Uber v Heller Affirms Two-Step Unconscionability Test

Written by Kristy Milland, 3L, University of Toronto Faculty of Law

The debate over which factors constitute the unconscionability test used by Canadian courts has been long and protracted. It is thus with great relief that the recent Supreme Court of Canada (SCC) decision in Uber v. Heller[1] brought a final determination of which steps are essential to unconscionability. In this case, Abella’s concurrence in Douez v. Facebook[2] won the day, and the court has found that unconscionability requires only two factors to be met: that the parties have an imbalance of power between them at the time the contract is made, and that this power imbalance leads to the contract being an improvident bargain for the weaker party. But the path to this simple and elegant test has been long and winding, from the courts of equity through to the final Heller decision. It is worth exploring why the doctrine of unconscionability was initially formed, how we lost our way thereafter, and why Heller is such an important decision today.

The courts of equity used the term “unconscionable” as an indication of transactions against which relief would be granted,[3] those being cases which shocked the conscience of the court. There was no requirement of bad behaviour or coercion on the part of either party in drafting the contract. In fact, a transaction could be considered “shockingly unfair or unjust” based solely on the unconscionability of attempting to enforce it.[4] As to a transaction which itself may be unconscionable, there were other equitable doctrines better suited to dealing with the specific circumstances of the situation, such as duress, mistake, or undue influence.

The courts have recently adopted a modern misinterpretation of unconscionability, which equates it with the term “disgraceful”, refocusing the doctrine towards an analysis of behaviour.[5] Professor Waddams illustrates this shift by citing Hart v. O’Connor,[6] a case where one party, who was of reduced capacity, entered into what was otherwise a reasonable agreement to sell his house, albeit at a far lower price than the property was worth. While the contract may not be unconscionable on its face, this case would likely be found unconscionable by the courts of equity, as a vulnerable party entering into an improvident bargain would shock the conscience of the court. Yet in Hart, the modern courts did not find that unconscionability was made out, as the purchaser had not engaged in wrongful conduct during formation of the agreement. Clearly, the courts had wandered away from the original intent of equity by requiring wrongdoing by the stronger party. How could one ever prove a corporation intentionally preyed upon them? This raises the threshold of unconscionability to the point that many vulnerable people are not able to avail themselves of the protection of the doctrine.[7]

The number of steps necessary in proving an unconscionable transaction has also fluctuated over the years. For example, Morrison v. Coast Finance[8] acknowledged the traditional formulation used by the courts of equity when stating that the “material ingredients [of unconscionability] are proof of inequality… and proof of substantial unfairness,”[9] thus affirming a two-step test. Moving forward in time, Lloyds Bank v. Bundy makes clear that the fact that both parties may unknowingly strike an unconscionable bargain is key to understanding the doctrine.[10] Lord Denning M.R. speaks to the stronger party “push[ing] the weak to the wall,”[11] focusing not on an intent of the stronger party to take advantage during the creation of the bargain, but instead on the intent to enforce the improvident bargain thereafter. Although Denning’s was not the majority decision, and his interpretation of the case was later disapproved of in National Westminster Bank v. Morgan,[12] it appears that the three-step test he expresses, which adds the requirement that the weaker party not have had access to independent expert advice, was taken up by the Canadian courts later. More recently, Kanitz v. Rogers Cable[13] affirmed the modern misinterpretation of the doctrine of unconscionability, adding the requirement that the stronger party knowingly take advantage of the vulnerable party. Next, the decision in Cain v Clarica Life Insurance[14] combines all four steps, requiring an improvident bargain, a lack of expert advice, unequal bargaining power, and that the stronger party knowingly took advantage of their position.[15] Finally, this leads us back to Douez, where the only enunciation of the unconscionability test comes in Justice Abella’s concurrence, in which she affirms the two-step test from Morrison.[16]

In Heller, the various courts each approached the unconscionability test differently. At trial, Justice Perell applies a three-part test based on Kanitz, finding that unconscionability is not made out as there is insufficient proof that Uber preyed upon Heller.[17] At the Ontario Court of Appeal, Justice Nordheimer explicitly avoids determining which version of the test was superior, as under any test he would find that the arbitration clause was unconscionable.[18] Finally, in Heller the SCC set the debate to rest. The two-step test Abella expressed in her Douez concurrence would be that which courts would use going forward.[19] Basically, unconscionability involves both inequality and improvidence, and in order to avoid raising the threshold for access to the doctrine so high that the vulnerable are denied its protection, the four-step test must be rejected.[20]

The simplicity of the two-step unconscionability test ensures that the intent of the courts of equity to protect the vulnerable is upheld through the availability of the doctrine. The courts of equity were created to counter the power imbalance found in common law courts, and when the two were merged, the rules of equity were intended to prevail.[21] The more steps we add to the test, the harder it is for those who might face an inequality in bargaining power to avail themselves of an escape route from the harm they face due to the enforcement of an improvident bargain. Thus, the decision in Heller may be one of the most important we see this year, as it clarifies that the rules of the courts of equity will continue to be endorsed by the Canadian court system when they are called upon to protect the vulnerable.

Kristy Milland, “Uber v Heller Affirms Two-Step Unconscionability Test” Canadian Law of Work Forum (Jun2 29 2020): https://lawofwork.ca/?p=12773

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[1] 2020 SCC 16.

[2] 2017 SCC 33.

[3] Stephen Waddams, Sanctity of Contracts in a Secular Age, 1st ed (New York: Cambridge University Press, 2019) at 118.

[4] Supra note 3 at 118.

[5] Supra note 3 at 118.

[6] [1985] AC 1000 (PC) at 1027-1028 [Hart].

[7] See Bhasin v Hrynew, [2014] 3 SCR 494, at para 43.

[8] (1965), 54 WWR 257, 55 DLR (2d) 710 [Morrison].

[9] Ibid at para 4.

[10] [1975] QB 326, [1974] 3 All ER 757 (CA) [Lloyds Bank].

[11] Supra note 11at 336-337.

[12] [1985] UKHL 2.

[13] 2002 CarswellOnt 628 [Kanitz] at paras 36-37.

[14] 2005 ABCA 437 [Cain], aff’d Titus v William F. Cooke Enterprises, 2007 ONCA 573.

[15] Ibid at para 32.

[16] Supra note 2 at para 115.

[17] Heller v Uber Technologies Inc., 2018 ONSC 718 at para 70.

[18] Heller v Uber Technologies Inc., 2019 ONCA 1 at para 62.

[19] Uber Technologies Inc., 2020 SCC 16 at para 62.

[20] Ibid at paras 79, 82.

[21] Stephen Waddams, Cases and Materials on Contracts, 5th ed (Toronto: Emond Montgomery Publications, 2014) at 121.