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Contracts - Forum Selection Clauses

Courts - Jurisdiction - Forum Selection Clauses

Douez v. Facebook, Inc. (SCC, 2017)

In this BC case the Supreme Court of Canada reviewed the law respecting the enforceability of forum selection clauses, particularly with respect to commercial versus consumer contracts (the latter commonly known as 'contracts of adhesion'). The badly-split court held against Facebook's clause requiring litigation in California courts, largely in light of the gross inequality of bargaining power between the parties, and the practical problems that consumers faced in conducting such litigation:
[27] Of course, parties are generally held to their bargain and are bound by the enforceable terms of their contract. However, because forum selection clauses encroach on the public sphere of adjudication, Canadian courts do not simply enforce them like any other clause. In common law provinces, a forum selection clause cannot bind a court or interfere with a court’s jurisdiction. As the English Court of Appeal recognized long ago, “no one by his private stipulation can oust these courts of their jurisdiction in a matter that properly belongs to them” (The Fehmarn, [1958] 1 All E.R. 333, at p. 335).

[28] Instead, where no legislation overrides the clause, courts apply a two-step approach to determine whether to enforce a forum selection clause and stay an action brought contrary to it (Pompey, at para. 39). At the first step, 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” (Preymann v. Ayus Technology Corp., 2012 BCCA 30 (CanLII), 32 B.C.L.R. (5th) 391, at para. 43; see also Hudye Farms, at para. 12 and Pompey, at para. 39). At this step of the analysis, the court applies the principles of contract law to determine the validity of the forum selection clause. As with any contract claim, the plaintiff may resist the enforceability of the contract by raising defences such as, for example, unconscionability, undue influence, and fraud.

[29] Once the party seeking the stay establishes the validity of the forum selection clause, the onus shifts to the plaintiff. At this second step of the test, the plaintiff must show strong reasons why the court should not enforce the forum selection clause and stay the action. In Pompey, this Court adopted the “strong cause” test from the English court’s decision in The “Eleftheria”, [1969] 1 Lloyd’s Rep. 237 (Adm. Div.). In exercising its discretion at this step of the analysis, a court must consider “all the circumstances”, including the “convenience of the parties, fairness between the parties and the interests of justice” (Pompey, at paras. 19, 30 and 31). Public policy may also be a relevant factor at this step (Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of), 2001 SCC 90 (CanLII), [2001] 3 S.C.R. 907, at para. 91, referred to in Pompey, at para. 39; Frey, at para. 115).

[30] The strong cause factors were meant to provide some flexibility. Importantly, Pompey did not set out a closed list of factors governing the court’s discretion to decline to enforce a forum selection clause. Both Pompey and The “Eleftheria” acknowledged that courts should consider “all the circumstances” of the particular case (Pompey, at para. 30; The “Eleftheria”, at p. 242). And the leading authority in England continues to recognize that the court in The “Eleftheria” did not intend its list of factors to be comprehensive (Donohue v. Armco Inc, [2001] UKHL 64, [2002] 1 All E.R. 749, at para. 24).

[31] That said, the strong cause factors have been interpreted and applied restrictively in the commercial context. In commercial interactions, it will usually be desirable for parties to determine at the outset of a business relationship where disputes will be settled. Sophisticated parties are justifiably “. . . deemed to have informed themselves about the risks of foreign legal systems and are deemed to have accepted those risks in agreeing to a forum selection clause” (Aldo Group Inc. v. Moneris Solutions Corp., 2013 ONCA 725 (CanLII), 118 O.R. (3d) 81, at para. 47). In this setting, our Court recognized that forum selection clauses are generally enforced and to be encouraged “because they provide international commercial relations with the stability and foreseeability required for purposes of the critical components of private international law, namely order and fairness” (GreCon Dimter inc. v. J.R. Normand inc., 2005 SCC 46 (CanLII), [2005] 2 S.C.R. 401, at para. 22).

[32] In Pompey, for example, our Court enforced a forum selection clause contained in a bill of lading concluded between two sophisticated shipping companies. The parties were of similar bargaining power and sophistication, since they were “corporations with significant experience in international maritime commerce . . . [that] were aware of industry practices” (para. 29). The Court held that the “forum selection clause could very well have been negotiated” between the parties (ibid.). This context manifestly informed the Court’s application of the strong cause test.

[33] But 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. 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 (see e.g. Straus v. Decaire, 2007 ONCA 854, at para. 5 (CanLII)). 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, at para. 7).

