Uniprix inc. Appellant v. Gestion Gosselin et Bérubé inc. and, 2017 SCC 43

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. v. Gestion Gosselin et Bérubé inc., 2017 SCC 43, [2017] 2 S.C.R. 59 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 oflegal characterization, since it is concerned with the intended legal effects of the agreement and the presence or absence of an extinctiveterm 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 onlythe member pharmacists may oppose renewal, only they have the benefit of a certain term that will extinguish their obligations. Theresult is that the contract of affiliation would effectively have a hybrid term: one of five years as applied to the member pharmacists; butone of potential perpetuity, or indeterminacy, as applied to Uniprix. However, a contract’s term must function symmetrically for bothparties 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 memberpharmacists, in which case the public order analysis becomes relevant — or is for an indeterminate term, because there is no clearextinctive term. The correct characterization is the latter one.

This conclusion is consistent with the well-established principle thatcontracts with a purportedly certain extinctive term are to be characterized as indeterminate where the realization of the term isdependent on the decision of only one of the parties. It is also consistent with the law’s reluctance to infer perpetuity in the absence ofthe parties’ express stipulation to that effect. A contract for an indeterminate term may be resiliated on reasonable notice. The reasonableness of the notice of resiliationin any given case is a fact-driven, contextual inquiry.

Considering the fact that Uniprix sent a notice of resiliation on July 26, 2012, themember pharmacists will have benefitted from a reasonable notice by the date of this decision. Therefore, the contract of affiliationshould 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 desloteries vidéo du Québec inc., 2012 QCCA 885; Bombardier Produits récréatifs inc. (BRP) v. Christian Moto Sport inc. (CMS), 2012QCCA 1670; Placements Sergakis inc. v.

Société des loteries vidéo du Québec inc., 2009 QCCS 4976; E. & S. Salsberg inc. v. DylexLtd., (QC CA), [1992] R.J.Q. 2445; Bussières (Véhicules récréatifs Gascon enr.) v. Yamaha Motor Canada Ltd., 2006QCCS 905; Bertrand Équipements inc. v. Kubota Canada ltée, (QC CS), [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., (SCC), [1945] S.C.R. 158; Parkway Pontiac Buick inc. v. General Motors du Canadaltée, 2012 QCCS 618; referred to: Tétreault v.

Gagnon, (SCC), [1962] S.C.R. 766; Montréal, Maine & AtlantiqueCanada 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., (QC CA), [1998] R.J.Q. 47; Droit de la famille — 171197, 2017 QCCA 861; Samen Investments Inc. v. MonitManagement Ltd., 2014 QCCA 826; Éolectric inc. v. Kruger, groupe Énergie, 2015 QCCA 365; Rouge Resto-bar inc. v.

Zoom Médiainc., 2013 QCCA 443; Habitations Gilles Stébenne inc. v. 9166-9929 Québec inc., 2016 QCCS 2953; Larouche v. Néron, 2016QCCA 692; Lamco II s.e.c. v. Québec (Ville), 2016 QCCA 757; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2S.C.R. 633; Immeubles Régime XV inc. v. Indigo Books & Music Inc., 2012 QCCA 239; Cie canadienne d’assurances généralesLombard 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 réadaptationen déficience intellectuelle et en troubles envahissants du développement de Montréal), 2017 QCCA 427; Construction BFC Foundationltée v. Entreprises Pro-Sag inc., 2013 QCCA 1253; Pépin v. Pépin, 2012 QCCA 1661; Ferme Vi-Ber inc. v. Financière agricole duQuébec, 2016 SCC 34, [2016] 1 S.C.R. 1032; Lac-Sergent (Ville) v.

Lapointe, 2012 QCCA 1935; Association des diplômés de l’Écoledes 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, (SCC), [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 QCCA1686; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; Gregory v. Château Drummond inc., 2012QCCA 601; Pépin v. Pépin, 2012 QCCA 1661; Alexis Nihon Cie v. Dupuis, (SCC), [1960] S.C.R. 53; National Bank ofGreece (Canada) v.

Katsikonouris, (SCC), [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, 2016QCCA 167; Tétreault v. Gagnon, (SCC), [1962] S.C.R. 766; Services Matrec inc. v. CFH Sécurité inc., 2014QCCA 221; Neale v. Katz, [1979] C.A. 192; E. & S. Salsberg inc. v. Dylex Ltd., (QC CA), [1992] R.J.Q. 2445;Standard Broadcasting Corp. v. Stewart, (QC CA), [1994] R.J.Q. 1751; BMW Canada inc. v. Automobiles Jalbertinc., 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, 1434to 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 , 7 e éd. par Pierre-Gabriel Jobin et Nathalie Vézina. Cowansville, Que.: Yvon Blais, 2013. Carbonnier, Jean. Droit civil , t. 4, Les obligations , 22 e 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 , 2 e éd. Montréal: Wilson & Lafleur, 2016.

Ghestin, Jacques, Christophe Jamin et Marc Billiau. Les effets du contrat , 3 e 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 , 2 e 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 , 4 e 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 , 6 e éd. Paris: Litec, 1998. Tancelin, Maurice.

Des obligations en droit mixte du Québec , 7 e 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. n o 8478 (QL), 2015 CarswellQue 8578 (WL Can.), affirming a decision of Dugré J., 2013 QCCS 6251 , [2013] AZ-51027703, [2013] J.Q. n o 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 anindeterminate 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 wouldhave 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 otherprovisions 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.

