A seven justice panel of the Supreme Court of
Canada released a unanimous decision that contract law implies
a duty of good faith that requires parties to perform their
contractual obligations honestly. In so finding, the Court
stated that "Finding that there is a duty to perform contracts
honestly will make the law more certain, more just and more in tune
with reasonable commercial expectations."
In the case of Bhasin v. Hrynew, 2014 SCC 71,
Bhasin was an enrolment director, a retail dealer for education
savings plans marketed by a company called
"Can-Am". Bhasin and Can-Am were party to a
contract with a three year term that would renew automatically
unless either party gave written notice to the contrary with at
least six months' notice. Hrynew operated another
enrolment director in competition with Can-Am. In effect, the
Court found that Hrynew pressured Can-Am to act in a dishonest
manner with Bhasin in order to try to capture Bhasin's
market. Can-Am hired Hrynew to act as a provincial trading
officer ("PTO") giving it access to Bhasin's
confidential business information. Eventually, under pressure
from Hrynew, Can-Am gave notice that it would terminate its
contract with Bhasin, and Hrynew used its information to poach
Bhasin's employees and force Bhasin to seek less profitable
While this sort of conduct was not technically in breach of the
contract between Can-Am and Bhasin, the Court implied a duty of
good faith as applicable to that, and indeed all contracts.
The Court described the duty of good faith in the following
... It is appropriate to recognize a new common law duty
that applies to all contracts as a manifestation of the general
organizing principle of good faith: a duty of honest performance,
which requires the parties to be honest with each other in relation
to the performance of their contractual
Under this new general duty of honesty in contractual
performance, parties must not lie or otherwise knowingly mislead
each other about matters directly linked to the performance of the
contract. This does not impose a duty of loyalty or of disclosure
or require a party to forego advantages flowing from the contract;
it is a simple requirement not to lie or mislead the other party
about one's contractual performance.
The duty of good faith has been implied in employment law
contexts for some time now, as employers are required to act in
good faith when terminating employment contracts, in that they
cannot be untruthful, misleading, or unduly insensitive when
dismissing an employee. This latest decision from
Canada's top court confirms that the duty extends to all
commercial contracts, which will include independent contractors
and sub-contractors, with whom there was no such implied duty since
they are not "employees".
Accordingly, businesses will be well advised to ensure they act
in good faith with not only their own employees, but also those
other parties with whom they contract for goods or services.
What duties may arise from this new good faith obligation will
remain to be seen, and the counsel at CCPartners will be keeping an
eye on developments to properly advise clients.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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