SCC Rules in Favour of Plaintiffs in Class Action Against Facebook

On June 23 the Supreme Court of Canada (SCC) delivered its decision in Douez v Facebook Inc., ruling in favour of the plaintiff. This decision affirms that the privacy rights of Canadians override forum selection clauses contained in contracts of adhesion, which are becoming increasingly prevalent in places such as online service agreements.

The issue in Douez was over which court had jurisdiction to hear a case about the unauthorized use of the plaintiff’s likeness by Facebook under section 3(2) of the British Columbia (BC) Privacy Act (the Act). This section creates a statutory tort for the unauthorized use of one’s name or portrait. The plaintiff claimed that BC was the appropriate forum to try the case, as section 4 of the Act states that all actions under the statute must be brought before the BC Supreme Court. Facebook claimed that the forum selection clause in section 15 of its terms of service (ToS) agreement overrides the Act; the ToS state that all legal action against the company must be brought in California.

The decision is important because it examines forum selection clauses in relation to contracts of adhesion where one party completely controls the formation of the terms and the other party has no ability to negotiate. As more people do business online through these types of ToS agreements, which they have no ability to negotiate and often don’t bother reading, the ruling in Douez can prevent foreign companies from relying on such forum selection clauses to circumvent local courts.

The SCC relied on the closest precedent in this area, Pompey Industrie v ECU Line NV, which addressed when courts will enforce forum selection clauses in contracts between parties with relatively equal negotiating power and sophistication. In this decision, the Court articulated the “strong cause” test which forms the standard for assessing the enforceability of these clauses. Under this test, the party who created the forum selection clause must show that the clause is “valid, clear and enforceable” in its application. The onus then shifts to the party opposing the clause to show a “strong cause” as to why the court should not enforce it. Here, a “strong cause” is a sufficiently imperative reason that it would be unreasonable or unjust to enforce the otherwise valid clause.

In Douez, the Court confirmed that this standard applies to contracts of adhesion and that individual privacy interests under the Act are a sufficiently “strong cause” to override forum selection clauses. In her majority reasons, Justice Karakatsanis noted that BC was better situated to assess the legislative intent and public policy reasons behind the Privacy Act and the economic inequality between the two parties, noting the difficulty that the plaintiffs would face in traveling to California for the duration of the lawsuit. In concurring reasons, Justice Abella raised the issue of unconscionability given the “grossly uneven bargaining power” between Facebook and private citizens as well as the unfair advantage arising from forcing claimants to enter into them in order to use services. In her dissent, Chief Justice McLachlin gave a stricter interpretation of the “strong cause” test as being “essential for upholding certainty, order and predictability in private international law”.

However, an ongoing problem with forum selection cases is that the strong cause test does not address whether a court in the jurisdiction set out by the clause would even hear the case. The Canadian Civil Liberties Association, as interveners, proposed in their factum that the Court adopt a new branch of the “strong cause” test where the onus is on the party that crafted the clause to show that the other party’s legal interests will be protected in the stated jurisdiction. The Court neglected to address this issue in the decision, so the two-step strong cause test, remains unchanged.

Intervenors for the plaintiff also raised the concern that online contracts of adhesion are often unconscionable due to the unequal bargaining power between parties, an issue that Justice Abella raised in paragraph 112 as an additional reason for her decision. The Interactive Advertising Bureau of Canada (IABC) suggested in their factum reforming the test with an initial step that asks, in the case of online consumer contracts of adhesion, if the terms are unconscionable, and only then proceeding to the strong cause analysis.

Another intervenor, the Information Technology Association of Canada (ITAC), suggested that the strong cause analysis only apply if the claimant can prove (1) unconscionable terms or (2) overriding public policy considerations. In an article for TheCourt.ca, Osgoode Hall student Kiran Mahal suggested that concerns over whether online agreements are unconscionable can be addressed in the existing first step of the strong cause test – whether the terms of the agreement are valid, clear and enforceable.

The outcome of Douez affirms an interpretation that online service agreements fall under the jurisdiction they are agreed to in. It also means that Canadians can rely on privacy legislation to protect their identities online, and will be able to try actions under these laws before a court with a nuanced understanding of Canadian privacy law. With the proliferation of online services and the suggestion by Justice Abella and several intervenors that online service agreements are prone to being unconscionable, online service providers need to be aware of the stricter interpretation of Canadian privacy laws before taking action that may be legal in the United States or elsewhere.

 

Roger Angus is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.

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