Input Capital Corp. v Gustafson, 2021 SKCA 56

Court of Appeal for Saskatchewan Docket: CACV3254 Citation: Input Capital Corp. v Gustafson, 2021 SKCA 56Date: 2021-04-08 Between:Input Capital Corp.Appellant(Plaintiff/Defendant by Counterclaim)AndTerry Blaine GustafsonRespondent(Defendant/Plaintiff by Counterclaim)Before: Richards C.J.S., Caldwell and Leurer JJ.A.Disposition: Appeal decision affirmedWritten reasons by: The CourtOn remand from: (SCC)Remand heard: February 12, 2021Counsel: Joel A Hesje, Q.C., and Graham Quick for the Appellant Gordon J. Kuski, Q.C., Matthew Schmeling and William Lane for the Respondent The Court I.

INTRODUCTION [1] On June 26, 2020, the Supreme Court of Canada rendered its judgment in Uber Technologies Inc. v Heller, 2020 SCC 16, 447DLR (4th) 179 [Heller], a case that involved the doctrine of unconscionability. At that time, the Supreme Court had before it anapplication by Terry Blaine Gustafson seeking leave to appeal from this Court’s decision in Input Capital Corp. v Gustafson, 2019 SKCA78, 438 DLR (4th) 387 [Decision], which is also a case involving the doctrine of unconscionability. By order dated October 15, 2020, theSupreme Court remanded the case forming the basis for Mr.

Gustafson’s application for leave for disposition by this Court in accordancewith Heller (Terry Blaine Gustafson v Input Capital Corp., [Remand Order]). [2] Following this Court’s receipt of the Remand Order, we received written and oral submissions from the parties on two issues: (

a) the meaning and effect of the Remand Order; and (

b) the appropriate disposition of the case in accordance with Heller. [3] As we interpret it, the Remand Order directs this Court to reconsider the Decision by asking ourselves whether we wouldhave decided it differently in light of the direction in Heller. [4] Having reviewed Heller, we find no reason to vary the Decision or its holdings. While the reasons of the majority altered thedoctrine of unconscionability, Heller does not affect our analysis in the context of this case or the result. We, therefore, affirm theDecision. II.

THE REMAND ORDER [5] The Supreme Court of Canada may remand the whole or part of a case to the court appealed from pursuant to s. 43(1.1) of theSupreme Court Act, RSC 1985, c S-26, which provides:

(1.1) Notwithstanding subsection (1), the Court may, in its discretion, remand the whole or any part of the case to the court appealed fromor the court of original jurisdiction and order any further proceedings that would be just in the circumstances. [6] The Remand Order directs this Court to dispose of the “case forming the basis of the application for leave to appeal from the[Decision]…in accordance with [Heller]”.

This does not entail revisiting issues that Heller does not address (Deslaurier Custom CabinetsInc. v 1728106 Ontario Inc., 2017 ONCA 293 at para 14, 410 DLR (4th) 14; Sankar v Bell Mobility Inc., 2017 ONCA 295 at para 9, 410DLR (4th) 1; R v Polches, 2008 NBCA 1 at para 20, 290 DLR (4th) 535). By remanding the case in this way, the Supreme Court has notoverturned or vacated the Decision nor has it predetermined the outcome of the reconsideration undertaken in furtherance of the RemandOrder.

Instead, the Supreme Court has directed this Court to reconsider the case that underpinned the Decision a second time, now havingthe benefit of its guidance on the law as set forth in Heller. As to outcome, we may either affirm or vary the Decision. III. THE REMANDED CASE A. Background [7] The case addressed in the Decision involved a contractual relationship between Input Capital Corp. [ICC] and Mr. Gustafson

and related farming corporations [Gustafson Farms] that spanned ten different contracts entered by the parties at various times throughout 2014 [Contracts]. Under the Contracts, Gustafson Farms agreed to sell 1,790 tonnes of canola to ICC in 2014, 6,240 tonnes in 2015 and, thereafter, 2,490 tonnes annually in exchange for upfront payments that totaled $4.5 million [Streaming Contracts].

