Brampton runs on things moving. Trailers back into bays along Highway 407 and Steeles Avenue around the clock, carrying goods made in one place and destined to be sold in another. Behind each of those shipments there is, or should be, an agreement covering who pays for what, who carries the risk, and what happens when something goes wrong.
Very often, what actually exists is a stack of purchase orders, a price list emailed two years ago, and a set of supplier terms in small print on the back of an invoice. That can work fine while business is good. It stops working when a key supplier raises prices without warning, when a distributor quietly takes on a competing brand, or when a container of defective parts has already been sold on to your largest customer.
This is general information about Ontario commercial law and is not legal advice for your contract. Deals vary widely, and an industry’s particular practices or regulations may change the analysis.
Supply or Distribution: Know Which You Have
The two terms are related but describe different things.
A supply agreement is about getting goods or inputs to a business. A food processor buying packaging, or a manufacturer buying components, wants reliable volume, consistent quality, and predictable cost. The buyer usually uses the product in its own operations.
A distribution agreement is about reselling. The distributor generally buys from the supplier and sells on to retailers or end customers, taking on inventory risk and earning a margin. It differs from a sales agent, who generally arranges sales on the supplier’s behalf for a commission, without buying the goods. The difference matters, since an agent can bind its principal and may owe fiduciary duties, and a distributor generally does not. A clause saying the distributor is “not our agent” is helpful, but only if the conduct of the parties fits.
The Default Rules If Your Contract Is Silent
Ontario’s Sale of Goods Act fills gaps in contracts for the sale of goods. Under it, there are implied conditions that the seller has the right to sell, that goods sold by description will match the description, and, in certain situations, that the goods will be reasonably fit for the buyer’s purpose and of merchantable quality.
Those protections are valuable to a buyer. However, section 53 allows them to be negated or varied by express agreement, by course of dealing, or by trade usage. So when a seller’s standard terms say that “all implied warranties and conditions are excluded,” that language is aimed directly at these rights. In commercial contracts between businesses, it will often be enforced if clearly worded. Sellers should check that their exclusions say what they mean, and buyers should actually read them.
The Act also provides rules on when risk passes, when property transfers, and what remedies each side has. Those rules are rarely what the parties would have chosen had they thought about it. Your own wording is generally better.
Commitments: Who Must Buy and Who Must Supply
The commercial heart of a supply deal lies in what each party is actually obliged to do. There is a big difference between these three structures:
- A framework only: the agreement sets terms, but nobody has to place or accept any order
- A forecast: the buyer shares estimates, which may or may not be binding, and the seller plans around them
- A firm commitment: a minimum purchase, or a take-or-pay obligation, with a stated consequence for shortfalls
A supplier that invests in tooling or a production line for one customer will usually want firm commitments, and a buyer who cannot predict demand will resist them. Whatever the outcome, say plainly which one you have. A forecast labelled “estimated annual volume” can create real arguments if the buyer later orders a fraction of that number.
Buyers who depend heavily on one supplier may want the reverse commitment: an allocation in times of shortage, advance notice of discontinuance, and a last-time buy right. If you cannot replace the product quickly, the contract needs to give you time.
Price changes and currency
A fixed price works until it does not. Multi-year contracts should have a mechanism for adjustment, such as an annual review, a published index, or a pass-through for raw materials, fuel, and duties. Decide who bears each cost, how much notice is required, and whether the other party can walk away if an increase crosses a certain level.
Tariffs and border measures deserve their own clause in any cross-border deal. A clause that says “price includes all duties,” written without much thought, could put an unexpected tariff entirely on one party. The currency of payment and any exchange rate adjustment should also be stated, as should the party responsible for customs clearance.
Payment terms should state the due date and any interest on late payments. If the rate is expressed for a period of less than a year, such as “2 per cent per month,” the Interest Act requires the equivalent annual rate to be stated, or recovery may be limited to 5 per cent a year.
Delivery, Risk, and Inspection
Disputes in this area are often about a few days and a few pallets. A sound agreement covers:
- The delivery point, ideally using a stated Incoterms rule, with the version year named
- When title passes and when risk passes, which need not be the same moment
- Lead times, and what happens if delivery is late, such as credits, expedited freight, or a right to cancel
- An inspection period, the process for rejecting goods, and the deadline for doing so
- Who pays for return shipping and disposal
If a truck arrives at your Brampton warehouse at 6 a.m. and staff sign for it without inspection, you may later have to prove the damage was already there. Train staff to note damage on the bill of lading, and set an inspection window in the contract that is workable for your actual operation.
Suppliers selling on credit should think about security. Without it, a buyer’s insolvency can leave the seller as an unsecured creditor even when its own goods are sitting on the buyer’s floor. A retention of title clause is treated in substance as a security interest under the Personal Property Security Act, and needs to be perfected by registration to hold up against other creditors. Priority for a purchase-money security interest in inventory also depends on registering in time and giving prior notice to existing secured lenders, so the steps should be taken before shipment.
