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Arbitration - Unconscionability. Lin v. Uber Canada Inc.
In Lin v. Uber Canada Inc. (Fed CA, 2025) the Federal Court of Appeal dismissed a class proceeding appeal, here brought against a successful motion for stay of the civil action in favour of a contractual arbitration clause.
The court considers 'unconscionability', here in the context of examining whether an arbitration clause was unenforceable:B. The Principles Governing Unconscionable Arbitration Agreements
[58] The Supreme Court addressed the principles that should govern the determination of whether an arbitration agreement is unconscionable in Heller, above. There, the Court stated that there are two elements that must be satisfied to establish unconscionability. First, it must be established that there is an inequality in the positions of the parties, and second, that this inequality resulted in the weaker party entering into an improvident bargain: Heller, above at para. 64. Both elements must be established to render an arbitration agreement unconscionable and thus invalid: Heller, above at para. 74.
[59] Moreover, to succeed in establishing an inequality of bargaining power sufficient to render a contractual term unconscionable, the party seeking to avoid the contractual term must demonstrate that "“the law’s normal assumptions about free bargaining either no longer hold substantially true or are incapable of being fairly applied”": Heller, above at para. 72.
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[76] As the Supreme Court observed in Heller, for there to be an inequality of bargaining power, one party must be in a position where they "“cannot adequately protect their interests in the contracting process”": above at para. 66. While differences in "“wealth, knowledge, or experience”" might constitute inequality in some cases, "“inequality encompasses more than just those attributes”": Heller, above at para. 67.
[77] In cases where an inequality of bargaining power is established, the Court will often have found that the relevant disadvantages "“impaired a party’s ability to freely enter or negotiate a contract, compromised a party’s ability to understand or appreciate the meaning and significance of the contractual terms, or both”": Heller, above para. 68. Citing a "“rescue at sea”" scenario, the Court found that this will be especially so where the weaker party is so dependent on the stronger party that they would suffer serious consequences if they did not to agree to the contract.
[78] That is, where the weaker party would accept almost any terms in a contract because the consequences of failing to agree are so dire, "“equity intervenes to prevent a contracting party from gaining too great an advantage from the weaker party’s unfortunate situation”": Heller, above at para. 69.
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[89] Given that a party seeking to avoid an arbitration agreement must establish both that there was an inequality of bargaining power and that this resulted in an improvident bargain, Mr. Lin’s failure to establish that there was an inequality of bargaining power in this case provides a sufficient basis for dismissing his unconscionability argument. I have, however, also not been persuaded that the Federal Court erred in finding that the Uber contract did not result in an improvident bargain. This issue will be addressed next.
E. Does the Uber Contract Result in an Improvident Bargain?
[90] As noted earlier, the second branch of the unconscionability analysis asks whether the bargain created by the contract in question is improvident. A contract will be improvident if it unduly advantages the stronger party or unduly disadvantages the weaker party: Heller, above at para. 74. Improvidence is measured at the time of contract formation, and not from the time that a party files a claim: Heller, above at paras. 74–75.
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F. Conclusion on Unconscionability
[103] As was the case with respect to whether the arbitration clause was incapable of performance, the Federal Court did not finally decide question of unconscionability. It merely found that Mr. Lin had not established that the Uber arbitration agreement was clearly unconscionable. Consequently, the Federal Court did not err in determining that the unconscionability question should be decided by the arbitrator, in accordance with the competence-competence principle.
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