Authors: David Carrick, Tristan Culham, Calen Nixon
By clicking “agree” to the terms of use, millions of Canadians have agreed to resolve any legal issue with Facebook, Inc. in the jurisdiction of Santa Clara County. However, in a unique 3-3-1 split decision, the Supreme Court of Canada has restored the decision of the B.C. Supreme Court which declined to enforce this forum selection clause. The decision in Douez v. Facebook, Inc., 2017 SCC 33, will have implications for consumer contracts of adhesion and where businesses deal directly with consumers. According to the majority, users have little choice but to agree to the terms of use.
The putative plaintiff brought a certification application in B.C. on behalf of persons whose name and likeness were used in Facebook’s “Sponsored Story” advertising campaign.
Users were featured in spots indicating to friends that they endorsed a product or brand that they had “liked” on Facebook. The claim was brought under the Privacy Act, RSBC 1996, c 372, alleging that Facebook breached users’ privacy. The Privacy Act requires that actions brought under it be heard in B.C.
Facebook brought a separate and concurrent application arguing that the B.C. Supreme Court should decline jurisdiction over the plaintiff’s claim based on the forum selection clause in the terms of use. The B.C. Supreme Court dismissed Facebook’s application and allowed the certification. According to the Court, the forum selection clause was found to be valid but the Privacy Act overrides it and also creates persuasive public policy reasons not to enforce it.
Facebook appealed to the B.C. Court of Appeal, which unanimously allowed Facebook’s appeal and stayed the action. The B.C. Court of Appeal was not satisfied that the plaintiff had demonstrated “strong cause” that the action should be heard in B.C.
A majority of the Supreme Court of Canada allowed the appeal, permitting the class action to proceed, with three of the four judges also refining the second step of the test from Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27, a case involving damaged cargo under a bill of lading.
In the Pompey decision, there were two steps in determining whether to enforce a forum selection clause:
- The first step requires the party seeking to uphold a forum selection clause to establish that the provision is valid, clear and enforceable.
- If the forum selection clause is established as valid, the second Pompey step requires the party seeking to contest the forum selection clause to show strong cause that the action should be heard in a different jurisdiction.
In their decision, the three judges in the majority modified the strong cause analysis, emphasizing:
- the distinction between consumer contracts, like Facebook’s terms of use, from a contract involving sophisticated commercial parties; and
- that the rights being implicated were quasi-constitutional privacy rights of British Columbians, and that Canadian courts have a greater interest in adjudicating cases of this type because these rights “play an essential role in a free and democratic society and embody key Canadian values.”
These three judges also cited two secondary factors in their analysis, namely the lack of evidence that the California courts would hear the matter (and the corollary that the B.C. Courts would) as well as the expense and inconvenience of litigating in California.
On this basis, these three judges infused broader public policy considerations into the overall strong cause analysis, and relied on these public policy reasons to justify the finding that there was strong cause not to enforce Facebook’s forum selection clause, including the inequality of bargaining power and that the action involved fundamental privacy rights codified under a local legislative regime.
The fourth judge who was included in the majority result never got to the strong cause analysis under Pompey, as she decided that Facebook’s forum selection clause was unenforceable under the first step of the Pompey process. In reaching this decision, she too focused on public policy concerns, the grossly uneven bargaining power of the parties, and the doctrine of unconscionability.
In their strong cause analysis, the dissenting three judges focused on the strong public interest in the enforcement of contracts and found that forum selection clauses, “far from being unconscionable or contrary to public policy, …serve an important role of increasing certainty and predictability in transactions that take place across borders.”
In the end, four of the seven judges found the forum selection clause to be unenforceable (although for different reasons).
As a result, parties that include these clauses in their online terms of use need to be mindful that these clauses may not be enforceable in a consumer contract, especially if the right being implicated through such enforcement proceedings is quasi-constitutional or constitutional in nature.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.