THE Canadian doctrine of unconscionability is notoriously uncertain. Until its decision in Uber Technologies Inc. v Heller, 2020 S.C.C. 16 (“Heller”), the Supreme Court of Canada had not pronounced authoritatively on the subject, leaving lower courts to develop a variety of different framework tests that operate inconsistently across the country (see C. Hunt, “Unconscionability Three Ways: Unfairness, Consent and Exploitation” (2020) 96 Sup.Ct.L.Rev. 37; R. Bigwood, “Antipodean Reflections on the Canadian Unconscionability Doctrine” (2005) 84 Can.Bar Rev. 171). In Heller, Canada's apex court was called upon to clarify the doctrine. Unfortunately, the court was divided, with the majority endorsing a vague and abstract test over the strong objections of two justices (Brown and Cote JJ.) who would have preferred a stricter formulation in line with the approaches followed in England and Australia (compare Hart v O'Connor, [1985] A.C. 1000 (“Hart”) and Kakavas v Crown Melbourne Ltd. [2013] H.C.A. 25 (“Kakavas”)).

Heller worked as an Uber Driver in Ontario. To commence employment, he was required to enter into an online Service Agreement with Uber, which involved scrolling through a 12 page contract and twice clicking “I agree”. It contained a clause mandating that disputes were to be resolved by arbitration, designated the Netherlands as the place of arbitration, and stipulated that the Rules developed by the International Court of Arbitration were to govern (the “Arbitration Clause”). These Rules required that administrative fees of US$14,500 be paid upfront, although this was not stipulated in the contract itself. In 2017, Heller commenced a class action against Uber in Ontario alleging violations of provincial employment standards legislation. Uber brought a motion to stay the judicial proceedings, relying on the Arbitration Clause, which was successful at first instance (2018 ONSC 718) but overturned by the Ontario Court of Appeal (2019 ONCA 1).

At the Supreme Court, the validity of the Arbitration Clause became the central issue. Writing for the majority, Justices Abella and Rowe held it was unconscionable and invalid, clearing the way for Heller's class action to proceed in the Ontario courts. The majority acknowledged that unconscionability had been applied “inconsistently” and that “questions remain about the content of the doctrine” (Heller, at [55]). Resolving these questions required examining “underlying contractual theory” (Heller, at [55]). Freedom of contract, the majority continued, rests on the theory that autonomous individuals are best placed to protect their own interests. This in turn presumes “equality between the contracting parties and that the contract is negotiated, freely agreed, and therefore fair” (Heller, at [56], citations omitted). Where flaws in the bargaining process undermine these assumptions, freedom of contract loses some of its “justificatory authority” (Heller, at [58]–[59]). In such circumstances, where “unfair bargains cannot be linked to fair bargaining”, equity can intervene “without endangering the core values on which freedom of contract is based” (Heller, at [59]).

Against this backdrop, the court turned to the doctrine of unconscionability itself. The majority said it serves to “protect those who are vulnerable in the contracting process from loss or improvidence” in the resulting bargain (Heller, at [60]). It requires proof of two elements: an “inequality of bargaining power” and a “resulting improvident bargain” (Heller, at [65]). The first element arises where one party “cannot adequately protect their interests in the contracting process” (Heller, at [66]), which may stem from personal characteristics or from external circumstances affecting the claimant's volition (Heller, at [67]). These disadvantages need not rise to a level undermining capacity to enter a contract; it is sufficient if a party's ability to “freely enter or negotiate a contract” is impaired, or their ability to appreciate the significance of contractual terms is “compromised” (Heller, at [68]). Examples offered include necessity cases, where a vessel is rescued at sea; instances of extreme need or financial desperation; and situations involving special relationships of trust and dependence between the parties (Heller, at [70]). The majority also referenced situations of “cognitive asymmetry”, where as a “practical matter” only one party can “appreciate the full import” of contractual terms, because of “dense or difficult to understand” language in the agreement itself (Heller, at [71]). The touchstone uniting all of these examples is that the weaker party “may be vulnerable to exploitation” and the “normal assumptions about free bargaining…are incapable of being fairly applied” (Heller, at [72]). The second element, an improvident bargain, means the contract “unduly advantages the stronger party or unduly disadvantages the more vulnerable” (Heller, at [74]). Improvidence must be assessed “contextually” at the time the contract is formed (Heller, at [75]). The majority offered little guidance here, other than to state that, generally speaking, where the inequality of bargaining power stems from personal or situational factors compromising volition (as in the necessity cases), the focus should be on whether the stronger party is “unduly enriched” (Heller, at [76]); whereas in situations of cognitive asymmetry (as might arise from dense language), improvidence can exist where the terms flout the reasonable expectation of the weaker party or cause “unfair surprise” (Heller, at [77]).

