It is a common misconception that contracts of adhesion are unenforceable. Contracts of adhesion, also referred to as standard form contracts, are most often used in commercial contexts. These contracts are usually presented to consumers on a ‘take it or leave it’ basis whereby the non-drafting party does not have an opportunity to negotiate the terms of the contract and must either accept the contract ‘as it is’ or avoid the business transaction all together. These contracts are prima facie valid and enforceable. There may be certain clauses within the contract that may be deemed unenforceable but the onus of proof is on the party alleging the same and determined based on the circumstances surrounding the execution of the contract.
The Supreme Court of Canada in Sidel v. Telus Communications Inc. has held that “Absent legislative intervention, the courts will general give effect to the terms of a commercial contract freely entered into, even a contract of adhesion, including an arbitration clause.” This case involved a customer challenging the enforceability of an arbitration clause in a cell phone contract among other things.
Despite being entered into without negotiation, it does not mean that a standard form contract is not binding or consented to. In order to find a standard form contract or particular terms of such a contract void, a plaintiff must rely on a provision of law or legal principle (see: Oliver v. Elite Insurance Company). It is acknowledged that because standard form contracts are not negotiated, there may be terms that are unfair to one party or oppressive, usually in the context of a consumer obtaining services.
In particular, the doctrine of unconscionability can be used to invalidate an oppressive term in an otherwise enforceable contract. For unconscionability to apply, the Plaintiff must prove that there was an inequality of bargaining power, such that the party was unable to protect its interests AND that the other party gained an undue advantage or secured a benefit as a result of the inequality. Moreover, even if the bargain was not unconscionable, it may be struck for being contrary to public policy. This has often been applied in the context of exclusion clauses. Exclusion clauses cannot apply where there was an explicit representation made to induce a party to enter into a contract, and such a representation was not followed. The claim for misrepresentation will be allowed by a court regardless of the exclusion clause. (see: Douz v. Facebook, Inc. and Singh v. Trump)
Where a clause is penal in nature, in that the sum is extravagant and unconscionable in comparison to the amount of conceivable loss and is not a genuine pre-estimate of damages, the clause can be struck (See: Habitat for Humanity Canada v. Hearts and hands for Homes Society)
Whether or not a clause is void or unenforceable will depend on the context, the kind of clause, and the circumstances of each case. It is important to seek legal counsel if you have questions regarding your standard form of contracts particularly in a commercial context. The lawyers at Mills & Mills LLP are experienced in contract law and commercial litigation.To learn more about the services that we can provide, contact us at 416-863-0125 or send us an email.