To secure performance of Gustafson Farms’ delivery obligations under the Streaming Contracts, ICC took mortgages and security interests in the real and personal property of Gustafson Farms [Security Agreements]. [ 8 ] Gustafson Farms defaulted on its delivery obligations and ICC commenced two actions against it, seeking inter alia foreclosure under the Security Agreements or judicial sale of mortgaged lands. ICC’s actions proceeded before the Court of Queen’s Bench in a modified

summary judgment process. In Input Capital Corp. v Gustafson , 2018 SKQB 154 [ Trial Decision ], the trial judge answered the 24 issues the parties had put before him. In answer to one of the issues, the trial judge concluded that the Contracts were unconscionable and must be set aside in their entirety. However, the trial judge nonetheless granted ICC judgment against Gustafson Farms in the amount of $4,399,435.09 on the basis of unjust enrichment. [ 9 ] ICC appealed against the Trial Decision on the general ground that the trial judge had erred in fact and in law when he concluded the Contracts were unconscionable. As to the law, it said the trial judge had erred in his

interpretation of the doctrine of unconscionability as it related to: (

a) the relevant attributes or characteristics of the weaker party; (

b) the necessary degree of inequality between the parties; and (

c) the necessary degree of improvidence in the bargain struck.

ICC also alleged that the trial judge had incorrectly proceeded on the basis that there was no requirement that the stronger party have knowledge of an inequality of bargaining power. [ 10 ] In the Decision , this Court reviewed the law on the doctrine of unconscionability, as it was prior to Heller , and answered the first three of the foregoing grounds of appeal by finding that the trial judge had: (a) “erred in principle by failing to consider evidence that was relevant and material to the question of whether an inequality of bargaining power existed between ICC and Gustafson Farms” (at para 45); (b) “erred in law in his approach to the degree of inequality of bargaining position required to invoke the principle of unconscionability” and that, on the evidence at trial, “Gustafson Farms had failed to establish the required degree of inequality of bargaining position existed between it and ICC in the circumstances of this case” (at para 55, emphasis in original); and (

c) misapprehended the contractual relationship between the parties leading the trial judge to erroneously conclude that the [Contracts] were unconscionable and, therefore, void and unenforceable in their entirety (at para 99).

Lastly, we found the trial judge had not erred in his approach to the issue of the stronger party’s knowledge of an inequality of bargaining power and had not overlooked the evidence relevant to that inquiry (at para 64). [ 11 ] In the result, this Court set aside the trial judge’s findings on unconscionability and remitted the matter to the Court of Queen’s Bench for a determination of damages and for enforcement of the Security Agreements. B. Heller [ 12 ] The case in Heller involved a proposed class action brought in Ontario against Uber Technologies Inc. [Uber] on behalf of its contracted drivers.

Uber brought a motion in the Ontario Superior Court of Justice to stay that action because a clause in its standard form driver contract required the arbitration of all disputes. In Heller v Uber Technologies Inc. , 2018 ONSC 718 , 421 DLR (4th) 343 [ Heller ONSC ], Perell J. ruled that the validity of the arbitration clause had to be determined by arbitration and, therefore, he stayed the proceedings until that had occurred.

Following an appeal to the Ontario Court of Appeal, Nordheimer J.A., who wrote for a unanimous Court, overturned the decision in Heller ONSC , finding that the arbitration clause was void and unenforceable under the doctrine of unconscionability ( Heller v Uber Technologies Inc. , 2019 ONCA 1 , 430 DLR (4th) 410 [ Heller ONCA ]). Uber then appealed the decision in Heller ONCA to the Supreme Court. [ 13 ] In Heller , the Supreme Court held that the arbitration clause was void under the doctrine of unconscionability, thereby sustaining the result in Heller ONCA .

Under the reasons of the majority, the Supreme Court refashioned the language of the doctrine of unconscionability in some respects and clarified the framework for its application. Setting aside those aspects of Heller that have no bearing on this case or the Decision , the majority’s reasons may be summarised in relevant terms as holding that: (

a) the analytic framework for assessing whether a transaction is unconscionable is a two-part test that involves: (

i) proof of inequality in the positions of the parties; and (ii) proof of an improvident bargain (at para 64); (

b) unconscionability may be established without proof that the stronger party has knowingly taken advantage of the weaker (at para 82); and (

c) courts must take a contextual approach to determining whether a transaction is unconscionable (at para 78). IV. ANALYSIS

[14] As directed by the Remand Order, we have reconsidered the Decision in light of the guidance in Heller. In doing so, we did notrevisit the issues that arose in this case that Heller does not address. As we interpret it, Heller touches upon three facets of our analysis ofthe Trial Decision, namely: (

a) whether inequality of bargaining power existed between ICC and Gustafson Farms; (

b) whether ICC had knowledge of the inequality of bargaining power; and (

c) whether the Contracts constituted an improvident bargain in context. [15] We make the general observation that the majority in Heller upheld as correct the contextual approach this Court took in theDecision to determining whether inequality of bargaining power existed between ICC and Gustafson Farms and whether the Contractsamounted to an improvident bargain. To summarise the reasons that follow, although we find the reasoning of the majority in Heller altersthe language used to describe unconscionability, we conclude it does not lead to a different result in this case. A.

