Disputes – we try to avoid them like potholes but let's face it, even with the best maneuvering capabilities, sometimes they're just unavoidable. While agreements with third parties generally set out the governing laws and forums for disputes, what happens to internal disputes in corporations with a national reach? Where are matters resolved and what law governs? Although we may not always be able to avoid the potholes, we can choose where we get our repairs done.
Forum selection by-laws or intra-corporate jurisdiction clauses ensure that all litigation arising out of a corporation's internal affairs are to be held in a specific jurisdiction which generally is the place of incorporation. In the U.S., Delaware corporations began adopting this practice in order to address the flood of multijurisdictional class actions against U.S. corporations and the U.S. courts have enforced such by-laws. Recently, Canadian corporations have begun doing the same. But do forum selection by-laws have any place in the not-for-profit world? We think so.
There are a number of potential benefits derived from having forum selection by-laws and they are not restricted to publicly traded companies and securities class actions. Forum selection by-laws would address a number matters that affect not-for-profit corporations including breach of fiduciary duties and non-compliance with a corporation's governing legislation, to name a few. By adopting forum selection by-laws, corporations, including not-for-profit corporations, may (i) avoid inconsistencies by selecting a single litigation forum with the greatest degree of knowledge and expertise; and (ii) minimize costs and inefficiencies by avoiding duplicative matters held in multiple jurisdictions.
Canadian courts, unlike their U.S. counterparts, have yet to confirm the validity of forum selection by-laws but there is no reason to think that such provisions would not be enforceable in Canada. Although they are not a solution for internal disputes, forum selection by-laws will allow national corporations to bring some certainty and efficiency to intra-corporate litigation.