In Tehama Group Inc v. Pythian Services Inc., 2024 ONSC 1819, the Ontario Superior Court of Justice held that the place of an arbitration, not a forum selection clause in a contract, determines the jurisdiction that recourse against an arbitral award must be taken in.
The litigants were parties to a cross-border asset purchase agreement (the “APA”). The APA included an arbitration clause for disputes regarding the calculation of the purchase price, and the parties appointed “the Toronto office” of an accounting firm as arbitrator for these disputes. The APA also included broad forum selection and governing law clauses, which required “any suit, action or other proceeding arising out of this Agreement” to be brought exclusively in the courts of New York and in accordance with its laws.
A dispute arose regarding an earnout clause in the APA, and the parties proceeded to arbitration. When the Toronto-based arbitrator rendered an award, an application was commenced in Ontario to have it set aside pursuant to the Model Law as set out in Schedule 2 of Ontario’s International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5 (the “ICAA”). The Respondent made this motion to have the application stayed based on the choice of forum and governing law clauses in the APA. They argued that the courts of New York had exclusive jurisdiction over the dispute, and that the parties should be held to their bargain. The parties disputed whether these clauses applied to a proceeding to set aside the arbitral award.
After considering the parties’ positions, the Court provided the following commentary in support of its finding that the place of the arbitration, not the terms of the APA, would determine the proper jurisdiction for setting aside the award in this case:
“The choice of “place” of an arbitration is not a geographical choice as much as a legal choice. The choice of place determines the arbitral law applicable to the arbitration. The law of the arbitration is separate and distinct from the substantive law of the contract. The law of the arbitration includes setting aside the award and court intervention in the arbitration process generally.” [emphasis added]
In its finding on the place of arbitration, the Court found it critical that the parties specifically named “the Toronto office” of their agreed-upon accounting firm as arbitrator for the dispute. This, the Court held, indicated the parties’ mutual intention to make Toronto the place of arbitration under the APA’s arbitration clause. Since the place of arbitration was found to be in Ontario, the Court held that the provisions of the ICAA and Model Law applied, and supplanted the forum selection and governing law clauses of the APA for proceedings to set aside an arbitral award. As such, Article 34 of the Model Law and section 6(2) of the ICAA required the award to be challenged via an application to the Ontario Superior Court of Justice. Lastly, the Court confirmed that these provisions of the Model Law and ICAA cannot be contracted out of, following a line of cases that was most recently affirmed in EDE Capital Inc. v. Guan, 2023 ONSC 3273.
If parties to a cross-border contractual agreement wish to have a single jurisdiction deal with all disputes that may arise from it, it may not be prudent to rely on a general forum selection or governing law clause to dictate the jurisdiction for challenging an arbitral award. Parties may wish to consider explicitly providing a place of arbitration in their arbitration clauses, to avoid jurisdictional uncertainties.
At Gilbertson Davis LLP, our lawyers have experience in cross-border litigation, business sales disputes and commercial arbitrations. Please contact us for an initial consultation.
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