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Forum Selection Clause Considered
Published in the May 2010 issue of Litigation Notes - View Article
The Ontario Court of Appeal confirms that a forum selection clause in a contract should be given effect, except in exceptional circumstances.
The Ontario Court of Appeal recently had occasion to consider the application of a forum selection clause in a contract. The contract in question was for the supply of a helicopter engine by Honeywell Inc. (“Honeywell”) to Expedition Helicopters Inc. (“Expedition”). After a helicopter crash, Expedition commenced an action in Ontario against Honeywell for damages arising out of the crash. Honeywell brought a motion to stay the Ontario action because the contract provided that the courts of Arizona had exclusive jurisdiction over all proceedings “arising out of or in connection with the agreement”. A motions judge denied the application and Honeywell appealed to the Ontario Court of Appeal.
The Court of Appeal reviewed the law on the enforceability of forum selection clauses, beginning with the British case of The Eleftheria and the test set out in that case:
“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.”
The Court then went on to consider how The Eleftheria had been applied in Canada, specifically in the Supreme Court of Canada decision in Z.I. Pompey Industrie v. ECU-Line NV.. The thrust of that decision is that the law favours the enforcement of forum selection clauses. The Court of Appeal points out that “…even though the literal wording of the test in The Eleftheria may imply a conventional forum non conveniens analysis, Pompey makes clear that such analysis is not to be used. Rather, the forum selection clause pervades the analysis and must be given full weight in the consideration of other factors. It is not enough for the Plaintiff to establish a “strong” case that Ontario is the more convenient forum. The Plaintiff must show “strong cause” that the case is exceptional and the forum selection clause should not be enforced”.
As Bastarache J. stated in the Pompey case:
“The ‘strong cause’ test reflects the desirability that parties honour their contractual commitments and is consistent with the principles of order and fairness at the heart of private international law, as well as those of certainty and security of transaction at the heart of international commercial transactions.”
The Court of Appeal went on to consider the motion judge’s decision in this case and found that she had essentially applied a conventional forum non conveniens analysis and had not given sufficient weight to the clause. She considered the location of witnesses and the procedures of Arizona courts without taking account of the fact that Expedition “… by agreeing to the clause, had accepted at the time it entered into the contract that it would have to transport its witnesses to Arizona and resolve any claim it might bring according to the law and procedures of Arizona”.
Furthermore, the motions judge considered that the Plaintiff’s claim might be dismissed under the law of Arizona because it had not been filed in a timely manner. She failed to take account of the fact that the forum selection clause provided that the agreement would be “governed, controlled and interpreted under the law of the State of Arizona”. Consequently, even if the case proceeded in Ontario the law of Arizona might apply. Furthermore “…a party should not be able to take advantage of its own failure to bring an action in the proper jurisdiction in a timely way to create prejudice that would justify excusal from the forum selection clause”. As it happened, fresh evidence established that timely filing was not an issue in any event.
The motions judge ignored the fact that Expedition had commenced an action in Arizona. Although Expedition explained that this had been done to preserve a claim within the limitation period and undertook to discontinue that action if the Ontario action were allowed to proceed, the Court of Appeal nevertheless viewed the commencement of an action in Arizona as an act of attornment to the jurisdiction of that court. In addition, the motion judge should have considered whether a judgment obtained in Ontario would be enforced by an Arizona court if that court were to conclude that the action should have proceeded in Arizona. No evidence was filed on this issue.
The motion judge attached weight to the fact that it had been conceded that Ontario was the appropriate and convenient forum for the trial of the wrongful death action of the passenger in the helicopter, which was not governed by the forum selection clause. She also erred in attaching significant weight to expert evidence suggesting that Canadian witnesses were not compellable by Arizona courts. The Court of Appeal points out that she could have made the same observation about the subpoena power of Ontario courts in relation to American witnesses and “given the cross-border methods of obtaining evidence from friendly jurisdictions, this factor was not deserving of weight one way or the other”.
The Court of Appeal goes on to conclude that Expedition should be held to the bargain that it made. While it might experience some inconvenience in having to assert its claim in Arizona, this did not justify permitting it to resile from its agreement.
“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.from circumstances such as these, a forum selection clause in a commercial contract should be enforced.”
Expedition Helicopters Inc. v. Honeywell Inc. 2010 ONCA 351 (CanLII)