Douez v Facebook: Forum Selection Clauses in Contracts of Adhesion

On November 4th, the Supreme Court of Canada (“SCC”) heard oral submissions in the case of Douez v Facebook [Douez]. The appellant, Ms. Douez, sought to overturn an unanimous decision of the BC Court of Appeal (2015 BCCA 279) to stay a proposed class action against Facebook on the basis of a forum selection clause contained in Facebook’s Terms of Use—a contract to which approximately 19 million Canadians are party.

Ms. Douez commenced the action in the BC Supreme Court for breach of the BC Privacy Act, RSBC 1996 c 373 [the Act], alleging that Facebook used her name and likeness in its “Sponsored Story” advertisements without her consent. Ms. Douez’s action was brought under section 3(2) of the Act, which allows for a statutory tort for breach of privacy to advance in the absence of proof of damages. Ms. Douez argued that section 4 of the Act grants exclusive jurisdiction to the BC Supreme Court over claims arising from the statute. Facebook’s forum selection clause requires that all disputes between Facebook users and the company must be filed in California courts. Facebook moved for a stay of the action on this basis.

In Douez, the SCC has been asked by the appellant to refine the current common law test on a motion for a stay of proceedings to enforce a contractual forum selection clause in situations involving consumer contracts of adhesion. The SCC has been presented with 5 different approaches for recasting the test by the parties and interveners.

This post outlines and examines two aspects of these proposed reformulations of the test—a shift in the burden of proof from the party seeking relief to the party seeking to enforce the clause; and how unconscionability factors into the analysis.

The Pompey Test

The Supreme Court of Canada considered the enforceability of forum selection clauses in ZI Pompey Industrie v ECU-Line NV, 2003 SCC 27 [Pompey]. Pompey involved an action brought for damages to cargo in breach of a bill of lading. The bill of lading contained a forum selection clause designating that the laws of Belgium would govern the contract and the courts in Antwerp would hear any associated disputes, to the exclusion of all others jurisdictions. The SCC upheld the applicability of the “strong cause test” articulated in the UK case The Eleftheria. The Pompey test requires a two-part inquiry (para 19):

• Whether there is an enforceable contract binding the parties;
• If so, the court must grant the stay unless the plaintiff can show sufficiently strong reasons to support the conclusion that it would not be reasonable or just in the circumstances to require the plaintiff to adhere to the terms of the clause [emphasis added].

The appellant in Douez argued that the Pompey test is derived from a commercial situation in which equality of bargaining power and negotiation of contractual terms are presumed. Accordingly, there can be a foundational understanding that parties to a contract should be held to their bargain. In contrast, online terms of use are “take it or leave it” consumer contracts of adhesion in which the legal terms are set unilaterally, often between sophisticated business entities and lay people, with no opportunity for negotiation.

Shifting the Burden of the “Strong Cause” Inquiry    

Both the appellant and the Canadian Civil Liberties Association (CCLA) advocated for a modified test under which the burden is shifted to the party seeking to enforce the clause when a prima facie case for strong cause is made out by the party seeking relief. The CCLA differed, however, in defining the parameters upon which a prima facie strong cause may be made out.

The approach advanced by the CCLA asks that the party seeking relief demonstrate that (a) the clause forms part of a contract of adhesion; and (b) the interests at stake are constitutional or quasi-constitutional rights and interests for which there is a public interest in ensuring protection (Factum of the CCLA, para 27).

Once this prima facie test is met, the onus would shift to the party seeking to rely on the clause to demonstrate “that enforcement…would not result in undermining or derogating from the protections of those interests” (Factum of the CCLA, para 27).

The appellant argued that in the context of consumer contracts of adhesion, the burden should remain on the party “that crafted the contract and its forum selection clause” for both stages of the test—advocating for either a nuanced approach or direct application of section 11 of the Court Jurisdiction and Proceedings Transfer Act, SBC 2003, c 28 to meet this objective (Factum of the Appellant, para 72-73). In oral argument, the appellant expanded on what is meant by a “nuanced” application of the strong cause test. The appellant suggested that where the party seeking relief shows a prima facie case of strong public policy, either a legal or tactical burden should fall on the party seeking to enforce the contract to show that the public policy will not be undermined. In the case at bar, the appellants contended that the strong policy rationale is the quasi-constitutional privacy interests of British Columbians entrenched in the statutory tort.

