2015 ONSC 6243

COURT FILE NO.: CV-13-482463

DATE: 20151014

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CP Ships Limited, Plaintiff

AND:

Icecorp Logistics Inc. and Alan J. Barnes, Defendants/Responding Parties

AND:

TUI AG, Third Party/Moving Party

BEFORE: Sean F. Dunphy J.

COUNSEL:
R.S.M. Woods and T. Lipton, for the Third Party/Moving Party

W. Jaskiewicz, for the Defendants/Responding Parties

HEARD: October 7, 2015

ENDORSEMENT

[1] This motion requires me to determine whether the Defendants have established the “strong cause” required to avoid a forum selection clause in a guarantee agreement which is governed by German law and which declares the local courts of Hannover, Germany to be the court of competent jurisdiction. In my view, the Defendants have failed to meet the high threshold for avoiding the forum selection clause in this case. There are no factors present in this which would not have been plainly within the reasonable anticipation of the parties when the forum selection clause was agreed to. There is no risk of inconsistent findings and thus no reason to interfere with the bargain made by the parties.

Overview of Facts

[2] The background facts are simple and uncontested. The Plaintiff CP Ships Limited is a wholly-owned subsidiary of the Third Party TUI AG. Pursuant to a Share Purchase Agreement (the “SPA”) of May 7, 2012, the defendant Icecorp Logistics Inc. purchased all of the shares of a company named R.O.E. Logistics Inc., from CP.

[3] The purchase price stipulated by the SPA was $2,937,000, $1,277,000 of which was paid at closing, while the balance (i.e. $1,660,000) was payable pursuant to a promissory note due as to 50% on each of the first and second anniversary dates.

[4] As required by Article 8.4(b) of the SPA, TUI provided a guarantee of “the indemnification obligations of the Vendor under Article 6 of the SPA” to Icecorp. The TUI Guarantee was provided solely to Icecorp and does not name Mr. Barnes as a beneficiary. The guarantee is limited in recourse to one-third of the purchase price as defined in the SPA. Given the purchase price of $2,937,000, the guarantee would thus appear to be capped at $979,000 (the precise figure not being material to this application).

[5] The TUI Guarantee is governed by the laws of Germany and elects Hannover Germany as a forum to hear any claims arising thereunder. Section 2.8 of the SPA (the “forum selection clause”) provides:

“2.8 This Guarantee shall be governed by and construed in accordance with the laws of the Federal Republic of Germany. Competent court for the determination of any disputes arising from or in connection with this Guarantee shall be the local courts of Hannover, Germany”.

[6] Icecorp paid none of the amounts due under the promissory note. Instead, Icecorp has alleged a number of breaches of warranty by CP as vendor. Unable to reach agreement, CP sued Icecorp under the promissory note as well as Mr. Barnes under his personal guarantee.

[7] Icecorp and Mr. Barnes filed their Statement of Defence. The Statement of Defence provides particulars of numerous alleged breaches of warranty by CP under the SPA. Set off is claimed for damages for breaches of the various warranty claims that are said to total $4,272,719.97. The facts with respect to these alleged breaches are of course very much in dispute between the parties and the litigation process to deal with these is only now getting under way.

[8] Both defendants then commenced the Third Party action against TUI. The Third Party action provides the same particulars of alleged breaches of warranty by CP as are contained in the Statement of Defence. The Third Party Claim does not however reference the limited recourse nature of the TUI Guarantee (limited to one-third of the purchase price or $979,000) nor does it plead any basis for Mr. Barnes to be included as a plaintiff in the Third Party Action. Mr. Barnes has not pleaded any legal interest in the TUI Guarantee (nor is he mentioned on the document). In argument, it appeared that his inclusion as a claimant in the Third Party action had simply been an oversight and the defendants indicated they had no objection to fixing this. In light of the disposition of this motion, that is unnecessary.

[9] The Third Party TUI moves to dismiss or stay the Third Party claim.

Issues

[10] The parties agree that the issue to be determined on this case is whether the court should exercise its discretion to allow the Third Party Claim to proceed in Ontario notwithstanding the forum selection clause.

Analysis and Discussion

[11] It is important in this area to distinguish between choice of law clauses (eg. governed by the laws of the Federal Republic of Germany) and forum selection clauses by which the parties agree upon the jurisdiction in which any resulting litigation is to be conducted. The forum selection clause in this case does both: it selects German law and it determines the courts of Hannover, Germany to be “competent” as the venue.

[12] Where the parties have selected a forum to hear their disputes, our courts have indicated a very strong preference for upholding the bargain made by the parties while retaining some residual discretion to override that selection in appropriate cases.

