This decision is noteworthy for the financial services sector as it calls into question the enforceability of choice of forum clauses in consumer contracts.
MODIFIED TEST FOR CHOICE OF FORUM CLAUSES IN THE CONSUMER CONTEXT
A choice of forum clause is a term of a contract in which the parties specify that any dispute arising under the contract shall be resolved in a specified jurisdiction. The common law test for determining the enforceability of choice of forum clauses was introduced in Z.I. Pompey Industrie v. ECU-Line N.V. (Pompey Test). The Pompey Test has two parts:
- As a first step, the party seeking a stay based on the choice of forum clause must establish that the clause is valid, clear and enforceable and that it applies to the action before the court. At this step of the analysis, the court applies the principles of contract law to determine the validity of the choice of forum clause and may consider defences such as unconscionability, undue influence and fraud.
- Once the validity of the choice of forum clause is established, the burden shifts to the plaintiff to show “strong cause” as to why the court should not enforce the choice of forum clause and stay the action. The court must use its discretion in considering all of the circumstances, including the convenience of the parties, fairness between the parties, the interests of justice and other public policy reasons.
The factors to consider under the second step have traditionally been interpreted and applied restrictively in the commercial setting. In the context of sophisticated parties with equal bargaining power, the stability and foreseeability of commercial relations generally prevail. However, Justices Karakatsanis, Wagner and Gascon drew a distinction in Douezbetween commercial and consumer relationships and held that the strong cause test must be more flexible to account for distinct considerations relevant in a consumer context, including in view of the increasing prevalence of online consumer contracts.
Although courts generally apply choice of forum clauses strictly in favour of contractual freedom and commercial certainty, the split decision in Douez signals that, in the consumer context, choice of forum clauses will require careful consideration in order to provide the best chance at enforceability.