The Civil Code of Québec (the “CCQ”) provides that a client can unilaterally terminate a service agreement even where the work or provision of the services is already in progress1. The corollary of this right of unilateral termination is the client’s obligation to compensate the service provider for any loss it may have suffered, such as the costs and expenses it has incurred, the value of the work performed as at the termination date, and in some cases the value of any property supplied to the client2.
Over the years, Quebec courts have come to recognize the client’s right to waive its unilateral termination right under a service agreement3. The waiver however must be clear, express, and consented to unconditionally by the client in full appreciation of all ramifications. A clause containing such a waiver is frequently included in service agreements.
In Services Matrec Inc. v. CFH Sécurité Inc.4, the Court of Appeal had to decide whether such a waiver survived the automatic renewal of the agreement.
In that case, CFH Sécurité Inc. (“CFH”) had retained Services Matrec Inc. (“Matrec”) for the removal of waste from its place of business. The parties had entered into a five-year agreement that was renewable automatically on its expiration date. The agreement also contained an express waiver by CFH of its unilateral termination right and a penalty clause in the event of such termination, calling for payment of the cost of delivering, installing and repossessing the equipment required for performing the agreement and an amount equal to 12 months of waste removal fees.
Subsequent to the automatic renewal of the agreement on its expiration date, CFH sent Matrec a notice of termination. Matrec thereupon claimed from CFH the amount it considered to be due under the penalty clause, alleging that the unilateral termination right was not permitted under the agreement.
In overturning the first instance judgment of the Court of Québec, the Court of Appeal found that the waiver of the unilateral termination right may be subject to renewal.
The Court of Appeal pointed out that the agreement had been automatically renewed upon the same terms and conditions as the original agreement, there having been no discussion or negotiation between the parties regarding any fundamental aspect of it, such as price.
The Court was of the view that by providing for automatic renewal, the parties had agreed to keep the original agreement in effect after its scheduled expiration date upon the same terms and conditions, including the waiver of the unilateral termination right.
This judgment of the Court of Appeal clarifies how a waiver of the unilateral termination right may survive the automatic renewal of an agreement. Careful attention must therefore be paid to the wording of such clauses, in order to ensure that they accurately reflect the intention of the parties.