Are you doing business with a party outside of Ontario? Are they drafting the Agreement? Have you read it? We mean, have you really read it?
While we could write a book about the number of things you need to look out for before signing a commercial contract, today’s focus will be on two specific, often overlooked, areas: Which law will govern your agreement? And in which jurisdiction will disputes be dealt with?
These clauses are often mistaken by parties to be “boilerplate” and overlooked as focus tends to fall on the details specific to the business transaction.
“Governing Law” and “Jurisdiction” clauses, as they are often labelled, can be found if you scroll all the way down to the end of the agreement… yes … keep going…. there they are!
So why are these clauses so important and how are they different, you ask? Well, the “Governing Law” clause tells you which province or country’s set of laws will apply to your contract or any disputes that may arise. The “Jurisdiction” clause, on the other hand, tells you which court will hear your disputes. For example, if the agreement states that the governing law is Ontario, but the jurisdiction is British Columbia (B.C.), that means that the Court in B.C. will apply the laws of Ontario, to the extent they are different from B.C. law, in dealing with your dispute.
Doesn’t seem like a big deal does it? But think about it this way. What if you operate your business in Ontario, and enter a contract with a party under clauses that state the agreement will be governed by the laws of California? What if all disputes must be heard in California as well, under the agreement’s jurisdictional clause?
This can present a huge problem for your Ontario-based business if a dispute arises. This means that you would need to hire a lawyer in California or pay a lawyer in Ontario who knows California’s laws and can travel to the States to litigate the matter. Yes, you are correct – that would cost a lot of money! And yes, we are psychic.
We often get clients that are so excited or anxious to close a deal, they don’t want to overly negotiate the agreements drafted by the other side. When it comes to these clauses, often clients don’t care to haggle over these provisions because the relationship is new and positive, they can’t ever see it going south.
But that’s what we are here for – to expect the unexpected! Okay we may have borrowed that from the realty game show, Big Brother, but it’s true. Have a lawyer review your agreements before signing, they may catch something you think is “boilerplate” or “non-negotiable.”
Robin K. Mann, J.D., Associate Lawyer