Douez v. Facebook: Are courts finally tuning into the reality of consumer contracts?

In June, the Supreme Court of Canada issued its decision in Douez v. Facebook, Inc., 2017 SCC 33, an aspiring privacy law class action brought by a British Columbia resident against the social networking service. In the decision, the majority of the Court found that a clause in Facebook’s terms of use, which required that all lawsuits against Facebook take place in California, was unenforceable against Ms. Douez. What does this mean for consumer protection policy? Are Canadian courts finally tuning into the reality of consumer contracts?

The clause in Facebook’s terms of use requiring that legal proceedings against it take place in California courts alone is called a forum selection clause.

PIAC has historically questioned the enforceability of consumer contracts generally – often called contracts of adhesion, or “take-it-or-leave-it” contracts – because consumers don’t get the opportunity to negotiate or modify the contract. Either they take it and receive a product or service, or they leave it and also leave empty-handed. However, PIAC has also recently studied the additional challenges consumers face when they purchase a product or service online.

In a survey commissioned for PIAC’s report, Shopping for Consumer Protection: Current Jurisdictional Issues, Canadian consumers expressed significantly less confidence in their ability to resolve an online purchase dispute with a retailer when the retailer was located in the U.S., and even less confidence when the retailer was located outside Canada or the U.S. While:

  • 90% of respondents said they were confident they would be able to resolve a problem with a retailer located in the same province, and
  • 74% with a retailer located in another province,

only:

  • 52% were confident they could resolve a problem with a retailer located in the U.S., and
  • 23% with a retailer located outside Canada or the U.S.

Canadian consumers also had more trouble understanding information related to their purchase when retailers were located in another country, as opposed to in Canada. While 82% of respondents found information related to the total price of a product, applicable taxes, shipping costs and customs charges “very” or “somewhat” clear when the retailer was located in Canada, only about 63% found this information clear when the retailer was located in another country.

Finally, consumers were unsure about the laws which would apply if they encountered a problem with an online purchase made from a retailer located outside Canada. About 45% were not sure, while 18% of respondents said the laws in their province should apply and 35% said the law in the retailer’s jurisdiction should apply. While a smaller percentage of frequent online shoppers were unsure about which laws would apply (25%), 51% thought the laws of their province would apply.

This data leads to at least two key conclusions: (1) consumers feel less confident in their ability to resolve an online purchase dispute with a retailer located in another country, and (2) where they may wish to resolve a dispute, they find it more difficult to understand information provided by international retailers, as well as the laws which should apply. This is a double whammy which places consumers seeking remedies for an online purchase at a disadvantage. The additional requirement imposed by a forum selection clause to bring legal action in the retailer’s own jurisdiction, therefore, makes it a triple. As written by Sebastian in PIAC’s report, No Such Thing as a Free Lunch: Consumer Contracts and “Free” Services:

While there are legitimate interests on both sides of this issue, the problem is that this is yet another area where consumers lose out to business interests. A consumer lawsuit against a large corporation is already fought on uneven grounds, as a corporation would have significantly more resources at its disposal than an individual. With the imposition of a forum selection clause, consumers are forced to file their dispute on a corporation’s ‘legal home ground’, creating significant advantages for the corporation and significant inconvenience for the consumer. This inconvenience can easily rise to such a level that it deters consumers from bringing an action at all.[1]

In Douez, the majority of the Supreme Court of Canada appears to be finally willing to take a hard look at the fairness and enforceability of online consumer contracts. While the two concurring judgments, penned by Justices Karakatsanis, Wagner and Gascon on the one hand and Justice Abella on the other, differed on the legal analysis required to find “strong cause” that Facebook’s forum selection clause should not be enforced, they acknowledged similar policy concerns with online consumer contracts and the unequal bargaining power between consumers and corporations. Justices Karakatsanis, Wagner and Gascon write, for instance:

A court has discretion under the strong cause test to deny the enforcement of a contract for reasons of public policy in appropriate circumstances. Generally, such limitations fall into two broad categories: those intended to protect a weaker party or those intended to protect “the social, economic, or political policies of the enacting state in the collective interest”… In this case, both of these categories are implicated. It raises both the reality of unequal bargaining power in consumer contracts of adhesion and the local court’s interest in adjudicating claims involving constitutional or quasi-constitutional rights.

