Contract and Legal

The doctrine of "contra proferentem," a well-established common law principle and is often cited in courts across Canada, dictates that in cases of contractual ambiguity, the clause in question is interpreted against the party who drafted it. This principle is not directly codified, but is referred to in many court judgements in Canada and in various contract law textbooks, emphasizing the need for clear, unambiguous drafting. This ensures that ambiguity is not used to create a benefit for the drafting party and helps to balance the parties.

Liquidated damages clauses, which stipulate an amount payable in the event of a breach, must be a genuine pre-estimate of loss, not a penalty. These clauses are also scrutinized by the courts, and will not be upheld if a court finds that they are for a penalty, as a penalty clause is unenforceable under Canadian Law, and would allow the company to create profit from a breach. The Income Tax Act does not directly govern these clauses, however it can affect the tax liability of a business should they find themselves involved in a payment that was considered a penalty or an unlawful gain, and may find that they cannot claim it as a business expense.

While the concept of “due diligence” is most associated with mergers and acquisitions, this also applies to many contracts, as it requires a party to take all reasonable steps and perform their due diligence to uncover facts and risks before entering an agreement. Misrepresentation is often used as a defence against contracts that were entered into without doing proper due diligence, and if misrepresentation is proven the contract can be deemed unenforceable. There is also a positive obligation to disclose all key information. This standard is derived from both federal and provincial legislation, as well as case law that can be used to create legal precedents.

Cross-border contracts must comply with both Canadian federal law, as well as the law of the other jurisdiction, and also include valid choice of law and jurisdiction clauses to ensure both parties are clear on what law applies, and what location they can go to if they choose to litigate. Clauses must also specifically stipulate that they comply with both federal and provincial private international law principles to be properly and fully enforceable in both jurisdictions. We offer precise clauses that address conflict-of-law issues to avoid any contract disputes down the line.

The implied duty of good faith under Canadian contract law, as set out by the Supreme Court of Canada, requires parties to perform their contractual obligations honestly and reasonably, with each party taking into consideration the best interest of the other party. Although not directly written in a contract, the duty of good faith has become an implied term in all contracts, and dictates that parties are expected to adhere to high standards of honesty and fairness, and to not act in bad faith, or perform any actions that could be considered deceptive or negligent.

The doctrine of "unconscionability" under Canadian common law and in many provincial contracts acts, prevents the use of contracts that are grossly unfair to one of the parties who is in a vulnerable situation or did not properly understand all the contract terms, or that was not given a fair opportunity to negotiate the contract terms. This applies to both written contracts, as well as business practices that may be considered to be oppressive or deceptive, and the courts will take this into consideration when determining the validity of contracts.