Standard Form Contracts & Exclusion Clauses - Striking Out

Question 1

Tercon Contractors Ltd v British Columbia (Ministry of Transportation and Highways)
(Framework to Evaluate Exclusion Clause)

Answer 1

• Replaces traditional methods of determining whether courts can invalidate an EC as a matter of public policy. Tercon sets out a three issue framework for determining the enforceability of exclusion clauses
• Tercon framework:
  FIRST Is the exclusion clause incorporated into the contract?
• The EC has to be incorporated in the contract in order to be enforceable. If it is not incorporated, the EC is of no force and effect, but the contract remains enforceable
  
  • Does the other party know it exists?
  • Difference depending on whether the contract was signed or unsigned
  • The party has a duty to bring the exclusion clause to the attention of the signer
• Then if the EC is incorporated, the court can still expressly invalidate/strike out the exclusion clause based on either:
  1) interpretation: Does the EC capture the type of breach complained of by one of the parties?
  2) doctrine of unconscionability at the time that the contract was formed; or
  
  • — at the time that the contract was formed, unconscionability has two requirements:
    1) was there an inequality of bargaining power between the parties? This only ever applies between an unsophisticated lay person and a corporation, not 2 commercial parties with their own lawyers.
    2) is the contract substantively unfair - AKA a bad deal for the weaker party?
  • If the answer is yes to both of these, then the doctrine of unconscionability applies to the exclusion clause and the court can invalidate the exclusion clause on that basis, but the contract itself remains intact.
    3) explicit reference to public policy measured at the time of the actual breach
  • Incorporates the fundamental breach idea but actually quite different. It’s no longer about fundamental breach, it is a straight up public policy question
  • Public policy is now about a combination of deliberate bad behaviour in breaching the contract, and a subsequent threat to health and safety.
  • Public policy matters to strike out an EC refers to serious criminality and egregious fraud done knowingly, intentionally, or recklessly.
    Examples:
    o The intentional sale of adulterated baby milk that killed lots of babies for profits
    o The reckless sale of toxic cooking oil causing a widespread public panic
    o Knowingly selling defective resin that goes inside of pipes causing explosions

Question 2

Niedermeyer v Charlton, 2014
(Expands Scope of Public Policy Application/Expansion of Public Policy)

Answer 2

This on its face does not appear to be a matter of public policy because in Tercon it says we are looking for egregious criminality or fraud that poses a risk to health and safety of others.
Public policy does not simply mean egregious criminality and fraud coupled with risks to the public.
Public policy consideration now also includes striking out an EC that conflicts with or attempts to contract out of social policy type legislation that citizens are entitled to (suing in tort).
- This EC would then mean that N cannot sue in tort.
Having an EC preventing someone from suing in tort is against public policy that gives people the option to get money through ICBC for anyone injured in a motor vehicle accident.

Question 3

Loychuk v Cougar Mountain Adventures Ltd., 2012
(Unconscionability & Public Policy)

Answer 3

Serves as an example of unconscionability and public policy being applied.

What is the test for unconscionability?
- In order to set aside a bargain for unconscionability, a party must establish:
A. inequality in the position of the parties arising from the ignorance, need or distress of the weaker, which left him in the power of the stronger; and
B. proof of substantial unfairness in the bargain.