




CITATION:
Loat v. Howarth, 2011
          ONCA 509



DATE: 20110712



DOCKET: C53325



COURT OF APPEAL FOR ONTARIO



OConnor A.C.J.O., Cronk and Rouleau JJ.A.



BETWEEN



David Loat



Appellant (Respondent by Cross-appeal)



and



Andrew
          Howarth, Storetech Solutions Inc. and Storetech
          Limited




Respondents (Appellants by Cross-appeal)



Elliot S. Birnboim and Alastair J. McNish, for the appellant



Owen Rees and Justin Safayeni, for the respondents



Heard: July 5, 2011



On appeal from the order of Justice
          Colin Campbell of the Superior Court of Justice, dated January 25, 2011, with
          reasons reported at 2011 ONSC 460, and on cross-appeal from the costs order
          of Justice Campbell, dated March 11, 2011, with reasons reported at 2011 ONSC
          1558.



BY THE COURT:

I.         Background

[1]

David Loat (the plaintiff) is a former director,
    officer and employee of Storetech Solutions Inc. (Storetech Ontario) and a
    minority shareholder of Storetech Limited (Storetech UK), the parent company
    of Storetech Ontario.  The Storetech
    companies were founded by the respondent, Andrew Howarth.  They provide software application services to
    retailers, both in Ontario and abroad.

[2]

Commencing in 2006, the plaintiff and Mr. Howarth
    entered into negotiations concerning a business arrangement to facilitate Storetech
    UKs expansion into the North American market.  In November 2006, Storetech Ontario was incorporated for this purpose
    and the plaintiff became its Chief Operating Officer.

[3]

About one year later, on November 29, 2007, the
    plaintiff entered into a formal written service agreement with Storetech
    Ontario (the Service Agreement), which confirmed his executive position with
    the company, effective November 1, 2006, at an annual salary of $225,000.  The Service Agreement provided that the
    plaintiffs employment could be terminated by either party on not less than
    three months written notice.

[4]

The Service Agreement also contained entire agreement
    or integration clauses.  They read as
    follows:

22.1    This
    Agreement is in substitution for any previous agreements or contracts of
    service entered into between the Company or any predecessor undertaking in
    relation to the employment of the Executive and all prior agreements are deemed
    to have terminated by mutual agreement on the date of this Agreement.

.

24.1    The Agreement constitutes the entire agreement
    between the parties with respect to all matters referred to in it.

[5]

Further, clause 24.2 of the Service Agreement provided
    that any variations to the contract would be ineffective unless made in
    writing and signed by both of the parties.

[6]

The Service Agreement also contained a combined forum
    selection and governing law clause.  Section 26.1 stipulated:

Except as expressly set forth herein this Agreement
    is governed by and construed in accordance with the laws of the Province of
    Ontario and the laws of Canada applicable therein.
The
    parties agree to submit to the non-exclusive jurisdiction of the courts of the
    Province of Ontario in relation to any claim or matter arising under this
    Agreement
.  [Emphasis added.]

[7]

On November 27, 2007, two days prior to the date of the
    Service Agreement, the plaintiff, his family trust, Mr. Howarth and Storetech
    UK had entered into a shareholders agreement (the Shareholders Agreement),
    whereby the plaintiff acquired, through his family holding company, a minority
    equity position in Storetech UK and the right to nominate a minority of
    directors to Storetech UKs board of directors in exchange for loaning $400,000
    of start-up capital to Storetech Ontario.  The Shareholders Agreement provided that the plaintiff would furnish
    the agreed start-up funds: (1) by irrevocably deferring the first year of his
    salary with Storetech Ontario ($225,000) until certain conditions were met; and
    (2) by paying the remaining $175,000 in cash to Storetech Ontario.

[8]

The Shareholders Agreement, like the Service
    Agreement, contained governing law and forum selection clauses.  However, while the forum selection clause in the
    Service Agreement applied to any claim or matter arising under this Agreement,
    the Shareholders Agreement provided that any disputes arising out of or in
    connection with this Agreement were to be resolved exclusively in England
    under English law:

13.1    This Agreement and any disputes or claims
    arising out of or in connection with its subject matter are governed by and
    construed in accordance with the law of England.

