Introduction

On June 23, 2017, the Supreme Court of Canada (SCC) released its much anticipated decision in Douez v. Facebook, Inc.¹ (Douez). The case concerned the enforceability of a forum selection clause in Facebook’s Terms of Use. The clause selected California as the jurisdiction for litigating claims under the agreement.

This case is important because the SCC applied the test for enforcement of forum selection clauses articulated by the SCC in Z.I. Pompey Industrie v. ECU-Line N.V. (Pompey)² differently in the consumer context. In Pompey, the SCC established the “strong cause” test for the application of forum selection clauses, which made it very difficult for parties to a contract to circumvent forum selection clauses to which they had agreed. In Pompey, the SCC emphasized that forum selection clauses “are generally to be encouraged by the courts as they create certainty and security in transaction, derivatives of order and fairness, which are critical components of private international law.”³

In Douez, the majority (in two sets of reasons) found that the forum selection clause was not enforceable. In particular, the SCC applied the test for enforcement of forum selection clauses in the consumer context differently to account for the inequality of bargaining power in that context and, in this case, the quasi-constitutional privacy rights at issue.

The dissent did not agree that the test for enforcing forum selection clauses should be applied any differently to consumer contracts and emphasized that public policy favours the certainty of the Pompey “strong cause” test. The strongly-worded dissent demonstrates the differing views that judges may adopt in considering jurisdictional issues, particularly in the context of online activity, which remains a relatively new context for the courts to consider (despite the fact that the Internet is no longer a new phenomenon).

The issue

Ms. Douez, a resident of British Columbia, brought an action in British Columbia against Facebook, alleging that Facebook had breached section 3(2) of British Columbia’s Privacy Act, R.S.B.C. 1996, c. 373, by using her name and likeness without consent for the purposes of advertising (in a product called Sponsored Stories, through which it used the names and photos of Facebook members to advertise companies and products to other Facebook members). She also sought certification of her action as a class proceeding (with an estimated class size of 1.8 million).

The issue before the SCC was whether the action should be stayed on the basis of the forum selection clause found in the Terms of Use, to which Ms. Douez had agreed, which provided that disputes were to be resolved in California under California law.

The first set of reasons

Karakatsanis, Wagner and Gascon JJ. held that the forum selection clause was unenforceable on the basis that there was strong cause not to enforce the clause.

Importantly, the SCC held that the language of section 4 of the Privacy Act was not specific enough to override the Terms of Use. That section provides: “Despite anything contained in another Act, an action under this Act must be heard and determined by the Supreme Court [of British Columbia].” The dissenting justices were in agreement that section 4 does not render an otherwise valid forum selection clause unenforceable.⁴ The legislature must expressly preclude the parties from waiving their rights in order to invalidate a forum selection clause.

Where no legislation overrides a forum selection clause, the court must apply the two-step approach from Pompey to determine whether to enforce a forum selection clause:

1. First, 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 relevant cause of action. The court must consider principles like unconscionability, undue influence and fraud.
2. Secondly, once the party seeking the stay establishes the validity of the clause, the plaintiff must show strong reasons why the court should not enforce the forum selection clause. A court must consider all the circumstances, including the convenience of the parties, fairness between the parties, the interests of justice and public policy.

The list of factors to be considered at the second stage of the Pompey test was not a closed list and had only been considered and applied in the commercial context, and Karakatsanis, Wagner and Gascon JJ. distinguished consumer contracts from commercial contracts on the basis of the unequal bargaining power of the parties. They stated that “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.”⁵

In applying the two-step Pompey test to the facts of the case, Karakatsanis, Wagner and Gascon JJ. found that the forum selection clause was enforceable under the first stage of the test, but that there was strong cause not to enforce the clause under the second part of the test.

