CITATION: Loat v. Howarth, 2011 ONCA 509
DATE: 20110712
DOCKET: C53325
COURT OF APPEAL FOR ONTARIO
O’Connor A.C.J.O., Cronk and Rouleau JJ.A.
BETWEEN
David Loat
Appellant (Respondent by Cross-appeal)
and
Andrew Howarth, Storetech Solutions Inc. and Storetech Limited
Respondents (Appellants by Cross-appeal)
Elliot S. Birnboim and Alastair J. McNish, for the appellant
Owen Rees and Justin Safayeni, for the respondents
Heard: July 5, 2011
On appeal from the order of Justice Colin Campbell of the Superior Court of Justice, dated January 25, 2011, with reasons reported at 2011 ONSC 460, and on cross-appeal from the costs order of Justice Campbell, dated March 11, 2011, with reasons reported at 2011 ONSC 1558.
BY THE COURT:
I. Background
[1] David Loat (the “plaintiff”) is a former director, officer and employee of Storetech Solutions Inc. (“Storetech Ontario”) and a minority shareholder of Storetech Limited (“Storetech UK”), the parent company of Storetech Ontario. The Storetech companies were founded by the respondent, Andrew Howarth. They provide software application services to retailers, both in Ontario and abroad.
[2] Commencing in 2006, the plaintiff and Mr. Howarth entered into negotiations concerning a business arrangement to facilitate Storetech UK’s expansion into the North American market. In November 2006, Storetech Ontario was incorporated for this purpose and the plaintiff became its Chief Operating Officer.
[3] About one year later, on November 29, 2007, the plaintiff entered into a formal written service agreement with Storetech Ontario (the “Service Agreement”), which confirmed his executive position with the company, effective November 1, 2006, at an annual salary of $225,000. The Service Agreement provided that the plaintiff’s employment could be terminated by either party on “not less than” three months’ written notice.
[4] The Service Agreement also contained “entire agreement” or “integration” clauses. They read as follows:
22.1 This Agreement is in substitution for any previous agreements or contracts of service entered into between the Company or any predecessor undertaking in relation to the employment of the Executive and all prior agreements are deemed to have terminated by mutual agreement on the date of this Agreement.
24.1 The Agreement constitutes the entire agreement between the parties with respect to all matters referred to in it.
[5] Further, clause 24.2 of the Service Agreement provided that any variations to the contract would be ineffective “unless made in writing and signed by both of the parties”.
[6] The Service Agreement also contained a combined forum selection and governing law clause. Section 26.1 stipulated:
Except as expressly set forth herein this Agreement is governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. The parties agree to submit to the non-exclusive jurisdiction of the courts of the Province of Ontario in relation to any claim or matter arising under this Agreement. [Emphasis added.]
[7] On November 27, 2007, two days prior to the date of the Service Agreement, the plaintiff, his family trust, Mr. Howarth and Storetech UK had entered into a shareholders’ agreement (the “Shareholders’ Agreement”), whereby the plaintiff acquired, through his family holding company, a minority equity position in Storetech UK and the right to nominate a minority of directors to Storetech UK’s board of directors in exchange for loaning $400,000 of start-up capital to Storetech Ontario. The Shareholders’ Agreement provided that the plaintiff would furnish the agreed start-up funds: (1) by “irrevocably” deferring the first year of his salary with Storetech Ontario ($225,000) until certain conditions were met; and (2) by paying the remaining $175,000 in cash to Storetech Ontario.
[8] The Shareholders’ Agreement, like the Service Agreement, contained governing law and forum selection clauses. However, while the forum selection clause in the Service Agreement applied to “any claim or matter arising under this Agreement”, the Shareholders’ Agreement provided that any disputes “arising out of or in connection with this Agreement” were to be resolved exclusively in England under English law:
13.1 This Agreement and any disputes or claims arising out of or in connection with its subject matter are governed by and construed in accordance with the law of England.
