Ontario’s Court of Appeal (“ONCA”) in Conseil Scolaire Catholique Franco-Nord v. Nipissing, 2021 ONCA 544 opined on how contracts that do not specify a termination date or a procedure for termination ought to be interpreted.
The ONCA grappled with the question of whether to treat a contract that was silent on the issue of termination as either (1) a perpetual contract, that does not end, or (2) a contract of indefinite duration, into which the court can imply a provision allowing for unliteral termination upon reasonable notice.
Historical Approach
The ONCA advised that courts used to presume that contracts which were indefinite in time were perpetual in nature.
However, this approach was subsequently disregarded, and courts began to presume a right to terminate an indefinite contract by the provision of reasonable notice.
New Approach
The ONCA advised that even more recently, however, a contextual, fact-specific, approach has been favoured by the courts (i.e. if proper contractual interpretation leads to a determination that the contract is intended to be perpetual in nature, then the perpetual obligation will be enforced).
To make this determination, courts have looked at the following:
- The specific terms of the contract;
- The relationship between the parties; and
- The surrounding circumstances.
The existence of a special or trust relationship is a strong, but not determinative, factor which would sway the court to interpret the contract as one of indefinite nature that can be terminated by provision of reasonable notice (rather than as one that is perpetual in nature).
Parties to a contract ought to be wary of the above when drafting their contracts, and should ensure that they are clear about their intentions regarding contract duration and procedure for terminating their contract, lest they risk a court misinterpreting their intentions.
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