August 18, 2020
By: Michael Conway
Can two parties create contractual obligations which bind in perpetuity? If I make a contract with someone else that says that I agree to let them park in my driveway in perpetuity, should the other person be allowed to hold me to that promise 75 years from now? Is it unconscionable to include in a contract that one party is bound to do something forever for all time? The Court of Appeal for Ontario says that this sort of contractual clause is permissible and does not offend public policy.
Perpetual Clauses
A perpetual clause – as its name suggests – binds parties in perpetuity. Unless something occurs to terminate the clause, or make the obligations impossible to meet, the effects and corresponding rights will continue forever.
For example:
Party A agrees that Party B may park in the driveway owned by Party A in perpetuity. This obligation continues to be in force and binding until Party B gives written notice that it no longer wishes to retain the right to park in the driveway.
Alternatively, perpetual obligations may be established through survival clauses in larger contracts.
Notwithstanding the termination of this agreement, Party A’s obligation to allow Party B to park in their driveway will remain in full force and effect.
Validity of Perpetual Clauses
Ontario courts have considered the enforceability of contractual clauses which impose perpetual obligations on parties. The Court of Appeal for Ontario’s current position on the issue appears to be that such clauses are enforceable and there are no public policy reasons or issues of unconscionability which would serve to say otherwise.
The Court of Appeal for Ontario most recently, in 2018, considered the issue in Thunder Bay (City) v. Canadian National Railway Company. In that case, the Town of Fort William entered into an agreement with the Grand Trunk Pacific Railway in 1909 where the railway would build a bridge across a river. The contract also stipulated that the Town would have “the perpetual right to cross the said bridge for street railway, vehicle and foot traffic”.
The Town of Fort William and Grand Trunk Pacific Railway are now respectively the City of Thunder Bay and the Canadian National Railway Company. The agreement operated for over 100 years without issue and the bridge remained free to cross.
In 2013, CN briefly closed the bridge due to a fire and when the bridge was re-opened, they refused to allow cars and vehicles to pass. CN cited safety concerns and prohibitive costs to renovate the bridge. The City of Thunder Bay brought an application for determination to the courts to determine whether their contractual rights under the 1909 agreement required CN to allow vehicle traffic over the bridge.
The issue ultimately went before the Court of Appeal for Ontario which found that the contract clearly and unambiguously created a perpetual obligation. Regardless of how much time had passed since the agreement had been formed, the parties indicated their intent to be bound perpetually through clearly written terms. Meaning had to be given to the inclusion of the term perpetual in the agreement and that meaning was that the obligation would be ongoing until it was specifically terminated. The parties were able and capable of binding each other in perpetuity.
CN agreed to be bound perpetually and so more than a century later they were still required to meet their obligations.
The Supreme Court of Canada dismissed leave to appeal the appellate court’s decision.
The Court of Appeal for Ontario also upheld the principle that parties can create binding obligations in perpetuity in Brown v. Belleville (City). That case involved an agreement formed in 1953 where the City of Belleville would maintain and repair a storm sewer on an individual’s land. The agreement included that this obligation would exist in perpetuity to all future owners of the land. In 1980 the City informed the then owners that they considered themselves no longer bound by the agreement and that they would no longer maintain and repair the sewer. The owners of the property in 2012 brought action seeking specific performance of the agreement requiring the City to repair the sewer.
At trial (Brown v. Belleville (City), 2012 ONSC 2554 (CanLII)), the Court found that the perpetual obligations were enforceable and that the parties were free and able to impose such types of obligations. The City had argued that while the obligations were in fact perpetual, they should not be bound by them as it is against public policy to allow parties to be bound forever. Justice Tranmer rejected this argument and found that there was no public policy which would prevent parties from entering into perpetual obligations.
On appeal, the City challenged the Trial Court’s finding regarding public policy. It argued that it is unconscionable to create never-ending obligations which exist in perpetuity and so the provision of the agreement which created the obligation should be found invalid. The Court of Appeal once again rejected this argument and found that there are no public policy concerns preventing the enforceability of a perpetual obligation clause.
At this point in time, the law in Ontario appears clear that in contractual relations, parties can impose perpetual and never-ending obligations. These clauses can create situations which bind individuals and businesses despite the original contract having been agreed to over a century ago.
What Can Be Done?
Given that individuals and businesses may be bound by agreements formed decades previously, it consequently becomes important to review past agreements which may still be imposing obligations.
If a perpetual obligation is discovered, then you are not without recourse. These obligations are contractual, and contracts are creatures of mutual agreement. Naturally, the obligations can be extinguished and terminated through mutual agreement and a further contract or amendment to the original agreement. In many cases this will be the quickest, easiest, and most effective method to remove a perpetual obligation.
For example:
Party A and Party B agree that Party B’s prior perpetual right to park in Party A’s driveway is hereby terminated. Party B no longer has any right to park in the driveway now or in the future.
While there may be further or alternative recourses when faced with a perpetual obligation, a clearly worded and unambiguous agreement will often serve to resolve the binding obligations.
If you have any concerns with an agreement that may impose perpetual obligations please call Ryder-Burbidge Hurley Foster at 613-546-2147 or contact us for assistance with a specific issue.
This article provides general information and does not constitute legal or other professional advice. It should not be relied on as legal advice or opinion. Please contact Ryder-Burbidge Hurley Foster for detailed legal advice should you have questions of any kind.