The Supreme Court of Canada upholds perpetual contracts

That is the question that the Supreme Court of Canada was called upon to answer in the recent case of Uniprix Inc. v. Gestion Gosselin et Bérubé. This case pitted Uniprix Inc. (‘Uniprix’), an organisation founded by a number of owner pharmacists with the objective of providing a common identity and support for their professional activities, against one of its affiliates, Gestion Gosselin et Bérubé (‘Gosselin’). Gosselin had entered into an affiliation contract with Uniprix in 1998. This contract provided for a five-year term, which would be automatically renewed unless Gosselin gave notice of termination 6 months before termination. However, the contract did not provide that Uniprix could terminate the contract, other than for cause.

The term of the contract was renewed twice, given that Gosselin gave no notice of termination. Then, in 2012, Uniprix purported to give notice of termination of the contract as of the expiry of the third five-year term. Gosselin objected, and petitioned the Court for declaratory relief.

Uniprix argued inter alia that a contract having potentially perpetual effects is contrary to public order. However, the Superior Court, as well as a majority of the Court of Appeal and of the Supreme Court of Canada, held that it was the intention of the parties that the contract have a fixed five-year term, but that that term be renewable, potentially indefinitely, at the discretion of the affiliate Gosselin, and that the potentially perpetual effects of such a contract did not offend public order.

It is interesting to note that, although this case originated in the province of Québec, which has a civil-law system originating from French law, the same solution would likely be adopted in the common-law based system applicable in the other Canadian provinces, on the basis of the principle of freedom of contract.

Image: shutterstock.com