How To Draft Choice Of Law And Forum Clauses Part Two: Location, Location, Location ' Selecting The Right Forum

• Published date: 06 October 2022
• Subject Matter: Strategy, Management
• Law Firm: Miller Titerle + Company
• Author: Allison Sproule and Myles Brown

Introduction

When drafting a contract, parties often overlook (and occasionally conflate) two clauses: choice of law and choice of forum. At the time of drafting, the parties may consider it obvious which law applies or which court has jurisdiction. The situation may be much less clear by the time a dispute arises. Both law and forum may substantively affect parties' rights and remedies.

In the second half of this two-part series, we'll explore some recently litigated contracts with poorly crafted or absent choice of forum clauses to reveal how courts interpret these contracts. We're wrapping it up with an overview of how parties to a contract can decide who will adjudicate any disputes that arise.

Choice of Forum

Beyond choice of law, contracting parties need to specify which adjudicative body will settle disputes should one arise. This is known as the choice of forum clause. Parties can choose provincial/territorial courts or arbitral institutions to adjudicate disputes. This election indirectly affects the procedural rules that control the conduct of the resolution process. In this way, parties often 'shop' for their preferred combination of law and forum to obtain the best region's laws, the most advantageous procedural rules, and the most convenient location. For example, electing a local forum may allow a party to more easily obtain counsel familiar with the forum.

Exclusive and Non-exclusive Clauses

In addition to the forum, parties can opt for (a) a mandatory/exclusive forum, whereby all disputes must be sent to this venue; or (b) a permissive/non-exclusive forum, whereby disputes may, but don't have to be, heard at this listed venue. In the case of Savanta v Hilditch, 2022 ONSC 1384, the choice of forum clause was unclear about whether the forum was exclusive or non-exclusive. The clause stated, "[i]f any dispute arises with respect to this Agreement... the Dispute must be brought in any state or federal court of competent jurisdiction in the Commonwealth of Massachusetts, and each Party irrevocably submits and agrees to attorn to the non-exclusive jurisdiction of such court." Here, the use of "non-exclusive" created ambiguity.

If the clause was found to be exclusive, then disputes had to be heard by the state or federal court in the Commonwealth of Massachusetts. However, if the clause was found to be non-exclusive, then the court would consider this as one factor in favour of the forum of Massachusetts in its analysis as to the most appropriate...