Jun 23, 2017

Like it or Not: Supreme Court of Canada decides class action against Facebook can go ahead in B.C. - despite its terms of use

Douez v. Facebook, Inc., 2017 SCC 33 (CanLII)

On June 23, 2017, the Supreme Court of Canada decided that in a contest between the choice of forum clause in Facebook’s online terms of use and the B.C. Privacy Act’s requirement that lawsuits under it be heard in the B.C. court, the B.C. Privacy Act prevails – and a class action against Facebook can proceed in B.C. despite Facebook’s choice of forum clause. The decision in Douez v. Facebook, Inc. will significantly affect the legal risks of Business to Consumer (B2C) companies, especially those with online operations, doing business across international or provincial borders:

Consumer Protection. Its reasoning will likely apply in any other consumer protection contexts in which the relevant provincial law requires a dispute to be heard by a local court. Companies regularly use choice of law and choice of forum clauses in contracts (also in the form of online terms of use) as a legal risk and cost management tool by choosing where any disputes against them will be litigated, allowing them to select the location that’s most familiar, convenient, cost-effective and/or advantageous to them. For many such companies, this decision makes choice of law clauses cold comfort. Beyond being aware of the risks of statutory lawsuits in those Canadian provinces in which they do business, and mindful of how operations expose them to those legal risks, there could be little they can do about it.

Statutory Invasion of Privacy. Only a handful of provinces have a statutory tort (private right of action for a civil wrong) for invasion of privacy like that under the B.C. Privacy Act, and only those of Newfoundland and Labrador and Saskatchewan include provisions conferring exclusive jurisdiction on a local court.

Negotiated Contracts. This decision was in the context of a “take it or leave it” consumer contract with unequal bargaining power between the parties, so its reasoning might not apply to a negotiated contract.

Facebook Inc., a U.S. corporation, generates most of its revenue from advertising. Starting in 2011, when a Facebook member “likes” a post relating to a Facebook advertiser, Facebook sometimes features that member’s name and/or likeness with the advertiser’s logo and other product or service information in a “Sponsored Story” and sends it to that member’s Facebook contacts. A Facebook user from B.C. started a class action lawsuit against Facebook in B.C. claiming Facebook featured her in a Sponsored Story without her consent, and thus constituted a private right of action created by section 3(2) of the B.C. Privacy Act; the proposed class includes all B.C. residents whose name or picture Facebook used in Sponsored Stories (about 1.8 million people). Facebook defended on the basis it had its users’ express or implied consent through its terms of use, other website disclosure, and a user’s actions such as their privacy settings; it also argued the B.C. court should refuse jurisdiction over the lawsuit because all members must agree to Facebook’s terms of use – including that all disputes be resolved in California under California law. The B.C. trial court accepted jurisdiction and certified the member’s lawsuit as a class action. Facebook appealed and the Appeal Court decided Facebook’s choice of law and forum clauses should be enforced, and stayed (halted) the lawsuit. The user appealed further to the Supreme Court of Canada.

In a close decision, four of the seven Supreme Court justices decided that the contest between the B.C. Privacy Act, and Facebook’s choice of forum clause in its online terms of use, is decided by the two part test established by the Court in its 2003 decision in Z.I. Pompey Industrie v. ECU-Line N.V. Applying the test, the Court decided the B.C. Privacy Act overrides Facebook’s online choice of forum clause:

Clear Clause. The party seeking a stay in the Canadian court in favour of another venue (in this case, Facebook and California) must establish the clause is valid, clear and enforceable and applies to the lawsuit before the court. The majority of the Court decided Facebook’s choice of forum clause met this hurdle.

Strong Cause Not To Enforce. If the first hurdle is overcome, the onus then shifts to the plaintiff, who must show strong cause why the court should not enforce the contractual choice of forum clause – and in this case, the plaintiff did so:

  • Unequal Bargaining Power. This claim involves a consumer “contract of adhesion” between an individual consumer and a large corporation, and a statutory cause of action implicating British Columbians’ “quasi-constitutional” privacy rights. There is gross inequality of bargaining power between the parties and individual consumers have little choice but to accept Facebook’s terms of use.
  • Essential Rights at Stake. Canadian courts have a greater interest in adjudicating cases impinging on constitutional and quasi-constitutional rights because they are essential in a free and democratic society and embody key Canadian values. This dispute requires an interpretation of a tort under privacy legislation - and only a local court’s interpretation will provide clarity and certainty about the scope of the rights to others in the province. Furthermore, a B.C. court is better placed to determine the scope and intent of the B.C. law, even if a California court would apply the B.C. privacy legislation in a lawsuit started there.
  • Convenience. As an additional factor, the Court concluded that it’s more convenient for Facebook to defend the lawsuit in B.C. than to require the claimant to sue in California.

Please contact your McInnes Cooper lawyer or any member of the Privacy Team @ McInnes Cooper to discuss this topic or any other legal issue.

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