Theirobjective was to give themselves a common identity, pool their purchases and, more generally, provide support for the incidental aspectsof their professional activities. To become a member of this group, one had to be an owner pharmacist and subscribe for one share inUniprix. [6] In 1979, Ms. Gosselin and her spouse opened a pharmacy in Saint-Lambert-de-Lauzon, a town with a present-daypopulation of approximately 6,000. It is that pharmacy that is at issue in this appeal. Originally an independent pharmacy, it became anaffiliate 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, thetwo owner pharmacists — Ms. Gosselin and Mr. Bérubé — subscribed for one share of Uniprix through their general partnership, andthe 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 remainin 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 beenrenewed 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 Uniprixof their intentions regarding the renewal of the contract.

By virtue of the second paragraph of clause 10, the contract was thereforeautomatically 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 lessthan 200 metres from the pharmacy operated by the member pharmacists. In December of that year, unknown to the memberpharmacists, Uniprix approached the owner of the premises in question with an offer to rent them.

A year later, on December 14, 2011, itmet 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 littlemore than six months before the expiration of the third term of its contract with the member pharmacists, it notified them that theircontractual relationship would terminate as of January 28, 2013.

In the months that followed, Uniprix tried once again to convince themember 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 afterJanuary 28, 2013. Having received no reply, they asked the Superior Court to declare that the contract had been renewed untilJanuary 28, 2018.

On January 9, 2013, they obtained a safeguard order that enjoined Uniprix to honour its contractual obligations untilthe 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 inaccordance with the terms in effect as of July 28, 2012, the last day on which it was possible for the member pharmacists to informUniprix 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 beenstipulated for the benefit of the member pharmacist, who could thus [translation] “renew the agreement as [he or she] saw fit every fiveyears” (para. 40 ), and that this was confirmed by an analysis of the contract as a whole.

This

interpretation implied as acorollary 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 thisregard, he observed that they had in 2003 and 2008 accepted the automatic renewal of the contract pursuant to clause 10. It is wellestablished that how the parties to a contract interpret and apply it is particularly helpful for the purpose of determining the substance ofand the intention behind the contract.

[15] The trial judge found that this clause was perfectly valid because it was contrary neither to prohibitive legislation norto public order. He concluded that unilateral renewal clauses are valid in Quebec law even though there may be cases in which they givea 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 beencreated for the sole purpose of serving its members, it was now trying to insinuate itself into their business decisions by prevailing on themember pharmacists to participate in a project that was not to their advantage, threatening to terminate their business relationship with itif 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 agreeingto this mechanism, Uniprix had agreed to be bound for many years and had accepted that the member pharmacists’ silence would bind itfor an additional term of the same duration.

Clause 13 of the contract, which provided for damages should the member pharmaciststerminate 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 notmake the notice given by Uniprix valid. The Court of Appeal had never considered this issue, but some authors had addressed it. In theCode, the legislature limited the term of a lease and the duration of payment of an annuity to 100 years.

The legislature also made itpossible to terminate a contract of employment for an indeterminate term and an unlimited suretyship, as the perpetual nature of theseundertakings seemed to be contrary to public order. However, the limits imposed on certain contracts were not evidence that thelegislature intended to proscribe all contracts that could be perpetual. For the other types of contracts, the autonomy of the will must bereconciled with freedom of the person, but that is not generally a problem where agreements of an economic nature entered into by legalpersons 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 oursociety to the rank of public order. However, no such value was violated by the possibility of the contract becoming perpetual. Uniprixwas not in a vulnerable position, and the contract at issue was a standard form contract that Uniprix had itself drafted.

Moreover, it wasnormal 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 thecompany had been created for their benefit, to promote their interests (para. 71 ). This position does not contradict BMW Canadainc. v. Automobiles Jalbert inc., 2006 QCCA 1068, and 9077-0801 Québec inc. v.

Société des loteries vidéo du Québec inc., 2012 QCCA885, 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 actedin 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 afixed term. Émond J.A. added that that

article creates an independent remedy for which one of the parties must apply, but that was notdone 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 thedate of the Court of Appeal’s judgment. Even if clause 10 had been drafted for the benefit of the member pharmacists, the only possibleconclusion was that that clause made it impossible for Uniprix to know the contract’s termination date and that this turned the contractinto 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 thecontract of affiliation. That

article is often used to fix a repayment date for a loan agreement in which none is specified. The contract ofaffiliation provided for a minimum term of five years to ensure a degree of stability in the relations between the parties, but the renewalmechanism implied that only the member pharmacists could determine when the contract would terminate. As for the second paragraphof 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, notperpetual. [23] In the dissenting judge’s opinion, the fact that the parties had not raised this

article did not mean that it could not beapplied, as it had been discussed at the hearing and the court could take judicial notice of it. Because the parties did not have a commonintention regarding the term of their contract, art. 1512 C.C.Q. would make it possible to provide the contractual stability that they hadfailed to establish. [24] Finally, six months constituted reasonable notice, given that it was the time the parties themselves had chosen, and inparticular 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 thecontract of affiliation is clear and that it faithfully represents the parties’ common intention of granting the member pharmacists aunilateral option to renew the contract every five years, which Uniprix would be unable to oppose. If that was indeed their intention, itwill also be necessary to determine whether the result, namely the possibility of the contract becoming perpetual, is valid in Quebec civillaw. 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 withinthe meaning of the Code. Rather, it is an onerous, bilateral contract of successive performance in which the parties obligate themselvesreciprocally, each to the other (arts. 1380, 1381 and 1383 C.C.Q.).

Because the contract was freely negotiated, it can hardly becharacterized 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 thatapply to its formation, its object and how it is performed — that makes it possible to define the nature of the contract and therebydetermine 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 obligationsen 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 objectiveexercise. This [translation] “crucial operation for the judge” can in fact be accomplished only by “seek[ing] to identify the parties’ trueintention in this regard” (Baudouin and Jobin, at No. 56; see also Lluelles and Moore, at No. 1728; P.