Applying this test to the facts, the majority determined inequality was proved because: (1) Heller was “powerless to negotiate” terms of the contract, as it was presented in standard form; (2) there was a “significant gulf in sophistication” between the parties; and (3) a person in Heller's position would not suspect that in order to access arbitration under the Rules an upfront fee of US$14,500 was required (Heller, at [93]). The second element, improvidence, was established on the basis that: (1) the US$14,500 upfront fees were “disproportionate” to the size of any arbitration award that could have been foreseen at the time of entering the contract; (2) these were excessive as they represented an amount nearly equivalent to Heller's entire annual income; and (3) overall the effect of the Arbitration Clause was to prevent drivers from enforcing substantive rights in the contract against Uber, given the costly barriers to arbitration (Heller, at [94]–[95]). The majority concluded that the Arbitration Clause was invalid, and severed it from the Service Agreement, clearing the way for Heller to pursue his class action in Ontario.

Justices Brown and Cote rejected the majority's approach to unconscionability. Justice Brown characterised it as an invitation to “unreasoned intuition and ad hoc moralism”, turning on generalised notions of fairness, which threatened to return “unconscionability to a time when equity was measured by the length of the Chancellor's foot” (Heller, at [153], and see [170]). Unconscionability, he continued, does not operate “solely, or even primarily, on the basis of substantive unfairness” in the terms of a contract (Heller, at [156]). Indeed, he suggested (without deciding) that the element of substantive unfairness could be discarded altogether (Heller, at [159]). The focus, rather, should be on “procedural deficiencies associated with contract formation” arising from “abuse of an inequality in bargaining power, or exploitation of a weaker party's vulnerability” (Heller, at [157]). Fidelity to this underlying rationale demands more than mere inequality. The test should be stricter, requiring a “particular vulnerability” that “seriously” affects the relief-seeker's ability “to make a decision as to his or her own best interests” (Heller, at [160], citations omitted). Additionally, it should require the stronger party to have “at least constructive knowledge of the weaker party's vulnerability” (Heller, at [164]). In his view, these elements, in combination, ensure the claim is anchored in the policy of remedying exploitation. Justice Cote agreed with Brown J.'s “exposition” of unconscionability (Heller, at [258]). Notably, Justice Brown's observation that the principle of exploitation animates the doctrine, as well as his emphasis that there must be both a significant impairment on the part of the claimant coupled with some form of knowledge of the same on the part of the defendant is consistent with the approaches in England and Australia (see Hart; Kakavas; G. Virgo, The Principles of the Law of Restitution, 3rd ed. (Oxford, 2015, 280–81).

Although Justice Brown disagreed with the majority's formulation and application of unconscionability, he concurred in the result, on the basis that the Arbitration Clause was unenforceable as a matter of public policy. Public policy in this context is animated by a concern for the rule of law, “which requires that citizens have access to a venue where they can hold one another to account” (Heller, at [111]). In his view, the impugned Arbitration Clause effectively prevented access to civil justice and dispute resolution primarily because the upfront fees were grossly disproportionate to the amounts in dispute (Heller, at [119], and see [131]–[136] for several factors relevant to this assessment). Justice Cote, in her dissenting opinion, would have upheld the Arbitration Clause and hence ordered a stay of judicial proceedings, but on condition that that Uber advance filing fees to Heller to enable him to access the agreed upon dispute resolution mechanism (Heller, at [199]).

Heller is an important decision that will likely have significant ramifications for years to come. Unfortunately, the majority's approach to the first element of the test for unconscionability is vague, and appears to contemplate a standard so malleable that it may, in certain contexts, be virtually meaningless. This is especially so when coupled with the direction that it can be satisfied where terms are “dense or difficult to understand” (Heller, at [71]), or where a party's ability to negotiate is limited (Heller, at [68]). As Justice Cote noted, this threatens to expose the terms of “every standard form contract to review in order to ensure that they are substantively reasonable” (Heller, at [257]; cf. [162]–[163] (Brown J.)). As a matter of principle, this is objectionable not only for its potential to trench on freedom of contract, but also because it appears to shift the normative foundations of the doctrine away from its traditional focus on procedural exploitation by making the fairness of outcome the critical issue. This shift is evident also in the majority's decision to eschew knowledge of the weaker party's vulnerability as a requisite element of the test. That element operates as the key doctrinal ingredient anchoring unconscionability in the policy of remedying exploitation, and arguably provides the core justification for equitable interference in both England and Australia (see Hart; Kakavas; Virgo, Principles, 280–81; and see Bigwood, “Antipodean Reflections”, 214; cf. Hunt, “Unconscionability Three Ways”, 43–45, 73). As practical matter, the majority's approach threatens to undermine commercial certainty and private ordering (Heller, at [257] (Cote J.)), particularly where contracts of adhesion are used. This threat is exacerbated by the lack of concrete guidance offered by the court in relation to the second element of the test, even though it now lies at the heart of the analysis. With the greatest respect, the majority's approach, taken together, may have reduced unconscionability to little more than an appeal to fairness based on “unreasoned intuition” (Heller, at [152]).