Douez v. Facebook, Inc., 2017 SCC 33 (Jurisdiction — Choice of forum — Forum selection clauses —Privacy)

On appeal from a judgment of the British Columbia Court of Appeal (2015 BCCA 279), setting aside a decision of Griffin J. (2014 BCSC 953)

Facebook, an American corporation headquartered in California, operates one of the world’s leading social networks and generates most of its revenues from advertising. D is a resident of British Columbia and has been a member of Facebook since 2007. In 2011, Facebook created a new advertising product called “Sponsored Stories”, which used the name and picture of Facebook members to advertise companies and products to other members. D brought an action in British Columbia against Facebook alleging that it used her name and likeness without consent for the purposes of advertising, in contravention to s. 3(2) of British Columbia’s Privacy Act. D also seeks certification of her action as a class proceeding under the Class Proceedings Act. The proposed class includes all British Columbia residents who had their name or picture used in Sponsored Stories. The estimated size of the class is 1.8 million people.

Under s. 4 of the Privacy Act, actions under the Act must be heard in the British Columbia Supreme Court. However, as part of the registration process, all potential users of Facebook must agree to its terms of use which include a forum selection and choice of law clause requiring that disputes be resolved in California according to California law.

Facebook brought a preliminary motion to stay the action on the basis of this forum selection clause. The chambers judge declined to enforce the clause and certified the class action. The British Columbia Court of Appeal reversed the stay decision of the chambers judge on the basis that Facebook’s forum selection clause was enforceable and that D failed to show strong cause not to enforce it. This rendered the certification issue moot and the court declined to address it.

Held (4:3): The appeal should be allowed. The forum selection clause is unenforceable. The chambers judge’s order dismissing Facebook’s application to have the Supreme Court of British Columbia decline jurisdiction is restored.

Per Karakatsanis, Wagner and Gascon JJ.:

In the absence of legislation to the contrary, the common law test for forum selection clauses established in Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27, [2003] 1 S.C.R. 450, continues to apply and provides the analytical framework for this case. The forum non conveniens test adopted in the Court Jurisdiction and Proceedings Transfer Act (“CJPTA”) was not intended to replace the common law test for forum selection clauses. The analysis of forum selection clauses thus remains separate, despite the enactment of the CJPTA.

Forum selection clauses serve a valuable purpose and are commonly used and regularly enforced. However, forum selection clauses divert public adjudication of matters out of the provinces, and court adjudication in each province is a public good. Because forum selection clauses encroach on the public sphere of adjudication, Canadian courts do not simply enforce them like any other clause. Where no legislation overrides the forum selection clause, the two-step approach set out in Pompey applies to determine whether to enforce a forum selection clause and stay an action brought contrary to it. At the first step, the party seeking a stay must establish that the clause is valid, clear and enforceable and that it applies to the cause of action before the court. If this party succeeds, the onus shifts to the plaintiff who must show strong cause why the court should not enforce the forum selection clause and stay the action. At this second step of the test, a court must consider all the circumstances, including the convenience of the parties, fairness between the parties and the interests of justice. Public policy may also be a relevant factor at this step. The strong cause factors have been interpreted and applied restrictively in the commercial context, but commercial and consumer relationships are very different. Irrespective of the formal validity of the contract, the consumer context may provide strong reasons not to enforce forum selection clauses. Thus, the Pompey strong cause factors should be modified in the consumer context to account for the different considerations relevant to this context. When considering whether it is reasonable and just to enforce an otherwise binding forum selection clause in a consumer contract, courts should take account of all the circumstances of the particular case, including public policy considerations relating to the gross inequality of bargaining power between the parties and the nature of the rights at stake.

As this Court recognized in Pompey, legislative provisions can override forum selection clauses. In the present case, s. 4 of the Privacy Act lacks the clear and specific language that legislatures normally use to override forum selection clauses. While the legislature intended s. 4 of the Privacy Act to confer jurisdiction to the British Columbia Supreme Court to resolve matters brought under the Act, nothing suggests that it was also intended to override forum selection clauses.

