September 1, 2020
Contracts and Covid-19
BY ROBERT KENNALEY
To become an Uber driver, David Heller had to accept, without negotiation, the terms of Uber’s standard form services agreement which required him to submit disputes to mediation and arbitration in Holland, under the Rules of the International Chamber of Commerce. Those Rules, it turned out, required Heller to pay up-front fees of $14,500 U.S. to bring a dispute forward. Mr. Heller started a class action lawsuit against Uber in Canada, saying the clause was unconscionable and therefore unenforceable. The Supreme Court of Canada agreed, finding the two required elements of unconscionability on the facts of the case: “inequality of bargaining power” and “improvidence.” The decision has potentially important consequences for the construction industry.A majority of the Supreme Court panel found inequality of bargaining power because Heller was powerless to negotiate any of the contract’s terms and because there was a “significant gulf in sophistication between Heller, a food delivery man” and Uber. It noted the arbitration clause did not set out the cost of mediation or arbitration in the Netherlands and held that an individual in Heller’s position could not be expected to understand the financial and legal implications of agreeing to the International Chamber’s rules (even if he had read the clause).
The Court confirmed that “improvidence” occurs where there is an inequality of bargaining power on the particular facts when the contract in question was formed and the contract or provision unduly either advantaged the stronger party or disadvantaged the weaker party. It found improvidence in this case because the $14,000 U.S. in up-front administrative fees (which did not include for the costs of travel, accommodation, legal representation or lost wages) were close to Heller’s annual income. It also noted that, combined, these costs would be more than any award he might hope to obtain in an arbitration.
In making its decision, the majority reiterated that while courts will generally defer to the parties as being best-placed to judge and protect their interests in the bargaining process, such deference presumes the contract is negotiated, freely agreed upon and accordingly fair. The Court thus made it clear that while Canadian Courts will not protect a sophisticated party from a bad deal, they will, in appropriate cases, protect parties that “cannot adequately protect their interests in the contracting process.” They will not allow freedom of contract to impose “a grossly unfair contract … at the expense of a person of little understanding or bargaining skill.”
THE COURT"S DISCUSSION of standard form and boiler-plate contracts should be of particular interest to the construction industry. In this regard, the majority adopted a 60-year-old commentary to note that, in accepting a standard form, the parties agree to “the few dickered terms,” the “broad type of the transaction” and “a blanket assent (not a specific assent) to any not unreasonable or indecent terms the seller may have on his form.” The excerpt from the commentary, The Common Law Tradition: Deciding Appeals (1960), went on to include the following:
“The fine print which has not been read has no business to cut under the reasonable meaning of those dickered terms which constitute the dominant and only real expression of the agreement …
There has been an arm’s-length deal, with dickered terms. … the boiler-plate is assented to en bloc, “unsight, unseen,” on the implicit assumption and to the full extent that (1) it does not alter or impair the fair meaning of the dickered terms when read alone, and (2) that its terms are neither in the particular nor in the net manifestly unreasonable and unfair.”
There has been an arm’s-length deal, with dickered terms. … the boiler-plate is assented to en bloc, “unsight, unseen,” on the implicit assumption and to the full extent that (1) it does not alter or impair the fair meaning of the dickered terms when read alone, and (2) that its terms are neither in the particular nor in the net manifestly unreasonable and unfair.”
The Court emphasized standard form contracts are in many instances both necessary and useful. For example, as with Canadian Construction Documents Committee (CCDC), Canadian Construction Association (CCA), Ontario Association of Architects (OAA) and Royal Architectural Institute of Canada (RAIC) forms, sophisticated commercial parties become familiar with them and sufficient explanations or advice is generally available to offset uncertainty over the meaning and effect of any clauses. The Court accordingly made it clear that use of a standard form contract does not by itself result in an inequality of bargaining power. It did, however, go on to say that unconscionability nonetheless “has a meaningful role to play in examining” a party’s consent to a standard form or boiler-plate contract. It went on to state:
“The many ways in which standard form contracts can impair a party’s ability to protect their interests in the contracting process and make them more vulnerable, are well-documented. For example, they are drafted by one party without input from the other and they may contain provisions that are difficult to read or understand. The potential for such contracts to create an inequality of bargaining power is clear. So too is their potential to enhance the advantage of the stronger party at the expense of the more vulnerable one. This is precisely the kind of situation in which the unconscionability doctrine is meant to apply.
Applying the unconscionability doctrine to standard form contracts encourages those drafting such contracts to make them more accessible to the other party or to ensure that they are not so lop-sided as to be improvident, or both.”
Applying the unconscionability doctrine to standard form contracts encourages those drafting such contracts to make them more accessible to the other party or to ensure that they are not so lop-sided as to be improvident, or both.”
IT IS FAR TO EARLY TO ACCESS how the Uber decision might impact the use of boiler-plate or standard from contracts in construction. That being said, there are (we believe) a few significant take-aways. First, the use of unaltered CCDC, CCA, OAA or RAIC standard form contracts will most likely not be impacted by the decision. This may not be the case, however, where they are amended by supplementary conditions. Also, where a document (such as a prime contract) is incorporated by reference, the party presenting the form should ensure the incorporated document is actually provided or made very readily available to the other side as part of the negotiation process. Having the other side confirm it has obtained and reviewed the incorporated document may be optimal. Those who draft and present their own form of boilerplate contracts for signature might best ensure the other parties have an opportunity to read and digest them, that the use of “fine-print” is avoided where possible, and that particularly lopsided or onerous clauses are expressly understood and agreed to. The concept of “necessity” should also be considered, because the Court has made it clear that an inequality of bargaining power can arise where the other side has no real option but to sign the agreement. (Consider, for example, where the specifications require the contractor to use a specified product and where the supplier of that product includes rather unreasonable clauses in the fine print of its sales agreement).
In the end, one thing is for certain: in the aftermath of Uber more and more defences will be raised on the basis of unconscionability, adding another factor to be addressed in construction dispute resolution. This might prove particularly interesting in the adjudication context where, in the jurisdictions that have or will adopt the processes, many if not most adjudications will be determined by non-lawyers with little or no legal training.
Robert Kennaley practices construction law in Toronto and Simcoe, Ont. He speaks and writes on construction law issues and can be reached for comment at 416-700-4142 or at rjk@kennaley.ca. This material is for information purposes and is not intended to provide legal advice. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.