Fréchette, “La qualification descontrats: aspects théoriques” (2010), 51 C. de D. 117, at p. 151; Tétreault v. Gagnon, (SCC), [1962] S.C.R. 766, atp. 770; Montréal, Maine & Atlantique Canada Cie (Montreal, Maine & Atlantic Canada Co.) (MMA), Re, 2014 QCCA 2072, 49 R.P.R.(5th) 210, at para. 34; Station Mont-Tremblant v. Banville-Joncas, 2017 QCCA 939, at para. 63 ; Martin v.

Dupont, 2016 QCCA475, at paras. 19-21 ). [29] To characterize a contract, the court must thus consider not only [translation] “the obligations and other effects of thecontract that [the parties] have stipulated”, but also “in some cases the circumstances of its formation and how they have applied it”(Baudouin and Jobin, at No. 56).

In this respect, although “the judge will never be bound by the parties’ own characterization, and[although] he or she has the power to attribute to the agreement the legal nature that, in his or her view, truly corresponds to its content”(ibid.), the judge nevertheless remains bound by the common intention of the parties as regards the content of their agreement.

In otherwords, [translation] “the judge asks whether the name given to a contract actually corresponds to the effects being sought”, and “it is upto [him or her] to impose on the parties the nature of their agreement that results from the expression of their intention” (Fréchette, atpp. 151 and 157 (emphasis added)). [30] In the case at bar, the contract of affiliation between the parties is an innominate contract. It is true that some of itscharacteristics resemble those of a franchise agreement, another type of innominate contract.

For example, Uniprix provides the memberpharmacists with centralized purchasing and marketing services. But what distinguishes it from such an agreement is the particularlyclose relationship between the parties. In a franchise agreement, the franchisor and franchisees are normally independent entities, each ofwhich acts for its own benefit (Provigo Distribution inc. v. Supermarché A.R.G. inc., (QC CA), [1998] R.J.Q. 47(C.A.)).

In the case at bar, Uniprix was expressly created for the benefit of its members, which have stakes in the business given that theyare all shareholders (clauses 1 and 4 of the contract of affiliation). Uniprix did not itself, as would be true in the case of a franchiseagreement, develop a brand and a business model with the intention of subsequently selling them to pharmacists. Rather, it was createdby a group of owner pharmacists who wished to join together under a common banner. There is no doubt as to the intention of the partiesin this regard.

(2) Term of the Contract of Affiliation and Procedure for Renewing It [31] The nature of the contract having thus been clarified, the parties disagree on its term and on the renewal mechanismset out in clause 10. The member pharmacists submit that the contract of affiliation is to be renewed automatically, as it was in 2003 and2008, unless they give notice to the contrary. In their view, nothing in clause 10 entitles Uniprix to oppose this renewal. [32] Uniprix counters that clause 10 gives it an implied right to oppose the renewal of the contract. In the alternative, itsubmits that the

interpretation proposed by the member pharmacists could have the effect of binding the parties in perpetuity, whichwould be contrary to public order. The adoption of that

interpretation would necessarily, in Uniprix’s view, lead to the conclusion thatthe contract is one for an indeterminate term and that it can therefore be resiliated on reasonable notice. In either case, Uniprix argues,the notice sent to the member pharmacists was sufficient to terminate their contractual relationship as of January 2013. [33] To resolve this disagreement, the words of the contract, and more specifically those of clause 10, which fixes its termand the procedure for renewing it, must be interpreted. It will be necessary to briefly review the principles that guide this exercise inQuebec civil law.

Only once this exercise has been completed will it be possible to establish the term of the contract and the procedurefor renewing it together with the associated legal consequences. (

a) Principles of Contractual

Interpretation [34] The first step in interpreting a contract is to determine whether its words are clear or ambiguous (Droit de la famille— 171197, 2017 QCCA 861, at para. 62 ; Samen Investments Inc. v. Monit Management Ltd., 2014 QCCA 826, at para. 46). The purpose of this step, which some authors refer to as the clear act rule (règle de l’acte clair) (Gendron, at p. 27), is toprevent judges from departing, deliberately or unexpectedly, from a clearly expressed intention of the parties. In short, a judge must deferto a clear contract. This step thus [translation] “‘serves as a bulwark’ against the risk of an

interpretation that deviates from the trueintention of the parties and subverts the scheme of their agreement” (Baudouin and Jobin, at No. 413 (citation omitted); see also Lluellesand Moore, at No. 1570). [35] Although this step is based first and foremost on a reading of the words themselves, it is not necessarily limited tothat in every case, as there may be situations in which a contract’s language is not faithful to the parties’ common intention (Lluelles andMoore, at No. 1574; Droit de la famille — 171197, at para. 62).

Indeed, [translation] “[w]hen considered in the context of theagreement’s other clauses or of the circumstances in which it was concluded, the seemingly clear words of a clause may [sometimes]prove to be ambiguous and to be inconsistent with the scheme of the contract, the true intention of the parties” (Baudouin and Jobin, at

