Unconscionable contracts

How BC law treats it

At common law, a contract or clause is unconscionable if there was an inequality of bargaining power when it was made and the resulting bargain was improvident. In Uber Technologies Inc v Heller, the Supreme Court of Canada held that the weaker party does not have to prove that the stronger party knowingly took advantage. Inequality can come from a standard form contract offered on a take it or leave it basis, a lack of independent advice, or financial need. Improvidence is measured when the contract was made, by asking whether it unduly advantaged the stronger party or disadvantaged the weaker one. In Uber, an arbitration clause in a standard form driver agreement that required a costly arbitration in the Netherlands was held unconscionable. Under Tercon Contractors Ltd v British Columbia, unconscionability is also one of the questions a court asks before enforcing an exclusion or limitation of liability clause. For consumers, the Business Practices and Consumer Protection Act prohibits unconscionable acts or practices by suppliers (ss. 8 and 9). A consumer transaction involving an unconscionable act or practice is not binding on the consumer (s. 10), and the Act lists factors such as undue pressure, taking advantage of a consumer's inability to understand, and a price that grossly exceeds the market. Between sophisticated commercial parties with legal advice, unconscionability claims rarely succeed.

What it means for your business

Businesses that use standard form terms of service, SaaS agreements, franchise agreements or employment contracts are most exposed. A clause that looks enforceable on paper, such as a remote arbitration requirement, a punishing fee or a sweeping waiver, can be struck out if the other side had little choice and the term is one sided. Drafting balanced, clearly disclosed terms makes them easier to enforce. Example: A BC software company's online terms require all customer disputes to be arbitrated in Singapore at the customer's cost. A small business customer with a $3,000 claim argues that the clause is unconscionable under Uber v Heller, because it makes any claim uneconomic and was imposed on standard terms.

Risks and common mistakes

Assuming a clause is enforceable simply because the other party clicked 'I agree'. Imposing distant or expensive dispute resolution forums on small customers or contractors. Applying the old 'shocks the conscience' test instead of the Uber v Heller test. Treating the BPCPA's unconscionability rules as applying to business to business contracts. Burying onerous terms where the other party is unlikely to notice them.