[13] The leading case is that of the Supreme Court of Canada in Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27. In Pompey (supra), the bill of lading contained a forum selection clause that read “any claim or dispute arising hereunder or in connection herewith shall be determined by the courts in Antwerp and no other Courts”. Writing for the Court, Bastarache J. noted the common use of forum selection clauses in international commerce and concluded that the “strong cause” test is the appropriate one to apply, concluding “Once the court is satisfied that a validly concluded bill of lading otherwise binds the parties, the 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. In exercising its discretion, the court should take into account all of the circumstances of the particular case”.

[14] In Expedition Helicopters Inc. v. Honeywell Inc., 2010 ONCA 351, the contract between the parties contained a choice of Arizona law and a stipulation that any state or federal court in Phoenix shall have exclusive jurisdiction to hear any suit arising out of the agreement. Writing for the panel, Juriansz J.A. found (at para. 8) that “the central thrust of the Pompey decision is that the law favours the enforcement of forum selection clauses”. He concluded (at para. 23) “there is no reason to depart from the presumption that Expedition should be held to the bargain that it made. A departure is only justified in “exceptional circumstances”, as Bastarache J. stressed in Pompey. There is nothing exceptional about this case…inconvenience does not justify permitting [Expedition] to resile from its agreement in this commercial contract to tolerate that inconvenience”.

[15] While every case must of course be determined according to its facts, a list of some of the factors listed by Juriansz J.A. (at Expedition, supra, para. 24) is instructive of what sort of exceptional circumstances must exist to justify overturning the choice of the parties. These include:

• Fraud or improper inducement

• Contract is otherwise unenforceable;

• Court of the selected forum declines jurisdiction or otherwise unable to deal with the claim;

• The claim or circumstances have arisen that are outside of what was reasonably contemplated when agreeing to the clause; or

• Public policy.

[16] I do not view the foregoing list as provided by Juriansz J.A. as being definitive. However, it does underscore the degree of seriousness which must be found to justify the court in overriding the choice of the parties. He also strongly underscored the necessity of not treating the Pompey analysis as being just another aspect of traditional forum non conveniens analysis. The location of witnesses, for example, was not admitted as constituting strong cause by itself since the parties had agreed in accepting the clause that witnesses might have to be transported to resolve claims. The existence of disproportionate litigation costs was similarly rejected as a factor.

[17] The Pompey test came back to the Supreme Court of Canada again in the case of Momentous.ca Corp. v. Canadian American Assn. of Professional Baseball Ltd., 2012 SCC 9. The court confirmed that “the proper test in determining whether to enforce a forum selection clause is discretionary in nature. It provides that unless there is a “strong cause” as to why a domestic court should exercise discretion, order and fairness is better achieved when parties are held to their bargains”.

[18] The forum selection clause in this case does not use the magic word “exclusive” in relation to jurisdiction. In my view, the phrase “Competent court for the determination of any disputes arising from or in connection with this Guarantee shall be the local courts of Hannover, Germany” has effectively the same meaning. The only jurisdiction the parties have selected is that of Hannover. In the context in which it is found, I have no hesitation in finding in this case that the parties jointly intended to select Hanover as the court intended to hear disputes arising from the guarantee. The defendant admitted as much in cross-examination.

[19] I cannot read the forum selection clause here as being nothing more than an optional “attornment” clause with Hannover having jurisdiction among other possible sites. Contracts are interpreted in accordance with their context to ascertain the intent of the parties. The forum selection clause is found in a guarantee that also stipulates German law shall govern. The beneficiary of the guarantee is based in Ontario while the obligor is located in Germany. Guarantors do not often sue themselves. Claims on guarantees are brought by the beneficiaries, not the obligors. The only reason the Hanover-based guarantor would have for stipulating that Hannover is “competent” was if it was meant to say that Hannover was “the competent” (in other words, mandatory) jurisdiction, not simply one of several potentially eligible jurisdictions. The guarantor would have had no use for a clause which told merely gave the Canadian beneficiary and putative claimant thereunder the option to get on a plane and sue the maker of the guarantee where it resides. In international contracts, some latitude must be allowed for the fact that drafters are not always native speakers and minor errors (such as the omission of the word “the”) can creep in. If the meaning can be ascertained from a view of the document as a whole in its context as I think it can here, a technical and narrow reading is not called for.

[20] Viewing the matter as an equivalent to an “exclusive jurisdiction” clause with which our Anglo-Saxon courts are more used to dealing, what then can I make of the defendants’ plea that strong cause exists to depart from the bargain made here?

