Canada: Douez v Facebook: Supreme Court Refuses To Enforce Choice Of Forum Clause Against Consumer Class Action

Last Updated: July 14 2017
Article by Michael Shortt

In Douez v Facebook,1 a badly-divided Supreme Court declined to enforce the forum selection clause in Facebook's website terms of use. In the course of its decision, a majority of the Supreme Court called into question the routine enforcement of forum selection clauses in consumer contracts. However, the majority judges differed sharply over the grounds which justified this refusal to enforce, so the Douez case likely heralds significant uncertainty going forward.

Background

Facebook is a well-known and immensely successful social network. In order to join that social network, users must agree to the website's terms of use. The terms of use contain a choice of forum clause conferring exclusive jurisdiction on California courts for all litigation involving Facebook.

The enforceability of that clause was litigated all the way to the Supreme Court of Canada because Ms. Douez wanted to start a class action in British Columbia, not California. Ms. Douez proposed class action complained that Facebook's use of users' names and picturea in its "sponsored stories" program violated the BC Privacy Act, which forbids use of a person's name or likeness in advertising without their consent.

Facebook moved to stay the class action based on the choice of forum clause, failing before the BC Supreme Court, but succeeding in the Court of Appeal. This set the stage for the Supreme Court's consideration of the issue.

Choice of Forum Clauses in the Supreme Court

The seven judges who heard the case agreed that the main issue was whether the Pompey test was satisfied. Under this test, a forum selection clause will be enforced if it satisfies a two-step test:

  1. As a matter of contract law, is the forum selection clause valid and applicable to the dispute at hand?
  2. Even if the clause is valid and applicable, is there nonetheless a "strong cause" to refuse enforcement?

Unfortunately, the applicable test was about the only thing that the justices could agree on in the course of their decisions.

Three judges held that Facebook's forum selection clause was valid as a matter of contract law, thereby satisfying the first step of the Pompey test, but went on to hold that it failed the second step.2 These judges found a "strong cause" to refuse enforcement through the combined effect of two facts. First, the forum selection clause was found in a consumer contract of adhesion. This meant that the clause was not negotiated, and thus the usual policy reasons for holding parties to their bargains were less compelling: "we would modify the Pompey strong cause factors in the consumer context."3 Second, Ms. Douez was asserting quasi-constitutional privacy rights. According to these judges, there is a strong public interest in having constitutional and quasi-constitutional claims adjudicated in local courts. This favoured allowing the class action to proceed in British Columbia, since "only a local court's interpretation of the privacy rights under the Privacy Act will provide clarity and certainty about the scope of the rights to others in the province."4

Justice Abella concurred in holding that Facebook's forum selection clause unenforceable, but gave very different reasons for doing so. In her opinion, the clause didn't even pass the first step in the Pompey test, since it was unenforceable at common law due to unconscionability and violation of public policy. Justice Abella also relied on the consumer context and quasi-constitutional nature of the rights at stake to justify these conclusions. Interestingly, Justice Abella raised these issues of her own motion, since neither unconscionability nor public policy had been pleaded below. She also declined to comment on the second step of the Pompey test.

Finally, three justices would have found the clause valid and enforceable.5 According to these justices, there was no unconscionability or breach of public policy, so the clause passed the first step of the Pompey test. Turning to the second step, these judges refused to treat consumer and commercial contracts differently, ruling that certainty and predictability in private international law required that forum selection clauses be enforced in all but exceptional circumstances. The clause was thus valid, and Ms. Douez should be required to sue in California.

Because four judges found the clause invalid, albeit for different reasons, the appeal was allowed.

Analysis

The Douez case creates considerable uncertainty about the enforcement of forum selection clauses in Canada, especially since there was no majority position on the "strong cause" step of the Pompey test. On the presence or absence of a strong cause, the court split 3-3, and Justice Abella declined to break the tie by casting her vote for either side.6

However, there were at least two points which did attract a majority opinion:

  • Four of seven justices felt that the Pompey test requires different application in a consumer context, and showed themselves less willing to enforce forum selection clauses in consumer contracts. However, these justices gave very different legal reasons for their conclusions, which makes it difficult to predict what precedential effect the Douez case is likely to have on lower courts. Until this uncertainty is resolved, international entities doing business in Canada should be prepared to face increased challenges to the enforceability of their forum selection clauses in a consumer context.
  • Six of seven justices ruled that statutory provisions conferring exclusive jurisdiction on a specific court to determine an issue will not, without more, preclude litigating that issue in a foreign court. Here, the motion judge and Justice Abella had held that section 4 of the Privacy Act invalidated choice of forum clauses, since it gave exclusive jurisdiction to the BC Supreme Court to hear actions based on the Privacy Act. The other six judges rejected this contention, stating that clear language was required before courts will find a legislative intention to strike down forum selection clauses.7

Given the deep divisions in the Supreme Court, it is difficult to give concrete advice on drafting enforceable consumer forum selection clauses post-Douez. Until this uncertainty is resolved, whether by additional judicial decisions or legislative reform,8 the enforceability of forum selection clauses in Canadian common-law consumer contracts will be difficult to predict.

Footnotes

1. 2017 SCC 33.

2. Douez at paras 1-77 (Karakatsanis, Wagner, and Gascon JJ).

3. Douez at para 38.

4. Douez at para 59.

5. Douez at para 119-177 (McLachlin CJ, Moldaver and Côté JJ).

6. Traditionally, an evenly-divided Supreme Court is considered to affirm the decision below, but the affirmation is not precedential (see Rider v Snow (1891), 20 SCR 12 at 20, Tascherau J; MNR v The Royal Trust Co, [1931] SCR 485 at 489). Here however, the 3-3 split was on a sub-issue, while a 4-3 majority voted to allow the appeal, so the precedential status of Douez remains uncertain.

7. Douez, at paras 41-44 (per Karakatsanis, Wagner, Gascon JJ), 141-144 (per McLachlin CJ, Moldaver and Côté JJ).

8. In Quebec civil law, choice of forum clauses are unenforceable and consumers retain the option of suing in Quebec: Civil Code of Québec, article 3149.

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.

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