CITATION: Nexen Energy ULC v. ITP SA, 2020 ONSC 1616
DIVISIONAL COURT FILE NO.: 505/19
DATE: 20200316
SUPERIOR COURT OF JUSTICE – ONTARIO
DIVISIONAL COURT
RE: NEXEN ENERGY ULC, Plaintiff (Respondent)
AND:
ITP SA, Defendant (Appellant)
BEFORE: Lederer, J.
COUNSEL: Bradley Berg, Max Shapiro, for the Respondent
Guy Pratte, Christine Muir, for the Appellant
HEARD at Toronto: February 27, 2020
ENDORSEMENT
[1] This is an appeal from a ruling of the Master granting a stay of this action in the face of a “forum selection clause” directing any disputes of the applicable contract to be dealt with pursuant to Alberta law but in Ontario at the Toronto courts.
[2] The Respondent, Nexen Energy ULC, is an oil and gas producer. Its headquarters are located in Calgary, Alberta. The Appellant, ITP SA, a French company, was one of several contractors that provided goods and services dedicated to the design and building of three pipelines in conjunction with the construction of a new Nexen facility. In July 2015, one of the pipelines ruptured and released 5,000 cubic metres of boiler feed water and produced emulsion into the surrounding environment. The release is said to have caused $450 million in losses.
[3] In the furtherance of these losses, Nexen has commenced an action in Alberta. That action is being case managed and involves, as defendants, not only ITP but also other of the contractors involved in the design and construction of the pipeline. ITP has filed a Statement of Defence and has been active in the steps taken to advance that proceeding.
[4] At the same time, apparently out of an abundance of caution given the potential for the expiry of the applicable limitation period, Nexen commenced an identical action in Ontario but only against ITP. It undertook the second action in light of the “forum selection clause” included in a Purchase Order issued by Nexen to ITP. The clause in question states:
This Purchase Order shall be interpreted with, and shall be governed by the laws of the Province of Alberta and the federal laws of Canada applicable therein… and the Contractor [ITP] and the Owner [Nexen] irrevocably attorn to the exclusive jurisdiction of the courts of the Province of Ontario, in the City of Toronto… with respect to any matter set forth herein
[5] The rationale for doing so is not difficult to see. The forum selection clause required any action brought as a result of a dispute between Nexen and ITP to be resolved in court to be dealt with in Ontario (Toronto). If, in the face of this clause, the courts of Alberta dismissed or stayed the action there, at least insofar as it included ITP as a defendant, and, in the meantime, the applicable limitation in Ontario had expired, Nexen would be without further recourse against ITP.
[6] Instead, the parties agreed to stay the Ontario action in favour of Alberta. However, before that happens ITP wants to rely on the forum selection clause to have the courts, in Ontario, determine what it sees as an extricable and discreet issue of law. Consistent with this idea ITP delivered a Notice of Motion, in Ontario, under Rule 21.01(1), seeking a ruling of the Court as to the interpretation of two provisions found in the Purchase Order that established the relationship between Nexen and ITP. The two clauses, if applicable, would serve to limit the liability of ITP:
18(e) Consequential Damages
Notwithstanding any other provision of this Purchase Order, Contractor shall not be liable to Owner, and Owner shall not be liable to Contractor, for any indirect, economic consequential, incidental, special, punitive or exemplary damages including overhead, loss of profits, loss of product, loss of production, loss of business or mineral rights or business interruptions (all of which are referred to in this Article 18(e) as “Consequential Damages” which may be suffered or incurred by Owner or Contractor, as the case may be, and which arise out of or in conjunction with the supply of the Goods or the performance of the Services, or arise out of or in connection with this Purchase Order; provided that this Article 18(e)(i) shall not apply in respect of any breach of, or liability of Contractor arising pursuant to Articles 17, 18(a)(ii)(C) and 25.
18(f) Limit of Liability
Notwithstanding any other provision contained herein, Contractors maximum liability to Owner under this Contract, whether in contract, tort (including negligence parentheses, strict liability or otherwise, shall not exceed the greater of (i) two million two hundred fifty thousand euros (€2,250,000) per occurrence or five million euros (€5,000,000) in the aggregate; or (ii) if insurance coverage is available for the Claim, the amount of the insurance limits set forth in Article 19 hereof that is applicable to the particular claim. The effort mentioned limits shall not apply: (i) to any Claim which arises under clause 18(a)(ii)(C), Article 17 or Article 25, or that is attributable to the gross negligence or wilful conduct of a Contractor Related Party. Further, any performance bond provided by Contractor here under shall be a separate obligation of Contractor to Owner and shall not be taken into account for the purposes of this Section.
