Are you confused about what a forum selection clause is? It’s basically a part of the contract that says where and how a lawsuit will be dealt with. It might say arbitration.
Or it might say the matter has to be dealt with in the province of Ontario, or British Columbia. These provinces have different rules.
Arbitration is a completely different situation than the courts. Get legal advice before signing a contract. If you live in Vancouver, do you want to have to fly to Toronto every few weeks to go to court? That can happen.
Arbitration Or Court?
If there is a 30-day trial, and the Forum Selection Clause says the matter is to be dealt with in Toronto, you would have to be in Toronto for 30 days. If there are delays, it could be longer. Don’t sign clauses in contracts without understanding them.
We have put together a story that explains if arbitration was in the forum selection clause. It’s a fake story that we hope you enjoy reading. It will teach you about business law. We have lawyers that can help you if you need it.
ABC FRANCHISING also relies on a portion of Section E to establish ABC FRANCHISING’s Canadian exclusivity to identify potential franchisees. The relevant portion provides “ABC FRANCHISING will have the right to open and operate an unlimited number of business units in Canada”.
The meaning of this provision is unclear on a plain reading of the words. Nowhere in the Agreement is it contemplated that ABC FRANCHISING would “open and operate” any “business units”.
Presumably “business units” is meant to be a reference to new franchises of Friendly Coffee (although the balance of the Agreement refers to these as “franchise locations”).
However, there is no suggestion in the Agreement, or in the evidence before me that ABC FRANCHISING would be involved in “opening” a franchise location for itself or that ABC FRANCHISING would be “operating” any franchise locations.
Picking The Forum To Hear The Lawsuit
Each province will have its own procedures for how to deal with a lawsuit. When the parties cannot agree on which court should hear the dispute, then there is a battle before the battle. The parties will have to file an application to get the court location moved.
This is why you should always have a forum selection clause. Each court will have procedural laws and substantive law. The procedural laws dictate how things will go, and when things must be filed by. The substantive law will apply to each party’s rights.
If you are starting a company, you can negotiate that any shareholder disputes would be dealt with in Toronto (for example.) Therefore, Toronto would be the forum.
If you are confused about what a forum selection clause is, you should hire a lawyer to do your contract. You have seen how the smallest of things can make the biggest of differences. Saving $2000 on not hiring a business lawyer can cost you $400,000.
Litigate Disputes Forum Selection Clause
Below is some information from a case where arbitration was used as the forum selection clause…
…This also appears inconsistent with ABC FRANCHISING’s offer of additional services. This was in Section D “to the franchise locations as determined by Friendly Coffee.” Ss well as Friendly Coffee’s responsibility for making a final determination. They could decide whether to retain any franchisees referred by ABC FRANCHISING.
On a reading of the Agreement as a whole, ABC FRANCHISING’s primary role was to generate leads. This was for potential new franchisees. Further, ABC FRANCHISING would “qualify” and direct to Friendly Coffee. Friendly Coffee itself to make a determination of whether to enter into a franchise agreement.
Whatever the meaning of the clause giving ABC FRANCHISING the “right to open and operate an unlimited number of business units in Canada.” I am satisfied that it does not create an exclusive right on the part of ABC FRANCHISING. They could only provide leads of new franchisees to Friendly Coffee.
Enforce The Forum Selection
Without the protection of payment for an exclusive agent regardless of the agent’s participation, the principal would have the incentive to circumvent the agent’s involvement in closing new transactions.
ABC FRANCHISING makes a similar point in alleging that Friendly Coffee was “closing deals on their own without involving ABC FRANCHISING” and “making side deals to try and avoid paying ABC FRANCHISING’s commission under the Contract”.
If ABC FRANCHISING had the exclusive right to locate and create new franchisees it would provide some support to ABC FRANCHISING. They made a primary submission that Section E requires payment to ABC FRANCHISING for all new franchisees. That was during the term of the Agreement. Further, it was regardless of ABC FRANCHISING’s role in locating these prospects.
Clause Requires Arbitration
From a review of the Agreement as a whole, my view is that it does not actually create any exclusive rights for ABC FRANCHISING. This was with respect to the identification and creation of new franchisees.
Section B of the Agreement, states “ABC FRANCHISING will focus on finding new franchise locations in Canada at the direction of Friendly Coffee” [underlining mine]. This clause says nothing about ABC FRANCHISING having exclusive rights. The underlined portion of the clause puts ABC FRANCHISING at Friendly Coffee’s direction. They had to get approval in finding new franchise locations.
Furthermore, Section A of the Agreement, states: “A starting point for ABC FRANCHISING would be to primarily target up the British Columbia region and expand the rest of Canada as directed by Friendly Coffee” [underlining mine].
Taken together these clauses appear to require ABC FRANCHISING to target new potential franchisees at the direction of Friendly Coffee first in Ontario and potentially other parts of Canada.
Forum Selection Clause Governed By The Laws Of A Province
Nothing in this language indicates ABC FRANCHISING’s exclusivity in identifying new potential franchisees in Ontario. Further, neither Canada nor the United States.
Prior to considering the substantive issues between the parties on contractual interpretation, I note at the outset that the Agreement is not in the proper corporate name of the Claimant. “ABC Franchising Inc” was confirmed to be the proper corporate name. This was done in reference to Ontario Online Corporate Searches.
I searched at the time the parties executed the Appointment and Remuneration Agreement for this arbitration.
The Agreement was entered into by “ABC Franchise”. No issue has been made in these proceedings of the effect of a different corporate name being used on the Agreement.
Therefore, it does not form part of my analysis, except as an example of the issues in some of the express language of the Agreement.
Personal Jurisdiction Issues In A Contract
One of the primary areas of difference between the parties is whether the Agreement gave ABC FRANCHISING the exclusive right to generate new franchisees for Friendly Coffee. ABC FRANCHISING puts it this way in its Statement of Case.
It was the intention of the parties that ABC FRANCHISING would be [Friendly Coffee’s] exclusive agent to expand [Friendly Coffee’s] franchises throughout Canada and the US.
There is an important relationship between ABC FRANCHISING’s alleged exclusivity and ABC FRANCHISING’s alleged right to be paid. They wanted money based on all franchise fees paid to Friendly Coffee. This was during the term of ABC FRANCHISING’s services.
It would make some commercial sense to require payment of all franchise fees to ABC FRANCHISING. This would be regardless of ABC FRANCHISING’s involvement. But only in circumstances where ABC FRANCHISING has the exclusive right to locate and create new franchisees.
Contracting Parties Have A Choice Of Forum
The assertion of an exclusive right is also inconsistent with the more limited language in the Agreement. This was with respect to ABC FRANCHISING’s services.
ABC FRANCHISING’s proposed services referred to expressly in the Agreement are marketing required to uncover new franchise locations.
This was explained by saying “finding new franchise locations in Canada.” Also, it would be at the direction of Friendly Coffee. Also, they would conduct initial interviews for the franchise locations.
Forum Selection Clause
Friendly Coffee itself had an express obligation. This was to “handle the interviews once the prospect has been qualified by ABC FRANCHISING.” Also, for “training and maintaining relationships with the locations”.
The Agreement contemplates potentially “expanding the duties of ABC FRANCHISING for additional compensation.”
Also, Section D outlines optional services that ABC FRANCHISING may offer. This would have been to “the franchise locations as determined by Friendly Coffee”.
The somewhat limited nature of the services offered by ABC FRANCHISING is less consistent with an exclusive right to offer these services.
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Author: Alistair Vigier is the CEO of ClearWay Law