13.2 The parties irrevocably agree that the courts of England have exclusive jurisdiction to settle any dispute or claim that arises out of or in connection with this Agreement. [Emphasis added.]
[9] No entire agreement or integration clause appears in the Shareholders’ Agreement.
[10] On December 8, 2009, Storetech Ontario terminated the plaintiff’s employment without notice and allegedly for cause. The plaintiff promptly commenced an action in Ontario against Mr. Howarth, Storetech Ontario and Storetech UK (the “defendants”), claiming: (1) various oppression remedy-related declaratory relief against all the defendants, pursuant to s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B. 16; (2) repayment of director’s loans allegedly made by him to Storetech Ontario; (3) payment of “unpaid salary” in an amount equivalent to US $545,617.87; (4) damages for oppression in the amount of $1 million and punitive damages in the amount of $1 million; (5) a declaration that his employment had been wrongfully terminated; and (6) payment of three months’ termination pay under the Service Agreement (pay in lieu of notice), in the amount of US $56,250, amongst other relief (the “Ontario Action”).
[11] The defendants defended the Ontario Action and counterclaimed against the plaintiff for damages on various grounds. In their pleading, the defendants denied the plaintiff’s allegations but did not contest his right to advance his claims in Ontario. In particular, they did not invoke the forum selection clause in the Shareholders’ Agreement as a bar to the plaintiff’s right to sue in Ontario, nor did they plead any reservation against their attornment to Ontario’s jurisdiction over the plaintiff’s claims.
[12] In October 2010, the plaintiff moved for partial summary judgment in relation to his claimed unpaid wages and termination pay. By that time, the parties had exchanged pleadings and, on the defendants’ demand, the plaintiff had furnished particulars in respect of his claims in the Ontario Action.
[13] The defendants resisted the plaintiff’s summary judgment motion and brought their own cross-motion seeking orders granting them leave to amend their pleading to invoke the forum selection clause in the Shareholders’ Agreement and dismissing or staying the Ontario Action by reason of that clause.
[14] The parties’ duelling motions were heard together on December 17, 2010 by C. Campbell J. of the Superior Court of Justice. By order dated January 25, 2011, he dismissed the plaintiff’s motion on the basis that there existed a genuine issue requiring a trial. He granted the defendants’ stay motion in part, on jurisdictional grounds, directing that the Ontario Action be stayed “to permit the [p]laintiff to pursue all relief claimed if so advised in the Courts of England”. He further directed that, “[i]f for any reason the [p]laintiff is not permitted to pursue the employment part of his entire claim and the claim for wages pursuant to the Ontario Employment Standards Act, 2000, a motion may be made to set aside the stay”. Although the motions judge did not refer expressly to the defendants’ request to amend their pleading, it is implicit in his reasons that he also granted this relief.
[15] Subsequently, by order dated March 11, 2011, the motions judge declined to award any costs in respect of either motion. In his costs reasons, he expressed his view that it was a reasonable exercise of his discretion in the circumstances to decline to award any costs.
[16] The plaintiff appeals the motions judge’s stay order and the denial of partial summary judgment on his unpaid wages claim. He does not challenge the motions judge’s ruling that a trial is required on his claim for three months’ termination pay. The defendants cross-appeal from the motions judge’s refusal to award them their costs of both motions.
II. The Appeal
[17] There are two aspects to the plaintiff’s appeal. First, he argues that, contrary to the motions judge’s holding, there is no genuine factual issue requiring a trial in respect of his claim for payment of unpaid wages. Second, he submits that the motions judge erred in granting a stay of the Ontario Action: (i) by failing to recognize that he is entitled under the Service Agreement to sue Storetech Ontario in Ontario for unpaid wages; (ii) by, in effect, staying his “primary” claim for payment of unpaid wages on the basis of the defendants’ defences to the plaintiff’s discrete – and narrower – claim for three months’ termination pay; (iii) by failing to recognize that the defendants attorned to Ontario’s jurisdiction, thereby waiving their entitlement to rely on the forum selection clause contained in the Shareholders’ Agreement; and (iv) by misapprehending and misapplying the “strong cause” test applicable to displacement of the exclusive jurisdiction conferred on the courts of England by the forum selection clause in the Shareholders’ Agreement.
