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Importance of Forum Selection Clauses in Canadian Contracts

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Published by:

Mike Chelbet

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Reviewed by:

Alistair Vigier

Last Modified: 2024-05-25

Are you confused about what a forum selection clause is? It’s a part of the contract that says where and how a lawsuit will be dealt with. It might say arbitration.

It might also say the matter has to be dealt with in the province of Ontario or British Columbia, which have different rules.

Arbitration is an entirely different situation than the courts. Get legal advice before signing a contract. If you live in Vancouver, do you want to fly to Toronto every few weeks to go to court? That can happen.

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Arbitration Or Court?

If there is a 30-day trial, and the Forum Selection Clause says the matter will be dealt with in Toronto, you must be in Toronto for 30 days. If there are delays, it could be longer. Don’t sign clauses in contracts without understanding them.

A forum selection clause is no stranger to the intricate tapestry of Canadian contract law. Dive into any international contract and you’ll likely stumble upon this term.

At its core, it’s an agreement between parties to have their legal disputes heard in a specified location or jurisdiction. Like many nations, such clauses play a pivotal role in legal arrangements in Canada, especially when global transactions become entangled in disputes.

Canada’s courts have heard countless cases involving forum selection clauses. The goal is to minimize uncertainty, which is akin to setting the stage for any potential drama.

Both parties know where the curtains will rise if a dispute emerges. But, understanding its significance in Canadian legal circles warrants a deeper examination.

Imagine a Vancouver-based company entering a business deal with a firm in Paris. The paperwork is strewn with references to the French legal system. That’s a clear indication. If things go sideways, they’ll be packing bags for Parisian courts. It’s a pre-agreed venue, a decision made before even a whisper of conflict.

Why do businesses embrace such clauses? Predictability. Businesses thrive on it. They appreciate knowing where they stand, even regarding potential conflicts. It simplifies the process, streamlines the complexities, and dispels the ambiguities.

But not so fast. It’s not a blanket solution in the eyes of Canadian law. Courts here scrutinize these clauses; they aren’t rubber-stamped in haste. Canada respects the sanctity of agreements but also holds a torch for justice.

If the chosen forum is seen to prejudice one party unjustly, Canadian courts might step in. They have the power to override the clause if it’s deemed egregiously unfair or public policy is at risk.

Benefits of Including a Forum Selection Clause in Canadian Agreements

Remember the age-old saying, “All that glitters isn’t gold”? It’s apt here. Forum selection clauses might glitter with promise, but they come with their caveats.

Parties can’t just whimsically decide on a random jurisdiction. It should have relevance. Either it’s the base of one of the parties or linked to the transaction.

It’s crucial to note that Canada’s respect for these clauses doesn’t come from a vacuum. The landmark decision in Z.I. Pompey Industrie v. ECU-Line N.V. by the Supreme Court of Canada solidified this stance. The court provided clarity.

Parties aiming to avoid a forum selection clause shoulder the burden of proof. They must showcase why the clause should be set aside.

But when would a Canadian court bypass such a clause? A handful of situations come to mind. First, when there’s evidence that the trial in the chosen jurisdiction would be unjustly expensive or inefficient.

Courts don’t favour venues that cripple a party’s ability to present its case. Second, courts may intervene if the clause was sneaked into the fine print, catching the other party off-guard. Transparency is key.

Challenges and Controversies Surrounding Forum Selection Clauses in Canada

Another scenario? When enforcing the clause would counter Canadian values or public policy. It’s a nebulous term, “public policy”. It essentially shields the nation’s core beliefs and norms. A forum selection clause that treads on this territory is on shaky ground.

Jurisdictions like Ontario have statutes like the International Commercial Arbitration Act. These provide more specific directions on when and how forum selection clauses come into play.

They underscore the balance Canadian law tries to strike – respecting the contracting parties’ will while ensuring justice isn’t short-changed.

Practically speaking, this isn’t just a game for big corporations. Smaller entities, entrepreneurs, and even individuals delve into international transactions. Understanding the nuances of forum selection clauses, especially in the Canadian context, is essential for them.

Pre-set compass direction for disputes

In the world of contracts, these clauses offer a map of uncharted territories. It’s the “where” in the maze of “whos”, “whats”, and “whys”. It’s a pre-set compass direction for disputes.

While the compass might occasionally need recalibration in Canada, it’s a tool respected and acknowledged for its value.

However, this landscape isn’t stagnant. As businesses evolve and jurisdictions interact more deeply, Canada’s stance on forum selection clauses will likely adapt.

But for now, it is a testament to the country’s commitment to uphold contractual freedoms while safeguarding justice.

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