Free Internet-Service Contracts Caught up by Consumer Protection Legislation in Quebec

This Fall, the Superior Court of Quebec rendered a decision against Yahoo! Inc. and Yahoo! Canada Co. (“Yahoo!”) that exposes companies that offer free services to the application of consumer protection legislation, including the mandatory provisions of the Quebec Consumer Protection Act (“CPA”). In so doing, the Court declared inapplicable the choice of forum clauses in the terms of service accepted by users at the time of registration (Demers v. Yahoo! Inc., 2017 QCCS 4154). No appeal is sought in connection with this decision.

In this case, Yahoo! is targeted by an application for authorization to institute a class action in relation to data security incidents in 2013 and 2014 in which the personal and financial information of users was stolen. Contesting the jurisdiction of the Quebec Courts, Yahoo! invoked a clause from the terms of service by which users waived the jurisdiction of any local court in favour of the courts of Ontario.

In refusing Yahoo!’s motion to dismiss the action in authorisation, the Court explicitly overturned previous case law which held that contracts for services provided without charge were not consumer contracts therefore the bar on choice of foreign jurisdictions under the CPA did not apply (St-Arnaud v. Facebook, Inc.).

In rendering the decision, the Court relied heavily on the recent case of Douez v. Facebook Inc., where the Supreme Court concluded that the terms of use of Facebook users was a consumer contract of adhesion as the users give up rights without the opportunity to negotiate. For this reason and others, the Supreme Court considered that the otherwise valid choice of forum clause should not be enforced.

While not specifically contemplated in the Yahoo! decision, the qualification of free internet-based services as consumer contracts will have far-reaching impacts in Quebec for the providers of such services, including for instance social media companies, app developers and search services. By qualifying terms of service such as those accepted by Yahoo! users as consumer contracts despite the lack of payment for services, the Court has opened the door to the application of the consumer protection legislation and a fundamental shift in the rights and obligations of the service providers.

The application of the consumer protection legislation to these services will have an impact, as set out in the Yahoo! decision, on the jurisdiction in which the service provider is exposed to legal action. In addition to prohibiting choice of forum clauses, Quebec law also invalidates any arbitration clause contained in a consumer contract.

As a consequence, regardless of the contractual terms which may govern users globally, a lawsuit can be brought in Quebec where a plaintiff demonstrates a connection to the jurisdiction of a Quebec Court. In the Yahoo! case, the Court found that the allegations of damages in the proceedings were sufficient to establish the necessary connection. In practical terms, this means that if the user is located in Quebec and claims to have suffered a damage, any legal action against the service provider will be heard by the courts of Quebec.

Further, choice of law clauses are not valid in consumer contracts. The court seized of a case against a service provider will apply Quebec law to the rights of the users and the obligations of the providers of free internet-based services.

The take-home here is that, any company providing free internet-based services to Quebec users, no matter where it is situated in the world, could be subject to the jurisdiction of the Quebec Courts and the application of the laws of Quebec and Canada. In anticipation, service providers should review their contracts, policies and products as a function of the laws applicable to consumer contracts in Quebec.

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