Uniprix inc. v. Gestion Gosselin et Bérubé inc.

Uniprix inc. v. Gestion Gosselin et Bérubé inc.
Collection
Supreme Court Judgments
Date
2017-07-28
Neutral citation
2017 SCC 43
Report
[2017] 2 SCR 59
Case number
36718
Judges
McLachlin, Beverley; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Wagner, Richard; Gascon, Clément; Côté, Suzanne; Brown, Russell; Rowe, Malcolm
On appeal from
Quebec
Notes
SCC Case Information: 36718
Decision Content
SUPREME COURT OF CANADA
Citation: Uniprix inc. v. Gestion Gosselin et Bérubé inc., 2017 SCC 43, [2017] 2 S.C.R. 59
Appeal Heard: January 12, 2017 Judgment Rendered: July 28, 2017 Docket: 36718
Between:
Uniprix inc.
Appellant
and
Gestion Gosselin et Bérubé inc. and
Manon Gosselin et Bernard Bérubé, pharmaciens, S.E.N.C.
Respondents
Official English Translation: Reasons of Wagner and Gascon JJ.
Coram: McLachlin C.J. and Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté, Brown and Rowe JJ.
Joint Reasons for Judgment: (paras. 1 to 106)
Wagner and Gascon JJ. (Abella, Moldaver, Karakatsanis and Brown JJ. concurring)
Dissenting Reasons: (paras. 107 to 168)
Côté J. (McLachlin C.J. and Rowe J. concurring)
Uniprix inc. Appellant
v.
Gestion Gosselin et Bérubé inc. and
Manon Gosselin et Bernard Bérubé, pharmaciens, S.E.N.C. Respondents
Indexed as: Uniprix inc. v. Gestion Gosselin et Bérubé inc.
2017 SCC 43
File No.: 36718.
2017: January 12; 2017: July 28.
Present: McLachlin C.J. and Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté, Brown and Rowe JJ.
on appeal from the court of appeal for quebec
Contracts — Interpretation — Intention of parties — Contract of affiliation — Term and renewal procedure — Contract clause stipulating that contract renewable at discretion of only one party — Validity of contract whose effects could be perpetual — Whether trial judge erred in finding that renewal clause was clear and that it faithfully represented parties’ common intention of granting one of parties unilateral option to renew contract every five years, which other party would be unable to oppose — Whether possibility of contract of affiliation having perpetual effect is unlawful in Quebec civil law on basis that it is contrary to Civil Code of Québec or to public order — Civil Code of Québec, arts. 1425, 1512.
In 1998, the respondent companies (“member pharmacists”) decided to affiliate their pharmacy with the Uniprix banner. The parties entered into a contract of affiliation for a fixed term of five years. The contract contained a clause to the effect that it would be renewed automatically unless the member pharmacists gave notice to the contrary. By virtue of that clause, the contract was renewed automatically in 2003 and 2008. On July 26, 2012, Uniprix notified the member pharmacists that their contractual relationship would terminate as of January 28, 2013. The member pharmacists objected, arguing that the contract of affiliation was to be renewed automatically unless they gave notice to the contrary. In their view, nothing in the renewal clause entitled Uniprix to oppose this renewal. 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 one for an indeterminate term and could be resiliated at any time on reasonable notice.
The Superior Court declared that the contract was renewed and that Uniprix could resiliate the contract only for cause, not without cause as it had tried to do. The court concluded that unilateral renewal clauses are valid in Quebec law even though they might give a contract perpetual effect. The majority of the Court of Appeal affirmed that judgment. In their opinion, the Civil Code of Québec (“C.C.Q.”) does not prohibit contracts that could be perpetual, and such contracts violate no fundamental value of our society. The Chief Justice, in dissent, would have allowed the appeal. In her view, the renewal clause made it impossible for Uniprix to know the contract’s termination date, which turned the contract into one for an indeterminate term. The contract could therefore be resiliated on reasonable notice, six months in this case.
Held (McLachlin C.J. and Côté and Rowe JJ. dissenting): The appeal should be dismissed.
Per Abella, Moldaver, Karakatsanis, Wagner, Gascon and Brown JJ.: The trial judge made no palpable and overriding error in interpreting the contract. The unilateral renewal option granted to the member pharmacists in the contract of affiliation is consistent with the other provisions of the contract, with the circumstances surrounding its signature and its object, and with the parties’ conduct in applying it.
