In Loan Away Inc. v. Facebook Canada Ltd. (“Ready outside“), the Ontario Court of Appeal provided the latest contribution to the growing Canadian jurisprudence regarding choice of court clauses. The decision provides guidance as to the vital role of contextual factors in a court’s analysis of the applicability of choice of court clauses.

Context: Douez and Uber stops

Forum selection clauses are provisions in contracts that identify a specific court or jurisdiction for the resolution of any dispute related to the contract. Forum selection clauses have been the subject of a number of high-profile Canadian decisions, including two notable Supreme Court of Canada decisions: the Court’s 2017 decision in Douez c. Facebook, Inc.(“Do“) and its 2020 decision in Uber Technologies Inc. v. Heller(“UberIn these decisions, the Supreme Court established that in order to apply a choice of court clause:

  1. The party seeking to enforce the clause and stay the action in an “incorrect” court must establish that the clause is “valid, clear and enforceable” and that it applies to the cause of action in question. . As with any contractual claim, the party opposing the application of the clause may raise defenses such as unfairness, undue influence or fraud at this stage.
  2. Once the party seeking enforcement of the clause has established the validity of the choice of court clause, the onus is on the party seeking to pursue the action notwithstanding the clause to demonstrate “serious reasons” for which the court. should not apply the clause or stay the action. . In assessing whether there is a “serious cause”, a court must consider all of the circumstances, including the balance of convenience, fairness between the parties and the interests of justice.

The complainants in Do and Uber were Canadian individuals who agreed to standard terms with large corporations (Facebook Inc. (“Facebook”), in
Do, and Uber Technologies Inc., in Uber). In both decisions, the plaintiffs contested the choice of court clauses contained in the general conditions: in
Do the clause required that all disputes be decided in California, and in Uber the clause required that all disputes be settled by arbitration in the Netherlands.

Forum selection clauses inapplicable in both cases

Both complainants succeeded in challenging the applicability of the choice of court clauses. In Do, the Supreme Court ruled that there were “serious reasons” not to apply Facebook’s forum selection clause:

  • there was a flagrant inequality of bargaining power between Facebook and the individual complainant;
  • the proceedings concerned constitutional rights and, therefore, its decision in Canadian courts served the inherent public good; and
  • the relative costs of litigation in California were much higher for the plaintiff than the costs of litigation in Canada for Facebook.

As we noted in 2020, the Supreme Court of
Uber refused to apply the choice of court clause on the grounds that:

  • the clause was part of a standard non-negotiated contract;
  • there was a significant sophistication gap between the parties (a large company and an individual); and
  • a person in the place of the claimant could not be expected to appreciate the financial and legal implications of the clause (the arbitration proceedings in the Netherlands would have been prohibitively expensive for the claimant).

The loan decision

In Ready, the Court of Appeal applied the test set out in Do and finally came to the conclusion that the choice of court clause should be applied.

context

Loan Away Inc. (“Loan Away”), a Canadian commercial lender, derived much of its business from advertising on Facebook. When Facebook suspended Loan Away from advertising on Facebook, the company filed a claim in Ontario against Facebook Canada Ltd. (“Facebook Canada”) for an injunction requiring, among other things, that Facebook Canada accept the Loan Away advertisement.

In response, Facebook Canada claimed that Facebook (the US company) operates Facebook’s services on its own (including, among others, its advertising platform) and that Facebook Canada was therefore not the right party to grant the relief sought. Loan Away then amended its claim to name Facebook as the respondent and no longer sought redress against Facebook Canada.

The stay movement

In December 2019, Facebook decided to suspend Loan Away’s request on the basis of the forum selection clause, which provided that disputes with commercial users of Facebook’s services, such as Loan Away, were to be resolved exclusively before the U.S. District Court for the Northern District of California or a State Court for the County of San Mateo.

Loan Away resisted the suspension motion. While conceding that the choice of court clause was valid and applicable, she argued that the Court of Appeal should not apply it in the circumstances.

By applying the criterion defined in Do, the motions judge ruled in favor of Facebook and suspended the application. The Motions Judge noted that the law favors the application of choice of court clauses in commercial contracts and that a stay should not be granted unless Loan Away can establish a “serious reason” not to. apply the disputed clause. Considering all of the circumstances, the motions judge found that Loan Away had not done so. More specifically, the Motions Judge noted that:

  • the contract was a commercial contract;
  • Loan Away presented no evidence regarding the balance of convenience, fairness or the interests of justice; and
  • Loan Away only sought redress against Facebook and not against Facebook Canada.

The decision of the Court of Appeal

Loan Away appealed the stay order, alleging that the Motions Judge had made three errors in the second branch of the
Do test:

  1. That there was a At first glance injustice by allowing Facebook to rely on the forum selection clause when the remedy requested by Loan Away was simple;
  2. That following the stay order, Loan Away would now be forced to sue Facebook in California and Facebook Canada in Ontario, creating a multiplicity of unfair proceedings; and
  3. That the unequal bargaining power between Loan Away and Facebook was a “strong cause” for not applying the forum selection clause.

The Court of Appeal responded to these three allegations as follows:

  1. At first glance Injustice: The Court of Appeal disagreed that the remedy sought by Loan Away was straightforward. The Court of Appeal noted that Loan Away was not only seeking to understand why Facebook had suspended its advertising: on the contrary, it was also seeking an injunction. For relief of this nature, there was no At first glance the injustice caused by maintaining the parties’ agreement that such a proceeding should be brought in California.
  2. Multiplicity of procedures: The Court of Appeal ruled that Loan Away did not need to continue its Ontario litigation against Facebook Canada (with which it did not have a contract), and therefore, there was no real multiplicity of litigation . It appeared to the Court of Appeal that Loan Away had simply brought an action against an improper party and that the stay order was not the cause of the alleged need for multiple proceedings.
  3. Unequal bargaining power: The Court of Appeal cited Do for the proposition that even in the context of consumers, where blatant inequality of bargaining power may be a relevant factor in the “strong cause” analysis, it is not in itself determinative. The Court of Appeal agreed with the application judge’s consideration of all the circumstances and the lack of evidence filed by Loan Away in support of the alleged “solid cause” to intervene.

In light of the foregoing, the Court of Appeal held that it was inappropriate to interfere with the decision of the Motions Judge to maintain the clause.

Takeaway: the importance of context

Ready outside reveals the importance of the role of the business context in a court’s analysis of the advisability of applying a choice of court clause. This is a factual exercise in which factors such as the sophistication of the parties (i.e. whether the claimant is an individual, as in Do and Uber, or a company, as in Ready outside), the nature of the dispute (i.e. whether it involves constitutional or quasi-constitutional rights, as in Do, or is a private dispute, as in Ready outside) and the relative costs of the proceedings in concurrent proceedings may influence the outcome. In fact, an identical or similar forum selection clause may be applied in a particular business context (i.e. Facebook’s forum selection clause in Ready outside) and not in others (i.e. Facebook’s forum selection clause in Do).

From a practical point of view, parties who wish to include a choice of court clause in their commercial contracts – including standard terms and conditions – may wish to take into account (among other contextual factors) the sophistication of their contractual partners, the nature of commercial disputes that may arise in connection with these contracts, and whether the costs of proceedings before a particular court may be prohibitive for the contractual partners.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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