[7] Pursuant to the Rule 21 motion, ITP sought a declaration that the Consequential Damages clause precludes Nexen’s claim for consequential damages in their entirety. Such a declaration would be significant. Nexen’s claim for consequential damages relates to lost profits with respect to the pipeline over the course of several years. ITP also seeks a ruling that the Limitation of Liability clause “caps” ITP’s liability to Nexen at €5 million or the applicable insurance coverage. This would be so in the absence of gross negligence or wilful misconduct. ITP seeks these rulings under the rules and procedures of Ontario. ITP seeks to have the Ontario Court decide only the applicability of the Consequential Damages clause and the Limitation of Liability clause. Those issues being determined, ITP would not and does not oppose the resolution of the remaining issues through the Alberta action. Thus, any further issues as to liability (was there any gross negligence or wilful misconduct or as to other defendants’ possible share in any liability?) and remedy (the value of any damages and how they are to be apportioned among the liable parties?) would be left to be determined in Alberta.
[8] It seems clear that any ruling made in response to the motion would have a profound impact on the position of the parties to, and the substance of, the proceeding in Alberta.
[9] In response to the motion, Nexen moved to stay the action it had commenced in Ontario. The Master granted the stay and in doing so refused the assertion that the forum selection clause should govern, at least to the extent of allowing ITP to have the impact of the Consequential Damages and the Limit of Liability clauses dealt with by the Court in Toronto. In coming to this conclusion, the Master identified both the significance and purpose of forum selection clauses and the test to be applied in determining whether such a clause should be set aside:
In the normal course, commercial players who negotiate a forum selection clause should be held to their bargains. This gives certainty to commercial dispute resolution and allows sophisticated parties to determine their own path. If a commercial party wishes to deviate from a forum selection clause, it must show strong cause as to why the court should not enforce it. Even where it can do so, it must persuade the court that the forum it suggests is the most convenient one.
(Nexen Energy ULC v. ITP SA, 2019 ONSC 2978 at para. 11)
[Emphasis added]
[10] The “strong cause” test is not new. It is well established:
Pursuant to s. 50(1) of the Federal Court Act, the court has the discretion to stay proceedings in any cause or matter on the ground that the claim is proceeding in another court or jurisdiction, or where, for any other reason, it is in the interest of justice that the proceedings be stayed. For some time, the exercise of this judicial discretion has been governed by the “strong cause” test when a party brings a motion for a stay of proceedings to enforce a forum selection clause in a bill of lading. Brandon J. set out the test as follows in The “Eleftheria”, at p. 242:
(1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a forum Court, and the defendants apply for a stay, the English Court, assuming the claim to be otherwise within the jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. (2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (3) The burden of proving such strong cause is on the plaintiffs. (4) In exercising its discretion the Court should take into account all the circumstances of the particular case. (5) In particular, but without prejudice to (4), the following matters, where they arise, may be properly regarded: (a) In what country the evidence on the issues of fact is situated, or more readily available, and the effect of that on the relative convenience and expense of trial as between the English and forum Courts. (b) Whether the law of the forum Court applies and, if so, whether it differs from English law in any material respects. (c) With what country either party is connected, and how closely. (d) Whether the defendants genuinely desire trial in the forum country, or are only seeking procedural advantages. (e) Whether the plaintiffs would be prejudiced by having to sue in the forum Court because they would (i) be deprived of security for that claim; (ii) be unable to enforce any judgment obtained; (iii) be faced with a time-bar not applicable in England; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial.
(Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27, [2003] 1 SCR 450 at para. 19 quoting from The“Eleftheria”, [1969] 1 Lloyd’s Rep. 237 at pa. 242)
[11] The test demonstrates the respect to be given when the parties have agreed as to where, and the legal regime under which, their differences are to be resolved:
It should also be noted that respecting the autonomy of the parties makes it possible to implement the broader principle of achieving legal certainty in international transactions. The parties generally give effect to their intention to exclude a dispute from an authority’s jurisdiction by means of an arbitration clause or a choice of forum clause. These clauses foster certainty and foreseeability in international commercial relations, because they enable the parties to provide in advance for the forum to which they will submit their dispute.
(GreCon Dimter inc. v. J. R. Normand inc., 2005 SCC 46, [2005] 2 SCR 401 at para. 22)
[12] Counsel for ITP acknowledges that the Master recognized the strong cause test but submitted that, nonetheless, she failed to apply it.