(1) Denial of Partial Summary Judgment
[18] In our view, the plaintiff’s challenge to the dismissal of his partial summary judgment motion cannot succeed.
[19] The motions judge’s reasons indicate that he properly identified the applicable test for summary judgment under the Rules of Civil Procedure, as recently amended, and that he applied that test correctly to the facts of this case.
[20] The motions judge concluded that, “There is little doubt that there are disputed facts”. We agree. In particular, in response to the claim for payment of unpaid wages, the defendants assert that the plaintiff agreed under the Shareholders’ Agreement to defer payment of his wages for 2007 until certain conditions were met and that these conditions were never fulfilled. They also allege that the plaintiff thereafter agreed to defer his 2008 salary to keep Storetech Ontario “afloat” and to unconditionally waive his 2009 salary in exchange for continued employment. The plaintiff denies all these assertions.
[21] On the issues joined by the parties, therefore, the key question of the plaintiff’s entitlement to unpaid wages raises a genuine issue requiring a trial. Contrary to the plaintiff’s submissions, the record before the motions judge established that many of the material facts concerning this question are disputed. The resolution of this core issue will require credibility-based findings based on viva voce evidence.
[22] The plaintiff submits, correctly, that it was open to the motions judge to order or conduct the trial of an issue to resolve the unpaid wages claim. He asserts that the motions judge’s failure to do so constitutes reversible error.
[23] We reject this assertion. First, the parties are divided on whether the plaintiff requested this relief before the motions judge and the record does not permit us to resolve this question with any certainty. Second, and more importantly, the decision of whether to order or conduct the trial of an issue is a discretionary one. In his pleading, the plaintiff seeks payment of the claimed unpaid wages from all the defendants. The defences raised to that claim involve wide-ranging factual issues implicating both the Shareholders’ Agreement and the Service Agreement, in the context of the entirety of the parties’ commercial business relationship. In these circumstances, it was well within the motions judge’s discretion to decline to direct or conduct the trial of an issue on the unpaid wages claim. His decision in that regard attracts deference from this court.
[24] Accordingly, that part of the appeal pertaining to the motions judge’s refusal to grant partial summary judgment fails.
(2) Stay of the Ontario Action
[25] We reach a different conclusion, however, concerning the plaintiff’s challenge to the stay order granted by the motions judge. In our opinion, for the reasons that follow, the stay order cannot stand.
[26] It is necessary for the determination of this part of the appeal to address only two grounds of appeal raised by the plaintiff in relation to the impugned stay order. We begin by considering the import of the forum selection clause in the Service Agreement.
[27] In the Service Agreement, the parties agreed that the Ontario courts have “non-exclusive” jurisdiction “in relation to any claim or matter arising under [the Service Agreement]”. The plaintiff’s action is rooted in his employment relationship with Storetech Ontario. This is a matter falling squarely within the four corners of the Service Agreement, thereby implicating the forum selection clause of that contract.
[28] Further, on the plain language of the forum selection clause in the Service Agreement, the plaintiff and Storetech Ontario expressly attorned to Ontario’s jurisdiction in respect of any disputes arising with respect to his employment. Under the clause, Ontario has jurisdiction simpliciter regarding such disputes.
[29] While the non-exclusive jurisdiction conferred under the forum selection clause in the Service Agreement did not preclude the plaintiff from commencing an action in England in respect of disputes arising under the Service Agreement, it did not oblige him to do so. The effect of the clause was to foreclose objection by the defendants to an action commenced in Ontario regarding claims contemplated by the Service Agreement: see Gary Sugar v. Megawheels Technologies Inc., 2006 CanLII 37880 (S.C.J.); Blue Note Mining Inc. v. CanZinco Ltd. (2008), 2008 CanLII 43581 (ON SC), 297 D.L.R. (4th) 640 (S.C.J.). As a result, on the termination of his employment, the plaintiff was entitled to sue in Ontario for the recovery of any owed and unpaid wages.
