Canada: Supreme Court Expands Obligations Of Good Faith And Honesty In Contract Performance

In Bhasin v. Hrynew ("Bhasin"), a decision released on November 13, 2014, the Supreme Court of Canada (the "Court") significantly changed contract law in Canada by expanding the reach of good faith as a source of contract obligations. Specifically, the Court held that the "organizing principle" of good faith in contract law gave rise to a specific duty of honesty in contractual performance that generally applied to contracts, including commercial contracts.

Good Faith and the "Duty of Honest Performance"

The Court found that an obligation of good faith in contractual performance is a general organizing principle, which underpins the various common law rules which apply specifically in "various situations and types of relationships." The obligation of good faith requires that parties "perform their contractual duties honestly and reasonably and not capriciously or arbitrarily."

The "duty of honest performance" exists so that a party to a contract can "rely on a minimum standard of honesty from their contracting partner in relation to performing the contract," wrote Justice Cromwell for a unanimous Court.

Honest performance, wrote Justice Cromwell, is a "manifestation of this organizing principle of good faith." Honest performance requires that parties "not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract." It operates "irrespective of the intentions of the parties."

This development is necessary, according to the Court, to keep the common law "in step with the 'dynamic and evolving fabric of our society.' " The Court arrived at this conclusion after reviewing the current state of the law in Canada, noting that courts to date had identified duties of good faith in certain circumstances (i.e., "sole discretion" clauses) and particular relationships (i.e., employment), but had refrained from declaring an across-the-board obligation of good faith.

Factual Background

The appellant, Harish Bhasin, through his business, was a highly successful "enrolment director" for the respondent Canadian American Financial Corporation ("Can-Am"). As an enrolment director, Bhasin marketed Can-Am's education savings plans to investors. The commercial relationship between Bhasin and Can-Am was governed by a three-year enrolment director's agreement, renewable automatically, unless one of the parties gave six months written notice to the contrary.

The respondent Larry Hrynew was also an enrolment director for Can-Am and accordingly, was Bhasin's competitor. Bhasin had declined numerous proposals by Hrynew to merge their two agencies.

Subsequently, Hrynew was appointed Can-Am's provincial trading officer, responsible for a review of Can-Am's enrolment directors, in response to compliance concerns by the Alberta Securities Commission. In response to those concerns, Can-Am outlined restructuring plans to the ASC in June 2000, which included Bhasin working for Hrynew, unbeknownst to Bhasin. Can-Am repeatedly misled Bhasin about the nature of Hrynew's role as PTO and "responded equivocally when [Bhasin] asked ... whether the merger [of Bhasin and Hrynew's agencies] was a 'done deal'."

Ultimately, Can-Am exercised its notice of non-renewal in Bhasin's enrolment director's agreement, following Bhasin's continued refusal to permit Hrynew to audit his records. As a result, "Bhasin lost the value in his business in his assembled workforce," which was substantially solicited by Hrynew.

Proceedings at Trial and on Appeal

Justice Moen in the Alberta Court of Queen's Bench found that Can-Am had breached "an implied term of the contract that decisions about whether to renew the contract would be made in good faith" by misleading Bhasin "throughout the events leading up to the non-renewal." The Alberta Court of Appeal allowed the respondents' appeal and dismissed the action.

Application of Honest Performance Duty

The Supreme Court found Can-Am's dishonest actions were directly and intimately connected to its performance of the agreement with Bhasin and its exercise of the notice of non-renewal.. Accordingly, "Can-Am's breach of contract consisted of its failure to be honest with [Bhasin] about its contractual performance and, in particular, with respect to its settled intentions with respect to renewal."

The Court awarded damages of $87,000 to Bhasin, "calculated on the basis of what [his] economic position would have been had Can-Am fulfilled [its duty of Honest Performance]."


This case will have a significant impact on contract law going forward.

The immediate impact will be to make lying or misleading conduct in contractual performance the basis for an action for damages.

The Court expressly suggested that the scope of honest performance could be influenced by an agreement of the parties in a particular context. That said, according to Justice Cromwell, "any modification of the duty of honest performance would need to be in express terms."

There are a number of unanswered questions about honest performance. The Court made it clear that the duty did not create an obligation of disclosure in contractual performance. However, the dividing line between dishonesty and non-disclosure will often be difficult to discern in practice.

The other problem is one of remedy. The cause of Bhasin's loss was Can-Am's exercise of its contractual right of non-renewal. The Court explicitly held that it would be a "stretch" to use the duty to constrain the exercise of a right of non-renewal and effectively create a contract of indefinite duration. However, the award of damages equal to the value of the business at point of termination is explained only by the Supreme Court's reliance on the trial judge's vague finding that if Bhasin had not been lied to, he could have "retained the value of his business."

Another issue will be the future use of the "organizing principle" of good faith to create additional contractual duties. The Court said very little about what those duties may entail, leaving them to be developed on a case-by-case basis.

Ultimately, while purporting to regularize and clarify the law of good faith in contractual performance, the Supreme Court has introduced new uncertainties for businesses into Canadian contract law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ted Frankel
Christopher Selby
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Singleton Urquhart Reynolds Vogel LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Singleton Urquhart Reynolds Vogel LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions