Unconscionability in the wake of Uber Technologies Inc. v. Heller

Since the Supreme Court of Canada handed down its decision in Uber Technologies Inc. v. Heller in June there has been a lot of talk about the decision’s potential implications. Most notably, people have become worried in that litigants would follow the lead set in that decision to try and invalidate standard contractual agreements.

In Uber, the plaintiff, a driver employed by the ridesharing service, signed a standard employment contract with an arbitration clause. The clause provided that all legal disputes must be resolved by the International Chamber of Commerce in the Netherlands. The plaintiff sued for employment entitlements and sought to have the dispute heard by a court. After a protracted legal battle that reached the Supreme Court, it was ultimately decided that the arbitration agreement was invalid on the basis that it was unconscionable, as it would require drivers to shell out at least US$15,000 to travel to the Netherlands and to have their disputes heard there.

Uber was not the first time unconscionability was raised in the contractual context. It has always been a go-to argument for parties who don’t want to live up to their end of a bargain; mortgagors can’t pay their banks or lenders and argue that the mortgage contract is unfair, construction contractors insert hidden terms into their contracts, employees argue that they unknowingly signed a bad deal with their employers, and the list goes on. In all of these cases, litigants often argue that the subject contractual clauses (and the obligations they guarantee) are unfair and should not be enforced.

Fortunately, the courts have not been quick to accept these arguments. Although it is often acknowledged that those contracts may not be exactly fair, they have not been deemed to be unconscionable and unenforceable. The doctrine of unconscionability has been very widely attempted for many decades but has seldom succeeded. After all, there is little point in having a contract if parties cannot be bound by what they sign.

That all changed with Uber. As Ontario Superior Court of Justice Frederick Myers pointed out in the recent decision in Forest Hill Homes (Cornell Rouge) Limited v. Wei, the Uber decision “has brought the doctrine of unconscionability from the backburners to the forefront of contract law” and elevated it from a “defence of last resort” to a valid tool. In particular, the Supreme Court in Uber noted that in these modern times, weaker parties are often deprived of the opportunity to negotiate contracts and have unfair terms foisted on them as a result. The law should therefore be applied to ensure that stronger parties are not permitted to force unfair bargains on unknowing victims.

As such, Uber has been hailed not only as a great victory for the little guy, but as a step forward in contractual disputes. However, it also raised the valid concern that it could result in open season on contractual clauses that people deem to be unfair.

Fortunately, this concern was addressed in the Wei decision, where the court said ‘not so fast.’ In Wei, the defendant signed a standard form agreement to purchase a home in a residential development from the plaintiff, a large real estate developer. The agreement contained a clause that stated the defendant could not revoke the offer to purchase after a certain date. After the agreement was signed, the value of the home decreased and she was not able to obtain financing for the purchase. She then tried to revoke the agreement after the deadline had passed.

The plaintiff sued for damages resulting from the aborted purchase and brought a motion for summary judgment. In defending the motion, the defendant argued that she was unfairly duped into purchasing the home and, as such, she should have been able to revoke the offer after the irrevocability clause lapsed. In this regard, the defendant attempted to use the Uber decision to argue that the enforcement of the irrevocability clause was unconscionable.

In rejecting the defendant’s argument, Myers reiterated the Supreme Court’s reasoning in Uber but recognized that it should have limits. In this case he acknowledged that the purchaser was not on an equal footing with a large property developer, but that did not mean the irrevocability clause was improvident or unfair. In particular, it was noted that the irrevocability clause was very standard in a real estate contract and was “for all intents and purposes the same as the one proffered as the standard form by registered real estate sales professionals throughout the province every day.”

Accordingly, if the clause was deemed to be invalid, it would essentially mean that the standard form agreement of purchase and sale used in Ontario would no longer hold up to scrutiny. Myers therefore threw out the defendant’s argument and granted judgment in favour of the plaintiff.

The Wei decision shows that, despite Uber, courts will not be quick to change their tune when it comes to unconscionability arguments. Standard contractual clauses will not be invalidated just because a weaker party claims that they are unfair.

Uber will undoubtedly be used hundreds of times in the ensuing years as a means of attacking contractual provisions, and the extent of its implications remain to be seen. However, for the time being we can take some comfort in the fact that the decision does not mean allegedly unfair agreements will be thrown out en masse, even when the parties are on an unequal footing.