As franchise systems expand into multiple jurisdictions, the choice of venue and choice of law clauses are critical to avoiding litigation delays. In a country like Canada, where the regulation of franchises varies between provinces, having clear choice of venue and choice of law clauses can save you time and money by making it clear where the parties will resolve their disputes.
The Stuart Budd & Sons dispute is a great example of the problems that occur when your agreement does not have a strong choice of venue clause. In Stuart Budd & Sons Limited v. IFS Vehicle Distributions ULC, 2014 ONCA 546 (Stuart Budd), we see dealers in multiple provinces bringing an action against foreign distributors in Ontario. Unfortunately, because there is no choice of venue clause, the parties pay litigators for a full year, with two rounds of cross-examination, just to argue about where their dispute should be resolved. Not only do they not have an answer yet, but the parties have made no progress on resolving the underlying dispute. This case makes a clear case for a good venue selection clause.
Where are the foreign plaintiffs? The plaintiffs in Stuart Budd are eight new and used car dealers operating separate businesses in five provinces (the Dealers). Three of the Dealers have their businesses in Ontario, five don’t, and all eight are unhappy with the defendants.
What does the dealer agreement say? Although the Dealers operate their businesses in different provinces, each dealer agreement has a choice of law clause that selects Ontario law. The Dealers, therefore, start their action in Ontario, and seek substantial damages under the Arthur Wishart Act (Franchise Disclosure), 2000 (Wishart Act).
Where are the foreign defendants? The defendants distribute vehicles in Canada through two companies. One is incorporated in California with its head office is in California. The other is an unlimited liability company incorporated in British Columbia with its head office in British Columbia. They also has a mailing address and bank accounts in Ontario and their “activities in Ontario,” says the Court, have “considerable scope.” Two individuals are also defending the action; both are executives of the companies and both reside in California.
How do the defendants react to being sued in Ontario? Not well. They bring a motion challenging the jurisdiction of the Ontario court to hear the claims of the non-Ontario Dealers. They also refuse to file a statement of defence as doing so could constitute attornment to the jurisdiction of Ontario, which would make their motion moot.
What does the Ontario motion judge say (round one)? The motion is heard in two phases. The first phase addresses the defendants’ objection to the evidence filed by the Dealers. The motion judge agrees that the Dealers’ evidence is improper, so improper that it would be fatal to the motion. Rather than rejecting the evidence, the motion judge requires the Dealers to file supplementary evidence so that the Court can determine the underlying facts before deciding the motion.
What does the Ontario motion judge say (round two)? After the Dealers fix their evidence – and after a second round of cross-examinations – the motion judge accepts the Dealers’ evidence and dismisses the defendants’ jurisdictional motion. He says that the defendants’ motion was an “abuse of process” and orders the defendants to file a statement of defence within two months. He also says that he will deliver further supporting reasons, but he has not yet done so.
How do the defendants react to losing? Again, not well. They appeal. Because they wait for the motion judge’s additional reasons, they miss the deadline for filing certain materials in their appeal. They bring a motion to the Court of Appeal for Ontario seeking an extension of time to file those materials as well as a stay of the motion judge’s order, so that they are not required to file their statement of defence pending resolution of the appeal.
What does the Court of Appeal do? After considering the law governing stays (not to mention the conflicting law on whether being ordered to file a defence can constitute attornment), the Court grants the stay such that the defendants are not required to file a statement of defence.
How long does it take? The Court of Appeal commented that the defendants made every effort to get the first available date for the motion. That hearing date was 11 months after the motion was first started. It has been more than a year since the Dealers issued their claim, and the defendants have not filed a statement of defence. Now the parties will prepare for and argue the jurisdiction appeal, which will take months.
Could this delay have been avoided? Yes! Before parties in different jurisdictions enter agreements, they should consider (i) what law governs the contract; and (ii) whether that law permits them to choose a different venue to litigate disputes. In some cases, parties cannot select a different venue. For example, Section 10 of the Wishart Act voids provisions in franchise agreements that restrict venue to a forum outside Ontario at least with respect to claims under the Act. In other cases, where parties are permitted to select different venues, parties should choose one to avoid litigating about procedural matters. Taking a few minutes to think about and address the question of venue can save you legal fees and time down the road.
Part of the October 2014 - Franchise Review