No. 413; see also Lluelles and Moore, at Nos. 1572-74; Tancelin, at No. 316; Gendron, at pp. 27, 31 and 34; Éolectric inc. v. Kruger,groupe Énergie, 2015 QCCA 365, at paras. 18-19 ; Rouge Resto-bar inc. v. Zoom Média inc., 2013 QCCA 443, at paras. 78-79). Likewise, a clause that might be perceived to be ambiguous may be perfectly clear when considered in its context. [36] 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 otherhand, the court identifies an ambiguity, it must resolve the ambiguity by proceeding to the second step of contractual

interpretation(Baudouin and Jobin, at No. 413; Lluelles and Moore, at Nos. 1584-86; Samen Investments, at paras. 46-47). The distinction betweenthese two steps can be difficult to see, but it is fundamental. At the first step, the judge might, for example, consider the context of theconclusion and performance of the contract in order to confirm that its language is clear (see e.g. Habitations Gilles Stébenne inc. v.9166-9929 Québec inc., 2016 QCCS 2953, at paras. 34 and 41-47 ). In principle, however, the judge should not have recourse tothe principles of

interpretation set out in arts. 1425 to 1432 of the Code (Baudouin and Jobin, at No. 413; Lluelles and Moore, atNo. 1571). In this sense, the

interpretation of the contract is more superficial at the first step than at the second (Lluelles and Moore, atNo. 1572). [37] The cardinal principle that guides the second step of the

interpretation exercise is that “[t]he common intention of theparties rather than adherence to the literal meaning of the words shall be sought” (art. 1425 C.C.Q.). In this exercise, it is necessary toconsider intrinsic aspects of the contract, such as the words of the clause at issue and the other clauses, in order to ensure that each ofthem is given a meaningful effect and that each is interpreted in light of the others (arts. 1427 and 1428 C.C.Q.; Baudouin and Jobin, atNo. 417; Lluelles and Moore, at Nos. 1593-94). The

interpretation of a contract also requires consideration of the nature of the contractand of the context extrinsic to it, including the factual circumstances in which it was formed, how the parties have interpreted it, andusage (art. 1426 C.C.Q.; Baudouin and Jobin, at No. 418; Lluelles and Moore, at Nos. 1600, 1603 and 1607). [38] This

interpretation exercise makes it possible to establish the term of the contract at issue and the procedure forrenewing it. In this regard, it must be noted that the two actions of characterizing and interpreting the contract are distinct, although inboth cases one [translation] “seeks to determine the intention of the parties” (Lluelles and Moore, at No. 1727). Characterization, first ofall, serves to determine “what object the parties intended to give to their agreement as a whole”, and its “essential object . . . is the linkingof the contract at issue to a legal category” (ibid., at Nos. 1727 and 1729).

For this purpose, the judge must “determine, sometimes, theoverriding purpose of the agreement and, at other times — most often, in fact — the essential prestation that is central to the agreement”(ibid., at No. 1733 (footnote omitted)). As for

interpretation, its purpose is instead to determine “what meaning the parties seem to haveintended to give to a specific part of the agreement” (ibid., at No. 1727). [39] In other words, a contract is characterized on the basis of its nature, by associating it with a category of nominatecontracts (arts. 1708 to 2643 C.C.Q.) or with a specific class of contracts (arts. 1378 to 1384 C.C.Q.), but the term of the contract is not“characterized”, as it instead depends on the

interpretation of the contract’s words. It is true that an extinctive term that is attached to allthe obligations of a contract has the effect of terminating the contract in its entirety (Lluelles and Moore, at No. 2507; Baudouin andJobin, at No. 559; Tancelin, at No. 443). However, the fact that this term has an effect on the contract as a whole does not mean that thepurpose of interpreting the term is to identify the essential prestation or the purpose of the agreement.

From this perspective, it is wrongto apply to the determination of the term of the contract the principles applicable to the characterization of its nature. Even one of theFrench commentators to whom our colleague refers on this point recognizes that although the term of the contract may be a relevantconsideration in the characterization of certain contracts — where, for example, a category of nominate contracts is defined on the basisof their term — the determination of the contract’s term does not in itself constitute characterization (J.

Azéma, La durée des contratssuccessifs (1969), at Nos. 113-33). [40] In the instant case, the Chief Justice of the Court of Appeal, in dissent, purported to “characterize” the contract ofaffiliation as a contract for an indeterminate term — that is, in relation to its term — without first undertaking this

interpretation exerciseand without identifying the parties’ common intention. With respect, it was not open to her to do so, especially without first establishingthat the trial judge had made a palpable and overriding error. [41] Indeed, contractual

interpretation involves the consideration of a multitude of facts. It is a question of mixed fact andlaw in respect of which courts of appeal may not intervene in the absence of a palpable and overriding error (Larouche v. Néron, 2016QCCA 692, at para. 5 ; Lamco II s.e.c. v. Québec (Ville), 2016 QCCA 757, at para. 2 ; see also Sattva Capital Corp. v.Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 47-50).

The same is true for [translation] “[d]etermining whether acontract is clear or ambiguous”, which “is a discretionary process” in respect of which “a court of appeal must show restraint anddeference” (Immeubles Régime XV inc. v. Indigo Books & Music Inc., 2012 QCCA 239, at paras. 9-10 ; see also Éolectric, atpara. 16; Baudouin and Jobin, at No. 413; Lluelles and Moore, at No. 1579). [42] The characterization of a contract can also be considered to be a question of mixed fact and law in certaincircumstances.

Although certain authors see it as a pure question of law (Gendron, at pp. 16-17; Lluelles and Moore, at No. 1738), thefact remains that the characterization of a contract can depend on evidence of the parties’ common intention as regards its nature and itscontent. When it is necessary to consider evidence of that intention, the Quebec Court of Appeal rightly recognizes that, in such cases,the characterization of the contract is a question of mixed fact and law (MMA, at para. 20; Banville-Joncas, at paras. 63-64; Ciecanadienne d’assurances générales Lombard v.

Promutuel Portneuf-Champlain, société mutuelle d’assurances générales, 2016 QCCA1903, at para. 17 ). [43] On this point, our colleague argues that the “characterization”, not of the nature of the contract but of its term, raisesa question of law in the instant case. With respect, we find that our colleague is mistaken.