The Analytic Framework [16] In Heller, the Supreme Court confirmed the analytic framework under which a court must assess unconscionability. In doingso, it rejected a four-part test that had been adopted by some courts. The Supreme Court held that the correct test is the two-step processoutlined in Norberg v Wynrib, (SCC), [1992] 2 SCR 226 [Norberg]. The majority in Heller wrote: [64] In Norberg, La Forest J. described proving the elements of unconscionability as “a two-step process”, involving “(1) proof ofinequality in the positions of the parties, and (2) proof of an improvident bargain” (p. 256).

The concurring judgment in Douez v.Facebook Inc., 2017 SCC 33 , [2017] 1 S.C.R. 751, followed a similar approach in a case involving a standard form consumercontract: Two elements are required for the doctrine of unconscionability to apply: inequality of bargaining powers and unfairness. Prof. McCamusdescribes them as follows: ...one must establish both inequality of bargaining power in the sense that one party is incapable of adequately protecting his or herinterests and undue advantage or benefit secured as a result of that inequality by the stronger party. [Emphasis deleted; para. 115.] (See also Loychuk v.

Cougar Mountain Adventures Ltd., 2012 BCCA 122, 347 D.L.R. (4th) 591, at paras. 29-31; Roy v. 1216393 OntarioInc., 2011 BCCA 500, 345 D.L.R. (4th) 323, at para. 29; McNeill v. Vandenberg, 2010 BCCA 583, at para. 15; Kreutziger, at p. 173;Morrison, at p. 713) [65] We see no reason to depart from the approach to unconscionability endorsed in Hunter, Norberg and in Douez.

That approachrequires both an inequality of bargaining power and a resulting improvident bargain. [17] The two-part test this Court applied in the Decision is substantially the same as Norberg because we reviewed that case as wellas much of the jurisprudence that was later considered in Heller.

In particular, we had full regard for relevant Saskatchewan jurisprudenceon the subject, including the reasons of Richards J.A. (as he then was) in Van de Geer Estate v Penner, 2006 SKCA 12, [2006] 7 WWR575 [Van de Geer Estate], where he wrote: [38] In order to mount a successful argument of unconscionability, a plaintiff must first establish an inequality in the position of theparties arising out of the ignorance, need or distress of the weaker which left him or her in the power of the stronger. Second, the plaintiffmust establish substantial unfairness in the bargain.

When these two elements have been shown, a presumption of fraud is raised and thestronger party must show, in order to preserve the bargain, that it is fair and reasonable. … [18] Accordingly, although we may have expressed the applicable two-part test in different words, the analytic approach this Courtundertook in the Decision (and that which was undertaken by the trial judge in the Trial Decision) did not differ in substance from theapproach later confirmed by the Supreme Court in Heller.

Putting the Decision in the language of Heller, we found that the properanalytic framework for assessing whether a transaction is unconscionable involves a two-part test that requires: (

a) proof of inequality in the positions of the parties; and (

b) proof of an improvident bargain. [19] Accordingly, this aspect of Heller does not call for any variation of the Decision. B. Knowledge of Inequality [20] In rejecting a four-step test in Heller, the Supreme Court discarded the idea that unconscionability could not be establishedwithout proof that the stronger party had knowingly taken advantage of the weaker.

In that regard, the majority wrote: [84] Unconscionability, moreover, can be established without proof that the stronger party knowingly took advantage of the weaker.Such a requirement is closely associated with theories of unconscionability that focus on wrongdoing by the defendant (see Boustany, at p.6). But unconscionability can be triggered without wrongdoing.

As Professor Waddams compellingly argues: The phrases ‘unconscionable conduct’, ‘unconscionable behaviour’ and ‘unconscionable dealing’ lack clarity, are unhistorical insofar asthey imply the need for proof of wrongdoing, and have been unduly restrictive. (Waddams (2019), at pp. 118-19; see also Benson, at p. 188; Smith, at pp. 360-62.)

