Canada’s Supreme Court Does Not “Like” Facebook’s Forum Selection Clause

Canada’s Supreme Court Does Not “Like” Facebook’s Forum Selection Clause

Douez v Facebook, Inc, 2017 SCC 33

A forum selection clause that is both valid and enforceable may still be outweighed by public policy and the interests of justice.

In this plurality opinion, the Supreme Court of Canada (“SCC”) allowed [4] Deborah Douez’s (“Douez”) appeal and found strong reasons not to enforce the forum selection clause (“the Clause”) present in Facebook Inc.’s (“Facebook”) terms of use on its social media website, Facebook.com (“the Website”). [2] There were a number of questions considered by the SCC regarding the Clause in this decision, including whether it was valid, whether it was enforceable, whether it would be overridden by British Columbia’s (“BC”) Privacy Act, and whether there were simply other reasons not to enforce it.

Background

Douez had been a member of the Website since 2007. [5] In 2011, the Website’s new advertising product, Sponsored Stories, was launched, which used the name and picture of its members, allegedly without their knowledge, to advertise things to other members both on the Website and externally. [6] Douez brought an action against Facebook after she noticed that she had been used in Sponsored Stories, and alleged that Facebook did this without her consent for the purposes of advertising, in contravention of Section 3(2) of the Privacy Act. [7] Douez also sought certification of her action as a class proceeding under the BC Class Proceedings Act, to include all British Columbians who were used in Sponsored Stories – an estimated class size of 1.8 million people. [7] The terms of use for using the Website included a clause on forum selection requiring that any disputes must be resolved in California under Californian law. [8] Facebook brought a preliminary motion to stay the action based on the Clause. [9] Facebook alternatively argued that the action be stayed because BC courts were not properly suited to hear the case, under Section 11 of the Court Jurisdiction Proceedings Transfer Act, but Facebook did not raise this argument again at the SCC. [9]

Judicial History

While the BC Supreme Court (“BCSC”) had found the Clause to be valid, clear and enforceable, it declined to enforce it, holding that Section 4 of the Privacy Act overrode forum selection clauses and provided strong public policy not to enforce them. [10] It was concluded that the plaintiff would not be able to bring the claim elsewhere if it was stayed. [10] It was also found that there was strong cause not to enforce the Clause, as that would exclude Facebook from liability. [11] Finally, the factors in Section 11 of the Court Jurisdiction Proceedings Transfer Act seemed to show that Californian courts would not be more appropriate than the courts of BC. [12]

At the BC Court of Appeal (“BCCA”), the BCSC decision was reversed and it was ordered that the action be stayed based on the Clause. [13] The Clause was found to be distinct from the analysis under Section 11 of the Court Jurisdiction Proceedings Transfer Act. [13] The BCSC was found to have erred in the analysis of Section 4 of the Privacy Act because the principle of territoriality was disregarded. [14] The Clause was held to be enforceable, and that Douez had failed to show strong cause not to enforce it. [15] Section 11 of the Court Jurisdiction Proceedings Transfer Act was not considered. [15]

The main issue of the decision at hand was whether Douez’s action should be stayed on the basis of the Clause. [16]

The SCC’s Reasoning and Dismissal

Under the Court Jurisdiction Proceedings Transfer Act, the test for whether a forum is appropriate was not intended to replace the common law test,  and the SCC viewed that this case should be resolved under the common law test for forum selection clauses, established in ZI Pompey Industrie v ECU-Line NV, 2003 SCC 27 [Pompey]. [17] From Pompey, the presence of a forum selection clause is considered sufficiently important to warrant a different test from one solely based on whether a forum is correct. [18] In its analysis, the SCC stated that while forum selection clauses do serve a valuable purpose, [24] they also divert adjudication of matters out of provinces. [25] They do not, therefore, only affect the parties to the contract, but also implicate the court. [26] As forum selection clauses encroach on the public sphere of adjudication, Canadian courts do no simply enforce them like any other clause. [27] The two-part Pompey test provides the mechanism for courts to determine whether a forum selection clause should be determined:

  1. A party seeking the stay on the basis of the forum selection clause must establish that the clause is “valid, clear and enforceable and that it applies to the cause of action before the court;” [28] and
  2. The plaintiff must show strong reasons why the court should not enforce the forum selection clause and stay the action. [29]

