February 2013

A rate increase clause may not be belatedly invoked

By Pascal Comeau Lawyer

In Les entreprises Réal Caron ltée v. Société canadienne de Sel ltée, the parties had entered into a transport contract that contained an automatic renewal clause stipulating a 3.5% rate increase in the renewal period.

The contract ended on January 31, 2010, and the parties continued their business relationship under the automatic renewal clause. However, it was only in November 2010 that the plaintiff decided to invoke the 3.5% rate increase clause and seek the retroactive amounts due as of February 1, 2010. The defendant refused to pay.

The Court of Québec ruled that the 3.5% rate increase only came into effect when the plaintiff chose to apply it: in November 2010 and not retroactive to February 1, 2010.

It is always best to seek legal counsel before waiving or suspending a contract clause. In fact, it is possible to contractually provide for the retroactivity of a clause under certain conditions. Unfortunately for the plaintiff in the above-mentioned case, this type of provision was not in place.