To resolve the disagreement between the parties, the words of the contract, and more specifically those of the clause that fixes its term and the procedure for renewing it, must be interpreted. The first step in interpreting a contract is to determine whether its words are clear or ambiguous. If the words of the contract are clear, the court’s role is limited to applying them to the facts before it. If, on the other hand, the court identifies an ambiguity, it must resolve the ambiguity by proceeding to the second step of contractual interpretation. The cardinal principle that guides the second step is that “[t]he common intention of the parties rather than adherence to the literal meaning of the words shall be sought” (art. 1425 C.C.Q.). This interpretation exercise makes it possible to establish the term of the contract at issue and the procedure for renewing it.
Characterizing and interpreting a contract are two distinct actions. In Quebec civil law, it is the classification of the contract — based on the rules that apply to it, the conditions that apply to its formation, its object and how it is performed — that makes it possible to define the nature of the contract and thereby determine how it should be characterized. In other words, a contract is characterized on the basis of its nature, by associating it with a category of nominate contracts or with a specific class of contracts, but the term of the contract is not characterized, as it instead depends on the interpretation of the contract’s words.
Contractual interpretation involves the consideration of a multitude of facts. It is a question of mixed fact and law, and the Court’s role is limited to deciding whether the trial judge committed a palpable and overriding error in this regard. In this case, the trial judge’s interpretation to the effect that the renewal clause gave the member pharmacists the right to renew the contract of affiliation as they saw fit every five years is not tainted by a palpable and overriding error. On the contrary, it is perfectly consistent with the other undertakings stipulated in the contract and with the circumstances in which it was formed.
First of all, the renewal clause itself is in no way ambiguous. It specifically provides that the member pharmacists can notify Uniprix of their intention to renew or not to renew the contract. But it does not stipulate that Uniprix can give a similar notice to the member pharmacists. Furthermore, the second paragraph clearly provides that should the member pharmacists fail to send the prescribed notice to Uniprix, the agreement will be deemed to have been renewed. By virtue of art. 2847 C.C.Q., the word “deemed” in the contract creates a presumption that is absolute and irrebuttable. As a result, if the member pharmacists send no notice to Uniprix, renewal is automatic and Uniprix cannot oppose it. The other clauses dealing with the termination of the contract relate solely to the option to resiliate the contract for cause that is conferred on Uniprix. All of these provisions form an integral part of the agreement between the parties, and they must be read and interpreted as a whole.
Moreover, it is not inappropriate to interpret an otherwise clear contract on a subsidiary basis in order to conclude that that interpretation confirms the clear meaning of its words. In this case, an analysis of the circumstances in which the contract was concluded confirms that the parties intended to leave the renewal of the contract to the discretion of the member pharmacists. First, Uniprix was created for the benefit of member pharmacists who had joined together for the purpose of developing their respective commercial and professional practices. Uniprix exists to serve its members. It thus makes sense that Uniprix will serve its members until they themselves decide to withdraw from the group, and that Uniprix therefore cannot terminate the contract without cause. Second, the very conduct of the parties supports this interpretation: twice, Uniprix recognized that the silence of the member pharmacists bound the parties for an additional five‑year term. To interpret the contract of affiliation in such a way as to give Uniprix the power to oppose the renewal desired by the member pharmacists would therefore be contrary to the words of the renewal clause, to the general scheme of the contract of affiliation, to the circumstances in which it was concluded, and to how it has been applied by the parties.
The fact that the term of Uniprix’s obligations pursuant to the contract of affiliation depends on the will of the member pharmacists to renew it does not transform the contract into one for an indeterminate term. In this case, the parties agreed on a clear term of five years together with an equally clear renewal mechanism that would enable them to pursue their business relationship for fixed five‑year periods. A conclusion that the contract is one for an indeterminate term would fly in the face of logic and the clearly expressed intention of the parties. In the same way, art. 1512 C.C.Q. cannot be applied to fix a term for the contract of affiliation. It applies where there is no term or where the term is uncertain, but does not apply to thwart the automatic renewal of a contract whose term is, as in this case, clearly defined. In any event, neither party has applied for this independent remedy. The Superior Court and the majority of the Court of Appeal were right in holding that the parties intended to be bound by a renewal mechanism whose effects could be perpetual.
