On November 13, 2014, the Supreme Court of Canada (SCC) effected
a significant development in Canadian contract law by recognizing
Principle of good faith. There is a
general overarching principle of good faith performance within
contract law that requires each contracting party to have
"appropriate regard" for the other party's legitimate
contractual interests. This principle is currently manifested
in employment, insurance, franchise and other contracts that
require honest and forthright contractual performance – but
the list is not closed.
New Duty of Honesty. The general
principle of good faith is the basis for a new duty of honesty in
contractual performance that requires all contracting parties to
act honestly toward each other in performing the contract.
In its unanimous decision in Bhasin v. Hrynew, 2014 SCC 71, the
SCC decided that the recognition of the general principle of good
faith and the new duty of honesty is an incremental development
that will result in greater certainty, coherence and consistency in
Canadian contract law. Based on the SCC's decision, here are
five important points that should be kept in mind:
What the duty of honesty is and is not.
The duty of honesty is a requirement that a party not lie to or
mislead the other party about one's contractual
performance. It is not a fiduciary duty that would impose a
duty of loyalty to the other contracting party and require one
party to put the other party's interests ahead of its
own. Contracting parties remain free to act in their own
self-interest and pursue whatever advantages may flow to them from
the contract – as long as they do not lie or mislead the
other party in doing so.
Affected contracts and parties. The
requirement for good faith performance is no longer confined to
employment, insurance, franchise and tendering matters. The
SCC's decision will affect every contract governed by the laws
of a Canadian Province or Territory (other than Québec,
which has a similar duty based on its Civil Code), and all
parties to such contracts.
Can't contract out, but can limit scope.
The duty of honesty is a general doctrine applicable to all
contracts, so parties can't totally exclude it or contract out
of it. However, the SCC did allow for a limited ability on
the part of contracting parties to "relax" the scope of
the duty by adjusting the standard or degree of honesty required,
as long as it does not eliminate the core requirement of honest
Don't rely on "Entire Agreement"
clauses. An "Entire Agreement" clause in a
contract which provides that no other term can be implied in the
contract will not get around the duty of honesty because the duty
is a general doctrine of contract law, not an implied term.
Communicate clearly. Make sure that you are
careful in how you communicate with another party to a
contract. While you are free to act in your own self-interest
and don't owe a duty of loyalty to the other party, you must be
careful not to communicate in such a way that you mislead or
undermine the other parties' legitimate interests, whether
intentionally or otherwise.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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