Supreme Court of Canada Confirms in Douez v. Facebook that a Business Cannot Contract Out of Local Privacy LawDouez v. Facebook, Inc., 2017 SCC 33 (CanLII)
The Supreme Court of Canada overruled the B.C. Court of Appeal, holding that the forum selection clause was not enforceable. The majority ruling comes from two written decisions, as discussed below.
Reasons of Justices Karakatsanis, Wagner and Gascon
Writing for the majority, Justices Karakatsanis, Wagner and Gascon begin their reasons by admitting that forum selection clauses serve a valuable purpose, are commonly used and regularly enforced because they create certainty and security in transaction, derivatives of order and fairness, which are critical components of private international law. This echoes the dissent from Chief Justice McLachlin and Justices Moldaver and Côté. However, the judges within the majority ruling stated that Canadian courts do not simply enforce this clause like any other since forum selection clauses effectively encroach on the public sphere of adjudication. Indeed, they took into account that such clauses divert public adjudication of matters out of the provinces while court adjudication in each province is a public good since everyone has a right to bring claims before the courts, and these courts have an obligation to hear and determine these matters. Therefore, where no legislation overrides the forum selection clause, a two-step approach set out in Z.I. Pompey Industrie v. ECU-Line N.V.applies to determine whether to enforce such a clause and stay an action brought contrary to it.
The plaintiff must then show strong cause why the court should not enforce the forum selection clause and stay the action. At this second step of the test, a court must consider all the circumstances including the convenience of the parties, fairness between the parties, the interests of justice, as well as public policy. While these factors have been interpreted and applied restrictively in the commercial context, Justices Karakatsanis, Wagner and Gascon considered that the consumer context requires a modification of these factors. They based their reasoning on several judgments rendered by Canadian, English and Australian Courts which have recognized that the enforceability of the forum selection clause may differ depending on the contractual context. Consequently, they determined that courts should take into account public policy considerations relating to the gross inequality of bargaining power between the parties, and the nature of the rights at stake when examining the enforceability of a forum selection clause in a consumer contract.
They found that Douez had met her burden of establishing that there is strong cause not to enforce the forum selection clause, basing their decision on public policy considerations and on secondary factors.
In fact, they stated that a court has discretion to deny the enforcement of a contract for reasons of public policy in order to protect a weaker party or to protect the social, economic or political policies of the enacting state in the collective interest. Despite Facebook’s claim otherwise, Justices Karakatsanis, Wagner and Gascon came to the conclusion that there was gross inequality of bargaining power between the parties, considering (i) the online contract of adhesion between an individual consumer and a large corporation presented to consumers on a “take it or leave it” basis, with the choice to remain “offline” not being a real choice in the Internet era, and (ii) the greater interest of Canadian courts in adjudicating cases involving constitutional and quasi-constitutional rights such as the privacy rights of British Columbians, taking into account that it is only a local court’s interpretation of privacy rights under the Privacy Act that can provide clarity and certainty about the scope of the rights to others in the province.
In addition to the public policy reasons, the three judges stated that two other secondary factors also suggest that the forum selection clause should not be enforced. The first one is interest of justice: the B.C. Supreme Court is better placed to assess the purpose and intent of the legislation and to decide whether public policy or legislative intent prevents parties from opting out of rights created by the Privacy Act through a choice of law clause in favour of a foreign jurisdiction. The second one implies an analysis of the convenience and expense of litigating in the alternate forum: the expense and inconvenience of requiring British Columbians to litigate in California, compared to the expense and inconvenience to Facebook, make it more convenient to have Facebook’s books and records made available for inspection in B.C. rather than requiring Douez to travel to California to advance her claim.
Reasons of Justice Abella
The consequences of this judgment go beyond the scope of consumer contracts. In fact, the Supreme Court of Canada implied that the interest of Canadian courts in adjudicating cases involving constitutional and quasi-constitutional rights such as the privacy rights could be enough to allow the court to use its discretion to deny the enforcement of a contract for reasons of public policy. The enforceability of a forum selection clause in other types of contract could therefore be challenged when constitutional and quasi-constitutional rights are at stake.
A handful of provinces have a statutory tort (private right of action for a civil wrong) for invasion of privacy similar to the B.C. Privacy Act. For now, only the statutes of Newfoundland and Labrador and Saskatchewan include provisions conferring exclusive jurisdiction on a local court. In Quebec, the Civil Code of Quebec provides a similar legal framework and the Quebec Charter of Human Rights and Freedoms confers a quasi-constitutional status to privacy rights. Considering that the Supreme Court of Canada stated that forum selection clauses would not be enforceable if the statute clearly confers exclusive jurisdiction on a local court, we should remain on the lookout for potential legislative amendments reflecting this decision.
Although several provincial statutes, such as the Quebec Consumer Protection Act, were already restricting the enforceability of certain clauses in consumer contracts, businesses employing the Business to Consumer revenue model should now consider that certain clauses of their contracts with Canadian consumers might not be enforceable at the expense of privacy rights. Quebec readers should also note that the Supreme Court of Canada held that the contract between Facebook and its users was a consumer contract despite involving a free service, setting aside the 2011 decision of the Superior Court of Quebec which had ruled that such a contract was not a consumer contract.