Quality, Recalls, and Liability
Specifications should be objective wherever possible and attached to the agreement. Add a process for changes: a supplier who quietly switches a component may technically be within a vague description, while your own customers are complaining.
Warranties should state how long they last, what the buyer can claim, and whether replacement or credit is the sole remedy. Any limit on liability needs equally careful thought, because it interacts with the warranty clause. A cap set at the price of the shipment may be reasonable for a commodity product, but may prove inadequate where a defective part shuts down a customer’s production line.
Consumer goods bring another layer. The Canada Consumer Product Safety Act imposes obligations on manufacturers, importers, and sellers, including reporting incidents to Health Canada within tight time limits, and specific rules apply to food, drugs, and vehicles. The agreement should say who manages a recall, who pays for it, how traceability records will be kept, and what insurance each party must carry.
Exclusivity, Competition Law, and Franchise Risk
Exclusivity is often the most heavily negotiated term in a distribution deal, and the word can mean several different things. It may mean that the supplier will not appoint another distributor in the territory. It may also mean the supplier itself will not sell there, which is a separate promise usually called “sole” as opposed to “exclusive.” Or it could mean that the distributor will not carry competing products. Spell out which of these you intend.
A supplier granting exclusivity should insist on something back, usually minimum sales targets and a way out or loss of exclusivity if the targets are missed. Otherwise, a poor performer could tie up all of Peel Region for years. Define the territory carefully, deal with online sales expressly, and handle national accounts, which often cross any line drawn on a map.
Where competition law steps in
Exclusivity and resale restrictions are lawful in many cases, but they are not unlimited. The Competition Act can apply in three ways that small businesses should know about.
Section 77 allows the Competition Tribunal to review exclusive dealing, tied selling, and market restriction. It targets conduct by a major supplier or conduct that is widespread in a market, where the practice has or is likely to have a substantial effect on competition. An ordinary small Brampton distributor with a modest market share is unlikely to be the target, but large players should get advice.
Section 76 addresses price maintenance. A supplier that influences a reseller’s prices upward, or refuses to supply a discounter, may face a Tribunal order if the conduct adversely affects competition. You can suggest resale prices, as long as it is made clear that the reseller has no obligation to follow them and will not be treated worse for declining to do so.
Section 45 is the most serious. An agreement between competitors to fix prices or divide up customers or markets is a criminal offence. This can arise in a distribution setting where the supplier also sells directly, making it a competitor of its own distributor. In those dual-distribution setups, the parties should be careful about territorial or customer carve-outs, and should keep competitive information exchanges to what the relationship genuinely requires.
Could your distribution deal be a franchise?
This risk is frequently overlooked. Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 defines “franchise” by substance, and the label on the contract does not control it. A distribution arrangement can fall within the definition where the distributor makes a required payment and receives the right to sell goods substantially associated with the supplier’s trademark, combined with significant control or assistance over the operation, or where a supplier provides locations or accounts in certain ways.
The consequences can be severe. A franchisor that does not deliver a compliant disclosure document may face rescission rights and damages. Suppliers who charge an upfront “distribution fee,” impose detailed operating rules, or use their branding heavily should have a lawyer check the definition and its exemptions. Our franchise law page has more on how these relationships are regulated.
Cross-Border Deals and Governing Law
If your counterparty is in another country, you cannot assume Ontario’s domestic sale of goods rules apply, even with an Ontario governing law clause. The United Nations Convention on Contracts for the International Sale of Goods is part of Ontario law through the International Sale of Goods Act, and can apply automatically to business contracts between parties in different contracting states, including Canada and the United States. Choosing “the laws of Ontario” may not by itself exclude it, since the Convention is part of those laws. If you want to opt out, say so expressly.
Name your forum as well: which court or arbitration panel, and where. Enforcing a judgment or arbitral award abroad has its own challenges, and these should be considered when drafting.
Ending the Relationship
Many long-standing supply relationships have no fixed term at all, and this is where parties can get caught. Without a stated termination right, an Ontario court might imply a requirement of reasonable notice for ending an indefinite commercial relationship, based on factors including its length and the time needed to adjust. An abrupt cut-off can therefore lead to a damages claim even when no written contract exists.
A well-drafted clause will state the term, the renewal process, how much notice is required, what counts as a material breach, and what cure period applies. It should also provide for the wind-down: remaining inventory, open orders, customer transitions, use of trademarks, and the return of confidential information. Distributors that invested heavily in building a market will care particularly about buyback rights for stock on hand.
Remember also that the general limitation period may be varied by agreement between businesses, and that your contract may contain a shortened one. Check before assuming you have two years to bring a claim.
Putting It On Paper
If you already have a working relationship, start with a simple exercise. Gather the emails, price lists, and terms you actually use, and identify which side’s terms would apply today if something went wrong. Competing terms on purchase orders and invoices can produce a real dispute over which set governs. From there, a lawyer can prepare or review a supply or distribution contract suited to the actual relationship.
Businesses already in a dispute over a shipment or termination should preserve their documents and avoid informal admissions in email. Sawan Law House LLP can review the paper trail with you and discuss options.