[13] What is the standard of review to be afforded the decision of the Master? This is an appeal. The question of the appropriate standard of review is governed by the principles found in the well-known case of Housen v. Nikolaisen 2002 SCC 33, [2002] 2 SCR 235, 211 DLR (4th) 577, [2002] 7 WWR 1:
• The standard of review on pure questions of law is one of correctness. An appellate court is, thus, free to replace the opinion of the trial judge (in this case the Master) with its own (at para. 8).
• The standard of review for findings of fact is such that they cannot be reversed or set aside unless the trial judge has made a “palpable and overriding error”. A palpable error is one that is plainly seen (at para. 10).
• The standard of review for a question of mixed fact and law falls along a spectrum between and depending upon circumstances. Where the decision being sought is particular to the case at hand, that is dependant on the evidence, it would tend to a standard of review of palpable and overriding error. Where the decision will be more general and applicable beyond the case being considered, pointing to an error of law, it would tend in the direction of the standard of review of correctness (at paras. 28 and 36).
[14] Counsel for ITP, the Appellant, attributing the error, as he does, to a failure to apply the correct test submitted that the Master erred in law and that the applicable standard of review is correctness.
[15] Counsel for Nexen, the Respondent relies on the Courts of Justice Act R.S.O. 1990, c C. 43, s. 106:
A court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding in the court on such terms as are considered just.
[16] And refers to s. 136 of the same legislation:
As far as possible, multiplicity of legal proceedings shall be avoided.
[17] From this reliance and reference counsel submitted that a decision as to whether to grant a stay is an exercise of discretion and, as such, calls for deference. The submission proposes that “…such an exercise of discretion…raises questions of mixed fact and law” (Factum of the Respondent Nexen Energy ULC at para. 38) and goes on:
Where questions of mixed fact and law are at issue, the Supreme Court of Canada recently confirmed in Salomon v. Matte-Thompson [2019 SCC 14, 432 DLR (4th) 1, [2019] SCJ No 14 (QL)] that “absent a palpable and overriding error, an appellate court must defer to the conclusions reached by the trial judge”, and that the error must be so “obvious that it is determinative of the outcome of the case.” (at paras. 32-33 of the case)
[18] Salomon v. Matte-Thompson relies on the standards of review established in Housen v. Nikolaisen:
To determine whether the Court of Appeal erred by using the notion of a distorting lens, I must summarize the standards of appellate review it was required to apply in this case. These standards of review are not contested in this Court. They are the ones that were articulated in Housen v. Nikolaisen…(at para. 31)
[19] And yet, no reference to the spectrum within which questions of mixed fact and law fall are to be dealt with is made. Given the adherence to Housen v. Nikolaisen, it would seem that the question of where on the continuum such questions fall would, as seen by the Respondent, remains the pertinent issue. This is confirmed in Hudye Farms Inc. v. Canadian Wheat Board (2011 SKCA 137, 342 DLR (4th) 659, 377 Sask R 146) where the Saskatchewan Court of Appeal followed Z.I. Pompey Industrie v. ECU-Line N.V., and concluded:
The decision to decline territorial competence, in the face of a forum selection clause, is essentially a discretionary decision (see: Pompey, paras. 18-19, and Microcell at para. 109). A chambers judge must evaluate and weigh all of the relevant circumstances and decide where, on the balance beam of the law, the case rests. As a discretionary decision, it is reviewable according to the standard of review applicable to such decisions, i.e., error in principle or some other abuse of discretion. (at para. 13)
[20] The reference to the “balance beam of the law” is a different allusion to the same concept as the spectrum. It reflects on the search for the balance between the particular circumstances (i.e. the facts) and the broader concerns (i.e. the law). As a discretionary decision, what Salamon v. Matte-Thompson tells us is that this case tends to the “palpable and overriding error” end of the spectrum or, if one prefers, pushes more heavily on that end of the balance beam. It is from this foundation that counsel for Nexen submitted that the appropriate standard of review is not correctness but palpable and overriding error, a failing that counsel says has no application the decision of the Master. A further demonstration of this understanding is found in BTR Global Opportunity Trading Ltd. v. RBC Dexia Investor Services Trust 2011 ONCA 518, [2011] O.J. No. 3250. An action was commenced in Ontario against Lehman Brothers. They moved to stay that proceeding relying on a forum selection clause selecting New York state as the forum of choice. Lehman Brothers appealed:
The remedy available under s. 106 of the Courts of Justice Act R.S.O. 1990, c. C. 43, which provides that a court may stay any proceeding on such terms as are just, is discretionary. The motions judge’s decision will only be set aside if the exercise of his or her discretion is based upon a wrong principle, a failure to consider a relevant principle or a misapprehension of the evidence: Mobile Mini Inc. v. Centreline Equipment Rentals Ltd. (2004), 2004 22309 (ON CA, 190 O.A.C. 149 (C.A.), at para. 2.
