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With the internet expanding its reach globally, the marketplace participants increasingly turn to it in order to foster their businesses. Manufacturers, distributors, retail stores and service providers take advantage of the internet in order to increase their customer base. Customers, similarly, increasingly use the internet to access products and services. As a result, the past decade has seen the birth and astonishing growth of giant internet-based companies that either sell products or services directly or facilitate making contact amongst sellers and their prospective customers—the sort of activities that are broadly known as e-commerce.

In e-commerce relations, it is often the case that customers transact with sellers that are located outside of the geographical boundaries of their home jurisdictions. What connects a customer and a seller is a website that, although accessible worldwide, is often maintained at a location far away from the customer’s residence. The many parties that are involved in the activities that make an e-commerce transaction possible may be residents of several, distinct jurisdictions.

As e-commerce activities grow and reach markets beyond conventional borders, the question arises: in the event of a dispute, the courts of what jurisdiction are competent to adjudicate the dispute?

Jurisdiction over foreign defendants: the real and substantial connection analysis

Canadian courts have developed an extensive and evolving jurisprudence regarding their jurisdictional competence to entertain claims brought against foreign defendants. A trilogy of cases decided by the Supreme Court of Canada[1] affirmed that Canadian courts may assume jurisdiction over foreign defendants but only when there is a real and substantial connection between the forum and either the defendant or the subject matter of the dispute. In Van Breda, the Supreme Court provided a list of factors which presumptively establish such a connection unless that presumption is rebutted.[2]

One of the factors that the Supreme Court recognized in Van Breda as presumptively establishing a real and substantial connection between the forum and the dispute is whether the defendant carries on business in the jurisdiction. The Supreme Court briefly commented on the sort of activities that may or may not amount to the determination that the defendant carries on business in the jurisdiction, and directed that caution should be exercised in considering this factor in order to avoid universal jurisdiction over a particular defendant:

Carrying on business in the jurisdiction may also be considered an appropriate connecting factor. But considering it to be one may raise more difficult issues. Resolving those issues may require some caution in order to avoid creating what would amount to forms of universal jurisdiction in respect of tort claims arising out of certain categories of business or commercial activity. Active advertising in the jurisdiction or, for example, the fact that a Web site can be accessed from the jurisdiction would not suffice to establish that the defendant is carrying on business there. The notion of carrying on business requires some form of actual, not only virtual, presence in the jurisdiction, such as maintaining an office there or regularly visiting the territory of the particular jurisdiction.[3]

Notwithstanding these observations, the Supreme Court noted that it had not been asked to decide if and when e-commerce activities in a jurisdiction would amount to presence in the jurisdiction. Thus, Van Breda did not provide specific guidance regarding Canadian courts’ jurisdiction over foreign defendants by virtue only of their e-commerce activities in Canada.

Jurisdiction over a foreign defendant by virtue of its e-commerce activities in Canada

In June 2015, the British Columbia Court of Appeal issued its decisions in cases involving two internet giants, Google and Facebook, which engaged the question that the Supreme Court left unanswered in Van Breda: Canadian courts’ jurisdiction over foreign defendants that carry on e-commerce in Canada; Equustek Solutions Inc v Jack, 2015 BCCA 265 and Douez v Facebook, Inc, 2015 BCCA 279.

Equustek Solutions Inc v Jack, 2015 BCCA 265 (“Google”)

In Google, the Court of Appeal dismissed an appeal from an injunctive order of the court below against Google, requiring it to remove certain websites from its search indices worldwide. The matter concerned the reach of a court order beyond British Columbia, and whether it would have been inconsistent with the British Columbia court’s territorial jurisdiction to enter an order with an international impact. In this case, the Court of Appeal agreed with the motion judge that it was appropriate to do so.

This action arose from the alleged infringement on the intellectual property and other rights of the plaintiff manufacturers of industrial network interface hardware by certain corporate and individual defendants, who sold counterfeit versions of the plaintiffs’ products online. Although Google was not a party to the action and the plaintiffs did not allege any sort of wrongdoing on Google’s part, the plaintiffs alleged that because of Google’s online search services the defendants could continue selling the counterfeit products. Google voluntarily removed a list of websites from the index of its Canadian search website, google.ca, but was unwilling to remove the websites from its search results worldwide. Noting that it had no physical presence in British Columbia, Google argued that it would be contrary to the British Columbia court’s territorial competence to enter an order requiring it to remove the websites from its global search indices. Google was, however, unsuccessful.

