Canada: Supreme Court Of Canada Finds Facebooks Forum Selection Clause Is Unenforceable; Privacy Class Action Can Proceed In Canadian Court

Last Updated: July 6 2017
Article by Catherine Lovrics and Tamara Céline Winegust

Facebook's forum selection clause was today held unenforceable by the Supreme Court of Canada, which permits a class action brought under British Columbia's Privacy Act to move forward in BC court. The forum selection clause at issue, part of Facebook's terms of use, requires all disputes with the social media platform to be brought in California. As discussed in our prior article, the British Columbia Court of Appeal (BCCA) upheld the forum selection clause. In a split decision, the majority of the Supreme Court of Canada in Douez v Facebook, Inc., 2017 SCC 33 ruled the clause unenforceable in this case.

This decision is significant. Consumer facing agreements tend to be contracts of adhesion, with consumers generally having no option but to agree should they wish to use the services. Such agreements allow businesses to manage and allocate risks, and to limit the jurisdictions where they'll defend legal proceedings. The result in Douez may be perceived as a win for Canadian consumers; however, it lends considerable uncertainty to businesses that rely on similar forum selection clauses in consumer facing agreements.

The majority of the Supreme Court held that forum selection clauses in consumer agreements—while important for business certainty—require stricter scrutiny by the courts compared to other contractual terms and other contexts (e.g. commercial agreements). The Court reasoned that in the consumer context, there is "gross inequality of bargaining power" between consumers and service providers, and forum selection clauses "encroach on the public sphere of adjudication". Much of the majority's analysis turned on the implicated privacy rights at issue, recognized as having quasi-constitutional status. While the majority found consumer interests were paramount, the dissent gave greater weight to the commercial public policy considerations and to certainty and predictability in cross-border transactions.

It remains to be seen whether or not the decision will be followed generally with respect to forum selection clauses in any consumer contract, or will be limited to the facts of this case, and for example, only be followed if quasi-constitution consumer rights are being asserted in a Canadian court, like privacy.

The decision is likely to be significant to legal areas where a Canadian forum is not mandated by law, but where a consumer complaint is likely, particularly where the type of complaint implicates rights that are afforded constitutional or quasi-constitutional status in Canada. Practically speaking, companies operating in Canada have always had exposure to the risk of a Canadian court refusing to enforce forum selection clauses in certain contexts—there are many consumer protection and other laws in Canada that require a Canadian forum and cannot be contracted out of. In that sense, Douez may serve to add privacy claims generally to this list.

Douez

The matter involved certification of a class action against Facebook seeking damages under the private right of action set out in the BC Privacy Act. The underlying claim was based on unauthorized use of Facebook users' names and images as part of Facebook's "Sponsored Stories" feature. The feature resulted in advertisements featuring a user's name and image appearing on the user's friends' newsfeed when the user pressed the "like" button for a business. The BC Privacy Act prohibits "use [of] the name or portrait of another for the purpose of advertising or promoting the sale of, or other trading in, property or services, unless that other, or a person entitled to consent on his or her behalf, consents to the use for that purpose". Violation of this provision gives rise to a private cause of action in tort, and is actionable without proof of damage.

At issue was whether Facebook's forum selection clause was enforceable, which would require a class action under the BC Privacy Act's private right of action be brought in California court—the jurisdiction identified in the Terms of Use—rather than in BC, where the plaintiff lived, and the relevant statute was enacted.

The majority of the Supreme Court found that Facebook's forum selection clause was valid, clear and enforceable, but that there was strong cause not to enforce the clause. In other words, while the forum selection clause could be enforced, it should not be enforced. In ZI Pompey Industries v ECU-Line NV, 2003 SCC 27, the Supreme Court set the test for the enforceability of forum selection clauses in contracts. Under the Pompey test, first, a court considers whether the forum selection clause could be enforced. This requires the party seeking to enforce the clause to show that it is valid, clear, and enforceable, and that it applies to the matter before the court. If this is demonstrated, the court will then consider whether the clause should be enforced. This requires the other party to show "strong cause" why the clause should not be enforced.

The majority confirmed that Canadian courts should consider public policy considerations when considering whether or not a forum selection clause in a consumer agreement should be enforced. In particular, such considerations should be weighed when assessing whether or not there is strong cause not to enforce forum selection clauses given the "gross inequality of bargaining power between the parties and the rights at stake", especially in the internet context, where there may be no alternatives to the services sought: "having the choice to remain "offline" may not be a real choice in the Internet area".

In this case, the majority considered that:

  1. the consumer contract is a contract of adhesion between a consumer and a large corporation;
  2. the claim involves a statutory cause of action implicating quasi-constitutional privacy rights;
  3. there is gross inequality of bargaining power between the parties (since consumers had little choice but to acquiesce to Facebook's terms to use their services, and there are no comparable alternative services available);
  4. this particular case involved the interpretation of a particular provincial law;
  5. Canadian Courts have greater interest in adjudicating cases involving constitutional or quasi-constitutional rights, as such rights play "an essential role in a free and democratic society and embody key Canadian values";
  6. the California court, where the case would be held if the forum selection clause were upheld, would not necessarily have the expertise or experience to apply the BC Privacy Act, especially in respect of public policy or legislative intent matters; and,
  7. there would be considerable expense of forcing British Columbians to litigate in California.

Notably, the concurring opinion found that Facebook's clause did not even meet the first prong of the Pompey test, and that the clause could not be enforced. The clause was also found to be unconscionable and unfair since the inequality of bargaining power allowed Facebook the unilateral power to affect where users could bring their claims. Facebook's terms were viewed as "a contract of adhesion ... No bargaining, no choice, no adjustments", which "unduly impede[d] the ability of consumers to vindicate their rights in domestic courts, particularly their quasi-constitutional or constitutional rights".

The dissent, on the other hand, found no "strong cause" to render the forum selection clause unenforceable, given that the parties, by entering into a contract, agreed to the terms thereunder, including the forum selection clause. In particular, the dissent found forum selection clauses are supported by strong public policy considerations, namely, they serve an important role by increasing certainty and predictability in cross-border transactions, stating:

To reverse the burden [to the party seeking to enforce the clause] would undermine the general rule that forum selection clauses apply and introduce uncertainty and expense into commercial transactions that span international borders. It would detract from the "certainty and security in transaction" that is critical to private international law (Pompey, at paras. 20 and 25). For many businesses, having to prove in a foreign country why there is not strong cause would render the contract costly and in many cases, practically unenforceable.

The dissent did not agree there would be any particular burden on the plaintiff in bringing the case in California, nor did they agree that the California courts lacked expertise to consider and apply the BC Privacy Act.

The decision will give pause to many businesses contracting with Canadian consumers. Many companies are now likely to revisit their forum selection clauses, consider strategies to mitigate the risk of having to defend in Canada, and ultimately, brace for having to defend in Canada being more probable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Catherine Lovrics
Tamara Céline Winegust
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions