B.C. Court of Appeal clarifies enforceability of forum selection clauses

A recent B.C. Court of Appeal decision clarifies the standard that must be met to override a forum selection clause for public policy concerns, says a lawyer who acted on the case.

Since the split decision from the Supreme Court of Canada in Douez v. Facebook, Inc., 2017 SCC 33, there has been uncertainty in the enforceability of forum selection clauses, says Matthew Nied, principal of Nied Law – Litigation Counsel.

In the B.C. Court of Appeal case Schuppener v. Pioneer Steel Manufacturers Limited, 2020 BCCA 19, Mark Schuppener was injured when a steel storage building he bought from Pioneer Steel collapsed on him. He sued the company for negligence and breach of contract. Schuppener’s contract with Pioneer had a forum selection clause. The company successfully applied for a stay of proceedings to have the action moved to Ontario, and B.C.’s Court of Appeal transferred the action to the Ontario Superior Court.

“What this decision, I think, has helpfully done is clarify the standard that has to be met in order for considerations to rise to the high level of public policy, sufficient to justify judicial intervention with freedom of contract,” says Nied, who acted for the appellant, Pioneer Steel.

The SCC established a two-part test for the enforcement of forum selection clauses in 2003 in Z.I. Pompey Industrie v. ECU‑Line N.V.  First, the court must determine whether the clause is enforceable and applies in the circumstances, with the party seeking to enforce the clause bearing the burden of proof. Second, the court looks at whether there are “strong reasons” not to enforce the clause, with the burden then shifting to the other party.

The SCC again looked at forum selection clauses in 2017, in Douez v. Facebook, Inc., 2017 SCC 33. In Douez, the contract in question was Facebook’s terms of use and selection of California as the forum for litigating claims under the agreement. A B.C. resident sued Facebook for breaching the province’s Privacy Act. In Pompey, the SCC emphasized that forum selection clauses “create certainty and security in transaction” and should be encouraged. The majority in Douez found – in the consumer context – the inequality of bargaining power must be accounted for, wrote Dentons Canada LLP partner Chloe Snider, in a 2017 article. In two sets of reasons, four of the seven justices ruled Facebook’s forum selection cause unenforceable.

Nied says the Supreme Court found Facebook held “gross inequality of bargaining power” through their monopoly over a service the court said had become “increasingly essential to public participation in society and democracy and social discourse.” The court also found the constitutional issues at stake were a “compelling public policy reason,” and so the case should stay in the province, he says.

In Schuppener, at the lower court level Justice Paul Riley found, through the cause analysis from Douez, that there were public policy reasons to override the forum selection cause and he refused to stay or transfer the action. Pioneer appealed on the grounds the judge erred in the analysis and erred by accepting the argument that Schuppener’s financial burden would be greater if required to proceed in Ontario.

At the Court of Appeal, Justices Harvey Groberman, Ann Fenlon and Joyce DeWitt-Van Oosten found Riley erred in principle “by characterizing ordinary considerations as matters of public policy compelling enough to justify overriding the forum selection clause.”

There were three public policy factors identified by Justice Riley.

Riley had found it “highly relevant” that the forum selection clause in Schuppener’s and Pioneer Steel’s contract was in a standard form consumer contract, meaning Schuppener couldn’t negotiate the applicability or terms of the clause. The Court of Appeal responded that, unlike in Douez where the consumer “had no real alternatives,” Schuppener stated he did have alternatives but chose to “buy Canadian” from Pioneer Steel.

Riley also stressed that Schuppener’s action included damages in negligence for personal injury and so was more than a just commercial dispute. The Court of Appeal’s take was that the two competing forums in this case had “roughly equivalent laws” in contract, personal injury and product liability, in contrast to Douez, which concerned a uniquely British Columbian statute and a choice between courts in British Columbia and in a foreign country.

The third public policy interest identified by Riley was Schuppener’s allegation that Pioneer Steel knew its product to be unsuitable to the B.C. climate because of previous collapses in the province, and thus the B.C. public had an interest in seeing issues litigated at home. But the Court of Appeal found there was “nothing unique to British Columbia about the cause of the building’s collapse,” namely the weight of the snow on the roof.

Commenting on the decision, Snider told Canadian Lawyer that Schuppener “elaborates on what will give rise to a public policy concern sufficient to avoid the enforcement of a forum selection clause, and confirms that forum selection clauses in standard form contracts are not automatically unenforceable.”