Canada – Complex Contractual Matrix and Lack of Privity Prompts Court to Propose Arbitration

This article first appeared on Urbas Arbtiral here.

In CUSO International v. Pan American Development Foundation, 2021 ONSC 3101, Mr. Justice Calum MacLeod relied on forum non conveniens principles to resolve an application to stay Ontario litigation pending the outcome of litigation in Colombia.  Despite a complex matrix of documents and contracts to which the litigants were not all parties, MacLeod J. urged the litigants to consider a submission agreement to arbitrate.  Though that complexity and lack of privity often serve as lines of first resistance for a litigant objecting to arbitration, MacLeod J. relied on both as his prompts.

CUSO International (“CUSO”) and Pan American Development Foundation (“PADF”) are both charitable organizations, based in Ottawa and Washington, D.C. respectively.  Fundación Panamericana Para El Desarrollo (“FUPAD”) is PADF’s Colombian office.  MacLeod J. summarized CUSO’s and FUPAD’s involvement regarding an anti-poverty and capacity building project in Colombia and CUSO’s role in disbursing Canadian sourced foreign aid sums in accordance with certain objectives and requirements set by the Government of Canada in its funding agreement.

At paras 11-28, MacLeod J. summarized a variety of documents, including contractual agreements and letters of intent, and the parties to those documents.  That summary resists further summary. For the limited purpose of this note, it suffices to record that, among those documents, CUSO and FUPAD each have independent agreements with the Government of Columbia through the latter’s Departamento Administrativo Para La Prosperidad Social (“DPS”) but neither is a party to the agreement between the other and the DPS. 

The agreement between CUSO and FUPAD (“CUSO/FUPAD Agreement”) contains a choice of law and forum selection clause which designates Ontario law and the courts of Ontario.

17.15 Governing Law. The construction, interpretation and performance of the Agreement are governed by the applicable laws of the Province of Ontario and Canada, without regard to conflicts of laws principles. The Parties have expressly agreed to have this Agreement drafted only in the English language. … The Parties expressly exclude application of the United Nations Convention on Agreements for the International Sale of Goods. Any and all disputes between CUSO International and Local Partner relating to the Agreement, if not resolvable on an amicable basis, will be submitted to a competent court of the Province of Ontario”.

CUSO initiated litigation in Ontario to declare it owned no money to “defendant” and that the only proper forum for the dispute was Ontario.  FUPAD argued that it is owed money and that the dispute should be decided in Colombia.  (MacLeod J. makes reference to “defendant” in paras 1-2 and “parties” in paras 3-4 while the style of cause includes another, separate entity named as first co-defendant and both co-defendants as “Moving Parties”).

FUPAD applied to stay the Ontario action “until it is determined if the Colombian courts will hear the matter”. Competing clauses and consequences under either Ontario or Columbian law prompted the application before MacLeod J.

In its application, FUPAD relied on the agreement between CUSO and DPS (“CUSO/DPS Agreement”) which “requires that any disputes regarding the interpretation or application of that agreement and the obligations thereunder be settled using the contractual dispute resolution mechanisms in a Colombian statute governing public procurement”.  FUPAD argued, among other submissions, that this provision supported invalidating the CUSO/FUPAD Agreement’s forum clause.

MacLeod J. noted early in his reasons that he did not decide the merits of the disputes when deciding the application.  “The only issue is whether the plaintiff should be allowed to litigate in Ontario or should await a decision that is pending in Colombia.  There is some urgency to the matter as it involves a foreign aid grant from the Government of Canada.  According to CUSO, if the dispute is not resolved before the funding deadline, the balance of the funds allocated to this project must be returned to Global Affairs Canada (GAC)”.

MacLeod J. at paras 30-39 outlined CUSO’s and FUPAD’s competing submissions whether litigation had been commenced in Colombia and on which date and the impact of court activity in Colombia on CUSO’s own litigation filed in Ontario.  See para. 41 for a chronology of the procedural activity undertaken by the parties in Colombia and in Canada.

Forum dispute – At paras 45-48, MacLeod J. outlined the two (2) step approach taken for forum disputes namely determination of jurisdiction simpliciter and, subsequently, forum non conveniens.

