Contract formation

Good faith in negotiating

Is there an obligation to use good faith when negotiating a contract?

With the exception of the Province of Quebec, commercial agreements between businesses in Canada, such as supply contracts for the sale of goods and services, are governed by the common law and provincial, territorial and federal statutes. In Quebec, which is a civil law jurisdiction, the regulation of the sale of goods and commercial contracts is governed primarily by the Civil Code of Quebec. Unless expressly stated otherwise, the discussion below is focused on the common law provinces and commercial contracts for the supply of goods and services; different rules may be applicable to other forms of commercial contracts such as, for example, franchise agreements, mortgages, loans, agreements for the purchase and sale of land, construction contracts, among others. To the extent that readers are engaged, or are planning to engage, in business in or to contract with parties located in Quebec, specific advice from a qualified lawyer in Quebec should be obtained.

Under the common law, absent an express agreement to negotiate in good faith between the parties, there is no obligation for the parties to negotiate in good faith. However, when it comes to contractual performance, the Supreme Court of Canada has affirmed an organising principle of good faith that requires a duty of honesty in the performance of contractual obligations (Bhasin v Hrynew, 2014 SCC 71).

‘Battle of the forms’ disputes

How are ‘battle of the forms’ disputes resolved in your jurisdiction?

A ‘battle of the forms’ typically arises where a buyer and seller have exchanged terms that conflict but they nonetheless engage in performance of the contract without having formally executed a contract. Canadian common law on this issue is inconsistently applied and is based on the facts and circumstances of the case. Approaches that have been taken by the courts include the ‘last shot’ approach (application of the most recent set of terms sent and not objected to); the ‘first blow’ approach (the first set of terms accepted); the ‘shots fired on all sides’ approach (construing both parties’ terms together); and the application of traditional rules of contracting looking to where offer and acceptance occurred.

Language requirements

Is there a legal requirement to draft the contract in the local language?

Most contracts in Canada are concluded in English. With the exception of Quebec, there is no legal requirement to draft a contract in any specific language. In Quebec, which is a French-speaking jurisdiction, contracts that are pre-determined by one party or which contain standard clauses, as well as certain specific types of documents such as order forms, invoices, statements and receipts, must be drawn up in the French language pursuant to the Charter of the French language, unless the parties expressly agree to have the contract and all associated documents drafted in English. In practice, parties to a negotiated contract in Quebec intending to contract in English will typically also expressly agree to the documents being drafted in English.

Signatures and other execution formalities

In what circumstances are signatures or any other formalities required to execute commercial contracts in your jurisdiction? Is it possible to agree a B2B contract online (eg, using a click-to-accept process)? Does the law recognise the validity of electronic and digital contract signatures? If so, how are they treated in comparison to wet-ink signatures?

Yes. In Canada, provincial e-commerce legislation (eg, the Ontario Electronic Commerce Act 2000) supplements the common law and makes it acceptable for commercial contracts between businesses to be entered into electronically at the will of the parties and such contracts will be enforced so long as there has been clear offer and acceptance. Click-to-accept contracts have been held to be enforceable so long as they can be clearly accessed, read and accepted. In addition, a legal requirement that a document be signed is satisfied by an electronic signature, so long as it meets prescribed requirements (eg, reliability, technological standards).

While this framework is not new for supply contracts for the sale of goods and services and has not changed as a result of the covid-19 pandemic and the move to remote working arrangements, electronic signatures and e-signing platforms are commonplace in Canada, and covid-19 has likely contributed to increased use in practice.