Forum selection clause and designation of a foreign law: poor contractual drafting can cost you.

In a recent decision, the Court of Appeal considered the difference between a forum selection clause and a designation of a foreign law clause in an immigration contract between a consulting firm (“Firm”) based in Quebec and immigration candidates (“Candidates”) based in China. A dispute arose between the parties following the execution of this contract when their candidacy was rejected. They refer to the contract and the dispute resolution clause, which reads as follows:

Applicable Law and Dispute Resolution

• For the performance of this agreement, involved definitions and disputes, the applicable law is relevant bills of the People’s Republic of China.
• The Provider and the Client are bound to coordinate to work out solutions to disputes concerning this agreement. If a solution to the dispute cannot be reached, either party has the right to pursue a lawsuit in the governing court.

When the Respondents brought an action in Quebec, the Firm invoked the said clause in order to have the action dismissed, claiming that the competent authority was that of China. The Superior Court agreed with this argument in first instance and summarily dismissed the Candidates’ action.

However, the Court of Appeal, which is seized of the case, rejects this analysis.

Indeed, the Court of Appeal recalled the difference between a forum selection clause, as interpreted by the judge of first instance and the Firm, and a choice of law clause, governed by article 3011 of the Civil Code of Quebec (C.C.Q.), which governs private relationships in the Province.

However, this type of choice of law clause does not cause the Quebec courts to lose jurisdiction, as they are empowered to apply foreign laws as long as they are introduced into evidence pursuant to article 2809 C.C.Q. Indeed, it is recognized in private international law that there is a significant difference between the applicable law and the competent court and that a court may apply a foreign legislative framework if the factual framework justifies it, particularly when a contract between the parties so provides.

It is therefore useful to remember that a forum selection clause must be clear and unambiguous and must not leave the parties any choice as to the designation of law of the competent court. Moreover, proper drafting requires a distinction to be made between a choice of domicile and the choice of law applicable to the contract².