MacLeod J. observed that the application involved forum non conveniens, relying on Club Resorts Ltd. v. Van Breda, 2012 SCC 17, [2012] 1 SCR 572 and Chateau Des Charmes Wines Ltd. v. Sabate, USA, Inc., 2005 CanLII 39869 (ON SC).  He next added that “[a] forum clause has significance in both steps of this analysis because a forum clause naming Ontario will generally mean that the court has jurisdiction simpliciter whereas a forum clause naming another jurisdiction is a powerful reason for the Ontario courts to decline jurisdiction under the forum non conveniens analysis”.  See Expedition Helicopters Inc. v. Honeywell Inc. 2010 ONCA 351

Following his analysis of the factors at paras 52-59, MacLeod J. determined to dismiss the applications.

[60] The parties to this litigation are both sophisticated, experienced North American charities.  On the facts of this case which is, after all, a debt claim between an American based charity and an Ontario based charity, albeit concerning the funding of a project in Colombia, I am not persuaded that the defendant has met the onus of demonstrating that there is strong cause to defer to Colombia as the proper forum for the dispute and to override the choice of forum in the contract.  I would add that the parties were very well aware that CUSO’s role in administering these funds is a stewardship role for funds raised by the Government of Canada from the taxpayers of Canada.  There is nothing unnatural or peculiar about CUSO including a forum clause in the CUSO/FUPAD agreement and there is no evidence that the agreement or the forum clause would be voidable on ordinary principles of contract.

[61] In summary, while there are legal proceedings in Colombia and there is no doubt that FUPAD had signaled clearly that it was intending to proceed in that jurisdiction before this action was commenced, there is no prospect of an imminent hearing on the merits in Colombia.  There is a proceeding to annul the forum clause preliminary to litigating the claim”.

Alternative resolution methods – In closing, MacLeod commented on mediation and arbitration as possible responses to his decision.  For mediation, he referred to Ontario’s Rules of Civil Procedure, RRO 1990, Reg 194 (“Rules”) applicable in court litigation but also prompted the parties to consider dispute resolution outside of the courts.

[65] I will not speculate on what steps the parties will take in response to this decision.  Certainly, they could co-operate and agree to proceed in only one forum or for that matter they could agree on a dispute resolution process such as an audit or arbitration. I will simply observe that they ought to have a mutual interest in a speedy resolution on the merits rather than further procedural wrangling in a public forum”.

With regard to mediation in the court litigation, MacLeod J. noted the timelines set out in Rule 24.109(1) in which to engage in mediation, suggested some time and efficiencies which could be realised by using the record already generated and then commented as follows.

[67] Mediation is often described as a search for win-win solutions.  In this case, continued litigation seems probable to be a lose-lose proposition.  This observation has played no role in my determination of the motion and I am sure it has already been part of the legal advice given to the parties.  I would be remiss, however, in not underscoring it here. Lengthy complex litigation which may distract from or impede the charitable objectives and concerns of these organizations and their donors and sponsors is not in the public interest either here or in Colombia”.

urbitral notes – First, MacLeod J.’s detailed summary of the variety of parallel documents and contracts clearly demonstrated his awareness of the privity issues and competing venues for dispute resolution when he proposed arbitration.  Litigants resisting arbitration often raise such variety as the very obstacle to dispute resolution by arbitration due to privity of contract issues.  Despite the familiar obstacle, MacLeod J. relied on that variety as a prompt to urge that the litigants engage in a submission agreement.  Unlike the more common agreement to arbitrate entered into before a dispute arises, a submission agreement to engage in arbitration can be negotiated once or after a dispute arises and be negotiated by litigants with no clear or admitted contractual relationship.


Daniel Urbas

Daniel Urbas is an experienced litigator, arbitrator and mediator with over 25 years of dispute resolution experience. He has earned a variety of repeat, annual peer recognitions including “Leading Lawyer” in “Commercial Arbitration” in the 2019 edition of the Lexpert ® / American Lawyer Guide to the Leading 500 Lawyers…

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