In my blog post of March 9, 2018, I commented on the case of Uber Technologies Inc. v. Heller, an action in which the validity of an arbitration clause in an Independent Contractor Agreement was in issue.

Heller was an Uber driver who had signed an agreement with Uber. The agreement provided that any dispute would have to be resolved by arbitration, and would have to take place in Holland. Holland is the location of the head office of Uber’s parent company.

For obvious reasons, the idea of arbitrating in Holland would not appeal to a Canadian driver in almost any circumstances. Presumably, that was the idea behind Uber’s drafting of the clause in that manner.

Heller commenced an action against Uber notwithstanding the arbitration clause and attempted to persuade the Court that the clause should be ignored. He was not successful. The Court hearing the matter referred to numerous Supreme Court of Canada decisions that made it clear that where a mandatory arbitration clause appears in an agreement, it is to be given effect.

Nevertheless, Heller took his case to the Supreme Court of Canada. On June 26, 2020, the Supreme Court of Canada ruled that the arbitration clause in his agreement was not valid.

The Court noted that there was a substantial upfront cost that would be incurred by any party seeking to commence the arbitration process as contemplated by the agreement. That upfront cost was not disclosed in the agreement itself. In addition, as would have been obvious to anyone, the cost to arbitrate in Holland would have been exorbitant compared to a typical driver’s annual gross earnings, effectively creating a financial barrier for drivers wishing to pursue a dispute with Uber.

The Court ruled that in limited circumstances, an arbitration clause can be considered invalid. One such circumstance involves a finding of unconscionability.

Unconscionability requires both an inequality of bargaining power and a resulting improvident bargain. An inequality of bargaining power exists when one party cannot adequately protect its own interests in the contracting process. A bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable party.

With standard form contracts, there is a real potential to create an inequality of bargaining power and to enhance the advantage of the stronger party, more particularly through elements such as arbitration clauses that deprive the weaker party of a remedy as a practical matter. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all.

On that basis, a majority on the Court found the arbitration clause to be unconscionable and therefore invalid. A concurring judge added that the arbitration clause was invalid because it violated the public policy that exists in favour of providing Canadian citizens with meaningful access to justice.

Unconscionability is an argument that, in my experience, is often attempted but rarely succeeds. The idea that such an argument would succeed in circumstances involving a mandatory arbitration clause, which is almost always regarded by the Court as beyond challenge, is quite surprising. Nevertheless, it is clear that the justice of the matter cried out for a remedy for Mr. Heller and it is interesting to note that the Supreme Court of Canada agreed.

Some time ago, I wrote a blog post about contracts that include arbitration clauses that make it a practical impossibility for a complainant to assert his or her rights. For example, when the arbitration clause specifies that the arbitration will take place in some far away country.

In consumer contracts, such clauses are often included in the vendor’s terms and conditions. While I have never done a survey, I am fairly confident in saying that the vast majority of consumers never read a vendor’s terms and conditions, even though they are available to be read. Most consumers simply click on the box that confirms that they are prepared to proceed with the transaction under those terms and conditions without a second thought. If those terms include an arbitration clause, which in turn provides for something that makes it a practical impossibility for the consumer to press forward with a complaint, the consumer will be left without a remedy unless the Court can be convinced to ignore the arbitration clause.

In the recent decision of a US Court in Nicosia v. Amazon.com, Inc., a United States Court of Appeals considered an appeal from a lower court judgment requiring a consumer with a complaint against Amazon to proceed by way of arbitration rather than through the court system. The Court of Appeal affirmed that decision.

In this case, Amazon’s conditions of use included an arbitration clause. The question before the Court was whether or not the plaintiff was bound by it in the face of his evidence that he had never read the clause, received notice of it, or demonstrated through his conduct that he agreed to it.

The Court ruled that the fact that the plaintiff denied ever reading the terms and conditions, including the arbitration clause by making his purchases, was irrelevant. The Court ruled that as in the case of paper contracts, to be bound to an arbitration clause, an internet user does not actually have to read the terms and conditions or click on a hyperlink that makes them available as long as the consumer has notice of the existence of the terms and conditions.

From the perspective of a consumer, this decision makes clear that there is a risk involved in simply ignoring the terms and conditions put forward by a seller in any transaction of any materiality.

The recent decision of the Ontario Court of Appeal in Deschenes v. Lalonde provides an example of one of those very rare occasions when a party to a settlement can obtain an order setting the settlement agreement aside.

As one might expect, a party to a settlement who is merely stricken by “buyer’s remorse” because he or she thinks that a better deal could have been achieved is not going to be able to undo a binding settlement agreement.

However, there are circumstances in which a settlement can be set aside.

In this case, Ms. Deschenes alleged that she was sexually assaulted as a child by a priest in the early 1970s. She sued the priest and the local diocese, claiming it was vicariously liable for the priest’s actions and also liable in negligence for failing to prevent the assaults. The diocese insisted that it had no knowledge of the priest’s prior abuse of others until many years after the assaults on Ms. Deschenes had ended. A finding that the diocese had or should have had knowledge of prior misconduct was critical to a successful claim in negligence. Therefore, given this representation by the diocese and the uncertainty of the law on the issue of vicarious liability, Ms. Deschenes felt that she had no choice but to settle the action in 2000 for a payment by the diocese of just $100,000.

In 2006, it came to light that in the early 1960s, the diocese had received police statements alleging that the priest had assaulted several girls long before Ms. Deschenes was assaulted. Shortly after this information came to light, Ms. Deschenes commenced a new action against the diocese asking that the original settlement agreement be set aside. The parties brought the matter to a motion judge seeking summary judgment to determine the enforceability of the settlement agreement.

The motion judge agreed with Ms. Deschenes and set aside the settlement agreement. The Court of Appeal has now affirmed that decision.

It is a well-established matter of public policy that settlement agreements and the releases typically signed upon settlement should be enforced unless doing so creates a real risk of injustice. The courts place a great deal of emphasis on the need for finality in litigation.

In this case, in order to establish that the diocese failed to take reasonable steps to stop the priest from committing these assaults, Ms. Dechenes would have had to establish that the diocese knew or ought to have known of the priest’s past misconduct, and done nothing to stop it from happening again. Her claim for vicarious liability was highly problematic because an employer is generally only vicariously liable if the employee’s conduct is within the scope of the employment.

Throughout the documentary and oral discovery process, the diocese maintained that it had no idea that there was a problem and that there was no basis upon which it could be said that it ought to have known that there was a problem. The motion judge was satisfied that Ms. Deschenes relied upon this representation in her ultimately agreeing to the settlement. He accepted that she would not have settled had she known about the earlier police statements, which clearly proved that the diocese did have knowledge of the priest’s pattern of sexual misconduct.

The motion judge was satisfied that while the denial by the diocese of this knowledge amounted to a misrepresentation, it was innocent in nature. Nevertheless, he concluded that this was a material misrepresentation, upon which Ms. Deschenes had relied in entering into the settlement agreement.

The law is clear that a party has the right to rescind a contract for a false or misleading representation that induced him or her to enter into the contract. The misrepresentation must relate to a matter that is relevant and material and the innocent party must show that he or she did rely on the misrepresentation, at least in part. This is true even if the misrepresentation is made innocently, that is, by a party who believes that the incorrect statement is actually true.

While it is true that there are public policy considerations that favour the finality of settlements, there are overarching considerations of fairness and justice that take precedence.

Accordingly, the motion judge set aside the settlement agreement, and the Court of Appeal affirmed that decision. Clearly, the interests of fairness and justice prevailed in this case.

Settlement agreements are very rarely set aside, but it does happen.