In this case, the plaintiff had a contract with the defendant, a
multi-national computer technology company carrying on business
through partner network conduits. The plaintiff was a member
of the network under an agreement which was said to be renewable
annually at the sole discretion of the defendant.
The contract specifically provided that the plaintiff could
apply for renewal on an annual basis, and the defendant would
notify the plaintiff if it accepted its application for renewal
The plaintiff had been a member of the partner network from 1994
to 2014. Every year for 20 years, the agreement was renewed without
interruption or incident. The plaintiff's business and its
reliance on the relationship with the defendant grew over the
In the fall 2014, the plaintiff was invited by the defendant to
renew the agreement as in previous years. After an
unsuccessful attempt to make its request for renewal online, it
made the request in a letter to the defendant. Several weeks
later it received a written response from the defendant saying that
the agreement would not be renewed notwithstanding the long-term
relationship and notwithstanding the fact the defendant had
actually invited the plaintiff to submit an application for
The plaintiff had received no prior notice of the
defendant's decision not to renew.
The plaintiff sued the defendant for damages for failing to give
reasonable notice of non-renewal. The plaintiff took the
position that the defendant had been obliged to exercise his
discretionary renewal power reasonably and that its termination of
the 20 year relationship without notice was unreasonable.
The defendant brought a motion to strike out the claim on the
basis that it failed to disclose a reasonable cause of action. In
other words, the defendant asked the court to conclude that there
is no duty in law to provide reasonable, or any notice of a
decision not to renew a renewable contract.
At the hearing of the motion the defendant agreed that as a
general rule, discretionary contractual powers must be exercised
reasonably as a matter of good faith.
However, the defendant also referred to previous judicial
authority to the effect that absent active dishonesty, the
reasonable exercise of discretionary contractual powers does not
apply in case of contract renewals. The defendant asked the court
to accept that as a general principle, the obligation to exercise
discretionary contractual powers reasonably simply does not apply
in contract renewal situations, ever.
The Court did not accept that submission. The Court concluded
both that there is a judicially recognized requirement that parties
perform their contractual duties honestly and reasonably, and that
as a newly recognized duty, there is a new general duty of honesty
in contractual performance. This new duty of honesty in contractual
performance flows directly from the general organizing principle of
As a result, there may well be an argument available that in
contract renewal situations including a "sole discretion"
non-renewal power, the discretion must be exercised reasonably in
the sense that appropriate consideration ought to be given to the
legitimate interests of both contracting parties. As part of that
consideration, notice of an intention not to renew might well be
required in some circumstances.
Accordingly, the Court declined to strike out the statement of
claim on the basis that it could not succeed. The judge felt that
it was not plain and obvious that the claim had no chance of
success and accordingly, the plaintiff was entitled to proceed with
Needless to say, nothing in the case involved a determination
that the plaintiff was going to win at trial. The case stands
for the proposition only that a party is entitled to assert a claim
based on the proposition that the discretionary power relating to a
renewal provision must be exercised reasonably and a reasonable
exercise of that discretion may include providing notice of an
intention not to renew.
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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