Canada: It Goes Without Saying: Recent Appellate Case Law On Implied Contractual Terms


A judge can only imply a contractual term if it is a reasonable and contextual reflection of what the parties must have intended.

Two recent appellate decisions show how this test is applied in practice. Most recently, the Court of Appeal for Ontario in Energy Fundamentals Group Inc v Veresen Inc, 2015 ONCA 514 upheld an application judge's decision to imply a term governing one party's disclosure obligations. In Moulton Contracting Ltd v British Columbia, 2015 BCCA 89, released earlier this year, the BC Court of Appeal overturned a trial judge's finding that the province had breached an implied term in a timber sale agreement.

Despite these different results on the facts, both courts took a similarly balanced legal approach, one that generally preserves freedom of contract, but still leaves room for judicial intervention if necessary. In doing so, they confirmed that the latest Supreme Court of Canada cases on contract interpretation, Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 and Bhasin v Hrynew, 2014 SCC 71 (which established the new cause of action for breach of the duty of honest contractual performance) have not changed the test for implying terms.

The test

The courts in both Energy Fundamentals and Moulton Contracting followed the "presumed intention" test from Supreme Court cases like M.J.B. Enterprises Ltd v Defence Construction (1951) Ltd, [1999] 1 SCR 619 at para 27. As Justice Levine summarized in Moulton Contracting:

[55] The key element is that the implied term is more than just reasonable; it is necessary to make the contract as the parties intended. That is, without the term, the contract, as intended by the parties, would not be effective.

A term can be implied to "fill a gap" and to give "business efficacy" to the agreement, but not to change the substantive meaning of the bargain (see e.g. Energy Fundamentals at paras 30- 35).

Applying Sattva

Both courts of appeal referenced Sattva on the proper standard of review in contractual interpretation appeals. We know from Sattva that most issues of contractual interpretation are questions of mixed fact and law, meaning a court of appeal has to defer to the lower court's conclusion unless it made a palpable and overriding error of fact. But if the court of appeal finds an extricable issue of law, that can be reviewed for correctness and replaced with the court of appeal's own conclusion if the trial judge erred (Energy Fundamentals at para 29; Moulton Contracting at para 77). The level of appellate deference, then, depends on the proper characterization of the question.

The terms

It was important for the application judge, and the Court of Appeal, in Energy Fundamentals that the parties' contract, a letter agreement, "was not intended to comprehensively define the relationship between the parties" (para 37). The application judge implied a term that Veresen had to disclose certain price and value information to EFG so that EFG could make a fully informed decision on whether to exercise an option right in the agreement, related to EFG's potential investment in Veresen's natural gas project (para 15). Justice Pardu found no reason to intervene:

[39] The application judge's conclusions that the option was illusory unless a right to disclosure was implied, and that an implied term of disclosure was necessary to give business efficacy to the agreement[,] are not tainted by reviewable error.

Contrast this conclusion to the Court of Appeal's decision in Moulton Contracting, where the implied term also related to disclosure of a sort. There, the trial judge had implied a term into the timber sale licences ("TSLs") issued to Moulton providing "that the Province was not aware of any First Nations expressing dissatisfaction with the consultation undertaken by the Province, save as disclosed to Moulton" (para 5). This translated into an ongoing duty of disclosure on the Province's part. The trial judge did this "on his own," as Moulton had not pleaded or argued its case from that angle (para 40).

The trial judge then found a breach of the term he created and implied, because the Province had not informed Moulton that a member of the Fort Nelson First Nation had expressed dissatisfaction about the TSLs and threatened to "stop the logging." This blockade ended up impeding Moulton's access to the area it planned to log, and Moulton suffered losses as a result. The trial judge awarded Moulton $1,750,000 in damages, reflecting "Moulton's lost opportunities to enter into alternative logging contracts" (para 3).

When the Province appealed, Moulton had a problem: the trial judge's implied term was actually inconsistent with several explicit terms in the TSLs, and with other findings he made (para 60). The trial judge had refused to imply a term providing that the Province guaranteed barrier-free access to the logging land, and he upheld the explicit term exempting the Province from liability if access was blocked by a third party (paras 31-35). The implied "dissatisfaction term" was incompatible with these findings, and with the presumed intention of the parties (para 59). Because the trial judge did not apply the proper legal test, there was reason for appellate reversal.

Comparing the two cases, it is probably not a coincidence that the implied term upheld in Energy Fundamentals involved the sharing of information, rather than a basis for paying close to $2 million in damages as the trial judge's implied term would have done in Moulton.

Applying Bhasin

While Justice Cromwell did not say anything revolutionary in Bhasin about implying terms, this statement about good faith may have caused some confusion:

The implication of terms plays a functionally similar role in common law contract law to the doctrine of good faith in civil law jurisdictions by filling in gaps in the written agreement of the parties: Chitty on Contracts, at para. 1-051. [Bhasin at para 44]

Moulton tried to use this comment to bolster its argument on the implied dissatisfaction term (para 65) – even though Bhasin says that good faith does not ground its own cause of action, but rather acts as an "organizing principle" in contract law. The Court of Appeal rejected Moulton's submission, finding that it was mixing up the implication of terms for reasons of law (e.g. in employment and insurance contracts – see para 64) with implied terms based on the presumed intention of the parties (paras 67-68). Neither had Moulton proved the separate Bhasin cause of action: "No issues of honest contractual performance...arise in this appeal" (para 76).

The application judge in Energy Fundamentals had also referred to Bhasin and good faith, but he had applied the correct test for implying terms so the "references to good faith [did] not undermine his earlier factual conclusions as to necessity and business efficacy" (para 47).

In conclusion

Whether the court should imply a term into a contract depends on the parties' actual and presumed-to-be-actual intentions. These two appellate decisions offer a good reminder of that basic point, which has not changed with the arrival of Sattva and Bhasin on the contract law scene. Energy Fundamentals confirms that it's appropriate to imply a term where necessary to breathe life into the contract and make the rights therein more than "illusory." And after Moulton, it goes without saying that the court cannot imply a term that is actually inconsistent with other explicit provisions of the agreement.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.