NL Court Of Appeal Restates Principles That Apply To Claims Of Unconscionability

In this case, the Newfoundland and Labrador Court of Appeal considered the validity and enforceability of a full and final release involving two unrepresented individuals.

Background

The parties were involved in a motor vehicle accident caused by Downer rear-ending Pitcher's taxi. Downer, who admitted fault, agreed to pay for repairs to the taxi and $300 for income lost while the taxi was unavailable. In return, Pitcher signed, without legal advice, a "Full and Final Release" which Downer had prepared using a precedent obtained from a lawyer. The release purported to release Downer "without qualification or limitation" from all claims and causes of action arising from the collision, including bodily injury claims.

While Pitcher felt fine at the time of the accident, she developed symptoms some seven months later and brought a claim against Downer on this basis. She argued that the release was unenforceable because she had not read it in its entirety prior to signing it, and had thought that it related to property damage and income loss only.

The lower court determined the enforceability of the release. As no authority from the Supreme Court of Canada exists on this point, the trial judge was asked to determine which of two "tests for unconscionability" was applicable.

Pitcher advanced the test enunciated by Justice Green, as he then was, in Howell v. Reitmans (Canada) Ltd. (2002), 215 Nfld. & P.E.I.R. 240 (Nfld. T.D.), which has three required elements: (1) inequality of bargaining position arising out of ignorance, need or distress; (2) the stronger party unconscientiously using a position of power to achieve an advantage; and (3) an agreement substantially unfair to the weaker party or substantially divergent from community standards of commercial morality, such that it should be set aside.

Downer advanced the test described in Cain v. Clarica Life Insurance Co., 2005 ABCA 437, which identified four necessary elements: (1) a grossly unfair and improvident transaction; (2) the victim's lack of independent legal advice or other suitable advice; (3) an overwhelming imbalance in bargaining power caused by victim's ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and (4) the other party's knowingly taking advantage of this vulnerability.

The trial judge preferred the test set out in Howell, which she characterized as presenting "a slightly lower...