The Supreme Court has held in Douez v. Facebook that the test for whether a forum selection clause is enforceable is different in the consumer contract context than in the commercial contract context. In particular, the decision of the Court will arguably make it more difficult to enforce forum selection clauses in consumer electronic or social media contracts.
The decision arises from an action brought in British Columbia against Facebook Inc. by one of its users, Deborah Douez. Ms. Douez claimed that Facebook infringed her private rights and those of more than 1.8 million British Columbians, contrary to the Privacy Act, when Facebook allegedly used her name and likeness without her consent for the purposes of advertising.
Facebook brought a motion to stay the proceedings commenced in British Columbia on the basis that when Ms. Douez became a Facebook user she agreed to have any claims or causes of actions resolved exclusively in a court located in Santa Clara County, California.
The Supreme Court of Canada split on the issue of whether Facebook's forum selection clause is enforceable: three judges held that it was not enforceable, one judge wrote concurring reasons, and three judges dissented.
The enforceability of a forum selection clause is determined by applying a two stage test:
- At the first stage, the party seeking a stay based on 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". This first stage requires the court to apply the principles of contract law to determine the validity of the clause. The plaintiff may resist the enforceability of the contract by raising defences such as unconscionability, undue influence or fraud.
- At the second stage, the plaintiff must show strong reasons why the court should not enforce the forum selection clause. Here, the Court may consider "all circumstances", including "convenience of the parties, fairness between the parties and the interests of justice".
The majority of the Court modified how liberally the concept of "strong reasons" can be interpreted at the second stage of the analysis. The majority acknowledged that the strong cause factors have been interpreted restrictively in the commercial context. However, in the consumer context, there may be strong reasons not to enforce forum selection clauses including policy considerations relating to the gross inequality of bargaining power between the parties and the nature of the rights at stake.
The burden will remain on the party wishing to avoid the clause to establish a strong cause.
In applying this analysis, the majority found strong cause not to enforce the clause on the basis that the claim involved a consumer contract of adhesion and a statutory cause of action implicating the quasi-constitutional privacy rights of British Columbians.
In concurring reasons, Justice Abella found that the clause was unenforceable based on the first stage of the analysis on the basis of the inequality of bargaining power between Facebook and Ms. Douez in an online contract of adhesion.
The dissent noted its "profound disagreement" with the suggestion by the majority that forum selection clauses are inherently contrary to public policy. To the contrary, the dissent highlighted the public policy considerations of certainty and predictability as necessary considerations in the enforcement of forum selection clauses. In particular, the dissent noted that by offering services across borders, online companies risk uncertainty and unpredictability as to the possible jurisdiction in which they may face a claim. For example, the dissent was concerned that online companies do not know in advance where their customers are located when the customer agrees to the terms and conditions of an agreement. As such, online companies may be subject to laws of various jurisdictions. Moreover, forum selection clauses reduce litigation risk and so generate savings that can be passed on to consumers.