The respondent argued that the shift in burden being advocated by the appellant represents both an unnecessary departure from existing jurisprudence, and sets an impossible burden for the party seeking to enforce the contract. Facebook contended that once the initial burden of demonstrating that the contract is valid, clear, and enforceable is discharged, the burden rightly lies with the party who freely agreed to the contract. Any concerns pertaining to the existence of an imbalance in bargaining power should be raised as considerations going towards the unconscionability of the contract.

Further, the respondent submitted that a burden to disprove strong cause in circumstances where (as the appellant’s formulation of the revised test permits) it is open for the party seeking relief to advance any conceivable policy argument for establishing strong cause sets an unreasonable and impossible bar to meet. 

 “The Elephant in the Room”: A case for a new branch?

Throughout the hearing, the line of questioning of the bench continued to find its way back to the so called “elephant in the room”—the lack of factual information adduced by either party on whether a California court would assume jurisdiction over the claim and, if it were to do so, whether it would apply BC law and recognize the statutory tort established under the Privacy Act. This question is particularly crucial in the context of this case, where a decision to decline an application of BC law by a California would effectively extinguish the cause of action being advanced by the plaintiff.

The test proposed by the CCLA partially addresses this point by shifting the burden to the party who has unilaterally selected the forum to demonstrate that, where certain critical legal interests engaged, the plaintiff’s legal interests will be protected. While the appellant’s nuanced test seeks to achieve something similar, as the respondent has noted, it advocates for a shift of burden based on an imprecise standard of “strong public policy.” I find the respondent’s argument persuasive. Under this formulation, there is a high burden placed on the defendant to bring forth arguments based on what may be perceived by the opposing party as sufficient grounds to warrant relief.

The underlying rationale of the proposed shift in burden raises an interesting suggestion. I however believe that the approach of the CCLA and the appellant overlook an important aspect of the “strong cause” test as developed: the protective element that its broad formulation affords the party seeking relief. The strong cause test is not limited in scope to ensuring that legal and public policy interests underlying a claim are protected—rather the test articulated in Pompey enables the party seeking relief to advance any argument which would meet the threshold of establishing that it would not be just or reasonable in the circumstances to enforce the clause. Thus, even if the party seeking enforcement is able to adduce sufficient evidence that the interests in question will be protected, the inquiry would not end. It would instead still be open to the plaintiff to raise arguments on other grounds specific to the circumstances of the case to establish “strong cause” against enforcement of the clause.

While I am partial to the underlying rationale of the CCLA’s test, the scope of interests triggering the shift in burden are susceptible to criticism based on the arguments raised by the respondent with respect to anticipating policy. The test further begs the question of what the appropriate standard of protection afforded by the other jurisdiction may be. Is it enough, for example, for California to have privacy legislation or common law protection of privacy interests, or is the actual issue at play a desire to protect the specific legal interests that are afforded by section 3(2) the BC Privacy Act? My view is that the latter affords the protection most needed in situations such as the case at bar where the enforcement of the forum selection clause exposes the plaintiff to a potential extinguishment of legal rights.

This view is consistent with the nature of the motion for a stay of proceedings being made by the party who is seeking to enforce the forum clause. At this stage of the proceedings, this party has the benefit of pleadings to determine the allegations and causes of action being advanced and thus the information needed to discharge the burden. What they do not have, however, is insight into the basis upon which the plaintiff may seek relief in order to sufficiently pre-empt arguments against enforcement.

Drawing from the proposal of the CCLA and appellant, a new branch of the test may be warranted in situations where a cause of action advanced by the plaintiff arises from a statutory right facing risk of extinguishment by the enforcement of the forum selection clause. In such cases the court could require the party seeking to enforce the contract to demonstrate that such an extinguishment would not occur. Such an inquiry would address the “elephant in the room” and assign the burden to the party who has unilaterally imposed a particular forum and thus may be presumed to be in the best position to lead evidence on the law of that jurisdiction. The establishment of such a branch in my view, however, should not come at the expense of eliminating the existing “strong cause” test. Rather, combining stage one of the Pompey inquiry with a new step addressing the ability of the plaintiff to advance their claim would serve as the basis upon which to hold the parties to a bargain. The “strong cause” test would then serve as a third step in which the plaintiff may advance arguments such as access to justice, prejudice, or procedural disadvantage.

