Supreme Court of Canada Rules on the Enforceability of Forum Selection Clauses in Online Contracts

By Robert Tremblay
June 29, 2017

Online contracting, positioned at the intersection of lumbering law and ever-changing technology has long been a ground for legal uncertainty. The enforceability of online contracts generally, and of specific terms set out therein continues to be contentious. Often, the particular factual context has a significant impact on the outcome. Some contentious clauses include arbitration clauses that preclude class actions (see e.g. 2017 ONCA 433), exclusion of liability clauses (See e.g. 2017 ONSC 1851), and forum selection clauses, seeking to force the parties to litigate in another jurisdiction.

The Supreme Court of Canada has just released a decision (Douez v. Facebook, Inc., 2017 SCC 33) that provides a framework for assessing the enforceability of forum selection clauses. The decision continues the trend of affording protection to consumers in the face of considerations of uneven bargaining power in un-negotiated online contracts referred to as “contracts of adhesion”. The decision may also be instructive for considering the enforceability of other contractual terms; it shows that fairness and the existence of associated legislation are strong indicators of whether or not a court will enforce terms of an online agreement – particularly in the consumer context.

Factual and Legal Context

A few years ago, Facebook released an advertising product that used the name and picture of Facebook users, allegedly without their consent.

BC’s Privacy Act offers a cause of action for breach of privacy rights. The Plaintiff in this case sought to adjudicate the alleged infringement of her privacy rights in BC courts (as part of a class action comprising Facebook users).

At the relevant time, Facebook’s terms of use had forum selection and choice of law clauses setting out that any claims had to proceed in California. In the decision, Facebook thus sought to stay the action on the basis of the forum selection clause. The clause reads:

You will resolve any claim, cause of action or dispute (claim) you have with us arising out of or relating to this Statement or Facebook exclusively in a state or federal court located in Santa Clara County. The laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for purpose of litigating all such claims. [A.R., vol. II, p. 138]

For her part, the Plaintiff claimed that s. 4 of the Privacy Act provided exclusive jurisdiction to BC courts in relation to the relevant tort. Section 4 reads:

Despite anything contained in another Act, an action under this Act must be heard and determined by the Supreme Court [of British Columbia].

Legal Test

At paras. [28]-[40], the Court restated the test set out in Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27 for determining whether to enforce a forum selection clause:

[W]here no legislation overrides the clause, courts apply a two-step approach 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 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”… Once the party seeking the stay establishes the validity of the forum selection clause, the onus shifts to the plaintiff. At this second step of the test, the plaintiff must show strong reasons why the court should not enforce the forum selection clause and stay the action… In exercising its discretion at this step of the analysis, 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…

[T]he strong cause factors have been interpreted and applied restrictively in the commercial context. In commercial interactions, it will usually be desirable for parties to determine at the outset of a business relationship where disputes will be settled…

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… 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.

Analysis and Holding:

Reviewing the legislative context, the Court found that the BC Privacy Act does not itself provide clear and specific language to override the forum selection clause and thereby provide exclusive jurisdiction to BC courts; it references overriding other Acts but is silent on contractual provisions.

Next, applying the first step of the Pompey test, Facebook’s terms of use – apparently a ‘click wrap’ contract – was found to be enforceable. However, at the second step there was ‘strong cause’ not to enforce the forum selection clause. Two primary factors were evaluated in making the determination of unenforceability.

First, the contract was with a consumer with no possibility of negotiation in a context where there was a large difference in bargaining power. The court characterized the contract as a contract of adhesion, and noted that there are “few comparable alternatives to Facebook” (See para. [56]).

Second, the context included that there was relevant legislation providing a statutory cause of action implicating quasi-constitutional privacy rights for which local courts had an interest in adjudicating. At paras. [58]-[60]:

Through adjudication, courts establish norms and interpret the rights enjoyed by all Canadians. […] [S]ince Ms. Douez’s matter requires an interpretation of a statutory privacy tort, 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.” […] Moreover, the British Columbia legislature’s creation of a statutory cause of action evidences an intention to create local rights and protections for the privacy rights of British Columbia residents.

Secondary factors included the interests of justice (e.g. procedural advantages), comparative convenience and expense of litigation in the alternate forum.

In their dissent, having preferred to uphold the forum selection clause, three justices wrote:

We cannot help but note our profound disagreement with the suggestion in the reasons of Karakatsanis, Wagner and Gascon JJ., that forum selection clauses are inherently contrary to public policy. They state: “. . . forum selection clauses divert public adjudication of matters out of the provinces, and court adjudication in each province is a public good” (para. 25). The overwhelming weight of international jurisprudence shows that, far from being a subterfuge to deny access to justice, forum selection clauses are vital to international order, fairness and comity.

The Author

Robert Tremblay

Robert Tremblay is an associate at BHOLE IP LAW in Toronto, Canada. He assists with preparing and negotiating technology-related commercial agreements, including cloud agreements, as well as protecting and enforcing IP assets. Robert has a background in mechanical engineering and law. He has deep roots in the Toronto legal and startup communities, and currently serves as Marketing Chair at the Toronto Chapter of the Licensing Executives Society and as a mentor at the University of Toronto Entrepreneurship Hatchery. 

For more information or to contact Robert, please visit his Firm Profile Page.

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