First of all, this argument is inconsistent withthe recent case law of the Quebec Court of Appeal, which, moreover, only recently observed that the definition of the term of a contractand of its renewal mechanism is a question in respect of which an appellate court may intervene only where there is a palpable andoverriding error (2320-4035 Québec inc. v. Centre intégré universitaire de santé et de services sociaux duCentre-Sud-de-l’Île-de-Montréal (CIUSSS CSIM) (Centre de réadaptation en déficience intellectuelle et en troubles envahissants dudéveloppement de Montréal), 2017 QCCA 427, at paras. 12-16 ).

Our colleague’s argument is not supported by the academiccommentary to which she refers either. The characterization exercise that some authors treat as a question of law concerns not the term ofthe contract as stipulated in one of its clauses, but the characterization of the nature of the contract as a whole (see e.g. Gendron, at

pp. 16-17; Lluelles and Moore, at Nos. 1729 and 1738). Furthermore, while it can sometimes make sense to consider the characterizationof a contract as a whole to be a question of law where the purpose of that exercise is only to define the specific legal scheme of thecontract without resorting to any evidence, the same cannot be said for the

interpretation of a clause that fixes the contract’s term and theprocedure for renewing it. The result of the

interpretation exercise is to identify the parties’ common intention as regards that specificclause and not to characterize the nature of their contract as a whole. [44] In the case at bar, this Court’s role is in fact limited to deciding whether the trial judge committed a palpable andoverriding error in applying the relevant principles of

interpretation to clause 10 of the contract of affiliation. (

b) Clause 10 of the Contract of Affiliation [45] The trial judge first found that clause 10 of the contract of affiliation was clear. In his view, the parties intended to[translation] “give the member [pharmacist] the right to renew the agreement as [he or she] saw fit every five years” (para. 40). Themajority of the Court of Appeal confirmed this

interpretation, finding that as a result of clause 10 the contract was [translation]“automatically renewed for the same term unless the [member pharmacists] give notice to the contrary” (para. 57). In our view, theirinterpretation of the renewal clause is not tainted by a palpable and overriding error. On the contrary, it is perfectly consistent with theother undertakings stipulated in the contract and with the circumstances in which it was formed. [46] Clause 10 itself is in no way ambiguous.

It specifically provides that the member pharmacists can notify Uniprix oftheir intention to renew or not to renew the contract. But it does not stipulate that Uniprix can give a similar notice to the memberpharmacists. Furthermore, the second paragraph clearly provides that [translation] “[s]hould [the member pharmacists] fail to send theprescribed notice [to Uniprix] . . . the agreement shall 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 (see Construction BFC Foundation ltée v.

EntreprisesPro-Sag inc., 2013 QCCA 1253, at paras. 67 and 91 ). Because the member pharmacists actually sent no notice whatsoever, thesecond paragraph applies and the agreement is renewed for an additional five-year term. No

interpretation of clause 10 can escape theimpact of this second paragraph, which is a determining factor in the analysis of the parties’ common intention. [47] Uniprix nevertheless submits that the contract gives it the power to oppose the renewal. Its

interpretation ofclause 10 is that the member pharmacists may give notice only of their intention to leave the group or to renew the agreement. Uniprixargues that it then has the power to oppose this notice of their intention and to refuse the renewal of the contract of affiliation. Since thereis no provision to this effect, its position is essentially based on the addition of an implied term to the contract. In Uniprix’s view, clauses11, 15.1 and 16 confirm the existence of this implied term: [translation] 11.

TERMINATION: In the event of the resiliation or termination of this contract, [Uniprix] shall not be liable to [the member pharmacist] for any damageswhatsoever. . . . 15. CONSEQUENCES OF TERMINATION OF THE CONTRACT: 15.1 In the event of the termination of this agreement for any reason whatsoever, [the member pharmacist] shall, at its own expense,remove the official sign or any other distinguishing marks of [Uniprix] within ten (10) days following the annulment or termination ofthis contract. . . . . . . 16.

WAIVER OF DAMAGES: In the event of the resiliation or termination of this contract, [Uniprix] shall not be liable to [the member pharmacist] for any damageswhatsoever . . . . [Emphasis added.] [48] These arguments are not persuasive. Uniprix’s proposed reading of clause 10 disregards the absolute presumption ofrenewal provided for in the clause’s second paragraph. When, as in the instant case, the member pharmacists send no notice to Uniprix,renewal is automatic and Uniprix cannot oppose it.

It is true that clauses 11, 15.1 and 16 indicate that there are circumstances in whichUniprix may terminate the contract, as it would otherwise serve no purpose to exempt Uniprix from liability for damages related to thetermination of the contract.

Contrary to Uniprix’s position, however, and as the trial judge noted, those clauses are limited to its option toresiliate the agreement for cause, which is the only option conferred on it by the contract. [49] In this regard, the contract provides that the member pharmacists must [translation] “faithfully honour [it] on pain ofhaving [their] privilege of doing business with [Uniprix] suspended or revoked” (clause 7.1).

Section 9 of the internal regulations, whichform an integral part of the contract of affiliation pursuant to clause 8.1, also provides for this possibility. In any event, the Code givesUniprix the right to resiliate the contract, under certain conditions, should the member pharmacists “[fail] to perform [their] obligationwithout justification” (art. 1590 C.C.Q.; see also arts. 1604 and 1605 C.C.Q.). In short, clauses 11, 15.1 and 16 of the contract apply ifUniprix terminates the contract for cause.

An option not to renew the contract or an option to resiliate it without cause cannot be readinto those clauses, not even implicitly. [50] Uniprix adds that it would have been illogical for the parties to provide for a specific five-year term if their intentionhad been to possibly bind themselves in perpetuity. This argument, too, must fail. The term is totally relevant for the memberpharmacists, as it permits them to choose to renew or not to renew the contract every five years.