Nothing in the Code prohibits contracts such as the contract of affiliation from having effects that could be perpetual. Nor is there any basis for concluding that such contracts are contrary to public order. When it enacted the Code, the legislature decided to place limits on only certain specific types of contracts, declining to enact a general provision prohibiting all perpetual contracts. Nothing in the Code, the academic literature or the case law supports the position that a contract of affiliation whose effects could be perpetual is contrary to Quebec civil law. It is true that the courts may raise to the rank of a principle of public order any unwritten rule that is consistent with the fundamental values of society. Nevertheless, it must in every case be possible to tie the concept of public order to specific values or principles that might be violated by the contractual provisions at issue. Perpetual obligations do not in themselves offend any of our fundamental societal values and are not generally contrary to public order. There are circumstances in which the imposition of perpetual obligations whose nature is such as to affect an individual’s person and freedom could offend public order. But in the context of a corporate and commercial partnership such as the one between Uniprix and the member pharmacists, the individual freedom of the contracting parties is not at stake, and public order cannot override the parties’ intention.
There is no basis for reversing the trial judge’s conclusion that the contract of affiliation is for a fixed term and that the option to renew it upon the expiry of each term is limited to the member pharmacists. The notice of non‑renewal sent by Uniprix accordingly violates the terms of the contract of affiliation and may not be set up against the member pharmacists. Because the contract is not for an indeterminate term, Uniprix could not resiliate it without cause on reasonable notice as it tried to do.
Per McLachlin C.J. and Côté and Rowe JJ. (dissenting): A contract without ambiguity is to be applied, not interpreted. But the trial judge’s conclusion that the contract of affiliation is clear and need not be interpreted is a palpable and overriding error. A reading of the entire contract reveals ambiguities which should have led the trial judge to go on to interpret the parties’ common intention under art. 1425 of the Civil Code of Québec.
First, it is not clear from the renewal clause’s wording that it is stipulated uniquely in favour of the member pharmacists. The clause clearly makes Uniprix the beneficiary of a notice obligation. But nothing about the wording of the clause clarifies that the presumption of renewal in paragraph two of the clause is stipulated in favour of one party or the other. Second, reference to other portions of the contract does nothing to resolve the ambiguity. Third, the ambiguity is magnified by the interaction between the express term of 60 months and the renewal clause. The presence of an express 60‑month contractual term typically denotes the termination of obligations for both parties on expiry of the term. But when read in light of the renewal clause, the term apparently functions asymmetrically to bind Uniprix, though not the member pharmacists, in potential perpetuity. Fourth, when the member pharmacists’ tendered interpretation — that Uniprix is bound forever solely at the member pharmacists’ discretion — is considered in the context of the agreement’s other clauses, the unreasonable result produced suggests an inquiry into whether the parties intended to be so bound. The potential for the interests of a particular member to conflict with those of the collective raises a question as to whether the parties intended that Uniprix be forever beholden to any individual member. Finally, the extent to which the renewal is automatic is itself an open question. The clause’s wording suggests the renewal is contingent, not automatic. The renewal clause kicks in only if the member pharmacists fail to provide notice of whether they will leave or stay.
However, even if it is assumed that the trial judge’s reading of the renewal clause was correct, the contract of affiliation should be characterized as an indeterminate one and the appeal should be allowed on this basis. The characterization of a contract determines the juridical category into which it falls and the legal consequences attaching to it as a result. Characterization and interpretation of a contract are discrete tasks that should not be confused. Unlike the interpretive exercise, where the trial judge seeks out the parties’ common intention, the trial judge is not bound by the parties’ ostensible, or even preferred, characterization. Instead, characterization is a question of law that is left to the determination of the court. The determination of the contract’s term is a matter of legal characterization, since it is concerned with the intended legal effects of the agreement and the presence or absence of an extinctive term is essential to the nature of contracts of successive performance with a fixed term.
In this case, the juridical effect of the renewal clause is to extend the same contract for a further period of time. Since only the member pharmacists may oppose renewal, only they have the benefit of a certain term that will extinguish their obligations. The result is that the contract of affiliation would effectively have a hybrid term: one of five years as applied to the member pharmacists; but one of potential perpetuity, or indeterminacy, as applied to Uniprix. However, a contract’s term must function symmetrically for both parties and the possibility of a hybrid term should not be endorsed. Therefore, there are two possible characterizations of this agreement. The contract either has a perpetual term — that is, a fixed term of forever with an option to exit arising periodically for the member pharmacists, in which case the public order analysis becomes relevant — or is for an indeterminate term, because there is no clear extinctive term. The correct characterization is the latter one. This conclusion is consistent with the well‑established principle that contracts with a purportedly certain extinctive term are to be characterized as indeterminate where the realization of the term is dependent on the decision of only one of the parties. It is also consistent with the law’s reluctance to infer perpetuity in the absence of the parties’ express stipulation to that effect.
