The Alberta Court of Appeal's decision in Styles v Alberta Investment Management Corporation ("Styles"), while dealing primarily with employment law, also provides helpful clarification on the scope of the Supreme Court of Canada's decision in Bhasin v Hrynew, ("Bhasin"). In Bhasin, the Supreme Court recognized honesty and good faith in contract performance as a general organizing principle of contract law.
In Styles, the respondent was terminated without cause. The issue before the trial judge was whether the respondent was entitled to any bonuses under the appellant employer's Long Term Incentive Plan (the "Plan"). Under the provisions of the Plan, bonuses only vested every four years, and a participant under the Plan had to be an active employee of the employer on the Plan's vesting date. The respondent was only an employee of the appellant employer for three years. However, the trial judge found the bonuses to be payable, on the basis of the principles enunciated in Bhasin.
The trial judge interpreted the holding in Bhasin to imply a "common law duty of reasonable exercise of discretionary contractual powers." Accordingly, the trial judge held that it was unfair for the employer to take advantage of the respondent's hard work, and then terminate the respondent where the consequences would mean he was ineligible for the bonuses.
The Alberta Court of Appeal reversed the trial judge's decision, and found the bonuses were not payable on the plain meaning of the Plan's terms, and the fact the respondent had not been employed for four years.
Contrary to the reasoning of the trial judge, the Court held that Bhasin did not establish any general principle of "reasonable exercise of discretion" in contractual performance. The Court also offered the following clarifications on the scope of the principles enunciated in Bhasin:
- the Bhasin principles relate to the performance of the contract, not to the negotiation of the terms of the contract;
- Bhasin did not make it dishonest, bad faith, nor arbitrary to require the other party to perform the contract in accordance with its terms; and
- contractual discretion can be exercised giving priority to the best interests of the party exercising the discretion, and Bhasin does not stand for the proposition that acting in one's self-interest in a commercial contractual context is dishonest, capricious, or arbitrary.
Overall, this decision provides much needed clarification of the scope of the novel contract law principles articulated in Bhasin, and should assist litigants and lower court judges in interpreting just what it means to act honestly and in good faith in contractual performance. Courts are likely to apply the principles of honesty and good faith with particular rigour when interpreting contracts between financial institutions and their customers.
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