[85] We agree. One party knowingly or deliberately taking advantage of another’s vulnerability may provide strong evidence of inequality of bargaining power, but it is not essential for a finding of unconscionability. Such a requirement improperly emphasizes the state of mind of the stronger party, rather than the protection of the more vulnerable. This Court’s decisions leave no doubt that unconscionability focuses on the latter purpose.

Parties cannot expect courts to enforce improvident bargains formed in situations of inequality of bargaining power; a weaker party, after all, is as disadvantaged by inadvertent exploitation as by deliberate exploitation. A rigid requirement based on the stronger party’s state of mind would also erode the modern relevance of the unconscionability doctrine, effectively shielding from its reach improvident contracts of adhesion where the parties did not interact or negotiate. [ 21 ] The analysis of this point of law in the Decision is consistent with the law as now set forth in Heller .

When introducing the issue of knowledge in the Decision , this Court wrote: [56] The second legal question raised in this appeal in relation to inequality of bargaining power is whether, and to what extent, the principle of unconscionability requires the stronger party to have knowledge of an inequality of bargaining position. ICC raises the question because, in its observation, the evidence at trial regarding the financial circumstances of Gustafson Farms was “far different” than the information Mr.

Gustafson had presented to ICC at the time Gustafson Farms entered the first Agreement. (Emphasis added) Furthermore, our findings under this ground of appeal, and those of the trial judge in the Trial Decision , were not tied to whether there was a legal requirement to prove that the stronger party had knowledge of inequality of bargaining power.

As explained below, the clarification under Heller , to the effect that knowledge of inequality of bargaining power is not a requirement, has no bearing on the outcome of the Decision. [ 22 ] ICC appealed against the Trial Decision on the ground that the trial judge had erred in concluding there was no requirement that the stronger party have knowledge of inequality of bargaining power.

After reviewing the Trial Decision on the issue of a stronger party’s knowledge, we observed that the trial judge had oriented his analysis “largely on the improvidence of the bargain the parties had struck and the way it had been struck” ( Decision at para 61 ). Put in the language of Heller , this Court found that the trial judge had focused his analysis on the protection of the weaker party in the circumstances, which recognises that a weaker party is disadvantaged by exploitation, regardless of whether it is deliberate or inadvertent.

However, this Court took no issue with the trial judge’s analysis or findings, writing: [63] Accordingly, while the trial judge may have but briefly addressed the actual knowledge ICC had of Gustafson Farms’ financial circumstances in terms of ICC’s “awareness” of those circumstances, I conclude the trial judge found ICC had actual knowledge and constructive knowledge of a power imbalance.

In large measure, the trial judge reasoned that the improvidence of the bargain and the circumstances of its negotiation supported his conclusion that ICC had taken unconscionable advantage of Gustafson Farms by abusing its relatively stronger bargaining power [ 23 ] In short, this aspect of Heller does not affect our reasoning in the Decision for three reasons. First, this Court dismissed the ground of appeal to which it relates. Second, the trial judge addressed the issue of knowledge in a manner that is consistent with the clarification of the law in Heller and this Court did not interfere with his analysis.

Third, it is irrelevant in the context of this case that unconscionability may be established “without proof that the stronger party knowingly took advantage of the weaker” ( Heller at para 84 ) because we inferred from the Trial Decision that the trial judge had found that ICC had such knowledge.

Under Heller , that finding remains relevant to the overall inquiry into unconscionability because a stronger party knowingly taking advantage of a weaker party’s vulnerability may still provide evidence of inequality of bargaining power. [ 24 ] In short, the application of the ruling in Heller on the issue of the stronger party’s knowledge does not produce any variation of the Decision . C. Inequality and Improvidence [ 25 ] In their submissions in this proceeding, ICC and Gustafson Farms both agreed that the majority reasons in Heller lower the bar or threshold for a finding of unconscionability.

They say the Supreme Court did so by writing in Heller : [66] An inequality of bargaining power exists when one party cannot adequately protect their interests in the contracting process. … [74] A bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable. Improvidence is measured at the time the contract is formed; unconscionability does not assist parties trying to “escape from a contract when their circumstances are such that the agreement now works a hardship upon them”. [75] Improvidence must be assessed contextually.

