Suing a Foreigner?

Keep Control of the Case With a Forum Selection Clause

      In the world of cross-border litigation, I can tell you that prevention is worth much more than a pound of cure. Battles over where a case is to be litigated are common, and can be so protracted and costly that the parties never reach a determination of the merits of the case. Such battles are common because generally there are tremendous strategic advantages to litigating the case in one's home jurisdiction, and disadvantages to litigating the case in one's opponent's jurisdiction. In some cases the issue of where to litigate effectively determines the outcome of the case. Accordingly, it is prudent to put into one's contract with a party outside your province or outside Canada a forum selection clause ("FSC", also known as a jurisdiction selection clause or attornment clause), i.e. a clause stating where (in which country or province) any disputes arising from the contract are to be litigated.

      Courts in Canada, the U.S., the U.K. and elsewhere will generally enforce FSC's, including in cases where, but for the FSC, the case would come within that court's jurisdiction or some other court's jurisdiction. The Supreme Court of Canada has ruled that FSC's are to be enforced unless there is "strong cause" in a particular case not to enforce it. The courts will hold the parties to their contract, including the FSC, so as to ensure predictability in international transactions. The U.S. Supreme Court has recently ruled that a FSC will be enforced against a company to which a contract was assigned (that is, a "successor", a company that takes over a contract from the original contracting party), even if that successor company is outside the United States.

Where a transaction involves several contracts - for example, a sale agreement, bill of lading, security agreement, and loan agreement -- it is important to make sure that the FSC's in those various contracts are consistent. Otherwise, the FSC's may achieve little or nothing.

Keep in mind also that this fairly strict enforcement of FSC's means that in complex transactions involving several parties, one effect of an FSC may be that parallel proceedings on the same subject matter (albeit involving different or additional parties) cannot be avoided, but might have been avoided if the FSC's were consistent, or if the FSC was not exclusive.

      That brings me to exclusive versus non-exclusive FSC's. The distinction is between FSC's that stipulate that only the courts of X jurisdiction may hear disputes (an exclusive FSC), and FSC's that merely permit taking disputes to the courts of X jurisdiction but do not exclude other jurisdictions (a non-exclusive FSC). The purpose of the latter clause is to ensure that if you choose to have a dispute litigated in X, that your opponent will not be able to object to X's taking jurisdiction. The non-exclusive FSC is more flexible because it does not preclude your taking the case to other jurisdictions instead of X. Such a clause may reduce the risk of wasteful parallel proceedings.