Canada: Let's Be Honest: SCC Finds All Contracting Parties Owe Each Other A Duty Of Honesty

The Supreme Court of Canada (SCC) has just released its decision in Bhasin v. Hrynew, which recognizes for the first time in common law Canada that every party to a contract has a legal duty to perform its contractual obligations honestly and with regard to the legitimate interests of the other party. This duty cannot even be avoided by express agreement between the parties. It is difficult to overstate the importance of this decision in terms of bringing some measure of coherence and clarity regarding what is expected of contracting parties in the performance of their contractual obligations.

BACKGROUND

Beginning in 1989, the appellant, Mr. Harish Bhasin, worked for Canadian American Financial Corp. (Can-Am), which markets education savings plans to investors through retail dealers known as enrolment directors—the position held by Mr. Bhasin. In effect, the enrolment directors acted as small business owners with their success depending on building a sales force. Between 1989 and 1999, Mr. Bhasin expanded his sales force and business.

Mr. Bhasin's relationship with Can-Am during the material time was governed by a commercial dealership agreement (Agreement). In particular, the Agreement, which took effect in 1998, had a term of three years and provided that the contract would automatically renew at the end of the three-year term unless one of the parties gave six months' written notice to the contrary.

In the end, Can-Am decided not to renew the Agreement. However, Mr. Bhasin alleged that decision was as a result of pressure from Mr. Larry Hrynew, another enrolment director and a competitor of Mr. Bhasin, who wanted to capture Mr. Bhasin's alleged lucrative niche market. Mr. Bhasin claimed that he was ultimately obliged to take less remunerative work with one of Can-Am's competitors, and sued Can-Am for breach of an implied term of good faith in the Agreement. The trial judge found liability against the defendants.

The Alberta Court of Appeal reversed the decision of the Alberta Court of Queen's Bench stating that the issue of good faith was not properly pled and that the lower court erred by implying a term of good faith in the context of an unambiguous contract containing an entire agreement clause. The SCC reversed the decision of the Alberta Court of Appeal and, in so doing, provided its analysis regarding the imposition of good faith in contracts and imposed a new common law duty to act honestly in the performance of contractual obligations.

SCC DECISION

The SCC began by noting that Canadian common law in relation to good faith performance of contracts was piecemeal, unsettled and unclear. It stated that two incremental steps were in order to make the common law more coherent and just. The first step was to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law recognizes obligations of good faith contractual performance. The second step dictated by the court was to recognize, as a further manifestation of that organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.

The court noted that the organizing principle of good faith recognized that, in carrying out the performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the opposing party. Further, the court recognized that "appropriate regard" for the opposing party's interests will vary depending on the context of the contractual relationship. It does not require acting to serve those interests in all cases—it merely requires that a party not seek to undermine those interests in bad faith. The SCC was clear to state that this general principle has strong conceptual differences from the much higher obligations of a fiduciary and that good faith performance does not engage duties of loyalty to the opposing party or a duty to put the interests of the opposing party first.

The SCC was also clear that good faith, which may be invoked in widely varying contracts, calls for a highly context-specific understanding of what honesty and reasonableness in performance require so as to give appropriate consideration to the legitimate interests of both contracting parties. Additionally, the court made clear that the development of the principle of good faith is not an invitation to veer into a form of ad hoc judicial moralism or "palm tree" justice. Rather, the court held that the principle of good faith must be applied in a manner that is consistent with the fundamental commitments of the common law of contract which places substantial weight on the freedom of contracting parties to pursue their individual self interests. The court also stated that the organizing principle of good faith should not be used as a pretext for scrutinizing the motives of contracting parties.

The court was clear that under the new general duty of honesty, parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. While that obligation does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from a contract, it is a straightforward requirement not to lie or mislead the other party about one's contractual performance.

The SCC stated that the new duty of honest performance is a general doctrine of contract law which imposes, as a contractual duty, a minimum standard of honesty in contractual performance and operates irrespective of the intention of the parties—it is analogous to equitable doctrines which impose limits on the freedom of contract, such as the doctrine of unconscionability. The court also noted that the precise content of honest performance will vary with context and that parties should be free in some contexts to relax the requirements of the doctrine so long as they respect its minimum core requirements.

While it is clear that this new general duty will vary based upon the circumstances of each case, this decision provides much needed clarification on this area of the law and represents an important development in 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 Mondaq.com.

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

Authors
Events from this Firm
23 Nov 2018, Other, Toronto, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

28 Nov 2018, Speaking Engagement, Toronto, Canada

Arbitration has a number of advantages and some disadvantages for the resolution of domestic and international commercial disputes.

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
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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