[21] In the end the debate over the standard of review has no substantive impact on this case. I say this because as I see it the Master did not apply the wrong test. This being so the decision she made meets any challenge based on correctness as the applicable standard of review.
[22] In her decision the Master correctly stated the test:
In the normal course, commercial players who negotiate a forum selection clause should be held to their bargains. This give certainty to commercial dispute resolution and allows sophisticated parties to determine their own path. If a commercial party wishes to deviate from a forum selection clause, it must show strong cause as to why the court should not enforce it. Even where it can do so, it must persuade the court that the forum it suggests is the most convenient one. (at para. 11)
[Emphasis added]
[23] The Master observed:
The circumstances of this motion are different. The issue here is not whether there is strong cause to deviate from the forum selection clause or whether Alberta is the more convenient forum. ITP has agreed to have the action adjudicated in Alberta. But for ITP’s Rule 21 motion, the parties agree to the stay. The issue before me is whether ITP can use the forum selection clause to pick and choose where different parts of the claim against it are adjudicated. In my view, it cannot. (at para. 12)
[24] The Master continued on and determined that the required “strong cause” was present:
Neither party has provided me with jurisprudence that contemplates the partial use of a forum selection clause. The parties agree that if a party wishes to deviate from such a clause, it must show that there is strong cause to do so and that the alternative forum is clearly better. In the unique circumstances of this case, there is strong cause to deviate from the clause, stay the Ontario action, and send ITP’s motion to Alberta. ITP cannot use the forum selection clause to “slice and dice” the case. (at para. 13)
[25] The clause by which the ITP says the parties agreed to “irrevocably attorn to the exclusive jurisdiction of the Ontario courts” (Appellant’s Factum at para. 11) has, in fac,t been revoked by the agreement of the parties to proceed in Alberta. The thrust of the Master’s decision is that ITP cannot have it both ways. It had to either insist on its rights under the clause and have the entire matter, at least insofar as it involved a dispute between ITP and Nexen, dealt with in Ontario, albeit relying on Alberta law, a resolution it has never sought or ITP had to accept that the clause was revoked and allow for the resolution of the dispute, in Alberta. The pleading in ITP’s Statement of Defence in the Alberta action, seeking to rely on the forum selection clause for the limited purpose of interpreting the agreement, was a redrafting of the forum selection clause without obtaining the agreement of the other party. Again, the choice was to insist on Ontario or accept going to Alberta. As reported in the submissions made by counsel for Nexen, the Master was told by counsel for ITP that his client agreed to proceed in Alberta subject to the interpretation of the two clauses (the Consequential Damages clause and the Limit of Liability clause). This was consistent with the position taken in a letter written by counsel for ITP to this Court on October 28, 2018, 6.5 months before the hearing of the motion by the Master:
ITP has filed a Statement of Defence in Alberta which specifically provides for the determination of its preliminary motion in Ontario, as agreed to in its contract with Nexen.
Subject to arguing its preliminary motion respecting the interpretation of the limitations of liability in this court, ITP does not intend to argue the entirety of the action should proceed in Ontario. ITP as communicated this to Nexen, by way of letter dated June 13, 2018, attached at Tab C.
[26] ITP has acted on this premise. It has been active in the proceeding in Alberta. It has appeared on motions in that action. On November 26, 2019, which is to say six months after the hearing before the Master and three months after her decision, ITP filed third party claims against two third party defendants, both based in Calgary.
[27] The change is either demonstrative of “strong cause” or shows that as a practical matter, with attornment to the Alberta Court, an effective forum selection clause no longer existed.
