Forum selection clause in shareholders agreement not enforceable by non-signatory company: BCCA

Judge says clause not enforceable even if firm has same shareholders or emerged after restructuring

Forum selection clause in shareholders agreement not enforceable by non-signatory company: BCCA
B.C.’s top court ruled that shareholders agreement cannot be relied on by non-signatories

The Court of Appeal for British Columbia rejected the application of a forum selection clause in a shareholder’s agreement, even if the company raising it has the same shareholders or even alleged to have emerged after restructuring.

In Medicane Health Incorporated v. Bar Tal, 2022 BCCA 95, Bar Tal is an Israeli businessman and a shareholder and former CEO of Sababa Sciences Inc. (Sababa) Sababa had transferred its assets to Medicane Health Incorporated (Medicane) in 2019. Bar Tal argued that he derives ownership of Medicane shares through a conversion of shares from this transaction. Medicane disagreed, alleging that no such agreement was ever reached, and no shares were issued to Bar Tal.

Medicane filed a notice of claim before the Supreme Court of British Columbia in November 2019, primarily seeking a declaration that Bar Tal had no interest in the assets or equity of Medicane. Bar Tal filed a jurisdictional response and later an application for stay, alleging that the British Columbia courts lacked territorial competence over the dispute and, alternatively, that British Columbia was forum non conveniens.

In conducting her analysis, the chambers judge examined whether the provisions of a forum selection clause bestowed jurisdiction on British Columbia. This clause was contained in a shareholders agreement executed by Sababa, Bar Tal, and the other shareholders of Sababa.

The chambers judge concluded that because Medicane was not a signatory to the agreement, the forum selection clause did not apply to the claims brought by it against Bar Tal. She further concluded that despite Medicane having established territorial competence of the BC Supreme Court, Israel was the appropriate forum for determining the matter and stayed Medicane’s action.

Medicane appealed, but the appeal was limited to the chambers judge’s conclusion on the forum selection clause.

The appellate court disagreed.

“A forum selection clause is a mechanism that allows parties to an agreement to designate in advance the jurisdiction that will resolve any dispute arising from the agreement … The party relying on [it] must show that the clause is valid, clear, and enforceable, and that it applies to the cause of action,” said the court.

Recall that the primary relief sought in Medicane’s claim before the BC Supreme Court was a declaration that Bar Tal had no interest in the assets or equity of Medicane, said the court. The action did not plead or rely on the shareholder’s agreement nor the forum selection clause, said the court.

Echoing the chambers judge, the appellate court ruled that the forum selection clause cannot be stretched to apply to disputes that arise concerning new companies, new shares, or new shareholder agreements, even if the new company has some of the same shareholders and is even alleged to have emerged after a restructuring of Sababa.”

Thus, the appeal was dismissed.

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