The motion judge found that Google carried on key parts of its business in British Columbia, and that it proactively engaged in e-commerce activities in that province. While in accordance with Van Breda, a real and substantial connection may not be established based on passive internet activities, the motion judge found that Google’s services were not passive: it sold advertising products to British Columbia-based businesses and also collected user information from the residents of the province and provided targeted advertising to them. As a result, the motion judge found that the court had in personam jurisdiction over Google.

The Court of Appeal agreed with the motion judge, and held: “[o]nce it is accepted that a court has in personam jurisdiction over a person, the fact that its order may affect activities in other jurisdictions is not a bar to it making an order.”[4] The Court of Appeal further noted:

… British Columbia courts are called upon to adjudicate disputes involving foreign residents on a daily basis, and the fact that their decisions may affect the activities of those people outside the borders of British Columbia is not determinative of whether an order may be granted. In each case, the court must determine whether it has territorial competence under the [Court Jurisdiction and Proceedings Transfer Act[5]. If it does, it must also determine whether it should make the orders that are sought. Issues of comity and enforceability are concerns that must be taken into account, but they do not result in a simple rule that the activities of non-residents in foreign jurisdictions cannot be affected by orders of Canadian courts.[6]

Importantly, the motion judge noted that the result of this analysis may be that every state in the world has jurisdiction over Google’s search services. However, this is a natural consequence of Google’s doing business on a global scale, not a flaw in the territorial competence analysis. The motion judge made these conclusions despite the choice of law and forum clauses in Google’s advertising contracts in favour of the laws and courts of California which, according to the court, did not alter the fact that Google carried on business in British Columbia. The Court of Appeal also agreed with these observations.

Douez v Facebook, Inc, 2015 BCCA 279 (“Facebook”)

A week after the release of Google, the British Columbia Court of Appeal rendered its decision in Facebook, which also concerned the proper reach of the British Columbia court’s jurisdiction over a foreign defendant. Here, the Court of Appeal held that, due to a contractual forum selection clause between the plaintiff and Facebook in favour of California courts, the court below ought not to have assumed jurisdiction over Facebook.

The action against Facebook was a proposed class action brought on behalf of the residents of British Columbia whose names and photos were used by Facebook without their consent in certain of Facebook’s paid advertisements. The plaintiff asserted against Facebook a statutory right of action under section 3(2) of the British Columbia Privacy Act,[7] and sought certification of this action as a class proceeding. In resisting certification, Facebook noted that a choice of forum clause included in its Terms of Use in favour of California courts required the plaintiff and the members of the proposed class to resolve any claims against Facebook in California, thus the action in British Columbia should be stayed.

The motion judge rejected Facebook’s argument, holding that section 4 of the Privacy Act, which states that a claim under the Privacy Act should be determined by the British Columbia Supreme Court,[8] overrode the forum selection clause. Thus, the motion judge held that the British Columbia court could assume jurisdiction over Facebook.

The British Columbia Court of Appeal disagreed with the motion judge. In allowing the appeal, the Court of Appeal criticized the motion judge for failing to give effect to the principle of territoriality: the British Columbia legislature is powerless to legislate laws that have effect beyond British Columbia. In light of this principle, the plaintiff had to first show that section 4 of the Privacy Act applied extra-territorially, but she could not.[9] As a result, the Court of Appeal held that section 4 of the Privacy Act could not override the forum selection clause, nor could it exclude California courts’ jurisdiction over the plaintiff’s claims against Facebook. Therefore, the forum selection clause continued to apply and the action had to be stayed in favour of California courts.

Facebook could have been decided differently

There were many similarities between the circumstances of Google and Facebook: both of Google and Facebook are companies incorporated under the laws of Delaware and headquartered in California; both cases involved mainly online advertising and advertising-related activities of these two companies; in both cases there were contractual choice of law and choice of forum clauses in favour of the laws and courts of California.

Notwithstanding these similarities, the Court of Appeal arrived at different conclusions: in Google, it affirmed that the British Columbia Court could issue an order affecting Google’s activities beyond British Columbia’s borders; in Facebook, it held that the British Columbia law could not apply to Facebook in California such that it would render inapplicable the contractual choice of forum clause between Facebook and its users favouring California courts.