In essence, the question is whether the potential for undue advantage or disadvantage created by the inequality of bargaining power has been realized. An undue advantage may only be evident when the terms are read in light of the surrounding circumstances at the time of contract formation, such as market price, the commercial setting or the positions of the parties. (Citations omitted, emphasis in original) Under the Remand Order , the question is whether this “lowering of the bar” mandates a different disposition of this case than occurred under the Decision .

We conclude it does not. [ 26 ] In the Decision , this Court reviewed the UK and Canadian jurisprudence on the doctrine of unconscionability, including Van de Geer Estate , Downer v Pitcher , 2017 NLCA 13 , 409 DLR (4th) 542 [ Downer ], and Hess v Thomas Estate , 2019 SKCA 26 , [2019] 5 WWR 270 [ Hess ]. When addressing the degree of inequality of bargaining power that is necessary for a finding of unconscionability, we

summarised our understanding of the law in this way: [50] According to the jurisprudence, the principle of unconscionability involves the idea of: (

a) a “significant inequality in bargaining position” ([Dolter v Media House Productions Inc., 2002 SKQB 228, 220 Sask R 271[Dolter QB]] at para 20); (

b) an inequality that left the weaker “in the power of the stronger” ([Morrison v Coast Finance Ltd. (1965), (BCCA), 55 DLR (2d) 710 (BCCA)] at 713; Van de Geer Estate at para 38); (

c) an “overwhelming imbalance in bargaining power” ([Cain v Clarica Life Insurance Company, 2005 ABCA 437, [2006] 7 WWR111] at para 32; [Heller ONCA] at para 60); (

d) a “level of unequal bargaining power that distorts a transaction to the point that the presumption of rational autonomy in self-interested contract-making is displaced” (Downer at para 20); (

e) an inequality of position that “has the potential for seriously affecting the ability of the relief-seeker to make a decision as to his orher own best interests and thereby allows the other party an opportunity to take advantage of the claimant’s personal or situationalcircumstances” (Downer at para 39); (

f) a disadvantage that involves “more than what would be regarded as reasonably tolerable differences and risks of normal humanactivity and interaction that one would expect from persons engaged in self-interested bargaining (i.e. the disadvantage must be ‘special’)and it must also have the potential, if allowed to govern the relationship, of the claimant being unfairly being taken advantage of (i.e. thedisadvantage must be ‘significant’)” (Downer at para 54); (

g) a circumstance where “one party is at a serious disadvantage, so serious they can be taken advantage of or exploited” (Floyd vCouture [2004 ABQB 238, [2005] 3 WWR 287] at para 146); and (

h) an “inequality to a degree that the stronger party has power over the other to the extent that the ability of the weaker party toadequately protect their own interests is materially undermined” (Hess at para 77). While the Court in Downer eschewed “linguistic formulae”, it said “what is meant by such terminology is that the inequality must relate toa special and significant disadvantage that has the potential of overcoming the ability of the claimant to engage in autonomous self-interested bargaining” (at para 39).

Regardless of its formulation, the degree of imbalance described in the jurisprudence is not reflected inwhat the trial judge said Gustafson Farms had to establish at trial or in how he went about his analysis on this point. [27] After considering the trial judge’s reasons for finding there was a sufficient degree of inequality of bargaining power betweenICC and Gustafson Farms, this Court wrote: [55] As I read his reasons, the trial judge pinned his finding that the inequality in bargaining position was sufficient solely on theinequality between Gustafson Farms’ financial circumstances relative to that of ICC.

However, as Barrington-Foote J.A. observed in Hess,“it is not sufficient for the evidence to disclose simple inequality, regardless of degree. The test for unconscionability calls for somethingmore” (at para 71). That is, in this case, the principle of unconscionability required Gustafson Farms to establish that its financial distresswas so acute that it overcame Mr. Gustafson’s ability to engage in autonomous, self-interested bargaining with ICC.

As the trial judge didnot hold Gustafson Farms to satisfying this requirement, I find he erred in law in his approach to the degree of inequality of bargainingposition required to invoke the principle of unconscionability.

Moreover, on my assessment of the evidence adduced, Gustafson Farmshad failed to establish the required degree of inequality of bargaining position existed between it and ICC in the circumstances of this case. (Emphasis added) [28] At the core of the Decision, this Court found Gustafson Farms had failed to establish that its financial distress was so acute thatit overcame its “ability to engage in autonomous, self-interested bargaining” with ICC (at para 55).