[30] The motions judge failed to address the implications of the forum selection clause in the Service Agreement and the resultant contractual attornment to Ontario’s non-exclusive jurisdiction over disputes arising from the plaintiff’s employment relationship with Storetech Ontario. Indeed, based on his reasons, it appears that the motions judge accorded no weight at all to this clause or to the attornment confirmed under it. Instead, he treated this aspect of the parties’ negotiated bargain as completely overridden by the forum selection clause in the Shareholders’ Agreement.
[31] The failure to consider the import of the forum selection clause in the Service Agreement was an error. Canadian law favours the enforcement of forum selection clauses negotiated, as here, by sophisticated business people. This court, for example, has affirmed that “[a] forum selection clause in a commercial contract should be given effect” and that the factors “that may justify departure from that general principle are few”: Expedition Helicopters Inc. v. Honeywell Inc. (2010), 2010 ONCA 351, 100 O.R. (3d) 241 (C.A.), at para. 24; see also Momentous.ca Corporation v. Canadian American Association of Professional Baseball Ltd. (2010), 2010 ONCA 722, 103 O.R. (3d) 467 (C.A.), at para. 39; Stubbs v. ATS International BV (2010), 2010 ONCA 879, 272 O.A.C. 386 (C.A.), at para. 43.
[32] In a case like this one, therefore, where forum selection clauses in the Service and Shareholders’ Agreements are at issue, to the extent possible effect must be given to the intentions of the parties as reflected in both clauses. That the parties intended the Service Agreement to govern any disputes arising from the plaintiff’s employment is confirmed both by the language of the forum selection clause and by the entire agreement or integration clauses contained in the Service Agreement. This was not a case, therefore, where the plaintiff was required to show strong cause why the forum selection clause in the Shareholders’ Agreement should not prevail. What he was required to do, and what he did do, was to establish that the forum selection clause in the Service Agreement was triggered.
[33] But that does not end the matter. The motions judge was confronted with two different forum selection clauses, each involving different parties and assigning jurisdiction over identified disputes to different legal regimes. What, then, are the implications of the forum selection clause in the Shareholders’ Agreement in the circumstances of this case?
[34] We offer several responses to this question.
[35] First, the starting point for the determination of whether a forum selection clause should be given effect is that, “the parties should be held to their bargain”: see Expedition Helicopters, at para. 9; Momentous.ca, at para. 39. This requires examination of the scope of the clause and of the nature of the matter or matters in dispute to determine whether the claims or the circumstances that have arisen “are outside of what was reasonably contemplated by the parties when they agreed to the clause”: Expedition Helicopters, at para. 24.
[36] In this case, each clause describes the disputes in respect of which it applies. The relevant clause in the Shareholders’ Agreement concerns “any dispute or claim that arises out of or in connection with this Agreement”, while the companion clause in the Service Agreement applies “to any claim or matter arising under this Agreement”. The plaintiff’s claims, read as a whole, are focused primarily on the incidents of his employment with Storetech Ontario and the termination of his relationship with the Storetech companies. In our view, these are matters that clearly engage the Service Agreement, even if the Shareholders’ Agreement is also implicated in connection with some issues and some of the parties.
[37] Second, the conduct of the parties is a critical factor in this case. In addition to Storetech Ontario’s express contractual attornment to the jurisdiction of Ontario under the Service Agreement, the defendants as a group attorned to Ontario’s jurisdiction over all the plaintiffs’ claims as pleaded in his statement of claim, without exception, by defending the Ontario Action on the merits without invoking the forum selection clause in the Shareholders’ Agreement. This factor distinguishes this case from those cases cited by the parties in which the defendant responded on the merits to a plaintiff’s claims while also raising a jurisdictional challenge based on a contractual choice of forum clause: see for example, Momentous.ca.
