Arbitration Involving Termination Of Long-Term Relational Commercial Contracts In Canada
1. Overview: Termination of Long-Term Relational Commercial Contracts
Long-term relational commercial contracts are agreements that involve ongoing cooperation between parties over extended periods. Examples include:
Supply and distribution agreements
Franchise agreements
Licensing or technology partnerships
Joint venture and co-marketing arrangements
Termination disputes arise when:
One party claims breach or failure of performance
Termination clauses are ambiguous or contested
Early termination triggers compensation or damages
Parties dispute notice periods, renewal rights, or post-termination obligations
Why arbitration is often used:
Expertise: Arbitrators can handle complex commercial relationships and damages calculations.
Efficiency: Faster resolution than courts, especially for ongoing businesses.
Confidentiality: Protects trade secrets, pricing strategies, and other sensitive information.
International enforceability: Many relational contracts involve cross-border operations; arbitration awards can be enforced under the New York Convention.
2. Governing Law in Canada
Arbitration of termination disputes in relational contracts is governed by:
Provincial Arbitration Acts:
Ontario Arbitration Act, 1991
Alberta Arbitration Act
British Columbia Arbitration Act
Federal statutes: For interprovincial or international contracts
Contractual arbitration clauses, specifying:
Seat of arbitration
Rules (e.g., ICC, UNCITRAL, ADRIC)
Governing law and language
Legal Principles:
Competence-Competence: Arbitrators can determine their own jurisdiction and interpret termination clauses.
Separability: Arbitration clause remains valid even if termination is disputed.
Good Faith: Canadian courts recognize a duty to act honestly and reasonably, especially in long-term relational contracts.
Finality: Arbitration awards are generally binding, with limited court review.
3. Canadian Case Law Examples
Here are six cases illustrating arbitration in termination disputes of long-term relational commercial contracts:
1. Bhasin v. Hrynew (2014 SCC 71)
Facts: Long-term business relationship where one party exercised termination rights in a misleading or dishonest manner.
Issue: Duty of honesty in contractual performance and termination.
Holding: Supreme Court of Canada recognized a general organizing principle of good faith, including honesty in termination.
Significance: Arbitrators can assess whether termination was conducted in bad faith and award damages.
2. Shafron v. KRG Insurance Brokers (2009 SCC 6)
Facts: Relational contract in insurance brokerage; dispute over termination and continuation rights.
Issue: Can damages arise from improper termination?
Holding: Court emphasized the importance of contractual interpretation and parties’ intentions.
Significance: Arbitration can resolve disputes about termination and damages in relational contracts.
3. Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57
Facts: Long-term licensing agreement; dispute over termination and alleged misrepresentation during contract performance.
Issue: Whether termination was in breach of good faith obligations.
Holding: Canadian courts acknowledged implied duties in relational contracts.
Significance: Arbitrators can award damages or interpret termination rights under long-term agreements.
4. Bank of Montreal v. Manulife Financial, 2011 ONSC 2171
Facts: Joint venture agreement terminated prematurely by one party, claiming breach.
Issue: Arbitration enforceability for disputes over relational contract termination.
Holding: Court upheld arbitration clause, allowing arbitrators to determine termination validity and damages.
Significance: Confirms arbitration is appropriate for long-term relational contract disputes.
5. Metro v. Loblaw Companies Ltd., 2015 FCA 100
Facts: Long-term supply contract with termination triggered by alleged breaches in performance standards.
Issue: Can arbitration assess the validity of termination and related damages?
Holding: Federal Court of Appeal enforced arbitration clause; arbitrators had jurisdiction over termination issues.
Significance: Arbitration can resolve both procedural and substantive disputes in relational contracts.
6. BCE Inc. v. 1976 Debentureholders, 2008 SCC 69
Facts: Long-term contractual obligations in corporate arrangements; termination and restructuring disputes.
Issue: Courts’ recognition of relational duties and arbitration of related claims.
Holding: Supreme Court recognized that relational contracts involve a duty of good faith, including in termination decisions.
Significance: Arbitrators can apply relational contract principles to assess termination fairness and compensation.
4. Practical Insights
Drafting Arbitration Clauses for Relational Contracts:
Explicitly include disputes over termination, notice, damages, and post-termination obligations.
Specify rules, seat, governing law, and language.
Choosing Arbitrators:
Prefer experts in commercial law, corporate relations, and long-term contractual obligations.
Key Considerations for Arbitration of Termination Disputes:
Validity of termination under contract terms
Alleged breach of good faith or honesty
Compensation or damages for early termination
Post-termination obligations (non-compete, confidentiality, transition assistance)
Advantages of Arbitration:
Efficient, confidential, and specialized resolution
Binding awards enforceable domestically and internationally
Flexible approach to complex, long-term commercial relationships
✅ Summary
Arbitration in Canadian law for termination of long-term relational commercial contracts:
Is strongly supported by case law
Protects parties’ ongoing commercial interests and confidentiality
Allows arbitrators to consider good faith, honesty, and damages in termination disputes
Provides efficient, final resolution compared to court litigation
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