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Unconscionable” Online Platform Agreements

February 11, 2021   ·   0 Comments

By Luis R. Chacin

lchacin@carters.ca

With the use of electronic devices, whether it is to download an application to participate in a video call, try a photo editing software, or access a new social media platform, we are regularly asked to either click “I Agree” or click away. An online platform’s terms of use are typically “standard form” contracts of adhesion drafted by the provider to manage its own risks in serving large numbers of users throughout the world. There is no negotiation or bargaining. 

Most people do not read the terms of use before clicking “I Agree”. Instead, they rely on online reviews and expect the market to weed out the bad providers. Also, with online agreements the stakes are typically not too high when, for example, people just want to share a picture of their meal or watch their friend’s latest cat video. However, for a business that relies on an online platform provider, carefully reading the terms of use of that platform is probably not a bad idea.

In this regard, one of the most important legal developments in 2020 was the Supreme Court of Canada decision in Uber Technologies Inc. v. Heller, 2020 SCC 16, released on June 26, 2020. The appeal to the Supreme Court of Canada was brought by an international corporate group (“Uber”) that provides software applications for drivers and customers to arrange personal transportation and food delivery using their smartphones in what is referred to as the “sharing economy”. The Court considered the validity of the arbitration clause in Uber’s standard form services agreement, which required that any dispute between a driver and Uber be submitted to mediation and arbitration in the Netherlands. In the result, the majority of the Court found that the arbitration clause was unconscionable based on the inequality of bargaining power between Uber and the drivers, and the improvident bargain for a driver in Canada facing substantial cost of arbitration proceedings in the Netherlands. 

Generally speaking, although there is some debate regarding the appropriate legal test, the doctrine of unconscionability is intended to protect vulnerable persons in transactions where there is a gross inequality of bargaining power resulting in an improvident bargain. 

In Heller, the Court acknowledged that freedom of contract remains the general rule, but that there was a proper balance to be struck between fairness and commercial certainty. When the terms of an online platform agreement are unfair or unreasonably one-sided, particularly in situations where users are not freely accepting the terms, or there is a “cognitive asymmetry”, and the agreement unduly advantages the stronger party or disadvantages the more vulnerable, such as where the weaker party did not understand or appreciate the meaning of important terms leading to an “unfair surprise”, then those terms may be not enforceable. The Court further held that unconscionability has a meaningful role to play in examining the conditions behind consent in contracts of adhesion and in encouraging drafters of such contracts to make them more accessible to the other party or to ensure that such contracts are not so lop-sided as to be improvident, or both.

A similar approach was considered by the Court in Douez v. Facebook Inc., 2017 SCC 33 (“Douez”), regarding the forum selection clause and choice of law in Facebook’s standard terms of use, which required that disputes be resolved in California according to California law. However, in Douez, the majority of the Court found that the forum selection clause was unenforceable as a matter of public policy in the context of privacy and consumer rights. 

Today, with more than 90% of Canadians having access to the internet, and most people and businesses having an online presence, it seems hard to believe that in many respects we are still in the wild west of the internet economy. Court precedents like Heller and Douez show that there is some progress being made, but also show that progress is slow and potentially very costly for the unwary.

*lchacin@carters.ca

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