Last week, in its landmark decision in Bhasin v Hrynew, the Supreme Court of Canada
(the Court) faced the issue of whether Canadian
common law imposes a duty on parties to perform their contractual
obligations honestly. In that case, the Court clearly established:
(1) a general obligation of good faith in the performance of
contracts; and (2) a new duty of "honest performance",
which applies to all contracts and requires parties to act honestly
with one another in relation to the performance of their
The case considered a contractual dispute between an Alberta
financial company, Canadian American Financial Corp. (now known as
Heritage Education Funds) (CAFC), a provider of
education savings plan investments, and Mr. Bhasin, one of
CAFC's retailers. Mr. Bhasin alleged that CAFC had "acted
dishonestly," "misled" and withheld information
about its reasons for terminating a renewable contract with Mr.
Bhasin in 2001. While CAFC followed the correct procedure for
terminating the contract, its alleged dishonesty amounted to a loss
of Mr. Bhasin's business, which he would have been able to
retain to a greater extent had CAFC performed the contract
The absence of a specific clause in the contract between the
parties requiring honest performance meant that a specific issue in
this case was whether a general duty of honest performance existed
at common law. Having found such a duty, the Court determined that
Mr. Bhasin was able to recover his losses.
The Court's decision in Bhasin v. Hrynew provides needed
clarity and certainty in contractual expectations and contracts
that fail to clearly speak to a duty of good faith in performance.
It also resolves issues with inconsistent language in contracts
that do require a duty of good faith.
However, the decision leaves much to consider in terms of the
contexts in which the duty of honesty will apply and what its
minimum requirements are. The Court did point out that it was a
simple duty "not to lie or mislead each other about matters
directly linked to the performance of a contract." It went on
to distinguish the duty of honest performance from a duty of
loyalty or disclosure, such as a duty to disclose a material fact
in an insurance contract. To be clear, the duty of honest
performance is focused on active dishonesty and deceit in the
performance of contractual obligations. In this way, the Court
likened it to the common law's recognition of fraud and
estoppel, except that its application is not dependent on whether a
claimant relied on the dishonest statement or not. Again, while the
Court was of the opinion that the duty simply crystallizes a simple
principle that most contractual parties are presumed to intend when
forming a contract, among other things, it will clearly require
parties to be more thoughtful in how they communicate with other
parties to a contract.
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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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