In the decision of Loan Away Inc. v. Facebook Canada Ltd.[1], the Ontario Court of Appeal upheld the enforceability of the social media platform’s California forum selection and governing law clause contained in its Terms of Service. In applying established forum selection principles, the Court of Appeal highlighted: (i) that a party resisting enforceability must lead evidence of the surrounding circumstances; and (ii) how a record lacking such contextual evidence can book you a one-way ticket to a distant forum.
Background
This dispute arose from the social media platform’s decision to suspend Loan Away’s advertising from its platform. In response, Loan Away commenced an application seeking injunctive relief against the social media platform’s Canadian affiliate (the Canadian affiliate) to reinstate Loan Away’s advertising as well as a damages reference.
Upon receipt of the application, the Canadian affiliate asserted that the relief sought could not be granted as the social media platform’s US affiliate (the US affiliate) alone operates its services. Loan Away then amended the application to add the US affiliate as a respondent.[2]
Simultaneously, the US affiliate served a motion to stay the application based on the forum selection clause in its Term of Service. The clause requires that any disputes with commercial (i.e., non‑consumer) users of the social media platform’s service must be resolved exclusively before the US District Court for the Northern District of California or a state court in San Mateo County and under California law.[3]
The motion judge granted the US affiliate’s stay motion. In doing so, she noted that Loan Away did not dispute the enforceability of the forum selection clause and that the law favours enforcement of such clauses in commercial contracts. She further stated a stay should be granted unless Loan Away could show “strong cause” not to enforce the clause, per the principles from the Supreme Court of Canada’s decision in Douez.[4] Loan Away, however, failed to do so.
The two-step approach outlined in Douez is as follows:
1. The party seeking a stay must establish that the forum selection clause is valid, clear, and enforceable, and that it applies to the cause of action before the court. The court makes this determination based on the principles of contract law. If the party seeking the stay establishes the validity of the forum selection clause, the onus shifts to the plaintiff; and
2. The plaintiff must establish “strong cause” not to enforce the forum selection clause. A court exercising its discretion at this step must consider all the circumstances, including the convenience of the parties, fairness between the parties, the interests of justice, and public policy.[5]
In applying the Douez test, the motion judge determined that Loan Away did not meet its burden of showing “strong cause” because: (i) this was a commercial contract; (ii) Loan Away filed no evidence addressing the convenience of the parties, fairness between the parties, or the interests of justice; and (iii) the application sought no relief as against the Canadian affiliate. She therefore stayed the application as against the US affiliate.[6]
ONCA Decision
Loan Away’s appeal was three-fold. It argued the motions judge had made the following three errors of law in determining there was no “strong cause”:
- There was a prima facie injustice in allowing the social media platform to rely on a forum selection clause when the relief Loan Away sought was straightforward. Loan Away asserted it should not have to sue in California just to learn why the social media platform has a problem with its advertising. Loan Away says that if the social media platform explained the problem,
Loan Away could fix it.
- The motion judge failed to consider that, as a result of her ruling, Loan Away must now sue the US affiliate in California and the Canadian affiliate in Ontario. This multiplicity of proceedings, it claims, highlights the inconvenience and unfairness in enforcing the forum selection clause.
- There was “strong cause” not to enforce the forum selection clause because of the inequality of bargaining power between Loan Away and the social media platform.[7]
The Court of Appeal found no such errors. Rather, it held as follows:
- There was no prima facie injustice. The relief sought by Loan Away was not straightforward; Loan Away did not simply seek to understand why the social media platform suspended its advertising, it also sought injunctive relief as against the social media platform and a damages reference. Such relief must be obtained in California, as agreed to in the Terms of Service.
- There was no risk of multiplicity of proceedings. The application sought no relief as against the Canadian affiliate and Loan Away acknowledged it has no contract with the Canadian affiliate. The Court was critical of this allegation, commenting: “Loan Away cannot resist enforcement of the forum selection clause by invoking a multiplicity of proceedings arising because it has sued what appears to be an improper party.”
- The motions judge correctly found that there was no “strong cause.” Gross inequality of bargaining power is not in itself determinative of the enforceability of forum selection clauses. The Court considers all the relevant circumstances of the case, including its commercial context, and here, properly concluded there was no “strong cause” as Loan Away “[had] not led any evidence with respect to the inconvenience of the parties, fairness between the
parties and the interests of justice.”[8]
Significance and key takeaways
A key practice point to draw from this decision is the importance of naming the correct entity when commencing proceedings. The usual privity and misnomer complications aside, this case demonstrates how an improperly named party can create headaches related to forum selection clauses (and invite unfavourable commentary from the Court).
Most significantly, this decision underscores that the key consideration for enforcing a forum selection clause and the issue of “strong cause” is context – i.e., evidence of all of the surrounding circumstances.
Even against the social media platform, the imbalance of bargaining power or the “David and Goliath” argument alone will not be sufficient to tip the scales on a forum selection clause. However, an imbalance of bargaining power combined with other contextual factors may establish strong cause.[9] As such, parties who oppose forum selection clauses would be well advised to compile a record that addresses all of the surrounding circumstances and relevant considerations which were absent in Loan Away: inconvenience of the parties, fairness between the parties, the interests of justice and public policy.
The Douez case provides an excellent example of the importance of context and dealt with a very similar California forum selection clause. Unlike in Loan Away, in Douez,the Supreme Court found the clause unenforceable based on a record which addressed: (i) the nature of the dispute (which engaged considerations under the BC Privacy Act and privacy rights of British Columbians); (ii) related policy reasons (that the BC Supreme Court is better placed to make determinations regarding BC legislation); and (iii) the inconvenience of requiring British Columbians to litigate in California.
To recap: same company, similar forum clause, different outcome. In the end, when it comes to enforcing forum selection clauses, context can make all the difference.
Disputes are part of doing business. Resolving them is our business. If you have any questions, please feel free to reach out to our Litigation and Dispute Resolution group.
[1] 2021 ONCA 432.
[2] ibid at para 6-8.
[3] ibid at para 4.
[4] Douez v. Facebook, Inc., 2017 SCC 33.
[5] ibid at paras 28-31.
[6] supra note 1 at para 12.
[7] ibid at paras 24, 26, 28.
[8] ibid at paras
[9] Supra Note 4.
