In a previous post, we wrote about an Ontario Superior Court of Justice decision regarding a clause in a contract that required all disputes to be decided according to Arizona law and resolved by the courts of Arizona. The judge decided not to enforce the “jurisdiction and choice of law” clause, and ruled that the litigation between Honeywell Inc. and Expedition Helicopters Inc. (“Expedition”) should proceed in Ontario. Honeywell launched an appeal of the decision and the Ontario Court of Appeal recently overturned the lower court’s ruling. As a result, the action commenced in Ontario will not proceed and the parties must either settle the dispute or have it resolved in Arizona.
The lower court judge had been swayed by the fact that virtually all of the evidence relating to liability and damages was in Canada. The Ontario Court of Appeal quite definitively stated that this was wrong, and that the motion judge did not apply the correct test for evaluating whether a forum selection clause should be given effect. The Court of Appeal confirmed the general principal that forum selection clauses should be enforced as they create certainty and security in transactions, resulting in order and fairness, which are critical components of private international law. The starting point is that parties should be held to their bargain. The parties agreed in advance to a hearing in Arizona and they must have done so fully aware of the consequences that this would have on the transportation of witnesses, evidence and/or compliance with Arizona law.
The Court of Appeal also found that the motion judge did not give sufficient weight to the fact that Expedition had also commenced a parallel action in Arizona. Expedition claimed that they had commenced the Arizona action as a precaution, in the event the Ontario Court ruled that the dispute had to be heard in Arizona. If Expedition had not filed the Arizona action and had waited for the Court’s decision, they would have missed a deadline imposed by Arizona law for the commencement of actions. Although the Arizona action could be seen as merely a “place holder”, the Court of Appeal found that instituting an action in Arizona was an act of acceptance of that court’s jurisdiction.
The Court of Appeal concluded by stating that the courts still have discretion not to enforce forum selection clauses, but only in exceptional cases. Examples of such cases include:
- the plaintiff was induced to agree to the clause by fraud or improper inducement;
- the contract was otherwise unenforceable;
- the court in the selected forum does not accept jurisdiction or is otherwise unable to deal with the claim;
- the claim or the circumstances that have arisen are outside of what was reasonably contemplated by the partieswhen they agreed to the clause;
- the plaintiff can no longer expect a fair trial in the selected forum clause 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.