How To Draft Choice Of Law And Forum Clauses Part 1: Dealer's Choice ' Selecting The Applicable Law

• Published date: 02 November 2022
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Contract of Employment, Employee Rights/ Labour Relations, Trials & Appeals & Compensation
• 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 this two-part series, we'll explore some recently litigated contracts with poorly crafted or absent choice of law and forum clauses to reveal how courts interpret these contracts. We'll begin with the most exciting of the two; Choice of Law.

Choice of Law

Contracts should specify which region's laws will govern the interpretation, performance, and expiration/termination of the contract. This is known as the choice of law clause. The elected law that applies to the contract will affect the substantive rights of the contracting parties - think limitation periods and good faith requirements. For example, the Canadian common law requires parties to exercise contractual discretion in good faith, but other jurisdictions' laws do not (Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7). Adjudicative bodies interpreting the law with this good faith principle will require parties to exercise discretion in a manner that aligns with the contractual purpose (e.g., not act arbitrarily/capriciously). Unlike parties bound by law without good faith requirements, parties contracting under the Canadian common law will be held to a higher standard, resulting in different judicial consequences.

Where the Law is Specified

In addition to international disputes, the jurisdictional complexities of globalization and the rise of remote work make the choice of law clause more salient than ever. Take the example of McMichael v. The New Zealand & Australian Lamb Company, 2018 ONSC 5422. The plaintiff signed an employment agreement with the defendant company ' an American corporation ' while he was situated in Ontario, working for the defendant's Canadian arm. The plaintiff relocated from Ontario to California before his employment was terminated. The employment agreement arguably allowed for termination without cause, but the employment laws of Ontario did not. Since the parties had specified that Ontario law governed the agreement, those laws applied even though the employee was located in California and the employer was located in New Jersey. As such, the Court...