October 27, 2017

Court of Appeal for Ontario Will Strictly Construe Choice of Forum Clauses – Drafters Beware!

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Choice of forum and choice of laws clauses in cross-border contracts are often drafted as an afterthought.  When a deal is in the offing, terms dealing with possible disputes often get less thought than is warranted. This often leads to confusion and unpredictable outcomes when a lawsuit is launched. The Court of Appeal for Ontario recently confirmed that it will very carefully peruse the wording used in choice of forum clauses to see whether they are applicable to the dispute in question.

In Wilson, Trustee of the W&W Fiberglass Tank Co., profit-sharing plan vs. Bartholomew et al. 2017 ONCA 4, the Court allowed the appeal and granted summary judgment in favor of a plaintiff/appellant based on the inapplicability of a forum selection clause favouring the Cayman Islands over Canada.

In Wilson, the plaintiff had sued the defendants for breach of fiduciary duty and misappropriation of funds.  It was undisputed on the record that the money in question was paid by the appellant and was earmarked for a specific fund.  However, the money was otherwise invested and was not repaid by the respondents. The sole issue on the summary judgment motion was whether a seemingly broad forum selection clause found in the agreement effectively ousted Canadian jurisdiction over the matter in favour of the Cayman Islands jurisdiction.  At first instance, the motion Judge declined to grant summary judgment to the Plaintiff and dismissed the motion as a result of the forum selection clause. This determination was overturned on appeal the Court of Appeal for Ontario. After a very careful reading of the forum selection clause, the Court held that the clause, properly interpreted, did not apply to the type of dispute that was before the Court in this instance. Hence, the Court of Appeal overturned the trial judge’s finding and allowed the plaintiff’s summary judgment for in excess of $1 million dollars.

The upshot of this case is that forum selection clauses must be crystal clear in order to effectively choose the jurisdiction in question to the exclusion of any other jurisdiction. If it is unclear that the clause applies to a particular type of dispute the clause simply will not hold up to the scrutiny of the court. Drafters beware! Always take the time to very carefully construct forum selection clauses and law selection clauses in contracts.

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