Commercial parties are inserting jurisdiction clauses - under which the parties agree to submit some or all disputes arising under or in connection with the contract to the courts of a particular country - into their contracts with increasing frequency.
In doing so they aim to avoid ambiguity and debate about where any resulting litigation is to take place. In Z.I. Pompey Industrie v. ECU-Line N.V., Justice Michel Bastarache noted for the court that “these clauses are generally to be encouraged by the courts as they create certainty and security in transaction, derivatives of order and fairness, which are critical components of private international law.”
This certainty is achieved by giving such clauses considerable weight in the analysis on motions for leave to serve a defendant outside the province, or to set such service aside, or for a stay of proceedings.
Jurisdiction clauses are not in and of themselves determinative, but they are - and should be - a very significant factor in these motions. However, before the court can rely on a jurisdiction clause, it should be satisfied on the full civil standard of the balance of probabilities that the clause forms part of the contract between the parties.
This issue of the standard of proof does not arise often. In most jurisdiction clause cases the parties accept that the clause forms part of their agreement and proof is not in issue. But what if they do not?
What if one of the parties alleges that the contract contains a jurisdiction clause and the other denies it? Disputes about the existence of a particular term of a contract are usually resolved at trial, on a full evidentiary record.
However, disputes concerning jurisdiction clauses present a particular problem. Because issues of jurisdiction necessarily come before the determination of the merits of the case, disputes concerning jurisdiction clauses will almost always have to be resolved using a preliminary process before any hearing on the merits is commenced.
In resolving this issue, the authorities point to two possible standards. The first is relatively low, most often referred to as a “good arguable case.”
On this standard, a party can rely on a jurisdiction clause if it can show a good arguable case that it became part of the contract. This is also sometimes referred to as sufficient evidence to raise “a serious issue.”
The second is the full civil standard, under which the existence of the jurisdiction clause must be proven on the balance of probabilities.
The traditional view favours the use of the lower standard. This is consistent with the standard of proof used for other factual issues on motions about jurisdiction or a stay of proceedings.
On such motions, a wide range of factors can be relevant to the analysis: the location of the parties, the place where a contract was made or a tort was committed, the place where loss was suffered, and so on.
The orthodoxy is that, to the extent there is a factual dispute about one of these factors, the standard of proof before the factor can be considered in the legal analysis is a good arguable case: see for example the analysis in Ecolab Ltd. v. Greenspace Services Ltd.
But for jurisdiction clauses, the traditional view is inappropriate. Because of the major role that a jurisdiction clause plays in preliminary motions and because the issue of jurisdiction will, in fact, not be raised at a subsequent trial, having become moot, the higher standard of proof should be required.
Preliminary determinations as to the existence of a jurisdiction clause can be, in a practical sense, final. The purpose of a jurisdiction clause is to ensure that litigation occurs in a particular forum.
If, on a motion for a stay of proceedings, the clause is held to not apply, it will have little further purpose to serve: see Z.I. Pompey Industrie. Another more obvious way in which preliminary decisions about the existence of a jurisdiction clause can be final is in law.
Issue estoppel prevents the re-litigation of an issue that has already been decided by another court of competent jurisdiction, including courts in a foreign jurisdiction.
In the interests of promoting finality and avoiding forum shopping, issue estoppel has been applied in cases where a foreign court has adjudicated a preliminary dispute concerning a jurisdiction clause: see The Sennar (No. 2), [1984] 2 Lloyd’s Rep. 142 (C.A.). This strongly points towards insisting that the decision be based on the higher standard of proof.
To this point there is little direct authority on the question of the standard of proof to be employed in cases involving disputes about jurisdiction clauses.
Yet many cases have dealt with this issue: they simply fail to explicitly identify the standard of proof being used.
However, a general reading of many of these cases suggests that the judges were indeed engaged in a weighing and balancing of available evidence, which would seem indicative of the full civil standard as opposed to a search for only a “good arguable case.”
To take a recent example, in Hershey Canada, Inc. v. Solae, the defendant sought to rely on a jurisdiction clause in favour of Delaware. The court stated that the defendant, “as the party asserting the forum selection clause, has the burden of proving that the clause was part of the contract.”
In its subsequent analysis the court seems very much to use the full civil standard of proof.
These cases suggest that judges have already recognized, at least implicitly, the problems with the traditional view and have moved to a more appropriate approach. It would be welcome if this was made explicit in the future.