It is also of benefit to Uniprix, as itprecludes member pharmacists from resiliating the contract at any other time, which would lay them open to the damages provided for in

clause 13 of the contract. Furthermore, the term makes it possible to update the contract from time to time, given that the contract isrenewed [translation] “in accordance with the terms and conditions then in effect”. It was therefore not illogical for the parties to providethat the conditions of their affiliation would be updated every five years even if their intention was to possibly bind themselves inperpetuity. [51] All of these provisions form an integral part of the agreement between the parties, and they must be read andinterpreted as a whole.

Moreover, the parties to this bilateral, onerous contract, which was entered into by corporate partners in a businesscontext, acknowledged that [translation] “[n]o provision of this agreement is abusive or is excessively or unreasonably detrimental to[Uniprix] or [the member pharmacists]” (clause 21.2). [52] In principle, because clause 10 is not at all ambiguous whether it is read in isolation or in the overall context of thecontract, all that need be done is to apply it. However, in this case, as can be seen from the reasons of the courts below, there is more.

Inthis regard, although it may be erroneous to proceed to interpret the contract without first finding that it is ambiguous (see e.g. Pépin v.Pépin, 2012 QCCA 1661, at para. 91 ), it is not inappropriate to interpret an otherwise clear contract on a subsidiary basis inorder to conclude that that

interpretation confirms the clear meaning of its words. As well, Professor Gendron rightly notes that thecourts often take such an approach (p. 36). In the case at bar, looking beyond the words of the contract, an analysis of the circumstancesin which it was concluded confirms that the parties intended to leave the renewal of the contract to the discretion of the memberpharmacists. [53] First of all, Uniprix was [translation] “created for the benefit of owner pharmacists who have joined together for thepurpose of developing their respective commercial and professional practices” (clause 1).

As counsel for the member pharmacistscorrectly observed at the hearing, Uniprix exists to serve its members. It thus makes sense that Uniprix will serve its members until theythemselves decide to withdraw from the group, and that Uniprix therefore cannot terminate the contract without cause. The context of thecommercial relationship between the parties thus readily supports the meaning that must be attributed to the words of clause 10. [54] Next, as the trial judge and the majority of the Court of Appeal rightly noted, the very conduct of the partiessupports this

interpretation. In the absence of notice from the member pharmacists, the contract was automatically renewed onJanuary 28, 2003 and January 28, 2008. Twice, Uniprix recognized that the silence of the member pharmacists bound the parties for anadditional five-year term. As the Code provides, this

interpretation given by the parties to their contract in the context of its performanceis relevant to the identification of their common intention (art. 1426 C.C.Q.; see also Ferme Vi-Ber inc. v. Financière agricole duQuébec, 2016 SCC 34, [2016] 1 S.C.R. 1032, at paras. 76-82; Lac-Sergent (Ville) v.

Lapointe, 2012 QCCA 1935, at para. 40 ). [55] To interpret the contract of affiliation in such a way as to give Uniprix the power to oppose the renewal desired bythe member pharmacists would therefore be contrary to the words of clause 10, to the general scheme of the contract of affiliation, to thecircumstances in which it was concluded, and to how it has been applied by the parties.

The trial judge committed no palpable andoverriding error in this regard, and the Court of Appeal was right not to intervene. [56] It would, moreover, be just as inconsistent with the common intention of the parties to conclude, as did the ChiefJustice of the Court of Appeal, in dissent, that the contract of affiliation is one for an indeterminate term. It can be seen from her reasonsthat she reached this conclusion solely on the basis that [translation] “the effect of . . . clause [10] is that the [contract of affiliation’s]termination date becomes unknown, at least for Uniprix” (para. 20).

But this argument was not preceded by an

interpretation of thecontract and identification of the parties’ common intention, which, however, are always required when determining a contract’s term.By proceeding as she did, the dissenting judge skipped an important step in the process of interpreting and identifying the modalities ofthe contract, and improperly substituted her own view for the trial judge’s

interpretation of the contract. [57] Furthermore, with all due respect, the fact that the term of Uniprix’s obligations pursuant to the contract of affiliationdepends on the will of the member pharmacists to renew it does not transform the contract into one for an indeterminate term.

Although itis true that the contract provides for a renewal procedure that depends on a decision by only one of the parties, what must be done here isto identify their common intention, not to characterize the term of the contract from the limited perspective of each of the parties.Uniprix’s argument in this regard would, taken to the extreme, mean that the contract is, for Uniprix, for an indeterminate term and, forthe member pharmacists, for a fixed term. These two positions are of course incompatible, hence the importance of the

interpretationexercise in order to identify the parties’ common intention. [58] In this regard, it should be mentioned that a contract is for an indeterminate term if the parties have fixed noextinctive term for their obligations (Lluelles and Moore, at No. 2122). In the case at bar, the parties agreed on a clear term of five yearstogether with an equally clear renewal mechanism that would enable them to pursue their business relationship for fixed five-yearperiods.

As Professors Lluelles and Moore note, such a contract, which [translation] “provides for a fixed term and stipulates that it is tobe renewed automatically”, should not become “ipso facto a contract for an indeterminate term”, which would “fly in the face of logicand the clearly expressed intention of the parties” (No. 2124).

In the words used by Vaillancourt J. of the Superior Court in a caseinvolving a clause similar to the one at issue in the instant case, [translation] “[i]f the parties had intended to be bound by the same termsand conditions for an indeterminate period, they would not have stipulated such a fixed term and so specific a renewal mechanism”(Association des diplômés de l’École des hautes études commerciales de Montréal v.

