Global companies of brand name products often find that it is not advantageous or economical for them to have their own branches in each country in which their products are sold. Instead, they enter into an agreement with a local company to be the distributor for a particular country or territory.
Ontario does not have a specific statute governing distribution agreements. A dispute arising from one therefore draws on contract law, the Supreme Court’s good faith cases, franchise legislation and the federal Competition Act, all at once. That patchwork catches suppliers and distributors by surprise, usually at termination. This guide maps where the law actually comes from and what to do when the relationship ends badly.
Where the Law Comes From
Five sources decide almost every case, and a distribution agreement dispute rarely fits neatly into just one of them. The contract governs first, and courts enforce clear terms as written.
Where the contract is silent or indefinite, the common law implies a right to reasonable notice of termination. The duty of good faith then constrains how a party exercises its rights.
Separately, the Arthur Wishart Act (Franchise Disclosure), 2000 can apply even though nobody used the word franchise. Finally, the Competition Act governs refusal to supply, exclusivity and pricing conduct.
Knowing which source you are in shapes the whole distribution agreement dispute. The remedies differ dramatically: a notice claim produces damages measured in months of lost margin, while a franchise rescission claim can unwind the relationship entirely.
Termination and Reasonable Notice
Termination triggers most distribution agreement disputes in this province. Where an arrangement runs indefinitely and says nothing useful about ending it, the supplier cannot simply stop shipping.
The Supreme Court addressed the principle in Hillis Oil & Sales Ltd. v. Wynn’s Canada Ltd., [1986] 1 SCR 57, holding that a distributorship agreement with no provision for termination without cause is terminable only on reasonable notice.
What sets the notice period
Courts weigh the length of the relationship, whether the distributorship was exclusive, and how dependent the distributor became on the line. They also look at the capital, inventory, staff and networks the distributor built to service it.
Industry practice matters, and so does the practical question of how long it realistically takes to replace the product line. A distributor that built its business around one supplier is in a very different position from one carrying forty lines.
Those factors decide the value of a distribution agreement dispute more reliably than any other evidence in the case.
How long, in practice
Notice in a distribution agreement dispute is measured in months, not weeks. Awards commonly land around twelve months for a substantial exclusive relationship, though shorter periods are frequent and roughly two years marks the high end.
The statutory floor that protects employees does not apply here. There is no Employment Standards Act minimum, and a supplier cannot buy its way out with a few weeks’ pay.
That said, do not assume employment law is irrelevant. Where a distributor was economically dependent on one supplier, courts have treated the relationship as closer to the dependent contractor category and reasoned by analogy to employment notice.
The distributor must still mitigate. A distributor that makes no attempt to replace the line will see its damages reduced accordingly.
Terminating for cause
A supplier can end the relationship immediately for a sufficiently serious breach. The threshold is high, though: the breach must go to the root of the contract rather than merely irritate.
Getting that call wrong is expensive. A failed termination for cause is the costliest mistake available in a distribution agreement dispute, because it converts a lawful exit into a damages award covering the notice that should have been given.
Good Faith Limits How You Terminate
Having the right to terminate is not the same as being free to mislead about whether you will. Two Supreme Court decisions now govern this ground, and both frequently decide a distribution agreement dispute.
Honest performance
Bhasin v. Hrynew, 2014 SCC 71 established a duty of honest performance that applies to every contract and that parties cannot contract out of. At paragraph 73 the Court put it simply: parties “must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.”
C.M. Callow Inc. v. Zollinger, 2020 SCC 45 shows what that means commercially. The contract allowed termination on ten days’ notice for any reason. The counterparty decided in March to terminate, said nothing until September, accepted free work in the meantime and made comments implying the relationship would continue.
That was a breach despite the unrestricted termination clause. Kasirer J. explained the reach of the duty, at paragraph 91:
whether or not a party has “knowingly misled” its counterparty is a highly fact-specific determination, and can include lies, half-truths, omissions, and even silence, depending on the circumstances
The damages were not ten days of notice. They covered the profits lost on the work that would have followed, along with costs the contractor had committed to.
Silence of that kind now sinks a supplier’s position in a distribution agreement dispute, however unrestricted the termination clause looks.
Exercising discretion
Discretionary powers appear in almost every distribution agreement, and disputes about how they were used are increasingly common. Allocation, territory adjustment, pricing tiers, quota setting and product availability are the usual candidates. Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 governs how those powers may be used.
Discretion must be exercised reasonably and consistently with the purpose for which the parties conferred it. However, the Court was equally clear, at paragraph 75:
Good faith does not eliminate the discretion-exercising party’s power of choice.
The plaintiff Wastech lost. The counterparty’s reallocation cost it profits, but the decision fell within the legitimate range the bargain allowed. Loss to the other side is not, by itself, a breach.
The Franchise Trap Inside a Distribution Agreement Dispute
This is the point most often missed. A distribution arrangement can be a franchise in law without either party intending it.
The Arthur Wishart Act defines a franchise in two branches, and the second one catches distributors. It requires a payment, a grant of distribution rights to goods or services the supplier provides, and location assistance from the supplier or someone it designates.
Location assistance is broader than it sounds. Securing retail outlets, securing accounts, finding sites, or providing display racks and similar devices will all do it.