13.2
The
    parties irrevocably agree that the courts of England have exclusive
    jurisdiction to settle any dispute or claim that arises out of or in connection
    with this Agreement
.  [Emphasis
    added.]

[9]

No entire agreement or integration clause appears in
    the Shareholders Agreement.

[10]

On December 8, 2009, Storetech Ontario terminated the
    plaintiffs employment without notice and allegedly for cause.  The plaintiff promptly commenced an action in
    Ontario against Mr. Howarth, Storetech Ontario and Storetech UK (the defendants),
    claiming: (1) various oppression remedy-related declaratory relief against all
    the defendants, pursuant to s. 248 of the
Ontario
    Business Corporations Act
, R.S.O. 1990, c. B. 16; (2) repayment of directors
    loans allegedly made by him to Storetech Ontario; (3) payment of unpaid
    salary in an amount equivalent to US $545,617.87; (4) damages for oppression
    in the amount of $1 million and punitive damages in the amount of $1 million;
    (5) a declaration that his employment had been wrongfully terminated; and (6)
    payment of three months termination pay under the Service Agreement (pay in
    lieu of notice), in the amount of US $56,250, amongst other relief (the
    Ontario Action).

[11]

The defendants defended the Ontario Action and
    counterclaimed against the plaintiff for damages on various grounds.  In their pleading, the defendants denied the
    plaintiffs allegations but did not contest his right to advance his claims in
    Ontario.  In particular, they did not invoke
    the forum selection clause in the Shareholders Agreement as a bar to the plaintiffs
    right to sue in Ontario, nor did they plead any reservation against their
    attornment to Ontarios jurisdiction over the plaintiffs claims.

[12]

In October 2010, the plaintiff moved for partial
    summary judgment in relation to his claimed unpaid wages and termination pay.  By that time, the parties had exchanged
    pleadings and, on the defendants demand, the plaintiff had furnished particulars
    in respect of his claims in the Ontario Action.

[13]

The defendants resisted the plaintiffs summary
    judgment motion and brought their own cross-motion seeking orders granting them
    leave to amend their pleading to invoke the forum selection clause in the
    Shareholders Agreement and dismissing or staying the Ontario Action by reason
    of that clause.

[14]

The parties duelling motions were heard together on
    December 17, 2010 by C. Campbell J. of the Superior Court of Justice.  By order dated January 25, 2011, he dismissed
    the plaintiffs motion on the basis that there existed a genuine issue
    requiring a trial.  He granted the defendants
    stay motion in part, on jurisdictional grounds, directing that the Ontario
    Action be stayed to permit the [p]laintiff to pursue all relief claimed if so
    advised in the Courts of England.  He further
    directed that, [i]f for any reason the [p]laintiff is not permitted to pursue
    the employment part of his entire claim and the claim for wages pursuant to the
    Ontario
Employment Standards Act, 2000
,
    a motion may be made to set aside the stay.  Although the motions judge did not refer expressly to the defendants
    request to amend their pleading, it is implicit in his reasons that he also
    granted this relief.

[15]

Subsequently, by order dated March 11, 2011, the
    motions judge declined to award any costs in respect of either motion.  In his costs reasons, he expressed his view that
    it was a reasonable exercise of his discretion in the circumstances to decline
    to award any costs.

[16]

The plaintiff appeals the motions judges stay order
    and the denial of partial summary judgment on his unpaid wages claim.  He does not challenge the motions judges
    ruling that a trial is required on his claim for three months termination
    pay.  The defendants cross-appeal from
    the motions judges refusal to award them their costs of both motions.

II.        The
    Appeal

[17]

There are two aspects to the plaintiffs appeal.  First, he argues that, contrary to the
    motions judges holding, there is no genuine factual issue requiring a trial in
    respect of his claim for payment of unpaid wages.  Second, he submits that the motions judge erred
    in granting a stay of the Ontario Action: (i) by failing to recognize that he
    is entitled under the Service Agreement to sue Storetech Ontario in Ontario for
    unpaid wages; (ii) by, in effect, staying his primary claim for payment of
    unpaid wages on the basis of the defendants defences to the plaintiffs
    discrete  and narrower  claim for three months termination pay; (iii) by
    failing to recognize that the defendants attorned to Ontarios jurisdiction,
    thereby waiving their entitlement to rely on the forum selection clause
    contained in the Shareholders Agreement; and (iv) by misapprehending and
    misapplying the strong cause test applicable to displacement of the exclusive
    jurisdiction conferred on the courts of England by the forum selection clause
    in the Shareholders Agreement.