A contract for an indeterminate term may be resiliated on reasonable notice. The reasonableness of the notice of resiliation in any given case is a fact‑driven, contextual inquiry. Considering the fact that Uniprix sent a notice of resiliation on July 26, 2012, the member pharmacists will have benefitted from a reasonable notice by the date of this decision. Therefore, the contract of affiliation should be declared to be terminated as of this date.
Cases Cited
By Wagner and Gascon JJ.
Distinguished: BMW Canada inc. v. Automobiles Jalbert inc., 2006 QCCA 1068; 9077‑0801 Québec inc. v. Société des loteries vidéo du Québec inc., 2012 QCCA 885; Bombardier Produits récréatifs inc. (BRP) v. Christian Moto Sport inc. (CMS), 2012 QCCA 1670; Placements Sergakis inc. v. Société des loteries vidéo du Québec inc., 2009 QCCS 4976; E. & S. Salsberg inc. v. Dylex Ltd., [1992] R.J.Q. 2445; Bussières (Véhicules récréatifs Gascon enr.) v. Yamaha Motor Canada Ltd., 2006 QCCS 905; Bertrand Équipements inc. v. Kubota Canada ltée, [2002] R.J.Q. 1329; Équipement LDL inc. v. Toyota Canada inc., 2008 QCCS 4943; approved: Triou v. Teman, 2016 QCCA 908; considered: Consumers Cordage Co. v. St. Gabriel Land & Hydraulic Co., [1945] S.C.R. 158; Parkway Pontiac Buick inc. v. General Motors du Canada ltée, 2012 QCCS 618; referred to: Tétreault v. Gagnon, [1962] S.C.R. 766; Montréal, Maine & Atlantique Canada Cie (Montreal, Maine & Atlantic Canada Co.) (MMA), Re, 2014 QCCA 2072, 49 R.P.R. (5th) 210; Station Mont‑Tremblant v. Banville‑Joncas, 2017 QCCA 939; Martin v. Dupont, 2016 QCCA 475; Provigo Distribution inc. v. Supermarché A.R.G. inc., [1998] R.J.Q. 47; Droit de la famille — 171197, 2017 QCCA 861; Samen Investments Inc. v. Monit Management Ltd., 2014 QCCA 826; Éolectric inc. v. Kruger, groupe Énergie, 2015 QCCA 365; Rouge Resto‑bar inc. v. Zoom Média inc., 2013 QCCA 443; Habitations Gilles Stébenne inc. v. 9166-9929 Québec inc., 2016 QCCS 2953; Larouche v. Néron, 2016 QCCA 692; Lamco II s.e.c. v. Québec (Ville), 2016 QCCA 757; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; Immeubles Régime XV inc. v. Indigo Books & Music Inc., 2012 QCCA 239; Cie canadienne d’assurances générales Lombard v. Promutuel Portneuf‑Champlain, société mutuelle d’assurances générales, 2016 QCCA 1903; 2320‑4035 Québec inc. v. Centre intégré universitaire de santé et de services sociaux du Centre‑Sud‑de‑l’Île‑de‑Montréal (CIUSSS CSIM) (Centre de réadaptation en déficience intellectuelle et en troubles envahissants du développement de Montréal), 2017 QCCA 427; Construction BFC Foundation ltée v. Entreprises Pro‑Sag inc., 2013 QCCA 1253; Pépin v. Pépin, 2012 QCCA 1661; Ferme Vi‑Ber inc. v. Financière agricole du Québec, 2016 SCC 34, [2016] 1 S.C.R. 1032; Lac‑Sergent (Ville) v. Lapointe, 2012 QCCA 1935; Association des diplômés de l’École des hautes études commerciales de Montréal v. Aeterna‑Vie Cie d’assurance, [1995] R.R.A. 111; Cyclorama de Jérusalem Inc. v. Congrégation du Très Saint Rédempteur, [1964] S.C.R. 595; Neale v. Katz, [1979] C.A. 192; Cass. civ. 1re, January 18, 2000, Bull. civ. 1 10, no 98‑10.378; Cass. civ., June 25, 1907, D.P. 1907.1.337; Goulet v. Transamerica Life Insurance Co. of Canada, 2002 SCC 21, [2002] 1 S.C.R. 719; Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17, [2003] 1 S.C.R. 178; Asphalte Desjardins inc. v. Québec (Commission des normes du travail), 2013 QCCA 484, rev’d 2014 SCC 51, [2014] 2 S.C.R. 514.
