Oh Supreme Court, you’ve gone and done it now.
I do love when a big internet law decision comes down from the Supreme Court of Canada. It makes my life exciting! And it’s a rare occurrence. And last week we had a BIG internet law decision. HUGE. EPIC, even. It’s called Douez v. Facebook, and it has all sorts of ramifications. As the CBC story headline says, “Supreme Court says woman can sue Facebook in B.C. courts”. That’s good news I guess? We’re gonna have to take a deep dive into this one. Grab a beverage.
I actually wrote about this case back when the lawsuit was launched in April 2012. Ahh, simpler times. Back then, I summarized the facts as follows:
Debbie Douez was just hanging out on FB like we all do to varying degrees, when she “liked” a FB group called “cool entrepreneurs.” Like we’ve all done a hundred times. What happened then is that Ms. Douez’ name and picture popped up in her friends’ “sponsored stories” feed as an advertisement saying she liked the group. Ms. Douez believes that FB has used her image without her permission, and is suing them. Not only that, her very smart lawyers have decided that a bunch of other people in B.C. must have had this happen to them too, so they made it a class action lawsuit when they filed this last week. Ch-ching!
That’s still pretty accurate. Back in 2012, I was more excited about the merits of the case, the whole privacy issue of whether your picture can be used like this so FB can make money off you. That was interesting!
So here’s the deal. Douez (and her class of people – 1.8 million BC Facebook users!) sued Facebook in British Columbia. Facebook then said “whoaaaa nelly!” (but legally). When Douez and her ilk joined Facebook, the agreed to be bound by their terms of service, which FB euphemistically calls a “Statement of Rights and Responsibilities”. Yeesh. Anyway, those Terms say the following:
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 the U.S. District Court for the Northern District of California or a state court located in San Mateo County, and you agree to submit to the personal jurisdiction of such courts for the purpose of litigating all such claims. 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.
Note that I quoted the current FB Terms, the one at issue was a bit different, but the principle is the same – you have to go to California to sue FB. Seems pretty cut and dry. British Columbia is not California! FB says that the case should not even be heard, because of this “Forum Selection” clause. But the first judge told FB to go F itself, there are violations of the B.C. Privacy Act which are important and the case should go on, because the courts of BC have jurisdiction over the BC Privacy Act. FB appealed, and the BC Court of Appeals agreed with FB – the forum selection clause is valid and enforceable, go to California for your lawsuit Ms. Douez. Douez did not want to travel to Cali, so she went to the Supreme Court instead. And here we are, five years later.
The Supreme Court allowed the appeal and said that the forum selection clause is worthless. My life’s work, worthless. / sniff
We do have a very divided Court however. The decision was only 4-3. There were actually three different judgments – 3-1-3. The first two agreed on the result. Let’s take ’em one by one.
Justices Karakatsanis, Wagner and Gascon – Appeal allowed
These guys hint at where they are going right off the bat:
Forum selection clauses serve a valuable purpose. This Court has recognized that they “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” (Pompey, at para. 20). Forum selection clauses are commonly used and regularly enforced.
That said, forum selection clauses divert public adjudication of matters out of the provinces, and court adjudication in each province is a public good…. because forum selection clauses encroach on the public sphere of adjudication, Canadian courts do not simply enforce them like any other clause.
Basically, forum selection clauses are a fine idea in principle, but don’t forget the public good! We can just toss them out! You may see in that quote above “Pompey” which is a Supreme Court case that establishes when a forum selection clause should be enforceable. It basically comes down to a two-step test:
- 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 cause of action before the court”. Then if that happens…
- The plaintiff must show strong reasons why the court should not enforce the forum selection clause and stay the action
In Pompey, the court upheld the forum selection clause in a commercial contract between two companies. But Douez is not a company! She is a consumer. And the Court says:
commercial and consumer relationships are very different. Irrespective of the formal validity of the contract, the consumer context may provide strong reasons not to enforce forum selection clauses.