[34] Canadian courts have recognized that the test may apply differently, depending on the contractual context (see Expedition Helicopters Inc. v. Honeywell Inc., 2010 ONCA 351 (CanLII), 100 O.R. (3d) 241, at para. 24; Stubbs v. ATS Applied Tech Systems Inc., 2010 ONCA 879 (CanLII), 272 O.A.C. 386, at para. 58). The English courts have also recognized that not all forum selection clauses are created equally. The underpinning of the transaction is relevant to the exercise of discretion under the strong cause test: “ . . . a defendant who cynically flouts a jurisdiction clause which he has freely negotiated is more likely to be enjoined than one who has had the clause imposed upon him . . . ” (Welex A.G. v. Rosa Maritime Limited (The “Epsilon Rosa”), [2003] EWCA Civ 938, [2003] 2 Lloyd’s Rep. 509, at para. 48; see also The “Bergen” (No. 2), [1997] 2 Lloyd’s Rep. 710, at p. 715 (Q.B. (Adm. Ct.)); D. Joseph, Jurisdiction and Arbitration Agreements and their Enforcement (2nd ed. 2010), at para. 10.13). Similarly, Australian courts have found “that in a consumer situation [courts] should not place as much weight on an exclusive jurisdiction clause in determining a stay application as would be placed on such a clause where there was negotiation between business people” (Quinlan v. Safe International Försäkrings AB, [2005] FCA 1362, at para. 46 (AustLII); see also Incitec Ltd v. Alkimos Shipping Corp., [2004] FCA 698, 206 A.L.R. 558, at para. 50).

[35] As these cases recognize, different concerns animate the consumer context than those that this Court considered in Pompey, where a sophisticated commercial transaction was at issue. Because of these concerns, we agree with Ms. Douez and several interveners that the strong cause test must account for the different considerations relevant to this context.

[36] In our view, recognizing the importance of factors beyond those specifically listed in The “Eleftheria” is an appropriate incremental response of the common law to a different context (Bhasin v. Hrynew, 2014 SCC 71 (CanLII), [2014] 3 S.C.R. 494, at paras. 33-34 and 40). Such a development is especially important since online consumer contracts are ubiquitous, and the global reach of the Internet allows for instantaneous cross-border consumer transactions. It is necessary to keep private international law “in step with the dynamic and evolving fabric of our society” (R. v. Salituro, 1991 CanLII 17 (SCC), [1991] 3 S.C.R. 654, at p. 670).

[37] After all, the strong cause test must ensure that a court’s plenary jurisdiction only yields to private contracts where appropriate. A superior court’s general jurisdiction includes “all the powers that are necessary to do justice between the parties” (80 Wellesley St. East Ltd. v. Fundy Bay Builders Ltd., 1972 CanLII 535 (ON CA), [1972] 2 O.R. 280, at p. 282 (C.A.); TCR Holding Corp. v. Ontario, 2010 ONCA 233 (CanLII), 69 B.L.R. (4th) 175, at para. 26; Kelly v. Human Rights Commission (P.E.I.), 2008 PESCAD 9 (CanLII), 276 Nfld. & P.E.I.R. 336, at para. 8).

[38] Therefore, we would modify the Pompey strong cause factors in the consumer context. When considering whether it is reasonable and just to enforce an otherwise binding forum selection clause in a consumer contract, courts should take account of all the circumstances of the particular case, including public policy considerations relating to the gross inequality of bargaining power between the parties and the nature of the rights at stake. The burden remains on the party wishing to avoid the clause to establish strong cause.

[39] Although the steps are distinct, some considerations may be relevant to both steps of the test. For example, a court may consider gross inequality of bargaining power at the second step of the analysis, even if the circumstances of the bargain do not render the contract unconscionable at the first step. Taking into account the fact that the parties did not negotiate on an even playing field recognizes that the reasons for holding parties to their bargain carry less weight when there is no opportunity to negotiate a forum selection clause. This is not to say that the gross inequality of bargaining power will be sufficient, on its own, to show strong cause. However, it is a relevant circumstance that may be taken into account in the analysis.

[40] The two steps governing the enforcement of forum selection clauses ultimately play conceptually distinct roles. Professor Pavlović explains that at the first step, where the court determines the validity of the forum selection clause, “[c]ontract rules provide a core legal basis for the enforcement of jurisdiction agreements” (p. 402). On the other hand, the strong cause test at the second step “limits contractual autonomy in order to protect the authority (jurisdiction) of otherwise competent courts” (ibid.). This second step recognizes that there may be strong reasons to retain jurisdiction over a matter in the province.

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