By Côté J. (dissenting)
Samen Investments Inc. v. Monit Management Ltd., 2014 QCCA 826; Bisignano v. Système électronique Rayco ltée, 2014 QCCA 292; Turenne v. Banque Nationale du Canada, [1983] J.Q. no 354 (QL); J.V. v. Cie d’assurance‑vie Croix Bleue, 2013 QCCA 1686; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; Gregory v. Château Drummond inc., 2012 QCCA 601; Pépin v. Pépin, 2012 QCCA 1661; Alexis Nihon Cie v. Dupuis, [1960] S.C.R. 53; National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 S.C.R. 1029; Centre de santé et de services sociaux de l’Énergie v. Société immobilière Lemieux inc., 2011 QCCA 972; Cogefimo inc. v. Société Coinamatic inc., [1998] R.D.I. 193; J.G. v. Nadeau, 2016 QCCA 167; Tétreault v. Gagnon, [1962] S.C.R. 766; Services Matrec inc. v. CFH Sécurité inc., 2014 QCCA 221; Neale v. Katz, [1979] C.A. 192; E. & S. Salsberg inc. v. Dylex Ltd., [1992] R.J.Q. 2445; Standard Broadcasting Corp. v. Stewart, [1994] R.J.Q. 1751; BMW Canada inc. v. Automobiles Jalbert inc., 2006 QCCA 1068; 9077‑0801 Québec inc. v. Société des loteries vidéo du Québec inc., 2012 QCCA 885.
Statutes and Regulations Cited
Civil Code of Lower Canada, art. 1013.
Civil Code of Québec, arts. 9, 365 to 377, 380, 1378 to 1384, 1379, 1380, 1381, 1383, 1414, 1425, 1425 to 1432, 1426, 1427, 1428, 1434 to 1439, 1437, 1512, 1517, 1590, 1604, 1605, 1708 to 2643, 1880, 2086, 2362, 2376, 2847.
Code civil (France), art. 1210.
Rules respecting the solemnization of civil marriages and civil unions, CQLR, c. CCQ, r. 3.
Authors Cited
Azéma, Jacques. La durée des contrats successifs. Paris: L.G.D.J., 1969.
Baudouin, Jean‑Louis, et Pierre‑Gabriel Jobin. Les obligations, 7e éd. par Pierre‑Gabriel Jobin et Nathalie Vézina. Cowansville, Que.: Yvon Blais, 2013.
Carbonnier, Jean. Droit civil, t. 4, Les obligations, 22e éd. Paris: P.U.F., 2000.
Fréchette, Pascal. “La qualification des contrats: aspects théoriques” (2010), 51 C. de D. 117.
Gendron, François. L’interprétation des contrats, 2e éd. Montréal: Wilson & Lafleur, 2016.
Ghestin, Jacques, Christophe Jamin et Marc Billiau. Les effets du contrat, 3e éd. Paris: L.G.D.J., 2001.
Goldstein, Gérald, et Najla Mestiri. “La liberté contractuelle et ses limites — Études à la lueur du droit civil québécois”, dans Benoît Moore, dir., Mélanges Jean Pineau. Montréal: Thémis, 2003, 299.
Grammond, Sébastien, Anne‑Françoise Debruche and Yan Campagnolo. Quebec Contract Law. Montréal: Wilson & Lafleur, 2011.
Kasirer, Nicholas. “Pothier From A to Z”, dans Benoît Moore, dir., Mélanges Jean Pineau. Montréal: Thémis, 2003, 387.
Lluelles, Didier, et Benoît Moore. Droit des obligations, 2e éd. Montréal: Thémis, 2012.
Mestre, Jacques. “Obligations et contrats spéciaux: Obligations en général” (1993), 2 R.T.D. civ. 343.
Pineau, Jean, Danielle Burman et Serge Gaudet. Théorie des obligations, 4e éd. par Jean Pineau et Serge Gaudet. Montréal: Thémis, 2001.
Quebec. Ministère de la Justice. Commentaires du ministre de la Justice, t. II, Le Code civil du Québec — Un mouvement de société. Québec: Publications du Québec, 1993.
Starck, Boris, Henri Roland et Laurent Boyer. Droit civil: les obligations, t. 2, Contrat, 6e éd. Paris: Litec, 1998.
Tancelin, Maurice. Des obligations en droit mixte du Québec, 7e éd. Montréal: Wilson & Lafleur, 2009.
