CANADA: Interpretation of an ambiguous renewal clause.

André BÉGIN | CANADA | 2010-11-16


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Superior Court of Quebec, 09-09-2008, case no. 155-17-000042-081(1)

Société de Cogénération de St-Félicien vs. Les Industries Piékouagame Inc.



The defendant, Les Industries Piékouagame Inc. (‘Industries’) operated a small sawmill. By an agreement signed July 4, 1997, Industries undertook to supply wood residue to the Plaintiff, Société de Cogénération de St-Félicien (‘Cogénération’), which required the material to operate its energy producing factory and to fulfil contractual obligations toward important clients, including Hydro-Québec and Abitibi Bowater. The date of the first delivery was May 31, 2001.

Industries advised Cogénération on May 13, 2008 that it was terminating the agreement, effective at the end of the month, following which Cogénération filed a motion for an injunction to order Industries to continue to deliver the wood residue in accordance with the contract. (2)

Judgment of the Superior Court

The dispute was focused on the interpretation of the following clause:

3. Duration of contract

3.1 The term of the present agreement is five (5) years with renewal each year. The contract shall commence on the date of the first delivery of surplus wood, which shall take place during the year 1998. 3.2 The parties shall by addendum agree on the date of the first delivery. 3.3 Each year, save agreement to the contrary or a notice of termination, the present agreement shall be renewed for an additional period of one year, in order that there shall never be a remaining period of less than four (4) years.

Cogénération argued that, failing agreement to the contrary or a notice of termination prior to renewal, the contract was automatically renewed each year for the same period, namely five years, and that as a result of the notice of May 31, 2008, there were another four years remaining on the term of the contract. Hence, the contract would not be terminated until May 31, 2012.

Industries argued that the agreement was for a fixed term of five years from May 31, 2001 to May 31, 2006 and that after this five-year period, in the absence of a notice of termination, the contract would be automatically renewed for a period of one year.

In writing the decision for the Superior Court, Carl Lachance, J.C.S., recalled the following articles in the Civil Code of Quebec dealing with interpretation of contractual clauses:

1425. The common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract.

1426. In interpreting a contract, the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage, are all taken into account.

1427. Each clause of a contract is interpreted in light of the others so that each is given the meaning derived from the contract as a whole.

1428. A clause is given a meaning that gives it some effect rather than one that gives it no effect.

1429. Words susceptible of two meanings shall be given the meaning that best conforms to the subject matter of the contract.

1430. A clause intended to eliminate doubt as to the application of the contract to a specific situation does not restrict the scope of a contract otherwise expressed in general terms.

1431. The clauses of a contract cover only what it appears that the parties intended to include, however general the terms used.

1432. In case of doubt, a contract is interpreted in favour of the person who contracted the obligation and against the person who stipulated it. In all cases, it is interpreted in favour of the adhering party or the consumer.

In the judge’s view, the clause was ambiguous and did not have the clarity as was put forth by Cogénération. The judge then interpreted the clause in accordance with:

  1. the circumstances surrounding the conclusion of the contract;
  2. the discussions having preceded the signature of the contract; and
  3. the common intention of the parties.

Based on the non-contradicted testimony of the defendant’s representative, it was shown that Industries was not at the time pressed to sign a long-term contract in order to get rid of its supply of surplus wood, operating a small sawmill with little surplus. (3)

Based on the evidence, the judge was of the view that the common intention of the parties was to be able to end the contract after five years. The terms of the contract, therefore, could not cover beyond what the parties intended to include, the whole in accordance with Article 1431. Furthermore, it having been proven that Cogénération had drafted the clause, it had to be interpreted in favour of Industries, in accordance with Article 1432. (4)

Hence, the judge was of the view that the clause did not imply that Cogénération would always benefit from a remaining period of four years. The words «save … a notice of termination» (which had been given on May 13, 2008) was an indication that a four year period could apply. Furthermore, it would be illogical to renew a contract every year for a five year term. 5

The motion for the injunction was dismissed. The judge declared the contract to have been terminated as of May 31, 2008 and the notice of termination to be sufficient. The judge added that the notice was moreover sufficient in view of the fact that the deliveries of the supplies had been continued to the date of the final judgment under the interlocutory judgment which had been granted nearly three months prior to the date of the judgment. (6)



Andrè Begin, IDI agency and distribution country expert for Canada.




(1) This decision was confirmed by the Quebec Court of Appeal, 06-08-2009, case no. 200-09-006457-086.

(2) The Superior Court issued a provisional interlocutory judgment on June 18, 2008. (For a review of the requirements to obtain an interlocutory judgment, we invite the reader to consult our summary of the case: Superior Court of Quebec, 22-01-2009, no. 200-17-010520-088 Husqvarna Corporation Inc. v. Service de Jardin et Forêt Enr. and Michael Dufour.

(3) Superior Court judgment, par. nos. 29-30

(4) par. nos. 31-32

(5) par. no. 33

(6) Please see our comment in Footnote 2.

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