CONTROLLING FAIRNESS IN STANDARD FORM CONTRACTS: WHAT CAN COURTS DO, AND WHAT SHOULD THEY DO?

• Author: Moore, Marcus

INTRODUCTION

Unfair terms in standard form contracts are one of Contract Law's most notorious and enduring problems. (1) The vast transnational literature on this, now a century old, has long worked out its contours, even as it still searches for more effective solutions. (2) The central problem can be simply stated: A form drafter's ability to dictate terms--characteristically unknown and unbargained by the parties who are form recipients--allows, in the absence of any other legal control, for the incorporation of one-sided terms favouring the drafting party. The implications are significant: The exhaustive list of terms typical of such contracts, combined with the pervasiveness of their use in modern society, make unfair standard form terms a feature of the economic system which systemically and significantly contributes to the post-industrial era's astounding inequalities of wealth and power. (3) These disparities are expanding now more than ever in the present age of technology, with the increasing migration of social activity online--governed by standard form contracts, made via "click-wrap", "browse-wrap" and the like. (4)

As I will discuss in Part I of this article, many jurisdictions have tried to at least partly deal with this problem. Canada's common law provinces conspicuously lag behind many other developed legal systems in their lack of even a somewhat general control over unfair terms in standard form contracts. (5) Among other common law domains, the UK, Ireland, Australia, and New Zealand, for example, all have legislated controls in this area. So do the civil law nations of Europe and Canada's civilian private law jurisdiction of Quebec. The United States has a common law control referred to as "unconscionability", but which must not be confused with the doctrines of that name found widely elsewhere throughout the common law world. (6) The American doctrine was developed by the courts based on [section]2-302 of the Uniform Commercial Code, and is designed in large part to overtly control unfair standard form clauses. (7)

In a prominent line of cases headlined by Hunter v Syncrude and Tercon v EC, an unconscionability doctrine was invoked in Canada resembling in important ways the US doctrine. (8) However, the elusive discussion in these cases thus far has held them back from being clearly recognized as providing such control in Canada. Uncertain, for example, was whether this doctrine controls only unfair exemption clauses or also other unfair terms like the US doctrine. Thus, a definite control of standard form terms did not materialize. (9)

Given the continued absence of general legislated controls in common law Canada, the recent decision of the Supreme Court of Canada in Uber Technologies v Heller (10) raises, regarding potential common law controls, the questions addressed by this article, of: what can Canadian courts do, and what should they do?

The impact of the Uber case on development of such a general control will be discussed in Part II of the article. In this important recent decision, the Supreme Court evinces a strong desire to achieve a control over unfair standard form terms in Canadian common law--bringing common law Canada broadly in line with other jurisdictions that already have judge-made or legislated controls.

The Court took several steps in Uber towards realizing a regime of common law control. Firstly, and arguably most importantly, it articulated a justification for control--historically a major hurdle to common law controls of unfair terms. Secondly, the Court held that the standard form contracting process counts towards unconscionability's required procedural aspect, the remaining aspect being the needed control over substantive fairness. Thirdly, the Court applied unconscionability to an individual unfair term, an approach typical of legislated and judicially developed controls elsewhere that encompass fairness in standard form contracts. Lastly, the Court removed some impediments to class actions over unfair standard form terms, a recourse suited to unfair standard form contract terms' embodying a mass "wrong".

However, in various ways the Uber decision also hesitated in fully authorizing control of fairness of standard form terms. For example, the decision suggested that enhanced information to form recipients could oust the applicability of control. This could significantly curtail its scope and/or prevent it going much further than existing rules requiring special notice for incorporation of surprising or onerous terms. In explaining why unconscionability's procedural requirement was satisfied, the majority also referenced party-specific inequalities of bargaining power, leaving it unclear whether contracting by adhesion suffices on its own. Also unclear was whether complainants could, in general, confine their attack to an individual term, as the majority principally justified its term-specific use of unconscionability in Uber on the basis that the arbitration clause constituted a collateral contract. The decision also did not specify that no other clause would be permitted to impede class actions as had the arbitration clause that was not enforced.

The potential to achieve effective control of the fairness of standard form terms, as well as the coherence of Contract Law within and surrounding such control, were also hurt by the case's conflation (starting at the lower court levels) of distinct doctrines of "unconscionability". (11) Unconscionability is a concept which plays a role in multiple doctrines using that name, and others under other names. It is the unconscionability doctrine first developed in American courts that, as mentioned, was developed with control of unfair terms among its principal aims. The doctrine used in Canada in the Hunter and Tercon case-line had important commonalities with that doctrine. (12) However, in Uber, starting at the trial level and carried over into the courts above, this was conflated with a distinct unconscionability doctrine of English origin, which does not deal with terms of standard form contracts. (13) The unconscionability doctrine of the English family, represented in Canada by leading cases such as Morrison (BCCA), Cain (ABCA), Titus (ONCA), and Downer (NLCA) dealt with scenarios of exploitation of a party who was impaired in the bargaining process by some special disability and thus entered into an improvident transaction. (14) That doctrine has long been seen as unsuited to control of unfair terms in standard form contracts due to its assumption of a bargaining process, its concern with individualized not standardized sources of vulnerability, and its conception as a vice of consent that negatives the validity of a contract's formation and thus avoids the transaction as a whole. (15) Attempts to house a standard form term control within this type of unconscionability doctrine, due to the aforementioned conflation, resulted in additional difficulties likely to endure if these doctrines are not disambiguated. To control unfair terms in standard form contracts, England and other Commonwealth jurisdictions make use of legislation. (16)

As the subject of this paper is control of unfair terms in standard form contracts, I do not stray into developments regarding the unconscionability doctrine of English descent except where this is relevant because of the conflation above, to standard form term control. Other issues relating to the doctrine of English origin, though important for Canadian Contract Law, merit a full discussion elsewhere as a separate topic. (17)

The problem of controlling unfair terms in standard form contracts is longstanding and challenging. (18) Hence, in the wake of both Uber's steps towards, and complications of, achieving a common law control of unfair standard form terms, it is important and timely to consider what future courts can and should do.

Part III of this article provides a set of recommendations for how to move the jurisprudence from where it is following Uber to achieving what judicial control of unfair terms in standard form contracts can realistically achieve. The discussion also hopes to help clear up certain confusions and resolve conflicts within existing jurisprudence, to ensure coherence around the fairness control and with Contract Law's overall approach to reconciling its fundamental interests in freedom and fairness.

Among the recommendations offered, I suggest tweaking Uber's articulation of the law's justification for controlling unfair terms in standard form contracts. I also make clear that to control standard form terms, the type of unconscionability doctrine to use is the American type, applicable to unconscionable clauses. As mentioned above, a case can be made that such a doctrine has already in other SCC decisions been shown to be applicable in Canada. But at a minimum this needs to be clearly confirmed; or otherwise, that line of cases should just be extended to do so now. The unconscionability doctrine of English descent conflated with it in Uber should be removed from this context and returned to its normal modus operandi. That doctrine is needed for its distinct vocation of avoiding transactions resulting from unusual situations of exploitive bargaining. To facilitate access to class actions as a procedural recourse suited to the issue of unfair standardized terms used in mass markets, I suggest that future courts remove additional barriers to class actions beyond just standard form arbitration clauses. As well, I submit that subsequent rulings should not accept Uber's intimation that enhanced information might obviate the need for control of standard form terms. An exception is terms actually negotiated, which are typically exempted under unfair terms legislation elsewhere. Uber lowered the threshold of unfairness meriting control; I argue that courts should restore the higher threshold for the sake of certainty and predictability, which are...