This article is written by Pallavi Chandrasekhar, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

Introduction

Canada has a mixed legal system where most of the country follows the common law system designed after that of Britain, but the province of Québec follows the civil law system. Hence, any contractual dispute or enforcement in Canada also follows this dual system and would differ from one system to the other.

Contracts in Canada 

Contracts in Canada are almost exactly like those in the rest of the world where there is a legally binding agreement between two or more parties. If one of the parties does not perform her duties under the contract without a valid reason recognized under the Canadian law, the suffering party can sue for damages in the form of compensation or a court order for performing contractual obligations. The only limits to such contractual freedom are imposed by law or ethics. Any agreement that violates a statutory legislation such as the Canadian Criminal Code would be null and void (for example a contract for hiring someone to assassinate Justin Trudeau would be void). Similarly, under Canadian civil law a contract would be void if it is against the ethics or public order.

Canadian contracts under civil law

In Québec, the Civil Code regulations govern the contracts in Québec. This includes articles 1377 and 1456 of the Québec Civil Code (QCC) which are derived from French civil law. The French civil law is in turn derived from Roman law. This is mostly applicable to contracts in the province of Québec and parts of Ontario but not in other parts of Canada.

Canadian contracts under common law

In provinces other than Québec, such as British Columbia, regulations governing contracts are mostly based on jurisprudence or judge-made law like the contract case laws in India. This is because both Indian and Canadian legal systems are originally based on the British legal system.  However, many provinces have enacted legislations codifying contract rules governing certain agreements such as those related to sales and consumer contracts.

Although Canada’s two legal systems differ in certain aspects, the practical solutions they provide for breach, performance, etc. of contract are remarkably similar even if they are not identical.

Requirements for a valid legal contract in Canada

There are five requirements for a valid legally binding contract in Canada:

1. There must be mutual consent between the parties. This is similar to the definition of contracts given under the Indian Contract Act, 1872 (“the Act”) where there must be free consent between the parties who contract with each other. However, Canadian law differs from the Indian contract law because it requires that this mutual consent be both free and informed. For example: a person not reading her terms and conditions in an insurance agreement before signing would be giving valid consent under Indian contract law. But since she was not informed about the terms of the agreement, it would not be valid under Canadian contract law.
2. The mental ability of the party to keep the promise is taken into consideration. A child, a minor (below 18 or 19 depending on the Province), or a person suffering from a serious mental problem are incapable of contracting in Canada. Similarly, in India under Sec. 11 of the Act deals with the competency to contract. It states that those who have reached majority age, are of sound mind and not disqualified by law to contract are competent to contract.
3. Contract must have an object and purpose. Hereunder Canadian law the object of the contract must be a specific good or service. Indian contract law does not need the object of the contract to be specific but under Sec. 10 of the Act, the object of the contract must be lawful. For example, a contract to sell cocaine (specific in Canada) could possibly be legal (but unlawful under the Controlled Drugs and Substances Act) for the purposes of understanding this difference. However, in India, a contract to sell cocaine would be void ab initio since the object of the contract (selling cocaine) is unlawful (under Narcotics, Drugs and Psychotropic Substances Act, 1985). 
4. It must be for a ‘lawful cause’. In Canada, under civil law the agreements must be for a ‘lawful cause’ and under common law the contract must be for a ‘valuable consideration’.  In India, under the Act, Sec. 23 defines what consideration and objects are considered lawful. It states that any consideration or object of the agreement is unlawful if it is forbidden by law or opposed to public policy or involves a person or property or the Court regards as immoral. For example, a contract for sale of sexual services would be void as it is considered immoral by courts of India. However, Canadian contract law does not prohibit sale of services that a court might deem immoral.
5. Must comply with the law. This is required for certain situations where the parties must have a written contract with each other. In general, this holds true in Canada for agreements that have serious legal consequences for the parties. Likewise, in India for instance property transactions for more than Rs. 100/-require the agreement to be written and registered.

Other similarities and differences between Indian and Canadian contracts

Most Indian and Canadian contracts are similar in the sense they both require two or parties to mutually consent for consideration of performance in terms of the agreement which is signed for a lawful object. India has a uniform system of contract law throughout the country whereas Canada has certain differences which would depend on where the agreement is being signed or where it has to be performed. For instance, if the agreement is signed and must be performed in Québec, then the civil law of contracts would be applied. Whereas, if the agreement is signed and to be performed in Alberta, then common law would apply.

