Forum Selection Clauses
November 12, 2020
November 12, 2020
Previously printed in the LexisNexis Labour Notes Newsletter.
Earlier this year, the BC Court of Appeal released Schuppener v. Pioneer Steel Manufacturers Ltd., 2020 BCCA 19, a decision which clarifies the law regarding forum selection clauses. Although not an employment or labour law decision, Schuppener is a case of particular relevance to employers which conduct business across provincial or international borders and want certainty as to the jurisdiction in which any litigation regarding those employment contracts will occur.
Mr. Schuppener purchased a prefabricated steel building directly from Pioneer Steel Manufacturers (“Pioneer”). The building was shipped to him in British Columbia in March 2016. In the course of that transaction, Mr. Schuppener signed a standard form consumer contract which contained a forum selection clause stating that all claims relating to the contract were to be brought in Ontario.
Mr. Schuppener suffered a serious injury when the building he had purchased from Pioneer collapsed on him at his property in British Columbia. Mr. Schuppener commenced an action against Pioneer in BC for negligence and breach of contract. Pioneer brought an application for a stay of proceedings based on the forum selection clause in the contract.
The issue before the court was whether the forum selection clause in the standard form consumer contract was enforceable and, specifically, if the action Mr. Schuppener had started in BC should be transferred to Ontario.
The Schuppener decision follows the Supreme Court of Canada’s 2017 decision in Douez v. Facebook, Inc., 2017 SCC 33 (“Douez”). That decision explored the public policy concerns in relation to consumer contracts containing forum selection clauses.
The BC Court of Appeal found that strong cause did not exist to render the forum selection clause unenforceable and decided that the action should be transferred to Ontario after examining the relevant public policy interests.
BC Supreme Court Decision
The chambers judge applied the two-part test from ZI Pompey Industries v. ECU-Line NV. Under the test, a court must determine:
- if the forum selection clause is enforceable and applicable to the circumstances; and
- whether there is a strong cause not to enforce an otherwise enforceable forum selection clause.
The chambers judge found that in applying the second part of the test, “all of the circumstances” must be considered. In that regard, the judge considered the following factors:
- the fact that the physical evidence was located in BC;
- the standard form nature of the contract which meant Mr. Schuppener was not able to negotiate the terms of the forum selection clause;
- the claim that the structure was not suited to the climate in BC and the BC public has an interest in seeing the claim litigated in that province; and
- the assertion that this was more than a commercial dispute as it included a claim for personal injury.
These factors weighed in favour of an action in BC rather than Ontario, and the BC Supreme Court declared the forum selection clause unenforceable.
BC Court of Appeal Decision
The BC Court of Appeal reversed the BC Supreme Court’s decision, finding that the chambers judge had mischaracterized the factors set out above as matters of public policy which would override the enforceability of the forum selection clause. The Court clarified that the decision in Douez does not support the proposition that a non-negotiable standard form contract containing a forum selection clause is a public policy concern in and of itself.
The Court also distinguished the type of consumer contract at issue, noting that “consumer contract” is a broad term used to refer to many different types of contracts. In this case, there was no inequality of bargaining power between the parties, and the formation of the contract occurred over time (rather than instantaneously).
The Court further commented that “there will always be a public interest in seeing cases with facts and damages arising in a particular province litigated in that particular province” but that interest will “rarely rise to the level of a public policy concern”.
In its decision, the Court found that the presence of a forum selection clause in a standard form contract does not automatically give rise to public policy concerns. Relevant factors to be considered in determining whether a forum selection clause will be enforceable in a standard form contract include:
- whether there was an inequality between the bargaining parties;
- whether the contract was a product of negotiation and/or discussions;
- the nature of the transaction, including the size of the transaction; and
- the presence of other commercial alternatives for the party challenging the clause.
The takeaways for employers which conduct business across provincial and international borders are: 1) draft contracts using plain language; 2) ensure that the agreement reflects the product of genuine discussions and/or negotiations; 3) allow the other party to obtain legal advice prior to signing the document; and 4) include the forum selection clause in a conspicuous place in the contract, such as close to the signature line.
Jennifer S. Russell is a lawyer at the Vancouver-based employment and labour law boutique of Roper Greyell LLP – Employment and Labour Lawyers. To learn more about Jennifer and the other lawyers at Roper Greyell, please visit https://ropergreyell.com/.
Janna Crown completed her articles at Roper Greyell and assisted in writing this article.
While every effort has been made to ensure this article is accurate, you are urged to seek specific advice on matters of concern and not to rely solely on the contents of this article. The article is meant for general information purposes only and does not constitute legal advice.