Navigating the complex world of enterprise and service contracts requires a clear understanding of your rights and obligations. This article delves into the differences between these two types of contracts and highlights your rights in case of termination, relying on the Civil Code of Quebec (C.c.Q) and significant case law.

Enterprise Contract vs. Service Contract

An enterprise contract, governed by article 2098 of the C.c.Q, involves an entrepreneur committing to complete a project for a client. Conversely, a service contract is an agreement where a service provider commits to deliver a specific service. While this distinction may seem straightforward, scenarios such as the development of a web application, which combines intellectual creation and service provision (hosting, maintenance), demonstrate the complexity of this differentiation.

As such, it is necessary to thoroughly analyze the contract in question to determine its nature and the supplementary rules of law established by the parties.

Client's Right to Terminate

Unilateral Termination

 According to article 2125 of the C.c.Q, a client can unilaterally terminate an enterprise or service contract without justification. However, this action must be done in good faith (article 1375 C.c.Q), a standard that, if violated, can lead to legal consequences. For example, a termination without legitimate reason could lead to claims for damages by the other party. It is important to note that the client's right to unilateral termination is not a matter of public order.

As a result, parties can agree to exclude this right with a carefully drafted clause.

Termination as a Sanction

 Termination as a sanction is another form of contract termination, allowing the client to terminate the contract in case of fault by the entrepreneur or service provider, in accordance with articles 1590, 1602, 1604, and 1605 of the C.c.Q. Here, the client must prove the fault (articles 1607, 1611, and 1613 C.c.Q), and cannot invoke both unilateral termination and termination as a sanction at the same time.

To proceed with termination as a sanction, formal notice to the entrepreneur or service provider is necessary, if not required.

Entrepreneur or Service Provider's Right to Terminate

The entrepreneur or service provider has the right to unilaterally terminate an enterprise or service contract under certain conditions (article 2126 C.c.Q). This right must be justified by a serious and timely reason.

Jurisprudence teaches that the entrepreneur or service provider should not terminate the contract for subjective reasons of their own. The determination of the seriousness for unilateral contract termination by an entrepreneur or service provider is a factual question that must be evaluated objectively based on the standard of a prudent and reasonable person, as highlighted in the cases of Re/Max Dynamique inc. v. Michot, 2022 QCCQ 3567 (CanLII), and Distribution Cobra inc. v. 9199-9789 Québec inc., 2020 QCCQ 2520 (CanLII).

Here are examples of cases where courts have validated termination for a serious reason:

• Repeated client interference in the entrepreneur's work;
• Lack of client collaboration;
• Unilateral changes to contractual conditions by the client;
• Loss of mutual trust between the parties;
• Payment default;
• Etc.

Finally, it is important to note that unjustified unilateral termination by the entrepreneur or service provider obligates them to compensate for the damage suffered by the client, as seen in Babalé v. Construction Mikael Proulx inc., 2022 QCCS 3798 (CanLII).

Conclusion

Terminating an enterprise or service contract requires a meticulous understanding of your rights and obligations. This guide provides a legal overview of these aspects, but it is always advisable to consult a lawyer for guidance specific to your case.