(1)

Denial of Partial Summary Judgment

[18]

In our view, the plaintiffs challenge to the dismissal
    of his partial summary judgment motion cannot succeed.

[19]

The motions judges reasons indicate that he properly
    identified the applicable test for summary judgment under the
Rules of Civil Procedure
, as recently
    amended, and that he applied that test correctly to the facts of this
    case.

[20]

The motions judge concluded that, There is little
    doubt that there are disputed facts.  We
    agree.  In particular, in response to the
    claim for payment of unpaid wages, the defendants assert that the plaintiff agreed
    under the Shareholders Agreement to defer payment of his wages for 2007 until
    certain conditions were met and that these conditions were never fulfilled.  They also allege that the plaintiff thereafter
    agreed to defer his 2008 salary to keep Storetech Ontario afloat and to
    unconditionally waive his 2009 salary in exchange for continued employment.  The plaintiff denies all these assertions.

[21]

On the issues joined by the parties, therefore, the key
    question of the plaintiffs entitlement to unpaid wages raises a genuine issue
    requiring a trial.  Contrary to the
    plaintiffs submissions, the record before the motions judge established that
    many of the material facts concerning this question are disputed.  The resolution of this core issue will
    require credibility-based findings based on
viva
    voce
evidence.

[22]

The plaintiff submits, correctly, that it was open to
    the motions judge to order or conduct the trial of an issue to resolve the
    unpaid wages claim.  He asserts that the
    motions judges failure to do so constitutes reversible error.

[23]

We reject this assertion.  First, the parties are divided on whether the
    plaintiff requested this relief before the motions judge and the record does
    not permit us to resolve this question with any certainty.  Second, and more importantly, the decision of
    whether to order or conduct the trial of an issue is a discretionary one.  In his pleading, the plaintiff seeks payment
    of the claimed unpaid wages from all the defendants.  The defences raised to that claim involve
    wide-ranging factual issues implicating both the Shareholders Agreement and
    the Service Agreement, in the context of the entirety of the parties
    commercial business relationship.  In
    these circumstances, it was well within the motions judges discretion to
    decline to direct or conduct the trial of an issue on the unpaid wages
    claim.  His decision in that regard
    attracts deference from this court.

[24]

Accordingly, that part of the appeal pertaining to the
    motions judges refusal to grant partial summary judgment fails.

(2)

Stay of the Ontario Action

[25]

We reach a different conclusion, however, concerning
    the plaintiffs challenge to the stay order granted by the motions judge.  In our opinion, for the reasons that follow, the
    stay order cannot stand.

[26]

It is necessary for the determination of this part of the
    appeal to address only two grounds of appeal raised by the plaintiff in
    relation to the impugned stay order.  We
    begin by considering the import of the forum selection clause in the Service
    Agreement.

[27]

In the Service Agreement, the parties agreed that the
    Ontario courts have non-exclusive jurisdiction in relation to any claim or
    matter arising under [the Service Agreement].  The plaintiffs action is rooted in his employment relationship with Storetech
    Ontario.  This is a matter falling
    squarely within the four corners of the Service Agreement, thereby implicating
    the forum selection clause of that contract.

[28]

Further, on the plain language of the forum selection
    clause in the Service Agreement, the plaintiff and Storetech Ontario expressly
    attorned to Ontarios jurisdiction in respect of any disputes arising with
    respect to his employment.  Under the
    clause, Ontario has jurisdiction
simpliciter
regarding such disputes.

[29]

While the non-exclusive jurisdiction conferred under
    the forum selection clause in the Service Agreement did not preclude the
    plaintiff from commencing an action in England in respect of disputes arising
    under the Service Agreement, it did not oblige him to do so.  The effect of the clause was to foreclose
    objection by the defendants to an action commenced in Ontario regarding claims
    contemplated by the Service Agreement: see
Gary
    Sugar v. Megawheels Technologies Inc.
, 2006 CanLII 37880 (S.C.J.);
Blue Note Mining Inc. v. CanZinco Ltd.
(2008),
    297 D.L.R. (4th) 640 (S.C.J.).  As a
    result, on the termination of his employment, the plaintiff was entitled to sue
    in Ontario for the recovery of any owed and unpaid wages.

