Canada: BC Court of Appeal: "Immediate" Termination Rights In Dealer Agreements Must Be Exercised Promptly

In the recent decision of Cellular Baby Cell Phones Accessories Specialist Ltd. v. Fido Solutions Inc., 2017 BCCA 50 the BC Court of Appeal held that the long delay in the exercise of a supplier's contractual right to terminate a dealership agreement rendered the termination improper. The court also held that a dealer's obligation to mitigate its damages upon termination was met, even though the dealer declined to sell the dealership to a third party.

In this case, the supplier terminated the dealership agreement on the basis that the dealer had failed to meet quarterly sales quotas on three occasions in one calendar year. That calendar year was 2010. The dealership agreement provided the franchisor with the right to terminate "immediately" in this circumstance. However, the notice of termination was not delivered until in September, 2011, eight months after the contractual right became effective.

The Court of Appeal held that contractual rights to terminate "immediately" must be exercised within a reasonable period of time. The eight-month delay in exercising the right was fatal to the supplier's right to terminate.

Had the supplier formally noted the dealer in default at the relevant times, and taken greater steps to preserve its contractual rights, the outcome may have been different.

The case also involved the dealer's obligation mitigate. The supplier argued that the dealer failed to mitigate by not accepting an offer to purchase from a third party dealer. The Court of Appeal disagreed. According to the court, because the supplier required the dealer to sign a general release as a condition of approving the sale, the dealer acted reasonably in refusing to sell. Instead, the dealer elected to mitigate its damages by continuing its business as a sub-dealer of another dealer. While this strategy proved unsuccessful to reduce the dealer's damages, it was nevertheless a reasonable mitigation choice and met the dealer's obligation.

Had the supplier not required the dealer to sign a general release as a condition of selling, the result may have been different.

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