Two considerations were prominent in this finding: first, this was a contract of adhesion (rather than a commercial contract) and second, there was a quasi-constitutional privacy right at stake. In addressing the inequality of bargaining power associated with a contract of adhesion, the SCC emphasized the unique position of Facebook in the social media context, explaining:

In particular, unlike a standard retail transaction, there are few comparable alternatives to Facebook, a social networking platform with extensive reach. British Columbians who wish to participate in the many online communities that interact through Facebook must accept that company’s terms or choose not to participate in its ubiquitous social network. As the intervener the Canadian Civil Liberties Association emphasizes, “access to Facebook and social media platforms, including the online communities they make possible, has become increasingly important for the exercise of free speech, freedom of association and for full participation in democracy” (I.F., at para. 16). Having the choice to remain “offline” may not be a real choice in the Internet era.⁶

With respect to the privacy rights at issue, the SCC emphasized the interest Canadian courts have in adjudicating cases concerning constitutional and quasi-constitutional rights, and the role that those rights play in a democratic society and Canadian values. The SCC held: “There is an inherent public good in Canadian courts deciding these types of claims. Through adjudication, courts establish norms and interpret the rights enjoyed by all Canadians.”⁷

The concurring reasons

Abella J. found the forum selection clause unenforceable at the first stage of the Pompey case. While accepting “that certainty and predictability generally favour the enforcement at common law of contractual terms”, Abella J. emphasized that this case concerned a contract of adhesion where “there is virtually no opportunity on the part of the consumer to negotiate the terms of the clause. To become a member of Facebook, one must accept all the terms stipulated in the terms of use. No bargaining, no choice, no adjustments.”⁸ Accordingly, the two elements required to establish unconscionably, inequality of bargaining power and unfairness, were present, and the clause was unenforceable.⁹

Abella J.’s concurring reasons question what consent means “when the agreement is said to be made by pressing a computer key”¹⁰, commonly referred to as a “click-through” or a “clickwrap” agreement. This type of contractual formation to Abella J. requires the court to intensify the scrutiny of the clause.

The dissenting reasons

The dissent justices (McLachlin C.J., Côté J.¹¹ and Moldaver J.) would have enforced the forum selection clause and would not have departed from the existing principles on forum selection clauses articulated in Pompey. In particular, the dissent held that the SCC should enforce the list of factors to be considered in the second stage of the Pompey test as a closed list, and did not place weight on the “consumer” nature of the contract.¹²

The dissent specifically rejected Ms. Douez’s argument that the forum selection clause is unenforceable because Ms. Douez was contracted with Facebook by clicking on a button. The dissent explained that section 15(1) of the Electronic Transactions Act, S.B.C. 2001, c. 10 codifies the common law rule that an enforceable contract may be formed by clicking an appropriately-designated online icon.¹³ (This can be contrasted with Abella J.’s reasons, which questioned the enforceability of click-through agreements.)

With respect to the arguments regarding unconscionability and inequality of bargaining power discussed by the majority of the SCC, the dissent was not convinced. There was no evidence of inequality of bargaining power and, in any event, inequality of bargaining power not rising to the level of unconscionability was not sufficient to interfere with the parties’ agreement regarding jurisdiction.¹⁴

Finally, the dissent took a fundamentally different view regarding the public policy considerations at issue, explaining that forum selection clauses increase certainty and predictability in transactions that take place across borders and support public policy considerations, such as international order, fairness and comity.¹⁵

Takeaways

One of the interesting questions that emerged from this case is how courts in subsequent cases will treat consumer contracts, generally, and click-through agreements, more specifically. While this case suggests a resistance to enforcing clauses in consumer contracts that may seem unfair, there may be ways to distinguish in future cases. For example, the majority focused on the privacy rights at issue, while many other disputes about click-through agreements may not involve rights that have been characterized as quasi-constitutional.

This case, through its three sets of reasons, demonstrates the different views that our judges and courts may have toward online activity and, specifically, the “public policy” aims of both consumer protection and facilitating online commerce. One imagines that these different views could lead to inconsistency in the application of the case going forward.

This article has been republished by Internet and E-Commerce Law in Canada.