July 14, 2020
Uber Technologies Inc v Heller, 2020 SCC 16 ("Uber") is a landmark case in Canadian contract law, creating significant uncertainty in the enforceability of contracts, particularly for businesses that employ standard-form agreements or that contract with large numbers of individuals. In deciding that an arbitration clause in a standard form agreement was unenforceable, the majority of the Court vastly expanded the doctrine of unconscionability without providing meaningful guidance or constraints.
This article is part 3 in a series published on the Uber decision. For part 1, discussing the element of inequality of bargaining power and which includes a summary of the facts and background of this case, click here. For part 2, discussing the element of improvident bargain, click here.
In this part, we consider the practicalities of litigating the doctrine of unconscionability, including the evidence that may be needed to attract or rebut the doctrine.
Part 3: Litigating Unconscionability
Analysis
In parts 1 and 2 of this series, we note that the floodgates of litigation are likely open for parties seeking to avoid the results of regrettable transactions. So, what will litigating the restated doctrine of unconscionability look like?
It is likely that unconscionability will largely be litigated as a defence or a response to a party seeking to enforce its rights under an agreement. This was precisely the context of the Uber decision itself.
One question that may arise is whether unconscionability, an equitable doctrine, can be used as a “sword” as opposed to a “shield”, that is, whether unconscionability is itself a cause of action. Equity is typically used in defence of an unfair claim, as opposed to founding a cause of action itself.[1] Courts can unwind contracts on the basis of unconscionability,[2] but this is typically in answer to a suit to enforce the agreement.
In the Uber case, unconscionability served as something of a hybrid between a sword and a shield. Heller, the party who ultimately benefited from the application of unconscionability, was the representative Plaintiff in a class action. The motion to stay was brought by Uber, the Defendant, in reliance on its contractual rights (namely, a dispute resolution provision). Unconscionability was invoked as a shield in response to Uber’s application for a stay, though it ultimately permitted Heller’s class action to proceed and was therefore, at the end of the day, a sword for the representative plaintiff.
It is likely that this will often be the manner in which unconscionability is invoked. Party A will sue Party B to enforce the terms of a contract, and Party B will seek to invoke its contractual rights such as an exclusion clause or mandatory arbitration provision to avoid enforcement. Party A will reply that a term or the contract as a whole is unconscionable.
Indeed, unconscionability has been used as a sword. Courts have allowed actions to set aside transactions on the basis they were unconscionable. In Harry v. Kreutziger, the British Columbia Court of Appeal allowed an appeal from a trial judgment, the effect of which was to allow the plaintiff’s action to set aside a transaction on the basis of unconscionability.[3] In Lydian Properties Inc. v. Chambers, the Alberta Court of Appeal overturned a dismissal of an originating application for a declaration that a transaction was unconscionable.[4]
There appears to be no procedural or equitable barrier to seeking relief with unconscionability as a “sword”, including in summary proceedings.
At the same time, unconscionability will likely also be used often as a shield by a defendant arguing that the contractual basis for the claim is unenforceable due to the application of the doctrine.
We will now consider the evidence that may be adduced in such proceedings.
One of the issues in the Uber case was the evidence (or lack thereof) before the Court. The majority decision appeared to draw a number of inferences based on a limited record, including that:
- Heller was “powerless” to negotiate any of the terms of the agreement;
- There was a “significant gulf in sophistication” between the parties;
- A person in “Mr. Heller’s position could not be expected to appreciate the financial and legal implications” of the contractual terms;
- Heller had not read the agreement in its entirety;
- Heller was given the clear impression that the Contract gave no choice but to travel to Amsterdam to arbitrate any disputes;
- Neither Mr. Heller, nor any other “reasonable person” who had understood and appreciated the implications of the arbitration clause, would have agreed to it; and
- Arbitration was “out of reach for [Mr. Heller] and other drivers in his position”.[5]
The limited record on these issues was heavily criticized by Justice Côté in her dissent, including:[6]
- Whether Mr. Heller was in any kind of state of necessity regarding accepting the Contract;
- Whether Mr. Heller was under any kind of time pressure to agree to the Contract;
- Whether Mr. Heller was incapable of understanding the Contract or the Clause (in fact, Justice Côté notes that his evidence suggests the opposite);
- Heller’s level of sophistication;
- Why Mr. Heller chose to become an Uber driver;
- Heller’s financial position at the time the contract was agreed; and
- The actual quantum of Mr. Heller’s individual claim against Uber.[7]
All of this said, the ultimate finding on unconscionability by the majority seems to be based largely on an objective view of the Contract, as they find that “no reasonable person who had understood and appreciated the implications of the arbitration clause would have agreed to it”.[8] Nonetheless, the weak state of the record in Uber leaves significant questions unresolved about what evidence a party should adduce in other cases, to either attract or rebut the unconscionability analysis, and to what extent Courts may make inferences, without evidence, about the inequality of bargaining power between the parties.