Whereas, in Heller, the majority of theSupreme Court said that unconscionability may arise “when one party cannot adequately protect their interests in the contracting process”(at para 66). In our assessment, although we may have expressed the required degree of inequality differently, it is a distinction without adifference, in the context of this case at least, which is borne out by a brief review of our analysis in the Decision.

As explained below, ourfindings are the same under either iteration of the standard. [29] In Heller, the majority addressed the degree of inequality of bargaining power by first stating that there were no “rigidlimitations” on the types of inequality that may arise between bargaining parties. The majority listed, as general examples, disparity inwealth, knowledge and experience (at para 67). Then, referring to John D. McCamus, The Law of Contracts, 2d ed (Toronto: Irwin Law,2012) at 525, the majority adopted the learned professor’s description of transactional weaknesses as including: (

a) the characteristics of the claimant generally (i.e., personal weaknesses), where relevant disability may stem from “purelycognitive, deliberative or informational capabilities and opportunities” so as to preclude “a worthwhile judgment as to what is in his bestinterest” (at para 67); and (

b) vulnerabilities peculiar to certain situations (i.e., circumstantial weaknesses), where the disability may consist of the fact that,in the circumstances, the claimant was “a seriously volitionally impaired or desperately needy person” and, therefore, was speciallydisadvantaged because of “the contingencies of the moment” (at para 67). [30] When we first considered this case, we found the evidence did not disclose a personal weakness on the part of Gustafson Farmsand, having reconsidered the evidence in light of Heller, we confirm that finding.

The issue in this case, as the trial judge found, iswhether Gustafson Farms had been subject to a sufficient degree of circumstantial weakness, namely, financial distress, at the time ofcontract formation.

[ 31 ] As to the degree of inequality necessary to support a claim of unconscionability, the majority in Heller observed that “disadvantages need not be so serious as to negate the capacity to enter a technically valid contract” (at para 67). The majority then framed the degree requirement in positive qualitative terms by stating that the disadvantage must impair the weaker party’s “ability to freely enter or negotiate a contract” or compromise the weaker party’s “ability to understand or appreciate the meaning and significance of the contractual terms” (at para 68).

The majority concluded its analysis of inequality of bargaining power by providing two examples: [69] One common example of inequality of bargaining power comes in the “necessity” cases, where the weaker party is so dependent on the stronger that serious consequences would flow from not agreeing to a contract. This imbalance can impair the weaker party’s ability to contract freely and autonomously.

When the weaker party would accept almost any terms, 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. As the Privy Council has said, “as a matter of common fairness, ‘it [is] not right that the strong should be allowed to push the weak to the wall’” ( Janet Boustany v. George Pigott Co (Antigua and Barbuda) , [1993] UKPC 17, at p. 6 (BAILII) , quoting Alec Lobb (Garages) Ltd. v. Total Oil (Great Britain) Ltd. , [1985] 1 W.L.R. 173, at p. 183 ; see also Lloyds Bank Ltd. v.

Bundy , [1975] 1 Q.B. 326 (C.A.), at pp. 336-37) . [70] The classic example of a “necessity” case is a rescue at sea scenario (see The Medina (1876), 1 P.D. 272). The circumstances under which such agreements are made indicate the weaker party did not freely enter into the contract, as it was the product of his “extreme need . . . to relieve the straits in which he finds himself” ( Bundy , at p. 339).

Other situations of dependence also fit this mould, including those where a party is vulnerable due to financial desperation, or where there is “a special relationship in which trust and confidence has been reposed in the other party” ( Norberg , at p. 250, quoting Christine Boyle and David R. Percy, Contracts: Cases and Commentaries (4th ed. 1989), at pp. 637-38).

Unequal bargaining power can be established in these scenarios even if duress and undue influence have not been demonstrated (see Norberg , at pp. 247-48; see also McInnes, at p. 543). [71] The second common example of an inequality of bargaining power is where, as a practical matter, only one party could understand and appreciate the full import of the contractual terms, creating a type of “cognitive asymmetry” (see Smith, at pp. 343-44).

This may occur because of personal vulnerability or because of disadvantages specific to the contracting process, such as the presence of dense or difficult to understand terms in the parties’ agreement. In these cases, the law’s assumption about self-interested bargaining loses much of its force. Unequal bargaining power can be established in these scenarios even if the legal requirements of contract formation have otherwise been met (see Sébastien Grammond, “The Regulation of Abusive or Unconscionable Clauses from a Comparative Law Perspective” (2010), 49 Can. Bus.

