Court of Canada in Pompey v. Ecu-Line N.V. (2003) 1 S.C.R. 350), it did not follow it.
In Pompey, the Supreme Court of Canada held that, in order to give commercial certainty to forum selection clauses, they must be enforced with some rigour. The Court ruled that, where a party seeks to challenge a forum selection clause, the moving party must demonstrate that there is a “strong cause” not to enforce the agreement respecting jurisdiction.
The Court of Appeal held that, having regard to the totality of the factual circumstances in this case (i.e. the delay and the attorning actions taken by Agresso) it would be unjust to require the College to stop the proceedings in Ontario and begin afresh in another forum. Given the delay of two years by Agresso in addressing the forum issue and the fact that the matter was ready to be set for trial in Ontario, the stay of the Ontario action requested by Agresso was denied.
This case is noteworthy in that the Court refused to apply the forum selection clause even though Agresso consistently took the position that the proper forum was British Columbia. It stated this position in the Statement of Defence and conducted the discoveries on a without prejudice basis.
The lesson here is that a party which wishes to take advantage of a forum selection clause to avoid proceedings in a jurisdiction not consistent with the clause must act promptly and must avoid taking such substantial steps in the action as to invite the court to decline a stay on the basis of common sense and fairness.
Sault College of Applied Arts and Technology v. Agresso Corp.
2007 ONCA 525