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Contracts - Perpetuities

. Conseil Scolaire Catholique Franco-Nord v. Nipissing

In Conseil Scolaire Catholique Franco-Nord v. Nipissing (Ont CA, 2021) the Court of Appeal considered where an implied term of perpetuities should be added to a contract:
[1] The Conseil Scolaire Catholique Franco-Nord (the “school board”) is a successor school board to the Nipissing District Roman Catholic Separate School Board. In 1988, the Nipissing District Roman Catholic Separate School Board sold a property known as the St. Jean Baptiste School to the Township of Caldwell (the “Township”). The Municipality of West Nipissing (the “Municipality”) is the successor to the Township. In return for the school, the Township agreed to provide snow and garbage removal services to one of the school board’s other schools located in the Township, the Ste. Marguerite d’Youville School.

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[25] In this case the court must determine whether, in the absence of any stipulation as to the duration of the contract or the parties’ rights of termination, the contract should be treated as either perpetual in nature or as an indefinite term contract into which the court implies a provision of unilateral termination on reasonable notice. The inquiry focuses on the specific parties to the contract in issue. As the Supreme Court specified in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619, at para. 29: “A court, when dealing with terms implied in fact, must be careful not to slide into determining the intentions of reasonable parties” (emphasis in original).

[26] The case law has in the last 150 years identified certain challenges unique to the issue of when parties are silent on issues of duration and termination.

[27] Historically, courts concluded that contracts of indefinite duration were presumptively perpetual and that the burden lay on the party seeking termination to establish an implied right of termination. John McCamus explains as follows:
Initially, the common law took the position that if the parties did not stipulate in the agreement a method of termination, the agreement should be presumed to be perpetual in nature. The presumption could be set aside if the party alleging an entitlement to terminate, perhaps on reasonable notice, was able to demonstrate either from the wording of the agreement or its nature that the presumption should be set aside.
See John McCamus, The Law of Contracts, 3rd ed. (Toronto: Irwin Law, 2020), at pp. 844-845.

[28] The 1875 House of Lords decision in Llanelly Railway & Dock Co. v. London & North Western Railway Co. (1875), L.R. 7 H.L. 550 is typically cited as the starting point for this line of cases. In that case, the Llanelly Railway company allowed trains owned by the London & North Western Railway to travel on its rails. The contract did not stipulate any kind of term. Lord Selborne wrote what was, for a time, the predominant view:
My lords, an agreement de futuro, extending over a tract of time which, on the face of the instrument, is indefinite and unlimited, must (in general) throw upon anyone alleging that it is not perpetual, the burden of proving that allegation, either from the nature of the subject, or from some rule of law applicable thereto.
[29] The presumption that an indefinite contract was intended to be perpetual survived in one form or another into the mid-20th century, appearing for example in Kerwin J.’s reasons in Gill Brothers v. Mission Saw Mills Limited, 1945 CanLII 15 (SCC), [1945] S.C.R. 766, where he wrote: “Speaking generally, a contract indefinite in time is prima facie perpetual”.

[30] Despite the long lifespan of the historical approach, a contrary presumption in favour of termination rights arose in the commercial context. The trend favouring a presumptive right to terminate on reasonable notice appears to have gained traction following the House of Lords decision in Winter Garden Theatre (London) Ltd. v. Millennium Productions Ltd., [1948] A.C. 173, in which Lords Porter and Uthwatt acknowledged that, in a business context, it is more realistic to expect that parties do not intend an indefinite arrangement to be perpetual, and that they would generally expect to be granted a right to terminate on reasonable notice: See Rapatax (1987) Inc. v. Cantax Corporation Ltd., 1997 ABCA 86, 145 D.L.R. (4th) 419, at paras. 15-19, leave to appeal refused [1997] S.C.C.A. No. 307. Even before Winter Garden, however, this court had expressed a view that business contracts “must be interpreted in a business way; and it would be a palpable absurdity to consider such a contract as a perpetual chain on the defendant to oblige it for all time to continue the plaintiff in such work; the only reasonable way of interpreting it is to consider it as terminable on reasonable notice”: Robinson v. Galt Chemical Products Ltd., [1933] O.J. No. 114 (C.A.), at para. 14.

[31] More recently, the law has evolved to eschew all presumptions in favour of a more balanced contextual approach. As McCamus explains at p. 844, there is no longer any kind of presumption going either way:
Modern authorities appear to accept, however, that the matter is to be determined simply on the basis of ordinary principles of interpretation, without the aid of a presumption in favour of perpetuity.