With respect to the first step of the Pompey test, the forum selection clause contained in Facebook’s terms of use is enforceable. At the second step of the test, however, D has met her burden of establishing that there is strong cause not to enforce the forum selection clause. A number of different factors, when considered cumulatively, support a finding of strong cause. Most importantly, the claim involves a consumer contract of adhesion between an individual consumer and a large corporation and a statutory cause of action implicating the quasi-constitutional privacy rights of British Columbians. It is clear from the evidence that there was gross inequality of bargaining power between the parties. Individual consumers in this context are faced with little choice but to accept Facebook’s terms of use. Additionally, Canadian courts have a greater interest in adjudicating cases impinging on constitutional and quasi-constitutional rights because these rights play an essential role in a free and democratic society and embody key Canadian values. This matter requires an interpretation of a statutory privacy tort and only a local court’s interpretation of privacy rights under the Privacy Act will provide clarity and certainty about the scope of the rights to others in the province. Overall, these public policy concerns weigh heavily in favour of strong cause.

Two other secondary factors also suggest that the forum selection clause should not be enforced. First, even assuming that a California court could or would apply the Privacy Act, the interests of justice support having the action adjudicated by the British Columbia Supreme Court. The lack of evidence concerning whether a California court would hear D’s claim is not determinative. The British Columbia Supreme Court, as compared to a California one, is better placed to assess the purpose and intent of the legislation and to decide whether public policy or legislative intent prevents parties from opting out of rights created by the Privacy Act through a choice of law clause in favour of a foreign jurisdiction. Second, the expense and inconvenience of requiring British Columbian individuals to litigate in California, compared to the comparative expense and inconvenience to Facebook, further supports a finding of strong cause. The chambers judge found it would be more convenient to have Facebook’s books and records made available for inspection in British Columbia than requiring D to travel to California to advance her claim. There is no reason to disturb this finding.

Per Abella J.:

This is an online consumer contract of adhesion. To become a member of Facebook, a consumer must accept all the terms stipulated in the terms of use, including the forum selection clause. No bargaining, no choice, no adjustments. The automatic nature of the commitments made with online contracts intensifies the scrutiny for clauses that have the effect of impairing a consumer’s access to potential remedies.

The operative test in Pompey for determining whether to enforce a forum selection clause engages two distinct inquiries. The first is into whether the clause is enforceable under contractual doctrines like public policy, duress, fraud, unconscionability or grossly uneven bargaining positions. If the clause is enforceable, the onus shifts to the consumer to show “strong cause” why the clause should not be enforced because of factors typically considered under the forum non conveniens doctrine. Keeping the two Pompey inquiries distinct means that before the onus shifts, the focus starts where it should, namely on whether the contract or clause itself is enforceable based on basic contractual principles.

In this case, the forum selection clause is unenforceable under the first step of the Pompey test applying contractual principles.

The burdens of forum selection clauses on consumers and their ability to access the court system range from added costs, logistical impediments and delays, to deterrent psychological effects. When online consumer contracts of adhesion contain terms that unduly impede the ability of consumers to vindicate their rights in domestic courts, particularly their quasi-constitutional or constitutional rights, public policy concerns outweigh those favouring enforceability of a forum selection clause.

Public policy concerns relating to access to domestic courts are especially significant in this case given that it deals with a fundamental right: privacy. Section 4 of British Columbia’s Privacy Act states that the particular protections in the Act “must be heard and determined by the Supreme Court despite anything contained in another Act”. This is statutory recognition that privacy rights under the Act are entitled to protection in British Columbia by judges of the British Columbia Supreme Court. It would be contrary to public policy to enforce a forum selection clause in a consumer contract that has the effect of depriving a party of access to a statutorily mandated court.

Tied to the public policy concerns is the “grossly uneven bargaining power” of the parties. Facebook is a multi-national corporation which operates in dozens of countries. D is a private citizen who had no input into the terms of the contract and, in reality, no meaningful choice as to whether to accept them given Facebook’s undisputed indispensability to online conversations.

The doctrine of unconscionability also applies in this case to render the forum selection clause unenforceable. Both elements required for the doctrine of unconscionability to apply — inequality of bargaining power and unfairness — are met in this case. The inequality of bargaining power between Facebook and D in an online contract of adhesion gave Facebook the unilateral ability to require that any legal grievances D had could not be vindicated in British Columbia where the contract was made, but only in California where Facebook has its head office. This gives Facebook an unfair and overwhelming procedural and potentially substantive benefit.

