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Facebook’s forum selection clause ruled unenforceable

Facebook’s forum selection clause ruled unenforceable

Facebook’s forum selection clause ruled unenforceable

29 Jun 2017

The Supreme Court of Canada has released two landmark decisions in recent days relating to territorial commercial interests on the borderless Internet. This post concerns Douez v Facebook, Inc., 2017 SCC 33, a decision that marks an important development for the law of consumer contracts and more particularly, the enforceability of forum selection clauses in website terms of use. Specifically, the Court has held to be unenforceable Facebook’s forum selection clause which states that disputes arising from, or connected with, the use of Facebook must be resolved in California regardless of where they arise.

The case began when Ms. Douez, who resides in British Columbia (“BC”), noticed that Facebook had used her profile picture and name for the purposes of advertising without her permission. She sought certification for a class action in BC against Facebook alleging the company used her name and likeness (along with about 1.8 million others’) without consent for the purposes of advertising, contrary to BC's Privacy Act.

Commencing the legal action in BC and on the basis of BC law was contrary to Facebook’s carefully worded terms of use which Ms. Douez had agreed to when she signed up and which included a forum selection and choice of law clause. A choice of law clause specifies that any dispute arising under a contract shall be determined in accordance with the law of a particular jurisdiction (this was not the main issue for the Court). A forum selection clause designates the court and location where the parties agree to have any legal dispute decided. Facebook’s forum selection and choice of law term require that disputes arising in connection with the use of Facebook be resolved in California according to California law. The term states:

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 of 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 the purpose of litigating all such claims.

Facebook brought a preliminary motion to stay Ms. Douez’s action based on its forum selection clause requiring that the class action under the BC Privacy Act be tried in California rather than in BC where Ms. Douez resided and where the relevant statute was enacted.

The Chambers Judge who first heard the case refused to enforce the forum selection clause. On appeal, the BC Court of Appeal reversed the Chambers Judge’s decision and held that Ms. Douez’s action should be stayed finding that the clause was enforceable. On appeal to the Supreme Court of Canada, the Court was asked to determine whether the Court of Appeal had correctly held that the forum selection clause was enforceable.

In a split decision, the majority of the Supreme Court held that the forum selection clause was NOT enforceable and that the action need not be tried in California.

In coming to this decision, the Court applied a common law two-step test used to determine the enforceability of forum selection clauses. The test requires: (i) that the contract is otherwise enforceable; and (ii) an assessment of whether there is “strong cause” to retain jurisdiction over a matter within the province. This requires analysis of all relevant circumstances including “convenience of the parties, fairness between the parties, and the interest of justice”.

The Supreme Court ultimately held that: (i) there were strong public policy cause not to enforce the forum selection clause; (ii) the interest of justice was best served if questions arising under the BC Privacy Act were adjudicated in BC; and (iii) it would be far more convenient and affordable to have Facebook come to BC than for Ms. Douez to go to California.

In rendering its decision, the Court made several key findings and considered factors not only relevant to large platforms like Facebook but to all website owners and operators:

  1. Forum selection clauses serve a valuable purpose: they are intended to create certainty and security in commercial dealings. However, because forum selection clauses encroach on the public sphere of adjudication and may impact on causes of action available to a claimant, Canadian courts should not treat them like any other contractual clause;
  2. Where the interests of justice are at stake, such as in this case where a forum selection clause would unfairly cause the loss of a procedural advantage, a Court may find that the clause is unenforceable (in this case, the courts of California were certainly not best positioned to hear a case relating to the BC Privacy Act on its merits);
  3. Freedom to contract is not unfettered –a court has the discretion to deny enforcement of a contract for reasons of public policy in appropriate circumstances like gross inequality of bargaining power between the parties and in consideration of the nature of the rights at stake (like in this case, the right to privacy which is seen in Canada as a quasi-constitutional right); and
  4. Different concerns and factors animate and guide the enforceability of forum selection clauses in the consumer context than they do in the commercial context:
    • In the commercial context, the parties are typically sophisticated, take the opportunity to analyze the various risks and benefits of agreeing to a foreign jurisdiction and to negotiate those terms.
    • Conversely, consumer contracts are almost always one-sided. They bear unequal bargaining power and consumers are typically faced with the choice to “agree” to the terms or abandon all use of what are often very popular sites.

While it is yet to be seen how broadly this decision will be applied (e.g. beyond cases involving quasi-constitutional rights like privacy) the Supreme Court has clearly indicated that when it comes to forum selection clauses, website owners and operators cannot simply expect to get their way just because they have enshrined a choice of jurisdiction and governing law in their terms of use. This decision is worth bearing in mind as you prepare the next update of your website terms of use.