While the trend of the modern cases appears to lie in the direction of implying rights to terminate on reasonable notice, there is no reason, in principle, precluding parties from agreeing to indefinite or perpetual obligations and if, on the proper construction of the agreement, a perpetual obligation is intended, it will be enforced.
[32] The modern reconciliation between conflicting presumptions is best expressed in the Manitoba Court of Appeal decision in Shaw Cablesystems (Manitoba) Ltd. v. Canadian Legion Memorial Housing Foundation (Manitoba) (1997), 1997 CanLII 11521 (MB CA), 143 D.L.R. (4th) 193. In Shaw, a cable company provided cable television to two retirement homes at a promotional price. The contract provided for a unilateral right of termination in favour of the clients, but it was silent on Shaw’s right to terminate. Ultimately, the Manitoba Court of Appeal held that the contract was perpetual, largely because the contract included a price adjustment clause ensuring that Shaw was not required to provide services at an unreasonably low price in the future.

[33] Shaw provides an authoritative expression of what has become the dominant approach. Huband J.A. wrote at p. 196:
There is no lack of reported cases where the courts have implied a term into a contract allowing one of the parties to terminate an agreement that otherwise would be unlimited in time, by giving reasonable notice. There is also a host of cases which go in the other direction … I think the essence of the case is simply that each of the decisions turns on the particular agreement under consideration and the circumstances surrounding it.
[34] In concurring reasons, Helper J.A. agreed at p. 211 that “whether a contract is on the one hand perpetual in duration or on the other hand, terminable by one or both parties, is purely a matter of construction. Arguably, contracts are not subject to a presumption one way or the other”.

[35] Turning to the particular facts in Shaw, Huband J.A. explained at p. 200:
Counsel for the company argues that the parties must have contemplated from the outset that the company would not continue to provide the service on a subsidized basis until the buildings crumble into dust.

This would be a strong argument indeed, if there was no provision for an increase in the monthly fee. But the agreements specifically contemplate the prospect of future rate increases. The agreements foresee what has taken place over the years, namely, that the individual service fee has more than doubled; and so has the fee payable by these customers. The agreements contemplate contingencies far into the future, and contemplate that the service fee payable by these customers would remain subsidized into the future.
[36] This court adopted the approach set out in Shaw in Nordic Gaming, at para. 13, where O’Connor A.C.J.O. stated:
When the term of a contract is not fixed and there is no provision for termination on reasonable notice, a court may treat a contract as either perpetual in nature or as an indefinite term contract into which the court implies a provision of unilateral termination on reasonable notice … In determining this issue, courts typically look to the specific terms of the contract as well as to the relationship between the parties and the surrounding circumstances. As the majority of the court explained in Shaw at para. 15, “the essence of the cases is simply that each of the decisions turns on the particular agreement under consideration and the circumstances surrounding it.” [Emphasis added. Citations omitted.]

See also Brown v. Belleville (City), 2013 ONCA 148, 359 D.L.R. (4th) 658, at para. 64.
[37] In considering the nature of the parties’ agreement, the case law places a particular emphasis on the relationship created by the contract. As this court recognized in Nordic Gaming, at para. 14, certain types of contracts naturally give rise to an implied right to terminate upon reasonable notice. Employment relationships, partnerships, and personal service contracts, all of which depend upon a level of trust and continuous performance, engage specific concerns about the extent to which courts should enforce performance when a relationship has collapsed. The implied right to terminate a contract for personal services is in a sense the corollary to the court’s general unwillingness to order specific performance of such contracts.

[38] In Nordic Gaming, for example, the trust relationship was inherent in the nature of the contract, as O’Connor A.C.J.O explained at para. 24:
The agreement contemplates that the two parties would work together with 139 operating a food and beverage service and maintaining the premises, and Nordic running the [off-track betting] operation in the premises. Thus, they would have to work together closely and co-operation would be important. While the relationship created by the agreement was not one of employment, partnership or, strictly speaking, for personal services – which are the types of contracts into which courts routinely imply terms of termination on reasonable notice – it did involve many of the same components, such as the need for trust, confidence and satisfaction.
[39] However, the simple characterization of a contract as a “personal service contract” does not automatically give rise to an implied right of termination on reasonable notice; the court is still required to examine the agreement in its entire context. Mesbur J. examined this question in Credit Security Insurance Agency Inc. v. CIBC Mortgages Inc. (2006), 2006 CanLII 12966 (ON SC), 268 D.L.R. (4th) 725, aff’d 2007 ONCA 287. In that case, Credit Security agreed to provide pooled mortgage insurance to customers of FirstLine Trust, later acquired by CIBC Mortgages. The contract stipulated that the agreement could only be terminated by mutual agreement or for fundamental breach. CIBC decided for business reasons that it wished to terminate the agreement and gave Credit Security three months’ notice of termination. Credit Security commenced an action to enforce the agreement.