Per McLachlin C.J. and Moldaver and Côté JJ. (dissenting):

When parties agree to a jurisdiction for the resolution of disputes, courts will give effect to that agreement, unless the claimant establishes strong cause for not doing so. In this case, D has not shown strong cause for not enforcing the forum selection clause to which she agreed. Therefore, the action must be tried in California, as the contract requires, and a stay of the underlying claim should be entered.

Section 11 of the CJPTA does not apply to oust forum selection clauses. Pursuant to Pompey, where the parties have agreed in advance to a choice of forum, there is no need to inquire into which of the two forums is the more convenient; the parties have settled the matter by their contract, unless the contractual clause is invalid or inapplicable or should not be applied because the plaintiff has shown strong cause not to do so. A unified test that would apply forum selection clauses as an element of the forum non conveniens test should be rejected. While the CJPTA is a complete codification of the common law related to forum non conveniens, it does not supplant the common law principles underlying the enforcement of forum selection clauses. If the test in Pompey is satisfied and the forum selection clause is inapplicable, the result is a situation where there are two competing possibilities for forum. At this point, the CJPTA which codifies the common law provisions for forum non conveniens applies. In this case, the test in Pompey is not satisfied and therefore s. 11 of the CJPTA does not assist D.

With respect to the first step of the Pompey test, Facebook has discharged the burden of establishing that the forum selection clause is enforceable and applies in the circumstances: it is established that an enforceable contract may be formed by clicking an appropriately designated online icon; the contract on its face is clear and there is no inconsistency between a commitment to strive to apply local laws and an agreement that disputes will be tried in California; and finally, s. 4 of the Privacy Act grants the Supreme Court of British Columbia subject matter jurisdiction over Privacy Act claims to the exclusion of other British Columbia courts but nothing in the language of s. 4 suggests that it can render an otherwise valid contractual term unenforceable.

While the court can refuse to enforce otherwise valid contractual provisions that offend public policy, the party seeking to avoid enforcement of the clause must prove the existence of an overriding public policy that outweighs the very strong public interest in the enforcement of contracts. No such overriding public policy is found on the facts of this case. Forum selection clauses, far from being unconscionable or contrary to public policy, are supported by strong policy considerations. They serve an important role of increasing certainty and predictability in transactions that take place across borders. And, the fact that a contract is in standard form does not affect the validity of such a clause. That is not to say that forum selection clauses will always be given effect by the courts. Burdens of distance or geography may render the application of a forum selection clause unfair in the circumstances. However, those considerations are relevant at the second step of Pompey, not the first. Here, the forum selection clause is valid and applicable and the first step of Pompey test has been met.

As to the second step of the Pompey test, requiring the plaintiff to demonstrate strong cause is essential for upholding certainty, order and predictability in private international law, especially in light of the proliferation of online services provided across borders. In this case, none of the circumstances relied on by D show strong cause why the forum selection clause should not be enforced. She has not shown that the facts in the case and the evidence to be adduced shifts the balance of convenience from the contracted state of California to British Columbia. Further, the British Columbia tort created by the Privacy Act does not require special expertise and the courts of California have not been shown to be disadvantaged in interpreting the Privacy Act as compared with the Supreme Court of British Columbia. Nothing in D’s situation suggests that the class action she wishes to commence could not be conducted in California just as easily as in British Columbia. There is also no suggestion that Facebook does not genuinely wish all litigation with users to take place in California. Finally, D has not shown that application of the forum selection clause would deprive her of a fair trial.

Applying the strong cause test in a nuanced manner or modifying the test to place the burden on the defendant in the context of consumer contracts of adhesion would amount to inappropriately overturning the Court’s decision in Pompey and substituting new and different principles. Nuancing the strong cause test by considering the factor of the consumer’s lack of bargaining power conflates the first step of the test set out in Pompey with the second step, in a way that profoundly alters the law endorsed in Pompey. It is at the first step that inequality of bargaining power is relevant. Inequality of bargaining power may lead to a clause being declared unconscionable – something not argued by D. In this case, Facebook has demonstrated that the forum selection clause is enforceable and D has failed to establish strong cause why the forum selection clause she agreed to should not be enforced.

Reasons for judgment by Karakatsanis, Wagner and Gascon JJ

Concurring Reasons by Abella J.

Dissenting reasons by McLachlin CJ and Côté J (Moldaver J. concurring)

Neutral Citation: 2017 SCC 33

Docket Number: 36616