[30]

The motions judge failed to address the implications of
    the forum selection clause in the Service Agreement and the resultant contractual
    attornment to Ontarios non-exclusive jurisdiction over disputes arising from
    the plaintiffs employment relationship with Storetech Ontario.  Indeed, based on his reasons, it appears that
    the motions judge accorded no weight at all to this clause or to the attornment
    confirmed under it.  Instead, he treated this
    aspect of the parties negotiated bargain as completely overridden by the forum
    selection clause in the Shareholders Agreement.

[31]

The failure to consider the import of the forum
    selection clause in the Service Agreement was an error.  Canadian law favours the enforcement of forum
    selection clauses negotiated, as here, by sophisticated business people.  This court, for example, has affirmed that
    [a] forum selection clause in a commercial contract should be given effect
    and that the factors that may justify departure from that general principle
    are few:
Expedition Helicopters Inc. v.
    Honeywell Inc.
(2010), 100 O.R. (3d) 241 (C.A.), at para. 24; see also
Momentous.ca Corporation v. Canadian
    American Association of Professional Baseball Ltd.
(2010), 103 O.R. (3d)
    467 (C.A.), at para. 39;
Stubbs v. ATS
    International BV
(2010), 272 O.A.C. 386 (C.A.), at para. 43.

[32]

In a case like this one, therefore, where forum
    selection clauses in the Service and Shareholders Agreements are at issue, to
    the extent possible effect must be given to the intentions of the parties as
    reflected in both clauses.  That the
    parties intended the Service Agreement to govern any disputes arising from the
    plaintiffs employment is confirmed both by the language of the forum selection
    clause and by the entire agreement or integration clauses contained in the
    Service Agreement.  This was not a case,
    therefore, where the plaintiff was required to show strong cause why the forum
    selection clause in the Shareholders Agreement should not prevail.  What he was required to do, and what he did
    do, was to establish that the forum selection clause in the Service Agreement
    was triggered.

[33]

But that does not end the matter.  The motions judge was confronted with two
    different forum selection clauses, each involving different parties and
    assigning jurisdiction over identified disputes to different legal
    regimes.  What, then, are the
    implications of the forum selection clause in the Shareholders Agreement in
    the circumstances of this case?

[34]

We offer several responses to this question.

[35]

First, the starting point for the determination of
    whether a forum selection clause should be given effect is that, the parties
    should be held to their bargain: see
Expedition
    Helicopters
, at para. 9;
Momentous.ca
,
    at para. 39.  This requires examination
    of the scope of the clause and of the nature of the matter or matters in
    dispute to determine whether the claims or the circumstances that have arisen
    are outside of what was reasonably contemplated by the parties when they
    agreed to the clause:
Expedition
    Helicopters
, at para. 24.

[36]

In this case, each clause describes the disputes in
    respect of which it applies.  The
    relevant clause in the Shareholders Agreement concerns any dispute or claim
    that arises out of or in connection with this Agreement, while the companion
    clause in the Service Agreement applies to any claim or matter arising under
    this Agreement.  The plaintiffs claims,
    read as a whole, are focused primarily on the incidents of his employment with
    Storetech Ontario and the termination of his relationship with the Storetech
    companies.  In our view, these are
    matters that clearly engage the Service Agreement, even if the Shareholders
    Agreement is also implicated in connection with some issues and some of the
    parties.

[37]

Second, the conduct of the parties is a critical factor
    in this case.  In addition to Storetech
    Ontarios express contractual attornment to the jurisdiction of Ontario under
    the Service Agreement, the defendants as a group attorned to Ontarios jurisdiction
    over
all
the plaintiffs claims as
    pleaded in his statement of claim, without exception, by defending the Ontario
    Action on the merits without invoking the forum selection clause in the
    Shareholders Agreement.  This factor
    distinguishes this case from those cases cited by the parties in which the
    defendant responded on the merits to a plaintiffs claims while also raising a
    jurisdictional challenge based on a contractual choice of forum clause: see for
    example,
Momentous.ca
.