Remember that. More specifically:
the unequal bargaining power of the parties and the rights that a consumer relinquishes under the contract, without any opportunity to negotiate, may provide compelling reasons for a court to exercise its discretion to deny a stay of proceedings
And there we have it, pretty much. The Court adjusts how the Pompey test should be applied to suit a consumer contract situation, calling for an adjustment of the “strong cause” test at the 2nd step (I’ll explain that in a bit). The “gross inequality of bargaining power” between a rich giant company and a poor little consumer will be a significant factor in applying the Pompey test.
So the Court goes through the test. First, they say that the Privacy Act provision about jurisdiction the lower court judge cited does not apply, so I won’t even mention that. They then say the first step of the Pompey test is passed. The forum selection clause is clear and valid according to contract law. On to step 2.
So they “conclude that Ms. Douez has met her burden of establishing that there is strong cause not to enforce the forum selection clause”. What is a “strong cause”? Well, it’s what it sounds like! BUT the point is the factors to determine what is a “strong cause” will be different in a consumer situation. In a commercial situation, you have to restrict what factors lead to determining if you have a strong cause. But in a consumer situation, you can really open up the factors, including talking about public policy.
Canadian courts have a greater interest in adjudicating cases impinging on constitutional and quasi-constitutional rights because these rights play an essential role in a free and democratic society and embody key Canadian values
Privacy is a quasi-constitutional right. Public Policy concerns are heavy in making that “strong cause”.
They then go through other factors – interests of justice, and the comparative convenience and expense of litigating in the alternate forum. The interests of justice favour hearing the case in BC because even if the California court would hear a BC Privacy Act case (and no one is sure they even would), a BC court is better positioned to do so. And for the second one, it’s easier to have Facebook come to BC than to have Douez go to Cali (not sure about that, but whatever). Point is, more support for the strong cause. Forum selection clause (in this type of case at least) – unenforceable.
To sum up, the way the Pompey test is often worded – the clause could be enforced (step 1) but should not be enforced (step 2).
Justice Abella – Appeal allowed
While she agrees with the result of the first three judges, she’s got different reasons. She says that the first step of the Pompey test is not even passed! She basically talks about the same things the other three judges did, but in the context of asking the basic question of whether the clause is enforceable under contract law. She basically shits all over online consumer contracts. Again, my life’s work:
Online contracts such as the one in this case put traditional contract principles to the test. What does “consent” mean when the agreement is said to be made by pressing a computer key? Can it realistically be said that the consumer turned his or her mind to all the terms and gave meaningful consent? In other words, it seems to me that some legal acknowledgment should be given to the automatic nature of the commitments made with this kind of contract, not for the purpose of invalidating the contract itself, but at the very least to intensify the scrutiny for clauses that have the effect of impairing a consumer’s access to possible remedies.
That’s harsh, man. I admit from a consumer’s perspective it makes sense. You click a button to accept some contract you can’t change, we should look more carefully at what is in those contracts. A contract “you can’t change” btw is what we in the biz call a contract of adhesion, and generally all consumer contracts are contracts of adhesion. In Quebec, we even have a law that says forum selection clauses in consumer contracts are n.g. (and Judge Abella cites this). She then says:
when online consumer contracts of adhesion contain terms that unduly impede the ability of consumers to vindicate their rights in domestic courts, particularly their quasi-constitutional or constitutional rights, in my view, public policy concerns outweigh those favouring enforceability of a forum selection clause.
So basically public policy, quasi-constitutional privacy rights, yada yada, the same thing the first three judges talked about. Then she also goes on about the unequal bargaining power of the parties. These factors make the forum selection clause unconscionable. In contract law, anything that has “inequality of bargaining powers and unfairness” will be unconscionable, and not valid. So the forum selection clause is not valid, failing step 1 of the Pompey test.
