CANADA: an interesting case law of the Superior Court of Quebec about notice of termination period.

André BÉGIN | CANADA | 2016-04-15

André BÉGIN

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References: Superior Court of Quebec, 30-11-2015, case no: 500-17-073422-1263495019 Canada Inc. (C2C Uniforms) v. UAP Inc. [1]

 

In 1973, Mr. Vincent Feign, opened a business with his brother under the name Aero Mode Ltd., which manufactured uniforms. After the bankruptcy of Aero Mode Ltd. in the late 1990s, Mr. Feign purchased the company’s assets and created a new company, Aero Mode Etc., of which Mr. Feign was the sole shareholder and president.

In the early 2000s, Aero Mode Etc. commenced making uniforms for various stores and garages owned by the Defendant UAP Inc. No written agreement was concluded. At that time, Mr. Feign worked with a marketing coordinator for UAP Inc., who approved the design, quality and colours of the material used for the uniforms and accepted samples at the different production stages.

 

Aero Mode Inc. was later acquired by another entity, UnifX Uniforms, which continued to supply uniforms to UAP Inc. Mr. Feign was not a director of UnifX Uniforms and did not hold shares in this company. However, he stayed on with the company as a sales representative, and was in charge of the UAP account, always working with the same marketing coordinator for UAP Inc.

After UnifX Uniforms went bankrupt in December 2010, Mr. Feign, with a new associate, created another corporation, namely the Plaintiff 3495019 Canada Inc. (“C2C”). This company purchased UnifX Uniforms’ assets from the bankruptcy trustee. The manufacturing of uniforms for UAP Inc., who was advised of the corporate changeover, continued.

 

In November 2011, shortly after the arrival of a new marketing coordinator when initial marketing coordinator retired, complaints commenced about CTC’s products and services. The complaints were on matters such as incorrect sizes, non-received orders, and inadequate customer service.

On May 31, 2012, UAP Inc. notified the plaintiff that it was terminating their agreement.

 

Analysis

Even though UAP Inc. had grounds for the termination of the business relationship, the court was of the view that the reasons were not sufficient to justify a termination without prior notice. [2] 

In order to determine what would have constituted a reasonable notice, the court had to determine the length of the relationship that had been severed.

UAP Inc. pleaded that the business relationship was of a duration of only one and a half years, namely from December 2010, when C2C took over after the bankruptcy of UnifX. [3] C2C argued that the relationship had lasted more than 15 years, and that the succession of corporations was of no significance, because UAP Inc. was always advised of corporate changes, and the manufacturing and supplying of uniforms was never interrupted and the services never changed, and everything was consistently under the supervision of Mr. Feign. [4]

 

The Court ruled that the determination of the length of the business relationship between the parties was a question of fact and not a question of law, the former being different from the latter which would be restricted to the Plaintiff’s corporate history.  [5]

The Court recalled the principles set out by the Quebec Court of Appeal in the case Richman v. Adidas Sportschuhfabriken [6]. In the Adidas case, in condemning the Canadian affiliate Adidas (Canada) Ltd. to pay damages following the termination of an agency agreement with the Joey Richman Agencies Inc., the Court of Appeal took into account the period prior to the creation of the Canadian affiliate, until which time Joey Richman had personally been acting as the Canadian representative for the German head corporation, in all a period of 29 years, even though the agreement between Adidas’ Canadian affiliate and Joey Richman Agencies Inc. had only been in effect for 10 years.

 

The Court also referred to the case 103360 Canada Ltd. v.  Sklar Peppler Inc. [7]  (which had been cited in the Adidas case). In Sklar Pepper, a predecessor corporation of the defendant had, in 1973, engaged a sales representative in his personal capacity, who seven years later, for tax reasons, incorporated the plaintiff corporation and continued to provide the same services as an employee of his own company. Other than the invoicing, the business relationship remained the same. The Superior Court of Quebec ruled that, at the time of termination of the arrangement in 1984, the relationship had been for a duration of 11 years and determined a notice period of one year. 

In the present case, the Court noted in particular, that UAP Inc. had admitted in its letter of termination that the parties had pursued a business relationship that lasted more than ten years, in stating:

 

‘As you know, UAP has been doing business with you for more than 10 years. In spite of several changes in your company due to foreclosure(s), we have sustained our business with you, Unifix and C2C Uniforms throughout the years. ‘

The judge ruled that, in spite of the succession of corporations, taking into account the non-interruption of services, the unchanged arrangements and the constant presence of Mr. Feigin, no matter what his title, the parties perceived themselves as having been bound by a business relationship that had lasted over ten years. UAP Inc. accordingly had to follow the principles of good faith in terminating the contract.  [8]

In addition to the length of the relationship, the factors taken into account by the court in establishing the notice period included:

 

–      there was no evidence that the complaints received after the arrival of the new marketing coordinator were of more importance or disproportionate to those in the usual course of the clothing business or that the problems with the customer service were irremediable;

 

–      UAP Inc. having been a major client, C2C was overnight deprived of a substantial amount of business income and stuck with an important amount of inventory of uniforms that was unusable. [9]

 

Under the circumstances, the Court determined that 6 months would have constituted a reasonable notice period. [10]

 

Andrè Begin, IDI agency and distribution country expert for Canada

 

 


[1] 2015 QCCS 5548 *Canlii

[2] par 49

[3] par. 52

[4] par. 50

[5] pars. 53, 54

[6] 1997 Canlii 10405 (QCCA)

[7] [1989] R.J.Q. 697

[8] par. 61

[9] par. 68

[10] par. 70

 

 

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