A new duty of honest performance has been imposed on all
Canadian contracts by the Supreme Court of Canada. The notion of a
general and independent doctrine of good faith performance of
contracts has historically been resisted in Anglo-Canadian common
law. This has changed with the Supreme Court of Canada's
decision in Bhasin v Hrynew, 2014 SCC 71, in
which the Court both: (1) recognized good faith contractual
performance as a "general organizing principle of the common
law of contract"; and (2) recognized a new duty of
"honest performance", which requires the parties to be
honest with each other in relation to the performance of their
At issue in the case was a contract between Canadian American
Financial Corp. (Can-Am), a provider of education savings plan
investments, and Mr. Bhasin, one of Can-Am's retail dealers.
The contract renewed automatically, unless notice of non-renewal
was given six months prior to the end of the term. Can-Am
terminated the contract, with the required notice, but had deceived
Bhasin about its intention to do so. Had Can-Am been honest with
Bhasin about its intention to terminate the contract, Bhasin could
have transitioned and preserved his business to a greater extent
than he was able to without such notice.
Writing for the unanimous Court, Justice Cromwell explained that
"[t]he first step is 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, in various situations and types of
relationships, recognizes obligations of good faith contractual
performance." (para. 33)
Justice Cromwell continued "[t]he second is to recognize,
as a further manifestation of this 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." (para. 33)
Justice Cromwell detailed that a duty of honesty in contractual
performance means that parties must not lie or otherwise knowingly
mislead each other about matters directly linked to the performance
of the contract. It does not impose a duty of loyalty or of
disclosure or require a party to forego advantages flowing from the
This duty of honesty is a general doctrine of contract law that
imposes as a contractual duty a minimum standard of honest
contractual performance. Justice Cromwell held that it operates
irrespective of the intentions of the parties, although did not
rule out a role for contractual modification of the duty, so long
as the parties "respect its minimum core
In the Court's view, the recognition of a duty of honesty
poses no risk to commercial certainty in the law of contract,
and is clear and easy to apply. Justice Cromwell
characterized this as a modest step, pointing to the experience in
Quebec and the United States as cause for comfort. While the
appellant had argued for adoption of a more expansive duty of good
faith, the Court instead opted for an incremental change. The Court
awarded damages accordingly.
In the years ahead, we expect, contrary to the Court's hope,
that there will be considerable uncertainty applying and developing
the new general organizing principle of good faith and applying the
new duty of honest performance. Experience has shown us that in the
realm of complex commercial transactions, good faith arguments, and
likely now the duty of honest performance, are and will be
creatively used to gain an edge over counterparties. What may
appear to otherwise be a straightforward contractual termination
clause, as in this case, may not be so straightforward in practice.
In the coming weeks and years parties will have to carefully
consider what these new duties may entail. The extent that parties
may contract around these new developments will also be a subject
for consideration. The Court said somewhat enigmatically that
parties should be free "in some contexts" to relax the
requirements of the doctrine "so long as they respect its
minimum core requirements." Expect litigation on what those
contexts and minimum core requirements are.
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.
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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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