 This is Waylon Chao and welcome to Contractual Terms and Defects Module 3B Part B. In this part of the module, we will look at Standard Form Agreements and Exclusion Clauses. Standard Form Agreements are mass-produced contracts for repetitive transactions. Businesses use these agreements to facilitate efficient business transactions. However, there is a concern that these agreements could be used to abuse consumers. Now, the facilitating of efficient transactions is by way of reducing transaction costs. Specifically, there is no need to negotiate a brand new contract for every single transaction. As well, these standard agreements minimize legal risks for businesses. In other words, the business ensures that every contract is properly drafted and includes helpful clauses or important clauses such as exclusion clauses which help limit and control the legal liability of the business. With respect to preventing abuse of consumers, there is a concern that these agreements are a take it or leave it proposition for consumers. When a consumer is given a standard form agreement, there is little or no opportunity to negotiate any of the terms of the contract. The consumer either has to go ahead and accept the contract or not enter the transaction at all. Consumers generally have very little bargaining power in respect of standard form agreements. Also, another large area of concern is that very few consumers read or understand what they are agreeing to. And thus, the terms in these agreements are quite often one-sided in favor of the business. Standard form agreements are great for businesses in that they allow them to enter into many contracts efficiently to do many transactions knowing that all of the transactions have the same standard terms that essentially minimize the legal risk for the business. But they do present a legal issue with respect to whether or not a customer or any particular customer has accepted the terms of a standard form agreement. Or to form a contract, we need an agreement. To have an agreement, we need an offer and acceptance. So when a customer quickly signs a contract or clicks online a button that says, I agree, quite often the customer doesn't read the contract at all let alone understand what's written in the contract. In that type of situation, are the terms of the contract binding on the customer? In other words, did the customer actually accept, provide their acceptance of all the terms of the standard form agreement? Now the general rule is that if a customer has actually signed a physical contract or has clicked something like an I agree button online for an online transaction, the customer is bound by the terms of the contract. In other words, the customer has accepted the terms of the standard form agreement. And even if the customer did not read or understand the terms of the contract. Now the courts have developed some exceptions to that general rule that a customer is bound by the terms of the standard form contract. The first exception comes from the case Tilden and Clendenin, which we'll look at in detail in a moment. So under that case, if the contractual term is considered to be onerous or unusual, the customer has to be given reasonable notice of that onerous or unusual term and also a reasonable opportunity to understand that term and what he was signing. If those requirements are not met, then that onerous or unusual term is invalid. Another exception that the courts have developed has to do with the enforceability of a limitation or exclusion clause, which we'll also look at in more detail in a moment. So the courts there say that for a standard form agreement to be enforceable on a consumer, that exclusionary or limitation clause has to meet four requirements. It has to be clear and unambiguous. There has to be reasonable notice of that clause to the affected party. There has to be acceptance by the affected party, which is usually the consumer. And lastly, it is not unconscionable or unfair. An important case regarding standard form agreements and especially exclusion clauses contained in standard form agreements is the case of Tilden Rent-A-Car and Klan Denning, which is from all the way back in 1978 and is a decision of the Ontario Court of Appeal, which is the highest court in Ontario. The plaintiff was John Klan Denning. He sued Tilden Rent-A-Car. John Klan Denning had rented a vehicle from Tilden at the Vancouver Airport. So at the airport, he signed Tilden's standard car rental contract. So he quickly signed it without reading the agreement. And he did purchase the optional collision insurance coverage. So what that coverage deals with is that if you are in an accident and the car is damaged, then this coverage would cover the cost of the damage to the car. So what happened? So let's say that's the car that he rented, which isn't actually the car because that car didn't exist in 1978, but let's just say that's the car that he rented. So he got that car, he drove around, and one night he went out for a drink. And so Mr. Klan Denning testified that he didn't have very much to drink. We don't know exactly how much, but he didn't say it was very much. But he did get into an accident which caused some serious damage to the vehicle. And Mr. Klan Denning was also charged with impaired driving, and he eventually pled guilty to impaired driving. So that was a criminal action separate from this civil lawsuit. Now, because Mr. Klan Denning had consumed some alcohol leading up to the accident, Tilden Rentakar refused to cover the cost of the damage to the vehicle. So they were making Mr. Klan Denning liable for the damage to the vehicle. So Tilden Rentakar was relying on a clause that was buried in the fine print of the contract. It was actually on the flip side of the contract. The wording was not exactly the way I have here. It was a little bit more complicated, but this essentially gives you an idea of what the legal wording was meant to do. So the wording I have here is that collision insurance coverage will not apply if the customer has consumed any quantity of alcohol. So the key word there was any, whether it be one drink or half a drink or ten or twelve drinks, it didn't matter if there was any alcohol consumed and then that collision insurance coverage would not apply. So again, Tilden denied coverage for the damage based on that particular exclusion clause. When this case was appealed to the Ontario Court of Appeal, they said that Mr. Klan Denning's signature on the contract was not a true acceptance of the contract terms. And it was not because they felt that this particular clause was onerous and unusual and that such an onerous and unusual term