Contract of affiliation for commercial purposes can be perpetual as well as unilateral in nature: SC of Canada

Supreme Court of Canada: Canadian Supreme Court recently dealt with a case in which opposing parties were bound by a contract of affiliation since 1998. In the contract, a clause provided that the contract would be renewed automatically every five years unless the respondents gave notice to the contrary and six months before the contract term expired, the applicant sent a notice of non-renewal. The other party (respondents) refused to allow the applicant to terminate their contract and consequently, brought a motion before the courts for a declaratory judgment and permanent injunction. The trial court had rejected the cause of the respondents while the same was reversed by the Court of appeal. Now, the main question before Apex Court was term whether Court of Appeal erred in determining nature and term of contract of affiliation and if the renewal clause providing that only one party could terminate contract and that otherwise contract would be renewed automatically

The Court observed that to resolve such a conflict, the words of the contract and more specifically, the particular clause about renewal of the contract must be interpreted. It went on to explain that the first step is to interpret if the words are ambiguous or clear and if they are not, second step is to ascertain the common intention of parties.

The Court on thorough reading of the clause concluded that the renewal clause in itself was not ambiguous. It specifically provided that the member pharmacist (petitioners) could notify Uniprix (respondents) of their intention to renew or not to renew the contract. But it did not stipulate that Uniprix can give a similar notice to the member pharmacists. The Court stressed over the word ‘deemed’ in the contract and said that it creates a presumption that is absolute and irrebuttable as the second paragraph clearly provides that should the member pharmacists fail to send the prescribed notice to Uniprix, the agreement will be deemed to have been renewed.

The Court finally declared that the contract was renewed and that Uniprix could resiliate the contract only for cause and not without any cause as it tried to do in the instant case. It held that the unilateral renewal clauses are valid in Quebec law even though they might give a contract perpetual effect

The Court considered that nothing even in the Civil Code of Qubec prohibits contract of affiliation in perpetuation and also when it comes to circumstances in which the imposition of perpetual obligations whose nature is such as to affect an individual’s person and freedom could offend public order. But in the instant case, it explained that in the context of a corporate and commercial partnership such as the one between Uniprix and the member pharmacists, the individual freedom of the contracting parties was not at stake, and public order could not override the parties’ intention.

Thus, the Court decided to uphold the trial court’s judgment and that the option to renew it upon the expiry of each term is limited to the member pharmacists. Instead, the notice of non-renewal sent by Uniprix violates the terms of the contract of affiliation and may not be set up against the member pharmacists. [Uniprix inc. v. Gestion Gosselin et Bérubé Inc., 2017 SCC 43, decided on 28.07.2017]

 

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