APPEAL from a judgment of the Quebec Court of Appeal (Duval Hesler C.J. and Levesque and Émond JJ.A.), 2015 QCCA 1427, [2015] AZ‑51213425, [2015] J.Q. no 8478 (QL), 2015 CarswellQue 8578 (WL Can.), affirming a decision of Dugré J., 2013 QCCS 6251, [2013] AZ‑51027703, [2013] J.Q. no 17551 (QL), 2013 CarswellQue 12767 (WL Can.). Appeal dismissed, McLachlin C.J. and Côté and Rowe JJ. dissenting.
Hubert Sibre, Julien Archambault and Jean‑Yves Fortin, for the appellant.
André Joli‑Cœur, Nathalie Vaillant and Bénédicte Dupuis, for the respondents.
English version of the judgment of Abella, Moldaver, Karakatsanis, Wagner, Gascon and Brown JJ. delivered by
Wagner and Gascon JJ. —
I. Overview
[1] Autonomy of the will is a fundamental principle of Quebec civil law. This contractual freedom allows the parties to a contract to structure their relationship as they see fit within the limits imposed by legislation and the requirements of public order. This appeal affords this Court an opportunity to define some of those limits in relation to the legality of certain obligations stipulated in a contract whose effects could be perpetual.
[2] The appellant, Uniprix inc., and the respondent companies (“member pharmacists”) entered into a contract of affiliation in 1998 for a fixed term of five years. The contract contained an automatic renewal clause, which was triggered twice, in 2003 and 2008. In 2012, however, 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 is central to this appeal. The member pharmacists submit that they can renew the contract as they wish, while Uniprix argues that it can oppose the renewal and terminate the contract upon the expiry of the term. Uniprix adds 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.
[3] The trial judge and the majority of the Court of Appeal concluded that the renewal clause is clear: it reserves for the member pharmacists an option to unilaterally renew the contract, which is perfectly legal even though its effects could be perpetual. The Chief Justice of the Court of Appeal, who dissented, would instead have concluded that the contract was one for an indeterminate term; she would have fixed a term for it pursuant to art. 1512 of the Civil Code of Québec (“C.C.Q.” or “Code”) or would have allowed Uniprix to terminate it on reasonable notice.
[4] We would dismiss the appeal. The trial judge made no palpable and overriding error in interpreting the contract. On the contrary, the unilateral renewal option granted to the member pharmacists in the contract of affiliation is consistent with the other provisions of the contract, with the circumstances surrounding its signature and its object, and with the parties’ conduct in applying it. Nothing in Quebec law precludes the parties from agreeing on such a mechanism even though its effects could be perpetual.
II. Background
[5] Uniprix was founded in 1977 by a number of Quebec owner pharmacists, including Manon Gosselin. Their objective was to give themselves a common identity, pool their purchases and, more generally, provide support for the incidental aspects of their professional activities. To become a member of this group, one had to be an owner pharmacist and subscribe for one share in Uniprix.
[6] In 1979, Ms. Gosselin and her spouse opened a pharmacy in Saint‑Lambert‑de‑Lauzon, a town with a present‑day population of approximately 6,000. It is that pharmacy that is at issue in this appeal. Originally an independent pharmacy, it became an affiliate under the Uniclinique banner in 1988. At about that time, Ms. Gosselin and her spouse became partners with Bernard Bérubé, another pharmacist, with whom they created the respondent companies, and those companies have owned the pharmacy ever since.
[7] In 1998, the respondent companies decided to affiliate their pharmacy with the Uniprix banner. At that time, the two owner pharmacists — Ms. Gosselin and Mr. Bérubé — subscribed for one share of Uniprix through their general partnership, and the parties entered into a contract of affiliation. The contract included a clause that fixed its term and the procedure for renewal:
[translation]
10. TERM:
Regardless of any written or verbal provisions to the contrary, this agreement shall commence on the day of its signing and shall remain in effect for a period of sixty (60) months, or for a period equal to the term of the lease for the premises where the pharmacy is located. [The member pharmacist] shall, six (6) months before the expiration of the agreement, notify [Uniprix] of its intention to leave [Uniprix] or to renew the agreement;
Should [the member pharmacist] fail to send the prescribed notice by registered mail, the agreement shall be deemed to have been renewed in accordance with the terms and conditions then in effect, as prescribed by the board of directors, except with regard to the fee.[1]
[8] Throughout the term of their contractual relationship, the member pharmacists never specifically informed Uniprix of their intentions regarding the renewal of the contract. By virtue of the second paragraph of clause 10, the contract was therefore automatically renewed on January 28, 2003 and on January 28, 2008 without any comment on Uniprix’s part.