Chief Justice McLachlin, and Justices Moldaver and Côté – Dissenting (would dismiss the appeal)
You can see where they are leaning:
The issue assumes great importance in a world where millions of people routinely enter into online contracts with corporations, large and small, located in other countries. Often these contracts contain a forum selection clause, specifying that any disputes must be resolved by the corporation’s choice of court. In this way, global corporations, be they American, Canadian or from some other country, seek to ensure that they are not dragged into litigation in foreign countries.
The internet! It’s international! We can’t have companies be dragged into courts everywhere their users are. The forum selection clauses are there for a reason gooddammit!
They also go through the Pompey test, but surprise, they have it fail. Both steps. Amazing the way judges can apply the same test and get different results! You’ve learned something about judges and courts today – everyone interprets differently. Anyway, these three say that forum selection clauses are neither against public policy or unconscionable (nice dig!):
Forum selection clauses, far from being unconscionable or contrary to public policy, are supported by strong policy considerations.
Me-ow! Clause is valid (step 1). As for step 2, as I said above, “strong cause” is what it sounds like:
Strong cause means what it says — it is not any cause, but strong cause
There is no strong cause dammit. The forum selection clauses are important:
It is not only large multi-national corporations like Facebook that benefit from emphasizing the need for order in private international law. The intervener, Information Technology Association of Canada, points out that small and medium-sized businesses benefit from the certainty that flows from enforcing forum selection clauses, and that by reducing litigation risk they can generate savings that can be passed on to consumers.
Not quite sure about the passing on the savings bit, but certainty is important for sure. They then go through the Pompey factors in step 2 like their colleagues, but they say the majority is full of crap (I’m paraphrasing). The clauses are very important!!!:
The overwhelming weight of international jurisprudence shows that, far from being a subterfuge to deny access to justice, forum selection clauses are vital to international order, fairness and comity.
I won’t go through much more because dissents are not the law, so we shouldn’t focus on these losers. But they do make some good points:
Nothing in her situation suggests that the class action she wishes to commence could not be conducted in California just as easily as in British Columbia. To show strong cause to oust a foreign selection clause on the basis of residence, the plaintiff must point to more than the mere fact that she lives in the jurisdiction where she seeks to have the action tried. If this sufficed, forum selection clauses would be routinely held inoperative.
Exactly! Also, too:
We note parenthetically that the strength of the contention of unequal bargaining power seems tenuous, when one realizes that Ms. Douez received the Facebook services she wanted, for free and without any compulsion, practical or otherwise. Even if remaining “‘offline’ may not be a real choice in the internet era”, as suggested by our colleagues Karakatsanis, Wagner and Gascon JJ. (at para. 56), there is no evidence that foregoing Facebook equates with being “offline”. In any case, enforcement of the forum selection clause does not deprive Ms. Douez, or anyone else, of access to Facebook.
Exactly! Again! I know plenty of people not on Facebook. They are fine. In fact, many of them are happier! Ok, enough of these losers.
Superterriffic Happy Hour Analysis Time
I am all sorts of conflicted here. I like the fact that when your privacy has been violated, you can sue where you live because the law (like the BC Privacy Act) applies to you there where you live. I do think there is something to the relative imbalance of giant companies and consumers, and we should be helping out those consumers. And I do find some interesting merit in the actual lawsuit itself as a privacy violation, as I wrote back in 2012. And furthermore, maybe this will make these giant companies think long and hard about doing questionable things in general if they know they could be sued here. That’s good!
On the other hand, as I keep saying, my life’s work! My life’s work (in part) consists of drafting Terms for some of those “small- and medium-sized” tech companies the dissenters mention. There is a damn good reason I put a forum selection clause in there, it’s important for my clients to know where they might get sued. Sure, this decision is good for Canadians, but what of the reverse? What if the Canadian companies I represent had to go to England, or Australia, or anywhere really because their forum selection clause was not valid? Nightmare. The floodgates may have been opened here. My clients are not Facebook. They are a few guys in a rent-by-month shared office space trying to build a business. They need some certainty! They may as well not hire me anymore.
My world is in chaos.