At the first step, Douez claimed that the Clause was unenforceable because the Website’s terms of use contained a statement by Facebook that it “strive[s] to respect local laws,” but the SCC disagreed, explaining that this general language does no prevail over the specific language of the Clause. [46] At the second step, Facebook argued that Douez had not met her burden by providing evidence that her contract with Facebook was a result of grossly uneven bargaining power. [48] Douez emphasized distinctions between commercial contracts among sophisticated parties and consumer contexts, and stressed the need for privacy rights and the public policy behind BC’s decision to create a statutory cause of action to allow for vindication of these rights. [48] In considering the circumstances holistically, [49] the SCC concluded that Douez had met her burden of establishing that there was a strong cause not to enforce the Clause. [50] The SCC then provided an overview of the factors taken into consideration, which included public policy, [51-63] interests of justice, [65-72] and the comparative convenience and expense of litigation in the alternate forum. [73-75]

With regards to Section 4 of the Privacy Act, which states that an action under the act must be heard by the BCSC, [42] the SCC found that the BCSC had incorrectly allowed the Privacy Act to overtake the Clause. [41] It was determined that Section 4 was intended to allow the BCSC to resolve matter brought under the act, but nothing suggested that it was also intended to override forum selection clauses. [44]

The appeal was allowed with costs to Douez [76] and the BCSC’s order dismissing Facebook’s application to have the BCSC decline jurisdiction was restored. [77]

Concurring Opinion: Forum Selection Clause Not Enforceable

Abella J believed that the Clause was not enforceable under the first step of the Pompey test. [80] Where contractual terms unduly hinder consumers from being able to vindicate constitutional or quasi-constitutional rights, public policy outweighs the enforceability of a forum selection clause. [104] Abella J also believed that Section 4 of the Privacy Act would apply to these circumstances, allowing the BCSC to take charge of the matter. [86] Another point she raised was that, from a purely contractual approach, the doctrine of unconscionability provides that where there is inequality of bargaining power and unfairness, [115] the clause at issue, would be found unenforceable. [112] The gross uneven bargaining power between the parties was already apparent, but allowing Facebook to have the matter adjudicated right where its head office was located would provide it with an unfair benefit. [116]

Dissenting Opinion: Forum Selection Clause Should Be Enforced

McLachlin CJ, and Côté and Moldaver JJ found that Douez had not shown strong cause for not enforcing the Clause to which she had agreed, so the matter should be tried in California as per the contract. [125] Additionally, the dissenting judges found no overriding public policy in the facts of the case. [147] In their opinion, forum selection clauses serve the important role of increasing certainty and predictability in cross-border transactions. [148] An analysis followed of what a plaintiff must show to establish strong cause why a forum selection clause should not be enforced, based on the five factors set out in The “Eleftheria”, [1969] 1 Lloyd’s Rep 237. [155] The result of this analysis was that the forum selection clause should be enforced. [170]

Commentary

Canada’s Supreme Court has recently demonstrated an inclination toward decisions that are extraterritorial in nature. For example, in Google Inc v Equustek Solutions Inc, 2017 SCC 34 (click Here for the PCK Reporter Summary) the SCC dismissed Google Inc.’s appeal and upheld the worldwide injunction against, ordering it to de-index all websites of an infringer from all of its domains. The current case turned on the presence of a gross imbalance of bargaining power between the contracting parties and the need to adjudicate privacy rights. On one side of this case was Douez, an individual, while on the other was Facebook, an entity often categorized as a social media giant. While the SCC found the Clause to be both valid and enforceable, its decision to not enforce it illustrates an attempt at leveling the playing field. However, the breadth of opinions expressed also shows that decisions like this may not yet be settled areas of the law.

Another interesting takeaway from this decision is that it is one of a few recent judgments dealing with venues. The recent US Supreme Court decision in TC Heartland v Kraft Food Group, 581 US ___ (2017) held that patent litigation venues should be limited to where the infringer is incorporated. The decision at hand, in a manner that is somewhat the opposite, seeks to allow a plaintiff to bring an action from where they are based, instead of where the defendant is based.

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