[9] In 2010, Uniprix learned that one of its competitors was planning to open an outlet in new premises located less than 200 metres from the pharmacy operated by the member pharmacists. In December of that year, unknown to the member pharmacists, Uniprix approached the owner of the premises in question with an offer to rent them. A year later, on December 14, 2011, it met with the member pharmacists to convince them to move their business into these new premises, but was unable to do so.
[10] Uniprix nonetheless leased the premises in question for a 15‑year term on March 1, 2012. On July 26, 2012, a little more than six months before the expiration of the third term of its contract with the member pharmacists, it notified them that their contractual relationship would terminate as of January 28, 2013. In the months that followed, Uniprix tried once again to convince the member pharmacists to relocate, but they refused Uniprix’s proposal, considering it to be less viable than their existing situation.
[11] The member pharmacists then tried to have Uniprix confirm that their contractual relationship would continue after January 28, 2013. Having received no reply, they asked the Superior Court to declare that the contract had been renewed until January 28, 2018. On January 9, 2013, they obtained a safeguard order that enjoined Uniprix to honour its contractual obligations until the matter could be resolved by way of a final judgment.
III. Judicial History
A. Quebec Superior Court (Dugré J.), 2013 QCCS 6251
[12] Dugré J., who heard the case on its merits, declared that the contract was renewed until January 28, 2018 in accordance with the terms in effect as of July 28, 2012, the last day on which it was possible for the member pharmacists to inform Uniprix whether they intended to renew their contract of affiliation.
[13] Finding that the language of clause 10 was clear and did not need to be interpreted, he added that the clause had been stipulated for the benefit of the member pharmacist, who could thus [translation] “renew the agreement as [he or she] saw fit every five years” (para. 40 (CanLII)), and that this was confirmed by an analysis of the contract as a whole. This interpretation implied as a corollary that Uniprix could resiliate the contract only for cause, not without cause as it had tried to do.
[14] In the trial judge’s opinion, the parties’ conduct was a contextual factor that confirmed this interpretation. In this regard, he observed that they had in 2003 and 2008 accepted the automatic renewal of the contract pursuant to clause 10. It is well established that how the parties to a contract interpret and apply it is particularly helpful for the purpose of determining the substance of and the intention behind the contract.
[15] The trial judge found that this clause was perfectly valid because it was contrary neither to prohibitive legislation nor to public order. He concluded that unilateral renewal clauses are valid in Quebec law even though there may be cases in which they give a contract perpetual effect.
B. Quebec Court of Appeal, 2015 QCCA 1427
(1) Majority Reasons of Levesque and Émond JJ.A.
[16] The majority of the Court of Appeal dismissed the appeal. In their view, although Uniprix had originally been created for the sole purpose of serving its members, it was now trying to insinuate itself into their business decisions by prevailing on the member pharmacists to participate in a project that was not to their advantage, threatening to terminate their business relationship with it if they did not.
[17] The majority agreed with the trial judge that the clause was clear and did not need to be interpreted. In their opinion, the contract was for a fixed term and was renewed automatically unless the member pharmacists gave notice to the contrary. In agreeing to this mechanism, Uniprix had agreed to be bound for many years and had accepted that the member pharmacists’ silence would bind it for an additional term of the same duration. Clause 13 of the contract, which provided for damages should the member pharmacists terminate the contract before the expiration of the term, was a corollary to this principle.
[18] The majority found that the fact that this renewal mechanism might cause the contract to become perpetual did not make the notice given by Uniprix valid. The Court of Appeal had never considered this issue, but some authors had addressed it. In the Code, the legislature limited the term of a lease and the duration of payment of an annuity to 100 years. The legislature also made it possible to terminate a contract of employment for an indeterminate term and an unlimited suretyship, as the perpetual nature of these undertakings seemed to be contrary to public order. However, the limits imposed on certain contracts were not evidence that the legislature intended to proscribe all contracts that could be perpetual. For the other types of contracts, the autonomy of the will must be reconciled with freedom of the person, but that is not generally a problem where agreements of an economic nature entered into by legal persons are concerned. In short, the Code, the source of the general law of Quebec, does not prohibit perpetual contracts.
