Canada: Certainty Is On The Menu: Considerations For Lower Risk Service Contracts

Standard form service contracts are common across many industries. Using the restaurant industry as an example, standard form is the norm for linens, equipment, and cleaning services contracts. While the standard form makes for easier and efficient transactions, it also means limited opportunities to alter or negotiate terms of the agreement. Both parties should be aware of the terms and conditions in standard form contracts and their impact in the event of an early termination.

Awareness of four types of provisions is particularly important:

  1. Automatic or self-renewing clauses;
  2. Early termination clause or conditions on breach;
  3. Choice of law clause; and
  4. Choice of forum clause.

The True Price of an Unending Contract

Automatic or Self-Renewing Clauses

Many standard form contracts include automatic or self-renewing clauses for a specific term. Often, contracts renew for two or three years after the expiry of the previous term unless notice of termination is provided. Such clauses eliminate the need to renegotiate or resign at the end of each term, which can save both parties time and money. It can be reassuring for busy business owners to know that key services and equipment they rely on will arrive when needed. For service providers, such contracts provide a dependable source of long-term revenue. Renewal terms can be written in several different ways, but are often seen as:

This Agreement shall automatically be extended for additional terms of sixty (60) months each, unless either party gives the other party written notice (by registered mail) of termination at least ninety (90) days, but not more than one hundred eighty (180) days, prior to the termination of the then current term.

Contracts with these or similar provisions continue until notice as required by the contract is provided.

Self-renewing clauses, however, have drawbacks. It can be difficult for businesses under many contracts with several different service providers and vendors to track the relevant notice periods. The cost of failing to provide adequate notice can be significant. To avoid the risk, and because business owners may want a chance to renegotiate the basic terms of the agreement, it may make sense to delete the self-renewing clause and opt for either "month-to-month" terms or a clause that requires a new agreement be signed by both parties.

Early Termination clauses

Most self-renewing contracts also contain an early termination or cancellation clause that applies when a party ends the contract without providing the required notice (90 days in the above example). Typically, these provisions, known as "liquidated damages clauses", set out a formula to calculate the amount owed to the service provider for business lost due to the customer's breach. Formulas vary in terms of how these amounts are calculated, but the general principle remains the same: the service provider should receive no more than the payment it would have received if the contract had been fulfilled. The amount owed can be determined by referencing the time between the breach and the end of the current term.1

There is good reason to carefully draft this type of provision; Courts will not enforce any provision which would amount to a "penalty" even if the contract specifically says it is not a penalty. If the early termination clause threatens a higher cost after termination than would be owed if the contract had been paid normally over the course of the term, it is an unenforceable penalty.2

Another type of liquidated damages clause is an "acceleration clause", where on termination, all payments that would be due at the end of the term are required immediately on breach. If drafted properly, acceleration clauses are enforceable and severe, but care must be taken not to inadvertently create a penalty.

Both parties can avoid costly and time-consuming litigation by ensuring that the early termination clause is a fair representation of the value of the contract. Reviewing the clause with a lawyer is the easiest way to ensure a party understands how the contract can be terminated.

Where to go? The Importance of Choice of Law and Forum Clauses

A choice of law clause allows parties to determine in advance which province's laws will be applied to any dispute about the contract. Many service providers operate in different provinces than the businesses they serves, so it allows all parties to the agreement to fully understand their obligations under the law. Canada's National Capital Region is a prime example for the importance of attention to choice of forum clauses. Businesses in Ottawa and Gatineau cross the Ontario and Quebec provincial borders, so it is important to pay attention to the standard forms that set out where a dispute is going to be heard and the choice of law to be used to interpret the agreement.

Choice of law provisions are simple and are often written as:

This agreement will be governed by the laws of Ontario [or another province].

A choice of forum clause must be explicit to be effective. Choice of forum clauses are often written as:

The Parties agree to elect as domicile the province of Ontario and choose Ottawa as the appropriate forum for any dispute arising out of the interpretation or performance of this contract.

This clause confirms the contract was made in Ontario and that any disputes should be dealt with in Ottawa. A recent decision from the Ontario Superior Court has found that without explicit language to that effect, the court will apply its own test, creating more uncertainty for contracting parties. The Court also clarified that a choice of law clause cannot substitute for a choice of forum clause.3 A choice of law provision is not enough to determine which province's courts will hear a dispute. If parties want to specify the court in which a disagreement about the contract will be heard, they must include a choice of forum clause.

Some service contracts contain several service provider addresses and use a checkmark box approach for the customer to select the applicable address. In the absence of a choice of forum clause, it is tempting to assume that the selected address is a choice of forum. However, that form of address selection is likely only intended to provide contact information for parties with locations in several provinces. Given the court's strict interpretation of choice of forum clauses, it is unlikely that a "selection by checkmark" would be sufficient to substitute for a choice of forum clause. However, that form of address selection could provide evidence of where the contract was made, if the court has to look for jurisdiction. It is important that address selection by checkmark on a service contract be accompanied by a clear choice of forum clause to avoid unnecessary confusion.

It can be quite a surprise to business owner in Ottawa that the law governing the cleaning contract is Quebec and the forum to litigate is Montreal. Take the time to look at the provision and make sure it works for everyone.

Certainty is a valuable commodity in any contract, but particularly when a business is contracting for necessary services to support its successful operation. All parties must know exactly what they are agreeing to and what happens if a dispute arises. Clarity is the easiest way to increase confidence in your contracts and minimize litigation risk. Look for clear choice of forum clauses to ensure that disputes are not longer and more expensive than necessary. Ensure that early termination and renewal clauses are clear and fair to avoid disputes over what happens when one party wants to end the contractual relationship.


1 Roynat Inc v Transport Training Centres, 2010 ONSC 4894.

2 32262 BC Ltd v See-Rite Optical Ltd, 1998 ABCA 89 at para 14.

3 Christmas v Fort McKay, 2014 ONSC 373.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2015

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Nicholas Howard (Student-At-Law)
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions