Court of Appeal Decision of the Week

Who Has Jurisdiction to Decide Jurisdiction Issues – The Chicken or the Egg? (though the real issue is what’s a fundamental term of the contract, that if invalid, voids the contract)

Case: Osman v Markplan Inc, 2018 ABCA 215 (CanLII)

Keywords: Subordination Agreement; Forum Selection Clause; Choice of Law Clause; Club Resorts Ltd v Van Breda, 2012 SCC 17 (CanLII); Rule 11.25(3) of the Alberta Rules of Court, Alta Reg 124/2010

Synopsis:

The Respondents, Eric C111onroy, Edward Conroy, and Maryon Rebecca Conroy, negotiate the sale of their family-run children’s magazine business, Markplan Inc., to Magazine Acquisition Group (“MAC”) for $900,000, payable as follows:

  • $1,000 down,
  • $599,000 on closing, and
  • $300,000 as a deferred payment, payable over 42 months.

Agreements related to the sale provide for Ontario as the jurisdiction for disputes.

MAC obtains financing for the deal from Mr. Osman, the Appellant. As a condition for providing financing, the Respondents are required to enter a separate “Subordination Agreement”. The agreement, which contains choice of law and exclusive jurisdiction clauses, is signed in counterparts and at separate locations.

The version signed by the Respondents provides that the law of Delaware governs and that litigation arising from the agreement can only be commenced in Texas. The Appellant’s version provides that the laws of Alberta apply and Alberta has exclusive jurisdiction.

The Appellant sues in Alberta, alleging breach of contract and breach of trust with respect to the Agreement. The Respondents apply to strike, dismiss, or stay the action. The Trial Judge finds that, since there is no agreement with respect to the choice of law and jurisdiction clauses, and these are essential terms of the Agreement, the entire contract is invalid. As such, no presumptive factor links Alberta to the litigation. The Court of Appeal finds no palpable and overriding error in the Trial Judge’s conclusion. The appeal is dismissed.

Importance:

A Majority of the Court of Appeal noted that, as per the decision in Club Resorts Ltd v Van Breda, 2012 SCC 17 (CanLII) and Rule 11.25(3) of the Alberta Rules of Court, Alta Reg 124/2010, the presence of a party in a particular jurisdiction is not sufficient, by itself, to establish that place as the appropriate jurisdiction:

When the claim is in contract, the presumptive factors are whether the contract was made, performed or breached in Alberta. The Subordination Agreement was prepared in Texas, communicated to Markplan in Ontario and Osman in Alberta. Mr Conroy in Ontario was the last person to receive the fully executed agreement. None of the presumptive factors leads to a conclusion that Alberta has jurisdiction over this lawsuit. (See para. 8).

In this case, a Majority of the Court of Appeal agreed that the jurisdiction and choice of law clauses were essential terms of the Agreement, that this was “amply supported by the record”, and that the presence of a severability clause was of no assistance because there was “no valid agreement at all”. (See para. 9).

For Watson J.A., who dissented in part, the Trial Judge did err in finding that the Agreement as a whole was invalidated as a consequence of the disagreement concerning forum selection clauses:

In my view, the failure of the forum selection and choice of law clauses as found by the court decision made below was covered by the severability clause and there remained an enforceable Subordination Agreement. (See para. 12).

Notwithstanding the applicability of the severability clause, Watson J.A. agreed with the majority because the only significant link to the jurisdiction of Alberta was the forum selection provisions in the Appellant’s version of the Agreement.

Counsel for the Appellant: Ian Wachowicz (Dentons Canada LLP, Edmonton)

Counsel for the Respondent: S. D. Thom

Discuss on CanLii Connects

Posted: Wednesday, June 13, 2018