Unconscionability as a Distinct Branch of Inquiry  

The Interactive Advertising Bureau of Canada (“IABC”) has suggested a recasting of the test into a three-step inquiry in which the court must consider: (1) whether the online consumer contract is enforceable on its face; (2) if so, whether the terms of the contract are unconscionable and/or whether there is applicable legislation that explicitly overrides the forum selection clause; and (3) If not, the court should apply the “strong cause” test from Pompey to determine if the clause should be enforced (Factum of IABC, para 6).

The Information Technology Association of Canada (“ITAC”) has suggested that the “strong cause” test be constrained to apply only in situations where the plaintiff can demonstrate (1) unconscionability or (2) overriding public policy considerations (Factum of the ITAC, para 25).

The IABC and ITAC’s formulations of the test recognize that unequal bargaining power may be a reality in cases involving consumer contracts of adhesion. This perspective raises the question of where an inquiry into the nature of the contract is most appropriately localized. I would suggest that such an inquiry fits squarely into the first branch of the Pompey test, where the court is asked to consider whether the clause is clear, valid, and enforceable. I would also suggest that, within this analysis, the clause should be considered within the entire context of the contract. In this respect, a consideration of equitable defences to contract enforcement such as unconscionability should form part of the court’s inquiry into whether the contract is clear, valid, and enforceable. Setting unconscionability as a distinct branch of inquiry thus parses out a specific defence within the test and avoids placing an onus on the parties to advance arguments for and against contract enforcement at the first stage of the test.

The natural follow-up question then becomes whether the state of contract law governing the formation and enforceability of forum selection clauses in consumer contracts of adhesion is sufficient to address concerns of inequality in bargaining power and position between parties. The appellant in Douez raised an argument to this effect. Drawing from the American case Berkson v Gogo LLC, 97 F Supp 3d 359 (EDNY 2015) [Berkson], the appellants sought to advance a “nuanced” standard of inquiry to determine whether a contract of adhesion meets the threshold of clarity to warrant enforceability.

The court in Berkson set out an evaluative framework for considering the enforceability of the terms of service of Goge LLC (a provider of in-flight internet services). The appellant in Douez drew the SCC’s attention to the fourth branch of the framework, which considers the following (402):

Did the merchant clearly draw the consumer’s attention to material terms that would alter what a reasonable consumer would understand to be her default rights when initiating an online consumer transaction from the consumer’s state of residence : The right to (a) not have a payment source charged without notice (i.e., automatic payment renewal); (b) bring a civil consumer protection action under the law of her state of residence and in the courts in her state of residence; and (c) participate in a class or collective action? If not, then (a), (b), or (c) should not be enforced against the consumer.

The appellant suggested that the court adopt a similarly a nuanced approach to the enforceability of forum selection clauses in consumer contracts of adhesion. The respondent argued that Canadian contract law sufficiently addresses the issue of enforceability in this context. In the absence of clear legislative intervention, existing law of contract formation should apply.

Conclusion

The original test in Pompey reflects two underlying legal principles: (1) a presumption that once the forum is properly established, that forum should prevail unless clear cause can be shown otherwise; and (2) parties who enter fairly into an enforceable agreement containing a forum selection clause should be held to their bargain.

In my view, these underlying principles suggest that the necessary focus with respect to forum selection in contracts of adhesion is not only the strong cause branch of the test. It is also the preliminary stage of inquiry that requires the court to establish whether the clause is clear, valid, and enforceable. It is at this stage where the court is called upon to determine if there is a prima facie bargain to which the parties should be held.

While debates on whether forum selection clauses in contracts of adhesion are appropriate at all—and if so, what the appropriate pre-conditions to acceptance should be—arguably fall within the purview of the legislature, it is within the jurisdiction of the court to have regard to the circumstances of the contract and of the contracting parties.

There is no shortage of options for refinement of the Pompey test before the SCC in this case. This post has attempted to highlight a few interesting points raised in these proposals, however I would encourage interested readers to view the facta of the parties and interveners for an in-depth discussion of these points and the other proposed revisions of the strong cause test. The key themes that emerged in the SCC hearing included consumer protection, access to justice, extinguishment of rights, and certainty in contract formation. It will be interesting to see how the SCC judgment addresses these themes while balancing underlying principles of private international law, jurisdiction, and contract law.