Aeterna-Vie Cie d’assurance, [1995] R.R.A. 111, atp. 120). [59] Along the same lines, other authors point out that a contract of employment [translation] “for five years, renewableevery five years in perpetuity at the request of the employee alone” is valid and is not a contract for an indeterminate term even thoughthe employer does not know when it will terminate (J. Pineau, D. Burman and S. Gaudet, Théorie des obligations (4th ed. 2001), byJ. Pineau and S. Gaudet, at para. 282; see also Lluelles and Moore, at No. 2149).

If such a renewal mechanism can thus be valid inemployment law, in respect of which the Code directs that contracts must be for either a fixed or an indeterminate term (art. 2086C.C.Q.), that is all the more likely to be the case in a commercial context, for which no similar

article exists. [60] We note, moreover, that on this point Uniprix itself has argued in all the courts that the contract of affiliation is onefor a fixed term. It was only in the alternative, and hypothetically, that Uniprix contended that if the contract were for an indeterminate

term, it could resiliate it on reasonable notice. As for the member pharmacists, they have argued in all the courts that the contract is for afixed term. It would be strange to conclude that the contract of affiliation is for an indeterminate term when neither party’s primaryargument is based on its being so designated. [61] What is more, a conclusion that the contract is one for an indeterminate term would produce results contrary to whatthe parties logically contemplated.

As counsel for Uniprix conceded at the hearing in this Court, if the term of the contract were sodefined, the same definition would necessarily apply to all the parties. It would therefore become possible for both Uniprix and themember pharmacists to terminate it at any time on reasonable notice. No provision of the contract of affiliation in any way suggests thiswas the parties’ common intention, quite the contrary. This would also mean that, even in the first few months of their relationship, itwould have been possible for either the member pharmacists or Uniprix to terminate the contract had they so desired.

This conclusionwould be completely contrary to the intention of the parties, which wished at the very least, in binding themselves for fixed five-yearterms, to give their relationship a certain stability, as the dissenting judge in the Court of Appeal acknowledged (para. 27). Finally, theconclusion in question would be incompatible with the very nature of their relationship, which, given the significant initial investments itrequired, meant that a longer-term perspective was essential. [62] Our colleague counters this with a concept to which none of the parties to the contract of affiliation referred.

Shesuggests that the extinctive term of the contract is a “hybrid” term and thus contrary to art. 1517 C.C.Q. This concept of a “hybrid” term,which would be contrary to Quebec civil law and would lead to the conclusion that the contract is therefore for an indeterminate term,has never been discussed either in the academic commentary or by the courts. We cannot agree with this approach.

The contractualinterpretation exercise that we must undertake in Quebec civil law leads to the same conclusion whether at its first step or at its second.The intention of the parties to the contract of affiliation was that they would be bound for definite, successive five-year periods and thatthe member pharmacists would have full discretion to decide to renew or not to renew the contract.

To interpret clause 10 as stipulatingan indeterminate term for the contract would frustrate this common intention of the parties, which a Quebec judge can do neither in theinterpretation exercise nor in that of characterization. (

c) Effect of

Article 1512 C.C.Q. on the Term of the Contract [63] In the same way, the argument that art. 1512 C.C.Q. should be applied to fix a term for the contract of affiliation ishardly more convincing. Neither party raised it in the courts below. Only the Chief Justice of the Court of Appeal referred to it in herdissenting reasons. Uniprix addressed this argument in its submissions to this Court, although without much conviction. In our view, thisargument, too, must fail. [64]

Article 1512 C.C.Q. reads as follows: 1512. Where the parties have agreed to delay the determination of the term or to leave it to one of them to make suchdetermination and where, after a reasonable time, no term has been determined, the court may, upon the application of one of the parties,fix the term according to the nature of the obligation, the situation of the parties and any appropriate circumstances. The court may also fix the term where a term is required by the nature of the obligation and there is no agreement as tohow it may be determined. [65] This

article provides for three distinct situations in which a court may fix the term of a contract: where the partieshave delayed the determination of the term and no term has been fixed after a reasonable time; where the parties have left it to one ofthem to make such determination and that has not been done after a reasonable time; or where a term is required by the nature of theobligation and there is no agreement as to how it may be determined. [66] In each of these three situations, no term has been fixed in the contract itself.

Article 1512 C.C.Q. applies where thereis no term or where the term is uncertain. It was not enacted for the purpose of thwarting the automatic renewal of a contract whose termis clearly defined. It cannot therefore apply in this case, as the parties have fixed a term of five years for their contract. The fact that theterm is renewable does not alter the fact that it is a fixed term. [67] In any event, art. 1512 C.C.Q. cannot apply in this case, because neither party has made an application under it.Émond J.A., one of the judges of the majority of the Court of Appeal, pointed this out: the

article provides that it is applicable upon theapplication of one of the parties. This is therefore an independent remedy that must be specifically sought if it is to apply. Moreover, theQuebec Court of Appeal recently endorsed this position in a unanimous decision rendered subsequently to its decision in the case at barin which it stated that [translation] “[a] formal application to fix a term for the . . . obligation [must] therefore . . . be made to the court inorder to alert the [affected party] to the fact that his [or her] rights [are] liable to be modified” (Triou v.

Teman, 2016 QCCA 908, atpara. 14 ). [68] In sum, no matter what approach is taken in analyzing the situation, the trial judge made no palpable and overridingerror in concluding that the contract of affiliation is for a fixed term and that, under clause 10, the member pharmacists have a unilateraloption to renew the contract every five years and Uniprix is unable to oppose such a renewal. Because the contract is not for anindeterminate term, Uniprix may not resiliate it on reasonable notice, and art. 1512 C.C.Q. cannot be applied to fix a term for it. B.