In Facebook, however, the Court of Appeal did not consider Facebook’s e-commerce activities or whether by virtue of those activities Facebook had presence in British Columbia. Notably, Facebook appears to carry on similar e-commerce activities in British Columbia as Google; like Google, Facebook appears to collect data from British Columbia residents and to sell targeted advertising in British Columbia. Had the Court of Appeal engaged in the analysis that was considered and accepted in Google, it might have similarly found that British Columbia courts had in personam jurisdiction over Facebook. In such a case, the issue before the Court would no longer have been the extra-territorial application of British Columbia laws; rather, the application of British Columbia laws to a company present in British Columbia, over which British Columbia courts had in personam jurisdiction.

Notably, in Facebook, the Court of Appeal mentioned that certain cross-border activities might “relax” the principle of territoriality in circumstances where the defendant is not physically present in the jurisdiction; the Court noted:

I am also aware that the principle of territoriality has been relaxed in a number of specific contexts. Unifund[10] recognized that the principle of territoriality was traditionally expressed in “very physical terms” (at para. 62). However, as technology has made it easier to act within a state without being physically present there, the principle has come to be expressed in a more nuanced manner that focuses “less on the idea of actual physical presence and more on the relationships among the enacting territory, the subject matter of the law, and the person sought to be subjected to its regulation” (at para. 63).

However, the Court of Appeal was not asked to and did not consider Facebook’s e-commerce activities and their implications regarding the British Columbia courts’ jurisdiction and its laws’ application over claims of the British Columbia residents against Facebook. Had the Court done this analysis, as it did in Google, the outcome of the case might have been different.

Implications for the future

Multinational companies with international presence have conventionally used a number of methods to manage the risk of legal liability to them arising from their global activities. A most commonly used method is the inclusion of choice of law and choice of forum clauses in favour of the jurisdictions with which these companies are most familiar; normally their home jurisdictions. While traditionally these clauses may have been considered a clear and nearly-sufficient indication that the dispute should be transferred to the jurisdiction that is identified contractually, this may no longer be the case. Clearly, the analysis regarding the court’s jurisdictional competence would not end there. Canadian courts are recognizing that e-commerce activities are expanding universally, with the effect that multinational companies are by their own choice making themselves the subject of multiple jurisdictions worldwide.

In similar, future cases involving e-commerce activities, it is expected that the courts will be asked to consider the nature of the foreign defendant’s connection with the Canadian jurisdictions. Should the foreign defendant be engaged proactively in such activities that are considered sufficiently strong to amount to its presence in Canada, in appropriate cases, the court may find that the choice of law or forum clauses should be disregarded.[11] This may result in a situation where courts of different jurisdictions across the globe have jurisdiction over these companies. But at the Google court noted, this would be the natural consequence of their conducting business on a global scale, not a flaw in the court’s territorial competence analysis.

[1] Morguard Investments Ltd v De Savoye, [1990] 3 SCR 1077; Hunt v T & N plc, [1993] 4 SCR 289; Club Resorts Ltd v Van Breda, 2012 SCC 17 (“Van Breda”).

[2] The non-exhaustive list the presumptive connection factors are: (a) the defendant is domiciled or resident in the province; (b) the defendant carries on business in the province; (c) the tort was committed in the province; and (d) a contract connected with the dispute was made in the province. The Supreme Court also noted that, over time, courts may identify further and new presumptive factors that have the same effect.

[3] Van Breda at para 87.

[4] Google at para 85.

[5] Court Jurisdiction and Proceedings Transfer Act, SBC 2003, c 28

[6] Google at para 88.

[7] Privacy Act, RSBC 1996, c 373, s 3(2): “It is a tort, actionable without proof of damage, for a person to use the name or portrait of another for the purpose of advertising or promoting the sale of, or other trading in, property or services, unless that other, or a person entitled to consent on his or her behalf, consents to the use for that purpose.”

[8] Privacy Act, RSBC 1996, c 373, s 4: “Despite anything contained in another Act, an action under this Act must be heard and determined by the Supreme Court.”

[9] Facebook at paras 58, 59.

[10] Unifund Assurance Co  v Insurance Corp of British Columbia, 2003 SCC 4.

[11] Notably, certain Canadian legislation may state expressly that a choice of forum clause is not applicable. For example, section 7 the Ontario Consumer Protection Act, 2002, SO 2002, c 30, Sched A, preserves a consumer’s substantive and procedural rights under this statute despite any agreement or waiver to the contrary. Importantly, the British Columbia Court of Appeal noted in Facebook that a choice of forum clause may not amount to an exclusion of liability under British Columbia legislation. The Court would have upheld the court below’s decision assuming jurisdiction over Facebook had the plaintiff succeeded in showing by way of evidence that the California court would not enforce the plaintiff’s and the class’s right of action under the British Columbia Privacy Act.

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