[40] Mesbur J. found that the contract between Credit Security and CIBC was a commercial contract with only some of the hallmarks of “trust and confidence” that would normally give rise to an implied right to terminate on reasonable notice. She said, at para. 33: “While there is no doubt that there is a ‘provision of services’ element to the contract, it is also, and primarily, a contract for the provision of a product to CIBC Mortgages, a product in which … Credit Security was to retain a long-term proprietary interest for which it was to be paid”. She continued, at para. 36:
As I have said, it is true that there are elements of provision of services within the contract. What the court must look at, however, is whether, from the inception of the contract there should be an implied right to terminate. One does not look at the circumstances at the time that one of the parties wishes to terminate to see if it is then commercially reasonable. One must look at the time of the formation of the contract to make that determination.
[41] On appeal, this court held Mesbur J.’s analysis to be “entirely sound in every respect on all issues”: at para. 1.

[42] As Credit Security makes clear, the existence of a “provision of services element” in a contractual relationship does not automatically relieve the court of going through the exercise of determining whether, at the moment of contract formation and in all the circumstances, a term could be implied into the parties’ agreement providing for termination on reasonable notice. The existence of a “special relationship” or “trust relationship” is a strong and often decisive factor, but it is not definitive. This aligns with the Manitoba Court of Appeal’s reasoning in Shaw, where the company’s ongoing obligation to provide cable services was found to be perpetual, despite what could be described as a “service element”.

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CONCLUSION

[72] In summary, in determining whether to treat a contract as either perpetual in nature or as an indefinite term contract into which the court implies a provision of unilateral termination on reasonable notice, the court looks to the specific terms of the contract as well as to the relationship between the parties and the surrounding circumstances.

[73] The contract in this case does not contain any clear indication as to whether it was intended to be perpetual. The word perpetual does not appear in the contract, nor does the contract provide for unilateral termination.

[74] As I have explained, the application judge erred in his analysis of the surrounding circumstances and in his characterization of the contract as a personal services contract into which courts routinely imply a right of termination upon reasonable notice. Viewed properly, the relationship between the parties and the surrounding circumstances suggest that no such right of termination was intended, nor should one be implied. As noted above, the contracting parties are two public institutions offering services to the same community. The arrangement reached was mutually beneficial. This was a relatively small township seeking to acquire a property it needed but was unable to pay for. In exchange for the acquisition of this capital asset, it made a commitment that was neither onerous nor unusual for a municipality. It already had the perpetual obligation to carry out snow and garbage removal throughout its boundaries. The Ste. Marguerite d’Youville School, a school located in and serving its township, would simply be treated as the Municipality might treat municipal arenas, libraries, parks and the like. It would clear snow from the parking lot and remove garbage for as long as the facility continued to operate.

[75] The school board, for its part, disposed of a capital asset and, although it did not receive payment for it, nonetheless benefitted in that the arrangement reduced its ongoing operating costs for the Ste. Marguerite d’Youville School. It is not possible to determine at this point and on this record what a sale of the property at fair market value might have generated in 1988 or what income might have been derived from investing the proceeds of sale, nor is that information necessary to understand and properly construe the bargain struck between the parties at the time. In exchange for an enduring capital asset, the school board received an enduring benefit, one that would last for as long as the school board continued to operate the Ste. Marguerite d’Youville School.

[76] Both parties also saw the advantage, as public bodies, of the St. Jean Baptiste School continuing to benefit the community served by them.

[77] Therefore, considering the terms of the agreement, the relationship of the parties and the surrounding circumstances at the time the contract was entered into, I conclude that the obligation of the municipality to provide snow and garbage removal services to the Ste. Marguerite d’Youville School is perpetual in nature.



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