Validity of Contracts Whose Effects Are Perpetual in Quebec Civil Law [69] Uniprix’s second argument is that, if the contract does not confer on it either a power to oppose the renewal of thecontract or a power to terminate it without cause, the effects of the contract may therefore be perpetual, as Uniprix may be bound by thecontract for as long as the member pharmacists comply with their obligations and wish to renew it for successive five-year terms. Uniprixsubmits that such perpetual effects are unlawful in Quebec civil law because they are contrary to the Code and to public order.

It addsthat this defect of perpetuity must be cured by overriding the renewal procedure created by the parties and defining the contract as onefor an indeterminate term, in which case Uniprix would be able to terminate the contract without cause on giving reasonable notice. [70] In our opinion, this argument is without merit. As both the Superior Court and the majority of the Court of Appeal

found, nothing in the Code prohibits contracts such as the contract of affiliation from having effects that could be perpetual. Nor is thereany basis for concluding that such contracts are contrary to public order. [71] Our colleague does not address this question, which in our view is central to this case. She instead declines to do soon the basis that a clause whose effects could be perpetual cannot be inferred where there is no express stipulation. We disagree.

Neitherthe Quebec authors or courts nor even the parties in this case have suggested that an express stipulation is required in order to give effectto the term of a contract whose effects could be perpetual.

On the contrary, Professors Lluelles and Moore, for example, note that[translation] “[a]side from the scenario — quite unlikely in practice — of an express stipulation of perpetuity, a perpetual nature can befound to exist in [certain] hypothetical cases”, including where “the contract is one for a fixed term (for example, one year, five years),but subject to automatic renewal at the expiry of each term for an identical period, and it is impossible for either party to oppose therenewal” (No. 2144).

This last situation is analogous to that of the contract of affiliation: a context in which the intention to possibly bindoneself in perpetuity can be inferred from the terms of the contract although there is no express stipulation to that effect. In BMWCanada inc., the Quebec Court of Appeal also held that a perpetual renewal can be implicit and be found to exist on the basis of evidenceof usage (para. 140 ). [72] In Quebec civil law, the fundamental principle of consensualism prevails unless a “particular or solemn form isrequired as a necessary condition for the formation of a contract” (art. 1414 C.C.Q.).

As Professors Baudouin and Jobin point out,[translation] “a contractual obligation arises from the meeting of two minds and does not have to be expressed in a particular formprescribed by law in order for the contract to be valid” (No. 90). The problem raised by the possibility of the contract having perpetualeffect must be resolved not by taking a formalistic approach, but by analyzing the common intention of the parties having regard to theprovisions of the Code and to public order.

Once this common intention has been identified, it does not matter whether the possiblyperpetual effects of the contract result from an express stipulation. In our opinion, the metaphor our colleague employs in this regard (atpara. 167) seems inappropriate. While it is true that the Code requires the observance of formalities, on pain of nullity, for the exchangeof marriage vows (arts. 365 to 377 and 380 C.C.Q.; Rules respecting the solemnization of civil marriages and civil unions, CQLR, c.CCQ, r. 3), it does not do so for an innominate commercial contract of affiliation entered into by sophisticated parties.

(1) Provisions of the C.C.Q. [73] The C.C.Q. does not prohibit a contract like the one at issue here from having effects that could be perpetual. Beforewe turn to an analysis of the C.C.Q.’s provisions, it will be helpful to briefly review the history of contracts that were said to be perpetualunder the Civil Code of Lower Canada (“C.C.L.C.”). (

a) Perpetual Contracts and the C.C.L.C. [74] When the C.C.L.C. was in force, nothing prevented contracting parties from binding themselves in perpetuity. Noprovision of the C.C.L.C. imposed such a prohibition. The commentators confirm that such contracts were perfectly legal at the time(Baudouin and Jobin, at No. 102).

They rely in this regard mainly on the case law of this Court. [75] In one case decided in 1945, the Court upheld the validity of a contract that permitted the use of water power fromthe Lachine Canal for a term of 21 years that was renewable at the sole discretion of the user (Consumers Cordage Co. v. St. GabrielLand & Hydraulic Co., (SCC), [1945] S.C.R. 158, at p. 161). The Court concluded that “under Quebec law the covenantfor perpetual renewal is not contrary to public policy, nor prohibited by law” (p. 166).

It ultimately decided that it should defer to theintention of the contracting parties, stating that “[their] intention . . . must prevail” (p. 167). [76] Nearly 20 years later, this Court upheld the validity of a one-year lease that was to be renewed automatically[translation] “until the said lease is cancelled by written notice from the lessee to the lessor” (Cyclorama de Jérusalem Inc. v.Congrégation du Très Saint Rédempteur, (SCC), [1964] S.C.R. 595, at p. 597).

Interpreting the words of the contract,the Court concluded that the parties had, in stipulating that only the lessee could cancel the lease, excluded the possibility “that the leasecould also be terminated by notice from the lessor” (p. 600).

The Court found that the contract was valid despite its perpetual effects,noting that “the perpetual lease issue was conclusively decided by this Court in Consumers Cordage” (p. 599). [77] In the same vein, the Quebec Court of Appeal echoed those decisions in 1979 when it upheld a one-year residentiallease “[that could] be renewed on my request ([translation] i.e. that of the appellant lessee) on a year to year basis at same rental andconditions etc.” (Neale v. Katz, [1979] C.A. 192, at p. 193).

In that case, Mayrand J.A. wrote, despite the opinion of some Quebec andFrench commentators of the time, that since Consumers Cordage, it [translation] “appears . . . highly doubtful that a lease in perpetuity isvoid

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