SCC: Facebook’s Forum Selection Clause is Unenforceable

Defeating Forum Selection Clauses in Consumer Contracts Becomes Easier

On June 23, 2017, the Supreme Court of Canada (SCC) released its decision in Douez v. Facebook Inc.1 The question in this case was whether the forum selection clause in Facebook's terms of use was enforceable.

This case was brought as a result of a Facebook feature called "Sponsored Stories" which, according to the plaintiff, used the names and photos of Facebook members—without their knowledge—to advertise products and services to other Facebook members.2 The plaintiff, a British Columbia resident, alleged that Facebook used her name and likeness without consent for advertising, contrary to section 3(2) of British Columbia's Privacy Act.3 The plaintiff sought to bring this matter as a class action. Facebook brought a motion to stay the action on the basis of their forum selection clause, which indicates that disputes originating from users about Facebook must be filed in California.4

In a 3-1-3 decision, the SCC declined to enforce the forum selection clause and ruled that the underlying privacy class action brought under a British Columbia statute should proceed in B.C. courts. The SCC justices agreed on the test to apply, but differed significantly in how to apply it. The majority declined to enforce the forum selection clause, but disagreed among themselves on the reasons for doing so. The dissenting justices would have enforced the forum selection clause and permanently stayed the action.

Test to Enforce Forum Selection Clauses

In deciding whether to enforce Facebook's forum selection clause, the Supreme Court followed the long-established two-part test from Z.I. Pompey:5

  1. Does the forum selection clause constitute a valid, clear, enforceable and applicable contract between the parties?6
  2. Can the plaintiff show strong reasons for which the forum selection clause should not be enforced?7

The SCC's Decision

With the exception of Justice Abella,8 all justices agreed that the first step of the Pompey test was met by Facebook and it was up to the plaintiff to show strong reasons not to enforce the forum selection clause.

On the second step, the majority9 held that the plaintiff did in fact establish strong reasons not to enforce the forum selection clause. Those reasons include:

  • Facebook's terms of use constitute a contract of adhesion that is the result of unequal bargaining power between a global corporation and an individual consumer;10
  • freedom to contract should not effectively deprive consumers of a remedy when claims arise;11
  • the claim seeks to enforce quasi-constitutional privacy rights of British Columbians:12
    • B.C. courts are in a better position to adjudicate claims based on a B.C. statute;13 and
    • Facebook offered no evidence that a California court would actually hear the claim; and
  • it would be more convenient for Facebook to make its records available for inspection in British Columbia than it would be for the plaintiff to travel to California.14

Analysis

At least a part of the basis for the majority's decision was the fact that privacy rights were impugned. Although the SCC has previously ascribed quasi-constitutional status to privacy rights in the context of the Charter, this was the first time that this status has been explicitly extended to the context of private law, where no state action was involved.

It is unclear that the precedent set by this case can be limited to privacy or other quasi-constitutional matters. This decision raises some doubt about the enforceability of forum selection clauses in consumer agreements in general and especially in online "click-wrap" contracts that are used by almost all businesses that sell goods or provide services on the internet. It also unclear how this decision may affect the enforceability of other clauses often included in "click-wrap" or other contracts of adhesion which are intended to limit consumers' remedies – notably indemnity, disclaimer and limitation of liability clauses. The Court's characterization of forum selection clauses as a limitation on legal remedies leaves uncertainty as to how this ruling will affect these clauses going forward.

While litigating in Canada may not represent an overly onerous burden to Facebook relative to its size, this decision will concern online businesses that want certainty that they will not need to defend consumer claims all over the world. The expense and uncertainty raised by this decision may increase the cost of doing business with Canadian consumers.

_________________________

1 Douez v. Facebook Inc., 2017 SCC 33 ("Douez").

2 Douez, paras. 6-7.

3 R.S.B.C. 1996 c.373.

4 Douez, para. 9.

5 Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC 27.

6 Douez, para. 28.

7 Douez, para. 29.

8 Douez, paras. 112-118.

9 The majority was composed of Karakatsanis, Wagner and Gascon JJ, with Abella J concurring.

10 Douez, paras. 50, 52-57.

11 Douez, para. 62.

12 Douez, para. 50, 58-59.

13 Douez, para. 60.

14 Douez, para. 74.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2017 by Torys LLP.
All rights reserved.

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