When it comes to breach of contract, both countries have similar laws regarding circumstances where specific performance or damages to be paid. But under civil law in Canada, there are remedies for forced execution of promises under the agreement than under the common law system, as specific performance under common law appears to be an exception to the rule.  Canadian courts also award monetary compensation for breach in the form of damages equal to the loss suffered by the party. However, this loss must be directly related to the breach of promise under Article 1611 of the Q.C.C. Also, as in India, Canadian courts award damages only equal to those that the parties would have benefits that the party would have been reasonably expected to receive when the agreement was entered. 

Canada has class action suits in both contractual and tort law. However, India only recently introduced class action suits under the Companies Act 2013 (Section 245), Consumer Protection Act, (CPA), 2019 (Sec. 35), Competition Act, 2002, (Sec 53N(4)), or through Public Interest Litigation under Articles 32 and 226 of the Indian Constitution. It does not cover tortious breach or contractual breach. This would only be possible by taking the court’s permission (under Order I Rule 8 of the Indian Code of Civil Procedure, 1908) or relevant authority’s permission. 

Comparably, even in Canada the federal and provincial governments have enacted laws to protect citizens against abusive corporate practices. There are rules and laws which prevent fraud, forcible sales, and protect the consumer against dishonest practices. The QCC also has a provision of performing in good faith under article 1375 to ensure that contractual relations are equitable and fair to parties. Recent decisions both in Québec and other provinces are moving towards requirements of good faith in contractual relations.

In India, the requirement of good faith is not expressly mentioned in the Act. However, the Indian Evidence Act, 1872 talks about promissory estoppel made for future promises.  But this is not applicable when the contract between the parties has been concluded or if it is stated but not incorporated in the agreement between the parties.  For the application of promissory estoppel in India alteration of the position by a party to her detriment is the only requirement.  Also, Section 25, 166 and 223 of the Act talks about good faith in certain instances.  Indian Courts have ruled for ‘utmost good faith’ in insurance contracts as well. Nevertheless, the doctrine of good faith has not been specifically codified in India.

Important contracts between India and Canada from their trading relations

India is Canada’s 9th largest export market and 10th largest trading partner overall. The two countries have signed a lot of bilateral agreements and Memoranda of Understanding on commerce including those on nuclear cooperation, double taxation, agriculture, energy, science and technology, rail, education, civil aviation, and education. In 2018, India was the largest source of international students for Canadian universities.

Due to these trading relations, the countries and companies would be signing agreements such as MoU’s, taxation agreements, import and export agreements, contracts on transfer energy and equipment related to such energy transfer, etc. Apart from this, electronic agreements are signed by students applying to Canadian universities such as terms and conditions agreement while applying, electronic banking agreements to pay tuition to the university once accepted, etc.

Conclusion

India and Canada are currently negotiating for greater economic cooperation through the Comprehensive Economic Partnership Agreement (CEPA) and a Foreign Investment Promotion and Protection Agreement (FIPA). Once these are signed between the nations, there would be greater trade exchange and as a result more contracts would be signed between the parties from the two countries. However, due to the COVID-19 pandemic such negotiations have come to a halt.

References

1. https://uk.practicallaw.thomsonreuters.com/w-013-0460?transitionType=Default&c on t extData=(sc.Default)&firstPage=true
2. https://www.thecanadianencyclopedia.ca/en/article/contract-law#:~:text=Contracts% 2 0Under%20Civil%20and%20Common%20Law,-Unlike%20other%20agreements&text= Parties%20are%20free%20to%20contract,legislation%20and%20by%20accepted% 20 ethics.
3. https://www.international.gc.ca/country-pays/india-inde/relations.aspx?lang=eng#a2
4. https://www.business-standard.com/article/economy-policy/explained-what-are-the-laws-that-govern-class-action-suits-in-india-119010801247_1.html
5. https://iclg.com/practice-areas/class-and-group-actions-laws-and-regulations/india
6. https://www.lawctopus.com/academike/promissory-estoppel/#:~:text=The%20doctrin e%2 0of%20promissory%20estoppel%20is%20an%20equitable%20doctrine.&tex t= I n %20India%2C%20however%2C%20as%20the,the%20application%20of%20the%20doctrine.
7. https://www.mondaq.com/india/contracts-and-commercial-law/668930/doctrine-of-g o od-faith-in-contracts#:~:text=The%20doctrine%20of%20good%20faith%20i s%2 0 not%20expressly%20mentioned%20in,to%20act%20in%20good%20faith.&text=Further%2C%20insurance%20contracts%20are%20governed,%2C%20%22utmost%20good%20faith%22.
8. https://indiacorplaw.in/2018/12/doctrine-good-faith-fair-dealing-lacuna-indian-contract-law.html

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