[…]

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…[2]

Justice Abella also writes:

… 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. 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?[3]

Both sets of reasons also recognize the quasi-constitutional nature of privacy rights provided in British Columbia’s Privacy Act[4] and at stake in Ms. Douez’s case, particularly should Ms. Douez be required to litigate those rights in California.[5]

The dissent, written by Chief Justice McLachlin and Justice Côté, whose legal analysis leads to a different conclusion, focuses on the certainty and predictability provided by forum selection clauses. They write, “Forum selection clauses provide certainty and predictability in cross-border transactions. When parties agree to a jurisdiction for the resolution of disputes, courts will give effect to that agreement, unless the claimant establishes “strong cause” for not doing so.”[6] The dissent, therefore, would have upheld the forum selection clause against Ms. Douez.

The question the dissent appears to stop short of asking, however, is: certainty for whom? The dissent’s hypothetical response to this question appears to emerge later in their reasons when they write:

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. Facebook adds that the certainty which comes with enforcement of forum selection clauses allows foreign companies to offer online access to Canadians. In our view, these benefits accrue to online businesses of all sizes, and in all locations.[7]

In other words, forum selection clauses primarily provide certainty and predictability for businesses. Where an online contract is formed between two businesses which truly “agree” on a jurisdiction for dispute resolution, these clauses do provide predictability for both parties. However, in the context of a consumer contract, particularly given the substantial academic research on the average consumer’s ability to read and understand online contracts, forum selection clauses chosen by businesses will tend to increase certainty for the corporation and conversely decrease certainty for the consumer. Therefore, while a corporation is provided certainty that legal proceedings against it will be brought in its home jurisdiction, consumers – who may complete numerous online transactions in one day – are left to grapple with multiple online contracts specifying forums for litigation which may be scattered across the world. Forum selection clauses provide certainty for businesses, not for consumers.

What does the Supreme Court decision mean for consumers? Seen on its own, the Court’s judgment in Douez may have little direct impact on consumers generally (although it certainly makes a difference for Ms. Douez and the other class action members). However, the hope among consumer advocates is that this decision will be a signal to Canadian courts, policy makers, and corporations to scrutinize and consider major changes that are needed to drafting, presenting and enforcing online consumer contracts. While certain elements of standard form contracts may linger for the purposes of efficiency and ease-of-use, significant work remains to be done with respect to the substance, language, structure, presentation, and consumer awareness and understanding of online contracts. Forum selection clauses in online consumer agreements, for instance, inherently tend to favour corporations and place the greater burden on consumers. They provide little benefit in the consumer context.

Consumers are not let off the hook, however. We encourage consumers to continue to review online contracts to the best of their ability, although they admittedly have little choice to reject or amend them. Some product and service providers now summarize the key terms of a contract or underline and emphasize certain provisions. Consumers should pay attention to these.

Meanwhile, PIAC will continue to play its part in advocating for consumer protections and adequate online privacy safeguards for all Canadian consumers. In the digital age, if left unresolved, the enforceability of consumer contracts will only become a growing and increasingly complex problem.

 

[1] Kent Sebastian, No Such Thing as a Free Lunch: Consumer Contracts and “Free” Services (Ottawa: Public Interest Advocacy Centre, 2014) at 37.

[2] Douez v Facebook, Inc, 2017 SCC 33 at paras 52 and 55. [Douez v Facebook]

[3] Ibid at paras 98-99.

[4] SBC 1996, c 373.

[5] See, for instance: Douez v Facebook at paras 59 and 105.

[6] Douez v Facebook at para 124.

[7] Ibid at para 160.

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