Renvoi: Lex Situs Conflictus

Canadian Conflict of Laws Blawg by Seva Batkin

An Alternative Form of Exclusive Jurisdiction Clause

Posted by Seva on September 15, 2008

Solicitors, rejoice! Following the decision of Madam Justice Peppal in Blue Note Mining Inc. v. CanZinco Ltd. (Ont. S.C.), you now have an additional type of exclusive jurisdiction clause at your disposal. This clause, rather than forcing a party into a particular jurisdiction, prohibits a party from disputing jurisdiction of a particular forum, even as forum non conveniens.

The specific clause at issue in Blue Note Mining was expressed in the following three-part covenant:

Each party agrees (i) that any action or proceeding relating to this Agreement may (but need not) be brought in any court of competent jurisdiction in the Province of Ontario, and for that purpose now irrevocably and unconditionally attorns and submits to the jurisdiction of such Ontario court; (ii) not to oppose any such Ontario action or proceeding on the basis of forum non conveniens or for any other reason; and (iii) not to oppose the enforcement against it in any other jurisdiction of any judgment or order duly obtained from an Ontario court as contemplated by this Section 9.9.

[emphasis added]

Not surprisingly, when the defendant brought a motion to stay the plaintiff’s misrepresentation action on the grounds that New Brunswick was forum conveniens, the plaintiff sought to rely on this clause. However, rather than considering this clause as a threshold question of whether the FNC argument may be raised at all, Peppal J. considered it as part of her analysis of the seven Muscutt forum non conveniens factors. Specifically, it fell under the heading of “contractual provisions that specify applicable law or accord jurisdiction”.

Looking at this issue from the perspective of consistency in law and respect for the parties’ freedom of contract, Peppal J. held that the clause is in effect another form of an exclusive jurisdiction clause and should be treated in the same manner, as dictated by Z.I. Pompey Industrie v. ECU Line N.V. In other words, while the clause does not estop a defendant from bringing the motion for a stay based on FNC, it must demonstrate a “strong cause” why the court should not enforce it:

19 In this case, the parties clearly turned their minds to the issue and unless there is strong cause to do otherwise, they should be held to their bargain. This is just, reflects the parties’ intentions, and also presumably eliminates cost and time associated with bringing motions that run counter to an express agreement. As stated by Sharpe J.A. in Red Seal Tours Inc. v. Occidental Hotels Management BV10, the strong cause test imposes a burden on the moving parties to satisfy the Court that there is good reason not to be bound by the contract and the parties’ agreement is to be given effect in all but exceptional circumstances.

In the circumstances of this case, the defendant was not able to demonstrate exceptional circumstances.

While Peppal J. did explicitly state that this type of clause should be treated as an exclusive jurisdiction clause, the particular manner of her analysis does leave a lingering question: is the prescribed treatment a threshold question that must be decided before the court embarks on a full-fledged FNC analysis, or is merely a factor that is considered within said analysis?

On the one hand, as discussed in a previous post, the decision of Mr. Justice Bastarache in Z.I. Pompey appears to expressly speak for the first proposition:

21 There is a similarity between the factors which are to be taken into account when considering an application for a stay based on a forum selection clause and those factors which are weighed by a court considering whether to stay proceedings in “ordinary” cases applying the forum non conveniens doctrine: . 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.

On the other hand, Peppal J. not only considered the clause in the context of a specific FNC factor, but also went on to the remaining FNC factors. Moreover, she has not been the first judge to do so. For examples, see Commonwealth Insurance Company v. American Home Assurance Company, previously discussed on this blawg; Magic Sportswear Corp. v. OT Africa Line Ltd., 2006 FCA 284 86 in the maritime law context, DRC Investments Ltd. v. Lan-John Enterprises Ltd., [2002] O.J. No. 3095 (S.C.J.); Caren Excavating Inc. v. TransCanada Pipelines Ltd., [2002] O.J. No. 1984 5 (S.C.J.) holding that strong cause may be demonstrated through the FNC analysis; Texserv Inc. v. Incon Container USA Ltd.; and Ruggeberg v. Bancomer, S.A., [1998] O.J. No. 538 (C.J. Gen. Div.) where Cullity J. discussed the tendency of the courts to assimilate the consideration of exclusive jurisdiction clauses into the FNC analysis.

Fortunately, while it’s an interesting academic point, little turns on it practically. As Scurfield J. explained in Commonwealth, “such clauses are frequently dispositive of jurisdictional issues” and must be dealt with before the questions of jurisdiction simpliciter or forum non conveniens.

One Response to “An Alternative Form of Exclusive Jurisdiction Clause”

  1. In Blue Note Mining, Pepall, J. appears to gloss over the fact that the dispute arose from an asset purchase agreement between Blue Note and CanZinco for the purchase of the Caribou Mine, which is located in New Brunswick. In the learned judge’s analysis of the forum non conveniens factors, Madam Justice Pepall states, in part:

    “(e) The applicable law and its weight in comparison to the factual questions to be decided

    [23] The agreement provides that Ontario law is to apply. While it may be that the law in New Brunswick is identical to that in Ontario, no evidence was advanced on this issue. This factor again favours Ontario and Blue Note’s position.

    (f) The geographical factors

    [24] While the Caribou Mine is located in New Brunswick, the focus of the parties’ dispute is on the agreement and the communications that preceded it. The geographical factor is neutral.

    (f) The geographical factors

    [24] While the Caribou Mine is located in New Brunswick, the focus of the parties’ dispute is on the agreement and the communications that preceded it. The geographical factor is neutral.”

    However, Pepall, J. was also “not persuaded that the nature of Blue Note’s claims takes [the Ontario] action outside the scope of the parties’ purchase agreement. It seeks a declaration with respect to rights flowing from the agreement; an agreement the terms of which the moving parties rely upon. As to Breakwater, although it was not a party to the purchase agreement, it is encompassed by the definition of affiliate in the agreement and at least one of the indemnities.”

    It is difficult to discern from the written reasons as to whether the declaratory relief sought by either party in the Ontario action is limited to the indemnities. However, if both parties are seeking declaratory relief arising from the asset purchase agreement—including specific performance or recission—then the court should have also considered the Mocambique rule and the Penn v. Baltimore (in personam) exception, to determine whether the contractual indemnities in dispute were inextricably tied to the asset purchase agreement. At a minimum, the Ontario court should have considered whether the subject-matter in dispute was ultimately about in rem rights (i.e. the transfer of title and interest in the foreign immovable—the Caribou Mine. If so, the Ontario proceedings should have been stayed in favour of the concurrent New Brunswick proceedings, if only to avoid the possibility of inconsistent judgments and duplicative, costly proceedings.

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