[19] In the majority’s view, the courts may of course elevate certain principles grounded in the fundamental values of our society to the rank of public order. However, no such value was violated by the possibility of the contract becoming perpetual. Uniprix was not in a vulnerable position, and the contract at issue was a standard form contract that Uniprix had itself drafted. Moreover, it was normal for Uniprix to want to bind itself in the long term and not to be able [translation] “to jettison its members as it pleases”, since the company had been created for their benefit, to promote their interests (para. 71 (CanLII)). This position does not contradict BMW Canada inc. v. Automobiles Jalbert inc., 2006 QCCA 1068, and 9077‑0801 Québec inc. v. Société des loteries vidéo du Québec inc., 2012 QCCA 885, which apply more to franchise agreements.
[20] In any event, the majority found that even if the contract had been for an indeterminate term, Uniprix had not acted in good faith, which barred it from resiliating the contract. As for art. 1512 C.C.Q., it did not apply, given that the contract was for a fixed term. Émond J.A. added that that article creates an independent remedy for which one of the parties must apply, but that was not done in the case at bar.
(2) Minority Reasons of Duval Hesler C.J.Q.
[21] The Chief Justice, in dissent, would have allowed the appeal and terminated the contract as of six months after the date of the Court of Appeal’s judgment. Even if clause 10 had been drafted for the benefit of the member pharmacists, the only possible conclusion was that that clause made it impossible for Uniprix to know the contract’s termination date and that this turned the contract into one for an indeterminate term. The contract could therefore be resiliated on reasonable notice.
[22] The dissenting judge was also of the opinion that art. 1512 C.C.Q. allowed the court to impose a term for the contract of affiliation. That article is often used to fix a repayment date for a loan agreement in which none is specified. The contract of affiliation provided for a minimum term of five years to ensure a degree of stability in the relations between the parties, but the renewal mechanism implied that only the member pharmacists could determine when the contract would terminate. As for the second paragraph of art. 1512 C.C.Q., it can be used to fix a term, given that a contract of affiliation or a franchise agreement is, in its very essence, not perpetual.
[23] In the dissenting judge’s opinion, the fact that the parties had not raised this article did not mean that it could not be applied, as it had been discussed at the hearing and the court could take judicial notice of it. Because the parties did not have a common intention regarding the term of their contract, art. 1512 C.C.Q. would make it possible to provide the contractual stability that they had failed to establish.
[24] Finally, six months constituted reasonable notice, given that it was the time the parties themselves had chosen, and in particular given that the member pharmacists had the option of joining another banner or operating their business independently.
IV. Issues
[25] This appeal raises two issues. It must first be determined whether the trial judge erred in finding that clause 10 of the contract of affiliation is clear and that it faithfully represents the parties’ common intention of granting the member pharmacists a unilateral option to renew the contract every five years, which Uniprix would be unable to oppose. If that was indeed their intention, it will also be necessary to determine whether the result, namely the possibility of the contract becoming perpetual, is valid in Quebec civil law.
V. Analysis
A. Common Intention of the Parties
(1) Nature and Characterization of the Contract of Affiliation
[26] The parties signed a contract entitled contract of affiliation. This type of contract is not a nominate contract within the meaning of the Code. Rather, it is an onerous, bilateral contract of successive performance in which the parties obligate themselves reciprocally, each to the other (arts. 1380, 1381 and 1383 C.C.Q.). Because the contract was freely negotiated, it can hardly be characterized as a contract of adhesion (art. 1379 C.C.Q.).
[27] In Quebec civil law, it is this classification of the contract — based on the rules that apply to it, the conditions that apply to its formation, its object and how it is performed — that makes it possible to define the nature of the contract and thereby determine how it should be characterized (J.‑L. Baudouin and P.‑G. Jobin, Les obligations (7th ed. 2013), by P.‑G. Jobin and N. Vézina, at Nos. 55‑56, 410 and 413; D. Lluelles and B. Moore, Droit des obligations (2nd ed. 2012), at No. 1562; M. Tancelin, Des obligations en droit mixte du Québec (7th ed. 2009), at No. 83; F. Gendron, L’interprétation des contrats (2nd ed. 2016), at pp. 16 and 18‑19; arts. 1378 to 1384 C.C.Q. and Book Five, Title Two of the C.C.Q.).
[28] With this in mind, it is in our opinion inappropriate to view this characterization of the contract as a purely objective exercise. This [translation] “crucial operation for the judge” can in fact be accomplished only by “seek[ing] to identify the parties’ true intention in this regard” (Baudouin and Jobin, at No. 56; see also Ll