On June 23, 2017, in Douez v. Facebook Inc. (Douez), the Supreme Court of Canada considered the enforceability of forum selection clauses involving consumers and privacy rights. The application judge had declined to enforce a forum selection clause and granted class certification in an action alleging breaches of B.C.’s Privacy Act for unauthorized use of individuals’ names and likenesses. The Court of Appeal reversed the decision, finding that the Privacy Act did not oust the jurisdiction of foreign courts. The Supreme Court of Canada allowed the appeal and held Facebook’s forum selection clause to be unenforceable in a three-one-three split decision in which the majority agreed in the result, but not the reasons.

This decision may result in more uncertainty with respect to the legal framework for assessing the enforceability of forum selection clauses, but it signals that forum selection clauses are less likely to be upheld when the contract involves consumers or privacy rights.

BACKGROUND

In Douez, the plaintiff brought an action against Facebook for using her name and profile picture in paid advertising without her consent in “Sponsored Stories”. She sought compensation pursuant to section 3(2) of the Privacy Act, which creates a statutory cause of action for unauthorized use of a person’s name or portrait for the purpose of advertising. She also sought certification under the Class Proceedings Act.

On the basis of a forum selection clause in its terms of use, Facebook applied in the British Columbia Supreme Court to stay the plaintiff’s action. The clause granted exclusive jurisdiction over the resolution of claims regarding the agreement or Facebook to the courts located in Santa Clara County, California. It also stipulated that the laws of California govern the agreement.

LOWER COURT DECISIONS

The application judge denied Facebook’s application and granted certification. She found that the forum selection clause was valid, clear, and enforceable. However, section 4 of the Privacy Act, which conveys exclusive jurisdiction to the British Columbia Supreme Court, overrode it. Further, there was strong cause not to enforce the forum selection clause, as enforcement would exclude Facebook from liability and would not align with the Privacy Act’s purposes and jurisdiction clause. For more information, see our June 2014 Blakes Bulletin: B.C.’s Privacy Act Trumps Jurisdiction Selection Clause.

The British Columbia Court of Appeal reversed the application judge’s decision and stayed the action. According to the Court of Appeal, the application judge’s interpretation of section 4 of the Privacy Act failed to recognize that provincial legislation cannot regulate civil rights in another jurisdiction. Consequently, the British Columbia Supreme Court only has exclusive jurisdiction in comparison to other courts in British Columbia. The forum selection clause was enforceable and the plaintiff had not proved strong cause to not enforce it, as there was no evidence that, among other things, staying her action would extinguish her claim. The Court of Appeal stayed the action without addressing certification. For more information, see our July 2015 Blakes Bulletin: Going to California: Court of Appeal Rules Forum Selection Clause Overrides Certification of B.C. Privacy Act Claims.

SUPREME COURT OF CANADA DECISION

The Supreme Court of Canada allowed the appeal and restored the decision dismissing Facebook’s application for a stay. Justices Karakatsanis, Wagner, and Gascon found strong cause to refuse enforcement of the forum selection clause. Justice Abella agreed in the result, but not the reasons; she found the clause to be unenforceable. On the other hand, Chief Justice McLachlin and Justices Moldaver and Côté, dissenting, found the clause enforceable and also that the plaintiff had failed to show strong cause why it should not be enforced.

Each of the decisions confirmed that the two-step analysis set out in Z.I. Pompey Industrie v. ECU-Line N.V. (Pompey) must be followed to determine whether to enforce a forum selection clause. First, the party seeking to stay the action must demonstrate that the clause is valid, clear, enforceable and applicable to the cause of action before the court. This engages ordinary principles of contract law, such as unconscionability and fraud. Next, the party seeking to avoid enforcement bears the onus of showing strong cause why it should not be enforced. The factors relevant at the second stage have been viewed restrictively in the commercial context.

Despite this basic agreement, each set of reasons approaches Pompey in a different manner. Justices Karakatsanis, Wagner, and Gascon distinguished Pompey by noting that it concerned a forum selection clause in a bill of lading between two sophisticated shipping companies. They found that the test will apply differently to consumer and commercial contracts. The requirement to show strong cause should be modified in the consumer context and all of the circumstances, including public policy considerations relating to the inequality of bargaining power and the nature of the rights at stake, must be considered.

Chief Justice McLachlin and Justice Côté, writing for themselves and Justice Moldaver, took a more restrained view of the test in Pompey. According to them, the factors governing the judge’s discretion under the second stage of the test were set out in Pompey. Unlike Justices Karakatsanis, Wagner, and Gascon, the dissenting Chief Justice and Justices found that it is inappropriate to consider the consumer’s lack of bargaining power in the second stage, as this would improperly conflate the two stages.

In her own reasons, Justice Abella agreed with Justices Karakatsanis, Wagner, and Gascon that a wider range of factors should be considered under the second stage than traditionally applied. However, she reiterated that the stages should remain distinct. She maintained that the first stage must focus on whether basic contractual principles are satisfied.

The whole court, except Justice Abella, found the clause enforceable under the first stage. Although the Privacy Act explicitly overrides “anything contained in another Act”, it lacks the clear and specific language necessary to override contractual provisions such as a forum selection clause; British Columbia courts only have exclusive jurisdiction within British Columbia. Justice Abella, in contrast, found the clause contrary to public policy and unconscionable, and hence unenforceable. This was based on section 4 of the Privacy Act, the quasi-constitutional nature of privacy rights, the gross inequality of bargaining power between the parties, and the unfairness created by the clause.

Under the second stage, Justices Karakatsanis, Wagner, and Gascon agreed that the plaintiff had established strong cause to decline enforcement. This was primarily because the forum selection clause was part of a consumer contract of adhesion and implicated a statutory cause of action and quasi-constitutional privacy rights. There was gross inequality of bargaining power and consumers had little choice but to accept Facebook’s terms of use. Further, Canadian courts have a greater interest in adjudicating constitutional or quasi-constitutional matters, and the creation of a statutory cause of action without proof of damage demonstrated the legislature’s intent to create and protect local privacy rights.

In addition, they found secondary factors weighed against enforcement. A British Columbia court would be better placed to assess the purpose and intent of the Privacy Act and interpret the privacy rights therein. The expense and inconvenience of requiring individuals to litigate in California against a corporation, as opposed to the expense and inconvenience of requiring Facebook to defend claims in British Columbia, also supported a finding of strong cause to decline enforcement.

Chief Justice McLachlin and Justice Côté, on the other hand, stated that there was no strong cause to refuse enforcement of the forum selection clause. Considering the factors that they viewed as relevant, they found that the plaintiff had submitted insufficient evidence to demonstrate strong cause. They noted that forum selection clauses are vital to “international order, fairness and comity”, meaning that enforcement is the default. They largely agreed with the Court of Appeal.

The Supreme Court of Canada’s decision in Douez confirms that forum selection clauses may not provide the protection being sought. Even if legislation does not explicitly override a forum selection clause, strong cause may be found to refuse to enforce it, particularly where privacy rights or consumers are involved. While the impact of this precedent may be tempered by the split decision, Douez heightens the importance of understanding the local laws in which end users are located.