L.J. 345, at pp. 353-54). [72] These examples of inequality of bargaining power are intended to assist in organizing and understanding prior cases of unconscionability. They provide two examples of how weaker parties may be vulnerable to exploitation in the contracting process. Regardless of the type of impairment involved, what matters is the presence of a bargaining context “where the law’s normal assumptions about free bargaining either no longer hold substantially true or are incapable of being fairly applied” (Bigwood, at p. 185 (emphasis deleted); see also Benson, at pp. 189-90).

In these circumstances, courts can provide relief from a bargain that is improvident for the weaker party in the contracting relationship. (Emphasis added) [ 32 ] The examples discussed in Heller are merely illustrative of contextual applications of the doctrine of unconscionability drawn from the existing jurisprudence; they are not categorical.

At the bottom line, the majority’s guidance is that, when a court is determining whether a sufficient degree of inequality of bargaining power exists, “what matters is the presence of a bargaining context where the law’s normal assumptions about free bargaining either no longer hold substantially true or are incapable of being fairly applied” (at para 72).

When Heller ’s guidance is applied in the context of this case, we confirm our finding that the threshold for inequality of bargaining power has not been met. [ 33 ] Upon reconsideration under Heller , we confirm that the Trial Decision does not explain how the evidence of Gustafson Farms’ financial circumstances could have displaced the law’s normal assumptions about free bargaining. Considering the general bargaining context at issue, there is nothing special or significant about a farmer experiencing financial difficulty while, at the same time, entering a grain delivery contract.

Moreover, the Trial Decision did not identify any evidence to suggest that financial circumstances had impaired Gustafson Farms’ “ability to freely enter or negotiate a contract” or had compromised its “ability to understand or appreciate the meaning and significance of the contractual terms”. As we observed in the Decision , some of the trial judge’s findings of fact are pointedly inconsistent with those conclusions.

In the result, we confirm that Gustafson Farms failed to establish that the required degree of inequality of bargaining power existed between it and ICC in the circumstances of this case. [ 34 ] Turning to the question of improvidence, the majority in Heller framed the question as being “whether the potential for undue advantage or disadvantage created by the inequality of bargaining power has been realized ” (at para 75, emphasis added).

While the required inequality of bargaining power has not been established in this case, we have, nonetheless, reconsidered our findings on improvidence. [ 35 ] We have already stated that the contextual approach this Court undertook to determining whether the Contracts were improvident remains unaffected by Heller . In the Decision , we found the trial judge had erred by failing to consider the full context of the contractual relationship in this case ( Decision at paras 45 and 55 ).

The majority in Heller noted that an undue advantage may only be evident when “the terms are read in light of the surrounding circumstances at the time of contract formation, such as market price, the commercial setting or the positions of the parties” (at para 75). We therefore confirm our finding of error in this regard. [ 36 ] In the Decision , we found that, when the full bargaining context was evaluated, the Contracts did not afford ICC a material economic advantage or place Gustafson Farms at undue commercial risk.

We agreed with the trial judge’s finding that the economic or commercial relationship established under the Streaming Contracts did not disadvantage Gustafson Farms or, as he put it, there was “no substantial unfairness” under those contracts ( Trial Decision at para 142). The trial judge’s concerns were tied primarily to the Security Agreements and, particularly, to the enforcement of their terms. In that regard, we found palpable and overriding error in the trial judge’s

interpretation of those agreements because he had failed to take into account the relevant commercial setting, the law relevant to it, and the positions of the parties within it. On the whole, we concluded that the trial judge had misapprehended the bargaining context at the time

of contract formation. Heller does not alter our findings of error in this regard. [ 37 ] As to our analysis of the contractual relationship itself, this Court first worked through the economics of the Streaming Contracts, finding no reason to displace the trial judge’s finding of “no substantial unfairness” overall ( Trial Decision at para 142), concluding that the pricing of canola under the Streaming Contracts did not “mark them as improvident transactions” ( Decision at para 83 ).