Stephen G.A. Pitel is an Associate Professor at the Faculty of Law of the University of Western Ontario. His e-mail address is [email protected].
In doing so they aim to avoid ambiguity and debate about where any resulting litigation is to take place. In Z.I. Pompey Industrie v. ECU-Line N.V., Justice Michel Bastarache noted for the court that “these clauses are generally to be encouraged by the courts as they create certainty and security in transaction, derivatives of order and fairness, which are critical components of private international law.”
This certainty is achieved by giving such clauses considerable weight in the analysis on motions for leave to serve a defendant outside the province, or to set such service aside, or for a stay of proceedings.
Jurisdiction clauses are not in and of themselves determinative, but they are - and should be - a very significant factor in these motions. However, before the court can rely on a jurisdiction clause, it should be satisfied on the full civil standard of the balance of probabilities that the clause forms part of the contract between the parties.
This issue of the standard of proof does not arise often. In most jurisdiction clause cases the parties accept that the clause forms part of their agreement and proof is not in issue. But what if they do not?
What if one of the parties alleges that the contract contains a jurisdiction clause and the other denies it? Disputes about the existence of a particular term of a contract are usually resolved at trial, on a full evidentiary record.
However, disputes concerning jurisdiction clauses present a particular problem. Because issues of jurisdiction necessarily come before the determination of the merits of the case, disputes concerning jurisdiction clauses will almost always have to be resolved using a preliminary process before any hearing on the merits is commenced.
In resolving this issue, the authorities point to two possible standards. The first is relatively low, most often referred to as a “good arguable case.”
On this standard, a party can rely on a jurisdiction clause if it can show a good arguable case that it became part of the contract. This is also sometimes referred to as sufficient evidence to raise “a serious issue.”
The second is the full civil standard, under which the existence of the jurisdiction clause must be proven on the balance of probabilities.
The traditional view favours the use of the lower standard. This is consistent with the standard of proof used for other factual issues on motions about jurisdiction or a stay of proceedings.
On such motions, a wide range of factors can be relevant to the analysis: the location of the parties, the place where a contract was made or a tort was committed, the place where loss was suffered, and so on.
The orthodoxy is that, to the extent there is a factual dispute about one of these factors, the standard of proof before the factor can be considered in the legal analysis is a good arguable case: see for example the analysis in Ecolab Ltd. v. Greenspace Services Ltd.
But for jurisdiction clauses, the traditional view is inappropriate. Because of the major role that a jurisdiction clause plays in preliminary motions and because the issue of jurisdiction will, in fact, not be raised at a subsequent trial, having become moot, the higher standard of proof should be required.
Preliminary determinations as to the existence of a jurisdiction clause can be, in a practical sense, final. The purpose of a jurisdiction clause is to ensure that litigation occurs in a particular forum.
If, on a motion for a stay of proceedings, the clause is held to not apply, it will have little further purpose to serve: see Z.I. Pompey Industrie. Another more obvious way in which preliminary decisions about the existence of a jurisdiction clause can be final is in law.
Issue estoppel prevents the re-litigation of an issue that has already been decided by another court of competent jurisdiction, including courts in a foreign jurisdiction.
In the interests of promoting finality and avoiding forum shopping, issue estoppel has been applied in cases where a foreign court has adjudicated a preliminary dispute concerning a jurisdiction clause: see The Sennar (No. 2), [1984] 2 Lloyd’s Rep. 142 (C.A.). This strongly points towards insisting that the decision be based on the higher standard of proof.
To this point there is little direct authority on the question of the standard of proof to be employed in cases involving disputes about jurisdiction clauses.
Yet many cases have dealt with this issue: they simply fail to explicitly identify the standard of proof being used.
However, a general reading of many of these cases suggests that the judges were indeed engaged in a weighing and balancing of available evidence, which would seem indicative of the full civil standard as opposed to a search for only a “good arguable case.”
To take a recent example, in Hershey Canada, Inc. v. Solae, the defendant sought to rely on a jurisdiction clause in favour of Delaware. The court stated that the defendant, “as the party asserting the forum selection clause, has the burden of proving that the clause was part of the contract.”
In its subsequent analysis the court seems very much to use the full civil standard of proof.
These cases suggest that judges have already recognized, at least implicitly, the problems with the traditional view and have moved to a more appropriate approach. It would be welcome if this was made explicit in the future.
Stephen G.A. Pitel is an Associate Professor at the Faculty of Law of the University of Western Ontario. His e-mail address is [email protected].
