The Supreme Court of Canada has created a new duty of honest
performance in contract law, requiring parties to all commercial
contracts to be honest with each other in relation to the
performance of their contractual obligations.
The decision in Bhasin v. Hrynew1 attempts
to consolidate what the Court calls an "unsettled and
incoherent body of law" under an overarching "organizing
principle" of good faith. The organizing principle of good
faith, in the words of the Court, "is simply that parties
generally must perform their contractual duties honestly and
reasonably and not capriciously or arbitrarily." There is no
independent duty of good faith. Rather, the organizing principle is
the foundation for more specific duties.
Relying on this newly recognized organizing principle of good
faith, and citing the proposition that all commercial activity
rests on a basic level of honesty and trust, the Court developed
the doctrine of honesty in contractual performance as a specific
new common law duty. The new common law duty is intended to be
"consistent with reasonable commercial expectations."
The duty of honest performance requires that the parties to a
contract "must not lie or otherwise knowingly mislead each
other about matters directly linked to the performance of the
contract." Commercial contracts, therefore, even if they are
silent on matters of good faith and honesty, inherently impose a
duty of honest performance on the parties.
The duty of honest performance is limited, however, and highly
contextual. The Court is mindful of not encroaching unreasonably on
the fundamental common law principle of the parties' freedom to
bind themselves and, once bound, to pursue their own self-interest.
Specifically, a duty of honest performance does not include a duty
of loyalty or a duty of disclosure. It simply includes a duty not
to lie or mislead the counterparty in connection with performance
of the contract. The Court notes that the organizing principle of
good faith would apply differently to a long-term contract that
requires mutual cooperation than to a more "transactional
exchange." With respect to the doctrine of honesty
specifically, parties to a contract are free to "relax the
requirements of the doctrine so long as they respect its minimum
core requirements." While contracting parties can agree in
writing what the doctrine will consist of in the specific context
of their agreement, they cannot exclude the doctrine entirely.
The facts of Bhasin involve a three-year contract
between the appellant, Bhasin, and Canadian American Financial
Corp. (CAF), under which Bhasin was entitled to sell CAF's
RESPs through sales agents. The contract included an automatic
renewal clause, but could be terminated by either party with notice
at least six months before the end of the term. Hrynew, one of the
respondents and a competitor of Bhasin's during the contract
term, suggested a merger with Bhasin. When rejected, Hrynew worked
with CAF to force the merger. The merger did not occur. Ultimately,
CAF gave notice of termination, the contract terminated and
Bhasin's sales agents began working for Hrynew. It was
determined that CAF acted dishonestly leading up to the non-renewal
of the contract and that had CAF acted honestly, Bhasin could have
retained his agency's value.
In recognizing the organizing principle of good faith and
developing the doctrine of honest performance, the Court was able
to determine that the contract was breached through CAF's
Parties to commercial contracts should note that, in light of
Bhasin, the text of an agreement does not encompass all
duties owed to a counterparty. Contracting parties may consider
including explicit provisions in contracts establishing the
boundaries of the duty of honest performance. It is expected that
courts will have ample opportunity to consider and apply the newly
recognized organizing principle and the newly established duty.
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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