In a precedent-setting decision released on November 13, 2014,
the Supreme Court of Canada recognized a new duty: the "honest
performance" of contractual obligations. Pursuant to this new
duty, "parties must not lie or otherwise knowingly mislead
each other about matters directly linked to the performance of a
contract" (para. 73). The Court does not see this as imposing
a positive duty of disclosure: it distinguishes between
"active dishonesty", which is not permitted, and failure
to disclose a material fact, which appears to be.
The Court also recognized for the first time that there is a
"general organizing principle" of good faith contractual
performance. Pursuant to this principle, "parties generally
must perform their contractual duties honestly and reasonably and
not capriciously or arbitrarily" (para. 63).
The Court's view is that the principle of good faith
contractual performance is grounded in the reasonable expectations
of commercial parties, whom the Court finds "expect a basic
level of honesty and good faith in contractual dealings",
despite remaining at arm's length. The Court was careful to
note that this principle must be applied in a manner that is
consistent with the common law of contracts, including the freedom
of parties to act in their own self-interest.
As an "organizing principle", good faith contractual
performance is not a free-standing legal rule, but rather a
standard that will inform more specific legal doctrines –
such as, for example, the new duty of honest performance.
The new duty of honest performance applies to all contracts.
While parties to a contract cannot contract out of "honest
performance", the Court allows that the content of the duty
and standards for satisfying it may be defined in an agreement, as
long as the parties respect the duty's "minimum core
What does this mean for you?
Bhasin v. Hrynew will have far-reaching implications for parties
to Canadian contracts. Parties will need to consider whether they
are discharging the new duty of "honest performance" when
performing a contract. If a given course of action may be construed
as actively dishonest or misleading, businesses should avoid
pursuing it unless prepared to accept the risk of litigation. We
expect that the decision will lead to new litigation alleging
breach of the duty of "honest performance".
While the decision was an attempt to provide some certainty and
predictability in an area which has to date been inconsistent and
unclear in Canada, Bhasin leaves a number of questions open: How
will the new duty of honest performance be measured? What are its
"minimum core requirements"? Is it a free-standing cause
of action? How will damages be assessed? Will other new duties be
recognized under the newly-recognized organizing principle of good
Another open question is how the decision will be applied to
pre-contractual dealings, such as negotiations. It may be that a
duty of honesty in contractual negotiations would be imposed in
circumstances where parties are bound by an existing agreement. It
is important to reiterate that the new duty of honest performance
does not impose a positive duty of disclosure, which presumably
would include parties' negotiating positions. The decision is
clear however that "active dishonesty" would not be
permitted if the duty of honesty were to be imposed in the context
of contractual negotiations.
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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