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Online boilerplate contracts and the muddle of judicial policymaking

The SCC’s 2017 ruling in Douez v. Facebook continued an unfortunate trend in judicial policymaking that is doing more harm than good.

Smartphone with Facebook on the screen beside a laptop

When, in 2017, the Supreme Court of Canada ruled in Douez v. Facebook that the Privacy Act superseded the forum selection clause in Facebook’s boilerplate terms of use, it was continuing an unfortunate trend, in contract law, of blurring the lines between policymaking and doctrinal considerations. That’s the takeaway from Jason MacLean’s recently published article in the Canadian Bar Review.

Briefly, in Douez v. Facebook, a B.C. woman succeeded in getting a class action certified against Facebook for deploying its users’ photos in its sponsored content postings, in violation of the province’s Privacy Act. Facebook countered, however, that the B.C. Supreme Court, which handles all Privacy Act cases in the province, was not the right venue. Indeed, she had agreed to the media giant’s terms of use, and that California would be the jurisdiction to litigate any disputes arising from them. The SCC ultimately held that the Privacy Act superseded the forum selection clause in Facebook’s terms, and in doing so slightly modified an earlier two-step test (the Pompey test) when those types of clauses apply. The Pompey test required asking, first, whether there is an enforceable contract binding the parties; and if so, is there strong enough cause for the clause not to be enforced, mainly because another forum would be far better suited to hear the case?

In Facebook, Justices Karakatsanis, Wagner, and Gascon modified the “strong cause” prong of the Pompey test in the consumer context. They argue that “public policy considerations relating to the gross inequality of bargaining power between the parties and the nature of the rights at stake “warrant a modified approach, “even if the circumstances of the bargain do not render the contract unconscionable at the first step.”

This raises an important question of contract law: how can a gross inequality of bargaining power between the parties—e.g., the absence of any actual bargaining, the lack of any realistic choice on the part of consumers, and the complete evacuation of a party’s quasi-constitutional rights—render a forum selection clause unenforceable on public policy grounds at step two of the Pompey test but have no effect on the legal validity and enforceability of the clause in question and the contract as a whole on contract law grounds at step one of the test? After all, Justices Karakatsanis, Wagner, and Gascon conclude that “[n]othing suggests in this case that Ms. Douez could have similarly negotiated the terms of use,” which include not only the forum selection clause at issue but also the core constitutive obligations of the entire contract.

MacLean notes that Justice Rosalie Abella’s concurring reasons are more compelling in that they prioritize basic contractual principles, but problematic nonetheless in the context of boilerplate agreements:

Virtually every normative justification for the judicial enforcement of contracts is premised on the free and voluntary nature of the underlying transactions. As a matter of coherent contract law doctrine, it is simply not tenable to examine—as Abella attempts—the invalidating effects of no bargaining, no choice, and no consent only in relation to the forum selection clause, and “not for the purpose of invalidating the contract itself.” This move is as artificial and inconsistent with basic contract law principles as is Justices Karakatsanis, Wagner, and Gascon’s “preference” to deal with the elements of unconscionability as a matter of public policy at stage two of the Pompey test.

He goes on to conclude that, in the absence of legislative direction the judicial policymaking means that the majority relies on in Facebook is doing “more harm than good by rendering contract law doctrine more unsettled and more piecemeal, less coherent and less just.”

Read the whole thing.