[28] ITP sees this differently. The Master in her decision refers to “four special circumstances that override the forum selection clause” (Nexen Energy ULC v. ITP SA, supra at para. 11). She goes on to review each of the four circumstances as she sees them and then observes:
Having identified the special circumstances that disallows ITP from using the forum selection clause…(at para. 19)
[29] Counsel for ITP submitted that this is the recognition and application of a new, heretofore unrecognized test; one relying not on “strong cause” but on “special circumstances”. I do not agree. The expression “special circumstances” does not set a new and distinct test. Rather it describes factors that support a finding that “strong cause” not to enforce a forum selection clause has been established. This is not unlike the finding made in BTR Global Opportunity Trading Ltd. v. RBC Dexia Investor Services Trust where the term “exceptional circumstances” appears or “sufficiently strong reasons” which appears in Z.I. Pompey Industrie v. ECU-Line N.V.:
Assuming, without deciding, that the forum selection clause does apply and that it must be enforced in the absence of exceptional circumstances, we are satisfied nonetheless that the appeal must fail. In our opinion, BTR has shown “strong cause”, within the meaning of Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27, [2003] 1 S.C.R. 450, and subsequent decisions of this court, not to give effect to the forum selection clause.
In Z.I. Pompey, Bastarache J. stated at para. 39:
[T]he court must grant the stay unless the plaintiff can show sufficiently strong reasons to support the conclusion that it would not be reasonable or just in the circumstances to require the plaintiff to adhere to the terms of the clause. (see BTR at paras. 6 and 7)
[Emphasis added]
[30] The Master identified four special circumstances each of which contributes to the finding that there is, in these circumstances, strong cause to deviate from the forum selection clause. The first repeats what has already been said:
- The parties are far removed from the bargain they made. As matters stand ITP does not object to the action being tried in Alberta but for “one sliver of the pie” that it seeks to have adjudicated in Ontario.
[31] The further three special circumstances identified by the Master can be summarized as follows:
The Alberta action is actively case managed. Under the Alberta rules the case management judge is to hear all motions within that action. There is no judicial economy in having an Ontario judge “dive into this complex litigation”.
Part of Nexen’s claim against ITP will continue in the Alberta action, regardless of the outcome of any motion heard in Ontario. Given the carveout of gross negligence in the Limit of Liability clause, it is arguable that the issue of gross negligence is not covered by the forum selection clause.
This is a multiparty proceeding. The forum selection clause impacts only two of them, Nexen and ITP. There are defendants in the Alberta action who are not parties to the Ontario proceeding. The factual matrix underlying the interpretation of the Consequential Damages clause and the Limit of Liability clause includes the commercial context in which the agreement was formed. This could lead to inconsistent findings of fact.
[32] Given that the correct test was properly applied and there being no palpable and overriding error in the application of that test to the facts particular to this case, there is no foundation on which to overturn the decision of the Master. Even so, I add the following consideration. The cases demonstrate that forum selection clauses are intended to provide certainty in the context of international transactions.
[33] In Z.I. Pompey Industrie v. ECU-Line N.V a photo processor and four sub-assemblies, located in France, were to be shipped from Antwerp, Belgium to Seattle (by boat to Montreal and by train to Seattle). The product would pass through France, Belgium, the sea, Canada and the United States each with a different legal regime. A forum selection clause designated the law of Belgium as the applicable law and the Antwerp courts as the applicable location. This provided clarity and limited the potential for jurisdictional disputes.
[34] GreCon Dimter inc. v. J. R. Normand inc. arose from the sale, by the Canadian distributor to a Canadian customer, of equipment which originated in Germany. The contract between the Canadian distributor and its German supplier designated the German courts as the forum for the resolution of disputes between them. Again, providing clarity in the context of an international transaction.
[35] In the case being decided there is no dispute as to the legal regime to be applied. Regardless of whether in Ontario or Alberta, it is Alberta law that is to be applied. ITP is a French company. Its counsel submitted that it was concerned that the Court selected should be separate from the place where either of the parties was located. Nonetheless, it did agree to the reliance on Alberta law, meaning that the impact of any deviation from the forum selection clause was only as to the Court and not as to the law that was to be applied. In that sense this is not a truly international issue.
[36] The Appeal is dismissed.
[37] There were no submissions as to costs. If the parties are unable to agree I will consider written submissions on the following terms:
On behalf of the Respondent (Nexen) no later that 15 days following the release of these reasons. Such submissions to be no longer than four pages, double spaced, not including and Costs Outline, Bill of Costs or case law that may be provided.
On behalf of the Appellant (ITP) no later that 10 days thereafter. Such submissions to be no longer than four pages, double spaced, not including and Costs Outline, Bill of Costs or case law that may be provided.
On behalf of the Respondent (Nexen) no later that 5 days thereafter, in Reply if necessary. Such submissions to be no longer than 1 page, double spaced.
Lederer, J.
Date: March 16, 2020