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INTERPRETATION - Conduct of parties - Common intention of parties - Renewal clause

Friday, July 28, 2017 @ 1:03 PM  

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Appeal from a judgment of the Quebec Court of Appeal affirming a decision finding that the renewal clause in the contract binding Uniprix inc. (Uniprix) and Gestion Gosselin et Bérubé inc. and the other respondent companies (member pharmacists) was legal even though its effects could be perpetual. Uniprix and the member pharmacists entered into a contract of affiliation in 1998 for a fixed term of five years. The contract contained an automatic renewal clause and stipulated that member pharmacists could notify Uniprix of their intention not to renew the contract. The automatic renewal clause was triggered twice, in 2003 and 2008. In 2012, Uniprix sent the member pharmacists a notice of non renewal, purporting to terminate the contract as of January 2013. The renewal mechanism provided for in the contract of affiliation was central to this appeal. The member pharmacists submitted that they could renew the contract as they wished, while Uniprix argued that it could oppose the renewal and terminate the contract upon the expiry of the term. Uniprix added that the interpretation proposed by the member pharmacists could have the effect of binding the parties in perpetuity, which would be contrary to public order. According to its position, the contract would therefore be considered to be a contract for an indeterminate term, and either of the parties could resiliate it at any time on reasonable notice. The trial judge and the majority of the Court of Appeal concluded that the renewal clause was clear: it reserved for the member pharmacists an option to unilaterally renew the contract, which was legal even though its effects could be perpetual.

HELD: Appeal dismissed. The first step in interpreting a contract was to determine whether its words were clear or ambiguous. Contractual interpretation involved the consideration of a multitude of facts. It was a question of mixed fact and law in respect of which courts of appeal could not intervene in the absence of a palpable and overriding error. The renewal clause itself was in no way ambiguous. No matter what approach was taken in analyzing the situation, the trial judge made no palpable and overriding error in concluding that the contract of affiliation was for a fixed term; in concluding that, under the renewal clause, the member pharmacists had a unilateral option to renew the contract every five years; and in concluding that Uniprix was unable to oppose such a renewal. Because the contract was not for an indeterminate term, Uniprix could not resiliate it on reasonable notice, and art. 1512 C.C.Q. could not be applied to fix a term for it. Nothing in the Civil Code prohibited contracts such as the contract of affiliation from having effects that could be perpetual. Nor was there any basis for concluding that bilateral, onerous contracts which were entered into by corporate partners in a business context were contrary to public order. A conclusion that Uniprix’s obligations were perpetual was all the more reasonable given that it was created for the sole purpose of serving its shareholder members, including the member pharmacists. The notice of non renewal sent by Uniprix accordingly violated the terms of the contract of affiliation and could not be set up against the member pharmacists. Uniprix could only resiliate the contract with cause.

Uniprix inc. v. Gestion Gosselin et Bérubé inc., [2017] S.C.J. No. 43, Supreme Court of Canada, B. McLachlin C.J. and R.S. Abella, M.J. Moldaver, A. Karakatsanis, R. Wagner, C. Gascon, S. Côté, R. Brown and M. Rowe JJ., July 28, 2017. Digest No. TLD-July242017017SCC