Notice what is absent. That branch needs no trademark and no operational control, so a plain supply relationship with a bit of help placing product can qualify.
Why it matters so much
If the arrangement was a franchise, the supplier owed disclosure obligations from the outset. Failure to disclose gives the distributor a rescission right lasting two years from the date of the agreement.
Rescission is not damages. The supplier must refund what it received, buy back inventory and equipment at cost, and compensate the distributor for losses in acquiring, setting up and operating the business.
Ontario courts apply a substance-over-label analysis to these arrangements. One agreement expressly titled an exclusivity agreement, and expressly stating that it was not a franchise, was held to be a franchise all the same.
That single question can convert a modest distribution agreement dispute into a rescission claim worth several times more.
Every distribution agreement dispute should therefore begin with the franchise question. A supplier planning to terminate needs the answer before it acts, not afterwards.
Exclusivity, Supply, and the Statutes That Apply
Territory and supply generate the second great cluster of claims. A cut-off turns a commercial disagreement into a distribution agreement dispute with a regulatory dimension.
A supplier that grants exclusivity and then knowingly lets product reach the territory by another route breaches the agreement. That is what happened in Agribrands Purina Canada Inc. v. Kasamekas, 2011 ONCA 460, where the supplier facilitated supply reaching a terminated dealer who then undercut the exclusive distributor.
Read the remedy carefully, though, because it cuts both ways. The Court of Appeal set aside the conspiracy finding and cut compensatory damages sharply, to reflect the fact that the supplier could lawfully have terminated on the contractual notice period. A modest punitive award survived.
Two lessons follow. Good faith does not override express contractual terms, and the notice the supplier was entitled to give usually sets the ceiling on a distribution agreement dispute.
The reviewable practices
Several practices fall under the Competition Act, and it is worth knowing that they are civil rather than criminal. Refusal to deal sits in section 75, price maintenance in section 76, and exclusive dealing, tied selling and market restriction together in section 77.
Criminal conspiracy under section 45 applies only to agreements between competitors. A vertical supplier and distributor relationship falls outside it.
Refusal to deal is the provision a cut-off distributor should know. It requires that the distributor be substantially affected in the whole or part of its business, that the difficulty arise because of insufficient competition among suppliers, that the distributor be willing and able to meet usual trade terms, that the product be in ample supply, and that the refusal adversely affect competition.
That third element defeats most refusal-to-deal claims arising from a distribution agreement dispute. A distributor cut off by one of several available suppliers rarely gets past it.
Private access opened in 2025
Private parties have been able to seek leave on refusal to deal and exclusive dealing for years. What changed on June 20, 2025 was how realistic that route became.
The leave test loosened to being directly and substantially affected in the whole or part of a business, and the Tribunal may now also grant leave in the public interest. Private access widened to further provisions as well.
There is a new monetary remedy too, capped at the value of the benefit the respondent derived from the conduct. For a terminated distributor, that combination makes an application worth considering where it previously was not.
Goods, exclusions and cross-border terms
Sale of goods rules fill gaps the contract leaves. The Sale of Goods Act implies conditions about title, correspondence with description and, in defined circumstances, fitness and merchantable quality.
Those implied terms can be excluded. Section 53 lets the parties negative or vary them by express agreement, by their course of dealing, or by usage.
Exclusion clauses are enforceable when drafted competently. In Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20, the Supreme Court held that such clauses need no magic words and that the parties’ objective intentions govern.
Implied conditions decide surprisingly many distribution agreement disputes about defective or non-conforming product.
Two further items are pure drafting, and Ontario offers little case law on either. What happens to unsold inventory, whether the distributor gets a sell-off period, and whether it may keep using the supplier’s trademarks while that stock clears all depend on what the contract says.
If the agreement is silent, expect the distributor to be left holding the stock and losing the marks on the termination date. Negotiate both points at the start, when nobody is angry.
One cross-border point deserves a line. Where the supplier sits outside Canada, the international sales convention can apply to the individual sale contracts by default, and excluding it takes express drafting.
What to Do Next: When to Call a Lawyer
Anyone facing a distribution agreement dispute should work through the following in order.
If you have just been terminated, resist the urge to negotiate first and think later. Ontario’s basic limitation period runs two years, and a franchise rescission right runs two years from signing, so both can expire during a long conversation.
Pull the paper immediately. The agreement and every amendment matter, but so does the email trail in the months before the notice, because silence and encouragement in that window are actionable after Callow.
Do not sign a release or transition agreement before taking advice. Statutory rights disappear that way, and franchise rights in particular are usually worth more than the exit package on offer.
Then answer the franchise question honestly. Did you pay anything to get in, are you distributing the supplier’s goods, and did the supplier help you secure sites, accounts or display space? All three have to be present, but if they are, the remedy changes entirely.
Quantify your dependence next: what share of revenue the line represented, over how many years, and what you invested to carry it. Those numbers drive the notice period. Start looking for a replacement line at once and document the search, because mitigation reduces recovery.
If you are the supplier planning to exit, decide early and say so. Follow your own termination procedure exactly, including cure periods and written form, and record the commercial reason for any discretionary decision at the time you make it.
Distribution relationships end far more often than they blow up, and the difference is usually preparation. If you are facing a distribution agreement dispute, on either side, contact Cowan for a clear read on your notice obligations, your statutory exposure and your deadlines.