So, what evidence can or should be adduced?
The underlying rationale of the majority’s decision is that, in some circumstances, it is unsafe to assume that contracting parties freely bargain in their own self-interest and, in those circumstances, unconscionability can be used to set aside unfair bargains.[9] The Court also describes that the purpose of the unconscionability doctrine is to protect “vulnerable persons in transactions with others”.[10] Evidence that would tend to show that a party was either free, or not free, to act in their best interests is prima facie relevant, as is any evidence showing that a party was or was not vulnerable in the course of negotiating or accepting the agreement.
The Court contemplates that evidence regarding the following characteristics of the parties may be relevant:
- Differences in wealth, knowledge or experience that may support an inference that one party was vulnerable to the other;[11]
- Whether a party’s ability to understand or appreciate the meaning and significance of contractual terms was compromised;[12]
- Where there is cognitive asymmetry between the parties’ ability to appreciate the meaning or importance of contractual terms;[13] or
- Whether a party was motivated into the transaction due to financial desperation.[14]
Additionally, while the majority states that unconscionability does not require one party to have knowingly taken advantage of the other, they note that such a circumstance would provide strong evidence of an inequality of bargaining power.[15]
An interesting aspect of the majority’s discussion on these characteristics is the interaction they have with the general rule of contractual interpretation that a party’s subjective understanding of the contractual terms is irrelevant.[16] The Uber decision does not cast doubt on how contracts are to be interpreted in the regular course. It does, however, permit the same evidence that would ordinarily be excluded -- that is, the differing understanding of the parties about the meaning or import of a clause -- to be considered when unconscionability is being asserted.
As we discuss in Part 1, one of the most concerning aspects of the majority’s decision is the extent to which they downplay the effect of legal advice on the unconscionability analysis, and that the actual content of the legal advice may be relevant. While questions regarding the content of a party’s legal advice are prima facie the subject of solicitor-client privilege, it may well be in the interest of a party seeking a ruling of unconscionability to waive that privilege. There are interesting questions of implied waiver of privilege to consider in pleading ineffective legal advice as the basis for unconscionability to consider. For example, an implied waiver of solicitor-client privilege may be found where a party takes a position inconsistent with maintaining that privilege.[17] Parties should therefore be extremely careful in drafting pleadings involving unconscionability to avoid attracting an argument of implied waiver of solicitor-client privilege.
In conclusion, evidence in support, or to rebut, an unconscionability claim may be put in by affidavit and cross-examination on affidavit. Notwithstanding the conflicts in the evidence, as noted by Justice Côté and discussed above, the Court was prepared to make a finding on a motion that the Clause was unconscionable. While that finding appears to have been based significantly on the face of the Contract itself, there is a wide breadth of subjective evidence that will be relevant in considering the application of this doctrine.
Bryan C. Duguid QC, FCIArb is a partner at JSS Barristers. Click here for his bio.
David Marshall is an associate at JSS Barristers. Click here for his bio.
[1] Sturgeon Tire (1993) Ltd v Burron, 2015 MBCA 91 at para 6. This is not a universally accepted view, however, and some scholars and Courts have commented that there is no principled reason why doctrines such as promissory estoppel should not be useable as a sword. See, e.g., the lengthy discussion on this point in Reclamation Systems Inc v Rae, 1996 CanLII 7950 (ON SC).
[2] See, e.g. 256593 BC Ltd v 456795 BC Ltd et al, 1999 BCCA 137. In this case, the Plaintiff sued to enforce a settlement, and the Court found the settlement agreement unconscionable due to a common mistake of which the Plaintiff attempted to take advantage. Therefore, the court unwound the settlement.
[3] 1978 CanLII 393 (BC CA).
[4] 2009 ABCA 21. This decision arose out of competing originating applications brought by the parties against each other as different actions, which were heard and decided together.
[5] Decision at paras 93-97.
[6] It should be noted this criticism was chiefly in the context of whether an exception to the “competence-competence” principle should apply, which typically requires only a “superficial review of the record”. The thrust of Justice Côté’s dissent was that more than a superficial review was required (and performed), and the competence-competence principle should therefore apply.
[7] Decision at paras 233, 235, 262, 264, 286, 288, and 319.
[8] Decision at para 95 (emphasis ours).
[9] Decision at paras 59 and 72.
[10] Decision at para 60.
[11] Decision at para 67.
[12] Decision at para 68.
[13] Decision at para 71.
[14] Decision at para 70.
[15] Decision at para 85.
[16] Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 at para 59.
[17] See, e.g., Simcoff v Simcoff, 2009 MBCA 80 at para 27; Chemtrade West Ltd v MET Holdings Inc, 2013 ONSC 6093.
Please note that JSS Barristers insights are provided for informational purposes only. They are not intended as legal advice or a legal opinion. Please contact authors or JSS Barristers if you would like to obtain legal advice on this or other legal issues.