Supreme Court Of Canada Confirms The Validity Of Perpetual Contracts

In this Update

In a ruling dated July 28, 2017, a majority of the Supreme Court of Canada affirmed the validity of perpetual contracts in Québec law. In the judgment, Uniprix inc. v. Gestion Gosselin et Bérubé inc., 2017 SCC 43, the majority dismissed the appeal and upheld the judgments of the Court of Appeal and the Superior Court of Québec.

Context

For additional context regarding this case, please consult our earlier Osler Update about the decision of the Court of Appeal of Québec.

As a reminder, the dispute centres on the application of a clause providing for the automatic renewal of a contract of affiliation between Uniprix Inc. (Uniprix), on one hand, and on the other, Gestion Gosselin et Bérubé inc. and a partnership, Manon Gosselin et Bernard Bérubé, pharmaciens, S.E.N.C. (the Gosselin Group), which together operate a pharmacy under the Uniprix banner.

The contract of affiliation had an initial term of five years, but the clause in question seemed to permit its automatic renewal for an equivalent period, unless the Gosselin Group notified Uniprix of its intention to terminate. The contract did not contain any limit on the number of renewals.

After two automatic renewals, Uniprix purported to avail itself of the clause at issue to terminate the automatic renewal. The Gosselin Group objected to this attempt, arguing that the clause gave it alone the exclusive right to terminate the renewal. It then instituted proceedings to have Uniprix's attempted termination declared illegal and to have the contract renewed.

Reasons and conclusions

The reasons of Wagner and Gascon JJ., for the majority, can be divided into three parts: (i) the interpretation of the automatic renewal clause; (ii) the characterization of the contract according to its duration; and (iii) the validity of perpetual contracts.

(i) The interpretation of the automatic renewal clause

The majority confirmed the interpretation given by the lower courts to the automatic renewal clause: The clause grants the Gosselin Group the exclusive option to terminate the renewal by sending Uniprix notice to that effect six months before the expiry of the five-year term. If the Gosselin Group does not exercise such option, the contract is automatically renewed for an equivalent period, without Uniprix being able to oppose it. The majority held the clause to be clear and unambiguous.

(ii) The characterization of the contract according to its duration

The majority acknowledged that the...