[21] In my view there are simply no exceptional circumstances justifying departure from this well-established line of cases. Having regard to all of the factors listed in the defendants’ factum, it is very possible that Ontario would be found to be forum conveniens for the dispute. There are witnesses in Ontario; there is a pending proceeding in Ontario. Virtually all of the matters for which indemnity is claimed arise from the warranties given in respect of the Canadian operations of the business sold. I have little doubt that substantially all of the substantive warranty claims which are the crux of the defendants claim against CP are overwhelmingly Canadian in their fact content by which I mean that Canadian witnesses and documents will be the predominant factors in the fact-finding process.

[22] The defendants’ argument, however, misses the critical point. This dispute is quite precisely the sort of dispute that the parties contemplated or ought to have contemplated when the SPA was entered into in May, 2012. The SPA contains a long, multi-page list of vendor’s warranties. Article 6.1 provides for indemnification by the Vendor (i.e. CP) of such breaches of warranty. The TUI Guarantee very specifically applies to that precise indemnification obligation. The SPA is governed by Ontario law. The business sold was based in Montreal as was the vendor. The “centre of gravity” of all or substantially all of the representations and warranties contained in the SPA to which the TUI Guarantee applies is quite clearly Canada if not Ontario. All of this was known while the contract was being negotiated. It was known from the outset that if Icecorp made a claim for indemnity against CP as Vendor under Article 6.1, that claim would almost certainly be based in Ontario.

[23] Despite all of this, the parties with their eyes wide-open selected German law and Hannover courts to govern disputes under the Guarantee of those very obligations. In signing that agreement, Icecorp knew and understood that any claims under the TUI Guarantee would be heard in Germany.

[24] Under the TUI Guarantee, Icecorp always retained the right to proceed directly against TUI and not wait for or even request judgment against CP. In that case, it would have to proceed in Germany and bear the expense and inconvenience of proving the underlying obligation of CP as principal debtor before the German court. For its efforts, its claim would be limited to the TUI Guarantee amount ($979,000) and it would still have to pursue CP for the difference. There would be much expense and little benefit to Icecorp in such an inefficient approach. Alternatively, it could pursue CP to judgment on the principal debt in Ontario first. In that case, providing the judgment unambiguously identifies that the obligations CP is ordered to pay are the indemnity obligations under art. 6.1 of the SPA, the guarantor would be bound by any determination of CP’s liability under art. 6.1.

[25] A guarantor does not have the option of declining to participate in the defence of the principal debtor’s obligation while requiring the beneficiary of the guarantee to prove the principal debt all over again. TUI specifically confirmed to the court that it understood and accepted this basic principle. I would certainly not grant TUI the requested stay if I thought there was any prospect of conflicting judgments between German and Ontario courts as to the liability (including amount) of CP to indemnify Icecorp under art. 6.1 of the SPA. I am fully satisfied that, based upon the admission made by TUI in this proceeding, there is no risk of duplication of proceedings as regards determining the liability (if any) of CP to Icecorp under art. 6.1 of the SPA which is the very issue which is the object of the TUI Guarantee. I am satisfied that any litigation under the TUI Guarantee would be confined to issues unrelated to the liability of CP to Icecorp under art. 6.1 of the SPA.

Disposition

[26] Accordingly, I am granting the Third Party’s motion and ordering that the Third Party action of Icecorp is stayed. TUI’s admission that any final determination by this court in the main action as to the amounts, if any, due by CP to Icecorp pursuant to s. 6.1 of the SPA will be binding upon it in any future litigation under the TUI Guarantee should be recorded as part of my order.

[27] TUI A.G. has been successful on this motion and the stay effectively ends these proceedings as against it. Costs ought to follow the event.

[28] At the hearing, I expressed the view that costs would be awarded on a moderate scale only. The admission offered by TUI A.G. during the course of the hearing – while perhaps little more than an admission of what the law would in any event have provided – might possibly have avoided the necessity of this hearing had it been offered earlier. Of course Icecorp could also have asked for such an admission and failed to do so.

[29] I had asked for costs submissions to given to me by today (October 14) if agreement could not be reached. TUI A.G. provided me with an outline of costs of approximately $15,000 on a partial indemnity scale and suggested that half of that amount or $7,500 would be an appropriate discount in light of my request for a modest scale of costs. I agree with that suggestion. Accordingly, I am fixing costs of $7,500 payable by Icecorp to TUI A.G.

Sean F. Dunphy J.

Date: October 14, 2015