The Supreme Court of Canada recently held in Bhasin v.
Hrynew that parties to a contract must perform their duties
under that contract in "good faith". The Court held
"good faith" to generally mean in a manner that is honest
and reasonable, not capricious or arbitrary. Prior to the release
of the Court's decision on November 13, 2014, Canadian courts
had recognized that an obligation to act in good faith was implied
only in specific types of contractual relationships, such as
between parties to a real estate transaction, an employment
contract, or a commercial bid to acquire a project. Following this
decision, good faith will now be an established principle of
contract law that will require parties to respect a minimum
standard of honest contractual performance. Charities and
not-for-profit organizations should be aware that this new duty to
act in good faith applies to all of their dealings, regardless of
the types of contracts they may enter into (i.e. contracts with
staff, agents, suppliers, and other third-parties).
The case before the Supreme Court involved a contract between a
director who sold education savings plans ("ESPs"), Mr.
Bhasin, and a company called Canadian-American Financial
Corporation ("Can-Am") that marketed the ESPs sold by Mr.
Bhasin. Per the terms of the contract entered into between the
parties, Mr. Bhasin was required to sell Can-Am investment products
and Can-Am was responsible for branding and implementing central
policies. The contract provided that the agreement was for three
years and would be automatically renewed unless one of the parties
gave notice to the contrary at least six months before the end of
In the Court's view, the evidence at trial suggested that
Can-Am had acted dishonestly with Mr. Bhasin throughout the period
leading up to the company's decision not to renew the contract
beyond three years. More specifically, the evidence showed that
Can-Am had been considering entering into other arrangements,
including a merger arrangement, for quite some time but had not
said anything to Mr. Bhasin. In fact, the trial judge found that
Can-Am had repeatedly lied and misrepresented its intentions to
further contract with Mr. Bhasin, who, as a result, ultimately lost
the value of his ESP business.
In its reasons for judgment against Can-Am, the Supreme Court
explained that the company had breached its duty to honestly
perform its contractual responsibilities and awarded damages to Mr.
Bhasin on the basis of what Mr. Bhasin's economic position
would have been had Can-Am effectively fulfilled its duty. The
Court also stated that it would be appropriate to add a duty of
honest contractual performance to all contracts "as a
manifestation of the [...] principle of good faith." However,
as the Court noted, the principle of good faith should not be
interpreted to mean that parties have an obligation to disclose all
information to each other. The requirement to act in good faith, in
the Court's view, only means that parties cannot actively
mislead or deceive each other in relation to the specific terms of
their contract. For example, in the case of Mr. Bhasin and Can-Am,
Can-Am's dishonest behaviour was in relation to the term in the
contract that dealt with the company's responsibility to give
proper notice to Mr. Bhasin should it decide not to renew the
contract for another term. In other words, the scope of the duty to
act in good faith will depend on the expectations of parties as
expressed in a particular contract.
The Supreme Court's decision in this case is helpful since
other Canadian courts and academics have often debated the issue of
whether there should be a stand-alone duty of good faith in the
performance of contracts. Practically speaking, this decision
should assist charities and not-for-profit organizations apply the
same basic standard of honesty and good faith in all of their
dealings and expect the same treatment from the entities with which
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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