Casual Legal: Forever is a mighty long time

By Frances Au Yeung
Reynolds Mirth Richards Farmer LLP
Alberta Municipalities Casual Legal Service Provider

For many years, Canadian courts have agreed that a contract without an end date or termination provisions is ‘prima facie perpetual’ and valid (see Mission Sawmills Ltd. v. Gill Brothers, [1945] S.C.R. 766 and Fort Francis v. Boise Cascade Canada Ltd. [1983] 1 S.C.R.). However, contracts which do not contain a termination clause or provide for a fixed term are only presumed to be perpetual; the presumption is rebuttable and, depending upon the circumstances, may be easily displaced.

The courts may imply that the parties can unilaterally terminate with reasonable notice, with reasonable notice to be determined either through the parties’ own submissions or with reference to commercial practice and what the court might consider reasonable in the circumstances. There is also the potential a court would adopt the ‘modern commercial view’, which considers that ‘parties to a business relationship would usually not intend to be bound in perpetuity’ (see Rapatax (1987) Inc. v. Cantax Corporation Ltd., 1997 ABCA 86).

This is not to say that the courts will always be in favour of implying unilateral termination arrangements with reasonable notice in a contract of indefinite term. In Fort Francis, the Supreme Court of Canada found that Boise Cascade Canada was contractually bound to provide power at a fixed rate to the Town of Fort Francis, even though the contract had been signed in 1905 and power usage and electricity pricing had both significantly increased since then. Due to the legislation surrounding the contract in question and both parties’ irreversible commitment to the Fort Francis project, the Supreme Court of Canada found that neither party could ever be restored to its pre-contractual position, even if termination was allowed. As such, it was more practical to have the contract continue on its current terms in perpetuity. 

In deciding whether to imply unilateral termination on reasonable notice into a perpetual contract, the courts will look at ‘the relationship between the parties and the nature and terms of the contract’ (see Don McNeil and Garden City Enterprises Co. Ltd v. Seymour [1986] B.C.J. No. 2216 (S.C.)).  In Don McNeil, the Supreme Court of British Columbia found that although the contract in question had been originally formed due to ‘prevailing economic conditions’, the parties could not have intended for such arrangement to continue even after circumstances changed. In Rapatax, the Alberta Court of Appeal found that the parties were in a joint venture which had yielded little profit, and that any cooperation between the parties would be extremely difficult if the relationship became ‘poisoned’ because one party was forced to stay.

Contracts which run in perpetuity can be valid. However, the courts may imply unilateral termination or a notice period for termination where they find the nature of the parties’ relationship, or the nature or terms of the contract, to demonstrate a temporary agreement. As such, when drafting or reviewing contracts, make sure they contain either a defined term, or termination provisions. In this day and age, there is no reason for termination provisions to be left unsaid in contracts.

To access Alberta Municipalities Casual Legal Helpline, Alberta Municipalities members can call toll-free to 1-800-661-7673 or send an casuallegal [at] (email) to reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please call 310-MUNI (6864) or send an riskcontrol [at] (email) to speak to Alberta Municipalities Risk Management staff. Any Regular or Associate member of Alberta Municipalities can access the Casual Legal Service.

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.