[38] Moreover, the defendants advanced their own claims in the Ontario Action, by initiating a counterclaim for damages. They also furthered the progress of the Ontario Action by demanding and obtaining particulars from the plaintiff concerning most, if not all, the claims advanced in his pleading. Affidavits of documents have also apparently been exchanged by the parties. Finally, the defendants delayed for almost one year after the commencement of the Ontario Action before moving to amend their pleading to rely on the forum selection clause in the Shareholders’ Agreement. And this step came in response to the plaintiff’s motion for partial summary judgment. No cogent explanation for this delay, or for the defendants’ failure to advance a jurisdictional argument in their pleading, is evident in the record.
[39] In assessing whether a stay order should be granted based on the forum selection clause in the Shareholders’ Agreement, the motions judge failed to consider the import of the defendants’ attornment to Ontario’s jurisdiction and the relevance of their conduct in relation to the Ontario Action. With respect, this, too, was an error. These factors were relevant to whether the Ontario courts have jurisdiction in respect of the plaintiff’s claims. The defendants’ delay in invoking the forum selection clause in the Shareholders’ Agreement was also a proper consideration in determining whether to enforce that clause: Momentous.ca, at paras. 42-44.
[40] We also agree with the plaintiff’s submission that, in the circumstances above-described, fairness dictates that he not be put to the significant delay and expense that inevitably would be occasioned by recommencing proceedings in England, particularly where his own alleged unpaid wages are at issue and the Ontario Action was underway for almost one year before the defendants sought to rely on the forum selection clause in the Shareholders’ Agreement.
[41] In our opinion, this result does not produce unfairness to the defendants. They will be free to raise any applicable defences arising from the parties’ overall business dealings in the Ontario Action or in their counterclaim proceeding. We also note that the adjudication in Ontario of the issues in controversy between the parties will avoid duplication of proceedings and attendant incremental costs and delay, thus promoting the convenient administration of justice.
[42] We therefore conclude, on the particular facts of this case, that the Ontario courts have jurisdiction to entertain the Ontario Action and that this jurisdiction should be exercised, having properly been invoked. It follows that the forum selection clause in the Shareholders’ Agreement does not operate to preclude the Ontario Action and the stay order, which is based on that clause, must be set aside.
III. The Cross-appeal
[43] The defendants advance several arguments in support of their cross-appeal from the motions judge’s decision not to award any costs of the summary judgment and stay motions. In brief, they contend that the motions judge erred by failing to adhere to the traditional rule that costs follow the event, by failing to distinguish between the two motions before him when assessing costs, and by basing his costs decision on irrelevant and improper considerations.
[44] In light of our disposition of the appeal, it is unnecessary to address the issues raised on the cross-appeal. If the stay motion had been dismissed, as in our view should have occurred, success before the motions judge would have been divided. This may have led to a decision by the motions judge that each party should bear their own costs. However, the defendants maintain that the majority of their relevant costs were incurred in resisting the summary judgment motion and that they are entitled to those costs notwithstanding that, on proper disposition of the motions, the plaintiff would have been entitled to his costs of the unsuccessful stay motion.
[45] Given the disposition of the appeal, the Ontario Action will now proceed to trial. In our view, it is appropriate in these circumstances that the costs of the motions before the motions judge be addressed by the judge presiding at the trial in the light of these reasons and we so order.
IV. Disposition
[46] The appeal is allowed in part in accordance with these reasons, the stay order is set aside, and the cross-appeal is dismissed. As success before this court has been divided, we award no costs of the appeal and cross-appeal.
RELEASED:
“JUL 12 2011” “Dennis O’Connor A.C.J.O.”
“DOC” “E.A. Cronk J.A.”
“Paul Rouleau J.A.”