Canada: Can You Be Contractually Bound To Another Party Forever?

Last Updated: November 9 2015
Article by Louis Fouquet (Articling Student)

Most Read Contributor in Canada, September 2018

In Uniprix v. Gestion Gosselin et Bérubé Inc., 2015 QCCA 1427, the Quebec Court of Appeal addressed the previously unanswered question of whether the non-renewal clause in a fixed term contract may be stipulated to be for the benefit only of one of the contracting parties, such that in the eyes of the other contracting party the contract may in effect become perpetual.

Background

The appellant, Uniprix, is a pharmacy chain whose shareholders/members are pharmacists-owners. The respondents operated a pharmacy under the Uniprix banner in a premise they owned and were shareholders/members of the appellant. The parties were bound by an affiliation agreement signed on January 28, 1998 that contained a renewal clause drafted as follows:

10. DURATION

Notwithstanding any contrary written or verbal provision, this agreement will begin on the day of its signing et will remain in force for a period of sixty (60) months or for a period equal to the duration of the lease of the premise where the pharmacy is located. THE MEMBER must, six (6) months prior to the expiration of the agreement, notify THE COMPANY of its intention to leave THE COMPANY or to renew the agreement.

Failure by THE MEMBER to communicate the required notice by registered mail, the agreement will be deemed to have been renewed on the terms and conditions in force at that time, as prescribed by the board of directors except as it relates to contribution.

(our translation)

The contract was twice renewed in 2003 and 2008 in the absence of any notice of non-renewal. In July 2012, six months prior to the next renewal, the appellant communicated to the respondents a notice of non-renewal. The respondents contested the validity of the non-renewal notice, arguing that Section 10 was to its benefit only, and filed a motion for declaratory judgement and for the issuance of a permanent injunction.

Decision of the Superior Court

Justice Gérard Dugré of the Quebec Superior Court opined that Section 10 was sufficiently clear. In his view, Section 10 stated that the agreement could be the object of a notice of non-renewal by the member only. He declared the agreement was renewed until January 2018. However, he deemed that the issuance of a permanent injunction was premature at this stage.

Decision of the Court of Appeal

On appeal, the main argument of the appellant was that upholding the respondents' interpretation of Section 10 would create an unacceptable and untenable situation where the appellant would be perpetually bound to the respondents by way of this contract.

In her dissent, Chief Justice Duval Hesler opined that notwithstanding the apparent fixed term nature of the contract, the potential perpetuity arising from the appellant's inability to decide not to renew the contract made it an indeterminate term contract. Pursuant to civil law and common law jurisprudence to that effect, both parties could terminate an indeterminate term contract with reasonable prior notice. As a result, Chief Justice Duval Hesler would have allowed the appeal and declared that the agreement could be terminated.

However, in their majority opinion, Justices Lévesque and Émond took the opposite view. They upheld the Superior Court decision and concluded that Section 10 was clear and unambiguous.

Addressing the appellant's main argument, they conceded that Section 10 had the effect of rendering the contract potentially perpetual. However, they opined that the Legislator had statutorily restricted the term of certain contracts in the Civil Code of Quebec (for example, the residential lease). If the Legislator deemed that the perpetual nature of a contract was so abominable, it would have said so expressly. Rather, for contracts not expressly provided with a term in the Civil Code of Quebec or other applicable statutes, perpetuity was possible, subject to a balancing exercise between the principles of freedom of contract and freedom of persons.

In the case at hand, Justices Lévesque and Émond highlighted that the appellant was a sophisticated corporation such that its freedom was not as seriously infringed upon by the perpetual character of the agreement as a physical person would be. They added that the evidence showed that the appellant was not in a vulnerable position; rather, the appellant had authored the form of affiliation agreement that all members were required to sign. Lastly, by its own admission, the appellant described itself as a group of pharmacist-owners established to further and promote their interest. It would be contrary to the spirit of the agreement to allow the appellant to terminate it and abandon the member-pharmacists in their own discretion. As a result, the majority concluded that no fundamental value of society was violated by the perpetual character of the affiliation agreement and therefore dismissed the appeal.

Significance

The case of Uniprix v. Gestion Gosselin et Bérubé Inc. supports the general principle of freedom of contract in Quebec civil law, which has never been as liberal as in common law provinces. Although the majority of the Quebec Court of Appeal was careful in emphasizing that its ruling was very fact specific, this decision upholds the prima facie validity of contracts of a perpetual nature. Parties should however be careful in extending this principle where one contracting party can be seen as vulnerable and perpetuity could result in injustice.

Case Information

Uniprix v. Gestion Gosselin et Bérubé Inc., 2015 QCCA 1427

Docket: 500-09-024138-133

Date of Decision: September 11, 2015

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