TERMINATION OF AGREEMENT DOES NOT REQUIRE CONSENT OF BOTH PARTIES

Contech Enterprises Ltd. v. Vegherb, LLC 2015 BCCA 99 (CanLII)

The court held on appeal that the consent of both parties was not required to terminate an agreement when the events of termination clause clearly applied to the circumstances, and the agreement was terminated in accordance with the provisions of the termination clause.

Drafters should ensure that both the events of termination (what triggers a termination) and the effects of termination (what happens upon termination) are clearly expressed in the agreement.

In Contech Enterprises Ltd. v. Vegherb, LLC 2015 BCCA 99 (CanLII), the trial judge rejected the appellant’s submission that the license had been validly terminated (and all interests in the IP presumably reverted to the appellant), on the basis that there was “no evidence” the respondent had agreed to the appellant’s position that the agreement had terminated. The appellant challenged this reasoning on appeal, arguing that no such agreement or acquiescence was required by the terms of the license agreement or any other agreement to which the respondent and the appellant were parties. The Court of Appeal agreed that whether or not the respondent agreed to the termination of the license was irrelevant to whether it had terminated according to its terms. The agreement provided: “The term of this Agreement commences on the date hereof and will terminate on the earlier of: the Licensee fulfilling its obligations in favour of the Licensor with respect to the payments evidenced by the Promissory note dated of even date herewith and delivered at Closing pursuant to the APA (the “Payments”); or the Licensee defaulting on its obligations in favour of the Licensor to make the Payments”. Because the agreement was in substance a security agreement, the priorities of the creditors were determined by the application of the PPSA and not determined by the license agreement, so the licensor could not reclaim the IP by simply terminating the agreement. Because it was a PMSI under the PPSA however, the licensor had priority as a secured creditor.

To read the full case on CanLII, click here.