In light of recent events, it appears that our American friends are taking a greater interest in Canada. The following is a description of some issues that may arise in connection with US agreements being “Canadianized” for use in Canada. Due to the complexity surrounding these issues, and other issues that may arise in connection with Canadianizing an agreement, it is recommended that professional legal advice is sought for the specific US agreement.
Governing Law and Jurisdiction
Generally, it is recommended that an agreement to be performed in Canada should governed by the laws of a Canadian province and applicable Canadian federal laws. However, there are situations where it is advantageous to use US law, in which case there are a few practical issues to consider from a Canadian perspective. For example, if an action is started in Canada, then it may be necessary for the contracting party to provide at trial, expert evidence of the law of the particular state by engaging a US attorney as an expert witness. Further, without a US attorney it may be difficult for the Canadian contracting party to obtain the right legal advice at the contract stage of the agreement. Finally, there may be Canadian public policy provisions which may override the laws of the particular state.
Likewise, it may be problematic if the exclusive jurisdiction of the agreement is that of a US court. One useful approach is to provide for the non-exclusive jurisdiction of the US court, permitting either contracting party to commence an action in a Canadian court.
Language
If one of the contracting parties is resident in the Province of Quebec it may be necessary to enter into French language version of the agreement. If the agreement is not translated, it is typical to include a French language clause set out in both languages stating that the agreement shall be drafted in English.
UN Convention
If the agreement involves an international sale of goods between the US and Canada, then the United Nations Convention on Contracts for the International Sale of Goods would apply as both countries are signatories to the convention. However, the convention can be excluded through an explicit provision in the agreement.
Tax and Interest
It is advisable to ensure that sections dealing with taxes account for the various types of taxes imposed in Canada. Typically, Canada imposes a federal value-added tax on property and services which varies between 5% and 10%.
Pursuant to the Interest Act (Canada), interest must be stated as an annual rate, even if it is calculated on a basis of a period less than a calendar year. While it is common in US agreements for interest to be charged at the maximum rate permitted by law, in Canada, that rate would be the rate set out under the Criminal Code (60% per annum), which is likely not the intention of the parties and may be void as a violation of public policy.