Beware Of Forum Shopping

With today’s globalization, Quebec companies are increasingly moving toward exporting. From a legal standpoint, while this business approach is commendable, it may nonetheless hold some unpleasant surprises for newcomers to international trade. Where a dispute looms on the horizon, you may quickly find yourself the defendant before a court of law of a country whose legal system is foreign to you.

Should you fail to include a forum-selection clause in a contract, that is to say a contractual provision pre-designating the court that may be seized of a possible dispute, forum is then determined according to the rules of domestic law of each country in question. Based on this assumption, it often happens that one or more countries may have jurisdiction to hear the dispute in accordance with their own legislation. This may lead to checking out a jurisdiction or "forum-shopping", that is to say the creditor will rush to choose the country whose legal system will most favour him for the purposes of his recourse.

For instance, an American company that deems that it has been injured further to the distribution of your products in the United States will no doubt want to bring an action in the U.S. before the court of the place where it does business, thereby forcing you to defend yourself on its home-turf while hoping to be awarded punitive damages that it could not get before a Quebec court of law.

The statutes that determine jurisdiction in the United States are often criticized in that they are sometimes too favourable toward American creditors. In some cases, the simple fact of being served in the United States even though you were only there for one day may suffice to give jurisdiction to the U.S. court (jurisdiction that is commonly known as "tag jurisdiction"). Our American neighbours are known for their outside forums, that is to say the jurisdiction of a place that incidentally does not offer any substantial element of connection between the defendant and the place where he is sued. This is also the case of the "doing business jurisdiction", that is to say the possibility of being sued before a court of law of a State where you have an establishment without any relationship existing between the lawsuit and your establishment. While our Civil Code offers some protection ¹ , an unfortunate situation of this type should be averted.

While you yourself may engage in the practice of shopping for a jurisdiction by choosing a Quebec court of law as the first to hear a dispute between yourself and a foreign company, one of the best ways to protect yourself against forum shopping remains the inclusion of a forum-selection clause in the contract. In a contract, the parties may exclusively designate Quebec courts to hear any possible dispute. If, notwithstanding this clause, the creditor brings an action in the United States, you may, as a general rule, have this action dismissed by presenting a preliminary exception to the effect that U.S. courts have no jurisdiction because of the exclusive designation of Quebec courts to hear any dispute ensuing from the contract.

The Civil Code of Quebec as well as the statutes of numerous countries contain provisions to counter forum shopping. Certain jurisdictions, including Quebec, provide that even where the court has jurisdiction to hear a dispute, it may, exceptionally, and on application by a party, decline jurisdiction if it considers that the authorities of another country are in a better position to decide ² . This is known as the forum non conveniens doctrine.

The international lis pendens rule also provides that a court may stay its ruling if another action between the same parties, based on the same facts and having the same object, is pending before a foreign authority.³

Where a Quebec creditor has the option of bringing an action before a court of more than one country, it might not be expedient to bring this action where he is domiciled but rather before a court of the defendant’s place of domicile. In fact, it is not just a question of determining if a Quebec court has jurisdiction according to the rules of the Civil Code of Quebec, but also of knowing if the Quebec judgment will eventually be recognized by the authorities of the country in which the defendant has assets. The rules surrounding the recognition of foreign judgments vary considerably from one country to the next. This, in particular, is why the forty-nine member countries of the Hague Conference are presently negotiating an agreement on the jurisdiction and recognition of foreign judgments. Negotiation meetings are currently taking place in The Hague.

Lastly, note that contracts may also contain an arbitration clause outlining rules to resolve an eventual conflict. Canada is party to the agreement of the United Nations Conference on International Commercial Arbitration which will make it easier for arbitration decisions rendered abroad to be recognized in Quebec.

1In connection with a motion to recognize a foreign decision, Article 3164 C.C.Q. stipulates that Quebec authorities will only recognize the jurisdiction of the foreign court where the dispute is substantially connected with the country whose authority is seized of the case. However, this protection does not stand where the company has assets in the U.S. that may be seized.

2Art. 3135 C.C.Q.

3Art. 3137 C.C.Q.