The appellant general contractor sought to enforce a subcontract clause that imposed a ten-percent forfeiture of the subcontract price upon the respondent subcontractor's bankruptcy.
The majority held that the anti-deprivation rule, a longstanding principle of Canadian common law, renders void any contractual provision that is triggered by insolvency and removes value from the insolvent's estate that would otherwise have been available to creditors.
Applying an effects-based test, the majority found that clause VII Q(d) constituted a direct violation of the anti-deprivation rule and could not be rescued by the law of set-off.
Côté J. dissented, concluding that the anti-deprivation rule should incorporate a bona fide commercial purpose element derived from its common law origins, and that the clause at issue served such a purpose.
