In June 2017, the Supreme Court of Canada (SCC) released its decision in Douez v. Facebook (Douez). The case concerned the application of a choice of forum clause included in Facebook’s terms of use to stay a class action proceeding brought in British Columbia. The SCC issued a three-one-three split decision, with Justices Karakatsanis, Wagner and Gascon holding that the choice of forum clause was not enforceable, and Justice Abella agreeing in the result but not in the reasons. For a detailed discussion of this case, please see our June 2017 Blakes Bulletin: Supreme Court of Canada Allows British Columbians to Pursue Privacy Class Action Against Facebook.

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:

  1. 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.
  2. 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.

Applying the Pompey Test to the context of the Facebook terms of use, Justices Karakatsanis, Wagner and Gascon found that although the choice of forum clause passed the first step of the Pompey Test, the plaintiff had established sufficiently strong reasons to satisfy the second step of the test. Justices Karakatsanis, Wagner and Gascon determined that the grossly uneven bargaining power between Facebook and its users and the importance of adjudicating quasi-constitutional privacy rights in the province, are each public policy considerations under the strong cause test that favour setting aside the choice of forum clause. As secondary considerations, Justices Karakatsanis, Wagner and Gascon cited the interests of justice in having a British Columbia court decide how the choice of law clause (selecting California law) might interact with the British Columbia Privacy Act and the convenience and expense for the parties to litigate in California.

CONCLUSION

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.