requires reasonable notice to the customer and also reasonable opportunity for the customer to understand and appreciate what he was doing. So Mr. Klan Denning had neither the reasonable notice nor the reasonable opportunity to understand or appreciate what he was doing. Therefore that clause is invalid and Tilden had to cover the cost of the damage to the vehicle. The clause that we looked at in Tilden and Klan Denning could be called an exclusion clause because it does limit the liability of the business in a certain circumstance. So in that circumstance was where the customer had consumed any alcohol, then that would cause Tilden the business to not be liable based on the wording of the contract at least. So exclusion clauses are also commonly called limitation clauses or waivers. So they are used to eliminate or reduce the potential liability of the business. So they may either, they may exempt the party entirely, for example, that they're not liable for any loss or they may exclude certain liability, for example, not liable for carelessly caused damage or they may cap the amount or limit the amount of damage, for example, limiting liability to a certain amount, let's say $500. They do serve a valuable practical economic purpose because they do facilitate transactions by reducing a business's legal liability risks. If not for exclusion clauses, businesses could face fairly large liabilities for transactions that are proportionally very small compared to those liabilities. And therefore, you know, many businesses would avoid doing a lot of those transactions altogether, but being able to use exclusion clauses to reduce that liability exposure, that that does encourage businesses to enter into more economic transactions. So we will look at, for our examples, for many of our examples, to the Rogers Communications Terms of Service. So this is a contract that some of you may have entered into if you are a Rogers subscriber for your cell phone. The Exclusion Clause for Rogers is found in Section 29 of that agreement. So here is the Rogers Terms of Service contract. So that's a standard form agreement. And Section 9 is where we find the limitation or exclusion clause. I'm not going to read the whole thing and this is only the beginning of that clause. It keeps going on and on and on. I'll just read the first part. It says, unless otherwise specifically set out in a service agreement, to the maximum extent permitted by applicable law, the Rogers parties, so those include various Rogers, different Rogers companies, will not be liable to you or to any third party for or any direct, indirect, special, consequential, incidental, economic, or primitive damages, including loss of profit or revenue, rep, financial loss, loss of business opportunities, loss during destruction, or alteration of data files or software, breach of privacy, or security property damage, personal injury, death, or any other foreseeable or unforeseeable loss, however caused, resulting or relating directly or indirectly from or relating to the offering or any advertisements, promotions or statements relating to any of the foregoing, even if we were negligent or were advised of the possibility of such damages. And it goes on and on and on and on for quite a while. So what Rogers is trying to do, they're trying to list off all the different things that they can imagine that they could be held liable for by their customers and they're describing them all in this exclusion clause to at least attempt to take the position that they're not liable for any of those things. The importance of that exclusion clause in the Rogers contract became very relevant in the aftermath of the major network outage that Rogers suffered in July of 2022. In that major outage, more than 12 million users of Rogers cable, internet, and cellular networks were affected. And the total economic toll to the Canadian economy for that outage was estimated to be at about $142 million. So many people wondered, could Rogers be held legally liable for all of the losses that people suffered because of that network outage? The courts in case law have developed some specific requirements to determine the validity of exclusion clauses. The first requirement is that an exclusion clause must be clear and unambiguous. The language needs to show that it clearly applies. The clause clearly applies to a particular situation at hand. And if there are any ambiguities, the clause will be interpreted in a way that goes against the drafter, meaning against the business and in favor of the consumer. The second requirement is that the consumer, the affected party, has to be given reasonable notice of the exclusion clause. The third requirement is that the consumer has to provide acceptance of the exclusion clause or of the whole contract. So that can be in the form of a written signature at the bottom of a contract. It can be a verbal statement. It can be clicking, I agree, for an internet contract. Or even better, having the consumer initial or click their agreement with respect to a specific exclusion clause. So initially, right beside it or clicking something that specifically acknowledges that exclusion clause. The fourth requirement is that the exclusion clause is not unconscionable. Later in this module, we will look at the specific requirements for the doctrine of unconscionability. But the two general requirements for unconscionability is a substantial inequality of bargaining power and substantial unfairness of the terms or with respect to exclusion clauses, substantial unfairness of the exclusion clause itself. The fifth and last requirement is that the exclusion clause is not against public policy. There we are looking at a broader issue. Does that exclusion clause go against the general interests of society? So based on these five requirements, does the Rogers Exclusion Clause meet these requirements? Let's now go back and have a closer look at that Rogers Exclusion Clause from the Rogers Terms of Service. And I just wanted to note that this exclusion clause comes from the Terms of Service Agreement that was in effect from a few years ago. There is a more current Terms of Service Agreement, but the Exclusion Clause is very similar to the one that we are looking at. So let's apply those requirements for the validity of an exclusion clause. So was the exclusion clause clear and unambiguous? So we've already gone through a lot of the specific language in this exclusion clause. It is very long, it's very detailed, and it goes on and on and on. There are many legal terms in it which I think the average person probably would not understand. So I'm not entirely convinced that it