[38]

Moreover, the defendants advanced their own claims in
    the Ontario Action, by initiating a counterclaim for damages.  They also furthered the progress of the
    Ontario Action by demanding and obtaining particulars from the plaintiff
    concerning most, if not all, the claims advanced in his pleading.  Affidavits of documents have also apparently
    been exchanged by the parties.  Finally,
    the defendants delayed for almost one year after the commencement of the
    Ontario Action before moving to amend their pleading to rely on the forum
    selection clause in the Shareholders Agreement.  And this step came in response to the
    plaintiffs motion for partial summary judgment.  No cogent explanation for this delay, or for
    the defendants failure to advance a jurisdictional argument in their pleading,
    is evident in the record.

[39]

In assessing whether a stay order should be granted
    based on the forum selection clause in the Shareholders Agreement, the motions
    judge failed to consider the import of the defendants attornment to Ontarios
    jurisdiction and the relevance of their conduct in relation to the Ontario
    Action.  With respect, this, too, was an
    error.  These factors were relevant to
    whether the Ontario courts have jurisdiction in respect of the plaintiffs
    claims.  The defendants delay in
    invoking the forum selection clause in the Shareholders Agreement was also a
    proper consideration in determining whether to enforce that clause:
Momentous.ca
, at paras. 42-44.

[40]

We also agree with the plaintiffs submission that, in
    the circumstances above-described, fairness dictates that he not be put to the
    significant delay and expense that inevitably would be occasioned by
    recommencing proceedings in England, particularly where his own alleged unpaid
    wages are at issue and the Ontario Action was underway for almost one year
    before the defendants sought to rely on the forum selection clause in the
    Shareholders Agreement.

[41]

In our opinion, this result does not produce unfairness
    to the defendants.  They will be free to
    raise any applicable defences arising from the parties overall business dealings
    in the Ontario Action or in their counterclaim proceeding.  We also note that the adjudication in Ontario
    of the issues in controversy between the parties will avoid duplication of
    proceedings and attendant incremental costs and delay, thus promoting the
    convenient administration of justice.

[42]

We therefore conclude, on the particular facts of this
    case, that the Ontario courts have jurisdiction to entertain the Ontario Action
    and that this jurisdiction should be exercised, having properly been invoked.  It follows that the forum selection clause in
    the Shareholders Agreement does not operate to preclude the Ontario Action and
    the stay order, which is based on that clause, must be set aside.

III.      The Cross-appeal

[43]

The defendants advance several arguments in support of
    their cross-appeal from the motions judges decision not to award any costs of
    the summary judgment and stay motions.  In brief, they contend that the motions judge erred by failing to adhere
    to the traditional rule that costs follow the event, by failing to distinguish
    between the two motions before him when assessing costs, and by basing his
    costs decision on irrelevant and improper considerations.

[44]

In light of our disposition of the appeal, it is
    unnecessary to address the issues raised on the cross-appeal.  If the stay motion had been dismissed, as in
    our view should have occurred, success before the motions judge would have been
    divided.  This may have led to a decision
    by the motions judge that each party should bear their own costs.  However, the defendants maintain that the
    majority of their relevant costs were incurred in resisting the summary
    judgment motion and that they are entitled to those costs notwithstanding that,
    on proper disposition of the motions, the plaintiff would have been entitled to
    his costs of the unsuccessful stay motion.

[45]

Given the disposition of the appeal, the Ontario Action
    will now proceed to trial.  In our view, it
    is appropriate in these circumstances that the costs of the motions before the
    motions judge be addressed by the judge presiding at the trial in the light of
    these reasons and we so order.

IV.      Disposition

[46]

The appeal is allowed in part in accordance with these
    reasons, the stay order is set aside, and the cross-appeal is dismissed.  As success before this court has been
    divided, we award no costs of the appeal and cross-appeal.

RELEASED:

JUL 12 2011                                             Dennis
    OConnor A.C.J.O.

DOC                                                           E.A.
    Cronk J.A.


Paul Rouleau J.A.


