Supreme Court of Canada Leaves Forum Selection Clauses in a State of Uncertainty

June 26, 2017

Written By Stephen D. Burns, Sebastien A. Gittens, and Jason M. Berall

Facebook, Inc. (Facebook) recently lost a decision before the Supreme Court of Canada regarding the enforceability of the forum selection clause in its standard terms of use. Accordingly, organizations should carefully review their online agreements and other consumer contracts of adhesion in light of this decision.

Case

Douez v. Facebook, Inc., 2017 SCC 33

Summary

In 2011, Facebook introduced "Sponsored Stories" to its platform, an advertising product that paired the names and photos of its members with ads from Facebook’s advertising partners. The appellant, a resident of British Columbia, brought an action in the British Columbia Supreme Court (BCSC) alleging that Facebook’s product violated her rights under the province’s Privacy Act (Act), by using her name and likeness without consent for the purposes of advertising.

While the Act explicitly states that actions flowing from violations such as this are to be heard by the BCSC, Facebook contested the appropriateness of this venue. Like all Facebook members, the appellant had agreed to Facebook’s terms of use, which included a forum selection clause. Under this provision, each Facebook member accepted that a dispute with the company would be subject to California law and heard by a California court.

At issue in this decision was whether the forum selection clause was enforceable. A divided Supreme Court of Canada (SCC) issued three separate decisions. Four out of seven Justices ultimately found the clause to be unenforceable.

In reaching its decision, the majority reaffirmed the two-step approach for assessing forum selection clauses set out in Z.I. Pompey Industrie v ECU-Line NV, 2003 SCC 27 [Pompey]. In the absence of "clear and specific" statutory language overriding such a clause, the first step of the Pompey test requires the defendant to establish that the forum selection clause is "valid, clear and enforceable" and applies to the circumstances. If established, the onus then shifts to the plaintiff to establish a "strong cause" for why the forum selection clause should not be enforced based on all of the applicable circumstances, including: (i) convenience; (ii) fairness; (iii) the interests of justice; and (iv) public policy considerations.

When applying the Pompey test, six Justices (including the three dissenting Justices) held that Facebook satisfied the first step of the Pompey test and that its forum selection clause was enforceable under contractual doctrines. Abella J., however, disagreed and held that the forum selection clause was unenforceable under the first step.

When evaluating the second step, three Justices (Karakatsanis, Wagner and Gascon JJ.) determined that the Pompey test has generally been applied to contracts that were negotiated between sophisticated commercial parties and that the strong cause factors should be modified in the consumer context to account for the inequality of bargaining power between the parties. Applying the modified strong cause test, those three Justices held that Ms. Douez had successfully established a strong cause for non-enforceability.

The three dissenting Justices (McLachlin C.J. and Moldaver and Côté JJ.) found that the strong cause test need not be modified in the consumer context because the lack of bargaining power of the consumer can be adequately considered under the first step of the Pompey test. Applying an unmodified strong cause test, the dissenting Justices found that Ms. Douez failed to establish a strong cause.

Given Abella J.'s aforementioned decision, the end result is that the court allowed Ms. Douez's appeal and held that Facebook's forum selection clause was unenforceable.

Authors