The right of withdrawal, also referred to as an "opting
out" clause, is the right given contractually or by law to a
party to withdraw from a transaction without justifi cation prior
to it being actually entered into. Although the withdrawal clause
may procure a high degree of freedom, one cannot invoke it in a
cavalier manner. Indeed, a withdrawal clause cannot be used in a
malicious or abusive manner, nor can it run against the
requirements of good faith. Furthermore, to be valid and effective,
a withdrawal clause must be enforceable and explicit.
The Court of Appeal of Québec recently reminded us of these
principles in the case of London v.
Kyriacou.1 In this case, the owners of a
day-care centre (the "Sellers") accepted
from Mrs. Kyriacou and Mrs. Teologou (the
"Purchasers") an offer to purchase the
daycare centre. The sale was initially scheduled to take place on
September 29, 2006. This date was thereafter postponed several
times and the terms of the offer were also amended on several
occasions as the months went by. Among other things, the parties
agreed to increase the sale price by $150,000.00 conditionally to
the day-care centre being granted a government subsidy within 15
months from the date of the sale. As soon as autumn 2006, the
Sellers introduced the Purchasers to the parents of the children
attending the day-care centre as being the new owners of the
facility from January 2007. In May 2007, the Purchasers began
operating the day-care centre and acting like true owners,
particularly by having repairs made at their own cost and
establishing a new educational program. From May 2007, the parties
exchanged several draft sale agreements and the transaction was to
take place in August 2007. However, on August 10, 2007, following
receipt of a letter from government authorities confi rming that
the day-care centre would be subsidized beginning in March 2008,
the Sellers notifi ed the Purchasers that they were withdrawing
from the negotiations. They also changed the locks of the day-care
centre and denied access thereof to the Purchasers.
The Purchasers brought a motion for the transfer of title before
the Superior Court of Québec to force the Sellers to carry
out the transaction. The Sellers opposed the motion, among other
things alleging that the initial offer to purchase included an
opting-out clause, which they were entitled to rely upon. The
clause read as follows: "After due diligence is said and done
and all conditions have been agreed upon, if one of the
parties' purchaser or vendor refuse to go ahead the other will
be liable for professional fees occurred."
In the first instance, the Superior Court refused to apply the
clause because the Sellers had acted in bad faith all along the
negotiation process, that further, the clause was not explicit and
that had it been explicit, the Sellers, by their actions
(particularly by encouraging the respondents to operate the
day-care centre and the substance of the discussions on the sale
agreement) waived its application. The Superior Court found from
the evidence that all the conditions mentioned in the original
offer had been satisfied and that there had been an agreement on
all the new elements raised thereafter by the Sellers. In short,
the terms of the transaction had been agreed upon by the parties
and it only remained to make it offi cial by executing an
agreement. The Superior Court therefore ordered the parties to sign
the agreement and the Court of Appeal affirmed that decision.
Although including an opting-out clause in a contract or a letter
of offer may constitute a very attractive strategy, the decision
summarized in this bulletin articulates the importance of carefully
drafting it and demonstrates that one is better to consult a
professional before relying on it.
1 2013 QCCA 37.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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