is clear. Is it unambiguous? I think there's enough there, especially if you look at the portion that's reproduced on the screen there. I think there's enough there to say that whatever economic loss that someone may have suffered because of the major network outage that this clause would cover it, would apply to it to say that Rogers is not liable for that loss. But is it as a whole clear and unambiguous? I'm not entirely convinced, but I think probably unbalanced. I think Rogers would be able to make a very good argument that it is clear and unambiguous in terms of how it applies to that specific situation of the consequences flowing from the major network outage. The second requirement is reasonable notice. So we're consumers given reasonable notice of this exclusion clause. This exclusion clause is written in bold to give it more emphasis and to draw people's attention to it in the terms of service agreement. However, it is buried within the contract. It is clause number 29 on page 4 of a nine-page contract. What I wonder about is with regard to the procedure that consumers enter into or are subjected to when they enter into contract, if it's with a sales rep, does the sales rep point out this exclusion clause to them? Do they get consumers to initial the exclusion clause? If the contract is done online, is there some part of the online process that points out this exclusion clause to consumers and are consumers asked to acknowledge this specific exclusion clause? All of that would be relevant in determining whether or not there was reasonable notice. Acceptance. I think there's clearly in 99.9% of situations that customers have accepted this exclusion clause when they either sign on the whole agreement, sign off on the whole agreement, or click I agree on the whole agreement. I think that would be considered sufficient acceptance. The fourth requirement is unconscionability. So we specifically ask a couple of things here. Was there a substantial inequality of bargaining power between Rogers and consumers, its customers? The inequality of bargaining power here, I think can be described as being Rogers is this big company. When you want to get service from Rogers, they provide you with a standard form agreement. The terms of that agreement are not negotiable. It's a take it or leave it kind of proposition. Individual customers don't have the ability, don't have the bargaining power to negotiate the terms of that agreement. On that basis, I think an argument could be made that there was a substantial inequality of bargaining power, especially in light of the Supreme Court decision in Uber Technologies and Heller, which we will talk about later in this module, and that case also involved unconscionability with regard to a standard form agreement. The second question we need to consider with regard to unconscionability is, was the exclusion clause substantially unfair? Or another way of looking at that or saying that is, was the exclusion clause one-sided in favor of Rogers? And I think a good argument could be made here as well that there was substantial unfairness. When you read through this huge long exclusion clause, you realize this is pretty one-sided. It's basically saying that Rogers can't be held liable for almost anything, because they just go on and on with all these different things that they cannot be held liable for. So it certainly comes across as being very one-sided in favor of Rogers. The last requirement or consideration is, is this exclusion clause against public policies? Public policy is a difficult thing to understand. What we're looking at here is, beyond this particular contract, beyond this particular case, is it good for society as a whole to protect companies like Rogers from liability for these major events like that network outage from July of 2022. So there could be arguments in favor and against. You could say that it is good for society to protect companies like Rogers or Bell from liability here because if they were subject to full liability, it could drive them out of business or at the very least it could cause them to raise rates in order to cover the potential liabilities that they would incur from operating their business. A counter argument to that is that by making companies like Rogers not liable at all, it does not give them an economic incentive to provide better service to make sure that their networks won't go down again and to design their networks with redundancy so that if one network goes down, there is another network to back it up. So I think there are good arguments for and against public policy. And as a whole, I don't think it's entirely 100% clear based on these five requirements that the exclusion clause is valid. I think there are some good arguments to say that based on some of these requirements that the exclusion clause may be invalid. Let's now have a look at this quick quiz question. Please take a moment by pausing this video and reading through this question and considering your answer. I won't take the time to read through this whole question. You've read through it yourself, I hope. But let's go through the different choices. But before we do that, I'll tell you the answer is E. But let's start with A. By actually reading the exclusion clause, that's not the answer because requiring that someone read it is not the only way to bind them to an exclusion clause. If everyone had to actually read a contract to be bound by it, most of our contracts that we enter into would be invalid. So that definitely is not the right answer. B, it was written in a font that was larger than the font that otherwise appeared on a ticket. So that is one way of ensuring there is reasonable notice. But the way the question is worded is if you look at the last sentence before the choice is assuming these are the only exclusions. Pre-pal can be bound by the exclusion only if. So having it written in a font is one way of providing reasonable notice, but it's not the only way of providing reasonable notice. And similarly with C, the clause was written in a language that she can read. So having it written in plain English is one way of ensuring the exclusion clause is valid. But it's not the only thing that we look at to ensure that the clause is valid. D, it was explained to her when she first bought her train ticket. So having the exclusion clause explained to Pre-pal is another aspect of achieving reasonable notice, but it's not the only way of achieving reasonable notice. So E is the only one, the only statement that is really correct. She was given reasonable notice of the terms on the back of the ticket before or at the time that she received the ticket.