However, we departed from the trial judge’s findings on the bonus tonnes provisions of the Streaming Contracts, where we concluded the provisions did not function in a way that would give ICC a “material advantage” ( Decision at para 90 ). Nothing in Heller directs us to interpret the Streaming Contracts differently. [ 38 ] As to the Security Agreements, we identified five reasons for concluding that they were not improvident. As noted, Heller does not propose a different approach to contractual

interpretation; it sets forth a contextual assessment of the bargain struck. In that regard, the majority said a court should read the terms of contracts “in light of the surrounding circumstances at the time of contract formation, such as market price, the commercial setting or the position of the parties” (at para 75). The relevant contextual factors we considered in the Decision , which we found were missing from the bargaining context addressed in the Trial Decision , included: (

a) The legal requirement that a creditor must always exercise its security in a commercially reasonable manner and, generally, under the supervision of the courts, citing The Personal Property Security Act, 1993 , SS 1993, c P-6.2 , ss 65(3) and 65(5), The Saskatchewan Farm Security Act , SS 1988-89, c S-17.1 , The Land Contracts (Actions) Act , RSS 1978, c L-3 , The Homesteads Act, 1989 , SS 1989-90, c H-5.1 , and The Enforcement of Money Judgments Act , SS 2010, c E-9.22 . (

b) It is not contrary to community standards of commercial morality for a creditor to take security over their debtor’s assets to mitigate the risk of loss and to ensure performance of the debtor’s obligations. (

c) The Security Agreements were standard forms of agreement, were not unusual or untoward, given the sums and risks involved, and were not divergent from community standards of commercial morality. (

d) There was no other method or means by which ICC could have legally secured its advances to Gustafson Farms or ensured the delivery of canola by Gustafson Farms under the Streaming Contracts. (

e) The whole of the contractual arrangement between ICC and Gustafson Farms could not be improvident just because ICC had taken security it was lawfully entitled to take to secure Gustafson Farm’s performance under the Streaming Contracts. Heller does not alter our findings in this regard or affect our

interpretation of the Security Agreements. [ 39 ] We also observed that the evolution of Gustafson Farms’ contractual obligations to ICC over the course of 2014 could be said to indicate that ICC had been exercising its rights under the Contracts in a commercially reasonable manner, by renegotiating the terms of the contractual arrangement to allow Gustafson Farms more time and opportunity to meet its obligations.

Although released after Heller , we note that the recent Supreme Court decision in Wastech Services Ltd. v Greater Vancouver Sewerage and Drainage District , 2021 SCC 7 , 454 DLR (4th) 1 [ Wastech ], confirms that contracting parties have a duty to exercise contractual discretion in good faith. Under the reasons of the majority in Wastech , this duty is breached only where contractual discretion is exercised unreasonably, in a manner unconnected to the purposes underlying the discretion.

This later Supreme Court decision lends further contextual weight to the correctness of our assessment of the absence of improvidence in this case. [ 40 ] On the whole of it, Hel ler may be summarised as holding that a bargain is unconscionable when a potential for undue advantage or disadvantage created by inequality of bargaining power has been realised. There are two elements to this equation: inequality of bargaining power and an improvident bargain.

Inequality of bargaining power arises in the presence of a bargaining context where the law’s normal assumptions about free bargaining either no longer hold substantially true or are incapable of being fairly applied. A bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable. Improvidence is measured at the time the contract is formed and must be assessed contextually. [ 41 ] In the Decision , we found the evidence did not support a finding of inequality of bargaining power and we further found the bargain struck under the Contracts was not improvident.

Having reconsidered the case in the light of Heller , we find the evidence did not establish the presence of a bargaining context where the law’s normal assumptions about free bargaining either no longer held substantially true or were incapable of being fairly applied. Although not strictly necessary, we further find there is no undue advantage or disadvantage in the contractual arrangement between ICC and Gustafson Farms.

Moreover, given the bargaining context and the terms of the Contracts, the evidence strongly supports the conclusion that, in the words of Heller , Gustafson Farms had invoked the doctrine of unconscionability in an attempt to “escape from a contract when their circumstances are such that the agreement now works a hardship upon them” (at para 74; emphasis in original). [ 42 ] In the overall result, we conclude that Heller does not lead us to vary our reasoning or our conclusions on the twin questions of inequality of bargaining power and bargain improvidence. [ 43 ] For these reasons, Heller does not affect the result of the Decision .

V. DISPOSITION [ 44 ] Having reconsidered this case in the light of Heller , we affirm the Decision . [ 45 ] We make no order as to costs. “Richards C.J.S.” Richards C.J.S. “Caldwell J.A.”

Caldwell J.A. “Leurer J.A.” Leurer J.A.