Why this case matters

In the recent decision of Tehama Group Inc v. Pythian Services Inc., 2024 ONSC 1819, the Ontario Superior Court of Justice (the “Court”) considered the interplay between language setting out the place of an arbitration and the forum selection clause contained in the broader agreement, all in the context of an application to set aside an arbitral award.

Overview

The dispute between Tehama Group Inc (“Tehama”), an Ontario corporation, and Pythian Services Inc. (“Pythian”), a Delaware corporation, arose from a 2019 asset purchase agreement (the “APA”). Pythian acquired a business from Tehama. The APA included a provision for an additional “earnout” payment. If the business generated more than $11 million in adjusted earnings during the 2021 calendar year, Tehama would receive an additional $10 million “earnout” payment.

Section 1.07 of the APA explicitly set-out an arbitration procedure for any dispute over Pythian’s earnings calculations, providing for dispute resolution by the Toronto office of PricewaterhouseCoopers LLP (“PwC”). The APA also included a forum selection clause, which requires that any suit, action or other proceeding arising out of the APA be brought exclusively in the state or federal courts of New York.

Tehama contested that the adjusted earnings threshold had not been reached. The parties proceeded to arbitration. PwC, serving as the arbitrator in Toronto, ultimately denied Tehama’s claim for the “earnout” payment (the “Award”).

Tehama then brought an application in the Ontario Superior Court of Justice to set aside the Award. Pythian brought a motion to stay Tehama’s application to set aside the Award, arguing that the parties had agreed to the exclusive jurisdiction of the courts of New York for any proceedings arising out of the agreement. Tehama took the position that the arbitration agreement within the APA required any challenge to the Award to be brought in Toronto, Ontario.

Key Issue and Considerations

The key issue before the Court was to determine whether the arbitration agreement required that Tehama’s application to set aside the Award to be brought in New York, or whether it was required to seek to set aside the award in Ontario.

The Court’s Analysis and Decision

The Court considered the terms of the APA, including that there was a carve out of the forum selection clause that applied to disputes determined by PwC. It found that it was illogical and contrary to the contract to require a dispute to be resolved both by PwC in Ontario and in New York courts.

The Court’s analysis did not end there. Pythian argued that the place of the arbitration was not actually Toronto, because only the arbitrator as in Toronto. The parties did not lead evidence or make submissions in the arbitration in Toronto.

The Court disagreed, noting that the arbitration agreement expressly contemplated that the tribunal was the Toronto office of PwC. There was no other place suggested or referred to in the agreement. As such, the Ontario Superior Court has jurisdiction to consider the motion to set aside the arbitration award.

While Pythian argued that the Court should consider the forum non conveniens factors when considering whether New York was the proper jurisdiction to hear the application to set aside the award, the Court rejected this, as the question before it was one of the Ontario court’s jurisdiction, and not whether New York was a more convenient forum.

Concluding Thoughts

This decision reaffirms the legal implications associated with parties’ choice of the place of arbitration, and how that interacts with any forum selection clause in the related agreement. Parties should consider clearly and expressly naming the place of arbitration, as that will determine the applicable arbitration law and the court’s jurisdiction over any disputes arising out of the arbitration.