Canada – Arbitration Agreement Invalid due to Unconscionability and no Consideration

This article was first published on the Arbitration Matters blog, here.

In Pokornik v. SkipTheDishes Restaurant Services Inc., 2022 MBKB 178, Justice Chartier considered the principles arising from Uber Technologies Inc. v. Heller, 2020 SCC 16 (CanLII) (“Uber”) in a contract of adhesion between a restaurant delivery corporation, SkipTheDishes, and one of its individual couriers. Justice Chartier found that there was no arbitration agreement; SkipTheDishes asserted that the courier was bound to a new agreement with an arbitration agreement that only became effective after she sued. Had he found otherwise, Justice Chartier would have found the agreement to be invalid due to unconscionability and a lack of consideration. These findings were despite efforts by SkipTheDishes to address some of the concerns that animated the Supreme Court of Canada’s decision in Uber.

On July 25, 2018, the plaintiff, Charleen Pokornik, filed an action against SkipTheDishes, in which she sought a declaration that she was an employee of SkiptheDishes and not an independent contractor, and that her action be certified as a class proceeding. SkipTheDishes moved to stay the proceeding pursuant to s. 7(1) of the Arbitration Act, C.C.S.M. c. A120  (the “Act”). The plaintiff argued that there was no agreement to arbitrate the issues or, alternatively, that the stay should be refused because the agreement was invalid pursuant to s. 7(b)(2)(b).

The parties entered into a courier agreement in 2014 (the “original agreement”), pursuant to which the plaintiff would complete food delivery orders made on the SkipTheDishes App. The original agreement did not have an arbitration clause; rather, the parties agreed to the jurisdiction of the Manitoba Court of Queen’s Bench (now King’s Bench). The plaintiff spoke to a lawyer on July 4, 2018 and commenced her action on July 25, 2018.

In the interim, on July 19, 2018, SkipTheDishes advised the plaintiff that there would be a new courier agreement effective July 26, 2018 (i.e., the day after the action was commenced) (the “new agreement”). The new agreement contained an arbitration clause for any disputes not resolved through informal negotiations. The seat of the arbitration would be Ontario and SkipTheDishes would pay the reasonable arbitration costs. It also specified that all disputes would be resolved on an individual basis.

The new agreement provided that it would replace and supersede any previous agreement. When the plaintiff sought confirmation that she was required to agree to the new agreement if she wanted to keep working, the defendant advised that, if she did not agree (by confirming her agreement in the App), she would no longer have access to the SkipTheDishes network. Ultimately, the plaintiff emailed the defendant that she would agree to the new terms in the App but was doing so under protest. SkipTheDishes chose not to reply to this email.

On the motion, the plaintiff argued that: (a) her action was commenced pursuant to the original agreement which contained no arbitration clause; and (b), in any event, the arbitration clause in the new agreement was unenforceable and thereby invalid.

Justice Chartier agreed.

First, Justice Chartier found that, although the new agreement purported to supersede previous agreements, it did not state that it would apply to existing actions. Accordingly, the new agreement did not apply retroactively to the action, which was commenced before the effective date of the new agreement. The original agreement, which contained no arbitration clause, applied.

Further, Justice Chartier found that the plaintiff had not accepted the terms of the new agreement. Any agreement in the App was expressly made “under protest”, an indication to the defendant that the plaintiff was actually rejecting the new agreement. Having deliberately chosen not to respond to the plaintiff’s protest email, Justice Chartier found that the defendant acquiesced to the plaintiff’s rejection. Accordingly, there was no arbitration clause in effect at the time of the action, and no stay available under s. 7(1).

In the alternative, if the arbitration clause under the new agreement applied, Justice Chartier would still have refused to stay the proceeding. He found that the arbitration clause in the new agreement was invalid due to unconscionability and an absence of consideration.

First, Justice Chartier noted that, pursuant to the framework in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII) , he was able to resolve the issue of the validity of the arbitration clause based on a superficial review of the record. That record established “a clear inequality of bargaining power in the facts and evidence and that in the circumstances the arbitration agreement constitutes an improvident bargain” (para. 34). The relevant factors included that this was a contract of adhesion between an individual and a large corporation, the plaintiff and the defendant had significantly different degrees of sophistication, and it was made clear to the plaintiff that she had to agree to the terms or her relationship with SkipTheDishes (and source of income) would be terminated. That the plaintiff was not dependent on the defendant was not determinative, given the test for unconscionability set out in Uber.

In addition, he found that this was an improvident bargain. The plaintiff’s action should not be rendered void by the new agreement, which was expressly designed by the defendant to remove her access to the courts. Justice Chartier was also troubled by the fact that the new agreement included terms designed to remove the potential for a class action, noting that this may be the only effective means to bring some claims. Finally, there was no consideration for the new agreement. The defendant’s motion for a stay was dismissed.

Contributor’s Notes:

First, the finding of unconscionability in this case was made despite efforts by SkipTheDishes to address some of the Court’s concerns in Uber, namely that the enforcement of the arbitration clause would result in plaintiffs having to arbitrate outside of Canada and incur the significant costs to do so. SkipTheDishes’ efforts were insufficient to satisfy Justice Chartier’s concerns about the imposition of a contract of adhesion on an unsophisticated plaintiff in circumstances where there was no consideration.

Second, the removal of access to class proceedings will also be generally looked upon unfavourably by the court. The courts have repeatedly expressed concern about access to justice (in numerous circumstances) and parties that insert arbitration clauses in contracts of adhesion should expect to those have agreements scrutinized in light of those concerns.

Third, it will be important to watch the development of arbitration jurisprudence arising from contracts of adhesion to delineate the circumstances in which arbitration agreements in those type of contracts will be upheld. For example, in Petty v Niantic Inc., 2022 BCSC 1077, the court granted a stay of an action involving a contract of adhesion that eliminated class actions where there was an arbitration opt-out and other provisions deliberately aimed to differentiate the clause from that in Uber.  For a recent Arbitration Matters case note on this decision, see British Columbia: – Court partially stays class action related to videogame “loot boxes” – #639.

In this case and in Petty, there was provision for some payment by the defendant of arbitration-related costs. While those types of provisions arguably address the financial inequities between the parties, query whether they create opportunities for a perception of bias by the arbitrator in favour of the paying party. Contracting parties (and arbitrators) should be particularly alive to this concern as this type of term increasingly comes into use.

author

Cynthia Kuehl

Cynthia is a partner at Lerners LLP, with more than 22 years of civil litigation experience. Cynthia brings her litigation skill set, honed from years of actual on-her-feet experience, and her common sense approach to problem-solving, to a wide range of areas, including commercial litigation and arbitration, appellate advocacy, public…

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