The Supreme Court of Canada issued a landmark decision this morning on the enforceability of forum selection clauses in online contracts, rejecting Facebook’s effort to block a privacy class action lawsuit in British Columbia on the grounds that its own contract specified that legal actions be brought in California. A divided court ruled that the unequal bargaining power between consumers and companies such as Facebook – combined with the importance of privacy rights – meant that the clause should not be enforced and that the lawsuit should proceed in Canada.

The decision represents a clear recognition that courts should not be quick to allow companies to contract out of important rights by ousting local laws through forum selection clauses. More broadly, the terms found within non-negotiated take-it-or-leave it clickwrap contracts should not always be enforced by the courts, particularly where important rights or remedies might be lost by doing so. While forum selection clauses are an obvious mechanism for restricting rights, the reasoning might also be applied to other online contractual terms that seek to override important laws and protections. These could include contractual terms that seek to override copyright user rights such as fair dealing or local consumer safeguards.

The background of the case involves a privacy class action lawsuit over a Facebook “sponsored stories” program that no longer exists. The trial judge noted that the heart of the case is whether online terms and conditions override domestic legal protections (in this case, the B.C. Privacy Act). The trial court judge ruled that the terms did not, citing provisions in the B.C. Privacy Act that confer exclusive jurisdiction on the B.C. Supreme Court. The B.C. Court of Appeal rejected both the analysis of the BC Privacy Act and the broader public policy considerations of whether online terms should trump local law. The appeal court ruled that the Facebook terms were “valid, clear, and enforceable”. It then fell to the plaintiff to demonstrate why the court should decline to enforce the forum selection clause. The court cited as a possible example evidence that the case could not be heard in the California court (which would have the effect of creating a limitation of liability for Facebook). Without such evidence, the court ruled that the Facebook terms were binding. Moreover, it rejected the argument that the B.C. Privacy Act is intended to trump valid contracts.

The Supreme Court of Canada ruling overrules the B.C. Court of Appeal, holding that the forum selection clause was enforceable. The majority ruling comes from two written decisions:
Justices Karakatsanis, Wagner and Gascon writing one set of reasons and Justice Abella the other.

The Karakatsanis, Wagner and Gascon ruling emphasizes the uneven bargaining power between the parties:

The grossly uneven bargaining power between the parties and the importance of adjudicating quasi-constitutional privacy rights in the province are reasons of public policy that are compelling, and when considered together, are decisive in this case.

While supporters of online contracts frequently cite the need for certainty, the court notes that there may be other factors to consider (happily citing directly from the CIPPIC intervention):

Irrespective of the formal validity of the contract, the consumer context may provide strong reasons not to enforce forum selection clauses. For example, 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, depending on the other circumstances of the case. And as one of the interveners argues, instead of supporting certainty and security, forum selection clauses in consumer contracts may do ‘the opposite for the millions of ordinary people who would not foresee or expect its implications and cannot be deemed to have undertaken sophisticated analysis of foreign legal systems prior to opening an online account’ (Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic Factum).

The majority concludes that Douez met the burden of establishing that there is strong cause not to enforce the forum selection clause. The reasons include unequal bargaining power and the importance of privacy as a quasi-constitutional right. On unequal bargaining power, they cite my colleague Marina Pavlović in stating:

Despite Facebook’s claim otherwise, it is clear from the evidence that there was gross inequality of bargaining power between the parties. Ms. Douez’s claim involves an online contract of adhesion formed between an individual and a multi-billion dollar corporation. The evidence on the record is that Facebook reported almost $4.28 billion in revenue in 2012 through advertising on its social media platform. It is in contractual relationships with 1.8 million British Columbian residents, approximately forty percent of the province’s population. Ms. Douez is one of these individuals. Relatedly, individual consumers in this context are faced with little choice but to accept Facebook’s terms of use. Facebook asserts that Ms. Douez could have simply rejected Facebook’s terms. But as the academic commentary makes clear, in today’s digital marketplace, transactions between businesses and consumers are generally covered by non-negotiable standard form contracts presented to consumers on a “take-it-or-leave-it” basis (Pavlović, at p. 392).

On privacy, the court discusses its importance as a quasi-constitutional right and is particularly sensitive the privacy challenges that arise from the Internet:

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. There is an inherent public good in Canadian courts deciding these types of claims. Through adjudication, courts establish norms and interpret the rights enjoyed by all Canadians.

At issue in this case is Ms. Douez’s statutory privacy right. Privacy legislation has been accorded quasi-constitutional status. This Court has emphasized the importance of privacy – and its role in protecting one’s physical and moral autonomy – on multiple occasions. As the chambers judge noted, the growth of the Internet, virtually timeless with pervasive reach, has exacerbated the potential harm that may flow from incursions to a person’s privacy interests. In this context, it is especially important that such harms do not go without remedy.

The majority adds that there are additional factors that weigh toward non-enforcement, including the interests of justice (it wasn’t clear that a California court, which was designated in the Facebook clause, would even hear the case) and the convenience and costs associated with litigating there.

Justice Abella joined the majority with reasons that adopted an even stronger position against the enforceability of the Facebook contract. While Justices Karakatsanis, Wagner and Gascon ruled that the clause is enforceable under contractual doctrine but that Douez met the burden of showing strong cause that it should not be enforced, Justice Abella concluded that it was not enforceable at the first step of inquiry, emphasizing the non-negotiated nature of online contracts.  She states:

I accept that certainty and predictability generally favour the enforcement at common law of contractual terms, but it is important to put this forum selection clause in its contractual context. We are dealing here with an online consumer contract of adhesion. Unlike Pompey, there is virtually no opportunity on the part of the consumer to negotiate the terms of the clause. To become a member of Facebook, one must accept all the terms stipulated in the terms of use. No bargaining, no choice, no adjustments.

Justice Abella then asks the question that many consumers may ask in the context of online contracts:

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?

Her conclusion:

In general, then, 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.

Justice Abella’s analysis then turns to the importance of privacy and the “grossly uneven bargaining power” in concluding that the forum selection clause in the Facebook agreement is unenforceable as a “classic case of unconscionability.”

There is a dissent from Chief Justice McLachlin and Justices Moldaver and Côté.  They emphasize the importance of forum selection clauses, arguing that the default should be that they are enforceable, particularly in the online environment (citing an article I wrote many years ago about the challenges of Internet jurisdiction). They note that many companies large and small rely on the clauses and that :

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.

The dissent also argues that there was no evidence of the state of California law nor of the hardship in litigating there.

With the majority ruling against the enforceability of the forum selection clause, the court has demonstrated their discomfort with non-negotiated online terms that place consumers at a significant disadvantage and may result in a loss of rights. While forum selection clauses are an obvious manifestation of that, the reasoning might also be applied to other online contractual terms that seek to override important laws and protections. These could include contractual terms that seek to override copyright user rights or local consumer safeguards. The decision will undoubtedly have a significant impact on online contracting in Canada, forcing many online companies to reconsider whether their agreements are fully enforceable and emboldening consumers to stand up for their rights.